Mr Mohammad Razi Khan v Ms Arvinder Singh-Sall (the Trustee in Bankruptcy of Mr Mohammad Razi Khan)
| Jurisdiction | England & Wales |
| Judge | David Mohyuddin |
| Judgment Date | 21 July 2022 |
| Neutral Citation | [2022] EWHC 1913 (Ch) |
| Docket Number | Appeal Ref: CH-2021-000208 |
| Court | Chancery Division |
[2022] EWHC 1913 (Ch)
David Mohyuddin QC sitting as a Deputy Judge of the High Court
Appeal Ref: CH-2021-000208
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
CHANCERY APPEALS (ChD)
Rolls Building
7 Rolls Buildings
Fetter Lane, London
EC4A 1NL
Professor Mark Watson-Gandy (instructed by Sky Solicitors) for the Appellant
Mr Andrew Brown (instructed by Harrison Clark Rickerbys) for the Second Respondent
The First Respondent was not represented
Hearing dates: 29 and 30 March 2022
Written submissions: 5 April 2022
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
David Mohyuddin QC:
Introduction
Mr Mohammad Razi Khan, the Appellant (‘ Mr Khan’) was the sole shareholder and director of Geno Services Limited (‘ Geno’). He also traded on his own account as Afreen Properties (‘ Afreen’).
Habib Bank AG Zurich, the Second Respondent (‘ Habib’) extended credit to both Mr Khan personally (‘ Personal Debt’) and Geno. On 2 October 2000, Mr Khan signed a personal guarantee (‘ Guarantee’) in favour of the bank in respect of Geno's indebtedness (‘ Guarantee Debt’). Further credit was extended to Geno in 2005.
The Bank obtained security in respect of the Guarantee Debt in the form of second charges over Mr Kahn's properties at 16 Summerville Avenue, Manchester (‘ Summerville’) and Flat 1, 7 Westville, Brixham (‘ Westville’). The Bank separately had a charge over Westville in respect of the Personal Debt.
On 13 January 2015, Geno was struck off the Register of Companies for a filing default and dissolved. Shortly after that, on 22 January 2015, Habib demanded repayment under the Guarantee of £223,539 and of Mr Khan's personal indebtedness of £558,888.52.
Habib says that it served a statutory demand for the Guarantee Debt of £234,459.16 on 10 February 2016. The statutory demand did, however, found a bankruptcy petition presented to the County Court at Slough by Habib on 9 May 2016. The petition was deemed served in accordance with an order for substituted service dated 16 August 2017.
In August 2016, Mr Khan moved to take up employment in Pakistan.
Habib's petition came on for hearing on 16 January 2018 before District Judge Parker. Mr Khan applied for an adjournment but it was refused. He was adjudged bankrupt.
Mr Khan sought to appeal against the bankruptcy order, but permission to do so was refused by Rose J on paper on 20 March 2018.
Ms Arvinder Singh-Sall, the First Respondent (‘ Trustee’) was appointed as his trustee in bankruptcy on 23 April 2018.
Mr Khan's application for permission to appeal was renewed orally on 3 May 2018 and refused, again by Rose J.
Then, on 9 July 2018, Mr Khan applied to annul his bankruptcy (‘ Annulment Application’). Pending the outcome of that application, the sale of two of his properties (Summerville and 8 Staveley Road, London (‘ Staveley’)) was stayed by Order made by District Judge Lambert on 26 March 2019 who also gave directions by Order made on 9 April 2019 including listing the Annulment Application for hearing on 3 February 2020 and ordering witnesses to attend for cross-examination. Mr Khan applied for that hearing to be adjourned “on health grounds” and it was relisted for 29 April 2020. He asked for a further adjournment on the grounds of ill-health which District Judge Mauger granted by Order dated 17 April 2020.
Mr Khan's Annulment Application came before District Judge Hart sitting at the County Court at Central London on 5 May 2021. It seems that, initially, he made his application pursuant to section 282(1)(a) and (b) of the Insolvency Act 1986 (‘ 1986 Act’) but shortly before his application was heard he abandoned the part of the Annulment Application that was made pursuant to section 282(1)(b).
Section 282(1)(a) of the 1986 Act confers a discretion on the Court and is in these terms:
“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…”
Mr Khan was cross-examined, as were two witnesses called by the Bank, Mr Sayed and Mr Abbas. The Trustee was neutral. The hearing lasted three days.
