England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		6th October 2005

MR JUSTICE PATTEN:

1. This is an appeal by Mrs Fatima Ahmed against the dismissal by Oliver DJ in the Nottingham County Court, of her application for the annulment or alternatively, the rescission of a bankruptcy order made by Elmer DJ on 22^nd October 2004.
2. Although a number of points were raised before the District Judge in the evidence, the issues on this appeal have narrowed themselves to two main questions. First, whether and in what circumstances the court has jurisdiction or alternatively, should exercise its discretion to make an order for annulment or rescission of the bankruptcy order, when the bankrupt has failed to persuade the judge on the bankruptcy hearing that the petition debt was not due, but has not appealed against the bankruptcy order. Secondly, whether the evidence produced to the District Judge on the application to annul or rescind was sufficiently credible and cogent to justify the making of the order, assuming it was otherwise a proper exercise of the discretion.
3. The Procedural History

Until December 2001 Mrs Ahmed was a partner in the business run under the name of Mogul Continental Food Store. As its name suggests, this was a convenience food store. The other partners were her husband, Mr Nunu Miah and her sister-in-law, Mrs Sultana. The partnership business commenced in early 2000 using premises at 42 to 44 Gregory Boulevard and 106 to110 Radford Road in Nottingham. These premises, as I understand it, are comprised in a single registered title and consist of a large corner shop. The property was owned and registered in the name of the first respondent, Mogul Eastern Foods Limited -- and I will refer to it as the company -- now in liquidation, of which the directors were Mr Nunu Miah and his brother, Mr Sujamia. Mr Sujamia is the husband of Mrs Sultana.

4. On 14^th September 2001 the shop premises were transferred by the company to Nunu and Sujamia for a nil consideration, despite having a book value of several hundred thousand pounds.
5. On 1^st December 2001 the partnership business itself was sold to a Mr Khan. On 16^th October 2002 the company was placed into compulsory liquidation on the petition of a creditor.
6. The liquidator investigated the affairs of the company and discovered that in the last set of accounts, described as financial statements, prepared for the year-ended 14^th September 2001 and signed by Mr Nunu Miah, there is an item in the balance sheet under the heading "debtors" which refers to Mogul Food Store in the sum of £42,412. It is common ground, I think, as at the end of this appeal, that the only business of the company so far as the liquidator is aware, was the letting of the shop premises, and the liquidator took the view that on the basis of this material the partners in the food store as at 14^th September 2001, who of course, included Mrs Ahmed, were indebted to the company in that sum.
7. A statutory demand dated 20^th November 2003 was served on 12^th December 2003. No application was made to set it aside and on 9^th June 2004 the company presented a bankruptcy petition based on the statutory demand.
8. The first hearing of the petition took place on 13^th August 2004 and was adjourned to 22^nd October of that year to allow Mrs Ahmed, who speaks no English and had only recently instructed solicitors, to prepare her case. On 22^nd October Mr Van de Mar, Mrs Ahmed's solicitor, produced a witness statement asking for a further short adjournment of the hearing in order to allow him to take instructions on documents and other information, which he had obtained as part of his investigations into Mrs Ahmed's position. He said that he had been unable to obtain Mrs Ahmed's instructions in the time available and that most of the adjournment period had been taken up piecing together information received from Mr Nunu Miah and the accountant, a Mr Sandhu, who had prepared accounts both for the company and for the partnership business. It was only on 18^th October that he had received answers to the enquiries made of Mr Sandhu and this included a letter, not exhibited, which suggested, he said, that the figure of £42,411 shown in the accounts of the company as a debt due from the partnership, was not in fact a debt at all, but rather an item which represented the written down value of various fixtures and fittings, later identified to be shelves, shop fittings and refrigeration equipment, which belonged to the company, but which were being leased by the partnership in addition to the shop premises.
9. Mr Van de Mar asked to be given an opportunity to confirm the position with Mrs Ahmed and her husband. The application for an adjournment was opposed by the liquidator and was refused by the deputy District Judge. There is no note, or at least no agreed note of the judgment of the deputy District Judge and it appears that she considered that Mrs Ahmed had had long enough to answer the allegations in the petition. It does also seem from the notes of that hearing which were subsequently provided to Oliver DJ that the deputy District Judge did hear argument as to whether or not there were grounds for disputing the debt and was made aware of what Mr Sandhu had said. She did not, however, have any evidence as such on the point, either from Mr Sandhu or from Mrs Ahmed or Mr Miah. On 22^nd October 2004 she proceeded to make the bankruptcy order and as I have said, there was no appeal from that order. But on 10^th November of that year, the application was issued seeking annulment or rescission of the bankruptcy order which had been made.
10. At the hearing before Oliver DJ on 2^nd June this year, the evidence was considerably expanded. In her witness statement in support of the application, Mrs Ahmed denies that she was indebted to the company as a partner in the business, as of 14^th September 2001. She explains that she had difficulty understanding the procedures when she was served with the statutory demand, which is hardly surprising. She sought advice from a Mr Ali, but he did nothing. Only later did she consult solicitors and Nelsons were instructed on the morning of the first bankruptcy hearing.
11. In paragraph 20 of her witness statement she said that she had been told by Mr Sandhu that the entry in the accounts in respect of the apparent partnership debt was incorrect and did not accurately reflect the position. Mr Miah was unable to find all of the relevant papers and even today none of the underlying papers and records have been made available to the court.
12. In paragraph 38 of her witness statement she says this:

