Bankruptcy Petitions – Judgments needed for Petitions

Although there is no technical requirement for a judgment to apply to make a debtor a bankrupt (as confirmed by the Supreme Court in Harrahill v Cuddy[1]), the Court has a very wide discretion to refuse to issue a bankruptcy summons. Therefore, an applicant will typically rely on a judgment to ground a bankruptcy petition.
Background
 
In the very recent case of Leonard And Woods Development Limited v S.H[1], the Court noted that "an unusual aspect of the applications is they are not grounded upon any judgment but rather, the applicant relies upon a settlement agreement."
 
The particular facts of this case were that, although summary proceedings were issued by the Applicant company, they advised the Court that they were not proceeding with the litigation due to a concerns about how long it might take and whether a judgment would be enforceable. Accordingly, the Applicant petitioned to have the Respondents adjudicated bankrupt on foot of a settlement agreement which had been reached between the parties and reserved its position in respect of the proceedings pending the outcome of the bankruptcy application.
 
It was submitted to the Court that as a result of the Supreme Court decision in Harrahill v Cuddy it is open to apply for the issue of a Bankruptcy Summons, even without a judgment. However, it was acknowledged that "it is necessary that the debt be undisputed if one is certain to keep the summons free from challenge."
 
The Law
 
Section 8 of the Bankruptcy Act, 1988 (as amended) sets out the circumstances in which the Court may grant a Bankruptcy Summons and Section 8(b) requires that the debt is a liquidated sum. In considering what qualifies as a "liquidated sum", the judgment in Leonard and Woods endorsed the view that:
 
“there must be no question but that the sum claimed in the bankruptcy summons, in the event that one does not hold a judgment, is beyond dispute. This presumably would only arise in the case of a debt which has been acknowledged by the debtor or, or where evidence of acknowledgment is forthcoming.[2]”
 
The Court determined that the question is whether the debt is explicitly acknowledged[3] by the Respondents. In this case, as regards one of the Respondents, the Court was satisfied that the settlement agreement already in place was a "sure way of establishing the debt claimed by the applicant" and that a liquidated sum was due and owing to the Applicant company.
 
Leonard and Woods has confirmed that where a debt is in any way disputed that a judgment is required before bankruptcy proceedings can commence.
 
Mark Woodcock and Ciara Gilroy