Bramston v Haut

At about 16:30 on 3 April 2012 I made an order on a without notice application by Abraham Haut suspending his discharge from bankruptcy until 15 May 2012 or further order in the meantime (“the Order”). But for the Order, Mr Haut would have been automatically discharged from bankruptcy by the operation of section 279(1) of the Insolvency Act 1986 at midnight on 3 April 2012. The Order gave Mr Haut’s trustee in bankruptcy, Timothy Bramston (“the Trustee”), permission to apply to set aside or vary it on two clear days’ notice. On 10 May 2012 I heard an application by the Trustee to set aside the Order. Both applications were made in unsatisfactory circumstances, as I shall relate.

Mr Haut was made bankrupt on 4 April 2011 by order of Registrar Nicholls upon a petition by Her Majesty’s Revenue and Customs. On 9 August 2011 Mr Haut gave notice to creditors of a meeting on 6 September 2011 to propose an Individual Voluntary Arrangement or IVA (“the First Proposal”). The nominees were Harold Sorsky and Stella Davis. The Trustee was appointed at a meeting of creditors on 11 August 2011. The Trustee interviewed Mr Haut on 25 August 2011. On 31 August 2011 the Trustee applied for directions under section 363 of the 1986 Act requiring Mr Haut to withdraw the First Proposal and preventing Mr Haut from making any further proposal for an IVA for three months. The grounds of that application were set out in the Trustee’s first witness statement of the same date. In summary, the Trustee raised a number of concerns as to the accuracy of the information contained in the First Proposal. In particular, he expressed concern that Mr Haut had not provided full and accurate information as to his assets, that some of the creditors’ claims had not been properly substantiated and that the First Proposal contained inaccurate or misleading information. On 2 September 2011 Deputy Registrar Barnett made the order sought. Mr Haut did not attend the hearing and was not represented.

Since 2 September 2011 the Trustee has continued to investigate Mr Haut’s affairs. On 15 February 2012 there was a public examination of Mr Haut by the Official Receiver. Two members of the Trustee’s staff attended the examination, but were not permitted to question Mr Haut. The Trustee says that Mr Haut’s evidence was very confused. The public examination was adjourned until 28 March 2012, but on 7 March 2012 the Trustee requested that it be concluded. On 9 March 2012 Mr Haut agreed to this. Counsel for the Trustee informed me, however, that he reserves the right to apply for private examination of Mr Haut.

Rabbi Joseph Teitelbaum claims to be a creditor of Mr Haut. He represents a number of other claimed creditors. The total value of their claims is £3,103,428, which is 54% of the total creditor claims of £5,719,722. It is common ground that, from mid-November 2011 to late March 2012, there were extensive discussions between the Trustee and Rabbi Teitelbaum about Mr Haut’s affairs.

It is the Trustee’s evidence that there were two meetings of creditors on 15 November 2011 and 13 December 2011. Surprisingly, that is disputed. Rabbi Teitelbaum’s evidence is to the following effect: (i) on 7 October 2011 the Trustee gave notice to creditors of a meeting on 15 November 2011 to approve the terms of his remuneration; (ii) on 15 November 2011 the Chairman did not formally open the meeting as it had not been advertised in the London Gazette, but there was an informal discussion amongst those present; (iii) on 29 November 2011 notice was given of a meeting on 13 December 2011; (iv) on 12 December 2011 Frank Turnbull of the Trustee’s staff orally agreed to adjourn the meeting scheduled for 13 December 2011 and confirmed this by emails dated 12 and 13 December 2011; and (v) the meeting has still not been re-scheduled. The result, so it is contended by both Rabbi Teitelbaum and Mr Haut, is that even now there has been no agreement by creditors to the Trustee’s terms of remuneration.