"The partnership, as I have explained, was leasing from the company the company's premises. Part of these premises were the fixtures and fittings, which were included within the terms of the lease. My accountant advises me that he had included within the company accounts, an entry reflecting the fact that the fixtures and fittings were a company asset as though they were in the possession of the Mogul Food Store. The value of the fixtures and fittings was shown as a liability from Mogul Food Store to the company."

Mrs Ahmed gives no explanation as to the terms, if any, upon which the fixtures and fittings were leased or as to whether any payment over and above the rent of the shop fell to be made. She is obviously dependant upon her husband and the accountant for information and seems to know little or nothing about these matters personally.

13. Mr Nunu Miah also made a witness statement on 4^th November 2004. It is very brief and so far as relevant to the issues before me, states in paragraphs 8 to 10 as follows:

"I have always believed the liquidator was wrong to assume there was a debt due from the Mogul Food Store to the company. I had signed the company accounts, including those of 14^th September 2001 on which the claim is based.

I had always understood that entry was some kind of balancing entry rather than reflecting a debt that was due.

My solicitors have investigated the matters with my accountant and I am advised and believe this entry represents the fixtures and fittings in the premises which were leased by Mogul Food Store. It does not reflect a book debt due from the Mogul Food Store to the company."

14. Mr Sandhu made a witness statement on 8^th November, which exhibits the financial statements relating to the company. It does not exhibit any of the partnership accounts. He confirmed that the only trading activity of the company was to lease its shop premises to the partnership, and that the turnover figure in the accounts represents rent received. He then, in paragraphs 8 to 11 says this:

"As well as leasing the premises, the partnership was also leased the fixtures and fittings from the company.. I am informed that the fixtures and fittings relate to items such as shelving and refrigerators within the premises.

Because the fixtures and fittings was an asset of the company being leased by the partnership it was appropriate for the accounts of the company to reflect that asset within them. I accordingly included an entry into the accounts under the assets section. It was included as 'Debtors – Mogil Food Store' The figure in the final accounts as at 14 September 2001 was the sum of £42,412.

This figure represents the value of the fixtures and fittings at their purchase value with depreciation applied.

I can confirm to the court that this figure does not represent a book debt due from the partnership to the company. It does not reflect rent due or any other debt due. It was an entry put in the accounts because the fixtures and fittings needed to be shown within them and this seemed to me the appropriate way of showing it."

