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Debtors’ Prison; Don’t Forget It

Summary

Trustees in bankruptcy can often come up against challenges in dealing with obstructive bankrupts. A bankrupt might ignore communications and requests for interview, fail to disclose information about their assets, or provide partial cooperation which fails to offer any substantive assistance.  

Faced with this situation, the Restructuring and Insolvency team at Charles Russell Speechlys has acted for Martin Armstrong of Turpin Barker Armstrong (the Trustee) in a successful application for the committal to prison for contempt of Court of Neill Carter – in Bankruptcy.

An application for committal is not commonly used, but it is an option worth remembering in respect of bankrupts who will simply not cooperate with their trustee.

The Facts

Mr Carter was made bankrupt following his failure to pay liabilities to HMRC of circa £200,000. In his initial questionnaire, Mr Carter disclosed a number of assets including luxury watches, large sums of cash in foreign bank accounts, restricted stock units, and private pensions.  

Following Mr Carter’s failure (over a number of years) to deliver up these assets to the Trustee, or to provide full and proper details about those assets, the Trustee applied to Court for a private examination of Mr Carter under section 366 of the Insolvency Act 1986 (the 366 Application).  

Pursuant to the 366 Application, Mr Carter was ordered to deliver up information and documents concerning his assets and, thereafter, to be cross examined in a private examination on those assets (the Examination). Mr Carter failed to deliver up any material to the Trustee and, consequently, at the Examination, Mr Carter gave 11 undertakings to the Court (the Undertakings). Pursuant to the Undertakings, Mr Carter broadly undertook to the Court to provide certain information and documents about his assets to the Trustee.

Mr Carter failed to comply with any of the Undertakings, and did not meaningfully engage with the Trustee thereafter. 

Consequently, the Trustee applied to Court for Mr Carter’s committal to prison (the Committal Application). If the Court finds that an allegation of contempt is made out, it can order a custodial sentence of up to two years.

Mr Carter failed to attend the hearing of the Committal Application and the Court therefore issued a bench warrant for Mr Carter’s arrest. The authorities also issued a ‘port alert’ so that Mr Carter would be apprehended if he tried to leave the jurisdiction. Thereafter, Mr Carter ‘went to ground’ and evaded the police’s attempts to locate and arrest him.  

Mr Carter was finally arrested, much to his apparent surprise and after almost three years of evading arrest, at Gatwick Airport in May 2023. He was immediately remanded in custody at HMP Pentonville.

On 26 July 2023, the Court heard the Trustee’s Committal Application, with Rory Brown of 9 Stone Buildings acting as Counsel for the Trustee. The Court heard evidence of Mr Carter’s various separate contempts of Court, as well as the evasion of a bench warrant for his arrest.  

Mr Carter admitted his contempts of Court and, therefore, was found guilty on all counts.  

Mr Justice Richard Smith gave Mr Carter a custodial sentence of 18 months.  Mr Carter was also ordered to pay the Trustee’s costs of the Committal Application on the indemnity basis. 

In his sentencing remarks, Smith J drew attention to Mr Carter’s repeated and deliberate contempts of Court, saying:

"I am sure that your breach is a very serious one, concerning, as it does, the longstanding and continuing breach of your undertakings to the Court…”

“I am sure that your breach was intended to interfere, not only with the proper administration of justice, but also the proper conduct of your bankruptcy.”

“I am sure that all these matters show overwhelmingly a deliberate and a calculated choice not to provide the information and to flout the undertakings.”

and

“…you have clearly put the interests of your creditors in jeopardy and, on a more general level, the actions you have taken have not taken do have the effect of subverting the proper administration of justice and conduct of your bankruptcy.”

It now remains for Mr Carter to consider the option of belatedly complying with the Undertakings, if he wishes to apply to Court to purge his contempt with a view to seeking an early release from prison.

The Upshot and Practical Utility

Trustees in bankruptcy may not always consider an application for committal as a practical option, particularly as committal will not necessarily, in and of itself, result in a recovery into the bankruptcy estate. However, it is still a worthwhile option to consider in some cases.

While trustees in bankruptcy must be very mindful that the contempt jurisdiction is not to be weaponised or deployed overzealously, an obstructive, avoidant, or recalcitrant bankrupt may be reminded that persistent non-cooperation may ultimately result in time spent behind bars.

As such, office holders would be well advised to bear this option in mind in appropriate circumstances.

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