The Rt. Hon. the Lord Denning of Whitchurch O.M. on Bankruptcy and Insolvency

We have recently discussed the contribution of FE Smith to the bankruptcy jurisdiction. We can now focus on another giant of the bench,"the best-known and best loved judge in our history" (per Lord Bingham), namely, the Right Honourable the Lord Denning of Whitchurch OM, PC, DL, DCL, LLD (23 January 1899 – 5 March 1999 - pictured). A graduate of Magdalen College, Oxford, Denning was called to the bar by Lincoln's Inn on 4 November 1921. He was made a King's Counsel in 1938. He became a Family Division judge in 1944, "then the youngest judge on the High Court bench" (per Lord Goff) and a Lord Justice of Appeal in 1948. He went up to the judicial House of Lords as a Lord of Appeal in Ordinary in 1957. He went back to the Court of Appeal in 1962 as Master of the Rolls. The Lord Neuberger has recently undertaken a similar route to the Lord Denning. Denning retired in 1982 following a twenty year stint as Master of the Rolls. 

So what of the Lord Denning's contribution to the bankruptcy jurisdiction? As a Lord of Appeal in Ordinary, Master of the Rolls, Lord Justice of Appeal (but not as a pusine judge - in each case he will be referred to by the title he held at the time, not his final title), Denning sat on a number of important and interesting insolvency related cases. We will examine a number of them here. The first case of note, and perhaps his most important contribution, is Bendall v McWhirter [1952] 2 Q.B. 466. The case concerned the vexed question of the deserted wife's equity. The husband had been adjudicated bankrupt. There was a claim to possession of the matrimonial home by trustee in bankruptcy in whom the freehold of the house vested. The trustee brought an action to recover possession and mesne profits against the wife as a trespasser from the date of the adjudication in bankruptcy. The question before the court was whether the trustee takes the property subject to wife's right. The court had to consider the effects of the Bankruptcy Act, 1914 (4 & 5 Geo. 5, c. 59), ss. 18 (1), 22 (4), 38 (b), 105 (1). 

At first instance the county court judge held that as the wife was a licensee whose licence was determined when the property vested in the trustee, he took it unfettered by matrimonial obligations. The County Court judge then made an order for possession with mesne profits in favour of the trustee. This decision was appealed by the wife up to Denning and his brother Court of Appeal judges. It was held by that court that  a deserted wife in occupation of the matrimonial home has a personal licence, revocable by her husband only by obtaining an order of the court under section 17 of the Married Women's Property Act, 1882. Furthermore it was stated that where the matrimonial home is a freehold house which vests in the husband's trustee in bankruptcy under the provisions of the Bankruptcy Act, 1914, the trustee takes the house subject to the wife's licence, and cannot obtain possession of it without an order of the court which could be made on an application for possession under section 105 (1) of the Bankruptcy Act, 1914. 

As Somervell and Romer L.JJ point out in their judgments the trustee takes no better title than the bankrupt had. He is no more entitled than was the debtor before his bankruptcy to revoke the wife's licence on his own authority or to sue her for possession of the property. In his judgment Denning L.J specifically highlighted the view that the trustee in bankruptcy takes subject to the wife's right, for this right is an equity. To seek possession alternatively to proceedings under section 105 (1) of the Bankruptcy Act, 1914, the trustee could proceed by way of originating summons in the husband's name under section 17 of the Married Women's Property Act, 1882.

Denning, LJ makes reference to
Bendall v. McWhirter in Jess B. Woodcock & Sons Ld. v Hobbs [1955] 1 W.L.R. 152, at page 155, when he observes, "Many cases have come before the courts lately where a husband owns the matrimonial home and then deserts his wife, leaving her there with the children. In such a case the husband cannot turn his wife and children out into the street simply because he is the legal owner of the house. He can only recover possession if the court thinks fit to order her to go. If he goes bankrupt and the house becomes vested in his trustee in bankruptcy, the trustee cannot get possession unless the court in its discretion orders her out: Bendall v. McWhirter. So much is well settled."