15. It is not clear whether Mr Sandhu has any professional qualifications which would justify his practising as an accountant, but if his evidence is correct he clearly has no idea at all as to how accounts should be prepared. The fixtures and fittings, on the basis of his statement, have been included as part of the fixed assets with the freehold of the shop premises. The liquidator's case is that the error is so glaringly obvious as to render his evidence simply incredible. I shall come to the arguments on this point a little later in this judgment.
16. This evidence was put before District Judge Oliver at the hearing on 2^nd June and he heard detailed argument from Mr Van de Mar and Miss Ife, both about the factual issues and also about the scope of his jurisdiction under s.282(1)(a) and s.375(1) of the Insolvency Act. He was invited to rule on both issues. In his judgment, of which I have an agreed note, he expressed no view about the credibility or otherwise of the new evidence. Instead, he concentrated on one of Miss Ife's two principal arguments, which was that he should refuse to make the order sought, because the deputy District Judge had effectively ruled on the question of whether there was a genuinely disputed debt when she made the bankruptcy order. Miss Ife submitted to him, as she does to me, that the deputy District Judge was made aware of the substance of Mrs Ahmed's case on the disputed debt and to permit the new application would amount to allowing a re-hearing or appeal in relation to an issue which had already been decided by a judge in the bankruptcy proceedings.
17. Mrs Ahmed's remedy was to appeal the deputy District Judge's order, but this of course, she did not do. It is not open, she submits, to Mrs Ahmed now to seek, in effect, to appeal the decision of the deputy District Judge by means of an annulment or rescission application.
18. The District Judge accepted this submission. He said this in his judgment:

"The deputy District Judge proceeded to deal with the merits of the bankruptcy petition and heard representation of both parties as to the question of the debt. It is clear from her note of that hearing that she had thought there were two arguments before her. She heard representations and came to a conclusion on the evidence before her. It follows by implication that she made certain findings that the debt was properly due and owing and immediately payable. She therefore made the bankruptcy order as Mrs Ahmed was not in a position to satisfy the debt. I am now asked to reconsider those two decisions, first the decision to refuse the adjournment and second, the bankruptcy order made on that date. I believe the purpose of s.282 is not to effect a second form of appeal and neither quite clearly is s.375, where a judge has made decisions; it is a matter of appeal rather than further application to the court. It would be wrong for me today to do anything other than to uphold those findings of the District Judge. I am therefore dismissing Mrs Ahmed's application, as it is wrongly founded and this is not the appropriate forum for that to be considered."

19. Jurisdiction

Sections 282(1)(a) and s.375(1) of the Insolvency Act 1986 provide as follows:

"Section.282(1)(a) - The court may annul a bankruptcy order if it at any time appears to the court -

(a) that, on any grounds existing at the time the order was made, the order ought not to have been made, or …

Section 375(1) - Every court having jurisdiction for the purposes of the Parts in this Group may review, rescind or vary any order made by it in the exercise of that jurisdiction."

Both are in unqualified terms and confer on the court a jurisdiction either to annul or to rescind or vary a bankruptcy order if the statutory conditions for the exercise of the discretion are fulfilled. In the case of s.282 this requires the applicant to show that at the time of the making of the bankruptcy order grounds existed upon which the order should not have been made. In the case of s.375 the power is extremely wide and does not specify any particular grounds which have to be satisfied prior to the discretion being exercised. Therefore, in jurisdictional terms there is nothing in the statute itself to suggest that the making of a prior determination by the court about the merits of the bankruptcy defence to the petition operates as a bar to the making of an order, either under s.282 or under s.375. Nor is there anything in either statutory provision which limits the court's power to entertain such applications to cases in which, for example, evidence relevant to the alleged indebtedness could not have been produced at the time of the earlier hearing. However, both sections confer on the court a discretion which requires to be exercised judicially, and in order to protect its own process from abuse the court may, in the exercise of that discretion, decline to annul or rescind an earlier bankruptcy order when it is clear that the bankrupt is not seeking to raise any new argument or any new evidence, but is merely seeking to re-argue the points already decided against him at the bankruptcy hearing. In such cases an appeal is his appropriate remedy. This is, I think, made clear in the judgment of the Court of Appeal in Re R S & M Engineering Company Limited [1999] 2BCLC 485, a case under Rule 7.471 of the Insolvency Rules, which correspond and are identical in terms to s.375(1) of the Insolvency Act. In that case Jonathan Parker J had declined to review or rescind an order made by another High Court judge in relation to the expenses of the liquidation. The remedy, he said, was to appeal the earlier order. Chadwick LJ at page 492 said this:

