In England and Wales, there should only be one bankruptcy petition against a debtor at any one time. As stated in Re Maud [2020] EWHC 1469 (also known as Edgeworth Capital (Luxembourg) Sarl v Maud)('Re Maud'), by Snowden J, at paragraph 98:

‘Consistent with the principle that a bankruptcy petition is a class remedy, the legislation, rules and court practice are generally based upon the notion that there should only be one petition against a debtor at any one time.'

Re Maud itself was actually an unusual case[1] in that there were two bankruptcy petitions pending against the same debtor; but this situation should arise only rarely. As Snowden J said in Re Maud, at paragraph 98:

‘Bankruptcy petitions can be presented by one or more creditors under section 264(1)(a) of the 1986 Act, and they are required to be presented in a particular court by Insolvency Rule 10.11 so that an attempt to present a second petition should be detected.' [2a]

In Robertson v Wojakovski [2020] EWHC 2737 (Ch)('Robertson'), Zacaroli J said, at paragraph 15:

'Where a creditor wishing to pursue bankruptcy proceedings against a debtor discovers that another bankruptcy petition has already been presented, then the usual course is for that creditor to give notice of intention to support the petition (under Rule 10.19) rather than to present its own petition.' [2b]

Where there is only one Petition
Where there is only one pending bankruptcy petition against a debtor, the petitioner (whether a single creditor or more[2c]) will pursue it in the normal way, perhaps with other creditors appearing as supporting or opposing creditors (as the case maybe). However, there may come a time when the petitioner no longer wishes/cannot continue the petition, no longer seeks a bankruptcy order, or simply does not attend to pursue the petition. At this point, it maybe that one of the supporting creditors will wish to take over the existing petition from the original petitioner.

As Snowden J went on to say in Re Maud, at paragraph 98, in such circumstances:

‘There are … provisions for a supporting creditor to be substituted for the original petitioner under Insolvency Rule 10.27 (e.g. if the original petitioner wishes to withdraw the petition) or for a change of carriage of the petition under Insolvency Rule 10.29 (e.g. if the original petitioner neglects to prosecute the petition).’

This article will consider these two rules - for substitution and change of carriage - notwithstanding the paucity of reported cases in this area[3].

Corporate Insolvency
While not the focus of this article, in corporate insolvency, there is, in respect to winding up petitions, (just) r.7.17 - substitution of creditor or contributory for petitioner[4].

Rule 10.27 - Substitution of Bankruptcy Petitioner

Insolvency Rules 2016, r.10.27 is entitled ‘Substitution of petitioner’ and reads:

‘(1) This rule applies where the petitioner

(a) is subsequently found not to have been entitled to present the petition;

(b) consents to withdraw the petition or to allow it to be dismissed;

(c) consents to an adjournment;

(d) fails to appear in support of the petition when it is called on in court on the day originally fixed for the hearing, or on a day to which it is adjourned; or

(e) appears, but does not apply for an order in the terms of the petition.

(2) The court may, on such terms as it thinks just, substitute as petitioner a person who

(a) has delivered a notice under rule 10.19 of intention to appear at the hearing;

(b) is willing to prosecute the petition; and

(c) was, in the case of a creditor, at the date on which the petition was presented, in such a position in relation to the debtor as would have enabled the creditor on that date to present a bankruptcy petition in relation to a debt or debts owed to that creditor by the debtor, paragraphs (a) to (d) of section 267(2) being satisfied in relation to that debt or those debts.’[5]

Gateways
For r.10.27 to apply, one of the gateway circumstances set out in r.10.27(1)(a) to (e) must exist. The 5 gateways require little explanation as they are self-explanatory.

Eligible to be substitute Petitioner
Where (at least) one gateway circumstance arises, the next issue to consider is whether the applicant (creditor; would-be petitioner; sometimes called 'named person' or 'relevant person') is eligible to be a substitute petitioner, under r.10.27(2). To be eligible, the 3 qualifying criteria set out in r.10.27(2)(a) to (c) must be satisfied. These 3 qualifying criteria are cumulative. For a person to be eligible, all 3 must be satisfied.

Taking these in turn.

