[COURT OF APPEAL]

In re NOBLE (A BANKRUPT). Ex parte THE BANKRUPT v. THE OFFICIAL RECEIVER AND ANOTHER.

[No. 837 of 1962.]

Bankruptcy - Receiving order - Appeal from - Petition based on alleged liquidated debt - Debt based on default judgment - Debtor's appeal against judgment - Whether jurisdiction to make receiving order pending appeal - Receiving order made with stay - Appeal against default judgment allowed - Application to rescind receiving order dismissed - Subsequent application - Debtor insolvent - Appeal out of time against receiving order - Whether other debts should be substituted in petition - Whether receiving order could stand if appeal in time - Whether proper to give leave to appeal out of time - Bankruptcy Act, 1914 (4 & 5 Geo. 5, c. 59), ss. 4 (1) (c), 29, 108 (1) (2), 111.

Court of Appeal - Time for appeal - Appeal out of time - Debtor's appeal against receiving order - Receiving order founded on bad debt - Debtor hopelessly insolvent - Whether proper to grant leave - Relevant considerations.

On October 18, 1962, a debtor committed an act of bankruptcy in failing to comply with a bankruptcy notice served on him on October 10, 1962, in respect of a judgment obtained by V. in February, 1962. On November 2, 1962, the petitioning creditor signed judgment against the debtor in default of appearance for £700 and on the same day presented a petition, relying on the act of bankruptcy committed on October 18 and on his judgment debt for £700. On November 26, 1962, the petitioning creditor signed a further judgment against the debtor in default of appearance for £1,000. The debtor applied to set aside the judgment for £700 but his application was dismissed by the master, whose decision was upheld on appeal to the judge in chambers. The debtor appealed against the decision of the judge in chambers with the leave of the Court of Appeal, but on February 14, 1963, when the appeal was in the warned list and a few days before it was expected to be heard, the registrar made a receiving order on the petition with a stay of any proceedings under the order pending the hearing of the appeal. The appeal was allowed by the Court of Appeal on the ground that no liquidated debt of £700 was due to the petitioning creditor and that at best he only had an unliquidated claim in damages against the debtor. The debtor then applied to the registrar to rescind the receiving order, which application the registrar dismissed on May 8, 1963. On June 11, 1963, the creditors passed a resolution for adjudication of the debtor as a bankrupt, and relying on that resolution they did not attend the hearing of another petition on June 12, 1963, which was dismissed. On July 3, 1963, the debtor was duly adjudicated bankrupt, and on July 24, 1963, he appealed against adjudication. He was subsequently given leave to amend his notice of appeal by applying for leave to appeal out of time

against the receiving order and, if necessary, the refusal to rescind it on the ground that, there being no debt capable of supporting the petition, the receiving order should never have been made:-

Held, (1) that if the appeal against the receiving order had been in time the debtor would have been entitled as of right to have the receiving order and the adjudication founded thereon set aside, since, as a result of the Court of Appeal's decision, the petitioning creditor's debt, if any, was not a qualifying debt, and no other debt or creditor could then have been substituted, more than three months having elapsed since the act of bankruptcy (post, pp. 143C-D,144F-G).

In re Maund, Ex parte Maund [1895] 1 Q.B. 194; 11 T.L.R. 126, D.C. approved.

Dicta of Lord Denning M.R. in In re Davenport [1963] 1 W.L.R. 817, 819, 820; [1963] 2 All E.R. 850, C.A. not followed.

(2) But that, since the debtor had to apply for leave to appeal out of time against the receiving order, the Court of Appeal had a discretion whether to grant leave, and in deciding how to exercise its discretion could have regard to all the circumstances of the case; and that in the circumstances of the present case it would not be proper to extend the time for appealing; and that, accordingly, the appeal would be dismissed (post, pp. 143E-F, 146G - 147E).

Per curiam. Although the registrar has power to make a receiving order where the petitioner's debt is the subject of a pending appeal, he ought not to exercise that power pending the appeal if satisfied that the appeal is bona fide (post, pp. 140F-G, 145E-F).

In re Yeatman, Ex parte Yeatman (1880) 16 Ch.D. 283, C.A. applied.

APPEAL from Registrar Bowyer.

In or about the summer of 1961 the petitioning creditor alleged that he paid the debtor £700 as the purchase price for shares in a certain company of which the petitioner was himself secretary, and as such signed the transfer to himself of the shares. At that time he and the debtor were associated in business, but in the year 1962 they fell out and a bitter enmity developed between them.

In February, 1962, one Vaidya obtained a judgment against the debtor, on which a bankruptcy notice was issued on October 5, 1962, and served on October 10; the debtor did not comply with the notice by October 18, 1962, so that on that date there was an available act of bankruptcy committed by the debtor. About the same time the petitioning creditor sued the debtor by specially indorsed writ for the £700 paid in 1961, alleging that the consideration for the £700 had entirely failed. There was an alternative claim for damages. On November 2, 1962, the petitioning creditor signed judgment in default of appearance for £700 and

on the same day put the present petition on the file, alleging the act of bankruptcy of October 18 and the debt for £700 "in consideration of moneys paid for shares in [the company], consideration for which has wholly failed."

