Discharge from bankruptcy—co-operation must be real (Keely v Bell)

Discharge from bankruptcy—co-operation must be real (Keely v Bell)

In what circumstances will a court discharge an individual’s discharge from bankruptcy, and what level of co-operation is a bankrupt expected to provide to his trustee in bankruptcy? Anna Metcalfe, barrister at St Philips Chambers, considers the appeal decision in Keely v Bell.

Original news

Keely v Bell [2016] EWHC 308 (Ch), [2016] All ER (D) 191 (Feb)

The Chancery Division dismissed the appellant's appeal against an order that his discharge from bankruptcy be suspended for 12 months. Even if one removed from consideration the failure to co-operate in the provision of particular bank statements, a 12-month suspension was entirely appropriate looking at the appellant's breaches of obligation in the round.

What was the background to the appeal?

Mr Keely was made bankrupt on 4 July 2014 as a result of a number of costs orders made against him in underlying probate proceedings.

The trustee in bankruptcy (trustee), Mr Bell, applied on 30 June 2015 to postpone Mr Keely’s discharge from bankruptcy pursuant to section 279 of the Insolvency Act 1986 (IA 1986) on the basis that Mr Keely had failed to comply with a number of the obligations imposed upon him. As a result, the administration of Mr Keely’s bankruptcy estate was far from completion. Mr Keely opposed the application on the basis that he had fully complied with his obligations.

Following an interim order postponing discharge until a substantive hearing, the matter was eventually heard on 16 October 2015 before District Judge Bever in the County Court hearing centre at Manchester. The district judge found that Mr Keely had failed in his obligations in six respects:

  • he failed to give notice of an increase in his income as required by IA 1986, s 333(2) nor had he provided records of employment
  • he failed to disclose the existence of a bank account to Mr Bell, in breach of IA 1986, s 333(1)
  • he had pursued litigation during the bankruptcy which rightly vested in Mr Bell, without consulting Mr Bell, in breach of IA 1986, s 312. 'Property' includes a chose in action
  • he generally failed in his obligation to disclose records under IA 1986, s 333(1)
  • in breach of IA 1986, s 333(1)(c), he had failed to allow access to his property for the purpose of a valuation in good time
  • he failed to correspond or otherwise communicate with Mr Bell in good time and introduced unreasonable terms for correspondence, by refusing to accept letters at his home address, refusing communication by telephone and requiring a four week response time

The district judge postponed Mr Keely’s discharge from bankruptcy for a year but did not do so on terms, stating that it was difficult to impose conditions where a trustee is not in a position to say what particular information he needs.

What were the grounds of appeal and the arguments in response?

Mr Keely was a litigant in person, and disputed each of the district judge’s six factual findings. He also argued that the application to suspend his discharge was irregular and out of time.

The application for permission and the substantive application were listed on the same day before Mr Justice Norris in the High Court in Manchester.

Mr Bell contended that Mr Keely had no prospects of successfully appealing the district judge’s factual determinations, and was attempting to re-argue matters found against him at first instance, rather than pointing to any actual error in the district judge’s exercise of discretion.

What did the judge decide, and why?

The application, although late in the day, only had to be made before the automatic discharge (Bagnall v Official Receiver [2003] EWCA Civ 1925, [2003] All ER (D) 14 (Dec)). Although lateness is a factor to be taken into account, it does not debar relief.

The judge upheld five of the breaches identified by the district judge:

