Income Payments Orders and Reasonable Domestic Needs

Posted on: May 5th, 2020

In Fowlds v Bucknall and Roach [2020] EWHC 329 (Ch), the High Court considered the issue of the court’s discretion in assessing the reasonable domestic needs of the bankrupt and his family when considering whether to make an income payments order.

The High Court has dismissed an appeal against an income payments order on the grounds that the court had failed to exercise its discretion in respect of the reasonable domestic needs of the estranged wife of the bankrupt who did not fall within the strict statutory definition of family in the Insolvency Act 1986.

The bankrupt was a former property developer.  His estranged wife lives in Italy and the bankrupt felt that he had a moral obligation to make monthly payments of £1,250 to his estranged wife.  The joint trustees in bankruptcy assessed that this sum did not form part of the bankrupt’s reasonable domestic needs and applied for an income payments order of this sum.  The matter came before Deputy ICC Judge Barnett.  The Deputy Judge considered the evidence, and whilst he noted that he had a discretion as to whether to make an income payments order, he decided to make an income payments order for £1,250

The bankrupt appealed to the High Court on the grounds that the deputy judge had failed to exercise his discretion properly.  The judge noted that the definition of “family” in section 385 Insolvency Act included “the persons (if any) who are living with [the bankrupt] and are dependent on him“.  The judge noted that there is an overarching discretion in section 310 Insolvency Act regarding the making of an income payments order.   He noted that permission to appeal had been granted on the grounds that the court had a discretion to have regard to dependents who fall outside the strict definition of family and that the appeal raised the issue as to the circumstances which it is proper to take into account in exercising discretion under section 310 in respect of a non family member who is dependent on the bankrupt.

The judge noted that judicial discretion must only be exercised on the basis of full information.  The judge found that the deputy judge had correctly found that the bankrupt’s estranged wife did not fall within the statutory definition of “family”.  The deputy judge had correctly concluded that he had a discretion he could exercise in favour of the bankrupt’s estranged wife.  The deputy judge had concluded that he should be slow to exercise the discretion in the light of the tight definition of “family” in the Insolvency Act.  The judge noted that section 310(2) Insolvency Act provides that where the income of the bankrupt would be reduced below the amount considered necessary for meeting the reasonable domestic needs of the bankrupt and his family, and that the section explicitly directs the court to disregard the interests of creditors when exercising its discretion.  The judge went on to consider the exercise of the discretion in relation to a person is dependent on the bankrupt but not a member of his family and held that the interests of creditors must be considered, and that the court would be slow to exercise a discretion in favour of a non family dependent.

The judge found that whilst the bankrupt asserted that the monthly payments were necessary due to his estranged wife’s financial position, the bankrupt had failed to provide evidence of her financial position.  The judge noted that if court had been provided with evidence that the bankrupt’s estranged wife needed the monthly payments to meet her reasonable domestic needs, the court would have to weigh the interests of the bankrupt’s estranged wife against those of the creditors.  However, the deputy judge had not been able to do so due to the lack of financial information disclosed by the bankrupt.

The case is a useful clarification of the issues the court considers when making an income payments order.  The court had a discretion in respect of the assessment of the reasonable domestic needs of the bankrupt and his family.  However, the court will be slow to exercise its discretion in favour of non family dependents where this will adversely affect the interests of creditors, and will be unable to exercise its discretion where the bankrupt has failed to provide full financial information.