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28 April 2009
High Court Decision
Supreme Court Decision
A High Court decision, affirming a rule of practice which required a return of no goods to have been made (or a good reason given for the absence of a return of no goods) before the court would issue a bankruptcy summons to a creditor, has been successfully appealed to the Supreme Court.
Before the High Court will deem a debtor to be bankrupt, an 'act of bankruptcy' must be proven to have been committed. Of the eight acts of bankruptcy specified in Section 7 of the Bankruptcy Act 1988, those relied upon most often by creditors are (i) the failure to satisfy a bankruptcy summons within 14 days of service, and (ii) the execution of a judgment against the debtor and obtaining of a return of no goods (nulla bona) from the sheriff.
Section 8 of the act and the Rules of the Superior Courts provide that the High Court may grant a bankruptcy summons to a creditor which proves that:
However, a High Court rule of practice evolved whereby a return of no goods was required to be obtained by a creditor before the High Court would grant the creditor leave to issue a bankruptcy summons. The process of obtaining an execution order and a return of no goods can take about three months – frequently a source of frustration to creditors that wished to petition quickly for maximum effect.
High Court Decision
The plaintiff (ie, the collector general) had obtained six judgments against the defendant and had served particulars of demand on the defendant in compliance with statute and the Rules of the Superior Courts. No execution order in respect of the judgments had been filed and accordingly no return of no goods had been made.
The question at the heart of this application was whether the plaintiff should have complied with the rule of practice requiring a return of no goods to have been made. The plaintiff asserted that the High Court should have no discretion as to whether to issue a bankruptcy summons in circumstances where statute and the rules of court had been complied with.
The court held that while the practice of requiring a return of no goods was not an absolute prerequisite, the applicant would have to demonstrate a good reason for the absence of the return of no goods in order for the court to issue the bankruptcy summons. The court held that no such reason was advanced in this case and accordingly refused the application for a bankruptcy summons.
The Supreme Court noted that there were two acts of bankruptcy for which, in practice, one could now petition to have a debtor rendered bankrupt: (i) failure to discharge the debt within 14 days of service of a bankruptcy summons; and (ii) a return of no goods in respect of an executed judgment. The court held that to require a return of no goods for the issue of a bankruptcy summons had the 'extraordinary effect' of rendering the first-mentioned act of bankruptcy redundant.
The Supreme Court further held that the High Court should retain the discretion to refuse to issue a bankruptcy summons in any particular case, even where the provisions of statute and the rules of court had been complied with. However, the court also noted that it was difficult to see how the court could exercise such discretion in circumstances similar to the case at hand.
It was held that there should be no rule of practice which requires a return of no goods to have been made in order for a bankruptcy summons to be issued. It was ordered that the application for permission to issue and serve the bankruptcy summons be remitted to the High Court for further consideration.
It is hoped that this ruling will put an end to the confusion in relation to the legal criteria for issuing a bankruptcy summons, and their illogical overlap as a result of a practice introduced by the High Court. However, it remains to be seen in what circumstances the High Court will exercise its discretion to refuse to issue a bankruptcy summons, and whether, for example, a creditor might now succeed in circumstances where it has an undisputed debt but no judgment.
For further information on this topic please contact Julie Murphy O'Connor at Matheson Ormsby Prentice by telephone (+353 1 232 2000) or by fax (+353 1 232 3333) or by email (email@example.com).
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