July 2008

Part 3 Annulment order on grounds “debts and expenses paid in full”


1. ‘Payment in full’ required notice period and matters to be proved 

(Amended April 2010)

Where the application is made on the grounds of debts and expenses paid or secured [Note 1], the period of notice provided by the applicant to the official receiver or trustee must be not less than 28 days before the hearing [Note 2]. Matters to be proved to the satisfaction of the court include:

  1. All bankruptcy debts which have been proved must have been paid in full [Note 3];
  2. If the debt is disputed, or a creditor can no longer be traced, the bankrupt must provide such security as the court considers adequate, to satisfy any sum that may be subsequently proved to be due to the creditor concerned [Note 4]. Where security has been given in respect of an unpaid creditor the court may direct that details of the alleged debt and security are advertised in such a manner as the court thinks just [Note 5].



2. Official receiver's report required for payment in full application

When the application to annul is on the grounds of the debts and expenses of the bankruptcy all being paid or secured for [Note 1], and the official receiver is the trustee, he/she must file in court, not less than 21 days before the hearing, a report to court [Note 6].


3. Contents of official receiver’s report to court on payment in full application

(amended March 2010)

The official receiver’s report should contain the following [Note 7] :

  1. brief details of the circumstances leading to the bankruptcy;
  2. a summary of the bankrupt’s assets and liabilities, both at the date of the bankruptcy order and at the date of the application, explaining any differences; 
  3. details of any creditors known to the official receiver who have claims but have not proved (see paragraph 13);
  4. the extent (if any) to which, and the manner in which, the bankruptcy debts and expenses have been paid or secured, and, if secured, to what extent the official receiver considers (based on the information provided by secured creditors, solicitors etc) the security previously given over assets by the bankrupt to be satisfactory (see also paragraph 28 and following paragraphs;
  5. any other matters which he/she considers should be drawn to the court’s attention e.g. lack of co-operation (see also paragraphs 13 to 15).This should include information to indicate whether, if the bankruptcy had proceeded to its full conclusion, the bankruptcy debts and expenses would have been paid in full and, if so, whether statutory interest would be paid and at what rate. See also paragraphs 19 to 26; and
  6. whether the official receiver supports the bankrupt’s application.


4. Inclusion of Employment Rights Act claims

Where appropriate, the official receiver, in any report to the court and at the hearing of an annulment application, should draw the attention of the court to any Employment Rights Act claims which may have arisen as a result of the bankruptcy order. The court can then consider whether it should seek any undertakings (or make directions) with regard to the discharging of those claims or the reinstatement of the former employees. The official receiver should also give advance notice to the applicant of his/her intention to raise the matter at the hearing and ask what proposals the applicant has with regard to payment or reinstatement (see also chapter 76).


5. Identifying potential statutory interest in report to court

Where the official receiver is trustee when the annulment application is made[Note 1], he/she should make specific mention in his/her report to the court  where it is expected there would be a surplus in the bankruptcy were the administration of the case continue to its conclusion [Note 8,  which would allow for the payment of interest at the rate laid down in section 328(5). It will then be a matter for the court to decide whether statutory interest should be paid to the creditors as part of the application [Note 9][Note10] or whether, for example, the estate should revert to the bankrupt without the payment of any statutory interest. It will be helpful to the court if the official receiver notes the rate of statutory interest applicable [Note 11] in his/her report.


6. Copy report to applicant

(Amended April 2010)

The official receiver must also send a copy of his/her report (form LCRTB) to the applicant at least 14 days before the hearing [Note 12]. Where the applicant is the bankrupt, the copy report should be sent to him/her with a letter informing him/her that any further witness statements which he/she may wish to make should be filed at court and copies sent to the official receiver and any trustee.


7. Copy of trustee’s report to official receiver

If the trustee is not the official receiver, responsibility for the report rests with the trustee who must send the official receiver a copy of his/her report at least 21 days before the hearing [Note 13]. The official receiver may then file an additional report, (Form LCRTB), a copy of which must be sent to the applicant at least 7 days before the hearing. He/she should normally do this where he is aware of relevant facts not incorporated in the trustee’s report.


