Bringing several sequential bankruptcy petitions against debtor (Islandsbanki HF and others v Stanford)

Bringing several sequential bankruptcy petitions against debtor (Islandsbanki HF and others v Stanford)  

Simon Duncan, senior associate at Moon Beever, explores the details and examines the implications of Islandsbanki HF and Others v Stanford, a High Court case that concerned several creditors seeking competing bankruptcy petitions against the defendant after his business folded.

Islandsbanki HF and others v Stanford [2019] EWHC 595 (Ch)

What was the background?

Mr Stanford’s business empire had collapsed. Mr Stanford was being pursued by Kaupthing EHF for a purported debt of £460m. The claim was being contested and success on Mr Stanford’s part would, it was alleged, release shares worth £50m to him.

Three different creditors brought sequential bankruptcy petitions against Mr Stanford:

  • the first in time was brought by Islandsbanki HF in reliance on a purported execution of an Icelandic court judgment 
  • the second was brought by HMRC in reliance on a statutory demand 
  • the third was brought by a third creditor, Shineclear Holdings Limited

All three petitions were opposed by Mr Stanford on various technical grounds. The issue for the court was how to determine the competing petitions.

What did the court decide? 

After a long procedural history, the first petition was argued on 20 December 2018 before Chief Insolvency and Companies Court (ICC) Judge Jones. There was a possibility that the grounds of opposition might succeed. The part-heard petition was adjourned and the second and third petitions were listed to be heard at the same time on 22 February 2019. It was anticipated that some further research would be undertaken by counsel and that a further enquiry be made about the Icelandic court judgment relied upon by the first petitioner.

Prior to the hearing on 20 December 2018, there had already been two orders made by other judges that the petitions should not be heard, or case managed together. The first order was made by Chief ICC Judge Briggs on 1 August 2018. That decision had been challenged by Mr Stanford before Deputy ICC Judge Baister on 6 September 2018. The debtor’s application was dismissed, and costs were awarded against the debtor. Deputy ICC Judge Baister held that the first petition (being first in time) should be determined first. He was not persuaded by the merits of the three petitions being heard or case managed together—no reason was given to vary that order.

Unknown to Chief ICC Judge Jones, the first petitioner applied for permission to appeal what was, in effect, a case management order.

Carr J heard the appeal on 12 February 2019 (Islandsbanki HF v Stanford [2019] EWHC 307 (Ch)). The grounds of appeal were that:

  • the first petition was adjourned without judgment being given or indicating when judgment would be given 
  • the first petition was adjourned to be heard together with the second and third (later in time) petitions

The appeal succeeded. It was ordered that as a matter of principle, the first petition be disposed of before the other petitions at the next hearing before Judge Jones on 22 February 2019. Furthermore, if there was any question of the second or third in time petitions being heard before the first then the judge was obliged to have given a reasoned judgment in light of the two previous orders that the first petition in time be disposed of first.

At the hearing of the petitions, the debtor’s opposition to HMRC’s petition was rejected. The bankruptcy order was made on the first petition in time, HMRC having been substituted as a supporting creditor, who it was accepted was able to present a petition at the date of the presentation of the first petition, the requirements of Rule 10.27 of the Insolvency (England and Wales) Rules 2016, SI 2016/1024 having been met.

What are the practical implications? 

Carr J made several observations about the importance of this principle:

  • when a person is made bankrupt, it is on the petition presented first in time because of the look back date for reviewable transactions. This is in the interests of creditors as a whole and the trustee in bankruptcy so as not to limit the scope of recovery. In particular, pursuant to section 284 of the Insolvency Act 1986 (IA 1986), where a person is made bankrupt, any disposition of property made by that person in the period starting with the date of presentation of the petition is prima facie void. Pursuant to IA 1986, ss 339-341, the ‘relevant date’ (or ‘look back date’) for a trustee to set-aside transactions at an undervalue or preferences is calculated by reference to the date of presentation of the petition on which the debtor is made bankrupt

  • the overriding objective, especially proportionality, was a relevant consideration. Had the appeal not been granted, the parties would have suffered the costs of preparing for a hearing that, had the first petitioner succeeded, would have been made futile. The debtor would then be bankrupt and the costs potentially not recoverable

  • the debtor incurred considerable costs in dealing with the first petitioner’s petition. It would be wrong to expose the debtor to the costs of defending more than one petition at the same time, when the result will be the same

It is very unusual to see a successful appeal of a case management decision. Carr J expressed ‘considerable sympathy’ for Chief ICC Judge Jones as he was presented with complex facts and difficult legal principles to resolve.

Interviewed by Devon Marshall.

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


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About the author:

Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.

Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.