Bankruptcy – Discharge – Release of bankruptcy debts by discharge
McRoberts v McRoberts: Chancery Division (Mr Justice Hildyard): 1 November 2012
Section 281(5) of the Insolvency Act 1986 (the 1986 act) provides, so far as material: 'Discharge does not, except to such extent and on such conditions as the court may direct, release the bankrupt from any bankruptcy debt which - (a) consists in a liability to pay damages for negligence, nuisance or breach of a statutory, contractual or other duty, or to pay damages by virtue of Part I of the Consumer Protection Act 1987, being in either case damages in respect of personal injuries to any person, or (b) arises under any order made in family proceedings or under a maintenance calculation made under the Child Support Act 1991.'
In April 2003, an order in family proceedings between the parties was made (the order). The order required the applicant to pay the respondent a lump sum of £450,000 in instalments and provided that, if not paid within 14 days of the due date, the whole of the lump sum then outstanding would then become payable forthwith. The applicant did not keep up instalment payments. In September 2006, the applicant was declared bankrupt. The respondent entered a proof of debt in the sum then outstanding in respect of the lump sum and interest.
There was a large deficiency in the applicant’s bankruptcy and the respondent accordingly received nothing in respect of her proof of debt. In September 2007, the applicant was discharged from bankruptcy and thereby released from all bankruptcy debts provable in his bankruptcy except as provided in section 281(5) of the 1986 act. The applicant sought the release of his obligation to pay the sum under the order (the obligation) on the basis that it should be properly characterised as an obligation to pay maintenance, which was capable of variance under the matrimonial jurisdiction. He further contended that the discharge of the obligation would not cause irremediable prejudice to the respondent as the matrimonial courts would still have jurisdiction.
It fell to be determined: (i) whether the court had jurisdiction to release the applicant from the obligation; (ii) whether the obligation could be characterised as an obligation to pay maintenance; and (iii) whether the respondent would be prejudiced by the discharge of the obligation. The application would be dismissed.
(1) It was settled law that the ordinary or default position was that an obligation to pay a lump sum arising under an order made in family proceedings was not released by discharge of the bankrupt. However, the court had jurisdiction to provide for release to such extent and on such conditions as it might direct. The jurisdiction so conferred was discretionary (see  of the judgment).
In the instant case, so far as the order had provided for payment of a lump sum that had been a provable debt, it had not been released upon the applicant’s discharge from bankruptcy. However, the court had jurisdiction to release it entirely or conditionally in its discretion (see  of the judgment). Hayes v Hayes  EWHC 1240 (Ch) applied.
(2) It was an established principle that the purposes for which the discretion was conferred did not include review of the merits or overall fairness of the underlying obligation (see  of the judgment). On the facts, the obligation should not be recharacterised as, in substance, an order for maintenance payments and it would not be open to review in matrimonial proceedings. In any event, the discretion conferred by section 281(5) of the 1986 act was not intended to extend to a review and modification under the matrimonial jurisdiction (see  of the judgment).
(3) In exercising the court's discretion, the ultimate balance was to be struck between: (i) the prejudice to the respondent in releasing the obligation if otherwise there would or might be some prospect of any part of the obligation being met; and (ii) the potential prejudice to the applicant’s realistic chance of building a viable financial future for themselves and those dependent on him if the obligation remained in place. In striking the balance, the burden was on the applicant; unless satisfied that the balance of prejudice favoured its release, the obligation should remain in place (see ,  of the judgment).
In the instant case, the possibility of future orders by the matrimonial courts did not justify release, even if that possibility might be a further comfort if the balance appeared otherwise to favour release of the obligation. Further, the circumstances did not encourage the conclusion that the applicant had done everything he could to discharge his obligations to the respondent; they did encourage a sense that the applicant’s finances might not be entirely transparent. In all the circumstances, the balance remained in favour of keeping in place the obligation. There was no sufficient reason to override the default provision (see , ,  of the judgment).
Simon Calhaem (instructed by Harris Cartier Ltd) for the applicant.Byron James (instructed by Bruce MacGregor & Co Solicitors) for the respondent.