8. Paying or securing for debts outside proceedings

Where payment in full appears likely within a short period after the bankruptcy order, the official receiver should not object to the settlement of claims etc. outside the proceedings by third parties but not using assets which might otherwise vest as part of the bankruptcy estate. As a matter of practice, the official receiver should inform the bankrupt of the benefits of paying or securing the debts outside the proceedings (e.g. through a solicitor on whose undertaking as to subsequent payment to creditors the court can reasonably rely). In such cases the order will determine the date from which the annulment will be effective and may call for a further report confirming payment of the debts. The bankrupt may be informed that where funds, even from a third party, are paid to the official receiver, this will attract (additional) fees and make it more costly for him/her to obtain an annulment. There is no discretion to waive fees in these circumstances. The official receiver should not seek to deter payment by third parties outside the proceedings solely on the basis of the loss of fee income.

For further information on the calculation of fees under the financial regime applicable to cases where the bankruptcy order was made on or after 1 April 2004 see the LOLA desk instructions which can be accessed on the intranet.


9. Paid in full annulments, letter to bankrupt and his/her solicitor

Where the official receiver becomes aware of an application to annul the bankruptcy order on payment in full grounds, it may assist him/her in dealing with the requirements placed upon the official receiver as a result of the application, if he/she writes to the bankrupt and/or his/her solicitor, emphasizing the relevant provisions of section 282 and rules 6.206 to 6.214.  In particular, emphasis should be placed on the information required by the trustee (or official receiver) to compile a detailed report regarding the bankruptcy and the application.[Note 7] Other matters which the official receiver may wish to highlight are the possibility that the court may direct the trustee (or official receiver) to notify unproved creditors or advertise the annulment application,[Note 14]the fact that all proved creditors must be paid in full [Note 3],  and where proved creditors cannot be traced,  adequate security is to be provided to the court to satisfy the potential claims of such creditors [Note 4]. 


10. Attention to be drawn to implications of rules 6.209 & 6.211 and statutory interest

The official receiver may also wish to make reference to the decision in re Robertson (a bankrupt) [1989] 1 WLR 1139, where the Court of Appeal held that under section 282(1)(b), a bankruptcy order could not be annulled until the debts had been satisfied to the extent required by rules 6.209 and 6.211 (i.e. proved and paid in full). Also, in the earlier case of Re Keet [Note 15], the court held that, to satisfy section 35 of the Bankruptcy Act 1883,  all debts which have been actually and properly proved in the bankruptcy,  must have been fully paid or secured to the satisfaction of the court.  It will not be satisfied by any agreed part payment or conditional (or unconditional) release by some or all of his/her creditors.

The official receiver may also provide details of his/her estimated costs in the proceedings, together with a list of the known creditors and proved creditors. The attention of the bankrupt or solicitor should also be drawn to the trustee’s requirement to pay statutory interest after settling the proved claims before any return can be made to the bankrupt, where payment to creditors is dealt with within the proceedings by the trustee. The issue of payment of statutory interest is likely to be a matter that the court will wish to see addressed as part of the proceedings, see paragraphs 20 to 26 for details of case law concerning statutory interest.


11. Formal proof not received 

Where written notification of a claim, but no formal proof of debt (Form 6.37) is received, the official receiver should make this clear in his/her report under rule 6.207 and ask the court not to make any direction under rule 6.209 (see paragraph 13 for details of the directions the court can make). This will apply particularly where there is a stay of advertisement and proof of debt forms have not been dispatched to creditors. The court is only likely to make a direction under rule 6.209 where there is no written notification of a claim from a known creditor.


12. Writing to unproved creditors in advance of the annulment application hearing

Where the official receiver is trustee and receives notice of an application under section 282(1)(b) (debts and expenses paid in full), he/she may consider issuing a letter to known unproved creditors, informing them of the application and consequences of not proving and inviting submission of a proof of debt. Other matters the official receiver may seek to clarify with the creditor are:

  1. The exact amount of their claim in the proceedings;
  2. Whether they hold security which they are content to rely on;
  3. Whether they have received some payment or no longer have any claim in the matter. (It is possible in cases where annulment occurs some time after discharge that the debt no longer exists as payment has been made, if so no proof of debt should be submitted);
  4. Whether the creditor requires payment of statutory interest on their claim or will they waive their claim for this (see paragraphs 20 to 26) regarding statutory interest)

Obtaining this information prior to the court hearing may reduce the necessity of the court adjourning the application under Rule 6.209 (see paragraph 13) and will clarify the extent of proved claims prior to the hearing. 


