Jersey Unreported Judgments

Désastre - reasons for refusing an application for the early discharge of a declaration of Désastre

[2019]JRC189

Royal Court

(Samedi)

25 September 2019

Before     :

Sir William Bailhache, Bailiff, and Jurats Ramsden and Austin-Vautier

 

Advocate M. J. Haines for the Representor.

The Viscount in person.

judgment

the bailiff:

1.        The Court sat on 23^rd July to receive an application by Advocate Haines on behalf of the Representor for the early discharge of a declaration of Désastre made in respect of the Respondent on 7^th April, 2017.  The Court was provided with an affidavit from the Representor and from the Viscount, with a number of witness statements annexed to the Viscount's affidavit.  At the conclusion of the hearing, the Court gave its decision refusing the application with reasons reserved.  This judgment contains those reasons.

Background

2.        At the time of the declaration of Désastre, the Applicant and his former wife jointly owned the matrimonial home.  The Applicant also had an amount of other property namely moveable assets largely comprising household effects, bicycles and cycling equipment, and a stock of sunglasses which he had previously sold through an online business.  The financial information provided by the Viscount was to the effect that the moveable assets realised £3,422.00.  After payment of secured debts, the real estate generated the sum of £43,429.00.

3.        There were a total of £128,386.00 of claims filed in the bankruptcy, (priority claims of £16,407 and ordinary claims of £111,978.00).  After adjudication, the claims admitted in the proceedings comprised priority claims of £15,452.00 and ordinary claims of £103,167.00, totalling £118,619.00.

4.        The largest ordinary creditors were the Representor's former wife (£40,623.00), his parents (£22,957.00) and his former advocates, Messrs Benest and Syvret (£17,360.00).

5.        The Representor has not made any contribution to the bankruptcy from earnings or other income, and the understanding of the Viscount was that he has had no income other than income support benefits during the period of the bankruptcy.  The information provided by the Representor to us suggests that this statement is not entirely accurate, in that the Representor was employed for approximately six months in 2018 with part-time employment in which he earned £7.50 per hour, providing him the sum of £800 gross over the period.  He was apparently not asked by the Viscount to pay the money into the bankruptcy.

6.        The Court papers show that the Royal Bank of Scotland, one of the creditors, was prepared to accept a discharge of the Désastre order; the Comptroller of Income Tax took a neutral position; Messrs Benest and Syvret, the Representor's former lawyers, objected as did the Representor's former wife.

7.        In making his application, Advocate Haines concentrated his submissions around these points:-

(i)       An order declaring a person en Désastre was not a punitive order.  Accordingly the Court should not approach the matter in any other way than to ask itself the question whether the continuation of the Désastre proceedings would be constructive.  If it served no purpose, and indeed if the lifting of the Désastre might be beneficial, then lifting the Désastre would be appropriate.

(ii)      The Representor had worked with the Social Security Department since the declaration of Désastre.  He has tried to get employment, and the department has supervised him.  He has weekly meetings with them.

Apart from the employment on a part-time basis during 2018, the Representor has either been unsuccessfully looking for work or has been unfit for work.  This is not a case where he is sitting back taking no action with a view to finding employment.

(iii)     The Representor was previously employed in the financial services industry.  As a result of the declaration of Désastre, financial services businesses will not employ him.  In those circumstances, there is little satisfactorily remunerated work that he is able to obtain.

(iv)      The Representor has suffered long and significant bouts of ill health as a result of the proceedings.  Our attention was drawn to a medical certificate showing that he had been signed off as unfit for work between 1^st June 2019 and 8^th October 2019 as a result of stress.

(v)      It was accepted that no money had been paid into the bankruptcy, and the Representor contended that it was unlikely that any monies were due by way of inheritance.  There was nothing to suggest that employment would provide a different outcome.

(vi)      The Representor submitted that his family life had been badly affected by the Désastre.  As a result of the bankruptcy he had had to move out of the former matrimonial home, which had now been sold, and in order to see his children, he had no choice but to reside with his parents, where indeed he has resided since January 2017.  This is not an ideal arrangement either for him or for the children as they live in relatively cramped conditions when they visit him, and until such time as the bankruptcy comes to an end, the Representor considers that there will be little chance of him being able to provide a home for himself and the children.  Advocate Haines submitted that individuals should feel positive about the future.  The effect of the Désastre inhibited the possibility of the Representor having such feelings.  He has had to rely on charity from his parents.  As a result, reintegration with his children is difficult if not impossible.  Advocate Haines noted that it had not been alleged that the Representor had engaged in any extravagant spending during the Désastre.

(vii)     As to the position of different creditors, Advocate Haines submitted that there was a history between his former lawyers and the Representor and their letter was not well informed.  The fact was that his client had been ill during the relevant period, and his inability to pay his former lawyers the outstanding amounts was not his fault.  As to the four page letter which had been submitted by his former wife, it was submitted that the former wife finds it difficult not to have hostility against him.  The lifting of the Désastre would in fact enable the parties to move on from it and from their divorce.

