Some judges dealing with Bankruptcy cases over the years took the view that a Bankruptcy Petitioner brought his action on behalf of all creditors and not just himself and so costs did not necessarily follow even if the petitioner was successful, and the debt was paid. A recent High Court case, in December 2022, in effect overturned this practice and now a debtor must also pay all the costs of a Bankruptcy petition against him even where the debt is paid off at an early stage.
In this case the Revenue Commissioners had a judgement against a solicitor and issued a Bankruptcy summons in 2019 to enforce the debt. The Bankruptcy action dragged on for some years and in 2022 the debt was finally discharged but an argument ensued about who should be liable for the costs of the Bankruptcy proceedings to date although the debt itself had been fully paid.
The Revenue pointed to a 2011 case, MCR Personnel, where a plaintiff obtained a money judgement and then proceeded to bring a petition to wind up the debtor company. The debt was subsequently paid, and the Petition was withdrawn. It was found here that the debtor company should pay the costs of the proceedings to date even where they were withdrawn following payment.
The Court found in the Revenue case that Bankruptcy was clearly a civil proceeding and as such the well-established principle of costs following the event was fully applicable. The judge agreed with the MCR case and said the full payment of the debt owed was an event after which costs should be awarded. As the debt in question had been fully paid then, by any objective standard, the Petitioner had won the day and should be awarded his costs.
It should be noted that the court always has a discretion on costs but in future the discharge of a debt will result in a costs order against the debtor even where the Bankruptcy Petition was not fully prosecuted.
So, the Revenue recovered their legal costs of the Bankruptcy action as it went through the courts on top of the debt or taxes owed. This would have added a considerable sum to the original taxes owed as the unfortunate debtor now has to contemplate two separate sets of costs on top of the taxes due. It would be helpful if solicitors could bring this to the attention of any clients against whom a Wind-Up petition is brought.
Howley (Collector General of Taxes) v Lohan [2022] IEHC 694