On 22 March 2012 Ephraim Solomon, who claims to be a creditor of Mr Haut in the sum of £561,733, sent a request to the Trustee pursuant to section 298 of the 1986 Act that the Trustee summon a creditors’ meeting to consider removing the Trustee as Mr Haut’s trustee. Mr Solomon is one of the creditors represented by Rabbi Teitelbaum. A further copy of his request was sent on 28 March 2012.

At 17:40 on 28 March 2012 Mr Haut’s solicitors sent a draft of a second proposal for an IVA to the Trustee (“the Second Proposal”). The nominee was Mr Sorsky. The covering letter stated that the Second Proposal had to be issued within a year of the bankruptcy order, and Mr Haut intended to issue it on 30 March 2012 (a Friday). Accordingly, comments were requested by 16.00 on 29 March 2012. No explanation has been given as to why the Second Proposal was not sent to the Trustee at an earlier date.

At 16:35 on 29 March 2012 Helen Fraser-Green of the Trustee’s staff responded by email. She said that the Trustee’s main concern was that the Second Proposal was not substantially different to the First Proposal and full details of Mr Haut’s assets and liabilities had still not been provided. She also noted that provision needed to be made for the Trustee’s costs and legal fees. She then said that “an application for the interim suspension of Mr Haut’s discharge will need to be made by you, as it will not be possible for the meeting of creditors to agree the IVA post discharge … Wright v Official Receiver [2001] BPIR 196 … and … Re Ravichandran [2004] BPIR 814”. I interpolate that it is common ground that the latter point is correct.

At 11:44 on 30 March 2012 Mr Haut’s solicitors replied to Ms Fraser-Green stating that they were instructed to apply for an order suspending Mr Haut’s discharge from bankruptcy for a period of 6 weeks to allow the creditors to consider the Second Proposal that day and asking the Trustee to confirm that he had no objection to such an order being made. Later the same day Mr Haut’s solicitors sent Ms Fraser-Green a copy of Mr Haut’s draft application and witness statement in support. The covering letter stated that they had instructed counsel to attend and asked whether the Trustee was prepared to consent to the order.

In the event, Mr Haut’s application was not issued on 30 March 2012 because Mr Haut’s solicitors’ London agents returned their instructions due to a potential conflict of interest and the instructions had to be re-submitted to different agents.

At 17:06 on 30 March 2012 Peter Murray of the Trustee’s staff sent Mr Haut’s solicitors an email saying that the Trustee could not see that it was open to Mr Haut to apply under section 279 of the 1986 Act or that section 303 of the 1986 Act provided any basis for the proposed application. The email went on to say that the evidence in support failed properly to set out the history of the matter, and in particular the First Proposal and the Trustee’s successful application for it to be withdrawn. The email concluded by stating that the Trustee was not able to confirm that he had no objection to the order, since the application appeared flawed and without merit, and by making the following request:

“In the event that you do decide to proceed with the application then you should advise the Trustee as to the time and place of the hearing in advance, providing as much notice as possible, so that the Trustee can consider his position properly with his advisors and then decide whether he needs to be represented or not.”

At 11:15 on 2 April 2012 (the following Monday) Mr Haut’s solicitors sent Mr Murray an email requesting the Trustee to make an urgent application to suspend the discharge of Mr Haut’s bankruptcy for 6 weeks and stating that Mr Haut would agree to such an order being made. In the alternative, they asked whether the Trustee accepted that section 363 of the 1986 Act conferred jurisdiction on the court to make an order on Mr Haut’s application. Finally, they said that in the absence of any response Mr Haut would rely upon the lack of response as bringing section 303(1) of the 1986 Act into play.

At 17:20 on 2 April 2012 Ms Fraser-Green replied stating that the Trustee did not intend to apply to suspend the discharge of Mr Haut’s bankruptcy. She disputed that Mr Haut had grounds for an application under section 303(1) and that section 363 enabled the court to make the order he was seeking. The email concluded with a request in similar terms to that quoted in paragraph 11 above, and also asked that all recent correspondence and emails be brought to the attention of the court.

