Lord Justice Carnwath:
- This is a second appeal by Mr Owo-Samson, following the refusal of Mr Registrar Baister, on 24th July 2002, to annul a bankruptcy order made against him as long ago as 2nd June 1998. That decision was confirmed on appeal by His Honour Judge McGonigal on 15th December 2002. Mr Owo-Samson appeared before us in person, although he had been represented at both hearings below by Mr Macpherson of Counsel. Although not formally instructed, Mr Macpherson was sufficiently interested to attend the hearing in his own time, and (at the invitation of the court, and with the consent of Mr Owo-Samson) he provided clarification on certain points. We are grateful for his assistance.
- The debt which led to the bankruptcy order arose from a judgment given in the High Court on 23 January 1997, in proceedings by Mr Owo-Samson against the first respondent ("the Bank"). It led to an order for costs against him, assessed at £46,386.23. He failed to pay. On 16th January 1998 a charging order was granted to the Bank over his home at 17A Glebelands Avenue to secure payment of that sum with interest and costs. That property was already subject to a first charge in favour of the Bank of Scotland, under a "Shared appreciation mortgage loan" of £135,000, made in June 1997. (Under its terms, the mortgagee was entitled to 71.3160% of any accretion in value of the property over the "base value" of £190,000.)
- By a statutory demand dated 16th January 1998, the Bank claimed from Mr Owo-Samson the sum of £27,483.51. The present evidence shows how that figure was calculated. It assumed that the value of the Bank's security, after allowing for the first charge, was only £20,000. That figure was derived as follows: the Bank of Scotland had indicated that the value of their first charge was £135,000; the value of the property was taken as £145,000, based on a "drive-by" valuation made by a Mr Gill of Taylor Harvey; the £20,000 estimate of the security allowed a "margin" over that value. Accordingly, the unsecured debt was: £46,386-23 plus £1,097-28 (interest), less £20,000 (value of security) = £27,483-51.
(It should be noted that Mr Gill's valuation of £145,000 was on "a forced sale basis". That was agreed to be the correct approach, following Platts v Western Trust & Savings Ltd  BPIR 339, per Sir Christopher Slade at 347 G. A "forced sale" was taken as one requiring completion within four months. Mr Gill's "open market" valuation, assuming a 12 month period for the sale, was £165,000.)
- On 6th February 1998, Mr Owo Samson made an application to set aside the statutory demand. The stated grounds were succinct:
"I hereby apply to have the said demand set aside and to stop the Defendant and their agent and solicitor from harassing and molesting me."
This application was summarily dismissed by the Registrar on 16th February 1998.
- On 16th March 1998 Barclays presented a bankruptcy petition. The petition repeated the details of the debt as claimed in the statutory demand; paragraph 5 recited
"We hold security for the payment of part of the above mentioned sum and we estimate the value of such security to be £20,000. ..."
The bankruptcy petition was heard on 2nd June 1998. Mr Owo-Samson was present at the hearing and produced a statement in opposition to the grant of the bankruptcy order. The main point made in the statement was that the hearing should be adjourned pending an appeal to the Court of Appeal against the costs order. (The progress of any such appeal is not clear from the papers. However, the Registrar records that an appeal against the order of Mr Collins QC was subsequently compromised by the Mr Owo-Samson's trustee: para 32 of the current decision.)
- Although Mr Owo-Samson now claims that he also questioned the Bank's valuation of its security, there is no written evidence to support that claim. His recollection to that effect was rejected by Mr Registrar Baister, who having reviewed the evidence (including his own notebook entry relating to the June 1998 hearing), said:
"Mr Owo-Samson's differing and contradictory accounts lead me to believe that his recollection of the events of 2 June 1998 is unreliable. I am reinforced in that view by the fact that I did make the order on the day. I have almost no doubt that if Mr Owo-Samson had raised the issue of the security and potential equity in the terms which he now claims he did I would have given orders for directions…." (para 5)
The Registrar's conclusion on this point was not challenged before the judge.
- The first undisputed reference to Mr Owo-Samson's views as to the valuation of his property came in a note of 31st July 1998 by the Official Receiver, who, after a meeting with Mr Owo-Samson, wrote
"The bankrupt has disclosed that his property at 17A Glebelands Avenue is worth, he believes, £195,000 with outstanding equity of £40,000…."
On 3rd August 1998, Mr Owo-Samson issued an application for an annulment of the bankruptcy order. In his statement in support he said:
"The Defendant registered a charging Order on my property on the 16 January 1998 for £20,000. The Defendant's full claim is well secured in the said property as the equity in the property is well in excess of the full claim."
- The annulment proceedings did not proceed smoothly. The application was dismissed at a hearing on 2nd September 1998 (before Deputy Registrar Scott), and there was an unsuccessful appeal. However, both courts proceeded on a wrong basis of law. In his current decision, Mr Registrar Baister said:
"It is common ground that counsel who appeared for the bank was wrong in citing to the court an authority which was no longer a proper and up to date statement of the law in relation to security…." (para 6)
The error was not corrected on appeal. (The counsel involved was not Mr Goodison, who appeared before us. The authority in question was Re Button  1 KB 602, to which I shall refer below.)
