Disagreeing Creditors, Abuse of Process and Usefulness – Is Bankruptcy a Useless Recourse?

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With facts described as “labyrinthine”, Edgeworth Capital (Luxembourg) SARL v Maud [2020] EWHC 974 (Ch) is Snowden J’s final judgment on efforts to bankrupt Mr. Maud.

The final judgment of Snowden J. deals with three questions:

  • How the court views the position of favorable and opposed creditors
  • How the court approaches petitions that are ostensibly abuse of process
  • The discretion not to place an order when it is of no use.

On the first question, the starting point for the court is to examine the value of the debts of creditors on either side of a disagreement between the class. However, beyond simple math, the court will also assess the reasons given by creditors on either side of the debate to verify rationality and bias.

Justice Snowden rejected the proposition that the court should form an opinion on a hypothetical rational creditor who is a member of the group or impose its own opinion on the business merits or best interests of the group.

Second, Snowden J. held that it would be an abuse of process to initiate insolvency proceedings in respect of an uncontested debt when the applicant:

  • Only initiates or threatens to initiate a procedure to pressure the target to take other action that the target is otherwise unwilling to take
  • Wants to obtain the relief requested but does not act in the interest of the class of creditors to which he belongs, or when the success of his request will work to the detriment of the mass of creditors
  • Wants a bankruptcy order made, but collecting debt through the bankruptcy process is not part of his goal.

The Court held that a petition would not constitute an abuse of process if, in addition to wanting to receive a dividend on its debt in the bankruptcy with other creditors, the petitioner has a collateral objective which is not shared with the other creditors, but which will not cause them any prejudice if it is affected.

Finally, Snowden J dealt with utility. Mr Maud, supported by another creditor, objected to the issuance of an order on the grounds that bankruptcy would be pointless as there were no assets, other than stocks of questionable value, from from which the claims of creditors could be satisfied. Because there was evidence of the existence of certain assets and transactions in the shares, Snowden J. could not conclude that a bankruptcy order would be an unnecessary exercise for Mr. Maud’s creditors.

The decision can be found here.

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