Can a creditor present bankruptcy petition based on a claim for restitution for unjust enrichment?
Introduction
It is required under statues in both the UK and Hong Kong that a
bankruptcy petition may only be presented in respect of debts of
a liquidated sum payable to the petitioning creditor. However, no definition of
“liquidated sum” is provided in the relevant statutes. In Re Dusoruth (a
bankrupt) Dusoruth v Orca Finance UK Ltd (in liquidation) [2022] EWHC
2346 (Ch), the Business and Property Courts of England and Wales (the “Court”)
clarified that a claim for restitution for unjust enrichment, however certain
it is, is not for a liquidated sum and hence is not capable of founding a bankruptcy
petition.
Background
The Applicant was a businessman and the ultimate owner of a number of
companies registered in various jurisdictions, including the UK, BVI and Malta.
He was engaged in frauds under which one of his companies procured investments
from wealthy individuals, which were subsequently transferred to other
companies he controlled by way of unsecured loans. The Applicant was adjudged
bankrupt in November 2020 on a petition presented (the “Bankruptcy Petition”) by one of his companies in liquidation (the “Respondent”),
based on the following petition debts: -
1.
the amount of €361,899.73 paid out of the Respondent’s bank accounts to
discharge the Applicant’s personal credit card bills; and
2.
the amount of £276,838.01 paid by the Respondent for the rent of a
London property used solely for the benefit of the Applicant.
The Applicant sought
to annul the bankruptcy order (the “Bankruptcy
Order”) on the ground, among others, that the petition was not for a liquidated
sum.
Statutory requirement
on a bankruptcy petition
Section 267(1) and (2) of the English Insolvency
Act 1986 (the “IA”), which is equivalent to section 6(1) and (2) of the Bankruptcy Ordinance (Cap. 6) of the
Law of Hong Kong, provides that a creditor’s petition may be presented to the
court in respect of a debt or debts only if it is for a liquidated sum payable
to the petitioning creditor.
As “liquidated sum” is not defined in the
IA, the Respondent submitted that any specific amount which has been fully and
finally ascertained shall be classified as a liquidated sum. The Respondent’s
claim was for restitution for unjust enrichment and it could claim payment of
the specific sum of money misapplied by the Applicant without any need for an
accounting exercise. The fact that the Applicant might dispute the petition
debts might not render the claim itself an unliquidated sum. Alternatively, the
Respondent argued that by paying the credit card bills and rent of the
Applicant, the Respondent subrogated to the credit card company’s and the
landlord’s claims against the Applicant, and hence can petition like the credit
card company or the landlord could.
Decision
The nature of a claim
for restitution for unjust enrichment
The Applicant argued that a claim for
restitution for unjust enrichment is a claim for an account and order for
payment, and thus not for liquidated sum. Even though the claim for an account could
be dealt with in a summary way and then given a specific sum, it is still not
classified as a liquidated sum.
The Court agreed with the Applicant that
in the context of unjust enrichment, even if the debtor’s defence has no merit,
it cannot be concluded that the debtor’s liability has been pre-ascertained
until there is a determination that the petitioner has been unjustly enriched
and what restitutionary remedy is appropriate. It does not matter whether the
petitioner puts a figure on its claim calculated “down to the last penny”. The
claim can only be liquidated either because the quantification of the debt is
one from which the debtor is not permitted to resile as a matter of admission,
acknowledgement or agreement, or because it has been determined as a matter of
court proceeding. The threshold question is whether the debt is for a
liquidated sum, but not whether the petitioner can name the sum he claims to be
entitled to.
Equitable subrogation
The Court then considered the alleged subrogation
to the petition debts discharged, on which the Respondent relied as a means by
which its claim can be characterized as a debt. The Court considered that
equitable subrogation is a remedy that may follow from determination that the
defendant has been unjustly enriched where it is appropriate. However, what the
remedy for that unjust enrichment is a question for judicial determination. It
is hence not open to the Respondent to declare that it was subrogated to the
rights of the credit card company or the landlord without any judicial
determination, which had not occurred when it presented the bankruptcy
petition.
The Court ruled that the claims for the
petition debts are not for a liquidated sum and hence cannot form the basis of
the Bankruptcy Petition.
Discretion to annul
Notwithstanding the Court’s ruling that a
bankruptcy petition cannot be founded on a claim for restitution for unjust
enrichment, it refused to exercise its discretion to annul the Bankruptcy Order under section 282 of the IA. The Court recognised
its power to rule against annulment even if the preconditions for the
presentation of a bankruptcy petition is not met. In the exercise of its
discretion, the Court must consider all the relevant factors and give them
appropriate weight. Considering the clear evidence of insolvency and the
Applicant’s deliberate inaction to set aside the Bankruptcy Order in a timely
manner, the Court declined to annul the Bankruptcy Order.
Key takeaways
The Court clarified that a determination of both liability in unjust
enrichment and remedy to be given is required before the claimed sum can be
regarded as a liquidated sum for the purpose of section 267 of the IA. As such,
a mere claim for restitution for unjust enrichment is not a sufficient ground
for presenting a bankruptcy petition. That said, the Court reserves a
discretion not to allow an annulment of a bankruptcy order if there are factors
going against such annulment. As sections 6(1) and (2) of the Bankruptcy
Ordinance (Cap. 6) were drafted with similar wordings as section 267 of the IA,
the aforementioned position will likely be followed by Hong Kong courts.
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Important: The law and procedure on
this subject are very specialised and
complicated. This article is just a very general outline for reference and
cannot be relied upon as legal advice in any individual case. If any advice
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Published by ONC Lawyers © 2023 |