England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
IN BANKRUPTCY

Order of Mr Registrar Jones dated 11 May 2016 (No. 2903 of 2014)
IN THE MATTER OF MARK EMMANUEL
AND IN THE MATTER OF THE INSOLVENCY ACT 1986

		26/05/2017

Judge Walden-Smith:

1. This is an appeal brought by Mark Emmanuel ("the Appellant") against the decision of Mr Registrar Jones made on 11 May 2016, by which he

(i) dismissed the Appellant's application dated 28 September 2015 to annul the bankruptcy order dated 8 December 2014 pursuant to s.282(l)(a), Insolvency Act 1986 ;

(ii) dismissed the Appellant's application dated 23 March 2016 to "strike out" a witness statement filed on behalf of HMRC on 5 April 2016; and

(iii) ordered that the Appellant's Trustee in Bankruptcy's costs of the annulment application be treated as an expense of the bankruptcy, and ordered that the Appellant shall personally pay HMRC's costs of the annulment application and the 'strike out' application.

2. The Appellant's Notice was lodged on 30 August 2016. The Appellant sought permission to appeal out of time on the grounds that he had made an application on 18 May 2016 instead of issuing an application for permission to appeal and that he has been suffering from depression caused by the bankruptcy order, for which the GP confirmed that he was receiving treatment and was on medication. On 7 October 2016, Asplin J granted the Appellant an extension of time to file the Appellant's Notice and appeal bundle to 19 October 2016. The Appellant was subsequently granted until 10 November 2016 to lodge the appeal bundle. Permission to appeal was granted by Asplin J on 17 November 2016
3. The Appellant seeks an order setting aside the Registrar's order in its entirety. As an alternative, the Appellant seeks the permission of this Court to hear oral evidence from the process server and the Appellant. Alternatively, the Appellant seeks an order remitting the Application back to the Registrar for the purpose of hearing oral evidence from the same witnesses.
4. HMRC is formally taking a neutral stance on this Appeal but at the same time, contends that the decision of the Registrar cannot properly be impugned. The Trustees' concern is with the costs order which directly impacts upon the Trustees and opposes the Appellant's appeal with respect to costs.

The Factual Background

5. In May 2014, HMRC prepared a statutory demand against the Appellant based on assessments for self-assessment tax, interest and penalties for the years 2004 to 2011 in the sum of £176,257.13. HMRC previously raised, on 11 November 2013, tax assessments in accordance with section 29 of the Taxes Management Act 1970. HMRC instructed Mr Kenneth Donovan, a process server, to serve the statutory demand at Flat 4, 59 Astbury Road, London, SE15 2NL ("the property") by way of personal service. The address of the property had been provided to HMRC by the Metropolitan Police.
6. In his witness statement dated 28 May 2014, Mr Donovan sets out that he visited the property but did not receive an answer when he knocked on the door. He says that he was told by a female occupant of Flat 2 that the Appellant lived at Flat 4. He sent an appointment letter by first class post on 20 May 2014, which letter was not returned, and Mr Donovan returned to the property at the specified appointment time on 28 May 2014 at 8am but again did not get a response. The statutory demand was eventually served by posting through the letter box at the property. The Appellant disputes that Mr Donovan could have knocked on the door to number 4 as it is a buzzer.
7. On 21 July 2014 HMRC issued a bankruptcy petition against the Appellant in the sum of £176,257.13. Again, it proved impossible to personally serve on the Appellant and on 15 August 2014, HMRC applied to the Court for an order for substituted service of the bankruptcy petition, which application was granted by Registrar Barber on 19 August 2014. She ordered that service had to be effected by first class recorded delivery and first class ordinary post to the property. According to the witness statement of Tina Pringle dated 3 September 2014, both steps were effected on 3 September 2014. The recorded delivery was returned as "not called for" but the first class post was not returned.
8. A bankruptcy order was made on 8 December 2014. David Standish and Wendy Wardell were appointed as joint trustees in bankruptcy on 10 February 2015.
9. A public examination of the Appellant was listed to take place on 15 April 2015. He did not attend and a warrant was issued for his arrest. The Appellant was arrested on 21 April 2016 and he was released on an undertaking to provide information to the Official Receiver. This was when the Appellant says he first found out that he had been made bankrupt on 8 December 2014.
10. On 17 June 2015 a second public examination was listed. The Appellant attended but was unable to provide all the information and he was ordered to complete the Bankruptcy Preliminary Information Questionnaire and to attend an interview prior to the third public examination which was listed for 12 August 2015. The Trustees in Bankruptcy wrote to the Appellant requesting a confirmed date for interview and for the delivery up of documents and information relating to two properties.
11. The Appellant signed the Bankruptcy Preliminary Information Questionnaire on 14 July 2015 and on 12 August 2015 the third public examination was adjourned as a consequence of medical evidence received with respect to the Appellant.
12. An application to annul the bankruptcy order was made by the Appellant on 28 September 2015 on two grounds:

