In Little Miracles Ltd v Oliver, the court refused to make a final charging order against a defendant’s interest in a property where a claimant was trying to enforce an order for damages and costs which were debts provable in the defendant’s bankruptcy and there was no way of enforcing the order.
The High Court (Deputy Master Nurse) has dismissed an application for a charging order against a discharged bankrupt’s interest in a property. The application was based on bankruptcy debts that could not now be enforced.
The claimant had sought relief on the basis of an order for damages and costs obtained against the defendant after his discharge from bankruptcy, but the damages and costs related to proceedings commenced (and purportedly settled) before the defendant’s bankruptcy.
In 2012, the claimant had issued a claim against D1 and the second defendant company (D2) alleging that D1 had acted unconscionably and in breach of agreements in respect of joint ventures between the parties. D1’s wife was joined as the third defendant (D3). The claim was settled in May 2014. D1 was made bankrupt in the county court on 10 October, and later that month the claimant applied to enforce the terms of the settlement. A year later D1 was automatically discharged from his bankruptcy. The enforcement application was heard in May 2016 and D1 was ordered to pay damages for breaches of the settlement. He was given liberty to apply to set aside or vary the order on grounds that it was a claim provable in his bankruptcy. D1 and D3 were also ordered to pay 75% of the claimant’s costs. The claimant obtained a charging order against D3’s beneficial interest in a property she owned jointly with D1 in July 2016. Six years later the claimant obtained an interim charging order against D1’s beneficial interest in that property in respect of the damages and the costs ordered. D1 submitted that the sums ordered to be paid in damages and costs in April 2016 were provable debts in his bankruptcy and that he had been released from them on the discharge of his bankruptcy.
The court held that, because the damages and costs arose out of the breach of settlement obligations entered into by the defendant before bankruptcy, they were contingent liabilities that the claimant should have proved for as “bankruptcy debts” under section 382 of the Insolvency Act 1986.
The decision is an interesting application of the law relating to contingent liabilities. In practice, creditors would be well-advised to prove (or seek alternative relief) as soon as they anticipate a liability, to minimise the risk that they might not be able to do so once the liability has crystallised.