Criteria (a) - Notice of an Intention to Appear the Hearing
The applicant/would-be petitioner must have delivered a r.10.19 notice of an intention to appear at the hearing;

Insolvency Rules 2016, r.10.19 is entitled ‘Notice by persons intending to appear’ and reads:

‘(1) A creditor who intends to appear on the hearing of the petition must deliver a notice of intention to appear to the petitioner.

(2) The notice must contain the following

(a) the name and address of the person, and any telephone number and reference which may be required for communication with that creditor or with any other person (also to be specified in the notice) authorised to speak or act on the person’s behalf;

(b) the date of the presentation of the bankruptcy petition and a statement that the notice relates to the matter of that petition;

(c) the date of the hearing of the petition;

(d) in the case of a creditor, the amount and nature of the debt due from the debtor to the creditor;

(e) whether the person intends to support or oppose the petition;

(f) where the person is represented by a solicitor or other agent, the name, postal address, telephone number and reference number (if any) of that person and details of that person’s position with or relationship to the creditor; and

(g) the name and postal address of the petitioner.

(3) The notice must be authenticated and dated by the person delivering it.

(4) The notice must be delivered to the petitioner or the petitioner’s solicitor at the address shown in the court records.

(5) The notice must be delivered so as to reach the petitioner (or the petitioner’s solicitor) not later than 4pm on the business day before that which is appointed for the hearing (or, where the hearing has been adjourned, for the adjourned hearing).

(6) A person who fails to comply with this rule may appear and be heard on the hearing of the petition only with the permission of the court.’

The Court can waive this requirement, as indicated in Islandsbanki HF v Stanford [2019] EWHC 595 (Ch); [2019] BPIR 876 (‘Islandsbanki’), where HMRC sought to be substituted for a bank (Islandsbanki HF) as petitioning creditor. ICC Judge Jones said, at paragraph 92

‘HMRC is identified as a supporting creditor on the list before me but it would be right if necessary in any event to waive the requirement of delivery of a notice of intention to appear in the circumstances of HMRC's existing petition and the procedure to date.’

Criteria (b) - Express a willingness to prosecute the petition
The applicant/would-be petitioner must express a willingness to prosecute the petition if they are substituted in as petitioner. A simple statement in Court, that the applicant/would-be petitioner is so willing, should be sufficient for this.

Criteria (c) - Could have Presented Petition Originally
The applicant/would-be petitioner must be able to demonstrate that, on the date the original petition was presented, they could have properly presented their own petition.

Three observations:

(1) The date used is the date the original petition was presented, not the date of the substitution hearing. In contrast, the equivalent rule in corporate insolvency, r.7.17 of the Insolvency Rules 2016, uses the date of the hearing of the application for substitution[6]; and

(2) applicant/would-be petitioner will need to have served, suitably prior to the original petition presentation date, a statutory demand or have a return of the enforcement officer or enforcement agent;

(3) an example of the Court applying Criteria (c), albeit where the point had been conceded, can be found in Islandsbanki, where ICC Judge Jones said, at paragraphs 92 and 93:

‘In the circumstances of my decision that Islandsbanki HF was not able to rely upon the purported execution of its judgment debt, it was right to substitute HMRC as a creditor whom it was accepted without issue was able to present a petition at the date of presentation of Islandsbanki HF's petition.

The requirements of Rule 10.27 of the Rules were met.’[7]

Contents of Order for Substitution
Where the Court determines that it should substitute in the applicant/now substitute petitioner, r.10.28 of the Insolvency Rules 2016 sets out what the order for substitution must contain. r.10.28 is entitled ‘Order for substitution of petitioner’ and reads:

‘(a) identification details for the proceedings;

(b) the date of the hearing of the petition;

(c) the name of the original petitioner;

(d) the name of the person who is willing to prosecute the petition (“the named person”);

(e) a statement that the named person meets the requirements of rule 10.27(2);

(f) details of the statutory demand or return of the enforcement officer or enforcement agent;

(g) the following orders–

(i) that upon payment by the named person of the statutory deposit to the court the statutory deposit paid by the original petitioner to the court be repaid to the original petitioner by the official receiver,

(ii) that the named person be substituted as petitioner in place of the original petitioner and that the relevant person may amend the petition accordingly,

