Bankruptcy annulment
The High Court insists on payment of the bankruptcy debts and expenses being made in full before granting an annulment order, whereas in the county courts orders are often granted based upon undertakings to pay.
In the case of Halabi v London Borough of Camden and another Mrs Halabi applied for an annulment under section 282 of the Insolvency Act 1986 on the basis that the debts and expenses of the bankruptcy had been paid or secured. Her solicitor gave an undertaking to hold the funds in his client account until the annulment order was made by the court.
It was ruled that 'paid' in section 282(1)(b), taken together with rule 6.211(2) Insolvency Rules 1986, did not include the provision of security for a debt by way of undertaking. The wording of section 282 was clear that the bankruptcy debts and expenses had to have been actually paid, not just that the bankrupt's solicitor undertook to pay them. The court did however have the power to specify that an order for annulment should not take effect until a later date. If this method were used the operation of the order would be suspended until the conditions specified by the court were satisfied. It was ordered in this case that the annulment should not take effect until the Official Receiver had notified the court that the bankruptcy debts had been paid.
The ruling should have the effect of ensuring that in future annulments will not be granted until payment of the bankruptcy costs and expenses has been made in full, regardless of in which court they are heard. Debtors and their advisers should take note.
In the case of Halabi v London Borough of Camden and another Mrs Halabi applied for an annulment under section 282 of the Insolvency Act 1986 on the basis that the debts and expenses of the bankruptcy had been paid or secured. Her solicitor gave an undertaking to hold the funds in his client account until the annulment order was made by the court.
It was ruled that 'paid' in section 282(1)(b), taken together with rule 6.211(2) Insolvency Rules 1986, did not include the provision of security for a debt by way of undertaking. The wording of section 282 was clear that the bankruptcy debts and expenses had to have been actually paid, not just that the bankrupt's solicitor undertook to pay them. The court did however have the power to specify that an order for annulment should not take effect until a later date. If this method were used the operation of the order would be suspended until the conditions specified by the court were satisfied. It was ordered in this case that the annulment should not take effect until the Official Receiver had notified the court that the bankruptcy debts had been paid.
The ruling should have the effect of ensuring that in future annulments will not be granted until payment of the bankruptcy costs and expenses has been made in full, regardless of in which court they are heard. Debtors and their advisers should take note.
The Halabi decision gives a reliable authority but mainly restates the long-held and published views of Chief Registrar Baister and the now established practice of the High Court in London.
The conditional annulment order given here may not work in every case or be acceptable to every lender and the Judge's approach (using the Civil Procedure Rules to differentiate when an order is made and when it takes effect) may or may not be followed by other courts.
An alternative might have been for the Trustee to have permitted the bankruptcy asset to be charged (with appropriate sanction under point 4, Sched 5 IA 1986).
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