Mr Haut’s application was issued on 3 April 2012 with a return date of 17 April 2012, but that would have been too late given that section 279(1) of the 1986 Act would come into operation at midnight on 3 April 2012. Accordingly, Mr Haut’s solicitors instructed counsel to make an application in the interim applications court that day. I was sitting in that court on that day, and my initial reaction was that the application should be made to the Registrar. Counsel for Mr Haut attempted to obtain a hearing before a Registrar, but was unsuccessful. Accordingly, he requested that I hear the matter. At about 15:45 my clerk notified counsel’s clerk that I would hear his application at 16:00. By that point I had started reading the papers, and continued to do so until 16:00.

The application was supported by a short witness statement made by Paul Rushworth of Mr Haut’s solicitors on 2 April 2012. In his statement Mr Rushworth disclosed the fact that Mr Haut had made a previous proposal for an IVA, that the Trustee had applied for it to be withdrawn and that such an order had been made on 2 September 2011. He did not, however, exhibit the Trustee’s first witness statement, nor was that witness statement otherwise put before the court. In my view that should have been done. Mr Rushworth did, however, exhibit the correspondence and emails summarised in paragraphs 7-13 above.

During the course of 3 April 2012 Mr Rushworth was repeatedly contacted by Mr Haut and Rabbi Teitelbaum seeking news of the application. He told them that he was still waiting to hear about the hearing. It appears that Rabbi Teitelbaum decided to attend court anyway. Shortly after 15:45 counsel’s clerk telephoned Mr Rushworth to advise him of the hearing. Shortly after that, Rabbi Teitelbaum telephoned Mr Rushworth again, and Mr Rushworth informed him about the hearing. Accordingly, Rabbi Teitelbaum rushed to the hearing and made a late appearance.

It is necessary to record five points about the hearing. First, counsel for Mr Haut had stated in his skeleton argument that short notice of the application would be given to the Trustee; but in his oral submissions to me he said that, owing to the circumstances, he did not suppose that the Trustee knew about the hearing. It is common ground that Mr Rushworth did not notify the Trustee of the hearing.

Secondly, counsel for Mr Haut told me that under the Second Proposal creditors would receive 9p in the pound. In fact, as he was aware, they would receive 0.9p in the pound. He has accepted that this was a misrepresentation on his part, albeit an unintentional one, for which he has apologised.

Thirdly, counsel for Mr Haut took me through the correspondence and emails summarised in paragraphs 7-13 above. He also showed me an email from Rabbi Teitelbaum to Mr Rushworth sent at 13:15 on 3 April 2012 stating that Rabbi Teitelbaum and the majority of Mr Haut’s creditors supported the application.

Fourthly, towards the end of counsel’s submissions Rabbi Teitelbaum arrived in court and requested permission to address me as a creditor of Mr Haut. I permitted him to do so, and he supported the application.

Fifthly, I did not give a fully reasoned judgment, but stated that I was satisfied that it was an appropriate case in which to exercise the court’s jurisdiction under section 303(1) of the 1986 Act. As I had previously indicated in the course of counsel’s submissions, it appeared to me that the court had jurisdiction under section 303(1) because the Trustee had decided not to make an application under section 279(3) and both Mr Haut and Rabbi Teitelbaum were dissatisfied with that decision. By contrast, I was not satisfied that the court had jurisdiction under section 363(1), which counsel had also relied upon. Accordingly, I made the Order.

On 4 April 2012 Rabbi Teitelbaum attended the Trustee’s offices without an appointment to discuss the Second Proposal and the Trustee’s fees, and was seen by Mr Turnbull. He sent Mr Turnbull an email the same day following up on the meeting. On 5 April 2012 Mr Turnbull replied in a lengthy email raising 11 points with regard to the Second Proposal and setting out the Trustee’s position with regard to his fees and costs. Rabbi Teitelbaum said that he would pass this information on to Mr Sorsky.