"For the reasons which I have given, I am not persuaded that it is necessary to decide that point. On any view Jonathan Parker J had an inherent jurisdiction to decide what order he would make in the circumstances that no earlier order had been entered and Judge Kolbert had retired. But, since the point has been raised and may be of importance in other contexts, it is appropriate that I indicate that I can see no basis why the words used in r7.47(1) should not be given the very wide effect which, as a matter of language, the meaning which they naturally bear would indicate that the rule making body intended. The rule is in terms which are indistinguishable from the parallel provision applicable in bankruptcy – see s 375(1) of the 1986 Act; and, in that context there is no reason to doubt that Parliament intended to preserve the unlimited jurisdiction to conduct a re-hearing which, as Sir James Bacon observed in Ex p Keighley (1874) LR 9 Ch App 667 at 668 was 'of very considerable antiquity' and which had been enshrined in successive Bankruptcy Acts – see s 71 of the 1989 Act, s 104(1) of the 1883 Act and s 108(1) of the 1914 Act. As Hoffmann J pointed out in Re Calmex Ltd [1989] BCLC 299 at 301, [1989] 1 All ER 485 at 486, the power is expressed in completely general terms. But, although I would hold that, as a matter of jurisdiction the power to review conferred by r 7.47(1) is unfettered, it is, of course, a power which is to be exercised judicially. It would, in my view, be inappropriate – save in the most exceptional circumstances – for a judge to exercise that power in order to substitute his own decision for that of another judge of co-ordinate jurisdiction reached on the same material after a full consideration of the arguments. The power to review is not to be used in order to hear an appeal against a judge of co-ordinate jurisdiction. The exercise of the power should be confirmed, as a matter of discretion, to cases in which there has been some change in circumstances (which may, perhaps, include the consideration of material which was not previously before the court) since the original order was made – see the observations of Millett J in Re A Debtor (No 32/SD/91) [1993] 2 All ER 991 at 995, [1993] 1WLR 314, 318 to 319."

20. Although this decision was made in relation to the power to rescind, it applies, in my judgment, with equal force to applications under s.282. In Atherton v. Ogunlende [2003] BPIR 21, Neuberger J had to consider a case in which the bankrupt applied for annulment on the ground that he had a counter-claim which would extinguish the debt. This argument had been raised and rejected both on an application to set aside the statutory demand and at the bankruptcy hearing. Neuberger J referred to the judgment of Chadwick J in Turner v Royal Bank of Scotland v Farley [2000] BPRI 683 where he said that absent a change of circumstances, it would not ordinarily be open to a bankrupt to raise issues at the bankruptcy hearing which had been decided against him on an application to set aside the statutory demand.
21. At page 27 of his judgment Neuberger J said this:

"However, in general, it seems to me right in principle and in the public interest that, if a party has raised an argument in a proper forum, where it has been considered, in connection with a particular process, in this case a bankruptcy or a prospective bankruptcy, and from which forum he had a right of appeal if he wished to exercise it, if that argument is rejected and he does not appeal, it requires exceptional circumstances before he can raise the same argument at a later stage during the same process"

"It seems to me that the principle enshrined in the passage in the judgment of Vinelott J approved by Chadwick LJ and indeed his own judgment, in Turner v Royal bank of Scotland [2000] BPIR 683, indicates that the principle should not be abrogated simply because the party has found a better way of putting the same point, or wants to put in more evidence to support the same point. If there were evidence from Mr Atherton as to specific facts which really would make a difference, and which he was unable to put forward on 11 March 1999 through no fault of his own (eg. Because it was then unavailable or unknown to him at that hearing) different considerations might apply. However, to my mind there is nothing in the subsequent evidence which justifies my going against the normal rule as laid down in Turner."

