An interesting case passed through the Court of Appeal a few weeks ago, which counsel for the bank concerned said could impact on a good number of cases where banks have acquiesced in allowing borrowers to remain in their homes.

In the National Westminster Bank v Ashe case, a trustee in bankruptcy took action to defeat Nat West's second charge over a property on the basis that the bank's debt, and its rights of repossession, had both become statute barred under the Limitation Act 1980. The fact that the case was taken by a trustee in bankruptcy is not relevant, the principles apply to any case where a lender defers taking recovery action.

In the Nat West case, the bank had to concede that its right to sue the debtor for repayment of the debt was statute barred - the debtor had made no payments, nor had he acknowledged the existence of the debt, for well over twelve years. The main argument on which the bank relied related to a technicality in the Limitation Act: it argued that the debtor had not been in 'adverse possession'  for the purposes of the Act (ie the debtor could not benefit from expiry of the limitation period), which if the court had agreed would mean that the bank could still take possession. In this case the bank had, through a fairly standard 'all monies' legal charge, acquired an immediate right of repossession when the charge was signed, but it simply failed to follow it through.

The Judges were not particularly sympathetic with the bank. They chose instead to uphold the principles of the Limitation Act in preventing stale claims being brought, protecting settled interests from being disturbed, and bringing finality to disputes. In essence, the Judges told the bank it should have taken more substantial steps, sooner, to get its money back because, after all, it was a large bank with access to specialist legal advice. The Judges decided that the debtor had been in 'adverse possession' with the result that the right of possession was not enforceable and the bank lost its money.

Does this case open, as counsel for the bank suggested, the floodgates for thousands of debtors to avoid paying old secured debts which they have ignored?

We do not think so. First off, not all mortgages contain a right of repossession at the date of the mortgage, indeed many mortgages limit the lender's right of repossession; and secondly, instances where a charge holder has been paid nothing on his debt and received no contact from the debtor  acknowledging either the debt or the title for over twelve years are probably few and far between. It will mean, however, that the banks will be dusting off their security documentation and applying more pressure, and earlier, on debtors to acknowledge the debt and title so as not to trip up limitation issues.

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Creditors who petition the court for the winding-up of a company or the bankruptcy of an individual as a debt-collecting remedy are not free from risk.

HHJ Peter Coulson QC sets out in Jacob v Vockrodt [2007] EWHC 2403 (QB) when petitioning is an abuse of process that could involve the tort of malicious presentation of a bankruptcy petition.

The key parts of the judgement on abuse of process are:

Mr. Davies relied on the well-known passage in the judgment of Harman J in Re a Company [1983] BCLC 492 in which he said:

"First, it is trite law that the Companies Court is not and should not be used as (despite the methods in fact often adopted) a debt-collecting court. The proper remedy for debt collecting is an execution upon a judgment, a distress, a garnishee order or some such procedure. On a petition in the Companies Court, in contrast with an ordinary action there is not a true lis between the petitioner and the company which they can deal with as they will. The true position is that a creditor petitioning the Companies Court is invoking a class right (see Re Crigglestone v. Coal Co. [1986] 2 Ch 327) and his petition must be governed by whether he is truly invoking that right on behalf of himself and all others of his class rateably, or whether he has some private purpose in view. It has long been an order that a petition presented for the purpose of putting pressure on the company is not properly presented: see Re a Company [1894] 2 Ch. 349 and, in a slightly different context, Re Bellador Silk Ltd. [1965] 1 All ER 667."

It is, of course, right that a bankruptcy petition must not be utilised where the petitioner knows that the debt is the subject of a bona fide dispute, but chooses to proceed with the petition in any event, so as to put illegitimate pressure on the other party to pay the debt. But the authorities cited above cannot be taken as authority for any wider principle or proposition. In my judgment, the correct approach to the facts, in a situation where the petition has failed and it is subsequently suggested that the presentation was malicious, was that applied in Partizan Ltd v OJ Kilkenny & Co Ltd [1998] 1 BCLC 157 by Rimer J, when he concluded at page 173:

"It follows that I am not satisfied that, when it presented the petition, Kilkenny was moved by notice or considerations different in any way from those which ordinarily motivate creditors who petition to wind up a company on the grounds that a debt claimed to be due to them (not being one which is regarded by the petitioner as disputed on substantial grounds) is unpaid despite demand; namely, at least an element of hope that, if the company can pay the debt despite its previous failure to do so, it will pay it and, if it cannot do so, a hope and expectation that it will be placed in liquidation so that there can be an orderly realisation of its assets for the benefit of its creditors generally."

