Barker v Baxendale-Walker

This is the hearing of a petition presented to the Court by Mr Barker (the “Petitioner”) who seeks an order that Mr Baxendale-Walker (the “Debtor”) be adjudicated bankrupt. A statutory demand has been served by the Petitioner in respect of a judgment debt obtained on 29 January 2018 in the sum of £16,067,313.09 (the “Judgment Debt”). The demand has not been set aside. The petition is based on the unpaid Judgment Debt and a third-party costs order in the sum of £262,077.06. Her Majesty’s Revenue and Customs claims to be a creditor. It has also served a statutory demand. The demand seeks payment of £650,113.7 in respect of unpaid stamp duty land tax. The demand has not been set aside, but the Court is informed that an application to set aside has been made. HMRC are a supporting creditor at this hearing. Since service the HMRC statutory demand has been revised down, and £565,000 is said to be due.

The petition was presented on 29 March 2018. It was presented on an expedited basis pursuant to section 270 of the Insolvency Act 1986 and came before the Court soon after on 4 April 2018 to determine whether interim receivers should be appointed. The Court appointed interim receivers. The interim receivers appear through Mr Verrill today. They are neutral as to whether an adjudication of bankruptcy is made.

The Petitioner set up his own business which had developed into a set of trading companies in a group structure. Baxendale-Walker Solicitors was a firm of solicitors (the “Solicitors”) specialising in tax advice in which the Debtor was the principal partner. The Petitioner sought advice about how to mitigate substantial capital gains arising from the sale of his business. A tax avoidance scheme based on the establishment of an employee benefit trust (“EBT”) was advised, to avoid capital gains tax liability and inheritance tax. After entering the EBT, HMRC challenged the scheme and raised assessments. The Petitioner sought advice and entered into a settlement, which involved the payment of a substantial amount on account of tax and interest. The Petitioner made a claim against the Debtor for all the costs and professional fees incurred, including those of unravelling the arrangements which had been made, and claimed the tax paid to HMRC on the basis that, if he had not entered into the EBT scheme, he would have entered into a different tax avoidance scheme which he had considered at the time and which, he contended, would have avoided the tax which he had to pay. The Petitioner claimed that the Debtor and the Solicitors should have warned him that there was a risk that HMRC would not agree with the interpretation they had given to a provision in the Inheritance Tax Act 1984 (“ITA 1984”) and failed in their duty of care to act with competence when advising on the proper construction of the provision. The claim was resisted, it being said that there had been no negligence. It was argued that the interpretation of the relevant statutory provision on which the EBT scheme was based had been correct and, it could not be said that any reasonably competent lawyer with appropriate expertise would have warned that there was an alternative interpretation such that the scheme devised and implemented by the Debtor might not work.

At the first instance hearing before Roth J the Court found that the Debtor and Solicitors had not been negligent, in their interpretation of s 28(4) of the ITA 1984. He said that “whilst solicitors whose interpretation of a statute or document is incorrect, but not negligent, may be in breach of duty for failing to give a warning of the risk of an alternative view, I find it difficult to see that solicitors whose interpretation is likely to be correct are nonetheless in breach of duty for failing to warn”. He went on to decide that the post-death exclusion construction was “not obvious or likely” and “very doubtful” although it was “arguable”. The Petitioner appealed to the Court of Appeal.

In a unanimous decision the appellate Court found that the purpose of section 28 is to encourage the transfer of shares or securities in a company into an EBT by providing an exemption, provided certain conditions are satisfied. The scheme would be open to abuse if the trusts of the EBT could be used as a vehicle to provide future capital benefits for the settlor or members of his family as opposed providing a benefit for employees. A true construction of section 28 would be in harmony with its raison d'être, namely the prevention of the avoidance of capital gains taxation. Roth J was wrong in his construction of the provision. Henderson LJ, agreeing with the other members of the appellate Court, explained that the risk of the Debtor’s construction being incorrect was so strong that he was under a duty to give a “specific warning to Mr Barker that his own more sanguine view might well be successfully challenged by HMRC”. Although not argued in the Court of Appeal it was also said that the drafting of the EBT would not have given the benefits the Petitioner wished to receive. The result was that the first instance judgment was reversed, and the Judgment Debt entered against the Debtor.

