The Court of Appeal has dismissed a second appeal against a bankruptcy order, holding that where an uncertain amount of a debt was subject to a form of security an offer to pay an unspecified amount towards the remainder of the debt was too uncertain to be accepted by the petitioning creditors. The Court of Appeal also made a pro bono costs order in favour of the Access to Justice Foundation.
Mr and Mrs Hughes had granted a tenancy of a house to Mr Howell. He did not pay all of the rent and so they issued possession proceedings. In September 2015 a possession order and money judgment were made against him. He did not satisfy the judgment debt and a bankruptcy petition was presented.
After dismissing various objections to the petition, including an argument that the creditors had unreasonably refused to accept an offer so that the petition should be dismissed under Insolvency Act 1986, s.271(3), an Insolvency and Companies Court Judge adjourned the petition to allow the debtor to put in place an arrangement whereby he instructed the executors of an estate that he was a beneficiary of to pay his share of the proceeds of the estate to the petitioning creditors. The ICC Judge adjourned the petition for three months to allow the main asset in the estate, a house, to be sold.
At the next hearing, it was apparent that the sale of the house and final distribution of the estate was still some way off, and that Mr Howell’s share of the likely value of the estate was going to leave a significant shortfall of at least £10,000. He made an offer to pay £10,000 and then during the hearing said “if someone thought it ought to be more than £10,000 then I would go along with that but at the moment it seems to me that £10,000 would be more than adequate.”
ICC Judge Burton held that the creditors had been entitled to refuse the debtor’s offer and made a bankruptcy order.
Mr Howell applied to stay the bankruptcy order but this was refused:  EWHC 1559 (Ch);  BPIR 1211.
He then appealed to the High Court against the bankruptcy order. That appeal was dismissed by Birss J:  EWHC 747 (Ch). The Judge held that there had not been a concrete offer to pay more than £10,000 and the ICC Judge had been entitled to consider that this offer was insufficient.
Mr Howell was granted permission to bring a second appeal on the ground that the High Court should have considered his offer to have been more than £10,000.
The Court of Appeal (The Master of the Rolls, Lewison LJ, and Coulson LJ) dismissed the appeal.
Lewison LJ gave the leading judgment, in which he approved the summary of the relevant principles concerning s.271(3) set out by Chief Registrar Baister in HMRC v Garwood  BPIR 575.
Lewison LJ went on to say that in order to be an offer for the purposes of s.271(3), an offer must be a concrete offer capable of acceptance. It must be a present offer, not the possibility of a future offer. An offer simply to top up the shortfall was not enough. Nor was it up to the creditors to negotiate with the debtor before the debtor makes an offer. The offer that the debtor makes is one for him to make and him alone.
The court rejected the submission that if a debt is secured it does not matter how long the creditor will have to wait before being able to realise a security. Security is only of value if it enables the debt to be paid within a reasonable time. A creditor is not unreasonable in refusing to wait for an indeterminate time for an indeterminate amount before security can be realised.
Robert Brown of Selborne Chambers appeared for the successful respondents, instructed by Clifford Tibber of Anthony Gold.