- On 13th September 2001, Mr Owo-Samson issued a new application to annul, and an application (under Insolvency Act 1986, s.375(1)) to review the previous decision dismissing his application to annul. Among the documents on which he relied were a letter from Bank of Scotland (in June 1997) relating to their offer of a mortgage indicating a "base value" for the property at that time of £190,000; and a retrospective valuation prepared in August 2001 by P.J. Seeley Associates indicating the value of the property, as at June 1998, as £210,000, assuming a sale in four months. (His equivalent value on the basis of a sale in 12 months was £235,000.)
- In the meantime, on 14th June 2001, on the application of the trustee in bankruptcy, an order had been made for the sale of the property, and possession was ordered to be given by 6th September 2001. However, that order for possession was subsequently stayed by consent of the trustee, pending the outcome of these proceedings.
- On 26th February 2002, Deputy Registrar Middleton gave a detailed written judgment allowing Mr Owo-Samson's application for a review. He declined to annul the bankruptcy order but decided that a review of Deputy Registrar's Scott's order was appropriate having regard to the erroneous basis on which the law was put to him.
- Accordingly, on 18th July 2002 Mr Owo-Samson's original application for annulment of the bankruptcy order was reheard by Mr Registrar Baister. On 30th July 2002, he gave a written judgment, dismissing the application. Mr Owo-Samson's appeal was dismissed by Judge McGonigal (sitting as a High Court Judge) on 15th November 2002.
- On 5th February 2003, Chadwick LJ gave permission for a second appeal, and identified the following "important point of principle":
"whether the Registrar was correct in his view (at paragraph 19 of his judgment dated 24 July 2002) that the effect of a statement of the estimated value of the security made by the petitioner under section 269(1)(a) of the Insolvency Act 1986, read with the provisions of section 269(2) of the Act, is that the court is no longer required, under section 271(1)(a) of the Act, to be satisfied that the petition debt is no longer secured."
(I shall refer to this as "the second appeal issue")
- Before looking in more detail at the judgments below, it is necessary to summarise the statutory scheme, and to set the history of the case in that context.
The statutory provisions
- The relevant provisions are in the Insolvency Act 1986 ("IA") and the Insolvency Rules 1986 ("IR").
- The ordinary procedure, involving the "two-stage process" of a statutory demand followed by a bankruptcy petition, is well known (see the description in Re a Debtor  1 WLR 917, per Jacob J). The service of a "statutory demand" in the prescribed form is simply one means of establishing "inability to pay": see IA s 268(1)(a). Jacob J said of this stage:
"The procedure is intended to be brief. In my view it is aimed at establishing an inability to pay and no more. It is not a general sieve where the court considers generally whether the petition will succeed or fail." (ibid. p 920G)
- He contrasted this with the petition stage:
"At the next stage, section 271 of the Act of 1986, the court may consider the reasonableness or otherwise of an offer to secure or to compound as required by section 271(3). It is worth noting that at that stage the court looks at whether the debtor is able to pay all his debts and looks at the debtor's contingent and prospective liabilities…." (ibid p 924E-F)
- There are special rules for debts which are fully or partially secured (as defined in section 383(2)). Section 267(2) of the Act lays down the general rule that:
"…a creditor's petition may be presented to the court in respect of a debt or debts only if, at the time the petition is presented –
(b) the debt… is unsecured…"
- However, that position is qualified by section 269, which provides:
" (1) A debt, which is the debt, or one of the debts, in respect of which a creditor's petition is presented need not be unsecured if either-
(a) the petition contains a statement by the person having the right to enforce the security that he is willing, in the event of a bankruptcy order being made, to give up his security for the benefit of all the bankrupt's creditors, or
(b) the petition is expressed not to be made in respect of the secured part of the debt and contains a statement by that person of the estimated value at the date of the petition of the security for the secured part of the debt.
(2) In a case falling within subsection (1)(b) the secured and unsecured parts of the debt are to be treated for the purposes of sections 267 to 270 as separate debts."
- The distinction between secured and unsecured debts is reflected in the rules. IR rule 6.1 prescribes the form and content of the statutory demand, including:
"(5) If the creditor holds any security in respect of the debt, the full amount of the debt shall be specified, but –
(a) there shall in the demand be specified the nature of the security, and the value which the creditor puts upon it as at the date of the demand, and
(b) the amount of which payment is claimed by the demand shall be the full amount of the debt, less the amount specified as the value of the security."