On 10 April 2012 Mr Sorsky gave notice to creditors of a meeting on 1 May 2010 to approve the Second Proposal. It does not appear that the Second Proposal as sent to creditors was materially different to the draft which was before the court on 3 April 2012.

It appears that there was a meeting between Rabbi Teitelbaum and Mr Turnbull and another member of the Trustee’s staff on 18 April 2012.

On 25 April 2012 Mr Haut’s solicitors sent Mr Turnbull by email a lengthy reply to the latter’s email of 5 April 2012.

On 30 April 2012 solicitors newly instructed by the Trustee sent Mr Sorsky a lengthy letter demanding that the Second Proposal be withdrawn immediately. The letter appears to have been sent by fax at 12:10, yet demanded written confirmation of withdrawal by 12:00 the same day. Five grounds were given for the demand, although the third to fifth grounds were referred to as the fourth to sixth. The first was that the Order was wrongly made, the second was that the Second Proposal contained various defects and the fourth (referred to as the fifth) was that there were unresolved enquiries in the bankruptcy. The letter stated that the Trustee would be issuing an application to set the Order aside later that day. No explanation has been given as to why the Trustee did not act sooner given that the Order was made on 3 April 2012 and was due to expire on 15 May 2012 and that the creditors’ meeting had been called for 1 May 2012.

The application which is presently before me was duly issued on 30 April 2012 returnable on 10 May 2012. The Trustee’s second witness statement in support of the application was not made until 4 May 2012 and, so I was informed by counsel for Mr Haut, was not served until 13:45 on 8 May 2012. A further statement relied upon by the Trustee, from a Melvyn Becker, was not made until 8 May 2012 and, so I was informed, not served until the evening of 9 May 2012.

In the meantime, on 1 May 2012 Mr Sorsky had responded to the Trustee’s solicitors’ letter dated 30 April 2012. The letter recorded that at the creditors meeting that day it had been agreed, in the light of the letter dated 30 April 2012, that the meeting be adjourned to 10 May 2012 at 11:00. In fact, the time stated was erroneous and the adjourned meeting was scheduled for 14:00. The letter went on to make certain other points. The Trustee’s solicitors replied on 2 May 2012.

On 4 May 2012 Mr Solomon issued an application seeking an order that the Trustee be removed as Mr Haut’s trustee alternatively an order that the Trustee call a meeting of Mr Haut’s creditors for the purpose of considering his removal. The application is supported by a witness statement made by Rabbi Teitelbaum on 9 May 2012. In his statement Rabbi Teitelbaum says that the Trustee refused or failed to call a creditors’ meeting as requested by Mr Solomon without justification. Furthermore, he suggests that the Trustee has a conflict of interest arising out of the fact that the Trustee has incurred fees and costs of over £100,000 based on time charges which Rabbi Teitelbaum believes have not been approved by the creditors, whereas the scale charges recoverable by the Trustee might only amount to £20,000. The Trustee has not yet had time to answer this application and it is not presently before me.

It will be appreciated from this narrative that the Trustee’s application came before me just three and a half hours before the adjourned creditors’ meeting to consider the Second Proposal. In those circumstances it would clearly have been preferable for me to give a decision, if not a reasoned judgment, prior to the commencement of the meeting. It seemed to me that the parties’ arguments required proper consideration, however, and accordingly I reserved judgment. I recognise that in the meantime the creditors may well have approved the Second Proposal. If, however, the Trustee’s application were to succeed, then it seems to me that the Order would be set aside, with the effect that Mr Haut would have been discharged from bankruptcy at midnight on 3 April 2012. I did not understand either counsel to dispute that the effect of that would be to invalidate the IVA if it has been approved.

Before turning to consider the grounds on which the application is made, it is convenient to record at this conjuncture that the Trustee’s second witness statement sets out a number of matters with regard to Mr Haut’s affairs which the Trustee considers require further investigation. Some of these had previously been raised in the Trustee’s first witness statement and/or in subsequent correspondence, while one matter was raised for the first time in the second witness statement. It is not necessary for me to go into the details of these matters in this judgment, because counsel for Mr Haut accepted that at least some of them were matters which appeared to warrant investigation by the Trustee.

