A bankrupt’s deliberate concealment of the existence of a statutory demand and bankruptcy proceedings from the family court may constitute exceptional circumstances such that the creditors’ interests are not paramount before the court considering an application to sell the bankrupt’s property. WhatsApp messages may be capable of satisfying section 53 of the Law of Property Act 1925 (which requires dispositions of property to be in writing and signed).
In Reid-Roberts and another v Mei-Lin and another [2024] EWHC 759 (Ch) the applicants were the joint trustees of the bankrupt second respondent’s estate. They sought various declarations concerning the former matrimonial home of the bankrupt including orders under section 335A of the Insolvency Act 1986 for immediate possession and sale.
Section 335 of the 1986 Act sets out the matters that a court should consider when deciding whether to make an order for sale. Where the application is made more than one year after the first vesting of the bankrupt’s estate in the trustees then, unless the circumstances of the case are exceptional, the interests of the bankrupt’s creditors shall outweigh all other considerations.
The former matrimonial home was located in Tufnell Park, London N19. The first respondent was the bankrupt’s former wife. At the time of the hearing she continued to live in the former matrimonial home with the son, 14, and daughter, 10, of the marriage and it was her sole source of income (two rooms being rented to lodgers). There was some doubt concerning the nature and extent of the bankrupt’s liabilities – his business affairs were somewhat opaque with significant sums relating to a business with a dishonest solicitor imprisoned for fraud.
The second respondent had been made bankrupt on 26 February 2020. This was just seven days before the Family Court made a property adjustment order under the Matrimonial Causes Act 1973 ordering him to transfer his interest in the former matrimonial home to the first respondent. The bankrupt had emailed the Family Court on five separate occasions between the presentation of the bankruptcy petition and the making of the bankruptcy order (mainly asking that the handing down of the judgment be postponed). He never mentioned the bankruptcy proceedings. Had the property adjustment order pre-dated the bankruptcy order the former matrimonial home would not have formed part of the bankrupt’s estate and the trustees would have no interest in the property capable of founding an order for possession.
The first respondent sought to argue that before the bankruptcy order was made the bankrupt had (through a series of WhatsApp messages) divested himself of his beneficial interest with immediate effect. The trustees’ argument that this issue should not be raised as there had been a previous admission and there was an issue estoppel was rejected. The “admission” (contained in a skeleton argument prepared when the first respondent had previously attempted to set aside the bankruptcy order) was on a matter of law and there was no issue estoppel as the parties and the proceedings were not the same. Nevertheless, the argument that there had been an immediate divesting of the interest failed. While the WhatsApp messages could satisfy the statutory formalities of section 53(1) of the 1925 Act as the parties were engaged in divorce proceedings at the time of the material communications any agreement had to be approved by the judge having conduct of the matter and recorded in the appropriate court order (Xydhias v Xydhias [1999]AER 386).
However, the circumstances of the case were exceptional such that the interests of the creditor should not be paramount. The bankrupt had in essence sabotaged the property adjustment order. Additionally, the impact his behaviour had on the mental health of the first respondent and her son went beyond the natural and sad consequences of every bankruptcy involving families with young children such that it too was exceptional. Considering all the factors it was not reasonable to make an immediate order of possession. The equities lay with the first respondent and her children and the court did not believe that the creditors would suffer great hardship by being denied the order sought. Sale would be deferred until after midnight 31 July 2032 (being the summer after the first respondent’s daughter turns 18).
Elizabeth Haggerty is a barrister