Bankruptcy — Residential property — County court making charging order absolute over bankrupt’s property in favour of trustee — Trustee applying for order for sale after 12 years — Whether Limitation Act 1980 barring trustee from obtaining relief — Whether trustee’s claim falling within bankruptcy exception to limitation — Appeal allowed
In 1988, the appellant became bankrupt. The respondent was appointed as his trustee in bankruptcy. The respondent obtained a charging order nisi over a residential property that had been registered in the names of the appellant and his partner. The property was thereby removed from the estate and vested in the appellant subject to the charging order, pursuant to section 313(1) and (3) of the Insolvency Act 1986. In 1992, the county court made the charging order absolute, charging the appellant’s interest in his estate in favour of the trustee. The appellant was subsequently discharged from bankruptcy.
In 2004, after more than 12 years, the respondent applied for an order for the sale of the property with vacant possession and for directions as to the payment of the proceeds of sale. In 2005, he applied to amend that application. The appellant argued that since more than 12 years had elapsed between the making of the charging order and the application for sale, the trustee was barred from obtaining any substantive relief by virtue of section 20 of the Limitation Act 1980, under which no action was to be taken after the expiration of 12 years from the date upon which the “right to receive the money had accrued”.
The master held that the 1992 charge was not statute barred and the appellant appealed.
Held: The appeal was allowed.
The right to receive what was secured by a charge arose concurrently with the charge. Thus, a “right to receive” within section 20 had arisen when the 1992 charge had been entered into, and was still fully enforceable, despite the appellant, as chargor, having owed no debt to the respondent, as chargee, immediately prior to the charge. Moreover, the respondent’s claim did not fall into the “bankruptcy exception” to the ordinary application of limitation since it was not a claim in the bankruptcy but in respect of property vested in the appellant by virtue of section 313(3) of the 1986 Act. Although the respondent’s rights against the property under the 1992 charge had been created in consequence of the bankruptcy, they were rights “unaffected” by the bankruptcy just as other rights of secured creditors: Hornsey Local Board v Monarch Investment Building Society (1890) LR 24 QBD 1 applied; West Bromwich Building Society v Wilkinson [2005] UKHL 43; [2005] 27 EG 221 (CS) considered.
Unlike the position under commercial mortgages or charges, which were likely to provide for sums becoming due at specified times and upon certain events or defaults, in the present case, the respondent had no immediate right to require payment of any sum from the appellant. Other than by way of court proceedings, the respondent’s role was passive, until the appellant sold or transferred the charged property. In ordinary English, a right to receive was not coincident with an ability to receive, nor was it the same as a present right to enforce payment.
Where a claim could have been brought but was not, this militated in favour of limitation barring the claim. At any time after 1992, the respondent could have applied to the court for sale or possession and there appeared to be no good reason why he had not done so.
Daniel Stacey (instructed by Budd Martin Burrett, of Chelmsford) appeared for the appellant; Alexander Learmonth (instructed by BTMK Solicitors LLP, of Southend-on-Sea) appeared for the respondents.
Eileen O’Grady, barrister
