Bankruptcy petitions—independent and unqualified obligations (Mulville v Sandelson)

Bankruptcy petitions—independent and unqualified obligations (Mulville v Sandelson)  

A settlement deed provided for the payment by Mr Sandelson of £1.25m to Ms Mulville as a settlement sum. Several obligations would have arisen upon receipt of the settlement sum, but it was never paid. Ms Mulville therefore presented a bankruptcy petition against Mr Sandelson. The question for the court was whether the obligation to pay the settlement sum was independent and unqualified—if not, it could not form the basis of the petition. Roth J held that it was an independent obligation: payment of the settlement sum was a discrete obligation which had to be fulfilled first, and within 21 days of the agreement. The case demonstrates the importance of careful drafting—it should be made clear that an obligation to pay is conditional, or else non-payment can give rise to insolvency proceedings. Written by Karl Anderson, barrister, at 4 Stone Buildings.

Mulville v Sandelson [2019] EWHC 3287 (Ch)

What are the practical implications of this case?

There are two points of general significance in this judgment.

First, those drafting settlement agreements, or advising clients in relation to terms of settlement, should have in mind the implications of including an independent, unqualified obligation to pay a settlement sum. If the obligation to pay settlement monies is not dependent or conditional on the performance of some other obligation, then (as this decision demonstrates) a debt claim can be brought to recover the settlement monies as a liquidated sum. This in turn entitles the receiving party to present a bankruptcy or winding-up petition against the paying party if the settlement monies are not paid in accordance with the terms of the settlement. A term which provides for the payment of a sum in settlement before further obligations arise is likely to be construed as independent and unqualified, thereby giving the receiving party the option of instigating insolvency proceedings. In order to help avoid this possibility, legal representatives might consider including express conditions to the payment of settlement monies (although, of course, fulfilment of those conditions by the receiving party will then give rise to an obligation to pay the settlement as a liquidated sum).

Second, and more generally, this case illustrates that matters in

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About the author:

Zahra started working as a paralegal at Lexis Nexis in Banking and Insolvency teams in April 2019. Zahra graduated with a 2.1 honours in a BA French and Spanish, completed the GDL at BPP University and is seeking some experience before commencing the LPC. She has undertaken voluntary work for law firms in London, Argentina and Colombia.