Dr Ikechukwu Obialo Azuonye v Imogen Kent (in her capacity as trustee of the bankrupt estate of Dr Ikechukwu Obialo Azuonye)

JurisdictionEngland & Wales
CourtChancery Division
JudgeMrs Justice Falk
Judgment Date02 October 2018
Neutral Citation[2018] EWHC 2766 (Ch)
Docket NumberCase No: CH-2018-000069
Date02 October 2018

[2018] EWHC 2766 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

The Rolls Building,

7 Rolls Building, Fetter Lane, London,

EC4A 1NL

Before:

THE HONOURABLE Mrs Justice Falk

Case No: CH-2018-000069

Between:
Dr Ikechukwu Obialo Azuonye
Applicant
and
Imogen Kent (in her capacity as trustee of the bankrupt estate of Dr Ikechukwu Obialo Azuonye)
Respondent

Dr Azuonye appeared in person

Mr J Colclough (instructed by Verisona Law Solicitors) appeared on behalf of the Respondent

(As Approved)

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Mrs Justice Falk
1

This is an appeal against an order made on 16 January 2018 by District Judge Coonan in the Croydon County Court that a second bankruptcy order in respect of the appellant, Dr Azuonye, did not have the effect of discharging an income payments order operating under a previous bankruptcy order. Permission to appeal was refused by the judge but was given by Rose J in response to an out-of-time application on 29 June 2018. The trustee in both bankruptcies, Mrs Imogen Kent, is the same and is the respondent to this appeal. The respondent was represented at the hearing by Mr Colclough, who also appeared before me. The appellant appears in person. The appeal concerns a narrow point of law, namely whether an obligation to make future payments under an income payments order (IPO) made pursuant to section 310 of the Insolvency Act 1986 survives a later bankruptcy order where the earlier bankruptcy has been discharged.

The background facts

2

The appellant was first made bankrupt on 28 April 2015. The trustee issued an application for an income payments order on 26 April 2016, two days before the appellant's automatic discharge from bankruptcy on 28 April 2016. An income payments order was made on 22 November 2016 in the amount of £1,000 per month, and the appellant was ordered to disclose information about his income and expenditure. I was informed by counsel for the trustee that the appellant has been found by the County Court to have failed to comply with the disclosure order. The appellant also failed to attend a subsequent hearing on 13 June 2017. At that hearing the income payments order was increased to £2,500 a month. The appellant subsequently sought to set aside or vary the order, and the trustee cross-applied to increase the amount. At a hearing in September 2017 a second disclosure order was made, with which I understand the appellant also failed to comply, despite it being reissued with a penal notice.

3

The appellant was made bankrupt for a second time on his own application on 4 December 2017. The trustee in the first bankruptcy was subsequently appointed as the trustee of the second bankruptcy. The appellant wrote to the County Court claiming that the second bankruptcy order automatically discharged the earlier IPO. That argument was rejected at a hearing on 16 January 2018. The appellant subsequently discontinued his application to set aside or vary the IPO, but the trustee's application to increase the amount payable remained live and was dealt with by a further order dated 20 March 2018, which increased the IPO to £3,000 per month. To be clear, this is an appeal against the 16 January decision that the IPO did survive the second bankruptcy.

The judge's decision

4

Turning to the judge's decision, which I appreciate was given in the middle of a busy list and is fairly brief, Judge Coonan noted that, unlike the position of undischarged bankrupts, there was no specific provision in the Insolvency Act 1986 that covered the position. However, the judge noted that the IPO is a statutory mechanism. She referred to section 285(3) of the Insolvency Act, which provides that after the making of a bankruptcy order, creditors in respect of provable debts have no remedy and may not take proceedings against the bankrupt. The judge did not accept that the IPO amounted to a provable debt which was affected by the later bankruptcy. This was because of the ability of the court to vary payments, and the judge referred to a passage to that effect in Muir Hunter on Personal Insolvency. Judge Coonan also noted that the creditors in the first bankruptcy would not be creditors in the second, and she was not persuaded that the trustee was a creditor for the purposes of section 285(3). The embargo in that section did not therefore apply. Judge Coonan added that it would be a surprising result if a bankrupt could prevent continued performance of an IPO in respect of debts provable and expenses incurred in a first bankruptcy simply by making himself bankrupt a second time, and commented that section 281, which deals with discharge, states that it has no effect on the functions of the trustee.

Arguments for the appellant

5

The appellant is seeking an order setting aside the order made on 16 January. He also seeks the refund of all money collected under the IPO since the commencement of the second bankruptcy on 4 December 2017. The appellant sought written advice from Irwin Mitchell, which he produced in support of his case, and developed his own submissions based on that advice. In summary, my understanding of the appellant's submissions are as follows.

6

An IPO is bankruptcy-specific and relates to the bankruptcy in respect of which it is made. Section 310(5) of the Insolvency Act makes it clear that income paid under it forms part of the bankrupt's estate.

7

Section 335 of the Insolvency Act read with section 334 makes specific provision for the effect of an IPO made in an earlier bankruptcy where an undischarged bankrupt is made subject to a further bankruptcy order. The effect of those provisions is that the IPO is effectively transferred to the second bankruptcy, and the trustee in the first bankruptcy may also prove in the second bankruptcy in respect of unsatisfied debts from the first.

8

However, the appellant submits that these provisions (section 334 and 335) do not apply to discharged bankrupts and there is no other specific provision that would allow an existing IPO to be used to claim any income for the benefit of creditors of the first bankruptcy after the commencement of the later bankruptcy. The consequence, so the appellant says, of the exclusion of discharged bankrupts from section 335 is that an IPO does not continue in force after a second bankruptcy where the earlier bankruptcy has been discharged. In other words, the effect is the opposite of section 335. The appellant submits that section 335(2) explicitly deals with an undischarged bankrupt and an IPO, and the absence of explicit provision for discharged bankrupts means that the opposite applies and no amounts are payable after the commencement of the second bankruptcy. Furthermore, the trustee in the first bankruptcy cannot claim in the later bankruptcy on behalf of creditors in the first.

9

The appellant also relied on section 285(3) of the Insolvency Act as preventing creditors in the first bankruptcy claiming against the estate in the second and, more broadly, claims that the IPO was operating in respect of income which represents an asset available for the second bankruptcy and that that was impermissible. Only a new IPO made in respect of the second bankruptcy could have that effect and attach to income arising after the commencement of the second bankruptcy. On the appellant's submission, the IPO in respect of the earlier bankruptcy could only operate in respect of funds attributable to the earlier bankruptcy estate and not in respect of income earned since the date of the later order.

Arguments for the trustee

10

The respondent opposed the appeal essentially for the reasons given by the judge, but submitted that the correct way to formulate the question is whether future amounts payable under an IPO after the commencement of the second bankruptcy amounted to a provable debt because, if they did, then section 285(3) would have the effect claimed by the appellant. If not, then no other provision has that effect.

11

The respondent submitted that an IPO is a creature of statute, both under the 1986 Act and in different forms under earlier legislation. I was referred to section 90 of the Bankruptcy Act 1869 and section 51 of the Bankruptcy Act 1914. Under the Insolvency Act 1986, section 335(2) provides a clear answer to the question because it assumes that future obligations under an IPO continue to be amounts payable following a later bankruptcy. However, if those future obligations were provable in the second bankruptcy, then they would not be payable as a result of section 285(3). So the trustee submits that Parliament must have intended that future obligations should...

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