Practice and procedure – Trustee in bankruptcy – Order for sale – Appellant trustees in bankruptcy seeking order for sale of property – County court holding no jurisdiction to make order – Appellants appealing – Whether application properly made under Insolvency Rules 2016 – Whether exceptional circumstances outweighing interests of bankrupt’s creditors – Appeal allowed
The appellants were the first respondent’s joint trustees in bankruptcy. The only substantial asset was his half share in a property at 2, Tremola Avenue, Brighton, which he and the second respondent (his wife) owned as joint tenants, subject to a mortgage.
The appellants applied for an order for the sale of the property under section 335A of the Insolvency Act 1986, which authorised the court to make such an order on an application by a trustee in bankruptcy. However, the county court dismissed the application, on the basis that the application had been made by application notice issued under the Insolvency Rules 2016 when, he held, it should have been made by a Part 8 claim form issued under the Civil Procedure Rules (CPR).
Accordingly, the judge held that he had no jurisdiction to make an order for sale, or an order for possession pending sale. However, he made a declaration that the property was vested in the trustees, on the footing that that part of the relief was properly sought by the application notice and within his jurisdiction.
The appellants appealed contending that there was nothing wrong with their application notice; and even if the application should have been brought by way of Part 8, that was at most an irregularity which the judge should have allowed them to correct, as it had not caused any prejudice or injustice to the respondents.
Further, the appellants argued that the court should itself exercise the discretion under section 335A, and make an order for possession and sale, as there were no “exceptional circumstances” within the meaning of that section to justify making any other order.
Held: The appeal was allowed.
(1) Section 335A of the 1986 Act was introduced by section 25 of and schedule 3 to the Trustees of Land and Appointment of Trustees Act 1996. By virtue of section 6 of the 1996 Act, the trustees of land had all the powers of an absolute owner, and so, subject to the Act, they had the power to sell and obtain vacant possession of the property, and obtain an order for possession and sale under section 14 for that purpose. Save where the law provided to the contrary, such an application was to be made by claim form under the CPR.
However, section 412 of the 1986 Act provided that the Lord Chancellor, “may …. in the case of rules that affect procedure, with the concurrence of the Lord Chief Justice, make rules for the purpose of giving effect to Parts 7A to 11 of the 1986 Act”. Section 335A was in Part 9 of the Act, and therefore the rules were evidently intended to apply to it. Those rules were now the Insolvency Rules 2016 which included rule 1.35, which explained how to bring an application under Parts 7A to 11, which included an application under section 335A.
That was the natural reading of the material wording of section 335A, i.e. “Any application ….. shall be made to the court having jurisdiction in relation to the bankruptcy”. It made good sense that the court’s attention should be drawn, at the point of issuing the proceedings under section 335A, to the fact that the application was one against a bankrupt, as provided for specifically in rule 1.35, so that the court could immediately identify that the claim related to a bankrupt and add it to the court file relating to him to ensure that all questions relating to the bankruptcy were contained and could be found in one file, rather than in a number of different ones. Accordingly, the appellant’s appeal against the judge’s order succeeded on that ground alone: Pickard v Constable [2018] BPIR 149 and Bell v Ide [2021] 1 WLR 1078 considered.
(2) Even if the application under section 335A should have been issued under the CPR, that would not have deprived the judge of jurisdiction to deal with the matter. He was sitting in the county court and had the matter before him. As such he had power under CPR rule 3.10 to correct “an error of procedure such as a failure to comply with a rule or practice direction” by ordering that the proceedings, albeit initiated in the wrong form, should continue subject to its being corrected.
(3) The first respondent was released from his bankruptcy on 21 November 2018, one year after the order. However, that did not oust the appellants’ powers under section 335A. Section 281(1) of the 1986 Act provided that the effect of discharge was to release the bankrupt from all the bankruptcy debts, but it had no effect on the functions (so far as they remained to be carried out) of the trustee of his estate. In particular, discharge did not affect the right of any creditor to prove in the bankruptcy for any debt from which the bankrupt was released. Section 281, like section 335A, was in Part 9 of the 1986 Act, and therefore the first respondent’s discharge did not have any effect on the operation of section 335A for the purpose of carrying out the appellants’ functions.
(4) It would be inappropriate to remit the matter to the county court. There had already been substantial delay because of the appeal, and to remit the matter would only result in further delay, to the unjustifiable prejudice of the appellants. On the evidence before the court, it was in as good a position as a judge would be on remission to form a view on the appropriate order to make.
(5) There were no exceptional circumstances for the purposes of section 335A to justify not making an order. Although eviction from the house would be disruptive and distressing for all the respondent’s family, those were the usual consequences of any order, and were not sufficient to amount to exceptional circumstances. In particular, it was not enough that the realisation of the spouse’s beneficial interest would not produce enough to buy a comparable home. Accordingly, it would be appropriate to make an order for sale of the property: Dean v Stout (Trustee in Bankruptcy of Dean) [2005] BPIR 1113 considered.
Mairi Innes (instructed by Boyes Turner LLP, of Reading) appeared for the appellants; The respondents were represented by the first respondent.
Click here to read a transcript of Gostelow and another (as joint trustees in bankruptcy) v Hussain and others