The relevant provisions of the 1986 Act for present purposes are as follows:

“Duration

279.(1) A bankrupt is discharged from bankruptcy at the end of the period of one year beginning with the date on which the bankruptcy commences.

(2)

If before the end of that period the official receiver files with the court a notice stating that investigation of the conduct and affairs of the bankrupt under section 289 is unnecessary or concluded, the bankrupt is discharged when the notice is filed.

(3)

On the application of the official receiver or the trustee of a bankrupt's estate, the court may order that the period specified in subsection (1) shall cease to run until—

(a)

the end of a specified period, or

(b)

the fulfilment of a specified condition.

(4)

The court may make an order under subsection (3) only if satisfied that the bankrupt has failed or is failing to comply with an obligation under this Part.

…

General control of trustee by the court

303.(1) If a bankrupt or any of his creditors or any other person is dissatisfied by any act, omission or decision of a trustee of the bankrupt's estate, he may apply to the court; and on such an application the court may confirm, reverse or modify any act or decision of the trustee, may give him directions or may make such other order as it thinks fit.

…

General control of court

363.(1) Every bankruptcy is under the general control of the court and, subject to the provisions in this Group of Parts, the court has full power to decide all questions of priorities and all other questions, whether of law or fact, arising in any bankruptcy.

(2)

Without prejudice to any other provision in this Group of Parts, an undischarged bankrupt or a discharged bankrupt whose estate is still being administered under Chapter IV of this Part shall do all such things as he may be directed to do by the court for the purposes of his bankruptcy or, as the case may be, the administration of that estate.

(3)

The official receiver or the trustee of a bankrupt's estate may at any time apply to the court for a direction under subsection (2).

”

Counsel for the Trustee submitted that the court had no jurisdiction to make the Order under section 303(1), for two reasons. First, because the decision of the Trustee of which Mr Haut complained was the Trustee’s decision not to make an application under section 279(3). By virtue of section 279(4), however, the court could only make an order under section 279(3) if satisfied that Mr Haut was in default of his obligations, but it was not Mr Haut’s case that he was in default. Secondly and more generally, because the test to be applied under section 303(1) was whether the Trustee’s decision was Wednesbury unreasonable, and the Trustee’s decision not to make an application under section 279(3) was perfectly reasonable.

Counsel for Mr Haut accepted that it was not Mr Haut’s case that he was in default of his obligations, but submitted that the Trustee’s evidence in both his first and second witness statements demonstrated that the Trustee was contending that Mr Haut was in default of his obligations. On that footing, he submitted that it was Wednesbury unreasonable for the Trustee to refuse to make an application under section 279(3), particularly in circumstances where both Mr Haut and the claimed creditors represented by Rabbi Teitelbaum positively wanted him to make that application.

It should be noted at this juncture that on 3 April 2010 I was not referred to any authorities on section 279(3) or section 303(1), as in my view I should have been. Even on 10 May 2010 the only authority cited on these provisions by either counsel was Supperstone v Hurst (No 3) [2006] EWHC 2147 (Ch), [2006] BPIR 1263. I was, however, also referred to the notes to sections 279(3) and 303(1) in Sealy & Milman: Annotated Guide to the Insolvency Legislation (14^th ed, 2011). One of the reasons why I decided to reserve this judgment was to give me the opportunity to consider the authorities cited in those notes.

