Bankruptcy - What Happens If The Petitioning Creditor Has An Ulterior Purpose?

Summary: On 8 September 2016 Mr Justice Snowden handed down his judgment in Glenn Maud v Aabar Block Sarl & others [2016] EWHC 2175 (Ch) in which he considered how the court should deal with a bankruptcy petition where the petitioning creditor may have an ulterior purpose for seeking a bankruptcy order.

It is a fundamental principle of English bankruptcy law that if a petitioning creditor has an undisputed and clearly established debt, there is a presumption that a bankruptcy order will be made. However, section 266(3) of the Insolvency Act 1986 provides the court with a wide and quite unfettered discretion:

The court has a general power, if it appears to it appropriate to do so on the grounds that there has been a contravention of the rules or for any other reason, to dismiss the bankruptcy petition or to stay proceedings on such a petition; and where it stays proceedings on a petition it may do so on such terms and conditions as it sees fit...

So, when should the court intervene?

In the recent case of Glenn Maud v Aabar Block Sarl & others [2016] EWHC 2175 (Ch), the court considered whether the existence of an ulterior purpose would be one such reason.

The facts

The debt arose from a personal loan provided to Mr Maud for the purpose of on-lending to a group of...