Bulletins | August 12, 2016

General costs rules apply to appeal against bankruptcy order

The High Court has held that Rule 12.2 of the Insolvency Rules 1986 (“IR 1986”), which provides that costs incurred in bankruptcy proceedings are to be regarded as expenses of the bankruptcy, is not intended to apply to appeals against bankruptcy orders (Cooke v Dunbar Assets Plc [2016] EWHC 1888 (Ch)).

The bankrupt argued that his appeal costs were directly associated with the proceedings issued by the petitioning creditor, and were therefore recoverable from the defendant. It was the defendant’s submission that, if the Court held that the costs of a bankrupt’s unsuccessful appeal were recoverable from the estate in bankruptcy, the result would be that bankrupts would be encouraged to appeal against bankruptcy orders  at the expense of the creditors (as their costs would be treated as expenses in any event).

The Court held that the general costs rules under CPR Part 44, namely that the losing party should pay the winning party’s costs, applied to the appeal against the bankruptcy order. This sensible conclusion will prevent a free pass for bankrupts to challenge a bankruptcy order with few consequences.