Future obligations under Income Payments Order discharged by second Bankruptcy

August 14, 2019

A recent Court of Appeal case in England considered the question of whether future payments due by a discharged bankrupt under an Income Payments Order (IPO) were provable debts in his second bankruptcy.

Facts

Mr A (a bankrupt) argued that an IPO that remained extant after his discharge from his first bankruptcy was automatically discharged upon his second bankruptcy. His Trustee in Bankruptcy argued that the future payments were not provable as they were uncertain due to the Courts ability to vary them and should remain enforceable for the benefit of the first bankruptcy estate. The Trustee did however accept that arrears under the IPO were provable debts in the second bankruptcy.

The legislation is clear that if a second bankruptcy order is made before the debtor is discharged from the first bankruptcy then the IPO becomes an asset of the second bankruptcy and the second trustee can collect the payments for his estate. However, there is no provision for what is to happen to an IPO if the second bankruptcy order is made after the debtor receives their discharge from the first bankruptcy order.

Decision

At first instance, the District Judge held that the future payments under the IPO were enforceable as they were not provable in the second bankruptcy. This decision was upheld by the High Court. Mr A appealed to the Court of Appeal.

In a leading Judgment, Richards LJ found that arrears due under an IPO and Future IPO payments were provable debts in the second bankruptcy under the Insolvency Act 1986 (the “Act”). The judgment considered the wording of section 335 of the Act. The equivalent article of the Insolvency (Northern Ireland) Order 1989 is article 308.

He also noted that the Act did not expressly except future payments under an IPO or dictate their survival following a bankrupt’s discharge from bankruptcy. Therefore, there were important policy reasons to apply the Supreme Court decision in Re Nortel GmbH (In Administration) [2013] UKSC for consistency.

Comment

This decision fills a gap in the Income Payment Order provisions of the Act and would be persuasive in Northern Ireland in respect of the equivalent provisions of the Order. A Trustee of a first bankruptcy must now prove in a second bankruptcy for arrears and future payments under an IPO and the second Trustee can apply for a new IPO.

Azuonye v Kent [2019] EWCA Civ 1289

This article has been produced for general information purposes and further advice should be sought from a professional advisor. Please contact our Insolvency & Business Restructuring team at Cleaver Fulton Rankin for further advice or information.

Rachel Kelly, Associate , Insolvency & Business Restructuring team, Cleaver Fulton Rankin, Solicitors.