In the recent case of Simmonds v Pearce  EWHC 35 (QB), the High Court confirmed the correct procedure for a trustee in bankruptcy to initiate committal proceedings against a bankrupt, where there was failure to comply with his statutory obligations under the Insolvency Act 1986 (the “Act”).
Sections 333 and 363 of the Act impose various obligations on a bankrupt to give information as to his affairs, deliver up his estate and to do all such things that the trustee may reasonably require or that the court may direct, for the efficient administration of the bankruptcy estate. Where a bankrupt fails to comply, both sections explicitly provide that without reasonable excuse the bankrupt is guilty of contempt and liable to be punished.
In this case, the trustee (Mr Simmonds) applied under CPR 81.15 to the Administrative court (division of the High Court) to commit the bankrupt (Mr Pearce) to prison in relation to breaches of sections 333 and 363, which were said to be deliberate, repeated, and in serious contempt of court. The lack of cooperation had led to the Official Receiver making a successful application for the suspension of the automatic discharge of the bankruptcy order and hence Mr Pearce remained an undischarged bankrupt.
The High Court found that there was a clear pattern of deliberate non-cooperation with the trustee but it went further than that with the bankrupt taking steps to conceal assets (and inhibit their recovery by the trustee) and lying under oath during his public examinations. Therefore, on failing to comply with his statutory obligations, the High Court concluded that this was an extremely serious case of criminal contempt and a committal order was appropriate.
In its judgment, the High Court clarified that the trustee had followed the correct procedure in making an application for committal proceedings under CPR 81.15. CPR 81 is confusing as to which procedure should be adopted where the behavior complained of falls under more than one of the sections of this rule, exacerbated by the inconsistent requirement to obtain prior permission. The High Court clarified here, that as an officer of the court, the trustee would not ordinarily require permission to make such an application and further clarified that this would only normally be appropriate where the bankrupt’s failure to comply is discovered after the trustee had completed the administration of the estate or the bankrupt had been discharged from liability.
Crucially, this was first time that an application for committal had been lodged with the High Court, using the procedure set out in CPR 81.15 for breaches of the above statutory provisions. Usefully, the High Court took the opportunity to comment that the current CPR rules are unclear and unsatisfactory in this area and recommended that the whole procedure should be reviewed by the Civil Procedure Rule Committee; further guidance is therefore awaited.
Tim Carter, Partner and co-head of the Restructuring & Insolvency team commented: this case helpfully highlights the need for clarity in this area and is yet another example of where the CPR and Insolvency Act/Rules do not marry easily. If there is a clear pattern of non-cooperation by the bankrupt, there should be a simple process for the trustee to prosecute for contempt of court in order that the costs expended are kept to a minimum. The issue of costs, in conjunction with the trustee’s duty to act in the best interests of creditors is key here; whilst the bankrupt should be compelled to comply with his statutory obligations and sanction exercised when he is in breach, a question which might be reasonably asked is to what benefit there is to the estate for a contempt of court prosecution? It’s the trustee’s ability to prosecute, and therefore threat of such a prosecution, which is often the driver for the bankrupt to cooperate. Therefore the CPR Committee’s guidance on ensuring that the trustee’s ability to bring committal proceedings is clear and straightforward, thereby avoiding unnecessary and wasted costs, could be crucial to ensure the efficient administration of the estate in current and future bankruptcies, where non-cooperation is an issue.