- IR rule 6.4 enables an application to be made to the court to set aside the statutory demand. By rule 6.4(4), an application by the debtor to set aside the demand must be supported by an affidavit "stating the grounds on which he claims that it should be set aside". The grounds on which the court may set aside the demand, set out in rule 6.5(4), include:
"(c) it appears that the creditor holds some security in respect of the debt claimed by the demand, and either Rule 6.1(5) is not complied with in respect of it, or the court is satisfied that the value of the security equals or exceeds the full amount of the debt;"
- It is to be noted that here the court is concerned with the adequacy of any existing security, rather than (as under s 271(3) – see below) the reasonableness of any proposal for security that the debtor may make in response to the demand. This contrast was explained by Jacob J:
"It was also argued that that [rule 6.5(4)(c)] clearly refers to the case where the creditor already holds security. It was said that it is illogical that where a creditor already holds security sufficient for the debt the [statutory demand]* can be set aside but that this is not so when the debtor is prepared to offer such security. I think there is a world of difference. Bankruptcy is primarily concerned with unsecured debts. Where a creditor has taken a secured debt he looks to his security if a debtor fails to pay. In the case of an unsecured debt he has no such security and is not obliged to take the security offered by the debtor however good that security may be. If indeed the debtor has got good security then his route to avoid a petition is to borrow against that security and pay off his creditor who is entitled to his money forthwith." (ibid p 924G-H.)
*[The context seems to require a reference in the second sentence to "statutory demand", rather than "petition" as stated in the report.]
- Applying those rules to the present case, the Bank's statutory demand in accordance with rule 6.1(5) set out the full amount of the debt, and the value put by the Bank on its security, the balance being the amount claimed by the demand. For the purpose of the bankruptcy proceedings, that balance was to be treated as a separate debt (s 269(2)). Had the point been taken, the court would have had power to set aside the demand on the ground that, contrary to the Bank's estimate, the value of the remaining security equalled or exceeded that debt. However that point was not taken at that stage
- The next stage was the bankruptcy petition. As already noted, section 269(1)(b) required the petition to include "a statement by (the creditor) of the estimated value at the date of the petition of the security…" That was complied with in the Bank's petition of 16th April 1998, giving the same estimate as in the statutory demand.
- The hearing of the petition is governed by section 271, which provides:
" (1) The court shall not make a bankruptcy order on a creditor's petition unless it is satisfied that the debt, or one of the debts, in respect of which the petition is presented is either-
(a) a debt which, having been payable at the date of the petition or having since become payable, has been neither paid nor secured nor compounded for, or
(b) a debt which the debtor has no reasonable prospect of being able to pay when it falls due.
(3) The court may dismiss the petition if it is satisfied that the debtor is able to pay all his debts or is satisfied–
(a) that the debtor has made an offer to secure or compound for a debt in respect of which the petition is presented,
(b) that the acceptance of that offer would have required the dismissal of the petition, and
(c) that the offer has been unreasonably refused;
and in determining for the purposes of this subsection whether the debtor is able to pay all his debts, the court shall take into account his contingent and prospective liabilities.
- In cases under earlier legislation, before the introduction of the statutory demand procedure, it had been held that the petitioner's estimate was made "at his own risk", in that, if at undervalue, he would nonetheless be bound by it in the bankruptcy; but that, provided the estimate was "real and not a sham", it was not the function of the court "to go into the question what is the true value after the declaration of the estimated value" (Re Button [1905 1KB 602, 605, per Vaughan Williams LJ, applying the Bankruptcy Act 1883).
- Two points arose from that decision. The first was that the risk of an under-valuation, from the creditor's point of view, was that he might weaken his position as against other creditors. That aspect of Re Button appears in principle to remain, subject to the power of the court to permit an amendment of the value (IR rule 6.115).
- The other point was that the creditor's estimate, if made in good faith, was binding. On one view, section 271 might have been read as intended to preserve that position. The reference in s 271(1)(a) to the debt having been "secured" could have been read as referring, not to the value of a pre-existing security (in relation to which the creditor's estimate would normally be binding), but to any security offered in response to the proceedings. Such a reading would be consistent with s 271(3), under which the court would be able to review the reasonableness of a refusal of the offer.
- However, that is not how the section has been interpreted. It has been held that the 1986 statute must be construed as a -
"… new bankruptcy code… in accordance with the ordinary codes of construction unfettered by previous authorities" (Re a Debtor (No 1 of 1987)  1 WLR 271, 276).
Applying that approach, in Platts v Western Trust & Savings Ltd  BPIR 339, this court held that the debtor's right to challenge the creditor's valuation of the security was not confined to the statutory demand stage. The issue arose in that case because the judge, in dealing with the application to set aside the statutory demand, had refused to allow cross-examination of conflicting valuation evidence in order to establish the value of the security. In deciding whether he had been entitled to do so, this court had to consider whether the statutory demand hearing was "effectively the debtor's last opportunity to assert that the lenders were fully secured"; or whether there was another opportunity at the petition hearing.
- The Court of Appeal adopted the latter view. Sir Christopher Slade said: –
"… the decision in Re Button, which concerned the question whether or not under the old code a receiving order had been properly made, is not authority for the proposition that the court which hears a petition under the new code is precluded from hearing and determining on proper evidence a submission made by the debtor that the creditor is fully secured.