The Debtor sought permission to appeal to the Supreme Court. The Court of Appeal refused permission. An application for permission to appeal has been made to the Supreme Court. The parties were not able to inform this Court what if any progress had been made in respect of the application for permission.

There has been an offer to pay the third-party costs order by a company incorporated in Belize known as Minerva Services Limited ("Minerva"). The interim receivers have refused to accept payment on the basis that they want full disclosure to ensure that the Debtor is not the beneficial owner of Minerva's assets or a beneficial shareholder. It is argued as Minerva is a separate personality in law, it is not relevant whether the Debtor is the beneficial owner of Minerva. There is no going behind the corporate veil, even in these unusual circumstances: Prest v Petrodel Resources Limited [2013] 2 AC 215.

Mr Jenkins is a director of Minerva and has produced a witness statement. In his statement he explains that Minerva “sells a range of wealth planning products or strategies. These strategies were developed by Mr Baxendale-Walker over a period of 20 years of professional practice. Minerva’s products are sold through networks of self-employed introducers. Minerva does not have a sterling bank account. UK clients therefore pay Minerva via our English fiduciary agents. These agents include companies owned and managed by me and companies owned and managed by Mr Mark Slater. When the agents receive client payments Minerva will direct the agents as to what to do with that money which obviously belongs to Minerva. In 2014 Minerva obtained a judgment in the Belize High Court. The Belize judgment provided that any monies administratively received to the date judgment by Baxendale-Walker LLP had been received on bare trust for Minerva, and such monies were “not the beneficial property of Baxendale-Walker LLP.”

As there is some suspicion about the source of funds to meet the third-party debt order, Mr Jenkins explains the reasons why Minerva will pay the debt:

“The value of the Minerva business rests with goodwill amongst clients and introducers gathered over many years. Any attack on Mr Baxendale-Walker will affect that goodwill, as well as the assistance which he may occasionally provide. It is for this reason that Minerva is prepared to support Mr Baxendale-Walker to an appropriate extent (including in relation to the appropriate legal costs). I consider this to be the commercial benefits of Minerva.”

Mr Jenkins adds that £300,000 had been set aside for the Debtor’s “present and future” legal costs. It is not said that Minerva is prepared to pay for any appeal of the Judgment Debt. There may be a specific reason why this is not mentioned such as the fear of a third-party costs order against it if any appeal were to be lost. Whatever the reason, in the absence of a specific statement to that effect I shall work on the basis that Minerva is not funding the appeal. His statement may be something that the interim receivers will consider, but as far as the hearing of the petition is concerned, the focus has been on the Judgment Debt. As regards HMRC, it supports the petition but although present at the hearing it chose to make no oral representations other than reserving its position until the handing down of this judgment.

There are two main grounds of opposition to the petition. First, there is a genuine and substantial cross-claim that equals the Judgment Debt. Secondly, the Judgment Debt is subject to the outstanding application for permission to appeal.

A claim has been made against the Petitioner by the Debtor. This was issued 29 March 2018. The claim piggy-backs the decision of the Court of Appeal reversing the decision of Roth J at first instance. At the time of the petition hearing the claim had not been served. The claim form states as follows:

“Claim for breach of express/or implied term of a contract pursuant to a letter dated 2 October 1998. The Defendant breached those terms and the Claimant suffered loss and/or damage. Claim in tort of negligence by reason of the unique relationship between a specialist tax and trusts advisor and the client, which results in the client owing a duty of care to the advisors. The Defendant has breached that duty of care and the Claimant has suffered loss and damage.”

At first glance the claim is unusual. The obligation that is said to exist is the obligation of a client. It arises due to a letter dated 2 October 1998 (the “Retainer”). The Retainer is not set out in any detail in the claim form or in evidence before the Court (it has subsequently been sent to the Court). The piggy-back element mentioned, is that the relief sought is for the same sum as the Judgment Debt and based on the same facts that gave rise to the Judgment Debt. The cross-claim was not raised as a defence or counterclaim (where the Debtor would be a claimant) in the main proceedings. The only elaboration of the cross-claim comes from the skeleton argument of Mr Hackett. He says that the Retainer between the Debtor and the Petitioner expressly provided that if HMRC challenge the EBT the Debtor would deal with all communications but not representation before the special commissioners. According to the skeleton argument of Mr Hackett he relies on a different letter dated 2 March 1999 which states:

I shall refer to this as the "Representation" term. It is not explained how the letter dated 2 March 1999 became incorporated in the Retainer. It is said that if there was no express term, there was an implied Representation term. And if there was no contractual term there was duty of care in tort. Mr Hackett does not set out how a Representation term should be implied. I note that the Retainer is mentioned in the judgment of Asplin LJ at paragraph 9 bearing neutral citation [2017] EWCA Civ 2056. Moving onto the breach, it is said that the Petitioner failed to comply with his obligation by not employing the Debtor to (a) challenge HMRC’s interpretation of section 28(4) ITA 1984; (b) advise of the consequences that HMRC’s interpretation would have on the EBT; or (c) make representations to HMRC. Mr Hackett sums up the breach as failing to employ the Debtor to “cover all negotiations”. If the Petitioner had fulfilled his obligations pursuant to the Representation term, the Debtor would have advised the Petitioner that HMRC would have no right to claim a tax charge even if it had been right about the construction of section 28(4) of ITA 1984, due to the identities of the beneficiaries.

It would appear that the notion that there may be no right to claim a tax charge due to the different identities of the beneficiaries was raised for the first time by Henderson LJ in the Court of Appeal. Lord Justice Henderson commented that as the Court had not been addressed on the matter, it did not have to deal with the issue but in his view the Debtor would still have failed the Petitioner as the sub-trust created within the boundaries of the EBT was made for benefit of “Excluded Beneficiaries”. He said:

He observed:

“Mr Barker would indeed have been entitled to exemption from IHT on his transfer of shares, but the settlement would never have been capable of operating in the way which he hoped, and on the strength of which he had paid an enormous fee for the tax avoidance advice given to him by Mr Baxendale-Walker. Indeed, it would seem to follow that the sub-trust established soon after, on 23 March 1999, was itself invalid because it was made for the benefit of Excluded Beneficiaries.

In those circumstances, Mr Baxendale-Walker and his firm would be impaled on the horns of an uncomfortable dilemma. Assuming HMRC's construction of section 28(4) to be correct, he should have given Mr Barker a clear specific warning to that effect; and he could not save the day by arguing that the trusts of the EBT were in fact drawn in a manner which would secure exemption, because the settlement would then fail to achieve the very objective which had induced Mr Barker to make the transfer, and on the strength of which the scheme had been sold to him. Either way, Mr Baxendale-Walker and his firm were clearly negligent.” (My emphasis)

This gives a flavour of the opposition to the petition at this hearing. If there was an express or implied Representation term or if the Petitioner owed the Debtor a duty of care consistent with the Representation term, if there had been a breach of the term or duty of care, causation and loss pose a real difficulty. There has been little or no argument to the contrary.

In any event the Petitioner argues that the cross-claim is an abuse of process alternatively it is not genuine and serious. The Petitioner submits that as the Debtor has not obtained a stay on the Judgment Debt from the Court of Appeal or the Supreme Court, the Court of Appeal refused permission to appeal and the Supreme Court has not determined the PTA, an immediate bankruptcy order should be made.

Mr Bailey for the Petitioner refers to the rule in Henderson v Henderson (1843) 3 Hare 100, (1843) 67 ER 313 to argue that any cross-claim ought to have been brought in the original claim or should have been deployed as a defence of contributory negligence to the Petitioner’s claim. Mr Hackett for the Debtor argues that the rule does not apply as the Debtor was the defendant in the original claim. The principle underlying the rule in Henderson v Henderson is easy to state but is often misunderstood or difficult to apply. It is in the public interest that there is finality to litigation. Litigation should not drag on for ever, and defendants should not be harassed twice in respect of the same set of circumstances.

There is considerable jurisprudence concerning the scope of the rule in Henderson v Henderson. I have not been taken in detail to the cases but it is worth, for the purpose of determining whether there is a reasonable prospect of success or that the cross-claim is genuine and serious, revisiting the dictum of Sir James Wigram VC. He said:

It is apparent from this dictum that the rule is not limited to claimants. The Court requires “the parties to that litigation” to bring forward “their whole case”. The rule prevents the same parties to open the same litigation. The rule is not based on the doctrine of res judicata, it does not require issue or cause of action estoppel. The rule is concerned with an abuse of process: Johnson v Gore Wood & Co [2000] UKHL 65. It is an abuse of process to fail to bring the whole case and a party runs a serious risk if it has in mind bringing different actions at the time of the original claim by not raising the matter at case management: Aldi Stores Ltd v WSP London Ltd [2007] EWCA Civ 1260.