(i) that the Appellant had never been served with the Statutory Demand nor the Petition; and

(ii) that the assessments for tax were significantly overstated, that he is not "hopelessly insolvent" and his liabilities to the Respondent amount to £14,570.

13. That application to annul the bankruptcy order was being made some 10 months after the order was made and, while the Appellant contends that he did not know he had been made bankrupt until he was arrested for his non-attendance at the public examinations, the application to annul was still 5 months after the arrest.
14. Between November 2015 and January 2016 the Appellant prepared self-assessments for the years ending 5 April 2005 through to 5 April 2011. On 22 January 2016, Registrar Barber gave directions in the application to annul which included a direction for HMRC to file evidence in reply to the Appellant by 21 March 2016.
15. The Appellant filed evidence exhibiting his assured shorthold tenancy of the property at 93 Croydon Road, Anerley, London SE20 7SX. HMRC sought to obtain the Appellant's agreement to an extension of time for the service of their evidence in response, which was refused by the Appellant and on 23 March 2016 he issued a strike out application.
16. HMRC wrote to the Appellant on 1 April 2016 indicating that it did not oppose the annulment application he had brought. In total the Appellant filed five witness statements in support of his application, these were dated 28 September 2015, 21 January 2016, 25 February 2016, 3 April 2016 and 28 April 2016. The evidence on behalf of HMRC is contained in the statement of Debbie Syphas dated 4 April 2016. David Standish, one of the Trustees in Bankruptcy, also filed evidence in support of the Trustees' position in statements dated 13 January 2016 and 4 March 2016.

The Contentions on behalf of the Appellant

17. The Appellant's evidence in support of his first ground before the Registrar was that he no longer resided at the Property at the time of attempted service. It is, of course, important that the possibility of a bankruptcy petition is brought to the attention of the debtor by way of the service of the statutory demand and the Appellant contends that HMRC failed in serving the statutory demand and petition so that the bankruptcy order ought not to have been made. The Appellant provided evidence of an assured shorthold tenancy for an initial period of 12 months which he had entered into for the property at 93 Croydon Road, Anerley, London SE20 7SX ("93 Croydon Road") commencing on 4 November 2013. In his witness statement dated 25 February 2016, the Appellant set out that apart from a temporary move to 27 Bromley Road, Catford SE26 2TS, while repairs were undertaken to 93 Croydon Road he did not move out of 93 Croydon Road until March.
18. The Appellant also produced a letter from the Probation Service dated 18 February 2016 which confirmed that between 26 February 2014 and 16 February 2015 the Appellant resided at 93 Croydon Road.
19. The Appellant also sought to challenge the evidence of Mr Donovan. In his witness statement dated 21 January 2016, the Appellant set out that Flats 1 and 2, 59 Astbury Road are situated at opposite ends of the building to Flats 3 to 6 and that they have different entrances. This was supported by photographs which were explained to me during the course of oral submissions. It is asserted by the Appellant that either contrary to what Mr Donovan deposed to or contrary to what he was told, it would be impossible for the occupants of Flats 1 and 2 to know the occupants of Flats 3 to 6. The Appellant further relies upon there being a communal door to Flats 3-6 with separate doors to Flats 1 and 2 in support of that contention and that there was no individual letterbox to Flat 4, just the communal one. Further, the Appellant relies upon Mr Donovan not having obtained a description of the Appellant such that it was not possible for him to verify that the Appellant had been correctly identified.
20. The Appellant therefore contends that HMRC were not in a position to establish service of either the statutory demand or the bankruptcy petition and that the Registrar ought to have allowed the annulment. The Appellant further relies upon the agreement of HMRC not to oppose the application to annul.
21. Debbie Syphas, in her witness statement on behalf of HMRC dated 4 April 2016 explained that the property address at Flat 4, 59 Astbury Road, London, SE15 2NL had been provided to HMRC by the Metropolitan Police and had been "accepted in good faith." It was accepted that it appeared probable that the Appellant did not receive the Statutory Demand.
22. With respect to the second ground of challenge, namely that his indebtedness to HMRC had been overstated and that he was not "hopelessly insolvent" as had been alleged, the Appellant provided evidence of his tax returns for the years ending 5 April 2004 to 5 April 2011 which showed an indebtedness of £14,570.