(viii)    Finally it was submitted that the four year period provided by the Bankruptcy (Désastre) (Jersey) Law 1990 (the "Law") was an arbitrary period.  It was not linked to the assets in the bankruptcy, or to the quantity of claims, nor was it linked to the complexity of the administration.  It was submitted that under the United Kingdom Enterprise Act 2002, between sections 256 and 269, amendments had been made to the Insolvency Act 96, the effect of which was that a bankrupt was discharged from bankruptcy at the end of a period of one year beginning with the date on which the bankruptcy commences.  That period of one year was capable of being reduced or extended according to the facts in the case.  The amendments to the Act also provided for income payments orders which could not exceed three years beginning with the date on which the order was made, and might in any event end after the discharge of the bankrupt.  It was submitted that while these provisions did not have direct effect, we could take them into account as factors in the exercise of discretion.

8.        The relevant provisions of the Law are set out between Articles 40 and 42, and are as follows:-

"40.   Application by Viscount for order of discharge

(1)     Subject to paragraph (2), at the expiration of 4 years from the date of the declaration the Viscount shall apply to the court for an order discharging the debtor.

(2)     The Viscount, the debtor or a creditor of the debtor may apply to the court for an order that the period referred to in paragraph (1) be reduced or extended.

41.     Order of discharge

(1)     At the hearing of any application for an order under Article 40(1), the court may -

(a)     grant an immediate order;

(b)     grant an order subject to such conditions as it thinks fit, or suspend an order for such time as it thinks fit;

(c)     grant an order with or without such conditions as it thinks fit to take effect at a specified future date;

(d)     refuse to make an order.

(2)     At the hearing of an application for an order under Article 40(2), the court shall make such order as it thinks fit.

(3)     If the court exercises its powers under paragraph (1)(d) the Viscount, the debtor or a creditor of the debtor may from time to time apply for an order under Article 40(1).

42.     Effect of order of discharge

(1)     An order of discharge shall release the debtor from all debts provable in the désastre except the following -

(a)     any debt or liability incurred by means of fraud or fraudulent breach of trust to which the debtor was a party;

(b)     any debt or liability whereof the debtor has obtained forbearance by any fraud to which the debtor was a party;

(c)     any debt or liability under a maintenance order (as that term is defined by the Maintenance Orders (Facilities for Enforcement) Jersey) Law 2000[98]) that is enforceable in Jersey or elsewhere by virtue of that Law or the Maintenance Orders (Enforcement) (Jersey) Law 1999[99].[100]

(2)     The prohibitions imposed by Article 24 and the provisions of Article 25 shall, as from the date at which an order under Article 41 takes effect, cease to apply to the debtor."

9.        We note that the statute does not give any indication as to the facts which a court ought to take into account in exercising the discretion conferred by Article 41 to grant an order of discharge.  We also note that the effect of the order of discharge as set out in Article 42 is to release the debtor from all debts provable in the Désastre save for those which are listed in paragraph (1) of that Article.

10.      The previous law in relation to Désastre was that the making of such an order was developed as a judicial mechanism for enabling the assets of the debtor to be realised conveniently and the claims of his known creditors paid to the extent possible from those assets.  On the conclusion of that administrative process, the outstanding debts were not forgiven.  They remained outstanding and could be the subject of further suit at the instance of any aggrieved creditor until such time as the claims were time barred.  The report accompanying the proposition for the new Law contained this information at page 17 paragraph (g):-

"Closure of the Désastre and its consequences

(i)        The precise date of termination of a Désastre is at present uncertain.  This is undesirable as it is relevant both to after acquired property and also to the status of the debtor.  The proposed law specifies the date for the termination of the Désastre as being the date on which an order of discharge under Article 41 takes effect (Article 1(2)).

(ii)       The common law on Désastre never developed any 'discharge' (in the English sense) of the debtor.  The committee does not believe that any useful social or economic purpose is served by a debtor not obtaining a discharge at the termination of the Désastre.  Provision has therefore been made for a debtor to be discharged on the application of the Viscount to the court, in general four years after the declaration (Article 40(1)).  There is power for the Court to shorten or lengthen this period (Article 40(2)).  The discharge, once effective, effects both the debts and the status of the debtor.  He will be freed from the residue of the debts claimed in the Désastre, as well as being freed from the restrictions (other than those set out in the States of Jersey Law 1966, relating to Senators and Deputies which are separately dealt with therein) on his capacity to take part in local affairs (Article 42)...."

11.      In her submissions the Viscount contended that everyone understands that a bankruptcy lasts for four years.  She referred to the case of in Re Young [1999] JLR Notes 1B where the report is in these terms:-

"The discharge of a declaration of Désastre is not a right but a privilege.  When the Viscount applies for an extension of the period for discharge, it is relevant to consider whether the extent would protect either the creditors or the public at large.  If it would not, it is open to the court to discharge his declarations with immediate effect."

12.      We note of course that that was an application by the Viscount for the extension of a period of discharge and not, as here, for the period before discharge to be reduced.

13.      The Viscount submitted that in all cases she had found of an early end to the Désastre proceedings, there had been some benefit to creditors.  In the present case no such benefit had been identified.  The Viscount further submitted that she could not understand why the Representor was unable to find employment.  In her experience, most bankrupts can.