There were four grounds upon which Mr Khan sought to have his bankruptcy annulled:
i) the application to adjourn the hearing of the Bank's petition for his bankruptcy should have been granted;
ii) the statutory demand which founded the bankruptcy petition had not been validly served in accordance with rule 6.3(2) of the Insolvency Rules 1986 (‘ 1986 Rules’), which were the rules then in force;
iii) neither the statutory demand nor the bankruptcy petition provided details of the security held by the Bank over Mr Khan's property, in breach of rules 6.5(1) and 6.8(1) of the 1986 Rules and sections 267 and 269 of the 1986 Act; and
iv) the debt stated in the Bank's petition was disputed on substantial grounds.
In a 99 paragraph written judgment dated 26 August 2021, the very experienced District Judge set out her reasons for dismissing the annulment application. She made introductory comments in paragraphs 1–4, setting out the principles governing what points it was open to Mr Khan to take. There is no suggestion that she misdirected herself in that regard. In paragraphs 5–8 she set out the background and identified the four grounds upon which the annulment application was pursued. She identified the evidence before her in paragraphs 9–11.
In paragraphs 12–15, she concluded that the question whether the hearing of the bankruptcy petition should have been adjourned had already been considered and had been dealt with in an appeal process (permission to appeal having been refused as I have already said) and therefore it was not open to her to reconsider it. There is no attempt to appeal that conclusion.
In paragraphs 16–25, she concluded that the statutory demand had been validly served. There is no appeal against that conclusion.
In paragraphs 26–39, she dealt with Mr Khan's point that Habib had failed to disclose the fact that it held security over Summerville and Westville. Rather, the bankruptcy petition stated in terms: “6. We do not, nor does any person on our behalf, hold any security on the debtor's estate, or any part thereof, for the payment of the above-mentioned sum.”
The District Judge concluded that, if the annulment application were to succeed and the petition were to be re-listed, Habib could apply to amend the petition and would be likely to succeed in obtaining permission to do so. However, she observed that until the petition was amended (which itself depended on the petition being re-listed rather than dismissed subsequent to a successful annulment), the mandatory requirements of IA86, ss 267 and 269 had not been met. Therefore, she said, at the time the bankruptcy order was made it ought not to have been.
In paragraphs 40–75, the District Judge dealt with the fourth of Mr Khan's grounds in support of his annulment application, that the petition debt was disputed on substantial grounds. She directed herself, correctly, that the test which Mr Khan had to meet was a low one. She concluded that, although he might face an up-hill task, there was a genuine triable issue and that, therefore, the petition debt was disputed on substantial grounds. It followed, as she set out in paragraph 76, that the bankruptcy order ought not to have been made also because the debt was disputed.
The District Judge then turned in paragraph 76 to consider how to exercise her discretion under section 282(1)(a) of the 1986 Act, her discretion having been triggered by the conclusion that, on two separate grounds, the bankruptcy order should not have been made. She said that she was given no guidance on how to exercise her discretion by IA86, s 282(1) itself. She identified relevant factors as including but not being limited to:
i) the effect of the bankruptcy both on Mr Khan and his creditors;
ii) any element of abuse of process in obtaining or making the bankruptcy order;
iii) Mr Khan's conduct in the bankruptcy;
iv) whether Mr Khan was or remained hopelessly insolvent;
v) the amount of time that had passed since the making of the bankruptcy order.
In paragraphs 77–78, she noted the significance of the effect of the bankruptcy on Mr Khan. In particular in paragraph 77 she said:
“[Counsel for Mr Khan] submits that the court should give substantial weight to the fact that this was a bankruptcy order that ought not to have been made on two distinct grounds. It is submitted that the court should bear in mind the cumulative effect of these faults in addition to the harshness of the fact that Mr. Khan was made bankrupt at the first hearing, which it is submitted would have been avoided had he received the petition in time to arrange for legal representation. It is submitted that it would be exceptional not to annul in such circumstances. I accept that these are significant factors.”
In paragraphs 79–91 she found that there had been a significant lack of co-operation on Mr Khan's part which was not excused by the fact that she had concluded that the bankruptcy order against him should not have been made. In particular, she criticised his attempt to divert rental income away from the bankruptcy estate, his delay in attending for, and then signing the record of his interview with the Official Receiver and the piecemeal way he had answered the Trustee's enquiries, insofar as they had been answered. The District...
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