Income payments order of discharged bankrupt survives second bankruptcy

• A discharged bankrupt's obligations to make future payments under an income payments order survive a second bankruptcy.
• Future payment obligations under an income payments order are not a provable debt in a subsequent bankruptcy.
• Azuonye v Kent [2018] EWHC 2766 (Ch)

Speed read

Dr Ikechukwu Obialo Azuonye was first made bankrupt on 28 April 2015. The trustee in bankruptcy applied for an income payments order (IPO) shortly before Azuonye's automatic discharge from bankruptcy, and an IPO was made on 22 November 2016. Azuonye was made bankrupt for a second time on 4 December 2017. The trustee in the first bankruptcy was appointed as trustee in the second bankruptcy.

Azuonye claimed that the second bankruptcy automatically discharged the IPO. The court at first instance rejected this argument. The district judge did not accept that the IPO gave rise to a provable debt for the purposes of the second bankruptcy due to the ability of the court to vary payments. The judge said that it would be a surprising result if a bankrupt could evade performance of an IPO simply by making himself bankrupt again.

Azuonye appealed and also sought a refund of all money collected under the IPO since the start of the second bankruptcy. The High Court dismissed the appeal. The judge said that amounts payable under an IPO continue to be payable after a subsequent bankruptcy and that such future payments are not provable as they are inherently uncertain due to the court's continued power to vary them.             

The judge considered various sections of the Insolvency Act 1986 (IA86) and concluded that it was very clear that an IPO may continue in place after discharge from bankruptcy and that the court has continued power to review it. Section 335(2) IA86 in particular was considered – this provision applies only where a bankruptcy order is made in respect of an undischarged bankrupt and its effect is to make amounts payable under an IPO form part of the estate for the purpose of the later bankruptcy.

There is no equivalent provision for discharged bankruptcies and so such amounts do not form part of the second bankruptcy estate. The judge agreed with the first instance judge that it would be strange if a discharged bankrupt could avoid an IPO by making himself bankrupt a second time and also agreed that the court's power to vary future payments under an IPO made them uncertain and as a result not provable.

Samantha Latham is a restructuring expert at Pinsent Masons, the law firm behind Out-Law.com