13. Court directions concerning notice to creditors who have not proved in writing

Where an application is made on the grounds that all the debts have been paid or secured[Note 1], and the official receiver and/or the trustee has reported that there are known creditors who have not proved (e.g. Department of Work and Pensions, HM Revenue and Customs), rule 6.209 provides that the court may:

  1. direct the trustee or, if no trustee has been appointed, the official receiver to send notice of the application (form NOACNP) to such of those creditors as the court thinks ought to be informed of it, with a view to their proving their debts (if they so wish) within 21 days[Note 16], and
  2. direct the trustee or, if no trustee has been appointed, the official receiver to advertise the fact that the application has been made (form NFN1), so that creditors who have not proved may do so within a specified time [Note 17], and
  3. adjourn the application meanwhile, for any period not less than 35 days [Note 18] (to allow time for proofs of debt to be submitted).

Where there are unproved Crown debts, the official receiver should ensure that notification of the bankruptcy order has been given to Crown Departments.


14. Disputed debts/untraced creditors 

Where a debt is disputed or a creditor, having notified his/her claim, can no longer be traced, the annulment may still proceed provided the bankrupt lodges security to the satisfaction of the court until such time as the matter has been resolved. In practice this might mean the bankrupt paying the amount of the debt into the court.  See also paragraphs 17 to 18 concerning the court’s refusal to grant annulment where deliberate delay has occurred and it has not been possible to identify proved creditors, irrespective of monies lodged to pay potential creditor claims.


15. Order to include details of interest beneficiary

The official receiver may wish to draw to the court’s attention, that any order made for the payment of monies into Central Funds at the court should also make reference as to who will obtain the benefit of any interest earned on the monies lodged at court, pending resolution of the matter. 


16. Release of security following advertisement

Where the court orders advertisement regarding the debt of an untraced creditor [Note 4and no claim is made on the security within 12 months of the advertisement, the court shall, on application, normally by the former bankrupt, order the security to be released [Note 5].


17. Late application preventing annulment (Gill v Quinn [2005] BPIR 129)

Where an application to annul a bankruptcy is made on payment in full grounds, the court must be satisfied that the bankruptcy debts and expenses have either been paid or secured to its satisfaction [Note 1]. In the matter of Gill v Quinn, [2004] All ER(D)21, the deputy district judge refused Mr Gill’s application to annul the bankruptcy order,  as he held that the debts had not been paid or secured within the meaning of section 282(1)(b).

Mr Gill was deemed by the court to have acted deliberately to avoid repaying the whole or part of his creditors, irrespective of the fact that he deposited a sum of money with a solicitor to be held as security in respect of the unpaid debts. By making an application for annulment on payment in full grounds 12 years after the date of the bankruptcy order, the evidence required to show which creditors had proved in the bankruptcy was either destroyed or lost, as the records and official receiver’s case file had been destroyed and attempts to contact the creditors were unsuccessful.


18. Refusal to grant annulment upheld by Court of Appeal (Gill v Quinn [2005] BPIR 129)

On appeal, the decision of the district judge was upheld and the following concluded:

  1. A bankrupt is not entitled to assume that by delaying his/her annulment application for a lengthy period, he/she might avoid repaying the whole of his/her indebtedness.
  2. Depositing funds with a solicitor as security does not increase the likelihood of the creditors being paid where they cannot be identified or located as a result of the delay in making the application.  The court may refuse to grant an annulment where it is of the opinion that by delaying presentation of his/her annulment application,  the bankrupt’s intention is to deliberately avoid repaying the whole of his/her indebtedness.  In particular the court is likely to take this view where the body of creditors likely to remain unpaid as a result of the delay is substantial.


19. Interest on debts only to date of bankruptcy order

Section 322(2) states that where a bankruptcy debt bears interest, that interest is provable only up to the date of the bankruptcy order. An annulment application made under section 282(1)(b) provides that all the ‘bankruptcy debts’ have been paid. The term ‘bankruptcy debt’ (as defined by section 382) does not include post-bankruptcy interest thus creditors are not entitled to be paid interest after the commencement of the bankruptcy order however see information on the payment of statutory interest at paragraphs 20 to 26.


20. Statutory interest when using third party funds for payment in full (and PRU/RTLU appointed) (Wilcock v Duckworth[2005] BPIR 682 ChD)

In the case of Wilcock v Duckworth [2005] BPIR 682 ChD, the court considered the payment of statutory interest when using third party funds. At the time of the bankruptcy order (August 1992), there were insufficient funds to pay creditors, the official receiver was appointed trustee, and the case was subsequently passed to the Insolvency Service Protracted Realisations Unit in operation at that time ("PRU"), to deal with an outstanding property interest.   In January 2003 an insolvency practitioner trustee was appointed to realise the property interest, which had substantially increased since the date of bankruptcy.