The claim now made by the Debtor was not raised during the course of the original claim or in fact, during appeal to the Court of Appeal. The claim made by the Debtor concerns the same factual matrix as the original claim before Roth J. There would be extensive overlap of witnesses, issues and evidence between the original action and the claim now issued but not served. The claim should have been pleaded as a counter-claim but was not. Even if it is argued that a separate claim should have been issued, no reason has been advanced as to why the Aldi requirement was not met.  If the Aldi requirement had been met the judge at the case management stage would have ordered the matters be tried together as they arise out of the same factual matrix, there would be less risk of inconsistent findings of fact (a public policy issue), it would have been more efficient to hear the claims together in terms of Court time and the cost of witness attendance, and such a case management decision would have been consistent with the principle that the court requires the parties to litigation to bring forward their whole case.

I make the following observations regarding the alleged breach of the Representation term. First, no express term is pleaded or referred to in substance (other than its existence); secondly, reliance is made on the March 1999 letter which does not purport to be the Retainer; thirdly, it is not explained how the Representation term as set out in the March 1999 letter was incorporated into the Retainer; fourthly, on the argument of the Debtor it is the Retainer that needs to be construed to establish whether or not an express Representation term was incorporated, and it is revealing that the Retainer does not include an express Representation term. Although the Retainer includes advice and work to set up the trust it expressly excludes “any further work” to be done at the request of the Debtor; fifthly, one consequence of this is that the Debtor would have to argue that the Retainer bound the Petitioner to enter into a new retainer for the purpose of representation not covered by the Retainer. No authority has been provided for this proposition; sixthly, if the March 1999 letter is relied on only, then it would have been incorrect to refer to the Retainer, but in any event the March 1999 letter will require interpretation to establish whether or not a Retainer term had been expressed. On a true construction, the March 1999 letter imposed no positive obligation on the Petitioner to enter a new retainer and no obligation that only the Debtor should be employed to communicate and make representations with HMRC in respect of the EBT: the March 1999 letter merely stated that a responsibility existed on the Debtor but there is an absence of an imposed compulsion that the Petitioner use the Debtor to communicate and negotiate with HMRC; seventhly, the March 1999 letter does not expressly deal with what happens after the EBT was set up and established, let alone what was to happen many years later; eighthly, if the Debtor's construction of the March 1999 letter is correct, the Debtor would have been bound to ensure that the Debtor handled all “communications with the Inland Revenue regarding the taxation treatment of the Employee Benefits Trust..... all negotiations and documentation up to, but not including, representing you before the Special Commissioners.” for the remainder of his life or the life of the Debtor even if the Petitioner had lost confidence in the Debtor. Such a term would not only be extraordinary but onerous and require clear drafting. It fails in this regard; ninthly, the implied term was not canvassed before the Court at this hearing, and I infer adversely for the Debtor, that there was a good reason for not doing so. I also infer35 adversely that there was a good reason for not pleading or advancing an express or implied Representation term argument during the main proceedings or in the Court of Appeal namely, it stood no reasonable prospects of success; and lastly, as the claim form was not issued until April 2018 it will have difficulties with limitation due to (a) there being no identification in the skeleton argument or claim form as to when the breach is said to have occurred (b) the Petitioner first took advice about the effectiveness of the EBT from someone other than the Debtor in July 1999 (allegedly in breach of contract or duty) (c) the Petitioner continuing to take advice from various different parties including Mr Andrew Thornhill QC, a co-author with the Debtor of a specialist tax book, (d) HMRC opened its investigations in August 2005, with advisers acting for the Petitioner corresponding with HMRC and assessments being made in 2010 and (e) in February 2011 Farrer & Co were instructed to act on an appeal against the assessments.

