High Court Finds Trustees In Bankruptcy Could Seek To Annul A Bankruptcy Order Where It Could Not Be Given Practical Effect

The High Court has held that trustees in bankruptcy had standing to pursue the annulment of a bankruptcy order where it could not be given practical effect, as there were no assets within the jurisdiction and the relevant foreign courts did not recognise the order. In those circumstances, the court was satisfied that the trustees had a legitimate interest in seeking annulment in the interests of creditors. To succeed in the annulment application, however, the trustees will have to show that the bankruptcy order ought not to have been made: Nilsson v Jones [2025] EWHC 2652 (Ch).

This decision shows that trustees can seek to annul bankruptcies that would achieve no return for creditors, so as to ensure that the process does not become an empty administrative process and creditors are free to pursue their claims against the former bankrupt in any appropriate jurisdiction – though, as the judgment notes, annulment could lead to a "first come, first served" approach and there may be challenges for creditors who are outside of the jurisdiction. A more orderly outcome may be achieved through pursuing insolvency proceedings in a foreign jurisdiction. However, creditors should carefully consider the prospects of recovery in any particular jurisdiction before bringing insolvency proceedings there, based on the extent of the assets and liabilities and whether the debtor may be able to evade compliance with the insolvency process.

The decision also illustrates the potential for debtors to try to "game the system" by applying for bankruptcy in England (and obtaining, under English law, a restriction against the commencement of proceedings against the bankrupt) when their assets are in a jurisdiction that may not recognise the English bankruptcy order. More generally, it underscores the continuing challenges of cross-border insolvency processes since Brexit, where English bankruptcy orders may not be recognised in EU member states and trustees must carefully consider the prospects of foreign recognition before proceeding.

Background

Mr Jones applied for his own bankruptcy in England in November 2021. The application was initially refused by an adjudicator on the ground that his centre of main interests ("COMI") was outside of England (in Austria) and none of the other jurisdictional gateways under s.263(1) of the Insolvency Act 1986 ("IA") were met. The three statutory gateways for bankruptcy jurisdiction under s.263I IA are: (1) COMI in England and Wales; (2) COMI in an EU member state and an establishment in England and Wales; and (3) domicile, residence, or business in England and Wales at any time in the three year period prior to the application.

Mr Jones requested a review of the adjudicator's decision. He presented additional evidence, including a Family Court decision from 2018 which found that he was domiciled in England, and an Austrian residency document describing his Austrian address as a "secondary residence". The reviewing adjudicator ordered Mr Jones's bankruptcy, relying in part on this new evidence and the finding of English domicile.

The Trustees were appointed and, in order to collect and realise the bankruptcy estate, applied for recognition of the English bankruptcy order in Austria, where Mr Jones lived and worked (since 31 December 2020, a UK insolvency officeholder is unable to obtain automatic recognition of UK insolvency proceedings under the EU Insolvency Regulation 2015). Mr Jones opposed the application for recognition, arguing that his COMI was in Austria. Mr Jones's objection was successful and the Austrian courts refused to recognise the bankruptcy order, which meant the Trustees were unable to realise the bankruptcy estate.

The Trustees then applied to the English court to annul the bankruptcy order under s.282(1)(a) IA, on the basis that the order ought not to have been made. The Trustees contended that the reviewing adjudicator had wrongly considered new evidence which the original adjudicator had not been presented with, and that Austria was, at all material times, the place where Mr Jones conducted the administration of his interests, and third parties would have regarded Austria as his COMI.

Mr Jones opposed the application, arguing that: (i) the Trustees lacked standing to apply for annulment; and (ii) his COMI and domicile were in England at the relevant time, such that the order was properly made.

Decision

The court (Jones J sitting in retirement) held that the Trustees did have standing to apply for the annulment of Mr Jones's bankruptcy, but Mr Jones must be given an opportunity to file further evidence on the issue of his domicile before the issue of annulment could be determined.

The court rejected Mr Jones's argument that Trustees in bankruptcy had no standing to apply for annulment, holding that s.282 IA does not restrict who may apply for annulment; it is for the court to decide whether an applicant has standing. Where the bankruptcy cannot be given practical effect – because, for example, there are no assets within the jurisdiction and foreign courts refuse recognition – the Trustees have a legitimate interest in seeking annulment in the interests of creditors. Jones J stated that it was "rather rich" for Mr Jones to challenge the Trustees' standing, particularly as Mr Jones had not cooperated in delivering up the estate (contrary to his statutory duties) and had wrongly represented that he had a 50% interest in his matrimonial property in the jurisdiction.

As to whether the bankruptcy decision should not have been made as the review of the bankruptcy decision relied upon additional evidence not before the original adjudicator, the court found that while s.263N IA requires the review to be based on the information available at the time of the original decision, any procedural defect was not sufficient to justify annulment in this case.

The court found that, although the bankruptcy order referred to COMI (the first statutory gateway above), the review decision (which led to the bankruptcy order) was based on domicile (the third statutory gateway). The court's order would normally prevail over the judgment, but since the purpose of this application was to decide whether the bankruptcy order ought to have been made, the court had jurisdiction to look behind the order to the reasons that the order was made. The existence of a reasoned decision meant it would not be fair or just to ignore the fact that the review decision accepting jurisdiction was founded on Mr Jones's domicile.

As to Mr Jones's argument that the Trustees' application must be dismissed because it did not challenge the fact of Mr Jones's domicile within the jurisdiction, the court described the procedural history as a "mess", with both sides proceeding on different understandings of the scope of the annulment application. The Trustees' skeleton argument raised domicile as an issue, but this was not in the application or supporting evidence (which solely addressed the issue of COMI). The Trustees argued that domicile was implied as a ground (even if not identified in the application) on the basis that, to order annulment on the basis of lack of jurisdiction, the court would always have to be satisfied that the bankruptcy order would not have been made in any event on the basis of domicile. However, the court considered this was insufficient when the evidence in support did not expressly refer to domicile

The judge held that the Trustees could amend their application to include domicile as a ground, but it would be wrong to decide the application without giving Mr Jones the opportunity to file further evidence on domicile. The judge emphasised the importance of procedural fairness, especially where the outcome could deprive a bankrupt of the protection of the bankruptcy order. The judge noted that, while the Trustees' skeleton arguments (including those from a prior directions hearing) did raise the issue of domicile, the application itself did not, and Mr Jones's evidence in answer was therefore limited to the COMI ground – which the judge held would not have given a basis for jurisdiction as Mr Jones's COMI was in Austria.

In conclusion, the judge noted that his decision did not resolve the "real problem" – ie that there were no assets within the jurisdiction and no recognition of the bankruptcy order in Austria, where the assets were located. Having applied for bankruptcy in England and Wales, Mr Jones had not cooperated with the Trustees to fulfil their functions and was taking advantage of the fact that the law of Austria would not recognise the English bankruptcy order. The result was that the bankruptcy order had no practical effect, and creditors were left unable to enforce their claims either in England or Austria. The judge noted that, while annulment or rescission might allow creditors to pursue their claims individually in Austria, this would benefit only those able to act quickly and might not be a satisfactory solution for all creditors. He emphasised, however, that these were matters for the Trustees and creditors to consider; the court's role was limited to determining the application before it.

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