Stay of bankruptcy does not prevent appointment of a Trustee in Bankruptcy

Stay of bankruptcy does not prevent appointment of a Trustee in Bankruptcy

At the High Court on Friday 24th July 2015, Mr Justice Barling ruled that the prior stay of a bankruptcy does not prevent the appointment of a Trustee in Bankruptcy by the Secretary of State.

Barling J. agreed with the application made by Gosschalks on behalf of Mr Keith Cottam for a declaration that his appointment as Mr Gurnek Singh Dhillon’s Trustee in Bankruptcy was valid in circumstances where:

  • On 23rd December 2014 Mr Dhillon appealed the bankruptcy Order against him.
  • On 6th January 2015 Mr Dhillon applied to amend his appeal to include an application for a stay of the bankruptcy.
  • On 23rd January 2015 the application to amend and the stay were granted by HHJ Nugee. It was not clear on the face of the order whether the stay was under Section 285 of the Insolvency Act 1986 (‘the Act’), or simply a stay of execution of a judgment pending appeal under Part 52 of the Civil Procedure Rules 1998 (‘the CPR’).
  • On 2nd February 2015, the Official Receiver (acting on behalf of the Secretary of State) appointed Mr Cottam as Trustee in Bankruptcy pursuant to Section 296 of the Act.
  • On 4th February 2015 the Order for stay was served on the Official Receiver.

The application was opposed by Mr Dhillon. While it was accepted the Official Receiver had done nothing wrong in seeking to make the appointment based on the information available at the time – not only had he not then been served with the Order for Stay but he did not appear to even known it had been made – the question before the Judge was whether the earlier Order staying the bankruptcy rendered that appointment void.

Barling J. ruled that the stay of the bankruptcy did not render Mr Cottam’s appointment void. Barling J. did indicate that there may be occasions where the background circumstances would justify setting aside an appointment – but there were no such circumstances in this case.

Accordingly it was declared that the appointment of Mr Cottam was valid from 2nd February 2015 and shall continue to be so going forward. Barling J. also gave directions allowing Mr Cottam to take measures to protect and preserve the assets of the bankruptcy pending determination of Mr Dhillon’s appeal, notwithstanding the stay of the bankruptcy.

Steve Dillon, Partner and Head of Insolvency at Gosschalks, acted for the Trustee in Bankruptcy of Gurnek Dhillon, Keith Robin Cottam. He comments:

"Although in this case it was not explored by Barling J. nor was it decided on this basis, in my view there is a very good reason why an Order for stay of a bankruptcy would not render the appointment of Trustee in Bankruptcy void.

"Orders to stay a bankruptcy, whether made under Section 285 of the Act or as a stay of execution of a Judgment under Part 52 of the CPR, are designed to stay action, execution or other legal process against the property or person of a bankrupt. The appointment of a Trustee in Bankruptcy is in my view none of those things – it is a necessary incident of the bankruptcy Order itself.

“Further, while the case concerned appointment by the Secretary of State, there seems to be no reason why its rationale should not be extended to cases where the Trustee in Bankruptcy is appointed by a meeting of the creditors of a Bankrupt.

“Official Receivers in these circumstances may, however, need to consider whether the steps needed to convene that meeting may be caught by the stay.”

Phillip Gale, of Enterprise Chambers, was instructed by Gosschalks on behalf of the Trustee in Bankruptcy. Keith Robin Cottam is a licensed Insolvency Practitioner and Director of Restart BTI Limited.

The Gosschalks team was led by Partner Steve Dillon and assisted by Associate Phil Osborne.

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