Mr Wilcock sought annulment of the bankruptcy order on the grounds of payment in full, using third party funds. As in the case of Gill v Quinn [2004] (see paragraphs 17 to 18), due to the time which had elapsed since the making of the bankruptcy order, difficulties arose in identifying all of the creditors.


21. Dispute as to whether statutory interest due

In Wilcock v Duckworth (see paragraph 6A.37) The court was asked to consider the point regarding statutory interest as it related to the possible annulment.   Mr Wilcock argued that it would be unfair to pay statutory interest when it took such a long time to appoint the trustee, and that as third party funds were being used, statutory interest was not payable under section 328 as confirmed by the decision in Re a Debtor (No 37 of 1976) [1981] All ER 129.

The court held that where an application for annulment on the grounds of payment in full is made and third party funds are used, that should not be used as a vehicle to deny creditors the interest they would otherwise seek to claim under section 328(4).  Also that as a pre-requisite to annulment, evidence should be provided that creditors have been contacted, and interest should be paid or an allowance made for the interest on the creditors’ claims.


22. Creditor categories and period for which statutory interest should be paid

In deciding which creditors should be paid statutory interest, the court decision in the case of Wilcock v Duckworth [2005] BPIR 682 ChD divided the creditors in to three categories :

  1. Creditors who require interest to be paid;
  2. Creditors who advise the trustee that they waive their claims to interest ;
  3. Creditors who offer no view (including creditors that cannot be located)

With regard to the period for which statutory interest should be paid, the court decided that the debtor should pay statutory interest on the debts from the date of the bankruptcy order, to the date the official receiver was released; and then for the period from the date of the appointment of a trustee until annulment. This solution is only to be applied where creditors have been denied their money over a long period, but also where it would be unfair for the debtor to carry the burden of interest for the entire period in those cases where considerable time has elapsed.

In making this judgment the court considered the decision in Harper v Buchler [2004] BPIR 724 concerning circumstances where there is sufficient surplus to pay the debts in full with statutory interest (see paragraphs 23 to 26).


23. Payment of statutory interest payment not an automatic pre-requisite for annulment

In contrast to the case of Wilcock v Duckworth [2005] BPIR 682 ChD (see paragraphs 20 to 22) the court in the case of Harper v Buchler [2004] BPIR 724 decided that statutory interest is not automatically a bankruptcy debt, therefore payment of such is not a pre-requisite to obtaining an annulment on payment in full grounds. 


24. Payment of statutory interest dependent on the source of funds used for annulment application

The court in Harper v Buchler (see paragraphs 23 to 24) held that regard should be had to the source of funds being made available to discharge creditors,  when considering whether provision for statutory interest should be made i.e. whether third party funds are introduced to pay the debts or sufficient assets exist in the bankruptcy estate to discharge the original debts in full plus the statutory interest .


25. Third party monies not to be used to avoid paying statutory interest

Following on from the decision in Harper v Buchler (see paragraphs 23 to 24) other than when the annulment application is made very shortly after the making of the bankruptcy order, it is not acceptable for the bankrupt to seek to use third party funds to obtain his/her annulment as a means of avoiding payment of statutory interest in those cases where there would be sufficient funds in the bankruptcy estate to pay all of the debts with statutory interest.


26. Surplus cases -  payment of statutory interest a pre-requisite for annulment

In Harper v Buchler (No 2) [2005] BPIR 577, due to property prices increasing in the ten years between the date of the bankruptcy order (1995) and the date of the annulment application, assets held within the bankruptcy estate provided funds which were more than sufficient to pay not only all of the debts, costs and liabilities of the bankruptcy but also statutory interest. The court held that this was a case where it was entirely appropriate for statutory interest to be paid before an order of annulment could be granted.

In arriving at this decision, Registrar Derrett took into account the substantial time for which the creditors had waited to receive payment, stating that it would be wrong for the bankrupt alone to benefit from the windfall resulting from the increase in property prices. Furthermore the introduction of third party funds would seem inappropriate when the bankruptcy estate assets, if realised, would be sufficient to pay all debts, costs and statutory interest.

The decision in Wilcock v Duckworth [2005] BPIR 682 ChD (see paragraphs 20 to 22) does not overturn the points made regarding statutory interest in both Harper v Buchler cases as it relates to the time period for payment of statutory interest in PRU (now RTLU) cases only.