Save in a case where the creditor relies on a debt which the creditor asserts that the debtor has no reasonable prospect of being able to pay when it falls due, s 271(1) of the Act explicitly precludes the court from making a bankruptcy order on a creditor's petition:
'unless it is satisfied that the debt, or one of the debts, in respect of which the petition is presented is either-
(a) a debt which, having been payable at the date of the petition or having since become payable, has been neither paid nor secured [emphasis added] nor compounded for…'
It appears to me that rr 7.51 and 7.57 of the 1986 Rules would give the court which heard the petition ample power, if it saw fit, to determine the value of the security on proper evidence from both sides, in a case where the debtor satisfied it that there were substantial grounds for thinking that the petitioning creditor might be fully secured…." (Platts v Western Trust & Savings Ltd  BPIR 339, 349C-F)
(IR rule 7.51 applies to insolvency proceedings the "practice and procedure" of the High Court and county court; and rule 7.57 applies the practice of the High Court in relation to affidavits.)
It is to be noted that, in that passage, Sir Christopher Slade treated the word "secured" (in s 271) as including a reference to a pre-existing security, as well as to one offered in response to the bankruptcy proceedings. The correctness of that interpretation has not been questioned before us.
- The words "if it saw fit" were not, I think, intended to suggest that the court has a general discretion on this issue. I read them as meaning no more than "where it appears relevant". The issue of "reasonableness", raised by s 271(3), is directed only to a new offer of security. By contrast, under s 267(2)(b), a pre-existing security which exceeds the debt is an absolute bar to the presentation of a petition. The same approach must in principle apply in relation to the balance of a partially secured debt under s 269(1)(a). In that case, the balance is treated as a separate debt for the purpose of s 267 (s 269(2)); if that separate debt is shown to be fully secured, the debtor is entitled to have the petition dismissed.
- Returning to the facts of this case, it is common ground, on the basis of Platts, that it would have been open to the court at the petition hearing, if the point had been taken, to determine the proper value of the security. As has been seen, however, the point was not taken by Mr Owo-Samson. Accordingly, on the material as presented to the Registrar, the bankruptcy order was properly made.
- That, however was not the end of the matter. As has been seen, Mr Owo-Samson was able to apply to annul the bankruptcy order. IA s 282 provides that:
"(1) The court may annul a bankruptcy order if it at any time appears to the court -
(a) that, on any grounds existing at the time the order was made, the order ought not to have been made; or
(b) that, to the extent required by the rules, the bankruptcy debts and the expenses of the bankruptcy have all, since the making of the order, been either paid or secured for to the satisfaction of the court."
Annulment under this section does not affect the validity of anything done by the trustee in the meantime (s 282(4)(a)); and the court, it seems, has a general discretion to allocate responsibility for the costs incurred by the trustee (Butterworth v Soutter  BPIR 582, 585C-E, per Neuberger J).
- In Royal Bank of Scotland v Farley  BPIR 638 Hoffmann LJ said of section 282(1)(a):
"It seems to me that if it can be demonstrated by evidence subsequent to the bankruptcy order that the debts on which the petition was founded did not exist, then it would be right to say that there was a ground existing at the time the order was made on which it should not have been made" (639H-640A).
In the present case, Mr Registrar Baister accepted the applicant's submission that
"… that proposition can be applied to this case if it can be demonstrated that the petition debt was secured so that, in reality, no unsecured debt existed at the time the order was made which was capable of founding a petition." (para 12)
If that is correct (it has not been questioned on behalf of the Bank), then it gave Mr Owo-Samson a third chance to bite the valuation cherry, having missed the first two. This time he took it, and adduced evidence which appeared to show that the Bank had indeed substantially undervalued its security.
- However, the word "may" in section 282 makes clear that the court's power to annul, even if the grounds are made out, is discretionary. The court is not bound to set aside the petition, particularly if, as here, the creditor is found to have acted reasonably and the debtor has failed to raise defences which were open to him at an earlier stage. In such a case, a critical factor in exercising the discretion, in my view, must be the prospects, if the order is annulled, of the debtor being able to satisfy the petitioner and meet his other liabilities.
- Finally, in reviewing the statutory provisions, I should refer to IR s 375(1), which gives the bankruptcy court a general power to "review, rescind or vary" any order previously made by it. This was the power exercised the Deputy Registrar in February 2002, with the result that Mr Registrar Baister was faced in July 2002 with an application to annul made in August 1998. The delay is an unfortunate complication, but it is not suggested that it can be held against Mr Owo-Samson. As Mr Registrar Baister said:
"The practical effect of Mr Deputy Registrar Middleton's order was to revive the first application for annulment… Accordingly, the application with which I am now dealing is in reality a rehearing of the application heard by Mr Deputy Registrar Scott but based on fresh submissions and new evidence which were not before him when he decided to dismiss the application." (para 10)
The judgments below
- In his judgment, the Registrar addressed two main issues:-
i) Was the petition debt in fact secured at the time of the time the order was made?
ii) How should his discretion be exercised?
