Re Micklethwait

JurisdictionEngland & Wales
CourtChancery Division
Judgment Date22 May 2002
Neutral Citation[2002] EWHC 1123 (Ch)

[2002] EWHC 1123 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Royal Courts of Justice

The Strand

London WC2A 2LL

Before

Mr Justice Peter Smith

Lloyd's
Claimant
and
Mr & Mrs Micklethwait and Mr Pascoe
Defendant

MISS HILLIARD —appeared on behalf of the Claimant

MR JAMES BARNETT appeared on behalf of the Defendant

22

nd May 2002

1

MR JUSTICE SMITH: This is the hearing of three petitions brought by Lloyd's against three former names, Richard Micklethwait, Ruth Margaret Micklethwait and John Frederick Richard Pascoe. The petitions against them are in the following sums, as against Mr Micklethwait the amount claimed is £239,153.52, against Mrs Micklethwait the sum is £102,608.07, and as against Mr Pascoe the sum is £508,651.85.

2

The basis for all three petitions arises out of judgments obtained on the 11 th March 1998 for those amounts, the subject matter of the petition less statutory interest, which has accrued since the date of the judgment. The judgment was on an order 14 application, and appeals against those judgments failed. On the 20 th April 2000 statutory demands were served against Mr and Mrs Micklethwait, and on the 5 th May in the same year a statutory demand was served on Mr Pascoe. They all applied to set aside those statutory demands, filed substantial evidence in support of the applications, but ultimately withdrew those applications, as regards Mr and Mrs Micklethwait on the 6 th July last year, and as regards Mr Pascoe on the 26 th October last year.

3

Following the withdrawal of the application to set aside the statutory demands petitions were presented on the 25 th July last year against Mr and Mrs Micklethwait, and on the 20 th November last year against Mr Pascoe. The petitions are now all opposed. Substantial evidence has been filed again, including the evidence in support of the application to set aside the statutory demands. There was no adjudication on the statutory demands so no prospect of even arguing for example, any kind of issue estoppel.

4

Miss Hilliard appears for Lloyd's and Mr Barnett appears for the three debtors. They all raise the same points of opposition, save that Mr Pascoe has an additional ground of opposition based on the value of security, which Lloyd's has, it having a charging order absolute over his property.

5

I should set out the grounds of the opposition briefly. Mr Barnett in his helpful skeleton arguments summarises all the grounds of opposition, but did not pursue them all before me. A major ground of opposition that was not pursued was the fact that he no longer invited me to go behind the order 14 judgment of Mr Justice Tuckey, so that the petitions proceeded before me on the basis that the judgment was well founded and was valid. That is not to say that they necessarily accept that is the correct premise, but they accept for present purposes they are not in a position to seek to go behind those judgments.

6

He also abandoned two further points in his skeleton, which were called the 'assignment point' and the 'collusion point.' That left as regards the three of them, two substantive issues arising out of the same premise. That premise is that as a matter of justice, was that I should exercise my powers under section 266(3) of the Insolvency Act 1986 to adjourn or dismiss the petitions. The power set out in the section is quite unfettered, it provides "The court has a general power if it appears to it appropriate to do so, on the grounds that there has been a contravention of the rule or for any other reason, to dismiss a bankruptcy petition or to stay proceedings on such a petition, and where it is stayed to proceed on a petition it may do so on such terms and conditions as it thinks fit."

7

The basis for Mr Barnett urging that I should do that is twofold. First there is, he says, the existence of various claims, which if established will enable the debtors to have funds in excess of the liability to Lloyd's—I shall say something more about the nature of those claims further in this judgment. Second, he says that there is a possible loss of a right to seek an annulment—that requires a little more elaboration. The argument goes like this; in the case of each debtor the major or sole creditor is only Lloyd's. If the debtor is made bankrupt it is then suggested that Lloyd's will obtain the appointment of a pliant Trustee in Bankruptcy. Certainly if Lloyd's is the sole or major debtor it will as regards any unsecured debt of course be able to vote in the appointment.

8

The second stage of Mr Barnett's submission however, involves the Trustee in Bankruptcy then exercising his powers as Trustee to abandon in effect, any claim that the bankrupt might have had to seek compensation for Lloyd's—I will revert to this in more detail further in this judgement.

