A district judge had been plainly right to conclude that a creditor who had presented a bankruptcy petition had not unreasonably refused an offer by the debtor to compound for the relevant debt. The offer, which related to the debtor’s half-share of the equity in the matrimonial home, extended to less than a quarter of the debt; moreover, it would have been difficult for the creditor to realise the value of the half-share.
The appellant appealed against a decision of a district judge to make a bankruptcy order against him.

The respondent creditor had made substantial loans to the appellant’s company to assist it in acquiring two plots of land. The respondent obtained charges against those plots of land, and the appellant gave a personal guarantee, limited to £750,000, in respect of his company’s liabilities to the respondent. One site had been sold but the other remained unsold. The amount remaining due to the respondent from the appellant’s company was roughly £5 million. The respondent presented a bankruptcy petition against the appellant based on his £750,000 liability under the guarantee. At the hearing before the district judge, the appellant relied on the fact that negotiations were taking place for the sale of his company’s second site. He also relied on an offer which he said he had made to the respondent in respect of his half-share in the equity in the home he owned jointly with his wife, the half-share being valued at £175,000. The district judge rejected his submission that, for the purposes of the Insolvency Act 1986 s.271(3), the respondent had unreasonably refused his offer. She also found that the fact that there had been some recent interest in the second site was not a good reason for the matter not to proceed. She therefore made a bankruptcy order.

The appellant argued the respondent’s decision to refuse his offer in respect of his half-share in the matrimonial home was unreasonable, that the respondent would be no better off in his bankruptcy and that its attitude was not reasonable, particularly when taking into account the security which it held in respect of the second site. The appellant sought to rely on fresh evidence to the effect that two offers for the purchase of the second site had been made in 2015.

HELD: (1) It was not appropriate to allow the appellant to rely on the fresh evidence. It would not have materially assisted his case. He had been trying to promote the sale of the site for a very long time and there was no evidence of an imminent sale. The fresh evidence did no more than raise a slim, speculative possibility of a sale. The district judge had been plainly right when she reached the conclusion she did in respect of the second site (see paras 33-34, 40 of judgment).

(2) The district judge had also been plainly right to conclude that it had not been unreasonable for the respondent to refuse the appellant’s offer in respect of his half-share in the matrimonial home. The appellant’s offer to compound his debt extended to less than a quarter of his liability to the respondent. It was impossible to see how it could be said that no reasonable hypothetical creditor would have refused that offer. An offer would not always have to fully satisfy the bankruptcy debt in order for the court to conclude that its rejection by the creditor was unreasonable, but this was not the case in which it would be appropriate to pronounce on what level of shortfall might lead to such a conclusion; inevitably that would be a fact-specific issue. Further, the offer was not for a cash sum, nor did it relate to a liquid asset. It concerned the appellant’s half-share of the equity in the matrimonial home. Unless that home was sold, the respondent would not be able to realise the value of the appellant’s half-share. There was no basis for supposing that his wife would co-operate in achieving an early sale. If the respondent were to take security over the appellant’s share, it would either have to wait indefinitely to achieve a realisation, during which time the property might deteriorate and decline in value, or take steps to bring about a sale. Seeking to bring about a sale under the Trusts of Land and Appointment of Trustees Act 1996 s.14 would enable the appellant’s wife to rely on the factors set out in s.15; it would not be unreasonable for a creditor to be apprehensive about the outcome of that and for it to prefer that a sale be pursued by a trustee in bankruptcy (paras 41-43, 46).

Appeal dismissed

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