Lewis v Kennedy

Monday 10th May 2010

Following our recent seminars on the new rules on annulment, we thought practitioners would be interested in the recent decision in Lewis v Kennedy.

This was a decision in which two issues arose in connection with an annulment application made by the Trustee, in an attempt to limit costs given the bankrupt's history of non-cooperation. The issues were:

Whether statutory interest ought to be paid.

In response to a letter from the Trustee as to whether they wished to be paid statutory interest, HMRC sent their standard response, noting that the issue was within the Court's ultimate discretion but setting out the following circumstances in which they would waive their entitlement:

• where the bankruptcy debts were paid off by a 3rd party;
• where there were exceptional circumstances; or
• where payment of statutory interest would result in severe deprivation/hardship.

The only other creditor waived its right to interest. At the first hearing the bankrupt indicated that he wished to plead hardship, despite the fact that there were sufficient funds to pay interest and still return a surplus to the bankrupt.  The matter was adjourned to allow him to submit evidence.

Decision

The Court ordered that statutory interest need not be paid. The Registrar reluctantly concluded that statutory interest should not be paid as the bankrupt had lost his house and was left with insufficient money to buy a similar one. Additionally, HMRC's response amounted to a surrender of their entitlement to statutory interest.  
 
Whether the Trustee's costs could be limited and whether the Trustee could be required to pay the bankrupt's costs.

The Trustee had estimated in writing his costs in making the application to annul. However, the actual costs were in excess of the estimated amount, due to the need to attend the second hearing to allow the bankrupt to submit evidence of the hardship he pleaded. The bankrupt then argued that the Trustee's costs should be limited to the lower estimated figure.  Additionally, the bankrupt sought payment of his own costs from the Trustee in connection with the application.
 
Decision

The Court held that the Trustee's fees should not be limited as the bankrupt was responsible for the additional costs incurred by the Trustee. Additionally, the Court declined to make a costs order against the Trustee.
 
Comment

This case may have an impact on how HMRC deal with the matter of statutory interest in the future. Given that the standard response was treated by the judge as a "surrender" of HMRC's entitlement to interest, we may see that HMRC consider matters on a case by case basis in the future. Additionally, we note the common sense approach of the Registrar to the Trustee's costs.

Katie Farmer of Ashfords LLP acted for the Trustee who instructed Daisy Brown of Guildhall Chambers.

Ashfords LLP is regulated by the Solicitors Regulation Authority.  The information in this note is intended to be general information about English law only and not comprehensive.  It is not to be relied on as legal advice nor as an alternative to taking professional advice relating to specific circumstances.