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St Philips Commercial

Monday, 20 July 2015 00:00

Test for Annulling Bankruptcy Settled

In Re Russell Ian Payne; Woolsey v Payne & anor [2015] EWHC 968 (Ch), Mr John Male QC, sitting as a deputy High Court judge, considered the test to be applied when a bankrupt applies to set aside a bankruptcy order on the basis that the petition debt was not due. There were conflicting authorities on the point. The deputy judge held that the bankrupt need only show that there was a genuine triable issue.

The Statutory Scheme

Under section 282(1)(a) of the Insolvency Act 1986 (IA 1986), the court may annul a bankruptcy order “if it at any time appears to the court... that, on any grounds existing at the time the order was made, the order ought not to have been made”.

The court's task on such an application is three-fold. First, the court should identify the relevant grounds existing at the order was made. Second, the court should consider whether on those grounds the order ought not have been made. Third, the court should consider whether, in its discretion, it should annul the bankruptcy order.

A bankrupt might argue that the bankruptcy order should not have been made for a number of different reasons. He might allege that the petition debt was not due, that the petition was an abuse of process or that the petition ought to have been dismissed in the court's discretion.

Where the bankrupt's case is that the petition debt was not due, what does he have to show? Until recently, there were two conflicting authorities on this point. In Guinan III v Caldwell Associates Ltd [2004] EWHC 3348 (Ch); [2004] BPIR 531, Neuberger J said that it was common ground that the correct question was whether there was a genuine triable issue. In Flett v HMRC and Daley [2010] EWHC 2662 (Ch); [2010] BPIR 1075, Mr Anthony Elleray QC, sitting as a deputy High Court judge, held that the bankrupt had to establish on the balance of probability that the debt was not due.

The Facts

Mr Woolsey lent money to Mr and Mrs Payne, who did not comply with the terms of the loan and made repayments only sporadically. Mr Woolsey served statutory demands on both Mr and Mrs Payne. They did not respond. Two months later Mr Woolsey petitioned for Mrs Payne's bankruptcy. She did not respond to the petition and was made bankrupt. Some months later, Mr Payne applied to set aside the statutory demand served upon him and Mrs Payne applied for the annulment of her bankruptcy. Their case was that the loan agreement failed to comply with various provisions of the Consumer Credit Act 1974 and was therefore unenforceable. In response, Mr Woolsey argued that the loan was exempt from the Consumer Credit Act either under section 16B or section 74.

At first instance, Chief Registrar Baister found in favour of Mr and Mrs Payne. He held that each of them needed to show there was a genuine triable issue as to the existence of the debt and that they had succeeded in showing this. The deputy judge upheld this decision. In doing so, he considered the conflicting decisions in Guinan and Flett and held that Guinan was to be preferred. He rejected Mr Woolsey's submissions that an applicant for an annulment should have to pass a more stringent test because (1) he could have made his argument at the statutory demand or petition stage and (2) an application for an annulment can be made at any time and is effective against the whole world. He held that it was desirable that the height of the hurdle the debtor has to negotiate should be the same at whatever stage he mounts his challenge.


Payne should now be followed at first instance: Colchester Estates (Cardiff) v Carlton Industries Plc [1986] Ch 80. It remains to be seen whether the decision leads to an increase in the number of applications to annul.

Prospective applicants should bear in mind that showing that there is a genuine dispute as to the petition debt does not guarantee success. The court has a discretion whether to grant an application to annul. Debtors who deliberately or inexcusably do not challenge statutory demands and bankruptcy petitions run a serious risk that relief will be refused.

Monday, 08 June 2015 00:00

Masters v Furber [2014] BPIR 263

Masters v Furber [2014] BPIR 263. Decision of HHJ Purle QC that a supervisor of an IVA could, relying in part on a Power of Attorney in his favour, obtain a mandatory injunction requiring the debtor to comply with the terms of the arrangement in relation to the realisation of certain motor vehicles for the benefit of creditors as a whole.