Moving on to the substance of the Representation term, no authority has been shown to the Court to support the proposition that a client may owe a specialist tax advisor a duty of care. The Petitioner paid £2.4 million in professional fees for tax advice and to set up the EBT following the advice. It is said that the duty of care springs from a relationship between client and tax advisor and that relationship is special. That is wholly inadequate and surprising as the Debtor is seeking to show that the claim is genuine and serious. In Williams v Natural Life Limited [1998] 1 WLR 830, the founding director and principal shareholder of a company which ran a health food shop was sued by a franchisee of the business for the negligent provision of financial projections about the business. The claim failed. Lord Steyn explained that:

“It is not sufficient that there should have been a special relationship with the principal [i.e. the company]. There must have been an assumption of responsibility such as to create a special relationship with the director or employee himself.”

The argument that there was a special relationship without explaining how such a relationship was created (the assumption of responsibility between these particular parties) demonstrates the cross-claim’s weakness. Alternatively, if it is said that a special relationship should always exist between a client and specialist tax advisor no authority has been provided. The argument before this court is insufficient to raise serious argument.

Even if the factors set out in paragraph 23 and the lack of explanation as to the duty of care owed (as I have explained in paragraphs 24 and 25) by a client to a tax advisor is said to be wrong, the Debtor has failed to explain how he is to negotiate the dilemma highlighted by Henderson LJ. The Court of Appeal found that the Debtor and his firm were negligent regardless of the true construction of section 28(4) ITA 1984.

The Court is asked to exercise its jurisdiction pursuant to rule 10.24(2) of the Insolvency Rules 2016 to dismiss or stay the petition pending the application for permission to appeal to the Supreme Court (the "PTA").

Rule 10.24 (2) provides (where relevant):

“If the petition is brought in relation to a judgment debt, or a sum ordered by any court to be paid, the court may stay or dismiss the petition on the ground that an appeal is pending from the judgment or order, or that execution of the judgment has been stayed.” (my emphasis)

It is common ground that the Court of Appeal has not granted a stay on its judgment. It is also common ground that there need be a pending appeal from the Court of Appeal for the jurisdiction to be triggered under rule 10.24(2) of the Insolvency Rules. In this regard it is argued that an application for permission to appeal is the same as a pending appeal. Reliance is made on Parkin v Westminster City Council [2001] BPIR 1156 which concerned an appeal to the Court of Appeal against a County Court judgment with permission on a separate application as to whether or not orders for payment of costs should be stayed whilst a set off as to costs was worked out. The head note reads that the “intention was that the said appeal and also the application or permission to appeal would be heard at the same time.” Before the permission application was determined or heard Mr Parkin was made bankrupt on the judgment debt. He appealed but lost the appeal on the basis that the permission to appeal costs and the appeal application failed to reach the threshold test of reasonable prospects of success. Arden J (as she was) said:

“….the question arises what the bankruptcy court should do, if it is faced with a judgment debt and, on the other hand, is in a position in which it finds that the judgment debtor is proposing to appeal? In those circumstances, the approach which Mr Registrar Baister took was to look at the grounds of appeal. He concluded that the appeal was not a strong one but did not comment on the prospects of the appeal before the Court of Appeal. In those circumstances, now that the court is apprised of the situation that there is an application for leave to appeal pending before the Court of Appeal, what should be the appropriate approach by this Court? In my judgment, the court should consider whether or not the appeal has a reasonable prospect of success.”

Mr Hackett for the Debtor invites this Court to take the same approach with the PTA before the Supreme Court and seeks a stay. He says that as a matter of policy the jurisdiction should be exercised because it would be unfair if the Debtor is made bankrupt on the Judgment Debt which may later be overturned and that rule 10.24(2) acts as a safety net to prevent such unfairness.

Mr Bailey argues that the right approach is to treat the PTA as a bare right and not a pending appeal. In Commissioners for HM Revenue & Customs v Rochdale Drinks Distributors Ltd [2013] BCC 419 the Court of Appeal considered an appeal made by HMRC against an order discharging provisional liquidators. Rimer LJ said:

“The fact, however, that the assessment raised by HMRC was one that could be the subject of an appeal by RDD….does not mean that the assessment could not found the basis for a petition….put another way, it was not open to RDD to challenge and defeat the petition merely on the basis that it had a statutory right of appeal against the assessment before another forum. The existence of a right of appeal says nothing as to whether any appeal will have merit….”

He fortifies his argument by reference to Heath v Tang [1993] 1 WLR 1421 which concerned appeals against a judgment debt. Considering the predecessor rule, r.6.25(2) of the 1986 Rules, Hoffmann L.J observed that the Court should only act pursuant to the rule if it is satisfied that the appeal is bona fide.