22. A similar approach was taken by Laddie J on an application under s.375(1) in Papanicola v. Humphreys [2005] 2All ER 418. At page 424 of his judgment in paragraphs 25 and 26 he said this:

"It seems to me that a number of propositions can be formulated in relation to s 375. Some of them are derived from the passages cited above. (1) The section gives the court a wide discretion to review vary or rescind any order made in the exercise of the bankruptcy jurisdiction. (2) The onus is on the applivant to demonstrate the existence of circumstances which justify exercise of the discretion in his favour. (3) Those circumstances must be exceptional. (4) The circumstances relied on must involve a material difference to what was before the court which made the original order. In other words there must be something new to justify the overturning of the original order. (5) There is no limit to the factors which may be taken into account. They can include for example changes which have occurred since the making of the original order and significant facts which, although in existence at the time of the original order, were not brought to the court's attention at that time. (6) Where the new circumstances relied on consist of or include new evidence which could have been made available at the original hearing, that, and any explanation the applicant gives for the failure to produce it then or any lack of such explanation, are factors which can be taken into account in the exercise of the discretion.

The second and fourth of these propositions merit some expansion. Inherent in s 375 is the concept that something has changed so that it is appropriate for the court to reconsider its own earlier order. If there is no change in circumstances, the only way to challenge the order is by appeal. The court is not to review its order simply on the basis that the applicant wants to present essentially the same facts and the same arguments but more forcefully or attractively. This is apparent from the following passage in Fitch's case:

'An appellate court can quash a bankruptcy order only if it is satisfied that, on the evidence which was before the court which made the order or on new evidence which is admitted in accordance with the ruke in Ladd v Marshall [1954] 3 All ER 745, [1954] 1 WLR 1489], the order should not have been made. An application under section 375(1) is essentially different. It must be based on a change in circumstances since the order was made or more rarely on the discovery of further evidence which could not be adduced on appeal'

23. Although there are references in these cases to what are described as exceptional circumstances, the essential point that emerges from these authorities is that if nothing has changed in the nature of the material before the court on the annulment or rescission application, then the court will not entertain it. The proper course in those circumstances is for the bankrupt to have appealed the original order. But if the court, on a consideration of the application, is satisfied that it has been presented with new material, which was not before the judge who made the bankruptcy order, and perhaps was not even available at that time, then in my judgment, the court is entitled to exercise its discretion and in appropriate cases, to decide to entertain the application and review the earlier decision.
24. It is in any event clear, that Neuberger J considered that the production of evidence not available would fall within the relevant test. For my own part, I would not wish to import into applications under s.282, a rule equivalent to that in Ladd v. Marshall. It seems to me that the correct approach in all cases is the one which was taken by Millett J in relation to applications under s.375 in his decision in Re A debtor [1993] 2All ER 991 where he distinguished an application under s.371(1) from appeal and at page 995 said this.

"Where an application is made to the original tribunal to review, rescind or vary an order of its own, however, the question is not whether the original order ought to have been made upon the material then before it but whether that order ought to remain in force in the light either of changed circumstances or in the light of fresh evidence, whether or not it might have been obtained at the time of the original hearing. The matter is one of discretion, and where the evidence might and should have been obtained at the original hearing that will be a factor for the court to take into account; but the rationale for the rule in Ladd v Marshall that there should be an end to litigation and that a litigant is not to be deprived of the fruits of a judgment except on substantial grounds has no bearing in the bankruptcy jurisdiction. The very existence of s.375 is inconsistent with such a rationale."

