Emma RadmoreThe Court of Appeal has published its judgment in a case involving bankruptcy order following a loan entered into under coercion.
Mr H was a longstanding friend and business associate of Ms M’s then partner (Mr C). He lent Ms M £200,000 for 2 years at an interest rate of 20% secured against her house, to fund the development of several new build properties. The project didn’t proceed as hoped, and when Ms M didn’t repay the loan, Mr H obtained a money judgment against her and an order for possession of the property. He then petitioned the court for her bankruptcy on the basis of the judgment debt and that around £130,000 was outstanding after enforcement proved unsuccessful. The bankruptcy order was made in June 2025, and at the time the judge declined to go behind the judgment debt and therefore rejected Ms M’s claim that a properly conducted judicial process would have shown the loan agreement to be voidable for undue influence or duress, and/or that the relationship was unfair under the CCA, or both. The reason given was that Ms M had been made to sign the agreement because of her then partner’s coercive and controlling behaviour.
On appeal, the judge noted that there was no reason a court asked to make a bankruptcy order could not look at the circumstances behind the application. to ensure that a bankruptcy is not instituted in circumstances that amount to injustice.
The judge found as a fact that Ms M had been compelled to enter into the agreement as a result of Mr C’s coercive and controlling behaviour. Mr C had produced a witness statement but the judge considered Mr H had taken a deliberate decision not to call him to give evidence. As a result, the judge placed no weight on the witness statement.
The regulatory question to be decided was whether or not the loan agreement was an exempt agreement for FSMA purposes and, if it was, whether that precluded the success of an unfair relationship argument under the CCA. Originally, the court decided that this meant there could be no order under s140A-C CCA, because of s140A(5) which says no order can be made in connection with a credit agreement which is an exempt agreement. But it specifies that this is where the exemption is because of Article 60C(2) RAO, whereas in this case the agreement was exempt because of Article 60C(3).
On appeal, the court found that an agreement that was exempt because of Article 60C(3) could properly fall within scope of the unfair relationship provisions of the CCA.