What the cases show (and the point I take Rimer J to be addressing by the phrase in brackets in the quotation from his judgment set out above), is that the presentation of a petition is an abuse of process only if the petitioner knows or believes that the debt is in truth the subject of a substantial dispute.

Take care when petitioning if there is a substantial dispute!

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Three interesting procedural points relating to the bankruptcy of individuals arose in Law Society v Dixit Shah [2007] EWHC 2841 (Ch), where recovery was sought from bankrupt solicitors' professional indemnity insurers.

1. Discharge of a bankrupt merely extinguishes a creditor's remedy of enforcement, not the underlying cause of action.
2. The court can accept or reject a proof of debt (under its general jurisdiction from Section 363 of the Insolvency Acy 1986) without the trustee having considered the matter first.
3. A proof may be admitted or rejected for reasons other than determining a right to vote or participate in a dividend, where the proof of debt procedure is directed to satisfying the claim of a legitimate creditor (here, through the Third Party (Rights against Insurers) Act 1930) without any possible harm to any other creditor.

Floyd J appeared determined to ensure that legal technicalities should not prevent the third party claimants being able to recover from the insurers. Read the judgment (link above) for more detail.

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. . . at KFC Uerdingen.

The insolvent club is auctioning the opportunity for 19 January, to include a friendly against Rot Weiss Oberhausen. At the time of writing the ebay bids are up to EUR 2,100 here, with 5 days of bidding to go.

The club has until the end of January to stave off bankruptcy proceedings.

Read more of the story at Deutsche Welle here.

An interesting tactic, but I'm not sure it would have helped at Luton Town!

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The register will be launched in September 2007 at the Regional Court in Brno and the Supreme Court in Olomouc before testing is rolled out to other courts. It will contain on-line details of bankruptcy administrators, debtors and their electronic files, according to epractice.eu.

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This post was prompted by the following question on LawGuru.com:

Can someone outside of the European Union start Bankruptcy Proceedings in Great Britain or make a claim in existing British Bankruptcy Proceeedings against an Individual or a Company?

The short answer is "Yes, and yes"!

Foreign creditors are fully recognised in the UK jurisdictions of England and Wales, Scotland and Northern Ireland and, whilst they may benefit from local professional assistance, they can certainly present insolvency petitions and claim in UK insolvencies.

These existing rights were confirmed in England and Wales and in Scotland by The Cross-Border Insolvency Regulations 2006 (and Northern Ireland is planning to introduce similar regulations during 2007):

Article 13. Access of foreign creditors to a proceeding under British insolvency law 1. Subject to paragraph 2 of this article, foreign creditors have the same rights regarding the commencement of, and participation in, a proceeding under British insolvency law as creditors in Great Britain. 2. Paragraph 1 of this article does not affect the ranking of claims in a proceeding under British insolvency law, except that the claim of a foreign creditor shall not be given a lower priority than that of general unsecured claims solely because the holder of such a claim is a foreign creditor.

3. A claim may not be challenged solely on the grounds that it is a claim by a foreign tax or social security authority but such a claim may be challengedó

(a) on the ground that it is in whole or in part a penalty, or

(b) on any other ground that a claim might be rejected in a proceeding under British insolvency law.

The regulations are the British enactment of the UNCITRAL Model Law on Cross-Border Insolvency.

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You won't find a lot about personal insolvency on this blog, although I may visit the subject from time to time.

If you need help or advice relating to personal debt, I (for fairly obvious reasons) recommend relief4debt.co.uk.

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