One of the authorities cited in the notes to section 279(3) is Bagnall v Official Receiver [2004] EWCA Civ 1925, [2004] 1 WLR 2832. In that case the bankrupt was due to be discharged on 6 August 2002. On 23 July 2002 the official receiver applied to suspend the discharge. He was unable to send his report to the bankrupt 21 days before 6 August 2002 as required by the rules. Accordingly on 6 August 2002 he applied for an adjournment of the application. In the meantime the district judge made an interim order suspending discharge pending the effective hearing of the application. The issue before the Court of Appeal was whether the district judge had power to make that order under section 273(3). The Court of Appeal held that he did have that power for reasons which Arden LJ, with whom Latham LJ agreed, expressed as follows:

“25.

That therefore leaves section 279(3). On first reading section 279(3) does not authorise the making of interim orders. This is because it only applies ‘if the court is satisfied that a bankrupt has failed or is failing to comply with any of his obligations under this Part’. Obviously, after a substantive hearing the court must be so satisfied, on the balance of probabilities. This was the conclusion of Judge Rich QC in another case noted in Muir Hunter on Personal Insolvency, looseleaf ed, para 3–525, namely In re Milborn (a Bankrupt)The Independent, 26 July 1999. It would be odd, however, if the court could not make an order at any interim stage provided of course that the application was filed within the three-year period, otherwise Parliament's intention could be rendered futile if the bankrupt concealed his activities until the last moment or managed to gain an adjournment. I am not suggesting that in this case Mr Bagnall concealed his activities until the very last moment, but taking that possibility as an example.

26.

There could also be other circumstances in which the evident purpose of section 279 could be frustrated by the absence of a power to make an interim order. Suppose the official receiver issued and served his application well within the time required but the court declined to make a suspension order; suppose further that the official receiver wishes to appeal that order but before the appeal can be heard the three-year period expires. If the appeal is ultimately successful the official receiver would be deprived of the fruits of his success if no interim order can be made. I also bear in mind that section 279(3) does not entail any change in the status of the bankrupt but rather the continuation of a pre-existing status and the postponing of the discharge date. In all those circumstances I consider that section 279(3) must be read as enabling the court in an appropriate case to make an order at a point in time before the substantive hearing of the application. The word ‘satisfied’ means, as I see it, ‘proved sufficiently’ and there must, in the particular circumstances, be an iterative process between the proposed order and the degree of satisfaction required. Accordingly where only an interim order is proposed the degree of satisfaction required is that sufficient to justify the court in granting that interim order.

27.

In this case the judge expressed the position as being that there was a strong prima facie case for the grant of an order under section 279(3). In my judgment the court has power to make an interim order under this section and in doing it must be satisfied that there are reasonable grounds for concluding that such an order would be made after the substantive hearing on the material then placed before the court. The approach of Mr Burton QC in In re Jacobs [1999] 1 WLR 619 was a little different. He held that the court had to be satisfied that the grounds would, if unchallenged, have enabled the court to make an order under section 279(3). If the judge was there suggesting that, in making an interim order, the bankrupt's case, if known, should be disregarded, I would disagree. The judge cannot decide all the matters in dispute until the substantive hearing, but he must be satisfied, as I have said, that there are reasonable grounds for concluding that an order would be made on the substantive hearing on the material then placed before the court. I would expect the judge to lean on the side of the official receiver because of the consequences of refusing an interim order where the third anniversary of the bankruptcy order is about to occur. The automatic discharge cannot be reversed after the three-year period has expired. Thus no later decision under section 279(3) could revive the bankruptcy.”

This decision is not directly in point, but it establishes that section 279(3) must be given a purposive interpretation which takes account, in particular, of the fact that automatic discharge under section 279(1) cannot be reversed after the expiry of the relevant period (now, of course, one year).

In giving section 279(3) a purposive interpretation, in my judgment another relevant consideration is the attitude of the bankrupt. Section 279(3) provides for an application to suspend discharge to be made by the official receiver or trustee. In most cases, the bankrupt is likely to oppose the application or at least not consent to it. In those circumstances, the court must carefully consider at the interim stage whether there are reasonable grounds for thinking that an order will be made and at the final stage whether the official receiver or trustee has sufficiently proved that the bankrupt is in default notwithstanding the bankrupt’s opposition or lack of consent.

