In Everitt v Budhram [2010] Ch 1070, Mrs Budhram had been made bankrupt in 2006 for non-payment of £13,130 council tax. She paid the outstanding tax and the petitioning creditor’s costs, but steadfastly failed to engage with the trustee in bankruptcy, and ultimately in 2009, the trustee sought an order for sale of her home.

Deputy District Judge Sommerville refused the order. He said: ‘I always have reservations about using bankruptcy proceedings as a means of debt collection.’

Mr Justice Henderson allowed the trustee’s appeal. He held that the circumstances of the original bankruptcy order could not be taken into account on an application for an order for sale, and drew attention to the well-known authority of Griffin v Wakefield BC [2000] RVR 226 in which the Court of Appeal held that as statute and regulations permitted a local authority to use bankruptcy proceedings to recover council tax debts, there could be no objection in principle to the council doing so.

Does this mean that local authorities may confidently resort to bankruptcy proceedings as a routine method of debt collection? While plainly, as the appeal court held in Griffin, it is acceptable in principle for local authorities to use bankruptcy proceedings, there are good reasons for caution.

Ford v Wolverhampton City Council [2008] BPIR 1304 is a decision of the Local Government Ombudsman. Mr Ford (not his real name) was bankrupted for failure – or refusal – to pay council tax of £1,105. By the time the ombudsman considered his case, the costs of the bankruptcy had reached some £38,000.

Mr Ford insisted to the ombudsman, as he had to the council, that he did not owe £750 in council tax at the time of the order, but the ombudsman found that assertion to be groundless. And although Mr Ford might well have been entitled to council tax benefit, he had failed to co-operate with the claim process.

However, the ombudsman considered that he was entitled to consider Mr Ford’s complaint even though court proceedings had ensued, because he was looking at the decision to take and pursue proceedings, rather than purporting to second-guess the court. He entertained the complaint even though it related to matters which had occurred more than a year previously. And he held that the council had not followed due process in making Mr Ford bankrupt; it had failed to give him adequate warning of the consequences of bankruptcy, and had failed properly to consider the alternative of seeking a charging order against Mr Ford’s home.

The ombudsman found that had such failings not occurred, Mr Ford would have made an offer of repayment to the council prior to the commencement of proceedings. The consequences for the council were financially horrendous; it was recommended to pay for the annulment of Mr Ford’s bankruptcy, save for the £1,150 which he in fact owed.

This decision was robustly applied by District Judge Gordon Ashton in Hunt v Fylde BC [2008] BPIR 1368. The unfortunate Mr Hunt suffered from Huntington’s disease and had as a result withdrawn from the world and adopted an aggressive response to any attempt to assist; a social worker who had attempted to discuss matters with him had simply been asked to leave.

There is no suggestion that Fylde had actually known about Mr Hunt’s condition – but that, said District Judge Ashton, was not the point. The council’s evidence, he observed, ‘…conspicuously failed to advise the court of the procedures adopted by the council for making the discretionary decision that bankruptcy proceedings were appropriate. There is no indication that the council had any information about Mr Hunt before the issue of the petition or even sought such information.’

District Judge Ashton drew attention to rules 7.43 and 7.44 of the Insolvency Rules 1986, which deal with mental and physical disability. He held that the court could invoke these provisions on its own initiative, and went on to conclude that it was important that the court inquired as to whether Mr Hunt should have had a representative. If one had been appointed this might have ensured that the debt was paid or secured to the satisfaction of the petitioning creditor, perhaps involving an application to the Court of Protection, the bankruptcy proceedings being stayed for this purpose.

He pointed out that the onus cannot lie on the debtor to establish lack of capacity, either mental or physical, because lack of capacity would itself render the debtor unable to do so. As Lord Justice Kennedy said in Masterman-Lister v Brutton & Co [2002] EWCA Civ 1889, ‘… courts should always, as a matter of practice, at the first convenient opportunity, investigate the question of capacity whenever there is any reason to ­suspect that it may be absent (for example, significant head injury) …’

Annulling the bankruptcy order, District Judge Ashton pointedly invited Fylde to consider whether, in the light of the Wolverhampton case, it was appropriate to proceed.

This, of course, is a decision of a district judge at first instance, but it is a decision of a judge to whose ‘unrivalled experience’ in this field the High Court in VAC v JAD & Ors [2010] EWHC 2159 (Ch) has recently paid warm tribute.

The ombudsman took a similar approach in Re Exeter City Council [2009] BPIR 598, where the debtor was terminally ill and incapable of dealing with her affairs, though this is an unsurprising decision given that apparently the debtor had actually informed the council of her terminal illness in 2001. Once again, the council found itself paying the costs of the bankruptcy as the price of an annulment. This is going to be the normal situation – Butterworth v Souter [2000] BPIR 582.

District Judge Ashton’s view in Hunt is consistent with the stance of the European Court of Human Rights in Zehentner v Austria [2009] ECHR 1119, a decision recently cited without disapproval by the Supreme Court in Pinnock v Manchester CC [2010] UKSC 45. Lonergan v Gedling BC [2009] EWCA Civ 1569 (an application for permission for a second appeal where Mr Justice Lewison had said that ‘the decision to present the petition was not on the facts an unreasonable one’) is distinguishable on its facts.

The principal difficulty in Everitt was that the court got to grips with the issues so late in the day, after such a large bill in costs had been run up. The court has a discretion to ­dismiss a bankruptcy petition if the debtor secures the debt to the court’s satisfaction (section 271(3) of the Insolvency Act 1986), and surely a well-advised debtor will be willing to submit to a charging order. If the debtor attends the hearing of the petition (which Mrs Budhram did not) the court’s duty to put the parties on an equal footing may oblige the judge to suggest the idea to the parties.

District Judge Neil Hickman sits at Milton Keynes County Court. He is general editor of Civil Court Service (Jordans)