(iii) that the named person must within five business days from the date of the order file a copy of the amended petition together with a statement of truth verifying the amended petition,

(iv) that at least 14 days before the date of the adjourned hearing of the petition the named person must serve upon the debtor a sealed copy of the amended petition,

(v) that the hearing of the amended petition be adjourned to the venue specified in the order, and

(vi) that the question of the costs of the original petitioner and of the statutory deposit (if appropriate) be reserved until the final determination of the amended petition;

(h) the venue of the adjourned hearing; and

(i) the date of the order.’[8]

Prospect of Undisputed Supporting Creditor being Substituted for Petitioner

It is worth noting that in one particular set of circumstances, the mere prospect of a supporting creditor being substituted for an original petitioner can have an affect on the Court's approach to the petition, pre-substitution. Where a debtor admits it has no defence to the petition founded upon the original petitioner's debt or (in the event of substitution) the supporting creditor's/would-be petitioner's debt, but the debtor seeks an adjournment of the petition for time to pay the original petitioner's debt, on the basis there is a reasonable prospect of it paying the original petition debt within a reasonable period of time (but the debtor admits it has no similar prospect with the supporting creditor's/would-be petitioner's debt), this would justify the Court refusing the debtor's application for an adjournment. In Robertson, Zacaroli J set out the law as follows, at paragraph 15:

'If a debtor was able to pay the petitioning creditor, but not the supporting creditor, then the inevitable result of an adjournment to allow payment to be made to the former would be that the supporting creditor would apply to be substituted at the adjourned hearing. At that point (assuming there was no other defence as against the supporting creditor) a bankruptcy order would likely be made because the debtor could not pay the newly substituted petitioning creditor. Such an outcome would conflict with the class nature of bankruptcy, as it would result in payment in full to one creditor in preference to the supporting (and any other) creditor. In the event that a bankruptcy order was indeed made on the adjourned hearing, the payment made to the petitioning creditor would itself constitute a void disposition, unless consented to or ratified by the court, under s.284 of the Insolvency Act 1986. For these reasons, I consider that in order to justify an adjournment of the petition in this case, [the debtor] would need to provide credible evidence of his ability to pay within a reasonable time both the petition debt and the debt due to the supporting creditors.'[9]

It might be said that this broad statement requires some refinement - since a payment made to the petitioning creditor is not always void - if it is paid to the petitioning creditor direct from a third party, not via the debtor, it does not at any point form part of debtor's estate, and so is not vulnerable to later being rendered void; see Re Hood; Hood v JD Classics Ltd [2020] EWHC 3232 (Ch)

Rule 10.29 - Change of Carriage - Carriage of the Petition in place of the Petitioner

Insolvency Rules 2016, rule 10.29 is entitled 'Change of carriage of petition' and subrules (1) to (5) read:

'(1) On the hearing of the petition, a person who has delivered notice under rule 10.19 of intention to appear at the hearing, may apply to the court for an order giving that person carriage of the petition in place of the petitioner, but without requiring any amendment of the petition.

(2) The court may, on such terms as it thinks just, make a change of carriage order if satisfied that

(a) the applicant is an unpaid and unsecured creditor of the debtor; and

(b) the petitioner either–

(i) intends by any means to secure the postponement, adjournment, dismissal or withdrawal of the petition, or

(ii) does not intend to prosecute the petition, either diligently or at all.

(3) The court must not make such an order if satisfied that the petitioner’s debt has been paid, secured or compounded by means of

(a) a disposition of property made by some person other than the debtor; or

(b) a disposition of the debtor’s own property made with the approval of, or ratified by, the court.

(4) A change of carriage order may be made whether or not the petitioner appears at the hearing.

(5) If the order is made, the person given the carriage of the petition is entitled to rely on all evidence previously provided in the proceedings.'

Gateway - Positive and Negative Requirements
For a r.10.29 change of carriage order to be available, the applicant (called the 'relevant person')/circumstances must cumulatively satisify r.10.29 (1) and (2), and not satisfy (3). In addition, it is made clear that the attendance of the original petitioner at Court does not bar a change of carriage order being made.