The Registrar's Determination

23. Despite the agreement of HMRC not to oppose the application to annul, the Registrar decided to dismiss the application to annul. First he found that there was a debt due and owing at the time of the petition and that the assessments for tax created a debt which was due and owing unless and until it was challenged or set aside. Second, he found that there had been valid service of both the statutory demand and the bankruptcy petition and there had been compliance with both the Insolvency Rules 1986, Rules 6.3 and 6.14 and with the Practice Direction: Insolvency Proceedings [2014] BCC 502. Third, the Registrar found the Appellant to be "hopelessly insolvent'' so that it was not in the interests of his creditors as a whole to annul the bankruptcy order.

Service

The Law

24. Section 282 of the Insolvency Act 1986 (IA86) provides that:

"(1) 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,

…"

25. As has been set out by the Appellant, through his Counsel's skeleton argument, in order to be entitled to present a bankruptcy petition, a creditor must first establish that he is owed a debt which the debtor appears to be unable to pay or to have no reasonable prospect of being able to pay (s.267(2)(c) IA 86).
26. The petitioning creditor (HMRC) will be able to satisfy this condition if the creditor has served on the debtor (the Appellant) a statutory demand which has neither been complied with nor set aside (s.268(l)(a) IA86) or has issued execution or other process on a judgment which has been returned unsatisfied (s.268(l)(b) IA86).
27. The Insolvency Rules 1986 (IR86) provide that:

"6.3(2) The creditor is, by virtue of the Rules, under an obligation to do all that is reasonable for the purpose of bringing the statutory demand to the debtor's attention and, if practicable in the particular circumstances, to cause personal service of the demand to be effected."

28. The Practice Direction: Insolvency Proceedings [2014] BCC 502 provides that:

"13.2.1

The creditor is under an obligation to do all that is reasonable to bring the statutory demand to the debtor's attention and, if practicable, to cause personal service to be effected (rule 6.3(2))".

29. Rule 6.14 IR86 prescribes the rules for service of a bankruptcy petition. This requires the following:

"6.14(1) Subject as follows, the petition shall be served personally on the debtor by an officer of the court, or by the petitioning creditor or his solicitor, or by a person instructed by the creditor or his solicitor for that purpose; and service shall be effected by delivering to him a sealed copy of the petition.

6.14(2) If the court is satisfied by a witness statement or other evidence on oath that prompt personal service cannot be effected because the debtor is keeping out of the way to avoid service of the petition or other legal process, or for any other cause, it may order substituted service to be effected in such manner as it thinks just.

30. The Practice Direction prescribes the steps that will suffice to justify acceptance for presentation of a petition where the statutory demand has been served by substituted service, which includes:

"13.2.4

(1) One personal call at the residence and place of business of the debtor where both are known or at either of such places as is known. Where it is known that the debtor has more than one residential or business address, personal calls should be made at all the addresses.