On November 26, 1962, the petitioner signed a further judgment in default of appearance against the debtor for £1,000 on a cheque, payment of which had been refused.

On December 6, 1962, there was a first hearing of the petition before the registrar (Mr. Registrar Bowyer) which was adjourned until January 17, 1963. Meanwhile the debtor had applied to set aside the judgment for £700. That application was heard by the master in the Queen's Bench Division (Master Clayton) on December 13, 1962, when he dismissed the application. The debtor appealed from the master's decision to the judge in chambers (McNair J.), who, on December 21, 1962, dismissed his appeal. On the second hearing of the petition on January 17, 1963, it was again adjourned, this time for 28 days, i.e., until February 14, 1963. On February 8, 1963, the debtor entered a notice of appeal against the decision of the judge in chambers, having been given leave by the Court of Appeal to appeal out of time. It was expected that the appeal would be heard on or about February 18, 1963. On the third hearing of the petition, on February 14, 1963, the registrar made a receiving order but stayed all proceedings under it pending the hearing of the appeal. The receiving order was made in spite of the imminence of the appeal, partly because the debtor had disobeyed orders of the registrar and partly because the registrar lacked belief in the bona fides of the appeal. On February 18, 1963, the appeal was heard and allowed by the Court of Appeal on the ground that the petitioning creditor had no liquidated debt for £700, but at best only an unliquidated claim in damages in connection with the purchase of shares in the company. By that time over three months had elapsed since the act of bankruptcy relied upon in the petition. On February 20, 1963, the debtor applied to the registrar to rescind the receiving order. That application was due to be heard on March 6, 1963, but was adjourned until May 8, 1963, when it was dismissed. The application was made by the debtor in person. On the same day the hearing of a second bankruptcy petition on the file (No. 394 of 1963) was adjourned to await the outcome of the present petition. On June 11, 1963, there was a meeting of creditors at which they passed a resolution to make the debtor bankrupt. On June 12, 1963, the second petition was dismissed, there being no attendance by the creditors

who, having resolved on adjudication in the present case, could see no purpose in pursuing the second petition. On July 3, 1963, the debtor was duly adjudicated bankrupt. On July 24, 1963, the debtor appealed against the adjudication. On August 13, 1963, the debtor filed his statement of affairs showing a deficiency exceeding £14,000. The grounds of the appeal as originally drawn by the debtor in person made serious charges against the petitioning creditor. Those grounds, however, were abandoned at the opening of the appeal, and the debtor, having obtained legal advice, was given leave by the Court of Appeal in December, 1963, to amend his notice of appeal. By his amended notice of appeal the debtor asked for leave to appeal out of time against the receiving order, and if necessary against the subsequent refusal of the registrar to rescind it, and against the adjudication, the ground of appeal being that there was no debt capable of supporting the petition, and that, therefore, the receiving order should never have been made.

E. Campbell-Salmon for the debtor. The debtor submits, first, that as a result of the decision of the Court of Appeal on February 18, 1963, allowing the debtor's appeal and setting aside the judgment for £700, there was no debt upon which the petitioning creditor could have based his petition. Secondly, the debt of £700, upon which the petitioning creditor relied, had not "accrued due" on October 18, 1962, the date of the available act of bankruptcy, i.e., the debt was not a liquidated debt at that date. Thirdly, substitution under section 111 of the Bankruptcy Act, 1914, would have been impossible. It is only possible to substitute another creditor where the first is not diligently pursuing his remedy, which was not the case here. Further, it would not have been possible for the petitioning creditor to have substituted a new debt, although one existed (the judgment on the cheque for £1,000), since more than three months had elapsed from the available act of bankruptcy. It is possible to substitute a new debt, but such a debt must have "accrued due" within three months of the available act of bankruptcy: see section 4 (1) (c) of the Act of 1914. The relevant period of three months in the present case would have expired on January 18, 1963. The registrar had a discretion to make a receiving order despite the fact that an appeal was pending on the validity of the petitioning creditor's debt: see section 5 (2), (3) and (4) of the Act of 1914. However, if he was satisfied that a bona fide appeal was pending, he ought to have adjourned the further hearing of the petition

until after the determination of the appeal: In re Yeatman, Ex parte Yeatman.¹ In the present case there clearly was a bona fide appeal pending and the registrar ought not to have made the receiving order.

Under the common law of bankruptcy the debt supporting the petition must be in existence at the date of the act of bankruptcy: see Williams on Bankruptcy, 13th ed. (1925), p. 42, which was approved by Lord Hanworth M.R. in In re Debtors.² In the present case the debt was not in existence at the date of the act of bankruptcy, October 18, 1962, since it did not become due until November 2, 1962.

[DAVIES L.J. Can you say why the registrar refused to rescind the receiving order after the Court of Appeal had allowed the appeal?]