- Under the first issue, he made certain findings on the valuation evidence. He referred to the respective valuations, by Mr Gill in 1997 and by Mr Seeley in August 2001. The Registrar preferred the Seeley valuation, both because Mr Gill had been restricted to a "drive-by" valuation, and because he thought it right "to give the debtor the benefit of the doubt". He commented:
"… I go no further than to say this: that on the evidence I have seen Mr Owo-Samson has no more than an argument that if the valuation evidence now available had been available at the hearing of the petition and put before the court, it is likely that the court would not have made the bankruptcy order there and then but would have adjourned the petition and given directions for determination of the value of the security." (para 23)
He also noted that a valuation of the property in July 2002 put the value at between £425,000 and £450,000.
- However, he regarded the relevance of the new evidence as limited. As he explained later in the judgment:
"However, in fact, on the basis of the case now put forward by Mr Owo-Samson, neither of the valuations which are in evidence (nor for that matter the valuation most recently obtained) is of any real assistance to me: two of them deal with the position at the time the bankruptcy petition was heard assuming a sale within a maximum period of a year, while the estate agent's valuation is presumably based on a sale at or about the present time; but Mr Owo-Samson in reality has no intention of selling in four months, twelve months, now, or in the immediate future." (para 25)
- He also made clear that his preference for Mr Seeley's valuation involved no criticism of the Bank:
"The evidence points to their having taken every reasonable step to seek out figures that would enable them to put a proper value on their security. It seems to me that the approach they took… was a perfectly proper one. The view the bank reached on the value of its security was bona fide. Pursuant to section 269(1)(b) the petitioning creditor did estimate the value of its security, and thereby discharged its obligation to the court and to the debtor." (para 23)
- Under the heading "the exercise of discretion", the Registrar dealt with a number of detailed points which had been raised in submission. He summarised his overall view:-
"Every matter which I have been asked to consider points against the court's exercising its discretion in favour of Mr Owo-Samson. The reality is that he wants his cake and he wants to eat it, for as Mr Macpherson's skeleton argument makes clear, on the one hand he wants to compel the bank to rely on its security whilst on the other being quite open about the fact that he intends to stand in the way of its realising that security." (para 27)
- This followed from Mr Owo-Samson's evidence as to his intentions, supported apparently by his legal advisers, which the Registrar summarised thus (para 29):-
"Mr Owo-Samson puts forward reasons why the discretion to annul should be exercised in his favour. He says:
'My legal advisers tell me that the effect of rescinding my bankruptcy will be probably to protect my home against Barclays Bank until my 2 children leave. They are currently aged 7 and 9 and will probably [not] finish their full-time education until 2013 and 2010 respectively. Secondly, it would enable me to apply to restore my practising certificate as an accountant. This would significantly improve my prospect of obtaining better work with which I could maintain my mortgage and I am 50 years old am a lone parent and do not believe that I will obtain a job if I have been bankrupt.'
Mr Macpherson's skeleton argument as to the exercise of discretion ends with the following submission:
'It is more likely that [Mr Owo-Samson] will be able to retain his home [if the order is annulled]. At present [the Second Respondent] has obtained an order for sale of the property. If the [bankruptcy order] is annulled, Barclays will have to apply under the Trusts of Land and Appointment of Trustee Act 1996. On the present state of the authorities and the present value of the property, [Mr Owo-Samson] has a good chance of postponing any order for sale until after both of his children reach majority' (paragraph 18 (b))." (decision para 29)
- The Registrar saw this as putting the Bank in the position of having to rely on its security in full, while at the same time depriving them of it by seeking to postpone any sale for some eleven years. He said:
"Far from pointing towards the exercise of the court's discretion in favour of Mr Owo-Samson's application, it seems to me that this points in favour of the bank's position. Quite reasonably, the bank wishes to be paid now, or in the foreseeable future, and not in a decade or thereabouts. Bankruptcy seems likely to achieve that." (para 29)
- Among other points, he declined to give any weight to Mr Owo-Samson's concerns about his professional position:
"I have no evidence as to his professional qualifications or what the effect of the bankruptcy order has been on them or on his working capacity; nor do I know whether the fact that he is now discharged has made any difference. Whilst I am sympathetic to this submission, I do not believe that I can attach any real weight to it." (para 34)
- Judge McGonigal upheld the Registrar's decision. Without disrespect to him, I do not find it necessary to refer in detail to his judgment, since he generally adopted the Registrar's reasoning, and found no error in his exercise of discretion.
The second appeal issue
- I turn to the issues on the appeal. It is convenient first to deal with the point of principle identified by Chadwick LJ, although this was not in the event a ground relied on in argument before us. The point arose from paragraph 19 of the Registrar's judgment. In that paragraph, the Registrar was considering a submission that, under section 271(1)(a), the burden was on the creditor to satisfy the court that the debt was unsecured, and that, unless so satisfied, it was precluded from making a bankruptcy order. The Registrar acknowledged the "superficial attraction" of this submission, but rejected it:
"It seems to me that the petitioner has an election to make when he holds security, the election set out in section 269. Here the petitioner, as Mr Macpherson rightly suggests, relied on section 269(1)(b). The bank elected to estimate the value of its security at £20,000. The effect of its doing so was to sever the debt, so that the secured and unsecured portions of the debt fell to be treated separately. Thus, pursuant to section 269(2) the petitioner acquired a debt which was unsecured within the meaning of section 267(2)(b), thereby allowing the bank to present its petition. That was the debt on which the court made the bankruptcy order. Section 271(1)(a) fell away, so that the court was not precluded from making the bankruptcy order." (para 19)
Chadwick LJ read that as possibly suggesting that, once a statement of estimated value of the security had been given by the petitioner, the court was no longer required, under section 271(1)(a) of the Act, to be consider whether the debt was secured.