Mr Bailey argues that authority explains what a judgment debtor should do in circumstances where there in an application for permission, namely to seek a stay of the judgment: Amalgamated Properties of Rhodesia [1917] 2 Ch. 155; El Anjou v Dollar Land (Manhatten) Ltd [2007] BCC 953. The meaning of a “pending appeal” has been considered by the Courts before now. However, counsels’ research has discovered only one reported case Rehman v Boardman [2004] EWHC 505 where Lewison J (as he was) was faced with deciding whether an appeal was pending for the purpose of r.6.25(2) Insolvency Rules 1986, where no permission to appeal had been granted, and an application for permission was out of time. Only one party was represented before Lewison J. He said [19]:

“Nor in my judgment is there any appeal pending against the judgement of Her Honour Judge Faber; all that has happened so far is that Mr Rehman has applied for permission to appeal out of time and for permission to appeal. Until such time as the Court of Appeal decides to extend time for the application and to grant permission to appeal there cannot, in my judgment, be said to be any appeal pending.” (my emphasis)

Mr Justice Lewison was taken to Parkin and noted that Arden J (who only had one party appearing before her) was concerned with an application for permission to appeal “rather than a pending appeal”. Arden J had not been addressed on or taken to r.6.25(2) but Lewison J thought that her approach “may well be appropriate” as the substantive appeal and permission application were to be heard together. The permission application and appeal effectively became one. In my view Lewison J retained the distinction between a pending appeal and an application for permission. The position was not too dissimilar in Shotley Point Marina (1986) Ltd v Spalding [1997] 1 EGLR 233 where the Court of Appeal heard the combined application and made a decision on the merits of the appeal, taking into account any prejudice to the landlord. The approach taken by the Court of Appeal was efficient and practical. The case of Shotley Point Marina was referred to by Lewison J in Rehman.

In my judgment the cross-claim or cross-demand now raised, issued but not served is an abuse of process. By a cross-claim the Debtor would had to have advanced his own cause of action based on breach of duty or breach of the Representation term, making him a claimant. I am not persuaded that the abuse of process principle first enunciated by Sir James Wigram in Henderson v Henderson is confined to claimants only as advanced by Mr Hackett. The rule is not so restrictive, and it would make little sense, bearing in mind the policy considerations, to confine the rule in such a way. It follows that it is not serious or genuine.

If it is contended that there is good reason for bringing a separate claim, it is clear that there will have been extensive overlap between the original claim and the new claim. Consequently, there will have been a failure to comply with the Aldi requirement.

Further the observations in paragraphs 23 to 25 lead me to conclude that (i) there was no express or implied Representation term between the Debtor and Petitioner, binding the Petitioner to employ the Debtor to make representations to and or to negotiate with HMRC; (ii) if there had been such a term, express or implied, the Debtor would have been negligent in any event and caused loss and damage to the Debtor; and (iii) in the absence of any authority cited to the Court, the existence of the same duty in tort on the basis of a special relationship where there has been no attempt to identify how an assumption of responsibility arose imposing a duty on a client, is not genuine and serious, or in other words do not stand a real prospect of success.

In my judgment the language of rule 10.24(2) is focussed on providing the court with a discretion to stay if an appeal is pending. An ordinary reading of the language favours the meaning “to await”. Awaiting an appeal not awaiting permission to appeal. The language used in rule 10.24(2) refers to the existence of an appeal. An application for permission is not an appeal and as such no appeal is waiting to be heard.

I am persuaded by the distinction drawn by Lewison J (persuaded, as the High Court Judge had only one party represented at the hearing) and add that, in my judgment the Rules Committee would have in mind, when drafting the Rules, that the Court is exercising the jurisdiction provided by rule 10.24 at a final hearing. It would also have in mind that at a final hearing the Court has a discretion to make a bankruptcy order if satisfied that the statements in the petition are true and the debt upon which the petition is founded has not been paid secured or compounded for. Accordingly rule 10.24(1) and (2) provide quite separate powers aimed at different outcomes. In respect of sub rule (2) the Insolvency Rules Committee have had many opportunities to alter, vary or add to the words of sub rule (2) since 1986 and have not done so. I infer from this that the word “pending” reflects public policy and is deliberately limited to its meaning. There is no requirement to strain the language to include the words “or if there is an outstanding application for permission to appeal” in sub rule (2) when an outstanding application for permission can be one of a number of factors that the court can weigh when exercising its discretion to make a bankruptcy order under sub rule (1). In my judgment, there is no jurisdiction to stay the proceedings or dismiss under sub rule (2) unless there is a pending appeal where permission has been given or no permission to appeal is required (an automatic right to appeal).