He conceived that he had some general discretion to refuse to rescind the receiving order, notwithstanding that there was no petitioning creditor's debt. Not only was there no liquidated debt at the date of the act of bankruptcy, but the petition on its face was based on the judgment debt of £700, which the Court of Appeal held to be invalid. It is true that the petitioning creditor had another judgment debt against the debtor, having obtained judgment for £1,000 on a dishonoured cheque, but he did not obtain that judgment until long after the act of bankruptcy. It could not have been substituted in the petition for the invalid judgment debt and could never have been relied on as a petitioning creditor's debt: see In re Debtors,³ In re A Debtor (No. 20 of 1953), Ex parte The Debtor v. Scott and Official Receiver,⁴ and In re Crump, Ex parte Crump.⁵ If there be no debt, there can be no valid receiving order: In re Mann, A Debtor, Ex parte The Debtor v. Harrods Ltd.,⁶ where the registrar wrongly purported to exercise his discretion when there was no petitioning creditor before him with a valid debt, and none could be substituted owing to lapse of time. Even if there were another unassailable debt available, it could not be substituted, if not relied upon in the petition. The matter is governed by the Act of 1914, which has to be strictly applied. If the court were to allow the petition in the present case to be amended, it would in effect, be allowing a new petition by the back door. A

1 (1880) 16 Ch.D. 283, C.A.

2 [1927] 1 Ch. 19, 28, C.A.

3 Ibid. 19.

4 [1954] 1 W.L.R. 1190; [1954] 3 All E.R. 74, C.A.

5 (1891) 7 T.L.R. 556.

6 [1958] 1 W.L.R. 1272; [1958] 3 All E.R. 660, D.C.

petition which has no valid debt to support it cannot stand. Otherwise someone could commence bankruptcy proceedings without justification and cure the defect of not having a valid debt by subsequently acquiring a debt which was available at the date of the petition.

The petitioning creditor must "prove" the debt on which the petition is based. That requirement is clearly imposed by section 5 (2) of the Act of 1914 which refers to "the debt." The procedure laid down by the Act of 1914 must be followed, and when three months from the date of the petition have expired no new debt can be added in the petition. After three months from the date of the petition the court will not allow the introduction of new creditors as petitioning creditors who could not themselves have presented a petition at the relevant date, nor will it allow the introduction of a debt upon which the petition could not at the relevant date have been based: In re Maund, Ex parte Maund⁷; In re Maugham, Ex parte Maugham.⁸ Therefore, in the present case there can be no amendment of the petition. The petition not having any valid debt to support it, the appeal should be allowed. [Reference was also made to In re Bristow.⁹]

The petitioning creditor in person. It would be wrong to allow the appeal. The registrar was entitled in the exercise of his discretion to refuse to rescind the receiving order. The authorities establish that the registrar has an unfettered discretion as to the rescission of receiving orders. He can rescind them or not rescind them as he thinks fit in the exercise of his discretion, provided he pays regard to relevant considerations and does not take any irrelevant considerations into account. There is no suggestion in the present case that he ignored relevant considerations or paid regard to irrelevant considerations. He was influenced by the conduct of the debtor and by the need to protect the creditors. It would be unjust to the creditors if the receiving order was rescinded. The debtor is hopelessly insolvent. In all the circumstances of the present case the registrar was well justified in refusing to rescind the receiving order. The registrar having exercised his discretion as he was entitled to do, the Court of Appeal will not normally interfere with the exercise of his discretion: In re A Debtor (No. 994 of 1935).¹⁰ The question of rescission of the receiving order falls

7 [1895] 1 Q.B. 194; 11 T.L.R. 126, D.C.

8 (1888) 21 Q.B.D. 21, D.C.

9 (1868) 3 Ch.App. 247.

10 [1936] 1 All E.R. 794, C.A.

within the discretion of the registrar and should not be disturbed on appeal: In re Hester, Ex parte Hester¹¹; In re Flatau, Ex parte Scotch Whisky Distillers Ltd.¹² The Court of Appeal will only interfere with the exercise of the registrar's discretion in exceptional cases and even then with great caution and considerable reluctance: In re Izod, Ex parte The Official Receiver.¹³ It needs a very strong case to induce the Court of Appeal to interfere with the registrar's exercise of discretion: In re Davidson, Ex parte Davidson.¹⁴ See, too, In re Leslie, Ex parte Leslie.¹⁵ The registrar in exercising his discretion has to consider all the circumstances of the case. The business conduct of the debtor and the need to protect the commercial community against a repetition of his conduct are very important considerations which should weigh heavily with the registrar: In re Flatau, Ex parte The Official Receiver.¹⁶ [Reference was also made to In re A Debtor.¹⁷]

The registrar's order was extremely helpful to the debtor. By putting a stay on the advertisement of the receiving order the registrar considerably assisted the debtor. If the registrar had only adjourned the petition pending the appeal to the Court of Appeal, it would have been open to the other creditors to have taken action on the other acts of bankruptcy. By making a receiving order and staying all proceedings under it pending the appeal the registrar dissuaded the other creditors from taking action on the other acts of bankruptcy and at the same time stayed the hand of the petitioning creditor. The registrar's order was too favourable to the debtor. Notwithstanding that it was too favourable to the debtor, it ought to be upheld on appeal. In any event, the Court of Appeal cannot interfere with the registrar's exercise of discretion: In re Flatau, Ex parte Scotch Whisky Distillers Ltd.¹⁸

The fact that the debt on which the petition is based is unenforceable does not make the proceedings a nullity ab initio. That fact gives the court a discretion to set aside the proceedings and annul the bankruptcy, which it will ordinarily do if there are no other enforceable debts against the debtor: In re Davenport.¹⁹ The decision in In re Davenport²⁰ was that since there

11 (1889) 22 Q.B.D. 632; 5 T.L.R. 326, C.A.

