Joint Committee on Legislation debate -
Wednesday, 6 Mar 1985

SECTION 16.

Question proposed: "That section 16 stand part of the Bill."

Deputy Noonan (Limerick East)

Section 16 re-enacts in substance the procedure as developed over the years whereby a bankrupt can show cause against the validity of his adjudication. Pending the outcome of his application to show cause, advertisement of the adjudication is postponed. The procedure as developed has involved the making of successive adjournments in these "show cause" applications, frequently for long periods even though there is no dispute regarding the validity of the adjudication. The adjournments are granted in exercise of the court's equitable jurisdiction. While they are justified in that they allow the bankrupt to enter into a settlement with his creditors, the fact that the adjudication is not advertised puts at risk persons who continue to give credit to the bankrupt while being totally ignorant of his bankruptcy. Where the show cause application ultimately fails this risk is particularly great. The Bill does not seek to abolish this extra-statutory procedure but recognises its existence and endeavours to ensure that it is only invoked in circumstances where risk for potential creditors is avoided.

Subsection (2) of section 16 provides that where the court adjourns a show cause application it is under a specific duty to have regard to the interests of the bankrupt, his creditors and any person who might advance further credit to him. Furthermore, subsection (4) of section 17 gives the court power when granting an adjournment to dispense with publication of the adjudication on security being given by the bankrupt or on such conditions as it thinks fit.

The conditions which the court may attach to the granting of an adjournment of a show cause application are not specified. They could, however, include a requirement of security being given as in section 17 (4) or of the opening of a special bank account to be maintained in credit or of weekly returns to be made to the official assignee. The bankrupt is usually allowed to continue trading.

Deputy Taylor

The period of three days given there — is that not perhaps unusually short? He has only got three days from the time the bankruptcy order would be served upon him. The court can extend that to 14 days. Should consideration be given to having it 14 days? Three days seems rather critically short for him to get advice and find out what is afoot. It seems an unusually short length of time. It may be the existing position. I am not sure.

What would the situation be if he owes a particular creditor a debt of £1,200? The procedure has gone through, he has committed his act of bankruptcy, gets a liquidated sum and he is adjudicated then on the ex parte petition of the creditor. If after that he pays that particular creditor in full so that that creditor no longer has a debt, can he under this section have the bankruptcy annulled at that stage or could it be said that the only grounds for annulling under subsection (2) are that any of the requirements of section 11 (1) have not been complied with? The position there would be that at the time they were complied with but subsequently he pays off that debt in full. Does it mean than that the whole panoply of a bankruptcy would have to be gone through or could it be annulled at that stage? Would the Minister clarify or comment on these points?

Deputy Noonan (Limerick East)

The answer to Deputy Taylor's question is that once the judge makes an order of adjudication the bankruptcy enures for the benefit of all the creditors. However, it is possible for the petitioning creditor to withdraw his petition, where for example the debtor pays or comes to some agreement with him, but once the matter is brought to the judge adjudication is made and the bankrupt must then show cause against it if he so wishes. He is given three days which may be extended by a period not exceeding seven days in which to show cause. An application must be made to extend the time beyond three days. This is given as a matter of course. Under the Bill, the time limit may be extended up to fourteen days.

In the vast majority of cases a notice of intention to show cause is entered in the Examiner's Office. It may be of some help if I outline briefly how the "show cause" works out. The Examiner fixes a date for the hearing. At the hearing an adjournment is sought and granted and this procedure can be repeated. If the bankrupt is showing cause on one of the statutory grounds, for example that there was no act of bankruptcy committed and he is successful the bankruptcy will be annulled. However, the vast majority of show cause applications are not made on statutory grounds but on equitable ones. The bankrupt will say that he is solvent or that he will be in a position to pay his debts. The judge refers the matter to the Examiner to prepare a report with a view to an annulment.

Subsequently, the bankrupt will negotiate with his creditors. Some may indicate that they do not wish to be in the bankruptcy. Secured creditors may stay outside, preferring to rely on their securities. The bankrupt lodges sufficient monies with the Official Assignee to satisfy the creditors, the Examiner draws up his report and the Court annuls the bankruptcy.