27. Rebating the Secretary of State fee in surplus cases (bankruptcy  order prior to 01/04/04)

As a result of the coming into force of The Insolvency Proceedings (Fees) (Amendment) Order 2007 the whole of The Insolvency Fees Order 1986 has been repealed, and the limits on the charging of the Secretary of State fee removed. In addition, the realisation fee chargeable by the official receiver when acting as the receiver and manager of a bankruptcy estate is also removed, in bankruptcy cases where there is a surplus.

This means that in bankruptcy cases where the bankruptcy order was made on or before 31 March 2004, as the authority under Article 4(2) of the Insolvency Fees Order 1986 has been revoked, where the bankruptcy estate is in surplus or goes into surplus post 1 April 2007, there is no facility to rebate the Secretary of State fee on that surplus.

For bankruptcy cases where the bankruptcy order was made on or after 1 April 2004, a different fees regime applies therefore this issue does not arise.

Note: This supersedes information previously provided in “Dear IP”: issue 34 Article 55 (Dec 2007).

Further information can be found in the LOLA Desk Instructions.


28. Property re-financing to fund payment in full annulment

As a result of  increased property prices, many bankruptcy estates where the official receiver was trustee have been transferred to insolvency practitioner trustees.  The (former) bankrupt’s interest in the property has often  appreciated in value to the extent that the beneficial interest vesting as part of a bankruptcy estate has become sufficient ( if realised) to allow the bankruptcy debts and expenses to be paid in full. In turn, this enables an annulment of the bankruptcy order to be obtained on the payment in full grounds.

This situation has led to various re-financing schemes becoming available to (former) bankrupts, which enable them to use the increased property values to generate funds, which can then be used to pay the bankruptcy debts and expenses in a paid in full annulment application.


29. Operation of a re-financing scheme

An example of the way such schemes operate to enable a (former) bankrupt to apply for annulment on the grounds of payment in full is as follows:-

  1. The (former) bankrupt, having an interest in a property with positive equity, instructs a solicitor to act for him/her;
  2. Details of the bankruptcy debts and expenses are obtained;
  3. The property is valued and the available equity is assessed together with the (former) bankrupt’s ability to maintain increased mortgage repayments;
  4. Arrangements are made to increase existing mortgage borrowing or to secure new mortgage borrowing to generate sufficient funds (secured against the equity in the property) to pay the bankruptcy debts and expenses in full;
  5. An application for the annulment of the bankruptcy order on the payment in full grounds is made;
  6. The mortgage lender provides the mortgage funds to the solicitor for use on condition that the annulment application is successful;
  7. The solicitor undertakes to the mortgage lender to seek an annulment of the bankruptcy order and to secure the vacation of relevant entries at HM Land Registry should the order be granted;
  8. If the application is not pursued or is unsuccessful the solicitor undertakes to refund the monies to the lender
  9. In pre-Halabi cases, the solicitor in the annulment application would undertake to the court to pay the bankruptcy debts and expenses in full from the proceeds of the (re)mortgage, following the annulment of the order.  On the granting of the annulment order the solicitor would pay the debts and expenses, the mortgage loan became unconditional,  and the (re)mortgage of the property was completed, and relevant HM Land Registry entries removed.
  10. Following the judgment in Halabi (see paragraph 30) the High Court held that an undertaking to pay the debts in full did not equate to “paid”. This means that where the court considers that it is appropriate to annul the bankruptcy order, but the debts are not paid in advance, it will not make an order to annul the bankruptcy based on an undertaking to pay. 
  11. Instead, the court will make an order of annulment specifying the date upon which the order will take effect, which will be dependent upon the court receiving evidence that debts and expenses have been paid in full.  This date will usually be when the official receiver reports to court that the bankruptcy debts and costs have been paid and any security for unproved creditors has been provided.  Once the court has received this evidence that the bankruptcy debts and expenses have been paid the annulment order will become effective.


30. Effect of the High Court decision in Halabi - debts must be paid in full to obtain annulment

The decision of the High Court in the matter of Halabi v London Borough of Camden and another [2008] EWHC 322 (Ch) affects applications for annulment under section 282(1)(b) of the Insolvency Act 1986 (payment in full), where a re-financing scheme as detailed at 6A.46 is used to raise the supporting funds.

This case was referred to a judge because of a procedural discrepancy, where the High Court did not consider undertakings to pay were acceptable to meet the requirements of the payment in full legislation, whereas the county courts would routinely accept such undertakings and annul bankruptcy orders. Mr John Jarvis Q.C., sitting as a judge of the High Court, concluded that the wording of section 282(1)(b) IA86 is clear; for the court to exercise its discretion to order annulment, the bankruptcy debts and expenses must have been paid in full. The system of undertakings which has been accepted by the county courts is not within the jurisdiction of the court.


