Overview Of Discretion Trumps Bankrupt’s Annulment Application
Discretion Trumps Bankrupt’s Annulment arises from the case of Dusoruth v Orca Finance UK Ltd [2022] EWHC 2346 (Ch).
In this case, the Bankrupt applied to cancel a Bankruptcy Order by way of an annulment.
Ramesh Dusoruth had been the subject of a Bankruptcy Order since 16 November 2020. He appears to have suggested the order should not have been made.
The following unrelated factual positions appear referred to in the judgment:
- the Bankrupt was someone who shopped in Hermes;
- appears to have misinterpreted lawyer advice that led to him leaving Bermuda (by a privately chartered aircraft) whilst on bail after having surrendered his passport which on renewal he did not seem to know how it arrived in Bermuda having previously been sent to Antwerp;
- had a consultancy agreement drafted by someone with legal experience at PWC with possible assistance from well-known City firms but the judge was surprised by the spelling and grammar.
When Mr Dusoruth fleshed out his case he said the debts in the Bankruptcy Petition were not for liquidated sums and therefore did not comply with the requirements of the statutory scheme when petitioning for Bankruptcy.
He also said that his centre of main interest was not England and Wales and therefore the courts here could not make him Bankrupt.
As we shall see Insolvency And Companies Court Judge Mullen did not grant the annulment to the Bankruptcy Order.
Unusually the Bankrupt was cross-examined. He gave evidence from Holland where he was required to remain at that time.
The Court noted the petition debts related to payments from the petitioner, a company in Liquidation, that appeared to the Liquidator to have been payments for the benefit of the Bankrupt. The following appears to have caught the Liquidator’s attention:
There are two elements to the petition debt. The first is the sum of €361,899.73 in relation to the payments that Orca UK’s liquidators have identified as being made from Orca UK’s bank accounts which, they say, discharged Mr Dusoruth’s personal American Express credit card bills (“the American Express Debt”). The American Express statements were recovered from Orca UK’s offices and were addressed to Mr Dusoruth at its former office address at Pont Street. By way of illustration, the expenditure shown on one of these statements alone, dated 26th August 2018, includes €32,000 spent at Hermès, New York, in July 2018, a family trip to New York, Boston, Niagara Falls, Toronto and Vancouver, together with expenditure on restaurants, hotels, and sportswear and other shops. The sums due under that statement, totalling €84,701, are said to have been discharged by Orca UK. Mr Appleton’s evidence is that he is unable to identify a single business expense.
Mr Dusoruth is further said to have caused Orca UK to pay the rent on Flat 3, 9A Curzon Street, London W1J 5HQ (“Curzon Street”) in the total sum of £276,838.01 between 16th March 2016 and 13th February 2019 (“the Curzon Street Debt”). Curzon Street is said to have been used by Mr Dusoruth and his family, rather than for the benefit of Orca UK. It is not clear from the information obtained by the liquidators whether the lease was in the name of Orca UK or Mr Dusoruth himself. No lease has been found and the rent demands that the liquidators have refer to both Mr Dusoruth himself and Orca UK.
Legal Basis For Bankruptcy Annulment
The relevant legal basis for a Bankruptcy Annulment is set out in Section 282(1)(a) of the Insolvency Act 1986:
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, or
If a debt is disputed and there is a proper issue to be determined then the Bankruptcy Petition will be dismissed so that the dispute is resolved via the usual Part 7 or 8 proceedings. The point is that a Bankruptcy Order should be founded on a debt, not a disputed debt as a disputed creditor does not have the standing to make an individual bankrupt.
The Dispute In Mr Dusoruth’s Case
Mr Dusorurth put forward a case that said the payment of his American Express bill was due to a consultancy agreement enabling payment of personal expenses (“the Consultancy Agreement”).
The Court said a genuine triable issue about the petition debt was enough to say the order should not have been made. However, the curious anomaly with this is that an order that should not have been made does not mean that once made it will be necessarily annulled. At first glance, this appears a striking position for the Court to adopt.
What the Court said was that it retains the discretion to decline to annul the Bankruptcy Order.
Mr Dusoruth was cross-examined and the judge did not appear to be hugely comforted by his evidence. This was perhaps conceivably highlighted by some of the expressions deployed by the judge that peppered a section of his judgment when considering Mr Dusoruth’s evidence and in particular with respect to his departure from Bermuda:
evasive…extraordinary…stretches credulity beyond breaking point
The Bankrupt’s Centre Of Main Interest
The Court examined the Bankrupt’s centre of main interest looking at a seesaw of evidence between Mr Dusoruth’s activities in Belgium and then in England and Wales.