In the present case, however, the positions of the parties are reversed. It is the bankrupt who wishes his discharge from bankruptcy to be suspended, and it is the trustee who opposes that course of action. Where the bankrupt wants his discharge to be suspended, it must surely follow that the court will be more easily satisfied that it is appropriate to make such an order than if the bankrupt opposes it. That will be particularly so if a substantial body of creditors supports an application for suspension.

This brings me to what appear to me to be the key considerations in the present case, namely Mr Haut’s reason for seeking suspension of his discharge for a short period and the Trustee’s reason for opposing it. Mr Haut’s reason for seeking suspension was straightforward: he wanted to enter into an IVA in accordance with the Second Proposal. He could not do that once he had been discharged from bankruptcy. As for the Trustee, counsel for the Trustee expressly confirmed what appeared to be the case from the Trustee’s second witness statement and her skeleton argument, namely that the Trustee’s reason for opposing suspension was, and his objective in making the present application is, to prevent Mr Haut from proceeding with the Second Proposal. Indeed, as the Trustee has stated in paragraph 82 of his second witness statement, if the present application is unsuccessful and the Second Proposal is approved by the creditors’ meeting, he intends to make an application pursuant to section 282 of the 1986 Act to revoke that decision.

It is in that context that the two arguments advanced by counsel for the Trustee fall to be considered. So far as the first argument is concerned, I agree with counsel for Mr Haut that the Trustee’s evidence shows that it was as at 3 April 2012, and remains, the Trustee’s position that Mr Haut is in default of his obligations under the 1986 Act. Indeed, the Trustee’s witness statements, and counsel for the Trustee’s skeleton argument on the present application, contain a number of specific allegations that Mr Haut has failed to provide information which he is obliged to provide. Given that (i) the Trustee contends that Mr Haut is in default of his obligations, (ii) Mr Haut accepts that the Trustee has reasonable grounds for that contention, (iii) Mr Haut positively wants an application for suspension to be made and (iv) Mr Haut is supported by the creditors represented by Rabbi Teitelbaum, I consider that it is sufficiently proved that as at 3 April 2012 Mr Haut had failed or was failing to comply with his obligations to satisfy the jurisdictional threshold imposed by section 279(4).

Turning to the second argument, it is first necessary to say a little more about the applicable test. As indicated above, counsel were agreed that the test was Wednesbury unreasonableness (Associated Provincial Picture Houses Ltd v Wednesbury Corp [1948] 11 KB 223). This is supported by the note to section 303(1) in Sealy and Milman, which cites a considerable number of authorities, including Supperstone v Hurst, which demonstrate the reluctance of the courts to intervene in trustees’ decisions. As the history of judicial review over the last 20 years demonstrates, however, Wednesbury unreasonableness is a flexible standard that can be moulded to the exigencies of the case. Furthermore, as the analysis of Hoffmann LJ in Heath v Tang [1993] 1 WLR 1421at 1423-24 demonstrates, section 303(1) provides an important mechanism for the protection of bankrupts. It follows in my judgment that the strictness with which the test is applied must depend on the nature of the dispute and the relevant circumstances.

As noted above, counsel for the Trustee submitted that his decision not to apply for suspension of Mr Haut’s discharge was eminently reasonable. In support of this submission she argued that the Trustee had correctly considered that it was not in the interests of the creditors to do so. This was because the creditors would get nothing under the Second Proposal. Even on its face, the recovery would only be 0.9p in the pound. But that was misleading, because no allowance had been made for the petitioning creditor’s costs or the Official Receiver’s costs and only £20,000 had been allowed for the Trustee’s costs. She accepted, however, that the court could not resolve the dispute as to the terms of the Trustee’s remuneration. She submitted that there was no rational reason for creditors to support the Second Proposal, and suggested that the only plausible motive for them to do so was a collusive one, namely to bring the Trustee’s investigations into Mr Haut’s affairs to an end.