12 (1888) 22 Q.B.D. 83; 5 T.L.R. 5, C.A.

13 [1898] 1 Q.B. 241; 14 T.L.R. 115, C.A.

14 [1894] W.N. 210, C.A.

15 (1887) 18 Q.B.D. 617, D.C.

16 [1893] 2 Q.B. 219, C.A.

17 [1930] 2 Ch. 239, C.A.

18 22 Q.B.D. 83.

19 [1963] 1 W.L.R. 817; [1963] 2 All E.R. 850, C.A.

20 [1963] 1 W.L.R. 817.

were no other enforceable debts against the debtor apart from the unenforceable debt on which the petition was based the bankruptcy should be annulled. But had there been other enforceable debts against the debtor, the bankruptcy would not have been annulled. The law is clearly summarised in that case by Lord Denning M.R.²¹: "It does not mean that where the petitioner's debt is an unenforceable debt the adjudication is a nullity ab initio. It only means that the court may in its discretion annul the bankruptcy. I can well see if there were other legally enforceable debts the court might say: The bankruptcy is not to be set aside." That principle exactly covers the present case. In the present case there are other legally enforceable debts, and, therefore, the registrar was entitled in the exercise of his discretion to say that the bankruptcy was not to be set aside. Application is now made for leave to amend the petition to include the other enforceable debts against the debtor. Judgment was signed on November 26, 1962, against the debtor for £1,000 owing on a cheque drawn by him in favour of the petitioning creditor. That is a good debt and there is no reason why it should not now be included in an amended petition.

There were numerous factors which entitled the registrar to refuse to rescind the receiving order. First, there were other legally enforceable debts existing against the debtor, and that is a ground for refusing to set aside an adjudication: see perLord Denning M.R. in In re Davenport.²² Secondly, the debtor is hopelessly insolvent and it would be unfair and unjust to allow such a person to trade without restriction. Thirdly, the second petition which was on the file was dismissed as a matter of course, the creditors relying on the present petition. It would be unfair to them to annul the adjudication founded on the present petition. Fourthly, the debtor had disobeyed the registrar's orders in regard to these proceedings. Fifthly, he is out of the jurisdiction and cannot be served with new proceedings.

Campbell-Salmon, for the debtor, intervened to say that the debtor would shortly be returning to the jurisdiction.

The petitioning creditor in person. The debtor has at all stages of the proceedings been guilty of delay. He did not seek to appeal against the receiving order for nine months. He allowed the validity of the order to remain unchallenged for a very long time. The present appeal is more than one year out of time. It would be inequitable to grant the debtor leave to appeal out of time against an order well within the discretion of the registrar.

21 [1963] 1 W.L.R. 817, 819, 820.

22 Ibid.

Campbell-Salmon in reply. The registrar had no discretion in the matter at all. The receiving order was initially validly made, but as soon as the Court of Appeal held that the debt on which the petition was based was not a liquidated debt the receiving order became retrospectively invalid. Before a petition can be presented the petitioning creditor must have a qualifying debt. A qualifying debt has to be (1) over £50 in amount, (2) a liquidated debt, and (3) must have existed as a qualifying debt within three months of the act of bankruptcy on which the petition is founded. The alleged debt relied on in the petition was not a liquidated debt and, therefore, could not be a qualifying debt. Accordingly, the petition was based on a non-qualifying debt and should never have been presented, and a receiving order should never have been made on it. Bankruptcy proceedings depend for their validity on the existence of a qualifying debt; there being no qualifying debt, these proceedings are bad and are a nullity ab initio. The registrar, therefore, was bound to have rescinded the receiving order.

Nor can the petitioning creditor now substitute his other debt based on the cheque, because once three months from the date of the act of bankruptcy have elapsed it is not open to anyone to present a petition based on that act of bankruptcy: section 4 (1) (c) of the Act of 1914. Nor can he amend an existing petition to include a fresh debt or a new petitioning creditor even if they would otherwise qualify: see In re Maund, Ex parte Maund.²³ The proper course is to start new proceedings based on a new debt, new act of bankruptcy, and new petition. If, as in the present case, the particular debt on which the petition was founded was invalid and more than three months have elapsed since the act of bankruptcy, the petition cannot be amended to substitute another debt because that would be tantamount to the presentation of a petition more than three months after the act of bankruptcy, which is contrary to section 4 (1) (c) of the Act of 1914. It follows that the petition being invalid and incapable of amendment the receiving order ought never to have been made and should be set aside.

