People facing bankruptcy, and their advisers, will gain more clarity on the long-term legal risks involved thanks to an appeal judgment handed down this morning.  In Kennedy v The Official Receiver [2022] EWHC 1973 (Ch), Mr Nicholas Thompsell (sitting as a Deputy High Court Judge) clarified the Court’s approach to determining the length of a Bankruptcy Restrictions Order (“BRO”) under S 281A and Schedule 4A of the Insolvency Act 1986.

The BRO regime imposes restrictions (including disqualification from being a company director) for up to fifteen years on bankrupt individuals found to have committed some form of misconduct or neglect or financial responsibility. Previous case law established that the Court will determine the length of a BRO by applying  three brackets; the three brackets used in the context of directors’ disqualification as promulgated in Sevenoaks Stationers (Retail) Ltd [1991] Ch.164: (i) over ten years for particularly serious cases; (ii) six to ten years for serious cases which do not merit the top bracket; and (iii) two to five years where the case is, relatively, not very serious.  In Kennedy, the first instance judge had placed Mr Kennedy’s conduct into the middle bracket, imposing an 8-year BRO on him.

Mr Kennedy appealed to the High Court on the basis that in a number of previous decisions involving comparable or a greater degree of misconduct or culpability than his own, the conduct in question had been regarded as falling in the lowest bracket ([38]). 

The Official Receiver contended that this approach was wrong in principle, maintaining that the Court should not, when considering the conduct of a bankrupt, compare and contrast the periods of disqualification in other cases, citing the directors’ disqualification case of Secretary of State v Rahman [2017] EWHC 2469 (Ch)  ([39)-[40]).

However, the High Court accepted Mr Kennedy’s argument that, contrary to Rahman, but consistently with Re Cubelock Ltd [2001] BCC 523 and Sevenoaks Stationers itself, it is appropriate, at least until overt principles for applying a BRO have been developed, for a judge to review cases that have relevance given a similarity in the facts, and particularly in facts which go to the culpability of the bankrupt ([42]).  The High Court therefore overturned the 8-year BRO made against Mr Kennedy and replaced it with a 4-year BRO, in the lowest bracket.

Max Marenbon represented the successful Appellant, instructed by Louise Delgado of Benchmark Solicitors LLP.

To read the judgment, click here.