Income Payment Orders after an Income Payment Agreement

Thomas and another (Joint Trustees in Bankruptcy of Stephen John Edmondson) v Edmondson [2014]

Background

Mr Edmondson (Respondent) had been made bankrupt on a petition of HMRC on 21 August 2012. As a result of his bankruptcy, the Respondent’s tax code changed meaning that income tax was not deducted from his earnings.

The Respondent entered into a income payments agreement (IPA) with the Official Receiver (OR) on 7 December 2012 under which he agreed to pay the OR (or any person appointed as trustee in bankruptcy of his bankrupt estate) the amount by which his take home pay had been increased by virtue of his change in tax code. The IPA was expressed to continue until the end of the tax year (5 April 2013).

Mr Thomas and Ms Bullman (Ms Bullman was later replaced by Mr O’Reilly on 20 November 2013) were appointed as the Respondent’s joint trustees in bankruptcy (Joint Trustees) on 6 December 2012. In May 2013, the Joint Trustees tried to enter a new income payment agreement with the Respondent but he refused. The Joint Trustees applied to court for a section 310 income payment order to last for three years. The District Judge refused this order, stating that there was no jurisdiction to make such an order pursuant to section 310 of the Insolvency Act 1986 on the basis that an IPA had previously been made.

The Joint Trustees appealed this decision.

Decision

The issue at hand was whether, under the proper construction of sections 310 and 310A of the Insolvency Act 1986, a bankrupt could be subject to an income payment order (therefore extending the time of his income payments) where he has already agreed to an IPA.

The appeal was successful with Mrs Justice Asplin, sitting in the High Court, finding that:

• the District Judge had erred in law in finding that there was no jurisdiction to grant an income payments order under section 310 where an IPA had already been made;
• the ordinary meaning of section 310 was clear and if a limitation had been intended by the introduction of section 310A to the Insolvency Act 1986 then this would have been made explicit at the time that amendments were introduced by the Enterprise Act 2002;
• reading sections 310 and 310A together did not create anomalies requiring any other interpretation other than a literal one; and
• even if Parliament had intended that a bankrupt should not be required to pay part of their income to a trustee in bankruptcy for more than a 3 year period, judges have discretion as to whether to make an income payment order and how long any such order should last.

For more information, help or advice please contact Claire Seddon on 0191 211 7991.