In Hadkinson v Hadkinson [1952] P. 285, at page 297, Denning, LJ (as he then was) mentions bankruptcy in the following terms: "Since the Judicature Acts the same rule has been applied to the Bankruptcy courts. Thus, when a bankrupt had disobeyed an order to make a statement of his affairs and had deliberately kept out of the way of the court and of his creditors, he was held to be in contempt and the Bankruptcy court refused to hear his counsel on an inquiry as to damages for breach of contract, even though no attachment had been issued against him, and this court upheld the ruling: see In re Langworthy (1887) 3 T.L.R. 826."

Denning, LJ's next substantial contribution to the bankruptcy jurisdiction came in In re A Debtor, No. 991 of 1962 v H. Tossoun [1963] 1 W.L.R. 51. This case concerned an application to set aside a bankruptcy notice and the duty of registrar to receive further evidence. The Court of Appeal had to consider these issues and the Bankruptcy Rules, 1952 (S.I. 1952, No. 2113 (L.14)), rr. 137, 138, 139—Bankruptcy Act, 1914 (4 & 5 Geo. 5, c. 59), s. 1 (1) (g). The facts of the case broadly hinge around a disputed cross-demand between the creditor and debtor. The debtor sought to adduce further evidence, including documents, to substantiate his cross-demand, but the registrar refused to receive further evidence on that matter, holding that he had no power to do so; and he dismissed the application to set aside the bankruptcy notice. The debtor appealed this decision up to the Denning, LJ and his Court of Appeal brethren. They held that the application to set aside the bankruptcy notice ought not to have been dismissed and that it should be referred back to the registrar for rehearing and to admit the further evidence. 

They observed that where an issue as to a cross-demand had been joined, the registrar had ample jurisdiction to receive further evidence generally in order to fulfil his duty to reach a conclusion on the question whether there was a genuine cross-demand. 

In re Davenport No. 332 of 1962 [1963] 1 W.L.R. 817 we again see Denning, LJ in action in the bankruptcy sphere, this time in relation to a director infant, a debt guarantee and the exercise of discretion. Judgment was given against an infant (aged 18) for an unenforceable debt. As a consequence of this a receiving order and order of adjudication in bankruptcy were made against the infant debtor on the application of landlords. She was the director of a limited company. She had guaranteed the rent of the business premises. The rent fell into arrears. The Court of Appeal had to consider the discretion in court to set aside orders and the Bankruptcy Act, 1914 (4 & 5 Geo. 5, c. 59), s. 29 (1).

It was argued that the receiving order ought not to have been made because she was an infant at the date of the judgment and the receiving order, and the guarantee of the rent in the underlease was a debt unenforceable against an infant. These arguments did not succeed at first instance before the Registrar. The bankrupt appealed. The appeal was allowed. The Court of Appeal held that
although an infant could be made bankrupt in respect of debts legally enforceable against an infant, the debt on which the judgment and the petition were founded in this case was a debt unenforceable against an infant, and, there being no other legally enforceable debts against this infant, the court should in the exercise of its discretion under section 29 of the Bankruptcy Act, 1914, annul the order of adjudication in bankruptcy and all the proceedings anterior to it.

Readers will note that Denning, LJ's contributions to date had been on the personal side of the subject. We now get his first corporate contribution in the shape of 
In Re Cyona Distributors Ltd [No. 00465 of 1956] [1967] Ch. 889. The case concerned a company in winding up, fraud by a director and the possible imposition of a trust for creditors generally. The salient provision under consideration was the Companies Act, 1948 (11 & 12 Geo. 6, c. 38), s. 332 . The fraud in the case related to a director of the company who was being prosecuted for conspiracy to defraud the Inland Revenue Commissioners of purchase tax. On March 8, 1961, the day of the trial of the director, bankers' drafts for the bulk of the commissioners' outstanding claim were handed over to the commissioners at the door of the court by the director's solicitor. The liquidators contended that the commissioners held the sum received by them on March 8, 1961, for the liquidator.

