News

Insolvency – Bankruptcy- defrayment of judgment debt – nature of legal test – second appeal – stay of execution

Arfan Khan successfully represented the appellant after taking over the case on appeal in the Court of Appeal.

The appellant applied to vary a judgment debt to pay by way of affordable instalments. That application was heard in the County Court at Central London under CPR r 40.9A. The District Judge allowed the application, ordering the debt to be defrayed at an affordable rate, on the basis that it was reasonable and proportionate to do so.

The respondent appealed to the Circuit Judge, contending, amongst other points, that the District judge applied the wrong test, and the test was whether exceptional circumstances were present. The respondent relied on the case of Ameslam [2008] EWHC 3226 (TCC), contending that the creditors right to present a bankruptcy petition was prejudiced as a result of the decision to defray. The Circuit Judge allowed the appeal.

The appellant appealed to the Court of Appeal and sought a stay of execution pending the outcome of appeal. Prior to the receipt of the appellant’s skeleton argument, the respondent, through written submissions from Counsel, objected to the grant of permission to appeal on the ground that the second appeal test was not met.

The appellant’s skeleton argument argued that the test for the grant of a second appeal was met. There was a point of general public importance arising on this appeal: what is the applicable test to determine a debtor’s application to vary payment of a judgment debt under CPR r 40.9A? Alternatively, for a number of reasons, there was some other compelling reason why the appeal ought to be heard.

It was argued that the case of Ameslam, relied upon by the respondent, was not on point. It concerned CPR r 40.11 and not CPR r 40.9A. Amaslem was in any event distinguishable. The appellant contended that CPR r 40.9A contains a broad discretion. That discretion was aimed at avoiding bankruptcy in appropriate cases where the judgement debt can be paid by way of instalments.

It was argued in the appellant’s skeleton that this was consistent with the policy rationale behind bankruptcy legislation, which is to release individuals from debt, so as to permit a fresh start by increasing the circumstances in which any remaining debt (actual or contingent) is provable in the bankruptcy. The appellant relied on the decision of Richards J (as his Lordship then was) in Re T & N [2006] 1 WLR 1728.

The appellant contended that this analysis was consistent with the provenance of Rule 40.9A, which confirmed the correctness of the District Judge’s judgment. The right to present a bankruptcy petition was not prejudiced because the respondent could apply to vary the District Judge’s order at any time under CPR r 40.9A (15). In any event, that right was not absolute because a bankruptcy order itself could be rescinded or varied.

In the alternative, it was argued in the appellant’s skeleton that, even if the test was of exceptional circumstances, that test was met on the facts. The Circuit Judge erred in holding otherwise.

Lady Justice Arden granted permission to appeal on the papers on the basis that “Compliance with conditions for second appeal and requirement for arguability” was “shown by the appellant’s skeleton argument”. Her Ladyship also granted a stay of execution.