Does it matter which creditor bankrupts a debtor first?- Islandsbanki HF v Kevin Stanford [2019] EWHC 307 - Joseph England

Thu, 21 February, 2019

A copy of the judgment can be found here.

Introduction

1. The bank successfully appealed an order refusing to give or reserve judgment after hearing full submissions in the bank’s petition and instead listing the petition for hearing at the same time as two later-in-time petitions to bankrupt the debtor.

The Background

2. The Appellant (“IB”) is an Icelandic bank and Mr Kevin Stanford (“the Debtor”) is a well-known businessman who founded leading fashion brands such as All Saints and (with his former wife of that name) Karen Millen.

3. IB’s petition was finally heard for half a day on 20 December 2018 before ICC Judges Jones. After hearing extension submissions on a number of disputed legal issues concerning the validity of the execution process, rather than give or reserve judgment, ICC Judges decided to adjourn the hearing of the petition to 22 February 2019. This was the date that HMRC’s second-in-time petition was listed for with a time estimate of one day.  He did not, upon request by the parties, indicate which would be disposed of first. There were in fact indications that the Judge would prefer to hear HMRC’s petition first.

4. The petitions had proceeded separately with IB’s to be heard first (having been adjourned a number of times). An order was then made (in IB’s absence) to jointly case manage the three petitions. This was set aside following an application under s.375 of the Insolvency Act 1986 to review that decision by the order of Chief ICC Judge Briggs. The Debtor then applied to review that decision, which was dismissed by Deputy (and former Chief) ICC Judge Baister, who made clear that IB’s petition should be heard first.

5. A third petition was presented by Shineclear Holdings Limited on 20 September 2017 in for c.£6 million, which is disputed on a number of intricate grounds.

6. HMRC then presented a petition against the Debtor for c.£7 million Court on 22 August 2017. HMRC’s petition is resisted essentially on the grounds of an unreasonable refusal of an offer, involving the Debtor obtaining funding offers conditional on the dismissal of IB’s and a later in time petition discussed below.

7. IB’s petition is founded (unusually) on proving unsatisfied execution, rather than a statutory demand. It is based on an unpaid Icelandic judgment for c.£1.3 million arising from the Debtor’s undisputed failure to repay a loan made to him by IB’s predecessor. The petition is disputed on procedural grounds relating to unsatisfied execution.

8. IB was the first creditor to present petition for bankruptcy against the Debtor in 6 April 2017.

9. The Debtor has a long history of disputes with Icelandic institutions arising of out the global financial crisis and collapse of various Icelandic banks, which have been well-published in Iceland and in England. He is currently engaged in substantial litigation in Luxemburg (aspects of which have featured in the bankruptcy proceedings in England, including issues over the disclosure of an opinion by Lord Goldsmith QC.)

Grounds of Appeal

10. IB appealed this decision. It emphasised that IB’s petition should be heard first because:

  • It was in line with two previous judicial determinations which the Judge had given no reasons for departing from nor cited any change circumstance.
  • It would lead to unnecessary cost and confusion for the 22 February 2019 hearing and the Judge should have given judgment or indicated when he would, when asked at the hearing to give such an indication.
  • If IB’s petition was not heard first, it would preclude reviewable transactions (including over the sale of a car by the Debtor worth c.£1million to his family) that would only be within the “look-back date” of IB’s first-in-time petition. Pursuant to s.284 of the Insolvency Act 1986, where a person is made bankrupt, any disposition of property made by that person in the period starting with the date of presentation of the petition is prima facie void.  Pursuant to ss. 339 to 341 of the Insolvency Act 1986, the “relevant date” for a trustee in bankruptcy to set aside transactions at an undervalue or preferences is calculated by reference to the date of the presentation of the bankruptcy petition on which the individual is made bankrupt. 
  • It would leave the costs of IB’s long-standing petition (whether for IB or the Debtor) unresolved and potentially unrecoverable.  
Decision

11. Having initially been refused permission on paper by Mr Justice Henry Carr, IB renewed its application for permission at an oral hearing. At that hearing, Mr Justice Henry Carr granted permission to appeal and the appeal itself. His reasoning [51-57] was that:

(a)   As a matter of principle, the Court should dispose of the IB petition first.

(b)   He accepted the submissions advanced that this was not a normal case management decision and that, if was any question of hearing the second or third-in-time petition before IB’s first-in-time petition, a reasoned judgment in the light of two previous orders of ICC Judges would have been needed.

(c)   He was influenced by the fact that the Debtor and third-in-time petitioner consented to the appeal.

12.  As a postscript [58], Mr Justice Carr took the opportunity to comment on the permission to appeal process by stating that: “It might be a useful practice in appropriate cases for judges considering such appeals on paper to allow respondents to be served or have access to the relevant file, and to make brief observations on permission to appeal. In this case it might well have enabled this appeal to be granted without a hearing.”

Commentary

13. The appeal may be of interest for a number of reasons.

14. First, it deals with the highly unusual situation of having multiple creditors all with separate petitions on foot against the same debtor (rather than a lead petition with supporting creditors), on which there is little to no procedural guidance or precedent.  The former Insolvency Rules 1986 had a provision for consolidation of petitions, but this does not appear in the current Rules. It is not an abuse of process to bring a subsequent petition as the Insolvency Practice Direction 2018, at paragraph 12.31 provide wording for verifying such a petition to state: “the petitioner is issuing this petition at risk as to costs”, the Practice Direction says nothing further on multiple petitions.

15. Second, it is a rare example of a successful appeal of a case management decision

16. Third, it deals with the unusual situation where all parties consented to the appeal.

17. Fourth, it deals with the unusual situation where a judge refused to give or reserve judgment after hearing the case.

18. Fifth, it underlines the importance of why a first-in-time petition should be heard first with reference to reviewable transactions.

19. Finally, the end of the judgment offers guidance on the permission to appeal process on paper. 

Joseph England (instructed by James Robbins of Harrison Drury) appeared for the Appellant.

Joseph England 

Joe practises in a wide range of commercial disputes.

Joe began his legal career qualifying as a solicitor at Allen & Overy LLP before transferring to the Bar. Joe spent the first year of his practice as the Judicial Assistant to Lord Sumption and Lord Wilson at the Supreme Court. He soon returned as counsel to the Supreme Court in Bank of Cyprus UK Limited v Menelaou [2015] UKSC 66.

Since starting practice in August 2013, Joe has been engaged, on a near full-time basis, in a major ICC oil and gas arbitration in London and Geneva, and subsequent related litigations, working and appearing with legal teams in Poland, The Netherlands, Ireland, Curaçao, Nigeria, Mauritius, Scotland, the US, London and Switzerland.

To view Joseph's full profile, please click here. 

joseph.england@quadrantchambers.com