In any event, the registrar, when told that the debtor was appealing against the judgment on which the petition was based, should have adjourned the petition pending the appeal: Ex parte Yeatman, In re Yeatman.²⁴ Failure to adjourn the petition will

23 [1895] 1 Q.B. 194; 11 T.L.R. 126, D.C.

24 (1880) 16 Ch.D. 283, C.A.

not invalidate the receiving order: In re Flatau, Ex parte Scotch Whisky Distillers Ltd.²⁵ Nevertheless, it is not in accord with the proper practice and the registrar wrongly exercised his discretion in making a receiving order.

The observations of Lord Denning M.R. in In re Davenport²⁶ were obiter. Neither In re Maund, Ex parte Maund²⁷ nor In re Maugham, Ex parte Maugham²⁸ were cited in In re Davenport.²⁹ Moreover, In re Davenport²⁹ turned on the discretion expressly given to the court by section 29 of the Act of 1914, which is not applicable to the present case.

If it is apparent that the receiving order should never have been made and that the adjudication based on it should never have been made, the only way in which the registrar could have exercised his discretion judicially was by rescinding the receiving order.

Having regard to the fact that the debtor appeared in person before the registrar and settled the notice of appeal in person it would be proper to give him leave to appeal out of time. This is a proper case for leave to appeal out of time.

Muir Hunter for the Official Receiver. The Official Receiver adopts a neutral attitude in this case. He conceives it to be his duty to assist the court by making some general observations on the Act of 1914. Section 1 provides that on proof of an act of bankruptcy the bankruptcy court has jurisdiction to adjudicate a debtor a bankrupt. Bankruptcy proceedings are not a personal action, but are properly an appeal to the bankruptcy court in the exercise of its discretion on behalf of all the creditors to regulate the debtor's affairs. Section 111 provides for substitution of the petitioning creditor by another creditor if he fails to prosecute the petition with due diligence. Since the act of bankruptcy gives a collective right to all the creditors, they are precluded from executing their individual rights by the presentation of the first bankruptcy petition. If a receiving order is made on the first petition, subsequent petitions will be dismissed as a matter of course. The Official Receiver is, therefore, anxious about any principle based on strict technicality. It is a significant feature of the present case that the second petition on the file was dismissed as a matter of course. It would seem highly odd that the whole of these bankruptcy proceedings which have existed as a judicial act for more than a year could suddenly become

25 22 Q.B.D. 83.

26 [1963] 1 W.L.R. 817, 819, 820.

27 [1895] 1 Q.B. 194.

28 (1888) 21 Q.B.D. 21, D.C.

29 [1963] 1 W.L.R. 817.

absolutely void. By section 7 the receiving order acts as a stay on the other remedies of the creditors for the execution of their debts. Anyone who has a provable debt against the debtor is precluded from suing him. Section 7 is another aspect of the collective nature of bankruptcy. The receiving order should be for as short a period as possible: In re Fletcher, A Debtor, Ex parte Fletcher v. Official Receiver.³⁰ Historically (before 1883) there was no such thing as a receiving order. Until 1883 adjudication was made instantly on a debtor's summons. That procedure was considered to be highly inconvenient, so that by the Bankruptcy Act, 1883, two stages in the proceedings were instituted - the receiving order and adjudication. Section 29 gives the bankruptcy court a discretion to annul the adjudication if it ought never to have been made or if the bankrupt's debts have been paid in full. The court has an unfettered discretion under that section.

The Official Receiver does not accept that the petitioning creditor cannot substitute in his own petition by way of amendment his other debts, even though more than three months have elapsed since the act of bankruptcy relied on in the petition. There must be some real justification for not invoking the extensive powers of amendment set out in section 109 (3). The present case is the first case where the point arises for decision. The nearest case on the point is In re A Debtor (No. 20 of 1953), Ex parte The Debtor v. Scott and Official Receiver.³¹ The possibility of substituting another creditor more than three months after the act of bankruptcy seems to have been accepted in In re Mann, A Debtor, Ex parte the Debtor v. Harrods Ltd.³² Section 109 (3) entitles the court to allow the petitioning creditor to amend his petition to include his other debts. In re Maund, Ex parte Maund³³ and In re Maugham, Ex parte Maugham³⁴ were both cases of substitution of new creditors, not substitution of new debts by the original petitioning creditor, and are, therefore, distinguishable from the present case. In re Davenport³⁵ turned on the court's power to annul an adjudication under section 29, and is also distinguishable from the present case. It was clear law prior to In re Davenport³⁵ that the bankruptcy court need not annul an adjudication under section 29 where the petition

30 [1956] Ch. 28; [1955] 3 W.L.R. 172; [1955] 2 All E.R. 592, C.A.

31 [1954] 1 W.L.R. 1190; [1954] 3 All E.R. 74, C.A.

32 [1958] 1 W.L.R. 1272; [1958] 3 All E.R. 660, D.C.

33 [1895] 1 Q.B. 194.

34 21 Q.B.D. 21.

