Nicola Jane Haworth (Bankrupt) v (1) Donna Cartmel (Trustee in Bankruptcy of Nicola Jane Haworth) (2) The Commissioners for HM Revenue & Customs

Case No. 3496 of 2009 in the High Court of Justice, Chancery Division, Manchester District Registry


A bankruptcy order was annulled or rescinded where the applicant lacked the capacity to respond to a statutory and understand the contents or significance of bankruptcy petition. Further the Petitioning Creditor failed to make reasonable adjustments in accordance with the Disability Discrimination Act 1995.  

The Facts

The applicant suffered from spinal problems and chronic mental illness for many years and was in receipt of incapacity benefit. The effect of the mental illness grew worse at times of stress and one of the symptoms of the mental illness was a phobia to opening post.  

The applicant bred and showed horses as a therapeutic hobby. This issue had been considered before a Disability Benefits Appeal Tribunal who concluded that at no time did the applicant’s earnings from this hobby exceed £20 per week.  

In August 2005, however, HMRC received an anonymous letter informing them that the applicant was in fact running a commercial enterprise and her income was in excess of £100,000 per annum.  

The consequence of this letter was ultimately a tax determination against the applicant for in the region of £192,000. Notwithstanding telephone calls from the applicant and her mother and internal concerns being raised as to the applicant’s state of mind and health in HMRC, a statutory demand was prepared and served upon the applicant. The process server instructed to serve the demand handed it to her in an envelope and was informed by the applicant that she could not open it as she was under the Mental Health Act. The process server recalled that a pile of post was visible during the visit.  

A bankruptcy petition was then personally served upon the applicant which led to the applicant being declared bankrupt and a Trustee in Bankruptcy being appointed. Throughout the period of the bankruptcy proceedings the applicant was receiving treatment from both her GP and mental health professionals from the Community Mental Health Team.

Solicitors were eventually instructed for the applicant and an application to annul the bankruptcy was made. This application was subsequently dismissed and the issue of capacity was not raised in the annulment application. An application for permission to appeal was made and was dismissed as the issue of capacity (which was now pleaded) had not been raised before.

A second application to annul the bankruptcy taking the capacity point was made and listed before His Honour Judge Pelling QC.  


His Honour Judge Pelling QC held that the applicant did not have the mental capacity to respond to the statutory demand and that she was suffering from a condition which prevented her from opening mail. He also held that at the date that she was served with the petition she was suffering from an acute anxiety episode which meant that she did not have the capacity to understand the significance of the petition. He further held that HMRC had failed to make reasonable adjustments to its enforcement procedures in accordance with the requirements set out in the Disability Discrimination Act 1995.  

The bankruptcy was therefore annulled/rescinded and HMRC was ordered to pay the costs of the Official Receiver and the Trustee in Bankruptcy.  


Whilst this individual case turns on its own facts the principal is laid down that public bodies must take great care in selecting appropriate enforcement procedures particularly where there are pre-existing concerns as to a person’s mental health or if such concerns come to light during the enforcement process.  

Rather unsurprisingly and in accordance with the spirit of this case the Ministry of Justice have stated that the protection of vulnerable debtors is one of the factors that they want to ensure in their recent consultation paper on reforming civil justice in England and Wales.  

Mr Samuel Dias v The London Borough of Havering

CH/2010/0270 – High Court of Justice, Chancery Division


It was not appropriate for a Judge in the bankruptcy courts to go behind liability orders obtained for business rates where there was no miscarriage of justice, fraud or collusion.

The Facts

Mr Dias was a tenant of commercial premises under a lease dated 27 April 2007. On 1 July 2007 Mr Dias granted a license to a company incorporated by him of part of the premises.

The council delivered a demand for business rates to Mr Dias having obtained information of the lease from the landlord. No response was received from Mr Dias and on 18 October 2007 a liability order was granted in the Magistrates Court for £154,817.13 plus costs of £25.

Following the making of the liability order Mr Dias met with the council and averred that the company had been in occupation since 1 July 2007. Following the meeting the council agreed to grant empty property relief for a period and to issue a revised bill. This was never ultimately done.

A subsequent demand for 2008/2009 was then issued and Mr Dias subsequently forfeited the lease on 4 July 2008 by court order as a consequence of rent arrears.

A second liability order in the sum of £173,250 plus costs of £180 was granted against Mr Dias on 28 August 2008.  

On 16 October 2008 a statutory demand was served on Mr Dias for £204,429.01. Mr Dias applied to set the statutory demand aside on the basis that the company had been in occupation since 1 July 2007.

The application to set aside the statutory demand was dismissed on 5 March 2009 on the basis that the court will not go behind court orders at statutory demand stage in accordance with paragraph 12.3 of the Practice Direction: Insolvency Proceedings.  

A bankruptcy petition was subsequently issued and served upon Mr Dias for £205,309.01. Mr Dias gave notice of intention to oppose the bankruptcy.  

At the hearing the District Judge dismissed the application to set aside the bankruptcy petition finding that liability fell on Mr Dias on the basis that he shared occupation of the property with the company and under Regulation 3(2) of the Non-Domestic Rating (Collection and Enforcement) (Miscellaneous Provisions) Regulations 1990 at any time where there would otherwise be more than one occupier of a hereditament, or any part thereof, the occupiers are to be jointly and severally liable to pay the amount that would have been payable if there was only one such occupier.  

Mr Dias then sought permission to appeal and that application came before Mr Justice Henderson.


Mr Justice Henderson confirmed that it was well established that the bankruptcy court can go behind a court order if there is fraud, collusion or miscarriage of justice. He held that there was no question of fraud or collusion. Counsel for Mr Dias argued that there was a miscarriage of justice for the following grounds:

  1. Mr Dias was effectively told not to make any representations to the Magistrates Court.
  2. The liability order process is not a full judicial process.
  3. The methods by which a liability order may be challenged are in practical terms limited to errors of law or procedure and have to be invoked swiftly.  

Mr Justice Henderson held, on the facts, that there was no miscarriage of justice. The Judge stated that although the liability order procedure is of a relatively summary nature it cannot be stigmatised as being inherently unfair.

The Judge also stated that he considered that the District Judge was wrong to go behind the liability orders and should have declined to consider the question as to whether Mr Dias was in fact liable in his personal capacity for the rates demanded.  


The principals by which the bankruptcy courts can go behind court orders remain clear although it is interesting to note that the Judge makes no reference in his judgment to the common law jurisdiction of Magistrates to set aside previous decisions in their civil jurisdiction (R (on the application of Newham LBC) v Stratford Magistrates Court [2008]. Had the Judge’s attention been drawn to this procedure then the council’s position on the miscarriage of justice argument would, in my opinion, have been enhanced albeit that they were ultimately successful in any event.