Maher v Holmes

Ms Maher and Mr Holmes entered into a loan agreement whereby Mr Holmes lent Ms Maher £200,000 for two years subject to interest of 20% per annum and secured against Ms Maher’s freehold property at 36 Coombe Park Road, Coventry. Mr Holmes had been a longstanding friend and business associate of Ms Maher’s then partner, Terrance Conlan. Ms Maher failed to repay the loan, and, on 8 July 2022, Mr Holmes obtained a money judgment against her for £390,357.13 plus interest and costs, and  an order for possession of the property.

On 25 July 2024 Mr Holmes presented a petition for a bankruptcy order on the basis that a sum of £129,751.65 remained outstanding under the judgment following unsuccessful enforcement. A bankruptcy order was made on 27 June 2025 by the district judge who declined to go behind the judgment. He rejected Ms Maher’s case that a properly conducted judicial process would have revealed that the loan agreement was voidable for undue influence and/or duress, and/or on the basis that the relationship between the parties was unfair within the meaning of the Consumer Credit Act 1974 in circumstances in which it was said that Ms Maher had been compelled to enter into the loan agreement as a result of alleged coercive and controlling behaviour on the part of Mr Conlan.

The grounds of appeal included reliance on  an error of law by the district judge in holding, wrongly, that ss 140A-140C Consumer Credit Act 1974 (dealing with “unfair relationships”) did not apply to the loan agreement giving rise to the judgment debt forming the basis of the petition.

The appellate judge held that the district judge had been correct in finding that the loan agreement had been an exempt agreement under art 60C(3) Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (business purpose loans above £25,000) so was not a regulated credit agreement for the purposes of the 1974 Act generally. The district judge had, however, erred in finding that the unfair relationship regime under ss 140A-C  Consumer Credit Act 1974 did not apply in circumstances where the narrow exception under s 140A(5) only disapplied from that regime exempt agreements under art 60C(2) Regulated Activities Order 2001 (regulated mortgage contracts and regulated home purchase plans). It followed that the district judge had been wrong in declining, as he had, to consider whether the relationship between the parties was unfair within the meaning of s 140A. That gave rise to the question whether that error had been material to the exercise of the discretion to make the bankruptcy order in this case.

There was no dispute on the appeal as to the jurisdiction of the court sitting in bankruptcy to look behind a judgment: see McCourt and Siequien v Baron Meats Ltd and the Official Receiver [1997] BPIR 114 and Dawodu v American Express Bank [2001] BPIR 983. The appeal judge concluded that it would be right to do so in the circumstances of the case before him:

“By reason of his conclusion that the statutory regime did not apply, the [district] judge did not consider whether the relationship between the Appellant and the Respondent was unfair within the meaning of ss 140A-C of the 1974 Act, nor whether any such unfairness should affect the exercise of his discretion. That was not because the point lacked potential relevance, but because it was erroneously excluded from consideration.”

Sections 140A-C of the 1974 Act had replaced an earlier regime that gave the court power to re-open an extortionate credit agreement but which had been considered too technical and having set the bar for court intervention too high. The new regime was intended to provide consumers with greater protection based on the concept of a relationship that was “unfair to the debtor” as a result of one or more of three factors set out in s 140A(1) which applied in this case: (a) any of the terms of the loan agreement, (b) the way in which the respondent had exercised or enforced his rights under the loan agreement, and (c) any other thing done (or not done) by, or on behalf of, the respondent (whether before or after the making of the loan agreement). In determining whether one or more of those three factors gave rise to an unfair relationship, s 140A(2) provided that “the court shall have regard to all matters it thinks relevant (including matters relating to the creditor and matters relating to the debtor).” In Pilgrim Rock v Iwaniuk [2019] EWHC 203 (Ch) Fancourt J held that s 140A(2) meant that the court was not confined to consideration only of dealings between the creditor and debtor when assessing whether a relationship was unfair: conduct and influence of third parties, even those who are not associated persons as defined by s 140A(3), could form part of “the relevant factual matrix where it bears upon the circumstances in which the agreement was made.” Thus, background information as to the person who controlled the corporate creditor (that person and the debtor being joint venturers and friends and not dealing at arm’s length) was potentially relevant.

The appeal judge said:

“In the present case, the judge made a specific finding ‘that Mr Conlan’s coercive and controlling behaviour extended to compelling (and I use that word deliberately), Ms Maher to enter into the loan agreement with Mr Holmes.’ Whilst that finding was insufficient to undermine the Loan Agreement by way of undue influence or duress in the absence of knowledge on the part of the Respondent, it was nevertheless capable of informing the assessment of whether the relationship was unfair under s 140A. However, because the judge concluded that the statutory regime did not apply, he did not evaluate whether those matters rendered the relationship unfair, or what consequences, if any, should follow.

“In those circumstances, the district judge’s error of law led to his failing to take into account a potentially material consideration in the exercise of his discretion: “It cannot be said that that failure was immaterial. Had the judge concluded that the relationship was unfair, that conclusion was capable of affecting both the question whether it was appropriate to go behind the judgment debt and the discretionary decision whether to make a bankruptcy order.”

The appeal judge went on to set out a number of reasons which enabled him to conclude that he could be satisfied that the relationship between the parties in this case had been unfair within the meaning of s 140A. Section 140B gave the court wide powers in reopening a credit agreement, including altering the terms of the agreement and reducing or discharging any sum payable by the debtor.

Thus, although the judgment on which the petition was founded had been valid, it would be disproportionate and unjust to permit its enforcement, in its full amount, by making a bankruptcy order where, had the unfair relationship been properly considered in the possession proceedings, the recoverable debt would very likely have been substantially reduced. The appeal was therefore allowed, the bankruptcy order was “set aside,” and the petition was dismissed.

For another successful bankruptcy appeal on a consumer credit point see Woolsey v Payne [2015] EWHC 968 (Ch), [2015] BPIR 933.

This article is for general information purposes only and does not constitute legal advice or a comprehensive statement of the law. Specific legal advice should always be sought in relation to individual circumstances.

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