Mohammad Razi Khan v Arvinder Singh-Sall (Trustee in Bankruptcy of Mohammad Razi Khan)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Nugee,Lord Justice Snowden,Lord Justice Lewis |
| Judgment Date | 06 October 2023 |
| Neutral Citation | [2023] EWCA Civ 1119 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: CA-2022-000158 |
[2023] EWCA Civ 1119
Lord Justice Lewis
Lord Justice Nugee
and
Lord Justice Snowden
Case No: CA-2022-000158
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
David Mohyuddin QC (sitting as a Deputy High Court Judge)
Royal Courts of Justice
Strand, London, WC2A 2LL
Chinonso Ijezie, solicitor advocate (instructed by Sky Solicitors Ltd) for the Appellant
Ian Tucker (instructed by Vicarage Court Solicitors) for the 1 st Respondent
Andrew Brown and Daniel Thorpe (instructed by Harrison Clark Rickerbys Ltd) for the 2 nd Respondent
Hearing date: 20 July 2023
Approved Judgment
This judgment was handed down remotely at 10.30am on 6 October 2023 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
Introduction
This second appeal concerns the Court's power to annul a bankruptcy under s. 282(1)(a) Insolvency Act 2016 ( “IA 2016”). This provides as follows:
“ 282 Court's power to annul bankruptcy order
(1) The court may annul a bankruptcy order if it at any time appears to the court—
(a) that, on any grounds existing at the time the order was made, the order ought not to have been made…”
In the present case the Appellant, Mr Mohammad Khan, was made bankrupt on the petition of the 2 nd Respondent, Habib Bank AG Zurich ( “the Bank”). He applied to annul the bankruptcy. The application was heard by DJ Hart sitting in the County Court at Central London. She dismissed the application. She held that the bankruptcy order ought not to have been made on two grounds, namely that the petition debt was disputed, and that the petition contained a statement that the debt was unsecured which was incorrect as the Bank in fact held security for the debt (albeit not of significant value). But in the exercise of her discretion she declined to annul Mr Khan's bankruptcy, finding, among other things, that he was undoubtedly insolvent.
Mr Khan appealed to the High Court. The appeal was heard by Mr David Mohyuddin QC, sitting as a Deputy High Court Judge. He dismissed the appeal on all grounds.
Mr Khan now appeals to this Court with the permission of Arnold LJ. The appeal raises two points of potential significance. The first concerns the extent of the discretion conferred on the Court by s. 282(1)(a). DJ Hart treated this as a general discretion to be exercised having regard to all the circumstances of the case and Mr Mohyuddin agreed with her. Mr Khan contends that in a case such as the present the bankruptcy order ought to be set aside as of right, or at any rate unless there are exceptional circumstances.
The second concerns the effect of an annulment on the running of time for limitation purposes on debts that were provable in the bankruptcy. DJ Hart did not decide the point but took into account the fact that an annulment might have the effect that time would be treated as running against creditors in the period between bankruptcy order and annulment as if the bankruptcy order had never been made. Mr Mohyuddin went further and decided that this would indeed be the case.
The appeal was argued on behalf of Mr Khan by Mr Chinonso Ijezie. But despite his submissions, which he put forward with clarity and forcefulness, I have come to the conclusion that the appeal should be dismissed.
Facts
Mr Khan was the sole shareholder and director of a company called Geno Services Ltd. In October 2000 the Bank extended facilities to Geno against a guarantee signed by Mr Khan. Mr Khan also traded as a sole trader and the Bank extended facilities to him personally as well.
On 13 January 2015 Geno was struck off the register for a filing default and was dissolved. On 22 January 2015 the Bank demanded payment from Geno of its indebtedness and on 23 January 2015 from Mr Khan of his personal indebtedness; in October 2015 it further demanded payment by Mr Khan of Geno's indebtedness under his guarantee. On 8 January 2016 the Bank served a statutory demand on Mr Khan based on a debt of £234,459.16 which was the amount then said to be owing under the guarantee. On 9 May 2016 the Bank presented a bankruptcy petition against Mr Khan on the basis of that demand to the County Court at Slough. On 16 January 2018 Mr Khan was made bankrupt on that petition. Mr Khan applied for permission to appeal the bankruptcy order but this was refused both on paper and again after an oral hearing. On 23 April 2018 the 1 st Respondent, Ms Arvinder Singh-Sall, was appointed trustee in bankruptcy ( “the Trustee”).
On 9 July 2018 Mr Khan applied to annul his bankruptcy.
