This is a decision of a first instance District Judge in the County Court at Central London where the debtor did not attend.  It will therefore have little, if any, authority for future cases.  However, it involves some novel issues and despite the absence of the debtor, the District Judge gave a fully reasoned decision and gave interesting guidance to petitioning creditors as to what the Court would be looking for in cases of this nature, which must occur, relatively often.

There are two leading cases in this area; Lilley v American Express Europe Limited (2000) BPIR 70 and Allen v London Borough of Haringey (2017) EWHC 2664(Ch).  Those cases make clear that a Court has a discretion to make a bankruptcy order even if, at the date of the hearing, the petition debt is below £5,000.00.  In Kalaichandran, a petition had been presented for exactly £5,000.00 and by the date of the hearing the debtor had paid £750.00, reducing the petition debt to £4,250.00.

The essential issue to be decided was whether the Court should exercise its discretion in favour of the petitioning creditor.  District Judge Johns Q.C. made the following findings:-

  • That £750.00 had indeed been paid by the debtor after the presentation of the petition.
  • That the debtor’s own evidence made it clear that it was made for the specific purpose of bringing the debt below the £5,000.00 threshold.
  • That bringing the debt below the £5,000.00 threshold gave the Court a discretion to refuse to make the bankruptcy order, even though the balance of the debt was unpaid.

The District Judge made clear that if the debtor had appeared, he could have made the following representations in relation to the exercise of the Court’s discretion:-

  • That there was no history of previous petitions as in the case of Lilley v. AMEX.
  • That the debt barely justified the issue of a petition because it equalled but did not exceed the threshold laid down by Parliament.
  • The payment had indeed brought the debt down below the threshold.
  • That the debt was not very old (17 months at the date of the hearing).
  • That some payments against the original debt had been made soon after the goods in question had been delivered (before the issue of the petition).

However, given that the debtor had not appeared, these points had not been highlighted and in any event the District Judge was satisfied that the debt, save for £750.00, remained due and owing and therefore made a bankruptcy order.

The case is informative for a number of reasons:-

  • Despite identifying a number of issues which impacted upon his discretion, the District Judge effectively excluded them from his consideration because of the absence of the debtor. This is clearly a salutary lesson to debtors in that however weak they think their case, non-attendance is rarely going to be an advantage.
  • The fact of the debt being below £5,000.00 was clearly a significant factor in the exercise of the discretion.
  • In Lilley v AMEX, the creditor had been forced to issue multiple petitions. This was not the case in Kalaichandran and this was another factor which may have mitigated against the making of a bankruptcy order.
  • The District Judge sent a clear warning to creditors issuing petitions for a sum at or just over the bankruptcy threshold. Whilst Parliament has indicated that any debt of £5,000.00 or more is capable of giving rise to a petition debt, if that debt is subsequently reduced below £5,000.00 there must be a risk that the Court would refuse to make a bankruptcy order.
  • The age of the debt and the attempts that the debtor had made to reduce it, albeit these may have been historic, were additional factors.

In Kalaichandran, the creditor had made no offer whatsoever for payment of the balance of the debt.  Even so, there was clearly a risk that if a properly argued case had been made by the debtor for the exercise of discretion against a bankruptcy order, then the order may well have been refused.

If you need advice on insolvency please contact Stephen Wade.

6th February 2019