Insolvency and capacity (Fehily and another v Atkinson and another)

Insolvency and capacity (Fehily and another v Atkinson and another)

What evidence is required to be relied upon if there is an issue of capacity during the insolvency process? Richard Drinkwater, consultant at Hewlett Swanson, comments on a ruling that expert medical evidence was required and, even then, an individual voluntary agreement (IVA) would still be binding.

Original news

Fehily and another v Atkinson and another [2016] EWHC 3069 (Ch), [2016] All ER (D) 20 (Dec)

The Chancery Division dismissed the appellant’s appeal against the making of bankruptcy orders against her. The court held that, in making the orders, the district judge had not erred in holding that she had had capacity to enter into the orders. The court held that, among other things, the correct test for capacity was that stated in the thirty-first edition of Chitty on Contracts.

What are the practical implications that those advising can take away from this appeal?

If, in the course of any insolvency process involving an individual, there is any suggestion that he or she may not have the capacity to enter into any sort of agreement, or do anything that may be asked of them, the prudent step to take (if at all possible), is to obtain independent medical evidence on which reliance can be placed. Relying on the evidence of connected persons, such as members of the individual’s family or friends, is not to be recommended.

What was the background to the appeal?

The applicants were husband and wife. They had been in partnership with another couple. That partnership had an outstanding tax liability going back as far as the 1990s. In 2011, HMRC presented bankruptcy petitions against each of the four partners. To avoid being made bankrupt, each of the four partners proposed an IVA. The terms of each IVA were basically the same and provided that each partner would settle their debts by realising sufficient of their assets to do so. The IVAs also provided that, if no monies had been paid to the supervisors (of

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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.