Judgment of DJ Hart
The application to annul was heard over three days in May 2021 before DJ Hart. She handed down judgment on 26 August 2021 ( “DJ Judgment”). In this she resolved a large number of matters in exemplary fashion. Her conclusions were, in summary, as follows:
(1) It was not open to Mr Khan to challenge the refusal of an application which he had made to adjourn the petition, as this point had been raised and rejected in his application for permission to appeal: DJ Judgment at [12]–[15].
(2) The statutory demand was validly served: DJ Judgment at [16]–[25].
(3) The Bank failed to disclose the existence of security which it held for the petition debt in either the statutory demand or the petition. That was a breach of the requirement that the petition debt must either be unsecured (s. 267(2)(b) IA 1986), or the creditor must comply with s. 269(1) IA 1986 (either stating that it was willing to give up the security for the benefit of all creditors, or valuing the security and confining the petition debt to the unsecured part). This breach had not been remedied at the date of hearing the petition. Hence at the time the order was made it ought not to have been: DJ Judgment at [26]–[39].
(4) There was a genuine triable issue as to whether the petition debt was disputed on substantial grounds, Mr Khan's case being that it had been orally agreed between him and the Bank that the guarantee would only cover the initial facility, later extended to a second facility, and that it did not cover the replacement facilities subsequently put in place. DJ Hart had, unusually, heard oral evidence on this, but on the basis that she would go no further than determine whether there was a genuine triable issue. She found Mr Khan to be a poor witness, and significant parts of his case to be unpersuasive, but concluded that “as a whole this is clearly a debt in relation to which there is a genuine triable issue, albeit … Mr Khan would face an “up-hill task” at a Part 7 trial”: DJ Judgment [40]–[75].
(5) There were therefore two separate grounds on which the bankruptcy order ought not to have been made (the debt being disputed and the Bank having failed to disclose its security): DJ Judgment at [76].
She then considered the exercise of the discretion conferred on the Court by s. 282(1)(a) IA 1986 under a number of heads as follows:
(1) The effect of the annulment on Mr Khan: DJ Hart accepted that the fact that the order ought not to have been made on two distinct grounds, and the fact that he was made bankrupt at the first hearing, were significant factors. She further accepted that the financial consequences for Mr Khan of being made bankrupt were considerable, and that his business and professional reputation was also likely to have been significantly damaged: DJ Judgment at [77]–[78].
(2) Mr Khan's conduct: DJ Hart found that there had been a significant lack of cooperation with both the Official Receiver and the Trustee on the part of Mr Khan, including a successful attempt to divert rental income away from the bankruptcy estate. She regarded her findings as significant, as his conduct, which she characterised as sustained and deliberate, had negatively impacted the Trustee's investigations of the assets and liabilities of the estate and disrupted the collection of income. There remained aspects of Mr Khan's affairs in relation to which further investigation might be appropriate: DJ Judgment at [77]–[91].
(3) Solvency: the Bank was by far the largest unsecured creditor, although proofs had also been submitted by other unsecured creditors totalling £51,427 (before statutory interest). Leaving aside the petition debt, which she had found to be disputed, Mr Khan's personal indebtedness to the Bank was £248,414.35 (plus interest of £60,291.58 at the date of the bankruptcy order): DJ Judgment at [93]–[94]. DJ Hart continued:
“94 …This figure is after crediting the proceeds of sale of Westville. Although in his witness statements Mr. Khan contends that this property was sold at an undervalue, it was not suggested before me that the remainder of the principal debt was thereby not due and owing. Further, although Mr. Khan has previously raised various points as to the interest charged by the Bank (which appear largely to relate to Geno's borrowings) these were also not pursued. Accordingly, I am satisfied that the sum of £308,705.93 was due and owing to the Bank at the date of the bankruptcy order (“the Personal Debt”).
95. Repayment of Mr. Khan's personal borrowings was demanded in January 2015 but remained unpaid some three years later at the time of the bankruptcy order. There is no suggestion that Mr. Khan then had the liquidity to pay that debt and accordingly he was undoubtedly insolvent.”
(4) The Bank's position was that if the bankruptcy order were annulled it would immediately present another petition based on Mr Khan's personal indebtedness. At this point in her judgment DJ Hart raised the question whether that debt would in those...
To continue reading
Request your trial
-
Re Silver Base (Holdings) Ltd
...the Petitioner who is a secured creditor. 6. The Applicant relied on this passage from the judgment of Nugee LJ in Khan v Singh-Sall [2023] EWCA Civ 1119 at “… secured creditors stand outside the bankruptcy process, the whole purpose of taking security being to enable the creditor to have r......