Judgment May Have Interesting Consequences For Trustees And Bankrupts

The High Court has handed down its decision in relation to the personal insolvency case of Thomas and O’Reilly v Edmondson.

The decision, which provides clarity in relation to s310 of The Insolvency Act, focuses on whether a court has jurisdiction to allow trustees of a bankrupt estate to introduce an Income Payment Order (IPO) when an Income Payment Agreement (IPA) is already in place, or indeed enter into multiple IPOs and/or IPAs lasting for more than three years.

In this particular case a bankruptcy order in relation to Mr Edmondson was made in August 2012 and shortly after that, the Official Receiver entered into an IPA with the bankrupt. This IPA provided for payments to continue until the end of the current tax year which expired at the end of April 2013.

When the discharge date was approaching, the trustees tried to negotiate a new IPA but an agreement could not be reached and a few days before discharge, the trustees made an application under s310 Insolvency Act 1996 for an IPO.

At the original hearing of the application, the bankrupt successfully argued that the trustees should have applied to vary the original IPA, arguing that once a certain regime had been chosen, then that regime should be followed throughout the bankruptcy. 

This decision has however now been overturned by the High Court, ruling that the court does have jurisdiction to put in place an IPO when an IPA is already in place. Mrs Justice Asplin found that there was jurisdiction to grant an IPO even when an IPA had already been entered into and paid, bankrupts would be protected from abuse because the making of as well as the terms of an IPO were within a judge’s discretion.

Expert Opinion

This judgment may have interesting consequences for Trustees and Bankrupts where the Official Receiver has entered in to their normal temporary agreement and opens the possibility for payments to last for more than three years” Edward Judge - Partner