We often handle cases where directors are facing depression and other mental health challenges related to bankruptcy and insolvency. Here is some information to bear in mind.
What is Mental Capacity?
Section 2(1) of the Mental Capacity Act 2005 sets out that a person lacks capacity (capability) with a certain matter if, at any relevant time, they cannot make a decision for themselves in relation to that matter due to a mind or brain impairment or dysfunction.
How Does This Impact Litigation?
In civil court proceedings and litigation matters, adult parties need to have mental capacity to conduct proceedings. Section 21 of the Civil Procedure Rules (CPR) sets out that those who do not have capacity are called a ‘protected party’.
Protected parties must have a ‘litigation friend’ before any party can progress proceedings. A litigation friend is someone appointed (by application or by court order) to fairly and competently represent a protected party on their behalf.
Given the nature of mental health and society’s growing understanding and knowledge, there are undoubtedly grey areas in cases where the capacity of a party to litigate is questionable.
In the insolvency world, recent court cases have extensively debated whether bankruptcy orders could stand depending on the medical facts and timelines of the respective situation. The medical issues in high profile cases involved parties with diagnoses of Alzheimer’s, dementia, bipolar disorder and schizophrenia.
Medical experts in these cases typically assess how seriously a party’s decision-making skills were diminished, if at all, at the relevant time as a result of their alleged or confirmed mental health issue. Judges will typically rely heavily on medical experts – some judges have annulled bankruptcy orders due to mental incapacity. Courts and judges will also assess the conduct of petitioning creditors if they are aware of a mental capacity issue.
What Insolvency Practitioners and Their Clients Should Watch Out For?
- Details matter! So do expert opinions when they are needed.
- Assess from the outset whether your client and/or associated parties understand what is needed to make or defend a claim. For example, do the relevant parties remember details of their financial situation? Are there any inconsistencies in explanations about how debts were accrued? Is there any significant confusion about any relevant matter?
If you suspect capacity may be an issue, you should document matters meticulously and, where appropriate, consider seeking an expert medical opinion and consider involving family members or carers.
- Be aware that matters relating to mental health will require a delicate balance of commercial reality, human compassion, and protecting a client’s interests and providing the best possible service in a legally compliant manner. Nobody expects their insolvency practitioner to be a mental health expert, but we are required to be aware of these issues at a high level and knowing when a case needs additional support to achieve the best outcome for all involved.
- If you or your business are involved in insolvency litigation and you have a concern about mental capacity of any party, please do raise it with your practitioner!
The team at NavigateBR has experience in cases involving mental capacity. If you have any questions or would like any help, please do not hesitate to contact us.
Leave a Reply