(2) Should the creditor fail to effect personal service, a letter should be written to the debtor referring to the call(s), the purpose of the same and the failure to meet the debtor, adding that a further call will be made for the same purpose on the [day] of [month] 20[ ] at [ ] hours at [place]. Such letter may be sent by first class prepaid post or left at or delivered to the debtor's address in such a way as it is reasonably likely to come to the debtor's attention. At least two business days' notice should be given of the appointment and copies of the letter sent to or left at all known addresses of the debtor. The appointment letter should also state that:

(a) in the event of the time and place not being convenient, the debtor should propose some other time and place reasonably convenient for the purpose;

(b) (In the case of a statutory demand) if the debtor fails to keep the appointment the creditor proposes to serve the debtor by [advertisement] [post] [insertion through a letter box] or as the case may be, and that, in the event of a bankruptcy petition being presented, the court will be asked to treat such service as service of the demand on the debtor;

(c) (In the case of a petition) if the debtor fails to keep the appointment, application will be made to the Court for an order for substituted service either by advertisement, or in such other manner as the court may think fit."

31. The legal framework created by the IA86, the IR86 and the Practice Direction are not in dispute between the parties. The issue is whether the Registrar was correct in finding that HMRC had fulfilled their obligations to effect personal service.
32. The Registrar dealt with the issue of service in paragraph 6 of his judgment where he stated:

"[6] ... There is no dispute that the Rules and the requirements of the Practice Direction were complied with in regard to both statutory demand and petition. I have myself checked the evidence of service of both and I agree there should be no such dispute. That means that as at the date the bankruptcy order was made the Rules of service have been complied with, substituted service had been effected and there cannot be any argument that the order ought not to have been made. This means that the application has no merit."

33. Before the Registrar, the Appellant (through his Counsel) had submitted that the property was the "incorrect address and reasonable endeavours were not made to obtain the correct address." As the Registrar identified, in my judgment correctly, it was necessary for the Appellant to be able to show that HMRC ought to have used another address but the Appellant's counsel was unable to do so "There is not anything in evidence. I have not got anything..."
34. The Trustees identified three properties that were owned by the Appellant but these were not mentioned to the Registrar and the Appellant accepts in his fifth witness statement he had never lived in any of those three properties. Those three properties are held beneficially by another. The Appellant set out in his third statement dated 25 February 2016 that he had lived in two other properties: the property at 93 Croydon Road for which he had a tenancy agreement; and the property at 27 Bromley Road, SE6 2TS, where he stayed while the ceiling at 93 Croydon Road was being repaired. However, it had to be acknowledged to the Registrar that HMRC could not realistically have known about the property at 93 Croydon Road, fulfilling their "obligation to do all that is reasonable for the purpose of bringing the statutory demand to the debtor's attention."
35. In my judgment, the Registrar was correct to reject the contentions that HMRC had failed to serve personally both the statutory demand and the petition. In Regional Collection Services Ltd v Heald [2000] BPIR 661, the court found that the creditor had not complied with the obligation to do all that is reasonable for the purpose of bringing the statutory demand to the debtor's attention, notwithstanding that the process server had visited the debtor's home on nine occasions, because no visit had been made to the debtor's business premises. Nourse LJ described the statutory provisions as imposing a "high" test that a creditor has to meet. That high test has been satisfied by HMRC. In Heald the creditor knew about the business address. It is simply not possible for the Appellant to contend successfully that HMRC could have discovered the alternative address in Croydon by doing all that is reasonable. As an assured shorthold tenant there would not be a record at the Land Registry and, while the probation service knew where he was, the information relied upon by HMRC came from the Metropolitan Police. One of the reasons why HMRC did not know of the address is that the Appellant had been failing to file his tax returns.
36. The Appellant further contends that the Registrar was wrong to find that there had been service of the statutory demand and the petition in accordance with the IA86 and IR86 as HMRC had agreed the order ought not to be made because the Appellant had not received the statutory demand. HMRC did not in fact accept that the statutory demand had not been served, rather it took a position not opposing the annulment application as it appeared "more probable than not that" that the Appellant "did not receive the statutory demand". That was not a concession on the part of HMRC that it had failed to do all that was reasonable to bring the statutory demand or petition to the attention of the Appellant. There is, of course, a difference between a party receiving a document and it being properly served. It was for the Registrar to determine whether or not the bankruptcy order be annulled - considering not only the position of HMRC but of the creditors at large. He cannot, in my judgment, be criticised for his decision that the application to annul the bankruptcy order be dismissed even with HMRC indicating that it would not oppose an annulment. The decision whether or not to accede to an application to annul is, in any event, a discretionary one and it is for the Appellant to make out grounds for the annulment to the court:

"Again, the question on the hearing of the bankruptcy petition is simply whether the debtor can pay his debts. The non-compliance with the statutory demand is primary evidence that he cannot, and, of course, it is open to the debtor to seek to prove that he can, or to seek to rely on the court's discretion not to make an order, but the fact that there may have been something irregular in the proceedings in respect of the liquidation of the company even, as Mr Leicester says, a company which owed him and his wife a substantial debt, is neither here nor there, so far as the making of the bankruptcy order is concerned."

per Lloyd J in Leicester v Plumtree Farms Limited [2003] EWHC 206 (Ch)

37. In Yang v. Official Receiver [2013] EWHC 3577 (Ch), HHJ Hodge QC (sitting as a Judge of the High Court), referred to Mantell LJ's judgment in Regional Collection Services Ltd v. Heald [2000] BPIR 661, which set out that the issue of whether the petitioning creditor had failed to meet the test of whether it had done everything it could reasonably have been expected to do to bring the statutory demand to the debtor's attention was a question of fact and that it:

"... was not one with which he, Lord Justice Mantell, would be prepared to interfere. Mr Justice Holman, the third member of the court, agreed...

That decision emphasises that the case is ultimately a decision to be taken by the judge at first instance. The district judges of this district registry, particularly the nominated Chancery district judges, including District Judge Khan, have considerable experience of dealing with the service of statutory demands and bankruptcy petitions. An appeal court should not lightly interfere with the assessment of the evidence of such a tribunal. It should only do so where the district judge has either misdirected himself in some way, or taken into account something which he ought not to have taken into account, or has left out of account anything which he ought to have taken into account, or where his decision is just plainly wrong. It is not sufficient that the appeal court might have taken a different view. The appeal court should only allow an appeal where the decision of the lower court was wrong."

38. In this case, the Registrar considered the evidence and came to the conclusion that HMRC had done everything it could reasonably have been expected to do. That was a discretionary decision pursuant to the provisions of section 282(l)(a) IA86 that was perfectly justifiable on the facts and not one in which this court will interfere.
39. The Appellant further contends that cross examination of Mr Donovan, the process server, is required but I cannot see anything with the submissions made on behalf of the Appellant, both oral and in writing, which would justify such a stance. The evidence of what had been done with respect to service is clear from the witness statement already available and, while HMRC accept that the statutory demand is unlikely to have come to the attention of the Appellant, the evidence of the steps taken and the substituted service in accordance with the order of Registrar Barber, is clear. The issues that the Appellant has raised do not undermine the core of the issue, namely the evidence of attempted service and then substituted service by first class post. That service, even if (as HMRC accept) the statutory demand and bankruptcy order is unlikely to have come to the actual attention of the Appellant, was in accordance with the rules.
40. The point was considered by the Registrar and I agree that there is no basis for seeking to go behind his evidence by calling him to give oral evidence, either to this court or on remitting this case. HMRC relied on the evidence given to them by the Metropolitan Police and it was for the Appellant to have provided information to HMRC as to his location. The filing of tax returns on time would have provided HMRC with that information.