31. Secured by undertaking does not equal “paid”

(Amended April 2010)

In making his judgment in Halabi [Note 19] Mr John Jarvis Q.C stated that the meaning of “paid” within the context of section 282(1)(b) does not equate to ”secured by an undertaking”, and further added, “ the two are simply quite different concepts”.

This supports the views of Chief Registrar Baister, that the insolvency legislation does not allow for an annulment to be granted under section 282(1)(b) IA86 on the prospective payment of debts. As he stated in Insolvency Law and Practice, vol. 21, no. 3, 2005:

“Many people think that an application to annul on the grounds that the debts and so on have been paid can be made prospectively. However, section 282(1)(b) makes it clear that the debts must have been paid. That is even clearer as one looks at the rules (in particular rule 6.211). Only limited categories of debts can be secured. Failure to appreciate this leads to a lot of annulment applications going wrong or even being dismissed. Practitioners often overlook the alternative rescission remedy available under section 375."

It is not for official receivers to advise applicants whether it is preferable to apply under section 282 or to seek a rescission under section 375.

New provisions enacted by the IAR have made the issue of ‘secured by an undertaking’ much clearer by allowing the court to accept solicitors’ undertakings as adequate means of securing debts in full. The new provisions only apply to cases where the petition was presented on or after 6 April 2010 but despite this official receivers may find that these new provisions are taken into account by the courts in determining applications made under s.282(1)(b) in cases where the petition was presented prior to 6 April 2010. Further information regarding these provisions can be found in the new issue of chapter 6A part 3.


32. Default in re-financing following annulment obtained prior to the Halabi judgment

Where official receivers are still dealing with cases where an annulment was granted on payment in full grounds involving a re-financing scheme (before the judgment in Halabi, see paragraph 30), should there be any default in the proceedings (for example, if the (former) bankrupt declines to complete the (re)mortgage) the matter should be brought back before the court. This is because of the undertaking given by the solicitor and the fact that an asset vesting in the trustee of the bankruptcy estate has been transferred into the (former) bankrupt ‘s ownership without consideration. Two months is considered ample time in which to complete this matter, if arranged under a scheme similar to that detailed at paragraph 29.  It may also be suggested to the court that, if not already issued, the annulment order may be drawn up but not issued by the court, pending confirmation that the creditors, and the bankruptcy expenses, have been paid. This may operate as an incentive to those involved in a scheme to complete it without undue delay.

Where the court follows the Halabi judgment this should cease to be an issue, as the order of annulment is delayed until all creditors and expenses have been paid in full.


33. Delayed order of annulment to allow re-financing to progress

Mr John Jarvis Q.C., sitting as a judge of the High Court recognised in making his judgment in Halabi (paragraph 30) that a bankrupt is unlikely to be able to release funds from a property to discharge the bankruptcy debts until the order is annulled, and the order cannot be annulled until the debts are paid in full.   He also acknowledged that it would be right to annul the bankruptcy order if the debts could be treated as paid, as there was no public interest in the bankruptcy continuing.

In order to progress Mrs Halabi’s case, the judge adopted the suggestion of Ferris J in the matter of Engel v Peri [2002] BPIR 96 allowing an order of annulment to be made which would take effect at a later date, dependent upon the official receiver notifying the court that the debts and costs of the bankruptcy had been paid in full. This follows the Civil Procedure Rules rule 40.7(1), which provides that a judgment order may take effect at such later date as the court may specify.


