10 February 2014
[2014] EWHC 229 (Ch)
Chancery Division (Etherton C)

A deputy registrar was wrong to dismiss a discharged bankrupt’s annulment application when the only creditor had decided not to prove for its debt.  The deputy register also erred in his approach to the TIB’s application to change the basis of his remuneration.

S was made bankrupt on the petition of a bank to which he owed £2.4m.  The bank had not submitted a proof of debt.  Four other unsecured creditors had proved their debt with a total of about £14,000.  At the first creditors’ meeting the trustee in bankruptcy’s fees were set on a percentage basis.  S was automatically discharged in 1996.  

In 2007 he paid the four creditors who had proved.  The bank decided not to prove due to the age of the case.  In 2011 S applied for annulment under s.282(1)(b) of the Insolvency Act 1986.  His trustee applied under rule 6.141(1) of the Insolvency Rules 1986 to change the basis of remuneration from a percentage to a time-spent basis.  The Deputy Registrar allowed the trustee’s application and refused to order annulment as the bank debt appeared outstanding.

Etherton C allowed appeals of both the decisions, which were set aside and remitted to be determined by a different registrar.

It was wrong to interpret the 1986 Act and Rules as requiring payment of a petitioner’s debt as a precondition for annulment.  There was no reason in principle or practice why the court should consider the debt to the bank (Gill v Quinn [2005] BPIR 129 distinguished, Official Receiver v McKay [2010] Ch 303applied).

The Deputy Registrar’s approach to the change-of-basis application had been flawed.  He failed to consider judgment in Brook v Reed [2012] 1 WLR 419or the guiding principles set out in Part V of the Insolvency Proceedings Practice Direction 2012, which is concerned with applications concerning the remuneration of appointees.  The proper approach was to begin by asking whether there had been unforeseeable changes since the decision to remunerate on a percentage basis.  A key consideration was the timing of the application - which should, if possible, be prospective not retrospective.  On the facts there was no explanation for delay.

Etherton C noted that when there is issue concerning costs and expenses of bankruptcy in a s.282(1)(b) annulment application the issue of remuneration should be decided before the annulment application.  Further, any application to change the basis of remuneration should be made as early as possible.

The Court was evidently appalled by the time and cost incurred in arguing about the trustee’s fees.  The Deputy Registrar, despite giving a careful reasoned judgment had erred in denying the annulment and permitting the trustee to retrospectively change the basis of his remuneration.  The Chancellor noted that the application (and consequent appeal) could have been short-circuited by the making, long before, of an annulment order conditionally upon the costs and expenses being paid.