Further to our recent seminar, the case of Azuonye v Kent which we discussed in relation to an Income Payments Order (IPO) and a second bankruptcy, has been considered in the Court of Appeal.
Mr Azuonye was made bankrupt in April 2015 and automatically discharged after one year. The Trustee applied for an IPO prior to Mr Azuonye’s discharge and the IPO was made in November 2016.
In December 2017, Mr Azuonye was made bankrupt for a second time, on his own application, and the same Trustee was appointed. The IPO had not expired at this time. Mr Azuonye argued that the second bankruptcy order automatically discharged his IPO.
The Trustee accepted that any arrears under the IPO were provable in the second bankruptcy, but argued future IPO payments could not be provable as they were uncertain due to the possibility of variation by the court and therefore the future payments remained enforceable for the benefit of the first bankruptcy estate.
District Judge Coonan found that the IPO remained enforceable as the IPO was not a provable debt in the second bankruptcy and the High Court upheld that decision.
Mr Azuonye appealed this decision and sought a refund of all money collected under the IPO since the start of the second bankruptcy.
The Court of Appeal explored the language used in s.334 and s.335 of the Insolvency Act 1985, which relate to second bankruptcies against undischarged bankrupts. If the debtor is an undischarged bankrupt, any income under an IPO after the making of the second bankruptcy would be available for the estate of the second bankruptcy and enforceable by the Trustee in that bankruptcy.
The Trustee argued that the IPO should be enforceable for the benefit of the creditors of the first bankruptcy as otherwise a debtor could avoid an IPO by becoming bankrupt again. The Court of Appeal concluded that this could not be the correct approach as, if this argument was accepted, this would create two contrasting results for future payments under IPOs depending on whether the bankruptcy was discharged or not.
The Court of Appeal agreed with the previous finding that a bankrupt could not avoid an IPO by becoming bankrupt again; however, they found that arrears and future payments under an IPO would be provable debts in the second bankruptcy stating that “future periodical payments due under a variable court order… are provable debts” and would be available for the benefit of the second bankruptcy estate, as is the case with undischarged bankrupts.
The Court of Appeal also found that if the bankrupt was not insolvent or the evidence on insolvency for the second bankrupt was found to be false, the court could annul the bankruptcy order.
The Court of Appeal also noted that the Trustee was entitled to apply for a new IPO against Mr Azuonye in the second bankruptcy.
Although the decision has been overturned by the Court of Appeal, it is reassuring that the view remains that a bankrupt cannot avoid an IPO by simply declaring himself bankrupt for a second time. The Court took a sensible view that the provisions for discharged and undischarged bankrupts should mirror each other. Further, if a bankrupt falsely declares himself bankrupt in order to avoid certain debts, the Court is likely to annul the bankruptcy or may also make other appropriate orders.
For more information on this article contact Cathryn Butler from the Restructuring and Insolvency Team.
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