34. Dealing with applications for annulment (post Halabi)

  1. Where an application for annulment is made under section 282(1)(b) IA86 the trustee is required to report to the court. The matters to be included in the report are set out in rule 6.207(2) of the Insolvency Rules 1986.
  2. The report must include details of any creditors known to the trustee who have not proved. The rules require that only the proved creditors be paid in full but the judgment in Re Robertson (A Bankrupt) 1 WLR 1139 (see paragraph 10) provided that the Rules, in effect, required all the debts to have been proved. If debts remain unproved at the date of filing the bankrupt's application for annulment, steps must be taken, under rule 6.209 IR86, to give the creditors an opportunity to prove.
  3. Debts must be paid in full. Following the principles In Re Keet [1905] KB 666 (see paragraph 10), referred to in the judgment of Mr Jarvis, unconditional releases of debts, or a payment of less than 100p in “full and final settlement”, is not payment in full. If a debt is disputed or a creditor cannot be traced the bankrupt must give adequate security for the debt, for example in the form of monies paid into court.
  4. Statutory interest on the debts should be paid where there are sufficient assets in the bankruptcy estate to pay all liabilities, costs, fees and expenses. The comments in Halabi follow the decision of  Registrar Derrett in Harper v Buchler (No.2)  [2005] BPIR 577(see paragraph 26).
  5. The conduct of the bankrupt may be a factor. Reference to Gill v Quinn [2005] BPIR 129 (see paragraphs 17 to 18).
  6. In Halabi Mr Jarvis confirmed that annulment is not a matter of right for a bankrupt, it is a matter of discretion. Court will take into account the public interest in exercising its discretion. Where there has been gross mismanagement or misconduct the court may decline to exercise its discretion.


35. Date annulment takes effect

Where the court is satisfied that it is appropriate to annul the bankruptcy order, but the debts are not paid in advance, following Halabi, the court might make an order of annulment specifying the date upon which the order will take effect. This date will usually be the date upon which the official receiver reports to the court that the bankruptcy debts and costs, specified in the order, have been paid and any security for unproved creditors has been provided.


36. Bankruptcy order remains in force pending annulment order taking effect

Once the order has been made the bankrupt has the benefit of a suspended order of annulment. Until the order is effective, i.e. the suspension of the order of annulment is lifted, the bankruptcy order remains in place. The assets of the bankruptcy estate will remain vested in the trustee in bankruptcy. The bankrupt will, at least until the date of their discharge from the proceedings if this occurs before the annulment takes effect, remain subject to the restrictions of bankruptcy and the bankrupt’s details will remain on the Individual Insolvency Register.

In such cases, until the suspension is lifted, the official receiver should maintain any restrictions at HM Land Registry which protect the property and secure all other assets of the bankruptcy estate. No realisation of assets should be undertaken and, unless appointed prior to the annulment application, the appointment of an insolvency practitioner should not be sought. The deferred order of annulment will not act as a stay of proceedings, although the court may separately order a stay pending the completion of the deferred order.

It is a matter between the bankrupt and any prospective lender whether the bankrupt is able to obtain funds to fulfil the requirements of the deferred order of annulment.


37. Court’s attention to be drawn to the IVA provisions

When dealing with cases where a payment in full annulment application is made, particularly where the annulment application is on the basis of a property re-financing scheme, the official receiver may wish to draw the court’s attention in his/her report to court under rule 6.207, to the provisions under section 261 to annul the bankruptcy following the approval of an IVA.  This provides for an appointed supervisor to deal with the asset realisation following approval of the IVA. See Part 4 for further information regarding annulments following an approved IVA or FTVA.


38. Secretary of state fee only charged on payments into the Insolvency Services Account (ISA)

As a result of the revocation of the Insolvency Fees Order 1986 by the Insolvency Proceedings (Fees) (Amendments) Order 2007 [Note 20] and implementation of The Insolvency Proceedings (Fees) Order 2004 (as amended), the Secretary of State fee may only be charged on monies paid into the ISA where the bankruptcy order occurs on or after 1 April 2004 [Note 21].  If under a re-financing scheme the creditors are paid without monies being paid into the ISA, the fee does not become chargeable.  This means that, where, under any re-financing scheme, the court is content for the monies generated by the scheme not to be paid into the ISA, the Secretary of State Fee will not be pursued. Where monies are rightly paid into the ISA, the fee will be charged and collected.


39. Charging of Secretary of State fee where a surplus is held in the ISA following a paid in full annulment

(Amended April 2010)

NOTE: The following applies to all cases where the petition was presented and the order made before 6 April 2010. For all cases where the petition was presented on or before 5 April 2010 but the order was made on or after 6 April 2010, a new fee structure applies and the guidance and advice in Technical Manual Chapter 6A Part 3 (issued April 2010) paragraph 6A.53 should be followed.

