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Can a bankruptcy order really be set aside for “serving no useful purpose”?

6 Sep 2018

In the recent case of Lock v Aylesbury Vale District Council [2018] EWHC 2015 (Ch), the High Court decided that this indeed could be the case.

 

The bankruptcy order was made on the grounds of unpaid council tax, however the debtor had no assets or income (other than state benefits) and so could not make any payment into the bankruptcy.  On that basis there was no benefit in making her bankrupt.

 

Further, it was considered on the specific facts that no investigation into the debtor would reveal anything untoward, so again there was no benefit in making her bankrupt.

 

The only opposition the council could come up with was that the debtor may come into some inheritance, but the debtor said this was unlikely which was accepted by the court.

 

This appeal to the High Court was brought under section 266(3) Insolvency Act 1986, which contains the court’s general discretion to dismiss a bankruptcy petition.

 

Interestingly, in unpaid council tax petitions, the local authority has a duty to show that the making of a bankruptcy order would achieve “some useful purpose”, which it could not do in this case.  Whilst the “useful purpose” exception applies only to petitions founded on unpaid council tax, it is still extraordinary to see the argument being made and succeeding.

 

For more information please contact Alexandra Withers, Associate in the Insolvency Department.

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