Postponement of discharge from bankruptcy: High Court emphasises that suspicion is not enough
A bankrupt is discharged after one year (Insolvency Act 1986, s. 279(1)). But the court has a discretion to extend this period “if satisfied that the bankrupt has failed or is failing to comply with an obligation” imposed by virtue of the bankruptcy (subsection (4)).
The recent case of Bowles v Trefilov is a warning to trustees that suspicion is not enough.
A Russian businessman, the former owner of a chain of Russian supermarkets, was made bankrupt with debts of £121m, shortly after being found liable in proceedings in London to pay 328 million roubles to a Russian bank. He was interviewed by the trustees and corresponded with them, answering various questions about his assets and affairs. There was an initial allegation of inadequate co-operation with the trustees in particular respects, which was dealt with by a short extension of the bankruptcy and undertakings to provide the desired cooperation. The trustees, however, continued to be unhappy generally at the bankrupt’s answers to their questions. They sought a further extension of the bankruptcy.
The Trustees’ main concern was with a “framework agreement” they had become aware of. Under this agreement, an English company owned by an acquaintance of the bankrupt had contracted with a Dutch supermarket holding-company to receive up to US $100m in commission payments from it and related Russian entities in return for services as negotiator of new leases of supermarket premises across Russia. The bankrupt had signed the agreement as attorney for the English company, and much of the negotiation had in practice been carried out by him personally.
The Dutch company failed to pay under the “framework agreement” and was sued in London by the English company, this litigation settling on the basis of an agreement to pay US $14m. The trustees obtained an injunction freezing that sum before it could be paid over to the English company, their underlying claim being that it actually belonged to the bankrupt, or at least that he had an interest in it, or in the English company.
Unless the court intervened to suspend discharge, the bankruptcy was due to expire before this claim could be heard.
The trustees maintained that the bankrupt’s refusal to accept that he had some sort of interest, and the answers he had given in support of this denial, amounted to a breach of his obligation, as a person in bankruptcy, to give them a full account of his affairs. They relied on various alleged inconsistencies in his explanations and between those explanations and things said on his behalf in other contexts, and on what they claimed was the implausibility of his account.
The court (Chief Registrar Baister) first considered the meaning of the words in section 279(4), “has failed or is failing to comply with an obligation”, which are generally understood to present a jurisdictional hurdle to an application to suspend the discharge of a bankrupt (Bramston v Haut  EWCA Civ 1637,  1 W.L.R. 1720). The court held that the words should be construed entirely literally: any failure to comply with an obligation, even if purely historic and now corrected, was enough to give the court jurisdiction to suspend discharge. Thus, the fact there had been some non-cooperation initially, albeit unrelated to the complaint the trustees now made, was enough in the court’s view to give it jurisdiction to suspend the discharge further.
This left, however, the question of discretion. The court was not persuaded to exercise this discretion:
“Whilst I might share and sympathise with the applicants’ suspicions about the relationship between [the bankrupt] and [the English company], as Mr Registrar Nicholls rightly observed in Chadwick v Nash  BPIR 70, suspicion is not enough. On an application of this kind the court will often give great weight to the views of a trustee, but it cannot abandon its role by simply adopting the trustee’s stance. I remind myself that interfering with a bankrupt’s expectation of discharge after the one year period provided for by the Insolvency Act is a serious interference with his rights and is not something to be done lightly” (para 51).
Although the court characterised the material relied on by the trustees as “very persuasive”, it was not so much so as to warrant disbelieving the bankrupt’s account in this context. The application was dismissed with costs.