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 or assistance is needed, please contact our solicitors.

Published by ONC Lawyers © 2023