England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION (BANKRUPTCY COURT)

		Royal Courts of Justice Strand London WC2A 2LL
		19 November 2008

SIR EDWARD EVANS-LOMBE:

1. This is an application made under section 282(a) of the Insolvency Act or alternatively under section 375 of the Insolvency Act for an order that the bankruptcy order made in this case should be annulled. The application arises from the following circumstances.
2. The petitioning creditor is Mrs Ella who petitioned against her husband, Mr Ella, with whom she is in the process of having, what appears to be, extremely aggressive divorce proceedings on both sides.
3. The parties separated in May 2006. On 22 May 2006 the wife presented a petition in this country for divorce from her husband. Shortly after that the husband presented a petition in Israel seeking an order divorcing his wife in that jurisdiction.
4. On 13 October 2006 a maintenance order was made on the application of the wife in the petition in this jurisdiction, against Mr Ella, requiring him to pay maintenance to her of rather more than £3,000 a month. The claim had been opposed and accordingly the husband was ordered to pay costs of £15,790.
5. There was also an application by the husband to remove the wife from the matrimonial home at Admirals Way which also failed and was accompanied by an order for costs against him.
6. On 21 December 2006, on the application of the husband, the wife's divorce petition in this country was stayed on a condition imposed by the judge, Mrs Justice Macur that payment of monthly sums of £3,450 maintenance by the husband to the wife were maintained. Those were again opposed proceedings as a result of which the judge made an order for costs against the wife, but that order not to be enforced until the divorce proceedings were finally disposed of.
7. It appears that the costs incurred in those proceedings, namely the application for a stay, were substantial and are likely to have exceeded the costs ordered in favour of the wife in the earlier proceedings that I have described. An appeal against the stay order was pursued by the wife and in January 2007 was dismissed and she was again ordered to pay the costs of the appeal.
8. Subsequently, the wife sought to enforce her costs order obtained in the maintenance proceedings for £15,790 and she served a statutory demand on the husband claiming that amount. The husband applied to set aside the statutory demand, but for whatever reason (I think largely because the husband did not back up his application to set it aside) the application to set aside was dismissed.
9. A petition was then presented on 11 September 2007. After a few adjournments a final hearing of the petition took place on 14 December 2007 when, in the absence of the husband, a bankruptcy order was made.
10. Consequent on the bankruptcy order the official receiver was appointed pro tem trustee. His report to the Court showed that there was a substantial surplus in the estate. At the stage of his report on 26 February 2008 the surplus was rather more than £4.2 million. It seems clear there are other assets in the estate of the husband which the official receiver was then not aware of. This emerges from evidence filed by the joint trustees who were appointed to replace the official receiver as trustee.
11. The meeting of creditors, at which it was decided who should be appointed trustee, was in fact dominated by a company representing itself to be a creditor of the husband in the sum of £1.7 million. Subsequently, it has emerged that claim of this company against the husband was nothing like as substantial as that, but more importantly it has also emerged that until the making of the bankruptcy order, and for a period subsequently, the husband was its sole director and the shares in the company were held by a discretionary trust of which the husband is one of the discretionary class.
12. To complete the procedural history of this case, on 25 July 2008 a further attempt was made to lift the stay in the Family Court and the suit of the wife and that again was refused.
13. I have had the advantage of reading the judgment of the family judge concerned with this case, Mrs Justice Macur, which informs me of the nature of the Family Division proceedings.
14. Applications made today are really at the suggestion of the family judge, that the bankruptcy proceedings should be annulled thereby removing from the husband the excuse for not paying maintenance to his wife which he has had since he was made bankrupt, and removing the general handicap placed on the family court by the existence of the bankruptcy proceedings. That application is made today by the wife and is supported by her husband.
15. I am satisfied that this is a case where an annulment order should be made under subparagraph (a) on the grounds that the bankruptcy order ought not to have been made.
16. I regard these bankruptcy proceedings as being an abuse of bankruptcy process. It is perfectly apparent that whereas the petition might have been presented at a time when the wife had the only enforceable costs order there was in fact no realistic debt due from the husband to the wife because unenforceable costs orders in his favour against his wife had been made which I am satisfied are likely to have over-topped the wife's costs orders.
17. Further than that, it is apparent that the bankruptcy proceedings have been used by the parties as a weapon in the family dispute between them. There is ample authority to show that bankruptcy proceedings started in such circumstances can be dismissed as an abuse of process of the bankruptcy court. This is not a genuine case where the bankruptcy proceedings have been designed to realise the assets of an insolvent for the benefit of his creditors. In any event, the order sought from me unopposed.
18. The only question that I have to dispose of is how the costs incurred in the bankruptcy proceedings should be dealt with.
19. The joint trustees appear before me by counsel and I am informed that the approximate costs are these. The official receiver's costs are the small sum of £1,345. The trustees' expenses, I am told, to date are approximately £30,000. The trustees' costs of appearing in this court today are £10,000 approximately. Mr Ella's costs of today are rather more than £14,000 and the wife's costs today, I am told, are £24,000.
20. As to the costs of today, I propose to make no order. The parties can bear their own costs.
21. I am only concerned that the costs of these bankruptcy proceedings which I have categorised as an abuse of process shall not in any way be borne out of public funds.
22. Therefore, as part of the order annulling the bankruptcy, I will impose on the only asset within the jurisdiction, which is the matrimonial home, a charge to secure the official receiver's costs of £1,345. It will, of course, be a matter for the official receiver as to how he recovers those costs, but I would suggest to him that this is a relatively small sum and I would recommend (I am in no position to order him) that he hold his hand as to the enforcement of that order for costs pending the matter getting back to the Family Division which is much better suited than this court to determine where those costs should be paid, and generally to determine who is responsible for the difficulties which have arisen.
23. The only question is whether I should order the joint trustees' costs also to be a charge on the matrimonial home. I have concluded that I should not do so. I was shown the decision of this court in the case of Mellor v Mellor(?) where the late lamented Hart J, when sitting as a deputy judge of this court, was dealing with a case where a receiver had been appointed by the Court over the assets of a company. The Court subsequently took the view that order should not have been made and annulled it without providing for the costs incurred by the receiver in the interim while administering the affairs of the company. He said this at page 7 of the report:

"The idea that the Court may subsequently deprive a receiver of his right to remuneration on the sole ground that the Court with hindsight comes to the conclusion that the receivership which it had ordered had better not been ordered at all has only to be stated in those terms for its injustice to be apparent."

24. In my judgment, the facts with which Mr Hart QC, as he then was, was dealing in that case are substantially different from the present case. The joint trustees were appointed by, effectively, the alter ego of the husband, namely a family-controlled trust. When they were appointed they must have been approached by the company, controlled by the trust, suggesting that it was a creditor of the husband.
25. As a result of over-estimating the extent of the husband's indebtedness to the company the meeting of creditors where the trustees were appointed to replace the official receiver was dominated, by the husband. If no provision is made in my order for annulment for the costs of the joint trustees they will be entitled to look to their appointing company for the costs which they have incurred.
26. It seems to me that the trustees are not wholly blameless for their own position. They should have realised that this was highly likely to be the sort of bankruptcy proceedings which constitute an abuse of process. They may also have recourse to the husband who is an extremely wealthy man so I am not too concerned that their costs are not being treated in the same way as the costs of the official receiver.
27. So, in the result, I will make an order annulling the bankruptcy, but impose a charge on the matrimonial home to secure the official receiver's costs of £1,345 and I will make no order as to the costs of today or the costs of the bankruptcy proceedings generally.