- However, the passage needs to be seen in context. As I understand it, it was directed to an argument that, even where no point was taken by the debtor as to the adequacy of the security, it was necessary for the court, as a matter of jurisdiction, to satisfy itself of the matters set out in section 271(1). The Registrar was clearly right to reject that submission. As Platts makes clear, the petitioner is entitled to rest on its estimate, unless the debtor questions the valuation. If he does, it is for him to satisfy the court that the debt is fully secured. It is perhaps misleading to say that section 271(1)(a) "falls away". However, it is clear from the extracts I have already referred to, that the Registrar was fully aware of the need to consider the value of the security under that section, once the issue is raised. Accordingly, I see no error of law in this paragraph.
Grounds of appeal
- The appeal to Judge McGonigal was on a number of grounds settled by counsel. The Notice of Appeal to this Court referred to the same grounds. However, before us Mr Owo-Samson helpfully produced a succinct skeleton argument which, as I understand it, encapsulates the grounds on which he now wishes to rely. He accepts that there were two questions for the Court: first, whether on the present evidence the bankruptcy order should have been made, and, secondly, whether in any event the Court should exercise its discretion to annul the order. In summary, his case is, first, that in the light of the current valuation evidence it is clear that the Bank's debt was always fully secured; and, secondly, that, if the bankruptcy order were annulled, there is sufficient equity in the property to enable him to raise the money to pay off the Bank, as well as meet his other liabilities. He also makes a number of factual criticisms of the Registrar's decision; but, as I have indicated, they were not part of the appeal to the judge, and those issues cannot be re-opened now.
- Dealing first with the issue of valuation, the question was whether the relevant debt was fully secured. In the present case that involved a comparison of three elements:
i) the value of Mr Owo-Samson's equity in the property;
ii) the amount secured by the first charge; and
iii) the amount of the relevant debt.
- As the starting point for i), the Registrar had the original Gill valuation at £145,000 and the more recent Seeley valuation at £210,000, both reflecting a "forced sale" valuation as at June 1998. The latter was to some extent corroborated by the "base value" set by the Bank of Scotland in June 1997 of £190,000 (although that was not apparently on a forced sale). As I have said, the Registrar preferred the Seeley valuation; but he appears not to have regarded it as conclusive, since he indicated that he would have given directions to resolve the issue.
- Mr Gill had in fact visited the property in May 2002, to carry out his own retrospective valuation with the benefit of a sight of the interior. That appears from a letter written by Mr Owo-Samson to Mr Gill on 21st February 2003, referring to this visit and asking for a copy of the consequent valuation; he received no reply. Mr Goodison for the Bank did not deny that the visit had taken place, but he was unable to give us any information about the result. It was put to Mr Goodison that this court was entitled to draw the inference that Mr Gill's visit did not yield anything inconsistent with Mr Seeley's valuation. Realistically, Mr Goodison did not attempt to refute that inference. However, if it is correct, it is unfortunate that Mr Gill's earlier valuation was still relied on before the Registrar by the Bank. (The Registrar was apparently told of the visit, but not of the result.)
- In those circumstances, I approach this aspect of the case on the basis that the Seeley figure is correct; and that the original Gill valuation, although found by the Registrar to have been used by the Bank in good faith, was substantially too low.
- No doubt anticipating the possibility of such a finding, the Bank presented evidence to the Registrar to show that, even on the revised valuation, there was still insufficient security remaining. We have been shown the summary of the Bank's calculation in the skeleton argument put before the Registrar. Starting from the assumption that the value of the property was £210,000, the Bank dealt with the three elements as follows:-
i) Value of Mr Owo-Samson's equity Account needed to be taken of the provision in the Bank of Scotland mortgage whereby it took 71.3160% of any accretion in value over £190,000. On this basis the value remaining to Mr Owo-Samson would be £195,736.80.
ii) Value of first charge The amount owing to the Bank of Scotland on the first charge was said to be £137,436.21. (This was the "current balance" as stated by the Bank of Scotland in a letter dated 24th August 1998.)
iii) Value of the relevant debt The Bank's own debt had to be increased by the amount of interest which had accrued up to 2nd June 1998, and the likely costs of obtaining and implementing an order for sale against an uncooperative debtor. These were given as (inclusive of VAT):
|Cost of opposed enforcement proceedings
|Estate agency and conveyancing costs (2% of sale price)
- The figures were accordingly summarised as follows:
|Debtor's share of property value
|Less costs of enforcement
|Less Bank of Scotland first charge
This total was compared with the amount owing to the Bank under the charging order, including accrued interest up to 2nd June 1998, which totalled £49,056.09. Thus, it was submitted, even on the revised basis the debt was not fully secured.