As I have already mentioned, the aspects of the show cause procedure that have developed over the years which are a source of concern are that while the show cause is going on the realisation of the estate is halted, the bankrupt is allowed to continue trading and no advertisement of the adjudication takes place.

The risk to potential creditors is self- evident. However, the Court when granting adjournments can impose conditions such as requiring the bankrupt to open a new bank account which must be kept in credit or to make weekly returns to the Official Assignee.

The procedure has been the subject of criticism over the years not only for the reasons already stated but also because of the length of time bankruptcies last. The Court in granting adjournments in these cases is exercising a discretion which in part stems from its equitable jurisdiction.

Following a lengthy and detailed examination of this extra-statutory procedure, it was decided to give it a statutory basis which would at the same time remove its unacceptable features. This is the purpose of section 16 (2) and section 17 (4), to which I have already referred.

Deputy Taylor

In an insolvent situation, that is to say, that he owes more than he has, that he is actually insolvent, that is one thing, but you could have, and I imagine do have from time to time, a situation where, in fact, he is not insolvent, he is just not paying a particular debt for one reason or another and he is served with the bankruptcy notice that causes the act of bankruptcy and he still does not pay it. So he has committed his act of bankruptcy at that point, let us say it is for £1,200 for argument's sake and let us say that that is the only debt he owes. The next thing that happens is that unknown to him, because as the Minister points out, it is an ex parte procedure, in other words, it is done purely by the creditor without notice to him at all, the creditor goes in, presents his petition and gets the bankruptcy adjudication order. He is then adjudicated and the bankrupt as he now is comes in. He is a person who should not be a bankrupt in the sense that he is not insolvent overall. So he now decides that he will do what he should have done a long time ago and pay off this £1,200 and he does pay it off.

Surely, provision should be made for the situation to end there and save everybody trouble in such a case rather than having it enure for other creditors who showed no interest before in doing anything about this particular debtor and other creditors may not, in fact, exist. This procedure has been initiated by one particular creditor for a debt of £1,200 and he has now been paid. As the section stands, the court cannot get rid of the whole matter at that point. It cannot at that point annul the whole issue and send them all off about their business because when the petition was brought the conditions of section 11 (1) had, in fact, been complied with; the matter was in order at that point. He had committed an act of bankruptcy at that point and consequently the wording of the section is that he can only deal with it on this show cause procedure if in actual fact there was some technical defect or some defect in one of those conditions, which would not have applied here. So it means that a fair amount of unnecessary rigmarole and costs would have to be gone through by all sorts of parties, the examiner, officials and so on to get rid of this matter which more properly in that category of situation I am describing should no longer be the trouble of the courts or the Examiner or anybody else. I do not know if I am explaining it very well or not.

Deputy Noonan (Limerick East)

I can see the difficulty that Deputy Taylor has. The point of the Bill is — and this is one of the crucial elements in Irish bankruptcy — that you do not have to be insolvent to be adjudicated. The Bankruptcy Law Committee referred in a few places to the fact that bankruptcy was also designed to deal with people who just refused to pay. In the case suggested and in every other case I think it is true to say that the debtor is given every opportunity to pay. At the debtor summons stage he can challenge the debt but in many cases people refuse point blank to pay a debt and there have been cases in the past where a millionaire has been adjudicated. Those cases are dealt with very quickly because even in the show cause it is referred to the Examiner and if there is only one debt to pay and the debtor agrees to pay it then the Examiner reports immediately and the bankruptcy is annulled.

There is provision in a later part of the Bill for the annulment of bankruptcy, which we will be discussing. There are two grounds on which a bankruptcy can be annulled under the Bill. One is in a successful show cause and the other is where the bankruptcy should never have taken place. The case mentioned is a case where the bankruptcy should have taken place because all the statutory requirements had been fulfilled and the debtor refused to pay.

Question put and agreed to.