Mr Hackett has suggested that if there is no power to stay the proceedings under rule 10.24(2) of the Insolvency Rules 2016 then a residuary power can be found in section 266(3) of the Insolvency Act 1986. The jurisdiction was not advanced with vigour. I therefore deal with it shortly. There is no closed class of circumstances in which the Court may dismiss a bankruptcy petition under section 266(3), but the power is generally used where there has been a contravention of the rules or if there is an abuse such as where a petitioner seeks a bankruptcy order for a collateral purpose: Re Marjory [1955] Ch 600. I decline to exercise my discretion to stay or dismiss the petition and in doing so I have regard to the guidance given by Mr Justice Peter Smith in Re Mickelwait [2003] BPIR 101, taking into account the following: (i) the petition is founded on the Judgment Debt; (ii) it has not been suggested that the Court should go behind the Judgment Debt; (iii) there is no outstanding appeal on foot; (iv) the cross-claim is at best speculative; (iv) there is no evidence that the Debtor has any prospects of funding the cross-claim; (v) the Debtor accepts he cannot pay the Judgment Debt (vi) the Court of Appeal have unanimously refused permission to appeal and (vii) no stay of execution has been obtained from the Court of Appeal or Supreme Court.

One consequence of my findings in relation to rule 10.24(2) of the Insolvency Rules 2016 is that there is nothing to prevent the Court at a final hearing taking into account that there is an outstanding PTA, when exercising its discretion under sub rule (1) of rule 10.24.

I had agreed with the parties to delay writing this judgment to allow a 28 day period of grace from 12 June 2018. The period of grace was intended to give extra time for the Debtor to obtain a stay, or permission to appeal, or pay, secure or compound the Judgment Debt, and at the same time balance the rights of the Petitioner who seeks an immediate order of bankruptcy. I have borne in mind that this is a class action where there is a supporting, albeit disputed, creditor (I have not decided if there are substantial grounds for the dispute) and that other creditors may yet come forward.

Despite the period of grace, it remains the case that no application has been made by the Debtor to the Court of Appeal for a stay of execution notwithstanding that the general rule is that any application for a stay must be made to the Court of Appeal, and that only in exceptional cases will the Supreme Court grant a stay. I am informed that an application has been made to the Supreme Court but the parties are not able to inform this Court of any progress.

I take into account that if an order of bankruptcy is made the Debtor will not be able to pursue the appeal himself if the PTA is successful at a later date. This has been said to be unfair by Mr Hackett, but fairness must be viewed in the context of the class. I balance that perceived unfairness against the purported lack of assets or funds the Debtor needs to pursue an appeal in his own right, and the ability of an appointed trustee in bankruptcy to pursue an appeal in circumstances where funding is provided by a third party or otherwise.

When exercising my discretion under rule 10.24(1) of the Insolvency Rules 2016 I weigh the admitted position of the Debtor that he is unable to pay, secure or compound for the Judgment Debt, the failure of the Debtor to fully co-operate with the interim receivers or with HMRC inquiries, the evidence provided by HMRC that the Debtor has strategically commenced legal action or made subject access requests under the Data Protection Act, to stall or hinder progress of their claim, and the long list of Court applications made by the Debtor, some of which were recently withdrawn. I weigh this unchallenged evidence and the prospects of the cross-claim now raised (I have found it to be an abuse of process and not genuine or serious), and find that on the balance of probabilities there is a real risk that any assets the Debtor may have, will be wasted or dissipated despite the appointment of the interim receivers: it may have been otherwise if there had been full co-operation. In addition, when taking account of the class nature of bankruptcy, I note that there are no opposing creditors.