- The only significant controversy in relation to this calculation is the inclusion of the projected costs of realising the security. It is well established that a charging order covers not only the judgment debt, but also future interest on the debt and "all costs charges and expenses reasonably and properly incurred in enforcing or preserving (the) security…." (see Holder v Supperstone  1AllER 473, 477). Accordingly, Mr Goodison submits, that in determining whether the debt is "fully secured", it is necessary to take account of those estimated costs, in addition to the amount of the debt.
- The Registrar did not deal with this point and we have not heard full argument on it. However, on the basis of what we have heard, and of my earlier analysis of the statutory provisions, I would reject it. At the statutory demand stage, the question posed by rule 6(4)(c) is whether "the value of the security equals or exceeds the full amount of the debt". The "debt" there referred to is that specified in the statutory demand, which in this case (in accordance with s 268(1)) was an existing debt "payable immediately". The formula in rule 6(4)(c), in my view, does not leave any room for addition of estimated future costs of enforcing the debt (even if recoverable under the security). That view is consistent with the "brief" procedure appropriate at this stage (see Jacob J, above).
- There might be a case for applying a broader approach, as part of the more general inquiry appropriate at the petition stage. Arguably, in considering whether the debt is "fully secured" (the expression used in Platts), fairness to the creditor demands that one should take account of the costs which he would inevitably face in executing his security. However, that approach seems to me inconsistent with Platts. Sir Christopher Slade appears to have envisaged the same exercise as at the statutory demand stage. Furthermore, section 271(1)(a), on which he relied, refers to security for debts payable at the time of the petition or "having since become payable". That seems implicitly to exclude estimates of future debts or incidental costs.
- Even if that is wrong and it is permissible to take account of estimated costs, I would not accept that those costs can be inflated because of the expected attitude of the debtor to enforcement. That would introduce uncertain and subjective factors into what is essentially an objective exercise of valuation. More fundamentally, such an assumption is inconsistent with the basis of the inquiry. Whether secured or unsecured, the creditor is entitled to payment forthwith. Unless he is able to offer prompt payment by some other means, a debtor, who seeks to rely on the security to avoid bankruptcy, is implicitly acknowledging the right of the creditor to obtain payment by enforcing his security. Whether or not that is realistic in practice, it is an assumption which underlies the statutory policy of generally excluding secured debts from the bankruptcy procedure.
- Accordingly, in my view, Mr Owo-Samson was entitled to succeed on the first issue. If one excludes the costs of enforcement from the above calculation, or even if one assumes some more modest level of costs, the debt was fully secured, and the bankruptcy order ought not to have been made. Mr Owo-Samson's apparent hostility to enforcement was not a reason for reaching a different conclusion on that point, although it could clearly be relevant to the issue of discretion.
- Turning to the issue of discretion, the critical factor in the Registrar's view was the perceived inconsistency of Mr Owo-Samson's position as presented by his counsel:
"….as Mr Macpherson's skeleton argument makes clear, on the one hand he wants to compel the bank to rely on its security whilst on the other being quite open about the fact that he intends to stand in the way of its realising that security."
In fairness to Mr Macpherson the relevant passage (quoted by the Registrar) was preceded by a passage in which he submitted that annulment might enable Mr Owo-Samson to get a job as an accountant, and thus be "in a much better position to satisfy his creditors". So there was at least some acknowledgment of his obligation to pay. However, it was not clear why it was thought that a secured creditor should be expected to rely only on Mr Owo-Samson's job prospects.
- More importantly, the Registrar was unfortunately misled as to the likelihood of delaying enforcement. Before the judge on appeal, Mr Macpherson conceded that his reliance on the Trusts of Land and Appointment of Trustee Act 1996 had been mistaken, and that an order for sale under the charging order would be governed by CPR Rule 73.10. He appears to have argued that similar principles would apply under that rule. However, that in my view was misconceived.
- The 1996 Act, in section 15, sets out principles to be applied by the court in determining an application by a trustee for an order under the wide powers given by the previous section. This was intended to signal a move away from the previous presumption in favour of sale (following the Law Commission report "Transfer of Land: Trusts of Land" Law Com No 181). Accordingly, the factors to which the court is required to have regard under section 15 are widely defined. They include (again on the recommendation of the Law Commission), a specific reference to the "welfare of any minor who occupies… (the trust property) as his home" (s 15(1)(c)).
- There is no parallel with CPR 73.10. The primary purpose of a charging order is to secure the enforcement of a judgment debt (see Charging Orders Act 1979 s 1). CPR 73.10 is simply a procedural rule for implementing the order by sale. Where the property is a home, account no doubt needs to be taken of the protection given by Article 8 of the European Convention of Human Rights (see Halsbury's Laws Vol 17(1) para 318). However, that factor has to be balanced against "the protection of the rights… of others" (Art 8(2)). It is likely to carry little weight, therefore, unless the debtor is able to offer some other credible means of paying off the debt in a reasonable time. Certainly, in my opinion, there is no basis for importing the wide discretion given by section 15 of the 1996 Act (cf Pickering v Wells  AllER(D) 281, where the High Court reached the same view in relation to RSC Ord 88.)