  • in relation to the non-disclosure of income, Mr Keely argued that the information had been given to the official receiver at the beginning of the bankruptcy. Even in the absence of any changes during the bankruptcy, the judge stated 'a bankrupt who says to his trustee "I told someone else about my income six months ago; ask them. Things have not changed" does not do all that might reasonably be done to provide information about his income and any variations to it to his trustee'
  • with regard to the litigation, the judge found that the chose in action had vested in Mr Bell, and Mr Keely, by pursuing litigation (and incurring court fees) at the same time as telling Mr Bell that his income did not exceed his expenditure, was not doing all that could reasonably be done to comply with his statutory obligation
  • the judge found that, contrary to Mr Bell’s evidence, Mr Keely had undoubtedly disclosed some documents to Mr Bell. However, these documents would not have enabled much to have been done in the way of administration of the bankruptcy estate. The judge stated ‘a clear message must go to those who are made bankrupt that it is not sufficient to say "My computer is broken. I have lost some of my records. Others of my records are in store and I’m not sure where they are because other people can move them". It is the duty of the bankrupt to provide the information which a trustee reasonably requires to discharge his duties to the creditors ie proper records’
  • with regard to the delays of Mr Keely in allowing access to his property (access was finally obtained just one day before discharge) the judge upheld the district judge’s finding. He said that Mr Keely had 'simply prioritised his own personal arrangements and self-evidently sought to exert control over the administration…he completely overlooked that the property was in fact vested in the trustee'
  • with regard to the delays in communication, the judge found that, even if Mr Keely did face genuine problems with communication, there were other reasonable ways of surmounting these problems—eg he could have obtained a pay as you go mobile phone or provided an e-mail address. He chose not to do these things, and making that choice was not doing all that can reasonably be done to comply with statutory obligations

The judge did find that the district judge had erred with one finding of fact, namely that Mr Keely was in breach by failing to disclose a bank account with a balance of £10. Mr Bell could not establish that Mr Keely ought to have known about the account when faced with Mr Keely’s evidence that he had ‘forgotten’ about it. The district judge was accordingly bound to accept Mr Keely’s (not incredible) evidence that he had ‘forgotten’ the account and had therefore not breached his duty.

As the judge found in Mr Keely’s favour on this one ground of appeal, he had to undertake the discretionary exercise required by IA 1986, s 279 again, but taking into account only five breaches as opposed to six. He concluded that the outcome was the same, even taking into account the lateness of the application. He also agreed with the district judge that the granting of conditions was not appropriate.

Ultimately therefore, the appeal was dismissed.

To what extent is the judgment helpful in clarifying the law in this area?

The judgment didn’t bring anything particularly new to the table with regard to the exercise of discretion under IA 1986, s 279, but the judge did make some helpful comments about when a conditional order might be appropriate. He said that:

A conditional order is appropriate where there are one or two specific shortcomings the significance of which can be appreciated and the outcome of which (if remedied) can be predicted. Where the proven breaches of statutory obligation are more in the nature of examples of thoroughgoing non-cooperation (as here) then a suspension for a period is appropriate

The judge also sent out a clear message that a degree of pro-activeness is expected from the bankrupt. The court is unlikely to accept excuses for non-compliance if there were other options open to the bankrupt to alleviate any problems he was having with compliance.

What practical lessons can those advising take away from this case?

It may be useful for trustees to set out clearly in correspondence at the outset of the bankruptcy exactly what documents they expect the bankrupt to disclose. The bankrupt should also be reminded that the duty to disclose is one that exists even in the absence of requests from the trustee—information must be provided voluntarily. This is particularly so in relation to updates with regard to income etc of which the trustee would otherwise have no knowledge.

The duty of disclosure (especially information which isn’t in the physical possession of the bankrupt but within his control) is one which is not easily understood by lay persons, and to avoid continually chasing the bankrupt, it may be useful make it clear at the outset what is expected, and highlight to the bankrupt, where possible, any breach of those duties.

The bankrupt should make every reasonable effort to communicate with the trustee in good time, should prioritise this over personal interests and should make every attempt to overcome any problems they face in this regard. The bankruptcy period is relatively short and requires pro-active involvement from the bankrupt, and judges will expect to see this.

Anna acted for Mr Bell both at first instance and on the appeal. Anna’s practice encompasses both commercial and chancery work, but her specialism lies in contentious probate and trusts disputes. Anna has a busy advisory and drafting practice but also appears regularly in both the county and high court, including the Chancery Division and Companies Court.

Interviewed by Stephen Leslie.

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:

Basic principles—the delivery-up of information and property to the insolvency office-holder

A summary checklist and timeline for an application for the suspension of automatic discharge from bankruptcy

What is the effect of discharge from bankruptcy?

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First published on LexisPSL Restructuring and Insolvency

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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.