Creditors petitioning for bankruptcy must carefully consider offers to settle debts and make a reasonable decision based on the circumstances.
A bankrupt sought permission to appeal his bankruptcy order on the basis that the Deputy District Judge incorrectly held that the petitioning creditor did not act unreasonably in rejecting the bankrupt’s offer to compound the debt and, therefore, ought to have dismissed the petition pursuant to Section 271(3) of the Insolvency Act 1986.
- For the rejection of an offer to be held unreasonable by the Court, it must be shown by the debtor that no reasonable hypothetical creditor would have rejected their offer. It is an objective test. The Court will consider all relevant factors and the reasonable hypothetical creditor is not obliged to show patience.
- On the facts, the petitioning creditor did not act unreasonably. The bankrupt’s offer to compound the debt extended to less than a quarter of his liability, it was not for a cash sum but a half-share in the equity of a shared home (which would be problematic to realise) and the petitioning creditor could show that it had not rejected the offer due to internal policy.
The decision highlights the importance of petitioning creditors considering offers to settle debts carefully. Petitioning creditors should be able to show that they have considered the relevant offer and, in rejecting it, have made a reasonable decision based on the circumstances. Rejections based on (for example) internal policy, unsupported by specific factors, will not be looked on favourably by the Courts.
Brian Herbert Cooke v Dunbar Assets PLC  EWHC 579 (Ch)