Supreme Court Judgment (ex tempore), 20 February 2009

A return of no goods (nulla bona) no longer required for issue of bankruptcy summons

A decision of the High Court, affirming a rule of practice which required a return of no goods (or a good reason for the absence of same) before it would issue a bankruptcy summons to a creditor, has been successfully appealed to the Supreme Court.  

BACKGROUND

An “act of bankruptcy” must be proven to have been committed before the High Court will adjudicate a debtor bankrupt. Of the eight acts of bankruptcy specified in s 7 of the Bankruptcy Act 1988, the most common acts of bankruptcy relied upon by creditors are (1) the failure to satisfy a bankruptcy summons within 14 days of service, and (2) the execution of a judgment against the debtor and obtaining of a return of no goods (nulla bona) from the sheriff.  

S 8 of the 1988 Act and the Rules of the Superior Courts provide that the High Court may grant a bankruptcy summons to a creditor who proves that:  

  1. a debt of IR£1,500 (€1904.61) or more is due to him by the debtor;  
  2. the debt is a liquidated sum; and  
  3. a notice in the prescribed form requiring payment of the debt has been served on the debtor.  

However, a High Court “rule of practice” evolved whereby a return of no goods was required to be obtained by a creditor before the High Court would grant the creditor leave to issue a bankruptcy summons. Obtaining an execution order or Fifa and a return of no goods can take about three months, which was frequently a cause of frustration to creditors who wished to petition quickly for maximum effect.  

HIGH COURT DECISION  

The plaintiff (the Collector General) had obtained six judgments against the defendant debtor and had served particulars of demand on the defendant in compliance with statute and the Rules of the Superior Courts. No execution order or Fifa in respect of the judgments had been filed, and accordingly there was no return of no goods.  

The question at the heart of this application was whether the plaintiff should have complied with the rule of practice which required a return of no goods. The plaintiff asserted the High Court should have no discretion as to whether to issue a bankruptcy summons in circumstances where statute and the Rules of Court had been complied with.  

It was held that whilst the practice of requiring a return of no goods was not an absolute prerequisite, the applicant would have to demonstrate a good reason for the absence of same in order for the Court to issue the bankruptcy summons. It was held that no such reason was advanced in the present case, and accordingly the application for a bankruptcy summons was refused.  

SUPREME COURT DECISION  

The Supreme Court noted that there were two acts of bankruptcy for which, in practice, one could now petition to have a debtor rendered bankrupt, namely (1) failure to discharge the debt within 14 days of service of a bankruptcy

summons and (2) a return of no goods in respect of an executed judgment. It was held that to require a return of no goods for the issue of a bankruptcy summons had the “extraordinary effect” of rendering the first-mentioned act of bankruptcy redundant.

The Supreme Court further held that the High Court should retain a discretion to refuse to issue a bankruptcy summons in any particular case, even if the provisions of statute and the Rules of Court had been complied with. It was, however, noted that it was difficult to see how the court could exercise such a discretion in circumstances similar to this case.

It was held that there should be no rule of practice which requires a return of no goods in order for a bankruptcy summons to issue. It was ordered that the application for liberty to issue and serve a bankruptcy summons be remitted to the High Court for further consideration.  

COMMENT  

It is hoped that this Supreme Court ruling will put an end to the confusion in relation to the legal criteria for issuing a bankruptcy summons and their illogical overlap as a result of a practice introduced by the High Court. However, it remains to be seen in what circumstances the High Court will exercise its discretion to refuse to issue a bankruptcy summons, and whether, for example, a creditor might now succeed in circumstances where it has an undisputed debt but no judgment.