- There is no indication of any credible offer by Mr Owo-Samson before the Registrar. His original reason for not paying the Bank, as he frankly states in his present skeleton argument, was that he did not "agree that the debt exists". Once the reality of the bankruptcy proceedings had become apparent to him, he sought to rely on the argument that the debt was fully secured. However, that was not on the basis that the Bank could secure immediate payment out of that security, or by some other means. The emphasis of the argument seems to have been that, since the Bank was fully secured, the petition should be annulled in order to improve Mr Owo-Samson's prospects of obtaining a job as an accountant, and keeping a home for his children until their maturity. Admirable and understandable though those objectives were, they failed to answer the basic question, which was why the Bank should be required to settle for anything less than immediate payment in full.
- Similar arguments were presented to the judge, although he also recorded a submission "on instructions" that, if the order were annulled, the appellant would "offer security pending a re-mortgage or sale…" The judge concluded that, since the appellant was on legal aid, it was unlikely that he would be able to obtain a remortgage.
- Mr Owo-Samson now seeks to persuade us that, if the bankruptcy order were to be annulled, he would be able to raise the necessary money to pay off the debt by a further mortgage on his house. He has referred us to a letter from the First Equity Mortgage Company, dated 23rd July 2002, which purports to offer a remortgage for total borrowings of £200,000. From its date, it appears that this would have been available at least by the time of the judge's hearing, but it does not seem to have been relied on by Mr Owo-Samson's legal representatives at that stage. Mr Goodison did not formally object to our considering it, but he fairly commented that the Bank had not been shown the terms of the application to the mortgage company, nor any other information necessary to judge whether it is a realistic offer. At first sight the document raises as many questions as it answers. Most significantly, although the "expected property valuation" is given as £430,000, there is no mention of the Bank of Scotland's first charge; nor any indication that a substantial part of that value would be taken by them under the "shared appreciation" terms of their loan. In those circumstances, I do not regard this letter, as it stands, as adding materially to the merits of Mr Owo-Samson's case for annulment.
- I have not found this an easy case to resolve. On the one hand, I have found two significant errors of law in the way the matter was dealt with by the Registrar:
i) He wrongly treated the debtor's attitude to enforcement as a reason for not determining whether the value of the creditor's security was (at the date of the order) equal to or greater than the petition debt. If he had correctly addressed that issue, he would, in my view, have determined it in favour of the debtor.
ii) He wrongly proceeded on the basis that, under the Trusts of Land and Appointment of Trustees Act 1996, the debtor might be able to postpone enforcement of the charge for up to eleven years. That Act (as was later conceded) was irrelevant. He should have proceeded on the basis that the charging order was in principle (in the absence of any other proposal to satisfy the debt) enforceable by an order for immediate sale.
- However, to describe these as errors by the Registrar is unfair to him, since they were largely the result of the way the matter was put to him by the parties. The valuation issue was unnecessarily complicated by the Bank's reliance on the outdated valuation of Mr Gill, and its attempt to bring into the calculation the costs of opposed enforcement. Mr Owo-Samson's side, in turn, was largely responsible for the second error, by adopting a misconceived attitude to the possibility of enforcement of the charge.
- The court does not, in my view, have the material necessary to exercise the discretion itself. If the appeal is allowed, therefore, the matter would have to be sent back to the Registrar for redetermination. This would prolong an already protracted case, and add further to the costs. I am in any event very doubtful whether annulment of the bankruptcy would be to Mr Owo-Samson's advantage. The bankruptcy order has already been discharged after the normal three year period. If it is now annulled retrospectively, he will, as far as the petition debt is concerned, be put back where he was in 1998, with the debt remaining unpaid (quite apart from the legal costs and other liabilities which have accrued in the interim.) If he is to avoid the sale of his house (whether by the trustee or under the charging order), he needs to be able to make some credible offer to pay the debt. The evidence so far presented gives no confidence as to his ability to raise the money necessary to make such an offer. It is likely that he is simply putting off the evil day. I would, therefore, urge Mr Owo-Samson, with the benefit of such objective advice as he is able to obtain, to consider seriously whether it is not in the best interests of himself and his family to accept the inevitable, and to begin rebuilding his life from that point.
- However, it is not for us to advise Mr Owo-Samson. He was entitled to have his annulment application dealt with on a correct basis of law. Although he must share some of the blame for the defects in the decision, so must the Bank. I do not think that factor by itself is sufficient to deprive him of the right to a rehearing. Accordingly, with some misgivings, I would allow this appeal and remit the matter to the Registrar for redetermination in accordance with our decision.
- I agree
- I also agree.
Order: appeal allowed and matter remitted to a different registrar for redetermination of question of annulment of bankruptcy; no order for costs here, below and before the registrar as between the appellant and the bank; trustee's costs to be costs in the bankruptcy.
(Order does not form part of the approved judgment)