Bankruptcy Order Quashed on the Grounds of Mental Capacity: Re Kumar [2021] EWHC 181 (Ch)

17th February 2021 Restructuring & Insolvency

Background

The Debtor was 82 years of age, and subject to a bankruptcy petition in the County Court in the sum of £62,000 which was heard on 19 December 2019.

The Debtor (or possibly his daughter, who held a Lasting Power of Attorney) sent the court an unsigned letter on 15 December 2019 stating that he was suffering from Alzheimer’s disease, poor health and was unable to attend court for the hearing. The letter asked the court to adjourn the hearing until after the Debtor’s consultant’s appointment on 6 January 2020. Accompanying the letter was a number of documents, including a report dated 6 November 2019 from a previous consultation in which the trainee doctor confirmed that Mr Kumar had Alzheimer’s disease. There were further documents from the Debtor’s GP which confirmed he had been diagnosed with dementia in November 2016. The letter and documents were also sent to the solicitors for the petitioning creditor prior to the hearing.

The Hearing

The Debtor did not attend, and the District Judge questioned whether the Debtor had capacity given the evidence before him. The solicitors for the petitioning creditor resisted the adjournment, attacking the quality of the evidence provided by the Debtor as establishing an inability of the Debtor to attend court or oppose the petition.

It seems that the issue of the Debtor’s capacity was swept aside on the basis that there was no need for the Debtor to give any evidence, and so therefore the Debtor’s illness was not strictly relevant to the petition and there was no need for him to be present. The Judge made the bankruptcy order because the debt remained outstanding and that was considered sufficient to warrant the making of a bankruptcy order.

The Appeal

The Debtor appealed on the grounds that the bankruptcy order ought not to have been made in his absence. With the assistance of direct access counsel, these grounds were amended to state the real basis for the appeal was that, on the material before the Judge, a real question had been raised as to the Debtor’s litigation capacity.

The appeal court reviewed the transcript of the bankruptcy hearing, and the evidence before the Judge, finding that ‘All of that evidence raised serious questions as to the [Debtor’s] litigation capacity.’

The appeal court had the benefit of the consultant’s report following the consultation on 6 January 2020, which whilst not before the Judge at the bankruptcy hearing (because the court had declined to adjourn to allow it to take place), was ‘…confirmative of the evidence of lack of litigation capacity that was before the district judge on 19 December…’

The Decision

It was evident that the Debtor suffered from a form of dementia involving Alzheimer’s disease and was, or potentially was, a protected party within the meaning of CPR 21, which applies in insolvency proceedings by virtue of r12.1 of the Insolvency Rules 2016.

CPR 21 applies to ‘protected parties’ being a party who lacks capacity within the meaning of the Mental Capacity Act 2005. CPR 21.3(3) prevents any party from taking any step in proceedings without the permission of the court until the protected party has a litigation friend.

The appeal court found that the Judge should have expressly addressed the issue of the Debtor’s capacity and had he done so, he would have formed the view that there was a need for a litigation friend and that no steps should be taken in the bankruptcy proceedings without the Court’s permission until a litigation friend had been appointed.

The bankruptcy order was set aside and the appeal court appointed the Debtor’s daughter as the litigation friend.

The appeal court was critical of the conduct of the petitioning creditor because it was aware of the issue of capacity but simply ‘brushed over it’ at the hearing. The petitioning creditor was ordered to pay the Official Receiver’s costs of the bankruptcy, and the Debtor’s costs of the appeal.

Comment

If there is any evidence of a debtor or defendant suffering from capacity issues during any insolvency proceedings (or indeed any proceedings) it is incumbent on the claimant to have regard to CPR 21, and consider treating the defendant as a protected party by asking the court to appoint a litigation friend, to ensure that proceedings are validly conducted.

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Cory Bebb is a Partner & Licensed Insolvency Practitioner located in Londonin our Restructuring & Insolvency department

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Areas of Interest