Reported at:

James Morgan

Monday, 08 June 2015 00:00

Casa Estates Ltd [2014] BCC 269

Re Casa Estates Ltd [2014] BCC 269. Decision of the Court of Appeal (on a second appeal) as to the meaning and effect of the "cash flow" and "balance sheet" insolvency tests in s.123 of the Insolvency Act 1986 following the decision of the Supreme Court in Eurosail.

Reported at:

James Morgan

Top Brands v Sharma [2014] EWCA Civ 761. Decision of the Court of Appeal on an expedited appeal upholding the first instance judge that a former liquidator had no standing to challenge the status of the applicants as creditors, thereby meaning that their misfeasance claim against the former liquidator should proceed.

Reported at:

James Morgan

Philpott and another (as joint liquidators of WGL Realisations 2010 Ltd) v Lycee Francais Charles de Gaulle School [2015] EWHC 1065 (Ch), [2015] All ER (D) 175 (Apr)

A company in voluntary creditors' liquidation was engaged in a construction dispute with a school. The school put in a proof of debt, which the company's liquidators had yet to approve. The school contended that an arbitration clause in the construction contract was binding and continued to apply despite the company being in liquidation. The liquidators of the company applied for directions, contending that the court had power, under the Insolvency Rules 1986, SI 1986/1925, r 4.90 in connection with the proof of debt process, to give directions as to the taking of an account of the balance due between the company and the school. The Chancery Division ruled, among other things, that the arbitration clause trumped the taking of an account under the court's directions as envisaged by the Insolvency Rules. The arbitration agreement had not become inoperative following liquidation of the company.

The full article can be found here.

Sean Kelly recently published the below updated article regarding 'Interest Rate Swaps'. The full article can be found here.

1. The Products

1.1 Interest-rate swap agreements (“IRSAs”) include
1) caps,
2) collars,
3) structured collars; and4) base rate swaps.
all of which are freestanding agreements.

1.2 The post November 2007 version of the FCA’s Conduct of Business Rules (“COBS”) applies to a “designated investment” sold by a bank to a retail customer. The term “designated investment” is defined by Article 85 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (“Article 85") to be:

“(a) a contract for differences or
(b) Any other contract the purpose or pretended purpose of which is to
secure a profit or avoid a loss by reference to fluctuations in-
(i) the value or price of property or any description; or
(ii) an index or other factor designated for that purpose in the

In determining the “purpose or pretended purpose” of the contract, the Court will consider the purpose of the customer and not the bank (see the decision of Leggatt J in R (on the application of London Capital Group v The Financial Ombudsman Service Ltd [2013] EWHC 2425 (Admin).

1.3 All IRSAs are considered by the FCA to be “designated investments” and accordingly regulated under COBS. The division of IRSAs into these broad types follows the analysis of the FCA. Not all products within a category have the same profile. In practice, the name given by the bank to the product may provide little insight into its type.

1.4 Each of these freestanding products is designed to sit alongside a standard variable rate loan facility. In theory, the bank providing the IRSA need not be the same as the bank providing the loan facility. As the IRSA is intended to provide “protection” against interest rate rises affecting a loan, its amount and term ought to be tied to the amount and term of the loan. In practice, IRSAs may be for larger amounts than the loan and for longer periods. This is usually referred to as “over hedging”.

1.5 In addition to IRSAs, there are a number of products which have the same effect as the combination of an IRSA with a variable rate loan. These are generally referred to as “embedded swaps”. The most obvious embedded swap is a fixed rate loan which is effectively the combination of a base rate swap with a variable rate loan. Some embedded swaps (particularly those provided by Clydesdale Bank PLC) are far more complicated than this and involve the combination of a structured collar with a variable rate loan. Theterm “hedging product” includes both IRSAs and embedded swaps. Clydesdale Bank PLC has its own separate review procedure (“the Clydesdale Review”) which largely mirrors the FCA Review.

