Following a statutory demand for unpaid council tax in the sum of £8,067, a bankruptcy petition was presented against Ms Harriet Lock. The council provided Ms Lock with evidence of the council tax liability orders confirming the debt. Ms Lock provided evidence in response, which explained that she was living in social housing and was financially dependent on her daughter. At a first hearing, the court adjourned and ordered that Ms Lock provide a skeleton argument to explain why a bankruptcy order should not be made.
Ms Lock's skeleton argument, which was not filed or served on the council until the day of the bankruptcy hearing, claimed that a bankruptcy order would serve no purpose or benefit to the council as she had no assets.
At the hearing, the district judge made the bankruptcy order on the basis that there were council tax liability orders in existence and that they had not been set aside or challenged by Ms Lock.
Ms Lock appealed against this decision.
At the appeal hearing, Ms Lock referred to a bankruptcy checklist which was used by the council prior to the bankruptcy petition. The checklist was not in evidence at the original bankruptcy hearing and showed that the council was aware that she did not work, did not own a home and did not receive any benefits. Although the checklist identified possible inheritance, Ms Lock explained that she was due a very small amount, if any at all.
Ms Lock argued that her original claim that the bankruptcy order did not serve any purpose or benefit to the council was not considered by the district judge at the bankruptcy hearing and that the bankruptcy order should be set aside in accordance with s.266(3) Insolvency Act 1986.
The High Court found that in cases of unpaid council tax the burden of proof fell on the council to show a prima facie case that a bankruptcy order would serve a purpose and the council's checklist acknowledged this. The Court found that there was no evidence that a bankruptcy order would serve any useful purpose or benefit to the council as the Appellant had no assets. The Court also found that the council had never notified Ms Lock of their belief she was due inheritance and, as they had not included this belief as part of their evidence, Ms Lock was never given the opportunity to address it. In the circumstances, the Court found that the bankruptcy order was unjust.
The appeal was therefore upheld and the bankruptcy order was set aside.
This case highlights an unusual defence to a bankruptcy petition available to debtors. Proof of existence of a debt will not always be enough for local authorities, particularly where a debtor has demonstrated that they have no means or assets. The court will assess whether there is any benefit or purpose in making a bankruptcy order. Although this case related specifically to unpaid council tax, it does serve as a useful reminder that the court has discretion when it comes to making a bankruptcy order. The High Court Judge noted that, if the court is not convinced that there are any assets or that any assets will come into existence, the court would be justified in exercising its discretion by refusing to make a bankruptcy order.