Hughes and another v Howell (2021) EWCA Civ 1431 unreasonable refusal of offer to secure/compound petition debt section 271(3) Insolvency Act 1986

Frances Coulson

Partner, Head Of Insolvency & Restructuring, Wedlake Bell

Hughes and another v Howell (2021) EWCA Civ 1431 is unusual in that the judgment of the Court of Appeal relates to a second appeal in bankruptcy, Newey LJ having given permission to appeal from a decision of Birss J refusing an appeal against a bankruptcy order made by ICC Judge Burton. The case is of interest as it deals with the unusual issue of when a bankruptcy petition may be dismissed by reason of the petitioner’s unreasonable refusal of an offer to secure or compound for the petition debt (see 2 171(3) Insolvency Act 1986).

The petition was based on a debt due to Mr and Mrs Hughes arising out of a judgment obtained in 2015 in possession proceedings. It had been adjourned for three months to allow probate to be obtained, an estate administered and a house to be sold; but by the time of the adjourned hearing sale of the house and final distribution of the estate had not been achieved, and in any event it appeared that Mr Howell’s share of the estate was going to leave at least £10,000 of the petition debt unpaid. A bankruptcy order was made even though Mr Howell had made an offer to pay £10,000 and said that he might be able to pay more. ICC Judge Burton held that the creditors had been entitled to refuse that offer.

Mr Howell applied unsuccessfully to stay the bankruptcy order ([2019] EWHC 1559 (Ch); [2019] BPIR 1211). His substantive appeal was dismissed by Birss J: ([2020] EWHC 747 (Ch)) on the footing that there had not been a concrete offer to pay more than £10,000 so the ICC Judge had been entitled to consider that the offer was insufficient. Mr Howell was granted permission to bring a second appeal on the ground that the judge should arguably have considered his offer to have been more than £10,000.

Lewison LJ referred to the judgment of the chief registrar in HMRC v Garwood ([2012] BPIR 575), citing with approval his summary of the10 legal principles the court needed to consider. Applying those to the facts of the case he went on to dismiss the appeal. In doing so he highlighted the features of Mr Howell’s offer that were unsatisfactory. He said that for an offer to be an offer for the purposes of s 271(3) it had to be “a concrete offer capable of acceptance.” It had to be “a present offer, not the possibility of a future offer.” Furthermore: “An offer simply to top up the shortfall is, in my judgment, not enough […] I do not consider that Mr Howell’s vague statement in the course of submissions, unsupported by any credible or objective evidence, that if someone thought that it ought to be more than £10,000 then he would go along with that amounts to an offer at all.” He emphasised that it was not up to the creditors to negotiate with the debtor before the debtor made an offer: “The offer that the debtor makes is one for him to make and him alone.”

Timing was also a consideration. Lewison LJ rejected the debtor’s submission that if a debt was secured it did not matter how long the creditor might have to wait before being able to realise a security:

“Security is only of value if it enables a debt to be paid within a reasonable time. A creditor is not unreasonable in refusing to wait for an indeterminate time for an indeterminate amount before the security can be realised. Indeed in the present case it is difficult to see how the security could be realised at all. In practice Mr and Mrs Hughes would simply have had to wait until the executors had sold the house and then either receive an interim distribution, the amount of which was entirely uncertain, or wait until the estate had been administered.”

Also of interest is the wide view Lewison LJ took of what might be property and security. In his view property could include a sum of money to be received by the debtor as a residuary beneficiary: “Since the right is a transmissible right, it is capable at least in theory of being the subject matter of security”. Irrevocable instructions to solicitors to pay the solicitors for the petitioners had been given by Mr Howell. Lewison LJ said, “I am prepared to accept that that amounted to securing that part of the debt for the purposes of the Insolvency Act 1986.”