When the bankruptcy debts and expenses are paid in full, and a surplus arises to be paid to the bankrupt, or at their order, there will be a need to consider rebating the Secretary of State’s administration fee according to a formula set out in The Insolvency Proceedings (Fees) Order 2004, schedule 2, article 1. This should be applied whether the surplus arises from the realisation of assets, the receipt of third party funds paid into the ISA or a combination of both. This is undertaken by reference to the bankruptcy ceiling which comprises:-

  1. the bankruptcy debts (as required to be paid under the Rules)
  2. any statutory interest as payable under sections 328(4) and 329(2)(b) (see paragraphs 6A.22, 6A.27 and 6A.37 to 6A.43)
  3. the expenses of the bankruptcy as set out in Rule 6.224, other than

i. any sums spent out of money received in carrying out the business of the bankrupt

ii. and fee B2 (Secretary of State fee)

It will be possible to ascertain the Secretary of State’s administration fee to be retained by calculating the bankruptcy ceiling (a+b+c) minus £2,000 (the first £2,000 of chargeable receipts are not subject to the Secretary of State fee) multiplied by 0.17 (the percentage rate charged as the Secretary of State fee).

The following is an example of this calculation, using sample figures, where prior to a paid in full annulment, monies have been remitted to the ISA as a result of the realisation of bankruptcy estate assets: 




Secretary of State fee where £50, 000 paid in to ISA prior to annulment  = (£50,000 - £2,000) x 0.17


Bankruptcy ceiling = £26,500 comprising :

proved bankruptcy debts £20,000

petitioning creditor’s costs £5,000

official receiver’s fees of £1,500


Re-calculation of Secretary of State Fee to be retained :

 (£26,500 - £2,000) x 0.17  



Excess fee to be rebated    



40. Secretary of state fee not charged in debit balance cases

In accordance with long standing practice, the Secretary of State fee will not be charged when monies are paid into the ISA to meet the debit balance on official receiver cases.  This does not mean that the Service is prepared to waive a fee where it is properly payable or that the ISA may not be used where the legislation requires it to be used.


41. Undisclosed liabilities 

Where an annulment order is obtained on the grounds of debts and expenses paid or secured [Note 1], and further claims are discovered or notified, the official receiver should take steps to draw the existence of the debts to the attention of the former bankrupt with a request that he/she pays the additional claims directly. The official receiver should explain to the additional creditors that they retain their normal rights of recovery and refer them to the former bankrupt for payment. If the former bankrupt fails to discharge the claims, the official receiver should consider whether, in the circumstances, he/she should apply to the court for directions [Note 22]. Where surplus monies have already been returned to the former bankrupt, prompt payment of the undisclosed debts will have to be considered by the former bankrupt or a refund of sufficient money to the official receiver to discharge the debts together with the relevant fees (see LOLA desk instructions on the intranet). This is not an easy situation to deal with as the former bankrupt might not be co-operative and creditors that have been paid will feel under threat.


42. Ability for creditor to pursue under new proceedings 

If a creditor with a provable claim in the proceedings fails to give notice of his/her claim [Note 14] prior to an annulment order being obtained on the grounds of ‘payment in full’ [Note 1] , it does not deprive him/her of a claim against the former bankrupt which could be pursued outside the bankruptcy proceedings in the normal manner at a later time were the bankruptcy order to be annulled. 


[Back to Part  2 Annulment order on grounds “ought not to have been made”] [On to Part 4 Annulment following approved IVA or FTVA]


July 2008

Chapter 6A Notes to Annex 1

1. Insolvency Act 1986 section 282(1)(b)

2. Insolvency Rules 1986 rule 6.206(4)(b)

3. Insolvency Rules 1986 rule 6.211(2)

4. Insolvency Rules 1986 rule 6.211(3)

5. Insolvency Rules 1986 rule 6.211(4)

6. Insolvency Rules 1986 rule 6.207

7. Insolvency Rules 1986 rule 6.207(2)

8. Insolvency Rules 1986 rule 6.207(2)(d)

9. Insolvency Act 1986 section 322(2)

10. Insolvency Act 1986 section 382

11. Insolvency Act 1986 section 328(5)

12. Insolvency Rules 1986 rule 6.207(4)

13. Insolvency Rules 1986 rule 6.207(5)

14. Insolvency Rules 1986 rule 6.209

15. Re Keet (1905) 2 KB 666

16. Insolvency Rules 1986 rule 6.209(a)

17. Insolvency Rules 1986 rule 6.209(b)

18. Insolvency Rules 1986 rule 6.209(c)

19. Halabi v London Borough of Camden and another [2008] EWHC 322 (Ch) 

20. (Statutory Instrument 2007/521) Insolvency Proceedings (Fees) (Amendments) Order 2007 Schedule, Article 3

21. (Statutory Instrument 2004/593) Insolvency Proceedings (Fees) Order 2004 Schedule 2 Article 4(1)

22.  Insolvency Rules 1986 rule 10.3