In a recent decision in the high value bankruptcy of Pramod Mittal (Mr Mittal), the Chancery division considered the rules on service of insolvency applications. The decision underlines the importance of adhering to service rules and giving as much notice as possible of insolvency applications.
In Allen v Pramod Mittal  EWHC 920 (Ch) the Chancery division considered an appeal by a trustee in bankruptcy (the Trustee) seeking to suspend the automatic discharge from bankruptcy of Mr Mittal.
In June 2020, Mr Mittal was adjudged bankrupt on a petition debt of just under £140 million. He proposed an Individual Voluntary Arrangement (IVA) with creditors, the pool of which swelled to over $2.6 billion in value shortly before voting, which was approved in October 2020. That IVA was subsequently challenged in court due to alleged irregularities at the meeting of creditors convened to consider the IVA.
Mr Mittal's bankruptcy was due to be automatically discharged by operation of s.279 Insolvency Act 1986 before the court could hear the revocation application. Shortly before the automatic discharge was due to take effect, the Trustee applied to court to suspend his discharge, pending hearing of the revocation application. As there was also insufficient time to hear the suspension application before the automatic discharge, the Trustee also asked the court to make the suspension on an interim basis pending a full hearing. The interim suspension was granted, and the IVAwas subsequently revoked by the court upon finding that there had been a material irregularity.
At the subsequent full hearing of the Trustee's suspension application, Mr Mittal challenged the suspension of the discharge of his bankruptcy – not on the merits, but on procedural questions around whether the suspension application had been properly served.
Under the Insolvency (England and Wales) Rules 2016 (IR2016), the Trustee was required to take the following steps in relation to the suspension application:
- 21 days before hearing – file and deliver copies of his evidence in support of the application (Rule 10.142(5)); and
- 14 days before hearing – serve a sealed copy of the application endorsed with details of the hearing venue (Rule 12.9(3)).
Although the court can grant an interim suspension where there is insufficient time to comply with these notice requirements, the bankrupt must be given as much notice as practicable (per Bagnall v the Official Receiver  EWCA Civ 1925).
In this case, the Trustee's solicitors attempted to give notice of the hearing to the bankrupt in two ways:
- sending the application documents to what later transpired to be his solicitors' old address; and
- sending an email to his solicitors enclosing an electronic copy of the same documents.
These steps were taken the day after the application was issued – eight days before Mr Mittal's bankruptcy was due to be discharged, and six days before the date fixed for the interim suspension hearing.
At the hearing of the suspension application, Deputy ICC Judge Agnello KC concluded that the Trustee's suspension application had not been served before the interim hearing and so she had no jurisdiction to continue the interim suspension. The documents had not been served at the solicitor's old address and, given there was no prior agreement to accept service by email, delivery by email was not effective service. She found that later delivery of the application documents in the hearing bundle did not constitute service either, because if the sender believed they had already served the documents by email, they could not have intended delivery of the bundle to act as service. Even if she was wrong and the documents had been served, she considered they had been served late, and there were no exceptional circumstances to justify abridging the usual notice periods in the IR2016. Accordingly, she refused to continue the suspension. The Trustee appealed.
On appeal in the Chancery Division, Mr Justice Trower allowed the Trustee's appeal and granted the suspension:
- Where there's a 'will' – the judge had misinterpreted Mr Mittal's solicitors' statement "we will accept service by email and there is no need to deliver a hard copy to our new offices". The more natural reading of this statement, in context, was that they were accepting the email they had already received as good (albeit late) service of the application; not that they would accept only future emails as service – there would be no practical utility in the Trustee sending the same documents again.
- Even if the original email was not good service, then the subsequent service of the bundle for the hearing (which contained the same application documents) was effective (albeit, again, late) service. The judge had been wrong to focus on the senders' subjective intent when sending the bundle. Objectively, in the hands of the recipient, the bundle fulfilled the purposes of service and so the application had been served before the hearing.
- Mr Mittal had waived his right to argue, or was estopped from arguing, that there had been no service. At the interim hearing, Mr Mittal had argued that service was late, but had not argued there was no service at all. Indeed, his submissions at the interim hearing appeared to concede the documents had been served, and it was only later that he challenged whether they had in fact been served (as opposed to the timing of service).
- The judge had been wrong to say she had no jurisdiction to continue the suspension. In urgent cases, the court can suspend a bankrupt's discharge even where there has been no service of the application (Rule 12.10). So long as an interim suspension order is made before the automatic discharge takes effect, and is not set aside, the court has jurisdiction to continue that suspension.
- Finally, the judge was wrong to say that the Trustee needed to show exceptional circumstances to justify the short notice of the application. This was not analogous to the situation in other cases where an extension of time for service was sought after the limitation period has expired.
- While the Trustee had left it late to seek the suspension, this was a factor of limited weight. Although the Trustee's evidence was provided to Mr Mittal late, it was made available before the hearing and before the date of automatic discharge. Mr Mittal was represented by counsel at the hearing and accepted he'd been served. The lateness also had to be set against Mr Mittal's serious non-compliance with his obligation to cooperate with the Trustee. While in some cases delay in applying could be unfair to a bankrupt, this was not one of them.
Accordingly, Mr Justice Trower granted an order suspending Mr Mittal's discharge for nine months after the date of determination of the IVAchallenge, subject to Mr Mittal complying with his obligations under IA1986 and cooperating with the Trustee.
A lucky escape?
While ultimately on appeal the court took a pragmatic view, and recognised that there may be unavoidable reasons for trustees making late applications, this case demonstrates the importance of complying with procedural rules on service and giving as much notice as possible of insolvency applications.
One point of interest is the court's arguably generous interpretation of Mr Mittal's solicitors' statement "we will accept service by email". While in context it is no doubt correct that Mr Mittal's solicitors were accepting that the steps the Trustee had already taken amounted to (late) service, particular care should be taken to ensure that electronic service complies with the rules of court. In particular, paragraph 4.1 of Practice Direction 6A requires that, where a document is to be served by electronic means, the party or their solicitor must previously have indicated in writing that they will accept service electronically – i.e. an agreement to accept service by email should be secured before documents are served. Even where a prior agreement is in place, they should also confirm any limitations on the recipient's willingness to accept electronic service – e.g. maximum attachment sizes. Finally, it is worth noting a recent addition to the Practice Direction – that where a party specifies that service may be effected by sending a document to multiple email addresses, the document may be served by sending it to any two of the addresses identified.
To discuss any of the points raised in this article, please get in touch with Jason Freedman.