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In Edginton v Sekhon  EWCA Civ 816, the Court of Appeal heard a second appeal in relation to a decision made by a deputy district judge at a bankruptcy hearing in which the debtor was refused an adjournment to pay the petition debt within a reasonable time.
The appellant (Mr Edginton), a solicitor, had pursued his former clients, Mr and Mrs Sekhon, for payment of professional fees in respect of work that had been carried out some years previously and which were statute-barred. A costs order in the sum of £1,236 was made against Mr Edginton in July 2011 in relation to an unsuccessful application made by him. Some five months later, and with those costs not having been paid, Mr and Mrs Sekhon served a statutory demand on Mr Edginton.
Mr Edginton unsuccessfully applied to set aside the statutory demand, and in December 2013 (two years after the statutory demand had been served on him) Mr and Mrs Sekhon presented a bankruptcy petition against Mr Edginton.
Mr Edginton opposed the bankruptcy petition on the basis of:
On the day of the hearing, Mr Edginton also made an application alleging that Mr and Mrs Sekhon were estopped from relying on the costs order on which the petition debt was based.
Despite acknowledging the catastrophic effect of a bankruptcy order being made against Mr Edginton given his profession as a solicitor, the deputy district judge rejected Mr Edginton’s arguments. There were other costs orders which had been made against Mr Edginton in Mr and Mrs Sekhon’s favour which exceeded the amount of the costs orders in Mr Edginton’s favour, and accordingly there was no reason for the judge to exercise his discretion against making a bankruptcy order.
However, before the judge could make a bankruptcy order, Mr Edginton made an oral application—without any prior notice—seeking an adjournment of the hearing in order to pay the petition debt within a reasonable time, although no specific payment proposals were put forward by him. The judge rejected Mr Edginton’s request as it was, in the judge’s view, made far too late, and a bankruptcy order was made.
In the first appeal, Newey J held that the judge’s decision was within the ambit of his discretion. With permission, Mr Edginton brought a second appeal.
The Court of Appeal had to decide whether the judge wrongly exercised his discretion in not adjourning the petition hearing—a case management decision.
Mr Edginton submitted that:
Otherwise it was common ground that the conditions to make a bankruptcy order had been satisfied, and that the judge had jurisdiction to make the bankruptcy order.
The Court of Appeal (Lewison and Underhill LJJ and the Master of the Rolls) unanimously dismissed the appeal. In giving the only judgment, Lewison LJ held:
On the face of it, the Court of Appeal’s decision is unsurprising.
Lewison LJ referred to a number of authorities that support the proposition that a petitioning creditor is entitled to a bankruptcy order if all the statutory conditions are satisfied. That is the starting point, and in order for the court to deviate from that, then credible evidence has to be put forward to support any request for an adjournment to allow time to pay. It is not sufficient to simply ask for an adjournment without any supporting evidence, or seek to rely on evidence by implication—in this case that the petition debt was modest and Mr Edginton was a solicitor.
The decision also reiterates that late applications in litigation are frowned upon, particularly those made without any kind of prior notice and where there was no reason for a late application to be made. These are matters that a judge may properly take into account when exercising discretion.
For those advising debtors subject to a bankruptcy petition, the two key points to take away from this case are to not make last minute applications unless there is good reason, and to ensure that any application is supported by credible evidence—ideally setting out whether the petition debt will be paid in one lump sum or in instalments, the dates of any payment(s), and the source of funding. To avoid any risk under IA 1986, s 284, the petitioning creditor may require a third party to make the payment(s).
Although, as Lewison LJ noted, some judges may be prepared to grant an adjournment in the absence of any evidence, you are unlikely to find out whether that is the case until the hearing itself, by which time it will be too late. Given the potential consequence of a bankruptcy order being made against the debtor, it is probably not a risk worth taking.
With the increase in the bankruptcy level from £750 to £5,000 in respect of creditor bankruptcy petitions presented after 1 October 2015, it is possible that successfully seeking an adjournment to allow for time to pay has become even more difficult for debtors.
Stephen Leslie, solicitor in the Lexis®PSL Restructuring & Insolvency team.
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First published on LexisPSL Restructuring and Insolvency
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