14.      As to the relationship between the bankrupt and his children, the Viscount pointed out that the Representor can still see his children and his right to family life was therefore unaffected.

15.      Advocate Haines had referred the Court to the case of Roach v Lamy [2005] JRC 149.  That was a case of a social Désastre, namely a Désastre where the applicant had no immediately realisable assets.  The Viscount pointed out that in Mr Roach's case, the Désastre had run its full term, namely four years, and that there was a difference in that the bankrupt did pay into the bankruptcy some pension benefits.  Although it was clear that Mr Roach would never be able to repay its debts, the court felt able to say this:-

"14.    The court is satisfied that Mr Roach has behaved very responsibly.  He has made every effort to pay off the debts over a considerable period and those debts originally arose out of an unfortunate event, namely redundancy.  He had even planned to work beyond the normal retiring age in order to clear his debts completely.  He had not spent money on luxuries and it is only the unexpected blow of becoming medically unfit for work which has led to his being unable to keep up his repayments and ultimately clear his debts.  The matter has been outside his control."

16.      The Viscount further submitted in relation to the health difficulties of the Representor that in her experience bankruptcy was very likely to hurt the health of the bankrupt.  This was not at all unusual, but it did not prevent a bankrupt person from obtaining employment.

17.      Finally the Viscount submitted that it was not appropriate to look at English law which had been the subject of statutory change in the way Advocate Haines contended.

Conclusions

18.      The submission of the Viscount that in all previous cases during the last thirty years since the enactment of the Law, some benefit or advantage for creditors had been identified before an early discharge of the Désastre order was made, was persuasive.  It suggests a firm policy in the Royal Court that the discretion to order an early discharge of the declaration of Désastre will not ordinarily be exercised without such a benefit being identified.  This does not exclude what we anticipate will be rare cases where an early discharge is made for some exceptional reason that does not in fact confer any benefit on creditors, although we assume that even in such cases it is unlikely that exceptional circumstances would outweigh any substantial dis-benefit or disadvantage to creditors if the same were to flow from the order for discharge. 

19.      Secondly it appears to us that in the exercise of our discretion under this part of the Law, we have to be fair to both the debtor and the creditors.  This does involve identifying the reasons for the objections, because if there are unreasonable objections advanced, that would be a factor which the Court would be entitled to take into account.  We do not regard the objections advanced by the two main creditors in this case as unreasonable.

20.      Thirdly, the Court is not persuaded by the submission that we should take into account the position under English law in the Insolvency Act as amended by the Enterprise Act.  There may be a raft of legislative provisions in relation to insolvency in the United Kingdom which have driven Parliament to make the legislative provisions which it has.  By contrast, it is clear from the report accompanying the Bill in 1990 that the committee of the day had given consideration not only to the principle that a Désastre ought to come to an end at some point but also to the length of time which ought to run before that date was reached.  The period of four years was identified as an appropriate period, as a general rule, in circumstances where for the first time the conclusion of the Désastre would lead to a general discharge of the debtor from his debts, other than in the case of the statutory exceptions.  It appears to us that the Court should start from the position that four years is an appropriate period.

21.      Advocate Haines had submitted that the Désastre arrangements were not intended to operate as a punishment.  We accept that submission, but we also note that a debtor should pay his debts.  Where a debtor fails to pay his debts, his creditors are adversely affected and indeed sometimes such creditors are themselves driven to bankruptcy as a result.  It is not a question of punishment that a Désastre continues - rather it is a question of equity and fairness as between creditors and debtor where all the relevant circumstances need to be taken into account.

22.      In all cases, the Court is bound to have regard to the conduct of the debtor - had the debtor dissipated the assets prior to the bankruptcy by spending money on luxuries, or on questionable activities having regard to his obligations?  The Court should also have regard to how the debtor had conducted himself during the course of the Désastre.

23.       We were not impressed with the failure of the debtor to obtain employment since the Désastre was declared.  We accept the Viscount's submission that most debtors are able to find employment and we see no reason why this debtor should not have done so.  As to his health, it may well be that he has been signed off for stress, but we also accept the contention of the Viscount that most debtors suffer stress in a bankruptcy.  We think there was no excuse for the debtor in failing to find employment - the island has full employment at present, and employers are looking for employees all the time.  It may well be that the debtor has not obtained employment which he regards as suitable for his talents, but that is not the issue.  Had he found employment, the possibility of paying money into the bankruptcy would have arisen - an analysis of that possibility at this stage would make a difference to the way in which the Court approached the present application, but such an analysis is not possible because the debtor has not found employment.  He should have been able to get a job, and in fairness to the other creditors, we place considerable reliance upon that.

24.      Finally, it might be thought that by our reference to the statutory position in England, we were encouraging the States to consider an amendment to the legislation.  If it is considered appropriate of course the States can amend the legislation, however, that is not our position, and we express no view on it.

25.      For these reasons, the application was refused.

Authorities

Bankruptcy (Désastre) (Jersey) Law 1990. 

Re Young [1999] JLR Notes 1B. 

Roach v Lamy [2005] JRC 149