Hyde v Djurberg: Mental health considerations in bankruptcy
In the case of Hyde v Djurberg, the trustees in bankruptcy (the "Trustees") secured a search and seizure order pursuant to section 365 of the Insolvency Act 1986 ("the Act") despite mental health concerns regarding Mr Djurberg (the "Bankrupt").
Following this case we can expect mental health, capacity and vulnerability to feature more prominently as issues which the Court take into account when considering whether to exercise their discretion to grant search and seizure orders.
Facts of the case
The Bankrupt failed to comply with his statutory duties to cooperate with the Trustees in accordance with sections 312 and 333 the Act. The Trustees believed that there was risk of dissipation, destruction and disposal of the property, books, papers and records of the Bankrupt which were required to assist in performing their functions.
The Bankrupt provided limited accounting information to the Trustees and excluded income and expenditure information. While still residing at his Swiss chalet home, the Bankrupt sold it to third parties. The Swiss chalet was an asset which vested in the Trustees and possibly contained vital evidence. In addition, assets belonging to the bankruptcy estate, valued at over £69,000, were sold by the Bankrupt to third parties.
There was evidence the Bankrupt had shredded documents, which helped to establish that there was a risk of destruction and that the Bankrupt was of bad character. In addition, two bank accounts frozen in criminal proceedings were not disclosed, one of which contained around £400,000.
The Bankrupt presented mental health evidence to try and prevent the search and seizure order from being made. The evidence was divided into two strands: serious depression with the mention of suicide, and lack of capacity. Although it was established that the Bankrupt did indeed have capacity, despite evidence being presented to the contrary, it was found that the Court still needed to consider the mental health issues that had been raised. The Trustees had to demonstrate that the granting of the search and seizure order would not cause harm considering the mental health evidence.
The Court decided that the facts of the case merited the exercise of its discretionary power to grant the search and seizure order. Following a review of all the evidence presented, the Court was comfortable in granting such order because it concluded that had the Bankrupt co-operated, the draconian powers being sought would not have been necessary.
The Court's decision sought to strike a balance between the interest of the bankrupt and the Creditors/Trustees. The High Court tipstaff attended the hearing and made clear he would execute the order himself and consider the specific guidance required in light of the mental health evidence. This ensured the scale of executing the order was appropriate and mitigated potential adverse mental health consequences for the Bankrupt.
This case highlights the factors the Court may consider before granting a search and seizure order and brings into focus the fact that mental health considerations and mental capacity may feature in those considerations and the decision to exercise the Court's discretion. Concerns regarding the mental health of the respondent do not negate the granting of such an order, however it has been made clear that the burden is on the trustees to demonstrate that safeguards protecting the mental health of the bankrupt should be put in place.
Michelmores has dedicated in-house expertise on mental capacity, led by Holly Mieville-Hawkins. If you have any queries in relation to mental capacity in an insolvency context, please don't hesitate to get in touch with our team.