Monday, 26 November 2018

Bankruptcy Win After Offer To Settle Refused


Recently, I bought you The Pointless Bankruptcy - how you as the debtor might successfully argue that the bankruptcy petition against you should be thrown out because you 'aint got a bean. 
(see http://www.breakinglaw.co.uk/search/label/bankruptcy)

Now, without my arms leaving my body, I bring you The Failure To Accept A Reasonable Offer Bankruptcy. Under section 271 of the Insolvency Act 1986 the court has a discretion to dismiss a bankruptcy petition if the debtor has made an offer to the creditor to secure the debt and that offer has been unreasonably refused.

In a case just before the High Court *, the debtor owed school fees. She offered to the school to pay the fees by instalments PLUS interest at the rate of 3% PLUS security over a property by way of  charge  (so that the property could not be sold while the debt was still outstanding without the debt being paid off and, if necessary, the school would have been able to get the property sold and taken what was due to it out of the proceeds). But the school said it would only accept the offer if the debtor also paid its debt recovery costs. The debtor refused to go along with this requirement because she maintained she wasn't under any  legal obligation to pay those costs.

The school petitioned for the debtor's bankruptcy. The court, on an appeal, threw out the petition on the basis the the offer had been unreasonably refused and that the debtor had had a genuine ground for disputing the claim for debt recovery costs. The judge stated that a reasonable hypothetical creditor would have accepted the offer and that was the test as to its reasonableness.

Boulton v Queen Margaret’s School York Ltd [2018] 10 WLUK 490