35 [1963] 1 W.L.R. 817.

was founded on an unenforceable debt: see In re Dunn, Ex parte Official Receiver v. Dunn.³⁶

1964. April 29. The following judgments were read.

HARMAN L.J. stated the facts and continued: The main submission of the debtor was that as a result of the Court of Appeal's decision on February 18, 1963, setting aside the petitioner's judgment, there was no petitioning creditor's debt to found a petition and the whole proceedings were bad. It was, I think, rightly suggested that the proper way to raise this point was to obtain leave to appeal out of time against the receiving order, for if that goes all the rest must follow. The first question is whether we ought to give leave.

The debtor took the wrong course on February 20 when he applied to the registrar to rescind the receiving order. He should then have appealed. This, however, is a technical mistake into which a litigant in person might well fall, and indeed the right course was taken at a later date owing to the good offices of counsel for the Official Receiver. If disposed to give leave, we should treat the application to the registrar of February 20 as an appeal from him. On this footing, in my judgment, the point is a good one. The petitioning creditor had no debt on which to found his petition. At most he had some unliquidated claim for damages which he has never made good. It would follow that the receiving order must be set aside. In my judgment, it was quite wrong to make the receiving order in the first place with a stay. The result is ridiculous: for success in the appeal removes the stay and leaves the receiving order standing.

If authority be needed on this point, see Ex parte Yeatman, In re Yeatman.¹ I quote from the headnote²: "When the proceedings on a bankruptcy petition have been stayed for the trial of the question of the validity of the petitioning creditor's debt, and the validity of the debt has been established by the judgment of a court of first instance, the registrar has a judicial discretion to proceed with the hearing of the petition and to make an adjudication of bankruptcy upon it, and is not bound to wait for a final decision of a Court of Appeal on the validity of the debt. If, however, he is satisfied that a bona fide appeal is pending from the judgment of the court of first instance, he

36 [1949] Ch. 640; 65 T.L.R. 521; [1949] 2 All E.R. 388, C.A.

1 (1880) 16 Ch.D. 283, C.A.

2 Ibid.

ought to adjourn the further hearing of the petition until after the appeal is disposed of."

James L.J., at the end of his judgment, said³: "It is proper that the hearing of the appeal should stand over until after that action has been decided, when we shall be able to see whether there is any foundation for the appellant's suggestion" - the appellant's suggestion being that there was no good petitioning creditor's debt.

The debtor in the present case appears to have no merits and to be wholly insolvent, and the court has considered whether, first, there was any discretion in the registrar as he thought there was, and, secondly, whether another debt or another creditor was available.

As to the latter, under section 111 of the Bankruptcy Act, 1914, the only provision for substituting one creditor for another is the case where the first creditor is not diligently pursuing his remedy. That case does not arise here. Next, we considered whether the petitioner might rely on his judgment for £1,000, obtained on November 26, 1962, which has been held to be a good debt by this court. There is, however, another point which makes this remedy unavailable. Under what is called the common law of bankruptcy the debt supporting the petition must be in existence at the date of the act of bankruptcy: see In re Debtors.⁴ The judgment for £1,000 does not satisfy this, nor indeed did the judgment for £700 before it was set aside. It was argued, however that the £1,000 debt was a liquidated sum and must have existed as far back as August, 1962, and was, therefore, available, but by January, 1963, when three months elapsed from the available act of bankruptcy no action had been taken on that debt and it could not be right by amending the petition to put in a debt on which at the time of the amendment the petitioner could not rely.

For this, see In re Maund, Ex parte Maund.⁵ Vaughan Williams J. said⁶: "... this order for the amendment of the petition ought not to have been made. The petition was presented by several petitioners, the aggregate of whose debts was alleged to come up to the statutory amount. It appears that the debtor did not give any notice questioning the allegations of the petition until June 6 in the present year. Subsequently, in consequence, no doubt, of the objection, which seems to have

3 16 Ch.D. 287.

4 [1927] 1 Ch. 19, C.A.

5 [1895] 1 Q.B. 194; 11 T.L.R. 126, D.C.

6 [1895] 1 Q.B. 196.

been well founded, that some of the alleged debts had no existence in fact, an application was made to amend the petition by adding a fresh petitioner or fresh petitioners. At the time when that application was made more than three months had elapsed from the date of the committal of the act of bankruptcy on which the petition was founded - namely, the assignment for the benefit of creditors mentioned in the petition, that assignment having been made on March 5. The question we have to decide is whether, upon these facts, the registrar's order ought to have been made. It was argued on behalf of the petitioners that the amendment was authorised by section 105 (3) of the Bankruptcy Act, 1883" (that is, section 109 of the Act of 1914), "which enacts that, 'the court may at any time amend any written process or proceeding under this Act upon such terms, if any, as it may think fit to impose.' It was argued that there is no limitation fixed of the time within which that power of amendment may be exercised; that the power is unlimited, and that, if we were to hold that it was limited in any way, we should be introducing words into subsection (3) which have not been put there by the legislature. For myself, if it were necessary to decide this case on the question of jurisdiction, I should have no hesitation in saying that the subsection can give the court no power to make a person a petitioning creditor on any other ground than is prescribed by the Act itself. One is familiar with this sort of argument that the court will be introducing words to limit the general powers given by the Act: but the plain answer is that it does not signify whether you deal with this sort of question as a matter of theoretical jurisdiction or as a matter of judicial discretion. It is perfectly clear that the court ought not to allow, after three months have elapsed from the date of the committal of the act of bankruptcy, the introduction of creditors, as petitioning creditors, who could not themselves present a petition, and the introduction of a debt which, after the same period has elapsed, would not be a debt upon which a petition could be founded. It was admitted that if the persons sought to be introduced in the present case had had debts of the necessary amount they could not of themselves have presented a petition after the three months. It was said, however, that we ought to allow the amendment here, although, if the case were one in which the debt of the petitioning creditor who was introduced exceeded £50, the result might be that all the original petitioning creditors would fail to establish

