Die Sparkasse Bremen Ag v Mehmet Armutcu
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Proudman |
| Judgment Date | 06 November 2012 |
| Neutral Citation | [2012] EWHC 4026 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CH20110524 |
| Date | 06 November 2012 |
[2012] EWHC 4026 (Ch)
Mrs Justice Proudman
Case No: CH20110524
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
High Court of Justice —in Bankruptcy
The Rolls Building
Fetter Lane
London EC41 1NL
MR ADRIAN ACK (instructed by Stafford Law Ltd) appeared on behalf of the Claimant
MR DONALD LILLY (instructed by Howard Kennedy) appeared on behalf of the Defendant
(As Approved)
This is an application for permission to appeal with appeal to follow if leave is granted pursuant to an order of Sales J dated 7 September 2011. There have been quite a number of procedural hearings but we are where we are and I do not propose to go into those matters again at this stage.
The appeal is against annulment by Deputy Registrar Middleton on 31 August 2011 of a bankruptcy order dated 20 March 2009 making Mr Armutcu bankrupt on his own petition. The respondent bank applied for the annulment on 21 September 2010, some six months after Mr Armutcu's discharge from the bankruptcy.
The annulment was sought under section 282(1)(a) of the Insolvency Act 1986 on the basis that the order ought not to have been made. In short, the Deputy Registrar found in favour of the bank's case: (1) that at the time the petition was presented, Mr Armutcu's centre of main interests or COMI, for the purposes of 3(1) of the EC Regulation on Insolvency Proceedings (1346/2000) was Germany and not England, and (2) in any event, Mr Armutcu was guilty of material non-disclosure so as to entitle the court to annul the bankruptcy. In short, the bank says that Mr Armutcu was impermissibly forum shopping in order to avoid the more stringent bankruptcy regime applying in Germany.
There are various outstanding grounds of appeal, another having been abandoned before me for present purposes. I propose to deal with them in turn.
Standing
First, it is alleged that as the bank was, as far as the evidence shows, exclusively a secured creditor it has shown no ground on which it could legitimately apply to annul the bankruptcy order. The bank points out that neither section 282 nor rule 4.6.206 of the Insolvency Rules 1986 defines nor provides any restrictions on the identity of an applicant. There is no equivalent of the restriction to "persons interested" under the previous provisions in section 29(1) of the Bankruptcy Act 1914. Nevertheless, the applicant still has to satisfy the court that he has some kind of legitimate interest in applying. I note the observations of Chadwick LJ in F v F [2002] EWCA Civ 1527 where he said at [10]:
"There is no requirement in [the rules] —or elsewhere in the 1986 Act —that an application for an order under section 282 can only be made by a person who claims to be a creditor of the bankrupt. There is, in my view, no reason why a person who is affected by a bankruptcy order, and who claims that it ought not to have been made on grounds existing at the time that it was made, should not make an application to the court asking the court to undo that which, on the statutory hypothesis, it should not have done. Whether or not the court would think it right to make such an order will depend on the particular circumstances including the interest of the applicant in seeking the order for annulment."
Mr Jack on behalf of Mr Armutcu submitted, initially at any rate, that as the bank has made no attempt to justify its interest and as no other creditors support the bank's application and the official receiver is neutral, the appeal should be allowed on this ground alone. I do not agree with this. The question is whether, being a secured creditor, its interest was sufficient in all the circumstances. It is clear from the observations of Chadwick LJ quoted above that the court does not have regard to the interest as a prerequisite in order to engage the discretion under section 282. Rather, it has regard to it as part of the exercise of the discretion itself.
The bank has a separate point which is that where a question of COMI is involved it is a question of jurisdiction not one of discretion at all. In such circumstances it is said there is no discretion under section 282. Mr Jack, on the other hand, says that Regulation 4(1) of the regulation preserves both the discretion under section 282 and also the authorities on how the discretion should be exercised.
Bearing in mind the conclusions I reach later in this judgment I do not consider it necessary to decide the issue whether discretion applies at all and I will not therefore do so. I merely flag the point.