25. It is, I think, clear from the authorities I have mentioned, that there is no absolute ban to the bankruptcy court entertaining an application to annul or rescind a bankruptcy order merely because at the bankruptcy hearing the judge has decided the question of whether there was a disputed debt. The availability of new evidence may justify the review of that earlier decision if it is material which, in the judgment of the court hearing the application, is likely to have led the judge at the earlier hearing to reach a different conclusion. The realities are that if the judge hearing the application for annulment or rescission reaches that view, it will only be because he has been presented with material sufficiently new and different in nature as to cause him to reach that conclusion. In a sense, the probative effect of the new material is likely, in practice, to determine whether the application in discretionary terms is justified.
26. Mrs Ahmed produced to the District Judge, evidence which was not before the deputy District Judge and which, as it happens, was in the circumstances, evidence which her solicitors, on Mr Van de Mar's evidence, could not reasonably have produced for that period given the refusal of the adjournment. Oliver DJ's dismissal of the application can, in my judgment, only be justified if the new evidence would not have led the deputy District Judge as a reasonable tribunal, to have dismissed the petition. It is not an answer to the application or to this appeal, merely to say that the deputy District Judge had decided whether Mrs Ahmed had raised a serious issue about the existence of the alleged debt, and had dismissed her opposition to the petition on that basis.
27. It is also by no means clear to me whether the deputy District Judge did reach a considered conclusion about the truthfulness or otherwise of Mr Sandhu's evidence. It seems to me more probable and there is, I think, some support for this in an unapproved note of the judgment, which was read to me by Mr Bailey, that she may have approached the matter on the basis that Mrs Ahmed had not produced any evidence to support the suggestion that the accounts were in some material way inaccurate, and that absent that evidence the accounts as drawn provided the best evidence available of the liabilities of the partnership.
28. In the end the real issue for me is whether the new evidence makes any difference, and for it to make a difference it is common ground that it must be credible. In Re A Debtor, to which I have already referred, Millet J explained what this meant in these terms:

"Any fresh evidence must be cogent evidence that the debt is bona fide disputed. Where credible, it obviously need not be incontrovertible; it must be such that if unanswered it would undoubtedly lead to the setting aside of the statutory demand if made at the appropriate time."

29. The Evidence

I have already summarised and quoted from the key parts of the new evidence. That of Mrs Ahmed and her husband does little more than rely on what Mr Sandhu has told them, and it is really his evidence on which the application was based. Mr Bailey made no attempt to defend the inept way in which the relevant accounts were prepared, but he submitted that it would not be right for me to disregard it, because in order to do so I would have to treat Mr Sandhu's evidence as untrue. Miss Ife had no difficulty with that. Her client's case is quite simply that the explanation about the £42,412 and indeed, the inclusion of the debt in earlier financial statements in different amounts is concocted.