their right to petition, and the petition would succeed only by reason of the introduction of a creditor who, by himself, could not have succeeded in establishing his right to petition." Vaughan Williams J. decided that in those circumstances it would not be right to make such an amendment, and Wright J. concurred.⁷

When the matter came before the registrar the appeal from the judge in chambers, on which the debtor succeeded, was only a few days out of the list. In those circumstances, it was a wrong exercise of his discretion to have made the order. Once the appeal was allowed, he could not make it. No debt, no receiving order: see In re Mann, A Debtor, Ex parte the Debtor v. Harrods Ltd.⁸ Until then, no doubt, he had a discretion (see In re Flatau, Ex parte Scotch Whisky Distillers Ltd.⁹, but it was wrongly exercised.

In my judgment, therefore, if the appeal against the receiving order had been made in time, it would have succeeded and the receiving order would have been set aside and with it the adjudication.

There remains, however, the principal question whether we ought to extend the debtor's time for appealing. As an appeal against the adjudication order this appeal is in time, but the annulment of the adjudication would be futile if the receiving order remained on foot and indeed adjudication must follow almost as of course. Ought we then to grant the debtor the indulgence of an extension of his time? On the whole, in the circumstances of this case, I think we ought not to do so. The debtor has confessed himself hopelessly insolvent, and it would not be just to the other creditors to allow his affairs to go unregulated merely because the debt which the petitioning creditor used proves to be a bad one. The petitioning creditor had another and a good debt available at the time. The debtor had two chances to appeal: first, against the receiving order, and, secondly, against the registrar's refusal to rescind it. He took neither opportunity: instead, he allowed time to run until after a resolution for bankruptcy was passed and the adjudication order made. There is, moreover, a further consideration of some weight. There was upon the file another bankruptcy petition, No. 394 of 1963, which stood over on May 8, 1963, to await the result of the instant case. On June 12, after the creditors' resolution for

7 [1895] 1 Q.B. 198.

8 [1958] 1 W.L.R. 1272; [1958] 3 All E.R. 660, D.C.

9 (1888) 22 Q.B.D. 83; 5 T.L.R. 5, C.A.

bankruptcy on June 11 made it certain that adjudication would follow, petition No. 394 was dismissed for want of hearing. This was a matter of course because a second petition was in the circumstances superfluous. The debtor by his acquiescence brought that about and it would not be right now by an extension of time to relieve him of both liabilities. I would, therefore, dismiss the appeal.

DAVIES L.J. I agree with the reasoning and conclusions of my Lord and also with those of Russell L.J., whose judgment I have already had the advantage of reading. There is nothing which I can usefully add.

RUSSELL L.J. stated the facts and continued: On July 3, 1963, the debtor was adjudged bankrupt and on July 24 the debtor gave notice of appeal to this court. Originally, it was against the adjudication, the grounds making serious charges against the petitioning creditor. Those grounds are abandoned, and the appeal is against the receiving order, and if necessary against the subsequent refusal to rescind it, and against the adjudication, the ground being that there was no debt capable of supporting the petition. Extension of time for appealing against the receiving order and against the refusal to rescind it is necessarily asked for. The substance of this matter - were we to extend the time - is the appeal from the receiving order. If that succeeds, then it seems clear that the adjudication must go with it. On the other hand, if the receiving order is not discharged, the adjudication must stand.

What is the situation when, after a receiving order has been made, it is established that the alleged debt on which the petition was based was not one which qualified the petitioning creditor to present the petition? It is, I think, clear that had the decision of this court in the Queen's Bench action been given on February 13, 1963, there would have been no jurisdiction to make the receiving order on this petition on February 14. Nor could another creditor have been then substituted, more than three months having elapsed since the act of bankruptcy on which the petition was based: see In re Maund, Ex parte Maund.¹⁰ Moreover, though the petitioning creditor had a properly qualified debt of £1,000 on a dishonoured cheque (which for some reason was not relied upon in his petition), in my judgment, a substitution

10 [1895] 1 Q.B. 194.

of that debt for the original insufficient claim could not be permitted outside the three months' period. The judges in In re Maund, Ex parte Maund¹⁰ used very general language. Vaughan Williams J. said¹¹: "It is perfectly clear that the court ought not to allow, after three months have elapsed from the date of the committal of the act of bankruptcy, the introduction of creditors, as petitioning creditors, who could not themselves present a petition, and the introduction of a debt which, after the same period had elapsed, would not be a debt upon which a petition could be founded." Wright J. said¹²: "As I understand the matter, every debt sought to be added, as ground of the petition, after three months from the date of the act of bankruptcy, is unavailable for that purpose."

