Bankruptcy Annulment Application Failed

Overview Of Bankruptcy Annulment Application Failed

The case of Magan v Wilton Management Ltd [2021] EWHC 3393 (Ch) was a Bankruptcy annulment application that failed.

The Bankrupt sought to annul the Bankruptcy, saying he had no assets. This case was however a good example of one where a Bankrupt saying “I have nothing” may not be the end of the story.

The Bankrupt had been a very successful businessman who had historically settled significant assets into trusts.

The Bankrupt here alleged he had no assets and that the petitioning creditor was seeking to break open one of the trusts which he said was improper. However, as there was a clear undisputed debt that was not a defence to the Petition debt. The Bankrupt could not show that investigations could not produce benefit for the Bankruptcy Estate.

The problem for the Bankrupt here was this case had all the appearances of a classic situation where someone at one time seemed awash with assets and then at a later point in time said that they had nothing. However, the Court appears to have observed that the Bankrupt seemed to struggle to deal with all relevant questions about the assets they once had. Whilst entirely feasible, such a scenario does place the Bankrupt with a transparency burden to fulfil for the Court, so that it may be convinced there would be nothing available for creditors.

Investigation Issues Can Hamper Bankruptcy Annulment Application

Bankrupt’s Heavy Burden When Asserting ‘No Assets’

The Court noted the following about the assertion that there were no assets to be investigated:

The Bankrupt argued that at the time he was made bankrupt he had no assets and, that, as subsequent investigations by the Trustees have revealed, no assets would be forthcoming. He, therefore, submitted that a bankruptcy order against him would serve no useful purpose and bring no benefit to his creditors. Further, he argued that the Petitioning Creditor, through Mr Flanagan and a Mr Robson, knew that he had no assets and, accordingly, that the Petition was presented for an improper purpose. Following an email dated 9 October 2020 from Strand Associates Limited (an acknowledged creditor of the Bankrupt in the sum of £4,475,724.18) to Edward Magan, the Bankrupt alleges that the improper purpose was to “break open” the 1984 Settlement Trust so as to make the assets in that trust, or at least 25% of them, available to his creditors.

 

The argument, if accepted, does not provide, as a matter of the court’s jurisdiction, a defence to the Petition, since, as set out above, there is a clear undisputed debt, which the Bankrupt cannot pay. However, it is relevant to whether the court, as a matter of its discretion under section 266(3) of the 1986 Act, should make a bankruptcy order.

 

The principles to be derived from the cases, which are relevant to how the court should exercise its discretion under section 266(3) where an assertion is made by a debtor that he has no assets may be summarised as follows:

1. bankruptcy provides a system of collective execution against a debtor’s property and ensures a fair distribution of assets amongst creditors. It also allows investigations into the bankrupt’s assets and affairs;

2. to engage the court’s discretion a debtor must establish to the court’s satisfaction both that there are no assets and that there is no prospect of such assets;

3. the burden on the debtor to satisfy the court that there are, and will be, no assets available for distribution, and in demonstrating that no useful investigation of his assets and affairs can be undertaken in bankruptcy, is a heavy one.

(See: Harriet Lock v Aylesbury Vale District Council [2018] EWHC 2015 (Ch) at [21], [34] and [35]).

 

The question, therefore, in this case is whether the Bankrupt has satisfied the heavy burden he has that at the time he was made bankrupt, he had, and would have, no assets and any investigations into his assets and affairs would serve no useful purpose. In my judgment, for the reasons set out below, the Bankrupt has not satisfied this heavy burden.

 

The Petitioning Creditor submitted that the Bankrupt had assets at the time of his bankruptcy and also that the Trustees’ investigations into the affairs of the Bankrupt to date showed that there was a prospect that further assets may still be established. The Trustees, who I accept were neutral, also produced evidence, which their counsel submitted, showed, at least, on its face that the Bankrupt had assets at the time of his bankruptcy and that investigations were ongoing, which might result in further assets being claimed for the estate of the Bankrupt. The assets alleged and the possible further assets, together with the parties’ arguments in relation to the same, are set out below.

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