It is an age old problem for creditors who are faced with debtors who ask for more time to pay their debts. The Civil Procedural Rules (CPR) 14.9 and 14.10 allow for a debtor, following the admission of their debt, to request time to pay. It is open for a claimant to choose whether or not to accept a defendant’s proposals; if the claimant does not accept the defendant’s proposals, it is for the court to determine the time and rate of payment. The court’s discretion conferred by CPR 14.10 to extend time for payment has not, until now, been examined. At the end of last year in Gulf International Bank v Al Ittefaq Steel Products Co and Others [2010] the High Court identified what it should take into account in exercising its discretion to extend time for payment of sums due following an admission.

The Facts  

ISPC and ATHC owed G total sums in excess of US$100 million as a result of two promissory notes and a bridge loan facility. ISPC and ATHC admitted the claims. G applied for judgment on the basis of the admissions, whilst ISPC and ATHC made cross-applications seeking an extension of time, until 1 January 2011, to pay the sums admitted. ISPC and ATHC’s total indebtedness to over 28 financial institutions was around US$2.2 billion. ISPC’s and ATHC’s previous attempts to negotiate to reschedule their debt had failed and they were attempting again to restructure their arrangements. ISPC and ATHC claimed that there was a real prospect that a rescheduling agreement would be finalised by 1 January 2011 if the extension sought was granted. In the absence of a rescheduling agreement, ISPC and ATHC claimed they would not be able to pay the US$100 million they owed to G. Further, if G sought to recover the sums due before 1 January 2011, ISPC would be forced into insolvency.

ISPC’s and ATHC’s application for an extension of time was made under CPR 14.9 and 14.10. CPR 14.9 sets out the procedure and the consequences where a defendant who makes an admission may request time to pay. A request for time to pay is a proposal about the date of payment or a proposal to pay by instalments at the times and rates specified in the request. If the claimant accepts the defendant’s request the claimant may file for judgment. CPR 14.10 sets out the procedure to follow if the claimant does not accept the defendant’s request. The court also has the power under CPR 40.11 to postpone the payment of sums in respect of which the creditor is entitled to judgment. CPR 40.11 provides that a party must comply with a judgment or order for the payment of an amount of money within 14 days of the date of the judgment or order. There also exists the power to give time to pay as part of the execution process, by which judgments are enforced, for example RSC Rule 47.1.

The Decision

The High Court noted that when exercising the discretion under CPR 14.10 they were bound to have regard to the interests of the relevant parties. Whilst the court did not have any previous decisions in relation to CPR 14.10 to which to refer it did take into account two decisions which had dealt with applications under CPR 40.11 (Gipping Construction Ltd v Eaves Ltd, Amsalem (t/a MRE Building Contractors v Raivid & Raivid). The court did not divert from the sentiment of these decisions and considered that an inability to pay will usually not justify a pre-execution extension of time, with an insolvent debtor having to take the usual consequences of his or its insolvency. The court held that whilst the interests of other creditors of the debtor, the debtor’s workforce and suppliers will be engaged, a country’s insolvency regimes are designed to take account of these interests. The protection of such interests are dealt with as part of specialist insolvency proceedings, supervised by specialist courts within whichever jurisdiction those proceedings occur. Therefore such interests will only rarely be a justification for an extension of time under CPR 14.10 or 40.11. The court held that it will only exceptionally extend time under CPR 14.10 and 40.11 and then only where the judgment debtor is solvent and for relatively short periods of time and after which the whole judgment debt will become payable. On the facts of the particular case, the judge made it clear that the interests of the third party credit financiers did not justify the extension sought. The financiers were all commercial lenders and should be left to obtain such protection as they could secure in any insolvency proceedings. The judge stated that ISPC and ATHC must take the consequences of their insolvency. In his opinion there was no real prospect that G would sign up to a restructuring agreement before 1 January 2011, however he was not blind to the possibility that G might arguably be better off under such a restructuring deal and that, by obtaining judgment, G was attempting to improve its negotiating position with ISPC, ATHC and other creditors.

Practical implications

The decision illustrates the no-nonsense attitude of the courts in respect of requests for time to pay admitted debts. Whilst the decision does not create a binding precedent it appears the court’s approach is consistent with earlier decisions in relation to CPR 40.11. The court will only exceptionally, and where there is a realistic prospect of payment, agree to extend time under CPR 14.10 and 40.11. It is perhaps of reassurance to a creditor that both before and after judgment is obtained the court’s view remains that a debtor’s mere inability to pay will not suffice to justify an extension in time. It therefore leaves parties with a choice of either accepting the consequences of their commercial arrangements or negotiating an alternative.