I also flag Mr Lilly's further submission on behalf of the bank that the effect of articles 16 and 17 of the regulation is, now that proceedings have been initiated in Germany, (although as I understand it there is a dispute as to the effect of an appeal in Germany and thus whether proceedings have been opened within the meaning of the regulation) that the German court might not accept a decision of an appellate court to decide the question of COMI so as to take away its jurisdiction. Mr Jack says that German law does not work in this way. It determines COMI as at the date of the bankruptcy application in Germany and therefore if the existing bankruptcy in England is restored there would be nothing for the bank's proof to bite on as it would be taken to have exhausted its remedies in the English bankruptcy.
I do however in any event accept that a jurisdictional point carries particular weight as far as discretion is concerned. I believe that this is reinforced by the decision of Judge Purle QC in Sparkasse Hilden Ratingen, Velbert v Benk and another [2012] EWHC 2432 (Ch) at [30].
In any event it seems to me that the bank does have a sufficient interest. F v F deals with the situation where a person such as a spouse does not have a direct interest but has a very real indirect interest in maintaining the other party's estate free from a bankruptcy. Although it is true that there is no express mention of the bank's security being insufficient it is only common sense that the bank would not have expended costs in this case, let alone open main proceedings in Germany as it has done, if it was fully secured. Mr Jack says that is not good enough and there should have been evidence as to the efforts the bank has taken to enforce its security and as to the amount of shortfall.
However, the fact that there was, or at any rate was likely to be, a shortfall appears from Mr Armutcu's statement of affairs coupled with the fact of the application to annul. In any event I note that Mr Armutcu's application to adduce further evidence for the purposes of the appeal originally included a German court document stating that there was indeed a shortfall in the security and it is only very recently indeed that he has restricted his case to a much smaller selection of documents excluding that one.
Delay
Delay is also a ground of appeal. Section 282(3) expressly provides that an application can be made after discharge. The question of delay is thus (subject to Mr Lilly's jurisdictional point) a matter of discretion for the judge. Mr Jack points out that the usual case for annulment after discharge occurs when all debts have been paid. That is to say a section 282(1)(b) case, not as here a section 282(1)(a) case. I can see that a court would be slow to annul in circumstances where, to take an extreme case, many years have passed after discharge. It is said that there is manifest prejudice in that the former bankrupt has arranged his affairs in reliance on the discharge and it is just too late for an annulment.
In this case Mr Armutcu took steps to hide his English address and his whereabouts from his creditors, as he admitted under cross-examination as referred to in the judgment. Mr Lilly says that the bank, when told of the judgment, would need to investigate, as it did, whether Mr Armutcu was genuinely living in England. Mr Jack says that the bank did not begin its investigations until July 2010 although it had been alerted by a Mr Durdu to this possibility some months earlier. He also says that the Registrar found against the bank on its primary submission that Mr Armutcu did not live or work in England at all, and that should be an end of the matter. However I find that it cannot be said that the Registrar's decision was manifestly unreasonable, particularly as Mr Armutcu, represented by solicitors and counsel at the hearing, did not raise the issue of delay at the time. Mr Jack points out that counsel representing Mr Armutcu then was not a bankruptcy specialist but it is not for me to examine the merits of counsel properly qualified, properly instructed and presumably chosen by Mr Armutcu or his solicitors. The Registrar, as is evident from his judgment, was aware of the discharge and took that fact into account in his decision.
Non-exercise of discretion
It is also said that the deputy Registrar did not exercise any sort of discretion in deciding to annul. In other words, once he had decided that Mr Armutcu's COMI was Germany and that there had been nondisclosure, he did not realise that it was necessary to consider discretion but believed erroneously that was the end of the matter.
It is true that the deputy Registrar did not mention discretion in his judgment, although Mr Lilly asserted that part of his judgment can only be explained on the basis that he was in fact exercising a discretion. However, it is a mistake to assume that merely because someone of his...
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