What these arguments demonstrate, however, is that the Trustee had no reason to object to the suspension of Mr Haut’s discharge from bankruptcy. On the contrary, he had good reason to support such a suspension. As noted above, his real objection was to the Second Proposal. Given that that was his real objection, I consider that the correct course was for the Trustee to apply for an order under section 363 requiring the Second Proposal to be withdrawn, as he had done in the case of the First Proposal. Given the timing, that would have required an application for a short suspension of discharge to allow the section 363 application to be determined prior to discharge. If Mr Haut were opposed to suspension, then in my view the Trustee could not have been criticised for not risking the costs of an application under section 279(3). But that was not the position. On the contrary, Mr Haut was not merely seeking suspension, but was prepared in effect to make the application of behalf of the Trustee.

I would add that, while the Trustee is correct to put the interests of creditors first, prima facie it is for the creditors to decide whether or not it is in their interests to accept the Second Proposal. The evidence before me is that 94% by value of the claimed creditors support the Second Proposal. It appears that they have concluded that it is better to take a chance of getting a very small recovery than to accept the certainty of getting nothing. It is proper for the Trustee to use his powers to ensure that Mr Haut complies with his obligations and that creditors are not misled. It does not follow that it is proper for the Trustee to attempt indirectly to block the Second Proposal by failing to lend his support to Mr Haut’s request for discharge.

Accordingly, in the rather unusual circumstances of this case, I consider that the Trustee was Wednesbury unreasonable in refusing to agree to Mr Haut making a section 279(3) application on his behalf. In short, this was unreasonable because the Trustee exercised his discretion as to whether to make an application under section 279(3) not for the proper purpose of exercising control over the bankrupt’s compliance with his obligations, which would have required him to support the application, but for the collateral and improper purpose of blocking the Second Proposal, which was properly to be achieved by an application under section 363. If the Second Proposal is approved, it will remain open to the Trustee to apply for it to be revoked, as he has threatened to do.

Having reached this conclusion, it is unnecessary and undesirable for me to express any view either on counsel for the Trustee’s submission as to the creditors’ motive for supporting the Second Proposal or on the submission made by counsel for Mr Haut that the real reason for the Trustee’s stance is a concern over his own fees.

Nor it is necessary for me to consider the alternative source of jurisdiction relied upon by counsel for Mr Haut, namely section 363(1).

Counsel for the Trustee also challenged the Order on a number of other grounds which I can deal with fairly briefly.

First, she submitted that there was no justification for a without notice application. I agree that notice should have been given to the Trustee, despite the difficult circumstances under which Mr Haut’s representatives were operating. I do not consider that the failure to give was notice was a serious lapse, however. The court was not misled about it; the situation was one of urgency, albeit that the urgency was largely of Mr Haut’s own making; and the Trustee’s correspondence, to which the court was referred, stated that he required notice not because he had decided to oppose any application, but in order to consider whether or not to be represented.

Secondly, she submitted that Rabbi Teitelbaum had misled the court as to the Trustee’s position with regard to the application. I am unimpressed with this point, since as I have said the court was taken through the Trustee’s own correspondence.

Thirdly, she relied upon the fact that the court was misled as to the dividend under the Second Proposal. The true figure was stated in the evidence, however, and I do not consider that error was one that was material to the exercise of the court’s discretion.

Fourthly, she submitted that the Second Proposal suffered from very similar defects to the First Proposal which the court had ordered to be withdrawn. I think her point was that the court was not sufficiently informed of the Trustee’s objections to the First Proposal. I agree that the court should have been more fully informed about this, but the nature of the objections was outlined in the Trustee’s correspondence to which the court was taken.

For the reasons given above, the Trustee’s application to set aside the Order is dismissed. The Trustee also sought an order under section 363 requiring Mr Haut to provide certain information. If that matter remains in dispute, I will hear further argument on it when this judgment is handed down.