1.6. Whether embedded swaps are designated investments (and therefore regulated by COBS) is not yet decided. The stated view of the FCA is that fixed rate loans are not designated investments. This forms the basis for their exclusion from both the FCA Review and the Clydesdale Review. This appears to be correct because a fixed rate loan does not make use of any index. Any argument that fixed rate loans are designated investments has to be based on construing Article 85 so as to accord with EU law, the relevant directive being the Markets in Financial Instruments Directive 2004/39/EC (“MiFID”). The position of the FCA in relation to other embedded swaps is not clear. All embedded swaps other than fixed rate loans sold by Clydesdale Bank are within the Clydesdale Review. The position adopted by the Financial Ombudsman Service (“the Ombudsman”) is that fixed rate loans are not designated investments, but that COBS has to be considered when addressing the issue of whether the bank acted fairly in relation to the sale of the same.

1.6 Usually but not invariably, the bank which provides the hedging product will enter into an agreement (“the mirror agreement”) with a third party which will mirror the same. The bank providing the hedging product to its customer will receive a commission under the mirror agreement. From its perspective, the commission is its profit and the hedging product leaves its balance sheet. The existence of the mirror agreement is important because termination of the hedging product will usually require the bank to terminate the mirror agreement at a cost to itself which is passed on to the customer.

1.7 The charge to be paid by the customer to terminate the hedging product (“the break cost”) is tied to projected interest rates at the date of termination. These projected interest rates are an industry standard and are usually shown on a “yield curve” diagram. The break cost is the market value of the hedging product at the date of termination and usually referred to as the “mark to market” value.

The full article can be found here.

Wednesday, 18 March 2015 00:00

Emma Kelly to be Appointed a District Judge

St Philips Chambers is delighted to announce that The Queen has appointed Emma Kelly to be a District Judge on the advice of the Lord Chancellor, the Right Honourable Chris Grayling MP.

Property specialist Emma has enjoyed a highly successful career at the Birmingham Bar and will be missed by Chambers and clients alike. She was called to the Bar in 1997 and had been appointed as a Deputy District Judge in 2010. She will be formally sworn-in on Monday 23rd March 2015, following which she will begin the next phase of her career as District Judge Emma Kelly, based at Birmingham Civil and Family Justice Centre.

Joe Wilson said: “I would like to congratulate Emma on her appointment although she will be a loss to chambers and our commercial group in particular”.  All members, clerks and staff wish her every success and best wishes for the future.


St Philips Chambers is delighted to announce Stephen Eyre QC’s appointment to the Circuit Bench.

Commercial & Chancery specialist Stephen has enjoyed a distinguished career at the Birmingham Bar and will be missed by Chambers and clients alike. He will be formally sworn-in before the Lord Chief Justice at The Royal Courts of Justice on Monday 16th March 2015, after which he becomes His Honour Judge Stephen Eyre QC and begins the next phase of his legal career.

Chief Clerk, Joe Wilson said: “I would like to congratulate Stephen on his richly deserved appointment. He has been an active and supportive member of St Philips and will be sorely missed”.

All members, clerks and staff wish him every success and best wishes for the future.

St Philips Commercial members have taken three of the five places on the shortlist for Barrister of the Year at The Birmingham Law Society’s Legal Awards 2015 announced today.

Tariq Sadiq, Anthony Verduyn & Matthew Weaver have all received nominations for the award, highlighting both the quality of our members and the strength of our team.  The award will be announced at the annual awards ceremony held at The ICC in Birmingham on Thursday 19th March 2015, and with St Philips members having walked away with the prize for the last three years, we hope that one of our nominees can make it four years in a row.

A full list of all of this years nominees can be found here.

St Philips is delighted to announce Stephen Eyre’s appointment to the rank of Queens Counsel in the 2015 list published today.

Commercial & Chancery specialist Stephen has long been acknowledged as a leading advocate in his field, as well as being a favourite with clients and the legal directories. "He is very precise and thorough and has a very good commercial approach." CHAMBERS UK 2015

Head of Chambers Avtar Khangure QC commented: “I would like to congratulate Stephen on his appointment and look forward to welcoming him on to the front bench as a fellow Queens Counsel”.

Stephen will be formerly appointed on Monday 16th February at the traditional Silk Ceremony at Westminster Hall.

All members, clerks and staff wish him every success and best wishes for the future.