Insolvency and Companies Court Judge Mullen was in no doubt England and Wales was the place of the Bankrupt’s centre of main interest:
… Not only is this jurisdiction recorded at Companies House for Mr Dusoruth in connection with his administration, as a director, of the companies through which he conducted his business as an investor, it was also the location of the principal business assets of which he was the ultimate beneficial owner, insofar as the evidence shows. The management of Mr Dusoruth’s business interests generally appears to have been conducted at Pont Street, as evidenced by documents relating to various of his corporate vehicles being found there and the expense and invoice processing function performed there. Mr Dusoruth’s contrary case would have been quite easy to evidence by, for example, witness statements from the many people whom he claims were involved in the administration of his business interests in Belgium, but none have been produced.
The Bankruptcy Annulment Based On The American Express Debt
It appears that the integrity of the Consultancy Agreement was considered by Lance Ashworth KC going so far as to enquire if it was a forgery.
Separate to that, the Judge was seemingly surprised by the spelling mistakes and “grammatical infelicities” discovered in respect of a document that according to the Bankrupt may have had some input from well-known City firms.
However, the Judge did not find the Consultancy Agreement persuasive evidence to raise a genuine triable issue:
Even bearing in mind the low threshold that Mr Dusoruth has to meet, I cannot accept at face value a Consultancy Agreement that is belatedly produced, as if out of thin air, and that is inconsistent with the invoices provided in support of it and the account Mr Dusoruth gives as to what it was intended to achieve. One would not of course expect Mr Dusoruth to produce the evidence that might have been produced at a trial, but in order to clothe this document, and Mr Dusoruth’s case on the reasons for the payment of his personal credit card bills, with a degree of credibility against an allegation that this is an example of the dishonest creation of documents of a similar sort to that alleged in the Lioncross litigation, one would have expected some minimal corroborative evidence to have been provided.
I find that Mr Dusoruth’s case in this regard is not sufficiently credible to meet the threshold of raising a genuine triable issue. This court daily must consider the quality of the evidence put before it when considering whether that threshold is met. It approaches alleged disputes with a degree of realism and in context. Where the authenticity of a document is raised in the context of a history of serious questions about the honesty of the debtor relying upon it, a debtor should provide some minimal evidence of its provenance, or at least explain why such evidence is not available, sufficient to satisfy the court that there is a real prospect that its authenticity will be accepted at trial. Mr Dusoruth has chosen not to do so. Even were I to be satisfied that there was a realistic prospect of this document having been agreed at the time, it goes nowhere near to supporting Mr Dusoruth’s claim that there was an arrangement whereby his personal expenditure could properly be discharged by Orca UK.
Nevertheless, after considering the submission of Lance Ashworth KC the Judge did not accept that the petition debt was for an unliquidated sum that he defined as:
The law is that a liquidated sum is a sum that that is “pre-ascertained” or “a specific amount which has been fully and finally ascertained”, although that allows for calculation in accordance with a contractual formula or mere addition. The question of whether a debt is for a liquidated sum must be kept distinct from whether it is disputed … It must be liquidated either because the quantification of the debt is one from which the debtor is not permitted to resile as a matter of admission, acknowledgment or agreement, or because it has been determined as a matter of the court process.
Discretion Trumps The Annulment Application
The Judge started from the position that if the statutory regime for obtaining a Bankruptcy Order had not been complied with then annulment is inherently likely.
However, in this case, he declined to follow that position because of the existence of other creditors arising at the time of the Bankruptcy Petition and his lack of cooperation with the Trustee in Bankruptcy. In particular, the HMRC personal liability notice for £4.7 million and concluded by saying:
I am satisfied that he was insolvent when the petition was presented and remains so, though his lack of cooperation with his trustee makes the position a little less clear, but that lack of cooperation again weighs in the balance against annulling the bankruptcy. As Nugee J noted in Meyden, until a bankruptcy order has been set aside it must be complied with. That includes the obligations of the bankrupt to cooperate with his trustee. The correspondence with Mr Dusoruth’s solicitors makes it clear that their client saw his obligations to provide his trustees with the requested information was contingent on the outcome of this application. That is an entirely incorrect understanding of the position. I cannot safely annul the bankruptcy where there has not been full cooperation with the trustees and there is evidence of insolvency. Bankruptcy is a class remedy and Mr Dusoruth is subject to substantial, and indisputable, liabilities and claims. To annul the bankruptcy now and dismiss the petition would require those creditors, who have been prevented from presenting petitions thus far, to seek a bankruptcy order themselves. The making of an order on a petition presented now would have potential consequences for the scope of any subsequently appointed trustee’s powers – for example the power to set aside antecedent transactions. I am not prepared to do so where there is clear evidence of insolvency.
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