Unamended Petition - Original Petition Debt continues to Found it.

|n the event that the application for a change of carriage order is successful, the Petition will not be amended (by contrast, the petition is typically amended under r.10.28 (g)(ii) after substitution occurs under r.10.27). Consequently, the applicant/relevant person will, following the change of carriage order, be pursuing the original petition - as founded upon, it seems, the original petitioner's debt. To be clear, the applicant/relevant person will not, it seems, be pursuing the petition on the applicant/relevant person's debt. This is why subrule (5) entitles the applicant/relevant person to rely upon evidence already within the petition proceedings - evidence which will relate to the original petition debt. An original petition debt that has already been secured, compounded, or paid off (by a non-potentially void payment[10]) seemingly bars a change of carriage (the law here is not completely clear). The logic, seemingly, that the original petition debt is genuinely paid off in such circumstances. But otherwise, if paid off by a potentially void payment, then it has not really been paid off. See Chadwick J in Re Purvis [1997] 3 All E.R. 663 as against Laws LJ and Jonathan Parker J in Smith v Ian Simpson & Co [2001] Ch. 239 in the Court of Appeal. See section 271(1) of the Insolvency Act 1986[11].

Contents of Change of Carriage Order

As to the contents of any change of carriage order, r.10.29(6) provides:

'(6) The change of carriage order will contain

(a) identification details for the proceedings;

(b) the date of the hearing of the petition;

(c) the name of the person who is willing to be given carriage of the petition (“the relevant person”);

(d) a statement that the relevant person is a creditor of the debtor;

(e) the name of the original petitioner;

(f) a statement that the relevant person has applied for an order under this rule to have carriage of the petition in place of the original petitioner;

(g) the order that the relevant person must within a period which is specified in the order serve upon the debtor and the original petitioner a sealed copy of the order;

(h) the order that the further hearing of the petition be adjourned to the venue specified in the order;

(i) the venue of the adjourned hearing;

(j) the order that the question of the costs of the original petitioner be reserved until the final determination of the petition; and

(k) the date of the order.'

Guidance in Re Hood on the difference between substitution and change of carriage

In Re Hood; Hood v JD Classics Ltd [2020] EWHC 3232 (Ch)('Re Hood'), Michael Green J said, at paragraphs 75 -78:

'A distinction is made in the scheme of the Act and the Rules between substitution and change of carriage. Under rule 10.27 of the Rules, if a supporting creditor would have been able to present a petition at the date the original petition was presented, then it may be substituted as the petitioner if the original petitioner was willing to allow the petition to be dismissed. The petition would then be amended to show the new petitioner's debt and if a bankruptcy order was eventually made, the relevant date for establishing the bankrupt's estate would be the date the original petition was presented. There is no bar to making a substitution order if the original petition debt has been paid off by a third party. So a creditor who would have been able to present a petition is able to take advantage, for the ultimate benefit of the class of unsecured creditors, of the earlier date even if the petition debt has been paid off by a third party.

This needs to be contrasted with the change of carriage rules. A supporting creditor who is unable to be substituted because it would not have been able to present its own petition has to rely on the more restrictive change of carriage rules. Under those rules it is only where the debtor has used his or her own property to pay off the petition debt that such a supporting creditor is able to take advantage of the original petition date. That is because the petition debt has not really been paid off - see Smith v Simpson [2001] Ch 239. Where however the debt has been paid off by a third party and there has been no disposition of the debtor's own property, there is no reason to allow the supporting creditor to take advantage of the original petition date, because, as of that date, the supporting creditor had no right to present its own petition.

Whether rightly or wrongly, the Rules contemplate a different approach depending on whether the creditor was in a position to present its own petition on the original petition date or not. (I should add that this does not arise in relation to companies winding up as any creditor has a right to petition and so will always be able to ask to be substituted.) That distinction has been brought into sharp focus in this case and I do not think that it undermines...the nature of a bankruptcy petition as a class remedy. Even though it means that a debtor is able to pick off successive petitioners by third party direct payments, that is a consequence of the preferential treatment afforded to supporting creditors who have got themselves into a position to present their own petitions.'

SIMON HILL © 2021-2022

BARRISTER

NOTICE: This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.