Where a debtor's assets exceed his liabilities, the onus is on the debtor to prove he can not pay his debts if a creditor seeks to annul the bankruptcy order.

In Paulin v Paulin and another, the defendant petitioned for his own bankruptcy claiming he was unable to pay his debts. The claimant applied for the order to be annulled claiming the defendant could afford to pay his debts and was deliberately attempting to defeat her claims in the matrimonial proceedings.

The Court of Appeal held that the court does have the discretion to annul a bankruptcy order under s282 Insolvency Act 1986 if, at the date of the order, the bankrupt was able to pay his debts. It was for the claimant to prove that the defendant had been able to pay his debts at the time of the petition. Where evidence showed that the debtor's assets exceeded his liabilities, the evidential onus then shifted to the debtor to show why he was unable to pay his debts i.e. why he was insolvent. At the time of the defendant's bankruptcy, he had assets of £1.2 million and debts of only £136,000. The defendant was unable to discharge the burden of proving he was unable to pay his debts at the time he petitioned and the bankruptcy was annulled.

Things to consider

The issue of insolvency in such circumstances clearly needs to be explained and where assets exceed liabilities the motive of the bankrupt in procuring his own bankruptcy together with the effect on the creditor of refusing to annul the order are factors the court will take into account in exercising its discretion.