An available debt is an essential of a valid petition: to allow an available debt to be introduced into the petition for the first time more than three months after the act of bankruptcy relied upon would, I consider, be the equivalent of allowing the presentation of a petition more than three months after the act of bankruptcy, contrary to section 4 (1) (c) of the Act of 1914. Accordingly, had the defective nature of the petition been clear before the receiving order was made, it would not have been validly made, and, if appealed from in time, would necessarily have been reversed. But it was made at a time when the lack of a liquidated debt had not manifested itself either to the master or the judge in chambers in the Queen's Bench action, and an appeal was only pending. It seems to me that there is power to make a receiving order where the petitioner's debt is the subject of a pending appeal, although it should not be then made if the registrar is satisfied that the appeal is bona fide: see In re Yeatman, Ex parte Yeatman.¹³ This tacitly envisages the making of a receiving order based on a petitioner's debt which may turn out to be invalid, without dealing with the situation, should that be later shown. Suppose in the present case the debtor, instead of applying as he did on February 20 to the registrar to review and rescind his receiving order under section 108 (1), had on that date appealed (being within time for appeal) to this court under section 108 (2) on the ground now advanced. I do not think this court would have had any choice but to allow the appeal and discharge the receiving order. It does not seem to me that the existence of the power of review can affect the

10 [1895] 1 Q.B. 194.

11 Ibid. 197.

12 Ibid. 198.

13 16 Ch.D. 283.

right of appeal: and if, at the time when the appeal is heard, it is demonstrated that the petition is not founded on any valid debt, I think the receiving order must be discharged. Moreover, on an appeal from a receiving order under section 108 (2), I consider that quite different considerations apply from those applicable to cases of review under section 108 (1) or appeals from a refusal to review. Similarly, on an appeal from an adjudication, if it is shown that the adjudication was wrongly made it must be annulled: on the other hand, if the application for annulment be under section 29, not by way of appeal, but by way of review by the court of original jurisdiction, there is room for the exercise of discretion. In summary, section 29 is an application to adjudications of the general power of review conferred on the court of original jurisdiction by section 108 (1). Neither is an appellate provision. Under both there is a discretion. Section 108 (2) confers appellate jurisdiction, and no question of discretion is involved if it appears that (for example) the receiving order or adjudication appealed from was wrongly made. In that connection I refer to the case in this court of In re Davenport.¹⁴ That was an actual appeal, and the references to section 29 must, I think, be taken to be per incuriam: so also must be the implication that where the petitioning creditor's debt turns out to be invalid there is a discretion in the appellate court to decline to set aside the receiving order and adjudication if there are other debts. The questions now under consideration were not really debated in that case.

In my judgment, if on appeal from a receiving order it emerges that there was no valid debt sufficient to support the petition, the debtor is entitled to an order setting it aside, and with it the adjudication founded thereon, unless (as is not the case here) the defect can be amended by substitution of another and valid available debt. Consideration of the state of affairs of the debtor, and of his creditors, is not relevant, though they would be were it a review by the original court, or an appeal from a refusal by the original court to review. Accordingly, if the time for appealing from the receiving order be extended, I consider that the appeal must succeed.

But should the time be extended? It is on this question that, in my view, this court is entitled to have in mind those considerations which are relevant to a review of a receiving order under section 108 (1) or of an adjudication under section 29. Here is a

14 [1963] 1 W.L.R. 817; [1963] 2 All E.R. 850, C.A.

debtor, apparently insolvent, who failed to comply with a bankruptcy notice based on a final judgment for some £1,900: and whatever the rights or wrongs of the claim in respect of shares sold by him for £700, he owes £1,000 to the petitioning creditor on a judgment (upheld in this court) on a dishonoured cheque. The processes of bankruptcy have reached adjudication. True, an application to review the receiving order rather than appeal from the receiving order was perhaps a natural reaction having regard to the form of the receiving order: but no step was taken in time to appeal even from the refusal to review. Moreover, there was another petition (based on another judgment) (No. 394 of 1963) pending, when the registrar refused to review the receiving order: on that occasion the registrar adjourned No. 394 to the first convenient day of the following sittings "to await result of proceedings" on the present petition. On June 12, 1963, no step having been taken by the debtor to challenge either the receiving order or the refusal to review, and the creditors in the present bankruptcy having resolved on adjudication, No. 394 was dismissed (no attendance). This was no doubt in reliance on the validity of the existing steps in bankruptcy, the time for challenge to which had expired.

In all those circumstances I agree that this is not a case in which it is proper to extend the time for appealing. The appeal against the adjudication order must consequently fail, since the receiving order on which it is founded stands.

Solicitors: Max A. Adler; Solicitor, Board of Trade

N. P.