Suspending a bankrupt's discharge from bankruptcy—Wilson v Williams

When will a bankrupt’s discharge from bankruptcy be suspended? In Wilson v Williams, the Chancery Division heard a bankrupt’s appeal in respect of an order suspending his discharge from bankruptcy where the bankrupt argued that the terms of that order were too wide and were disproportionately severe.

Original news

Wilson v Williams (Trustee in Bankruptcy for John Wilson) [2015] EWHC 1841 (Ch), [2015] All ER (D) 275 (Jun)

The appellant bankrupt challenged an order made suspending his discharge from bankruptcy, which had been made as the district judge was satisfied that the bankrupt had not co-operated with his trustee in bankruptcy.

The terms of the suspension order were not uncommon—the bankrupt would remain undischarged until such time as the trustee confirmed to the court by filing a report that the bankrupt had complied with his duties and obligations, or the court ordered otherwise. The suspension was not linked to compliance by the bankrupt of the conditions also set out in the order (eg to provide information in relation to his pension).

The appeal was dismissed. The bankrupt’s failures were both serious and significant, and the district judge had not exercised his discretion improperly. The bankrupt was afforded sufficient protection by being able to apply to the court to have the suspension order discharged if the trustee failed to file a report and the bankrupt considered that he had fully complied with his duties and obligations to his trustee.

What were the facts of the case?

Mr Wilson was adjudged bankrupt on this own petition on 19 March 2015, disclosing liabilities of at least £1m, and that he had contributed £1m to his pension since 1988. Mr Williams was appointed as Mr Wilson’s trustee in bankruptcy on 9 April 2014.

Mr Williams wrote to Mr Wilson requesting information, including details of his pension. Despite being chased, it was not until after Mr Williams issued an application pursuant to sections 279, 333 and 366 of the Insolvency Act 1986 (IA 1986) that Mr Wilson provided some of the information sought. However, in relation to his pension, Mr Wilson refused to provide details, maintaining the position he had adopted prior to the application that his pension was exempt from the bankruptcy process and therefore that Mr Williams was not entitled to such information.

At the hearing of the application, the district judge was satisfied that Mr Wilson had failed to comply with his duties and obligations, and made an order:

  • directing a private examination of Mr Wilson
  • ordering Mr Wilson to deliver to Mr Williams all information in relation to his financial affairs including—but not limited to—contact details of, and correspondence with, his financial advisor, details in relation to a bank account, and details in relation to his pensions
  • suspending Mr Wilson’s discharge from bankruptcy until such time as Mr Williams prepared and filed with the court a report confirming that Mr Wilson had complied with his duties and obligations to Mr Williams’s satisfaction, or the court ordered otherwise—that final part of the suspension order (referring to the court otherwise ordering) was inserted into the order by the district judge, exercising his discretion

Following the making of the order, Mr Wilson provided further information to Mr Williams. However, he continued to maintain his position regarding his pension, although he said in an email that he had no objection to Mr Williams satisfying himself that the pension was excluded from the estate and that he would ‘co-operate to the extent necessary for that purpose’.

Mr Wilson appealed the district judge’s order. Permission to appeal was refused on paper, but at an oral hearing, Mr Wilson was given limited permission on one ground only—whether the terms on which the suspension was granted were too wide.

What arguments were put forward?

Mr Wilson, who appeared in person, maintained that he had complied with the terms of the suspension order. In citing the decision in Chadwick v Nash [2012] BPIR 70, Mr Wilson argued that the suspension order made against him should have contained conditions which required him to comply with the alleged breaches, rather than the wide terms of the order which simply suspended his discharge until Mr Williams was satisfied that Mr Wilson had completed with his duties and obligations, which was a disproportionately severe punishment. He further argued that the facts in his case were nothing like as extreme as the facts of Chadwick or Mawer v Bland [2013] EWHC 3122 (Ch).

In Mawer (another appeal against a suspension order), the terms of the order suspending Mr Bland’s discharge from bankruptcy were similar to those in Mr Wilson’s suspension order. It was unsuccessfully argued on Mr Bland’s behalf that, where his discharge was dependent upon his trustee filing a report in court, too much discretion was put in the hands of his trustee—which was oppressive—and that his discharge should be specifically linked to particular conditions.

In the instant case, counsel for Mr Williams cited the decisions in Bramston v Haut [2012] EWCA Civ 1637, [2012] All ER (D) 127 (Dec) and Shierson v Rastogi [2007] EWHC 1266 (Ch), [2007] All ER (D) 446 (May), the former of which is authority that suspending a bankrupt’s discharge from bankruptcy is penal in nature. It was further argued that the terms of the suspension order ensured that an appropriate balance was struck between the need for Mr Wilson to remain subject to his duties and obligations and the need for Mr Williams to file a report upon Mr Wilson having satisfactorily complied with those duties and obligations.

What did the judge decide, and why?

The judge dismissed Mr Wilson’s appeal for the following reasons:

  • there was nothing in the evidence to suggest any oppression by Mr Williams—the requests that Mr Williams had made were perfectly reasonable
  • Mr Wilson’s failure to comply with Mr Williams’s requests in relation to the pension were both serious and significant, especially given that Mr Wilson had previously been ordered to provide that information—whether the pension vested or not would be something to be debated at another time
  • in making the suspension order (which was in a form common to bankruptcy proceedings), the district judge considered as a matter of discretion that Mr Wilson’s ability to apply to court was sufficient protection afforded to Mr Wilson

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

As the judge reiterated in this case, the ability to suspend a bankrupt’s discharge from bankruptcy is penal in nature. A trustee in bankruptcy has a duty to investigate the affairs of the bankrupt, and this can include investigations into assets which on their face are unlikely to be assets of the estate, such as pensions, where for example the trustee has the power to challenge excessive pension contributions. A bankrupt has, pursuant to IA 1986, s 333, an absolute obligation to co-operate with his trustee’s reasonable requests and will generally find it difficult to oppose a well-founded application. The question will be whether the trustee’s requests are reasonable in the circumstances.

A reasonable request will include the way in which information is requested to be provided. In this case, Mr Williams requested that Mr Wilson provide the information sought in writing, turning down Mr Wilson’s proposals to meet or speak—this was considered by the district judge to be reasonable. In any given situation, a trustee will need to consider what information is needed, and how best that information can be obtained and at what cost to creditors.

A bankrupt will usually be suspended from discharge because he has failed to comply with his trustee’s requests—whether in relation to specific events or assets, or generally—and the application will therefore also commonly seek an order that the bankrupt provide certain information and/or attend an examination. There is no specific need to link these two provisions (as demonstrated by both this case and in Mawer), although in some cases that might be appropriate.

Finally, it is not unusual for a liberty to apply provision to be inserted into a suspension order, either at the request of the parties or by the judge exercising discretion. In any case, even if there is no such provision, a bankrupt who considers that he should be discharged from his bankruptcy (and who can satisfy the court that that is the case) can apply to court pursuant to rule 6.216 of the Insolvency Rules 1986, SI 1986/1925 to have the suspension order discharged.

Stephen Leslie, solicitor in the Lexis®PSL Restructuring & Insolvency team

This article first appeared on LexisPSL Restructuring and Insolvency

Further Reading

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What is the effect of discharge from bankruptcy?

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

How do you make an application to lift a suspension from discharge, and what factors will the court take into account?

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First published on LexisPSL Restructuring and Insolvency

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