At first instance
Plowman J. held that the claim under section 332 was impressed with a trust for the creditors generally and that the commissioners were accountable to the liquidator for the sum paid to them in extinguishment of their claim. The commissioners appealed. The appeal was allowed. Lord Denning MR (as he had by now become) held that the commissioners were not accountable for the sum received by them because a claim by a creditor under section 332 of the Act of 1948 was made on his own account and that such a claim was not made under a trust; and that the payment of the money had nothing to do with the application under the section.

Lord Denning MR's next contribution, again on the corporate side of the subject followed in 
Rolls Razor Ltd. v Cox [1967] 1 Q.B. 552. Readers will not need reminding of this first salvo in the famous case series on, inter alia, set-off. Lord Denning M.R., Danckwerts and Winn L.JJ. sat on the panel in the case. They had to consider the Bankruptcy Act, 1914 (4 & 5 Geo. 5, c. 59), s. 31. Section 31 of the Bankruptcy Act 1914 provided a set-off provision that could not be excluded by agreement. Cox was a door-to-door salesman of washing machines. The company supplied him with a van and stock. In terms of payment, "The company paid him the commission earned in the previous week but retained a percentage in a retention fund against possible default by the salesman, the cash retained being repayable in three instalments after determination of the agreement between the parties."

The company went into voluntary liquidation in July 1964 and "On that date, the company held in the retention fund and in respect of the previous week's sales GBP 246 on behalf of the defendant salesman. The salesman held GBP 106 from sales, goods for sale worth GBP 3 and seven tap-adapters, not for sale but for use when demonstrating the machines." The salesman attempted to assert a lien on the cash and goods in his hands. The liquidator sued the defendant for all the cash and goods in his hands and claimed that no set-off could take place and that he was restricted to proving in the bankruptcy.

At first instance the county court judge ordered Cox to hand over the goods and the money. Cox appealed. It was held by the Court of Appeal that Cox was entitled to the set-off provided by the 1914 Act, for there had been mutual dealings within the section, and its operation could not be excluded by agreement.

The next Lord Denning MR insolvency case of note is Prichard v Westminster Bank Ltd. and Same [1969] 1 W.L.R. 547. The panel in the case consisted of Lord Denning M.R., Edmund Davies and Phillimore LJJ. The case concerned the administration of an insolvent estate and the rules providing for creditors to rank pari passu. The statutory provisions that were discussed were the Administration of Estates, 1925 (15 & 16 Geo. 5, c. 23), and s. 34—Bankruptcy Act, 1914 (4 & 5 Geo. 5, c. 59), s. 33 (5) (7). The debtor died leaving a gross estate of £27,530. However, when a national bank, as executors, began to administer the estate it was found to be insolvent.  A creditor obtained a judgment for a debt of £144. This sum was duly paid. When this was appealed the Court of Appeal held that, "the clear statutory provisions of section 33 (5) and (7) of the Bankruptcy Act, 1914, which became operative by virtue of section 34 of the First Schedule to the Administration of Estates Act, 1925, made it obligatory that all debts proved in the bankruptcy, deemed to be at the date of the death, should be paid pari passu, and there was no room for the exercise of a discretion in favour of a diligent creditor."

Other bankruptcy and insolvency related cases in which the Lord Denning was involved include:
  • Curtis v Maloney [1951] 1 K.B. 736
  • Metliss v National Bank of Greece and Athens S.A. [1955 M. No. 4083.], [1957] 2 Q.B. 33
  • In Re Overseas Aviation Engineering (G.B.) Ltd [1963] Ch. 24
  • In Re Barleycorn Enterprises Ltd [1970] 2 W.L.R. 898 [1970] Ch. 465
  • Halesowen Presswork & Assemblies Ltd. v Westminster Bank Ltd [1970] 3 W.L.R. 625, [1971] 1 Q.B. 1
  • In Re Pergamon Press Ltd [1971] Ch. 388
  • Marley Tile Co. Ltd. v Burrows and Another [1975 M. No. 329], [1978] Q.B. 241
  • In Re James (An Insolvent) (Attorney-General intervening) [1977] 2 W.L.R. 1 [1977] Ch. 41

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