A recent Court decision serves as a useful reminder about the risks of the trustee in bankruptcy (TiB)’s fees and costs on annulment of a bankruptcy. If the bankruptcy is annulled by a payment in full, then the payment will doubtless already include the debts and expenses of the bankruptcy. However, if the bankruptcy is overturned because the Court should have never made the bankruptcy order, then the Court has discretion on what costs order to make and which party should bear the costs.
In the Mowbray case, an appeal Judge overturned the bankruptcy order because of unusual exceptional circumstances which justified a fresh review of the petition debt. In this case, the petition debt was an overdrawn bank account of £387. The Judge held the costs of the bankruptcy (an eye watering £82,000) should be split between the soon-to-be-former bankrupt and the petitioning creditor. The bankrupt had to pay the costs up to the date of her application and the petitioning creditor had to pay them after that.
In another case, the Court overturned a bankruptcy order because the petitioning creditor was not legally authorised to claim the debt. The claim was for solicitors’ fees, but the person carrying out the work for the bankrupts was not in fact a solicitor. In that case, the Court decided the TiB had carried out his work in good faith and in line with his statutory duties and should be paid. In this case, the Court held the bankrupts should pay the costs of the TiB but with a right to reclaim those costs from the petitioning creditor (for what that was worth). The bankrupts also had the right to challenge the TiB’s fees on the usual grounds.
While these decisions are favourable to the TiBs in those cases, the Courts have made it clear that it should not be assumed that trustees will inevitably recover all their costs on an annulment.
Where a bankrupt challenges a bankruptcy order, TiBs should seek legal advice as soon as possible. In suitable cases TiBs should apply to the Court for directions to bring the matter to a sensible (and quick) conclusion before incurring too many unrecoverable costs. This pro-active management will increase the prospect the Court use its discretion to order the TiB’s costs should be met by either the bankrupt or a third party.
This post was edited by Sonia Thandi. For more information, email firstname.lastname@example.org.
 Re Mowbray (A Bankrupt)  EWHC 296 (Ch)
 Oraki v Dean & Dean  EWHC 2885 (Ch)