As the Debtor has admitted he cannot pay the Judgment Debt the Petitioner is prima facie entitled ex debito justitiae to a bankruptcy order: Ebbvale Ltd v Hosking [2013] UKPC 1, where Lord Wilson approved the proposition articulated by Sargant J in Re Amalgamated Properties of Rhodesia (1913) Ltd [1917] 2 Ch 115 at page 121. Although that was in a company context, the same applies in personal insolvency.

In respect of the discretion to be exercised, Lewison LJ explained Sekhon v Edginton [2015] 1 WLR 4435, paras 16–20:

“16.

There are, however, differences between insolvency proceedings and an ordinary civil action. First, insolvency proceedings are class actions designed to secure distribution of an insolvent's assets pari passu between all his creditors. They are not merely a debt collection process. The primary purpose of the proceedings is to enable an independent person to ascertain and preserve the debtor's assets and to achieve that pari passu distribution.

17.

Second, the presentation of a petition has the effect that any disposition of property made without the consent of the court by a person who is subsequently adjudicated bankrupt is void: see Insolvency Act 1986, section 284. Accordingly, delay in dealing with a petition is liable to have adverse consequences for creditors generally: see In re A Debtor (No 72 of 1982); Ex p Mumford Leasing Ltd v The Debtor [1984] 1 WLR 1143 applied in Judd v Williams [1998] BPIR 88.

18.

Against this background, the practice has evolved in relation to the grant of adjournments of bankruptcy petitions where the debtor asks for time to pay. The starting point is that, if the petitioning creditor establishes that the statutory conditions are fulfilled, he is prima facie entitled to a bankruptcy order: see In re A Debtor (No 452 of 1948); Ex p The Debtor v Le Mee-Power [1949] 1 All ER 652 and the In re A Debtor (No 72 of 1982) case, both referred to in Judd v Williams.

19.

The court, of course, has the power to adjourn the petition, but the practice is to do so only if there is credible evidence that there is a reasonable prospect that the petition debt will be paid within a reasonable time. There are many statements to this effect in the cases of which the following recent ones are representative: ‘A debtor clearly has no right to an adjournment in these circumstances, although it may be that a court would grant one if he could produce convincing evidence that the debt would be paid within a very short period’: Anderson v KAS Bank NV [2004] BPIR 685, para 23, per David Richards J. A petitioning creditor has a prima facie right to obtain a bankruptcy order on, as this was, a duly presented petition where the liability of the debtor for the petition debt is, as it is here, clearly established. Equally, the court hearing the petition has a discretion to adjourn the petition for payment if, but only if, there is a reasonable prospect of the petition debt being paid in full within a reasonable time: see In re Gilmartin (A Bankrupt) [1989] 1 WLR 513, 516 and much subsequent authority to a similar effect. There must be credible evidence to support such a prospect if the court is to grant an adjournment for payment’: Harrison v Seggar [2005] BPIR 583, para 7, per Blackburne J. There is no doubt that the court retains a discretion not to make a bankruptcy order, even where the petition debt has been clearly established and any grounds of opposition have been dismissed. However, the authorities establish that in such circumstances the discretion to adjourn should only be exercised if there is a reasonable prospect of the petition debt being paid in full within a reasonable period … Furthermore … There must be credible evidence to support such a prospect if the court is to grant an adjournment for payment: Ross v Revenue and Customs Comrs [2010] 2 All ER 126, para 72, per Henderson J.’ If the debtor does not produce any evidence of his ability to pay, he takes the risk that the court will not accept his bare assertion as to his means and ability to pay: see Dickins v Inland Revenue Comrs [2004] BPIR 718.

20.

A decision whether or not to grant an adjournment is, of course, a discretionary case management decision and, consequently, the judge's exercise of his discretion in this case cannot be impugned on appeal except on the usual grounds for impeaching a judicial exercise of discretion.”

When exercising my discretion I take into account the bare right the Debtor has to make an application. Little evidence has been provided to the Court regarding the progress of the PTA before the Supreme Court. It is known that the PTA has not been determined. As regards the prospects of success of any appeal to the Supreme Court I have the advantage of the decision made by the Court of Appeal dismissing the application for permission. No party has suggested that the decision of the Court of Appeal is not binding on this Court.

No adjournment has been asked for under rule 10.24(1), but there is an admission that there is a no reasonable prospect that the petition debt will be paid within a reasonable time. There is nothing to dislodge this prima facie position on the facts of this case.

Order accordingly.