Adjournments in Bankruptcy Proceedings

Article by Thomas Wheeler

A question frequently asked by Creditors pursuing bankruptcy proceedings, and Debtors trying to avoid a Bankruptcy Order, is whether a Court is likely to adjourn the hearing of the Petition.

Adjournment applications are usually made by Debtors who are seeking time to sort out their financial affairs, with a view to discharging the Petition debt and avoiding a Bankruptcy Order.  Such applications are frequently opposed by Creditors who may have already been waiting a length of time to be paid, and who may doubt a Debtor’s ability to pay.

The case of State Bank of India v Dr Vijay Mallya [2020] EWHC 96 (Ch) is the authority to be relied upon when making or opposing an application to adjourn.  This case was heard in the High Court by Chief Insolvency and Companies Court Judge Briggs who considered the previous authorities on the test to be applied.

The Court has a broad discretion as to whether to grant an adjournment application, as provided by s.266(3) Insolvency Rules 1986 which reads:

“The Court has a general power, if it appears to it appropriate to do so on the grounds that there has been a contravention of the rules or for any other reason, to dismiss a bankruptcy petition or to stay proceedings on such a petition; and where it stays proceedings on a petition, it may do so on such terms and conditions as it thinks fit.”

In the case of Re A Debtor [1920] KB 432 the Court identified at least three circumstances where an adjournment may be sought. First to remedy technicalities; secondly “to enable the evidence on either side to be fully heard and thirdly to enable the debtor in the event of his being able to do so, to satisfy [the Court] of his power to pay his or her debts in full.”

In line with earlier authorities, Mallya noted that to successfully obtain an adjournment, the Court would need to be satisfied that there was ‘a reasonable prospect that the petition debts would be paid in full within a reasonable time’.

The evidence before the Court will be of significant importance.  A Debtor would need to demonstrate that he has the means to pay the Petition debts in full, and that such payment can be made within a period that the Court considers reasonable.

The authorities demonstrate a varied approach to what period may be considered ‘reasonable’, and the Court will consider all of the evidence to determine what is reasonable in the circumstances.

Whilst Creditors may be dissatisfied by the granting of an adjournment, their position is to a certain extent protected.  The Court will not usually order repeat adjournments over a long period of time, the adjournment itself may result in the Petition debts being paid in full, and if the debt is not paid the Court is far more likely to make a Bankruptcy Order on the next occasion.

Debtors should be aware, however, that if a Petition debt is discharged by payment in full, there may be supporting creditors waiting to take over as Petitioning Creditor.  A Debtor should therefore take steps to address all of his debts during the adjournment period.

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