|
The case of Re Taylor (a bankrupt) [2007] 2 WLR 148 has adopted
a strict interpretation of section 285(3) Insolvency Act 1986 and
is worthy of note. Section 285(3) provides that "after the
making of a bankruptcy order, no person who is a creditor of the
bankrupt in respect of a debt provable in bankruptcy shall: (b)
before the discharge of the bankrupt commence any action or other
legal proceeding against the bankrupt except with leave of the
court."
Facts of the case
The claimant commenced proceedings against two
defendants (one of whom was a bankrupt) without obtaining the leave
of the court as required under section 285(3) of the Insolvency Act
1986.
It was held that the effect of section 285(3)
of the Act was to render any proceedings against a bankrupt started
without the requisite permission by someone who was a creditor in
respect of a debt provable in bankruptcy, void.
The case did not follow the decision of Re
Saunders [1997] CH 60, which has been considered the authority on
this point. In this case, Lindsay J held that failure to
obtain leave prior to the issue of such proceedings was a
procedural irregularity curable by obtaining such leave
retrospectively.
In Re Taylor the court held that the
requirement of section 285(3) was not merely procedural but was "a
condition precedent" to the jurisdiction of the court in which
proceedings were then started and that something that is void
cannot be validated retrospectively.
Unusually, the decision falls within paragraph
6.2 of Practice Directors (Citation of Authorities) [2001]
1 WLR 1001 as a judgment which: "may not in future be cited
before any court unless it clearly indicates that it purports to
establish a new principle or to extend the present law… that
indication must take the whole of the expressed statement to that
effect". However, despite this the case has been recently
cited in the official law reports after the judgment was given in
April 2006.
Implications for insolvency
practitioners
The implications of the court not being able
to redeem an action commenced without leave by either granting
leave retrospectively or granting leave to continue, may be
greatest where one is concerned with the limitation period within
which the proceedings may be brought. Limitation may have
expired since the issue of the void proceedings and therefore one
may be out of time to issue new proceedings if leave has not been
granted under section 285(3).
In addition, the question of costs incurred if
proceedings are void and who will bear these costs, will be an
issue if proceedings are rendered void. Any interim or final
relief which has been granted may also be affected.
The question remains as to what extent this
reasoning applies to similar statutory provisions and what impact
this will have on parallel corporate decisions, for example
under section 130(2) for compulsory winding-up and paragraph 43 of
Schedule B1 for Administrations.
As a result of this decision and for the
avoidance of claims for professional negligence, utmost care should
be taken to ensure that leave is obtained prospectively under
section 285(3) where relevant.
For more information on this topic, please
contact Gemma Smith or
Mike Pavitt of Blake
Lapthorn’ Insolvency and Business Recovery team.
|