Bankrupt’s obligation to disclose financial information—Hicken v Ellison

Derek Cockle, solicitor at Osmond & Osmond, assesses the practical implications of the judgment in Hicken v Ellison concerning the Chancery Division’s decision to allow a hearing to take place in in the respondent’s absence in relation to the trustee in bankruptcy’s (trustee) application for the committal of the respondent bankrupt for breach of financial disclosure orders.

Original news

Re Ellison (A Bankrupt); Hicken (as Trustee in Bankruptcy of Ellison) v Ellison [2016] EWHC 2791 (Ch), [2016] All ER (D) 76 (Nov)

The Chancery Division granted the trustee’s application for the committal of the respondent bankrupt for breach of financial disclosure orders. The court held that, on the facts, it could take the exceptional course of hearing the application in the respondent’s absence, and that the allegations of contempt had been established to the extent indicated. The application in respect of sentence was adjourned.

How did the issues arise?

The trustee applied for the committal of Dr Ellison, the bankrupt, for breach of a number of orders of the court requiring disclosure of financial information. The issues arose after the trustee continued with the official receiver’s application for an income payments order (IPO) following Dr Ellison’s second bankruptcy. Dr Ellison was suspended from his automatic discharge after his first bankruptcy for non-co-operation; a stubbornness that continued after his second bankruptcy.

Dr Ellison breached various disclosure orders intended initially to assist the trustee to establish income and expenditure for an IPO. That later became the catalyst for the making of a freezing order and further financial disclosure.

Dr Ellison was stated to have always placed his assets into tax-efficient protective structures so his financial position was unorthodox and challenging.

What were the main legal arguments?

In keeping with his lack of engagement with his obligation to cooperate, Dr Ellison did not attend the hearing, citing an illness as preventing him. It was evident he was fully informed of the progress of the application and was well aware of it.

It was clear that Dr Ellison was in breach of various orders and the court had to deal with the exceptional course of hearing a committal application in the absence of the respondent. The court found assistance in the checklist set out by Cobb J in Sanchez v Oboz (committal proceedings in absence of respondents) [2015] EWHC 235 (Fam), [2016] 1 FLR 897 to consider whether to proceed in an alleged contemnor’s absence.

The court was satisfied that the basic procedural matters had all been complied with and that the respondent had been served with the relevant documents and had sufficient notice. There was no medical evidence provided to excuse the non-attendance. It was also instructive that no request for an adjournment had been sought either.

It was argued that Dr Ellison had failed to take advantage of previous opportunities to secure representation so it was considered that an adjournment was unlikely to secure his attendance or facilitate representation.

The court had to weigh up the extent of the disadvantage to the respondent in not being able (or seemingly unwilling) to present his account of events with the prejudice caused to the applicant by any further delay.

What did the court decide?

The court decided it could, and should, take the exceptional course of hearing the committal application and proceeding in the respondent’s absence.

The court was persuaded by the fact that Dr Ellison had ample opportunity to challenge the trustee’s evidence. Dr Ellison had filed evidence but it went nowhere near answering the case made by trustee. It was not a question of presentation of the case, but the absence of any adequate evidence on which a case could be presented.

It was clear that the trustee must be afforded the assistance of the court in the pursuit of his statutory functions which were being hampered by the behaviour of Dr Ellison.

Fundamentally the court could find no undue prejudice that would be caused to the forensic process if the application was to proceed in the absence of Dr Ellison. The court came to its conclusion by going back to basics to the overriding objective to deal with cases justly, expeditiously and fairly. In all of the circumstances it was fair to proceed in the absence of Dr Ellison.

The court vindicated the trustee’s position that, even from the partial and wholly inadequate information provided, it was not up to the trustee to have to trawl through bank statements and other documents to ascertain the information that Dr Ellison was ordered to provide. The onus was firmly on Dr Ellison to provide a detailed statement of means, specifying sources of income and expenditure.

In spite of the contempt by repeated breaches of various orders, including a subsequent freezing order, the court pragmatically left the sword of Damocles dangling. Even where there was serious contempt proved in the respondent’s absence it was deemed appropriate for the court to pause before proceeding immediately to sentence.

Pragmatically, the court paused to allow Dr Ellison to consider the judgment and the error of his ways before sentencing for the proven contempt. There was strong judicial guidance that he would be ‘well advised to provide all of the information in accordance with his obligations’.

What are the practical implications for R&I lawyers?

This case does not establish any new boundaries. The court is always ready to assist an office-holder to fulfil their statutory obligations and compel a bankrupt to provide relevant financial information or face the consequences. The case also emphasises and reminds us of the bankrupt’s obligation to provide specific answers to questions, rather than cause a trustee to incur time and costs trying to work it out. In many estates costs limitations mean the trustee has to suffer doing just that.

Where there are potential rewards for creditors to be had, a bankrupt will not avoid their obligations of co-operation without sanction when a trustee is required to exercise his long reach of investigative powers, however manifesting.

This case is an example where the simplicity of an IPO application became the catalyst for the far-reaching disclosure obligations that ensued. In the right case, the often under-used income payments agreement (IPA) or IPO procedure might be a useful tool to complement the holy grail of obtaining full financial disclosure, even in more complex cases.

Debtors’ prisons from the Victorian age are long behind us, but in the modern age court orders must be seen to have teeth. In very exceptional cases—as this case may yet transpire to prove—this may involve imprisonment when the bankrupt plays the game too hard for too long by flouting orders of the court.

There remains at least one more chapter to this saga.

Interviewed by Susan Ghaiwal.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

Further Reading

If you are a LexisPSL Subscriber, click the link below for further information:

Inquiry into a bankrupt's dealings and property (including by way of private examination) under section 366 of the Insolvency Act 1986

Income payments orders under section 310 of the Insolvency Act 1986—what is an IPO, who can apply and when, what can be caught and how much can the trustee claim?

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First published on LexisPSL Restructuring and Insolvency

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