30. Mr Sandhu prepared the accounts both for the company and for the partnership, and on any view there are oddities in both sets of accounts. The agreed background, as already mentioned, is that the company leased the shop to the partnership for a rent. Mr Bailey submitted at one point, that this appears to have varied and is probably geared to what the company needed to pay in order to service its mortgage on the property, but there is no evidence about this and it is also inconsistent with some of the accounts which show a rental figure considerably less than and sometimes in excess of the interest payments made by the company. So, for example, in the accounts for the year-ended 30^th June 2000, the turnover of the company representing the rent was £52,489, against loan interest of £37,866.
31. Miss Ife makes a number of powerful criticisms of the accounts. The disputed item in the company's balance sheet is said to represent the value of fixtures of fittings at the store owned by the company. Although one would expect these to depreciate in value year-by-year, the amount of the item in fact fluctuates up and down. In the accounts up to 30^th June 1999 the figure was £51,529 and in those up to 30^th June 2000 it was £39,688. In the year-ended 30^th June 2001 it was £50,577 and in the accounts up to 14^th September 2001 it was £42,412. Again no explanation was given for this. These are, however, the accounts of the company, not those of the partnership and although Mrs Ahmed's husband signed them off, his evidence is that he did so, on the basis of the treatment described by Mr Sandhu.
32. One way of testing this evidence is to look at the partnership accounts themselves, which Mr Sandhu also prepared. The only account of the partnership or any accounts of the partnership produced in evidence are those for the year-ended 30^th January 2001. There were two versions of this document, one of which is said to be a draft. In Mr Sandhu's first witness statement no partnership accounts were produced. Mr Doolan, who has produced a witness statement on behalf of the liquidator setting out what is the correct accounting treatment of the matters in question, did produce a set of partnership accounts for the year I have mentioned and in his witness statement drew attention to the fact that, as part of those partnership accounts an item in respect of fixtures and fittings was included as one of the assets of the partnership. He also made the point that in the list of liabilities and a list of payments made by the partnership in its profit and loss account for the period, there was no reference to rent.
33. Mr Sandhu then, in a second witness statement, produced a further set of the partnership accounts for that period, which he said were a final version of what had been exhibited by Mr Doolan and which does include a figure of £54,920 in respect of rent. In that witness statement, however, he says nothing about the inclusion of fixtures and fittings as part of the assets of the partnership, and although the entry of the freehold property as an asset of the partnership, which features in the first set of those accounts, has been deleted, a sum of £48,045 remains representing the value of fixtures and fittings.
34. In both versions of the balance sheet of the partnership there is an item under liabilities of £53,048 and £54,920 respectively. This is stated to be a sum due to creditors who are not identified. The balance sheet, as I have already indicated, includes as assets of the partnership both the freehold of the shop and the fixtures and fittings. These entries are impossible to reconcile with the agreed position in relation to the ownership of the property. Nor is the figure of £48,045 consistent with the amount of the disputed item in the balance sheet of the company, which on Mr Sandhu's evidence, represented the value from time to time of the fixtures and fittings.
35. Miss Ife relies on the absence of any entry of rent paid in the draft accounts coupled with the amount of £53,048 as an outstanding liability to creditors, as consistent with there being a liability to the company for rent in the amounts stated in the company's balance sheet, even though there is no reference to the company in the partnership accounts. In the second version of the accounts that argument, of course, becomes more difficult, but in many ways her strongest point remains the inclusion, even in the second set of the partnership accounts, of an item in respect of fixtures and fittings. She also submits that when properly analysed, Mr Sandhu's evidence is largely assertion and that no attempt has been made, for example, to provide a list of fixtures and fittings and a valuation of those fittings, in an attempt to corroborate what Mr Sandhu says is the proper and correct position.
36. I have not found this question, in any sense, an easy one. In deciding whether or not the evidence that was put before the District Judge satisfies Millet J's requirement for credibility, I have borne in mind that even by analogy in the case of an application under CPR Part 24 for summary judgment, the court is not bound to accept blindly whatever is said to it in evidence by a defendant. Equally, it is clear on the authorities and in particular the decision in Swain v. Hillman, referred to in the notes to CPR Part 24, that the court should be wary on occasions such as this, of trying issues of fact on evidence that is limited in nature, without the benefit of cross-examination and disclosure. The best the court can do is to make a decision, having regard to all the material before it and the circumstances as to whether or not the evidence relied on at least satisfies the bare minimum of credibility so as to raise a sufficiently triable issue.
37. I have considerable sympathy with the liquidator's position, but the bankrupt's position in this case really depends on the court being able to treat the company's accounts as reliable in relation to the entry in respect of debtors. It seems to me that the accounts in respect both of the company and the partnership contain so many obvious errors, oddities and inconsistencies, it would not, I think, be safe to assume that Mr Sandhu's evidence is simply untrue, and invented, as opposed to an admission of utter incompetence on his part.
38. I am satisfied, although I have considerable doubts as to the quality of his evidence, that it is not possible for the court simply to reject it as inherently incredible. It seems to me that a judge hearing a bankruptcy petition, faced with the totality of that evidence ought to have taken the view that the debtor had established a sufficient issue in relation to the debt to justify the dismissal of the petition. The proper course, in my judgment, is for the existence or otherwise of the alleged indebtedness to be established in proceedings with the benefit of disclosure and cross-examination.
39. I propose therefore, to allow the appeal and leave it to the liquidator to take that course.
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