The Indebtedness

41. On the basis of the tax returns that the Appellant submitted late to HMRC, the Appellant contends that his liability to tax is limited to £14,750, which is significantly less than the petition debt. The Appellant contends that he had a very real prospect of avoiding bankruptcy if he had been able to set aside the statutory demand.
42. The Appellant denies the Trustees' characterisation of him as "hopelessly insolvent" and says that fails to take into account his challenge to the figures given by HMRC now that he has provided tax returns. However, the sum of £14,750 takes him over the bankruptcy threshold in any event and, more significantly, the sum of £176,257.13 claimed by HMRC is legally due and binding upon the Appellant by virtue of section 29(l)(a) and section 59B(6) of the Taxes and Management Act 1970.
43. In addition to HMRC there were non-petitioning creditors amounting to £177,892.65 including the debt to Mortgage Express for £170,982.00 which was also due and owing. While the Appellant now contends that was a sum, arising out of the mortgage shortfall after the sale of a property owned by the Appellant, which had arisen by reason of the property being sold at an undervalue, that is not a claim that the Appellant has sought to bring against Mortgage Express. The sum is due and owing to Mortgage Express unless and until there is a successful challenge to that sum being owed. As the Appellant was unable to point to any evidence to support the property having been sold at an undervalue, this was not a point that was taken any further before me.

Costs

44. The Appellant challenges the costs orders made by the Registrar.
45. With respect to the costs of the strike out application, these costs quite properly fell upon the Appellant as the Appellant had withdrawn the application to strike out in the course of the hearing and the Appellant is therefore liable for any costs incurred by HMRC in defending its position.
46. Further, in my judgment the Appellant ought to have agreed to the short extension of time being sought by HMRC. The Appellant's refusal to cooperate was contrary to the overriding objective and, it would seem, that the stance taken was for a tactical advantage. The Appellant takes the costs consequences of not succeeding on the point.
47. In Hallam Estates Ltd v. Baker [2014] EWCA Civ 661, Jackson LJ stated:

" ... A variety of circumstances may arise in which one or other party (however diligent) may require a modest extension of time. Under rule 1.3 the parties have a duty to help the court in furthering the overriding objective. The overriding objective includes allotting an appropriate share of the court's resources to an individual case. Therefore legal representatives are not in breach of any duty to their client, when they agree to a reasonable extension of time which neither imperils future hearing dates nor otherwise disrupts the conduct of the litigation. On the contrary, by avoiding the need for a contested application they are furthering the overriding objective and also saving costs for the benefit of their own client.

48. HMRC's request for an extension was made in advance of the deadline. The Appellant delayed responding to the request until very shortly before the deadline for the evidence elapsed. While there was a delay in the providing of HMRC's evidence, that delay did not prejudice the hearing on 11 May 2016 and the Appellant was able to file evidence in response before that hearing, on 28 April 2016. The Appellant's evidence of the assured shorthold tenancy and the evidence from the probation service, which evidence led HMRC to indicate that it would not oppose the application to annul, could have been provided by the Appellant at an earlier date.
49. With respect to the costs of the annulment itself, I do not find that there is any basis for interfering with the decision of the Registrar. Most importantly, the Appellant failed in his application (despite the lack of opposition from HMRC and the Trustees). As I have already set out the Registrar's decision not to grant the application is not a decision that this Court will interfere with. The Registrar concluded that HMRC could not, doing all that was reasonable, have identified the property at 93 Croydon Road as a property that HMRC ought to have been serving the statutory demand and petition upon, HRMC could not have discovered this address and had done all that was reasonable to bring the statutory demand and bankruptcy petition to the Appellant's notice. The Appellant did not even provide evidence of where he was living until approximately 10 months after his arrest and I cannot agree with the submission made on behalf of the Appellant that there should be no order as to costs because of the conduct on both sides. Once HMRC knew about the alternative residence, it acknowledged that the demand and petition is unlikely to have come to the Appellant's attention. HMRC therefore acted appropriately. It was for the Registrar to decide, on all the evidence available to him, that the annulment should not be granted in the interests of all the creditors. HMRC was entitled to its costs incurred by reason of the Appellant making that unsuccessful application.
50. With respect to the Trustees' costs, there is nothing to impugn the decision of the Registrar which was, again, a proper exercise of his discretion.

Conclusion

51. For the reasons set out above, I dismiss this appeal. The Appellant cannot establish that the Registrar was wrong in the determinations he made.