9

The power to adjourn and the grounds is very similar to the powers which a court has, to set aside and dismiss a statutory demand—see the Insolvency Rules, rule 6, point 5(4). In those rules, sub rule d gives the power to set aside a statutory demand for any reason it thinks appropriate. It is quite clear on the basis of the authorities cited to me by Mr Barnett, and in particular Re: A. F. Budge [1997], 1 BPIR366 and the observations of Lord Justice Nicholls referred to in that case in Re: A Debtor [1989], 1WLR271 at 276 that the power can be exercised if the making of a bankruptcy order might cause an injustice. This is of course separate from the situation where there is a cross-claim. Where there is a cross-claim, even if it has not been adjudicated on, generally the presence of such a cross-claim would lead to the setting aside of a statutory demand at that stage, or even the dismissal of a petition.

10

Conversely, where there is a valid debt and the correct formalities have been complied with, generally that will lead to the making of an order. A petition in those circumstances will generally only be adjourned for a short time, if there is a reasonable prospect of the debtor in effect coming to terms with the petitioner, by paying the debt and thus removing the petition—see Re: Gilmartin [1989], 1 WLR 513. In both those examples I stress that I have used the word 'generally,' because the exercise is a discretionary one to be exercised in the circumstances in each case and according to the particular facts of each case.

11

Earlier cases as to when petitions have been adjourned or dismissed under such a discretionary power are of no re-assistance, except in drawing to my attention the fact that I have a discretionary power. It is the facts of each case, which indicate how, if at all, the discretion should be exercised.

12

Now let us look at the factors in this case. From Lloyd's point of view the judgments are very old, they were obtained over three years ago, and as I have said they have not been challenged. The debtors have not made any attempt to satisfy the debts or pay them, and of course it must be appreciated that the liabilities occurred long before the actual judgment. The proceedings in question for example, were issued on the 10 th October 1996, so the liabilities have been in existence for nearly four years at least and possibly more, I do not know the precise date.

13

Miss Hilliard therefore says, enough is enough, and the petitioning creditors ought to be allowed to exercise their undoubted right to present a bankruptcy petition. There are two reasons why she says bankruptcy is the inevitable result. I should stress that it is Lloyd's stance as exemplified by Miss Hilliard's submissions that they have pursued the bankruptcy procedure reluctantly, and as a last resort after all avenues—as they see it—have been fully explored as regards payment.

14

The two factors however are this. First, where there are statements by debtors that they have no means to pay, Lloyd's does not necessarily accept that and upon making a debtor bankrupt, a trustee will be in a better position fully to investigate the affairs and activities of each debtor. It is not unheard of for debtors to profess a lack of assets when that is not the case. I should say that I am not saying that any of these debtors are in that position I am merely stating that as a general proposition that that sometimes happens.

15

Equally a trustee will be in a position to investigate antecedent transactions. Once again it is not unheard of for debtors to remove assets from their ownership to avoid handing them over to creditors. Once again I am not saying that has happened in this case. Equally a trustee in bankruptcy has extensive powers to question not only bankrupts, but any other persons who can assist the trustee in the realisation of his assets for the benefit of the creditors, and of course in the case of a surplus, if any, for the benefit of the bankrupt. So she says Lloyd's embark on bankruptcy proceedings for those reasons.

16

The second reason she gave was that Lloyd's was under a duty to pursue in effect, recalcitrant names who did not settle with Lloyd's to bankruptcy, because that would in some way be unfair to those names who had behaved more—perhaps—reasonably or sensibly—as Lloyd's would look at it—by settling or dealing with Lloyd's. This seems to me to be some kind of Admiral Byng principle, although Miss Hilliard said that was not the case, but it does seem to me that that is a very poor reason for pursuing somebody to bankruptcy, and it carries very little weight with me. Now that is the position of Lloyd's.

17

What is the position of the debtors? They say they have a number of claims, which they are proceeding with, and in the event that...

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    ...and for a short time, if there is a reasonable prospect of the debtor coming to terms with the petitioner by paying the petition debt ( Re Micklethwaite [2002] EWHC 1123 (Ch); [2003] B.P.I.R. 101 and Nottingham City Council v Pennant [2009] EWHC 2437 (Ch); [2010] B.P.I.R. 430; following R......
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    ...under section 266(3) will be exercised in favour of the debtor. The most recent decision is that of Peter Smith J. Re Micklethwaite [2002] EWHC 1123 (Ch) [2003] BPIR 101. In his review of the authorities, Peter Smith J. observes: "First, where there is a valid debt and the correct form......

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