A fundamental consideration when embarking on any litigation is whether the defendant will be able to pay. In most cases, this is really a question of whether the defendant is insured (although in some cases a defendant may be uninsured and yet still have the means to pay).

What happens if the defendant is insolvent?

Alan Bennett and Crispin Jones successfully acted for Mr Dowling in his application to set aside a Statutory Demand served on him by Promontoria (Arrow) Limited ("Promontoria") in the sum of €6,338,675.93. The decision has wide reaching implications for creditors seeking to rely on guarantees.

When faced with bankruptcy proceedings, it is paramount that you act quickly in order to avoid unnecessary costs and stress.

The bankruptcy proceedings

Key Points

This article was first published in Insolvency Intelligence 2017 30(6) and is now available on Westlaw.

An estate is deemed to be bankrupt when the total value of its debts and liabilities (including conditional and future liabilities) is greater than the total value of its assets. A bankrupt estate is often a very daunting prospect for the executors or administrators (the PRs). The task of administering such an estate is challenging and often fraught with pitfalls. What should the PRs look out for?

If I was to provide some top tips for those potentially faced with insolvent estates, I would say the following are my top 3:

Unlike in personal insolvency, the estate is bankrupt when its liabilities are greater than assets. There is no need for an order declaring an estate bankrupt. Equally, there is, therefore, no specific, different Grant appointing those responsible for administering an insolvent estate. A bankrupt estate may be administered by its appointed executor or administrator (PR), applying insolvency rules in the administration process.

The court has no jurisdiction to direct a bankrupt to waive privilege in any document, the High Court has ruled (Leeds v Lemos [2017] EWHC 1825 (Ch)).

The High Court also confirmed that legal professional privilege is not the property of a bankrupt for the purposes of the Insolvency Act 1986 and does not automatically pass to their trustee. The Court of Appeal's recent judgment in Avonwick v Shlosberg [2017] EWCA Civ 1138 was considered and applied.

The court has stressed the importance of validly serving a Statutory Demand before presenting a Bankruptcy Petition. The creditor must do all that is reasonably required to bring the service of the Statutory Demand to the attention of the debtor. Without effectively serving a Statutory Demand on the debtor, presenting a valid Bankruptcy Petition is impossible.

Background

This article was first published in Insolvency Intelligence 2017, 30(5), 85-87.

In an earlier edition of this publication I identified what appeared to be a growing trend for the making of a draconian form of order suspending the discharge of bankruptcies. This form of order is typically associated with the case of Mawer v Bland where Mrs Justice Rose upheld on appeal the following order made by Chief Registrar Baister: