Bankruptcy — Delay in obtaining order for sale of bankrupt’s property — Whether subsequent application for order contravening bankrupt’s rights under Article 6(1) of European Convention on Human Rights — Correct statutory basis for application — Appeal dismissed
The defendant acquired a leasehold property in 1994 with the assistance of a mortgage. In 1995, a bankruptcy order was made against him, with the Official Receiver acting as his trustee in bankruptcy. Following a collapse in the property market, the value of the defendant’s property at that time was less than the sum secured by the mortgage, and consequently the official receiver had no incentive to sell it for the benefit of creditors. The defendant continued to live at the property and to pay mortgage instalments out of his earnings. He received an automatic discharge from bankruptcy in 1998.
In 2004, with bankruptcy debts still outstanding, the claimant was appointed as a replacement trustee in bankruptcy. The property therefore became vested in him. In 2005, the claimant sought a declaration that the property was so vested and for an order that it be sold with vacant possession, the proceeds to be paid to him for the benefit of the creditors. He proceeded on the basis that he was a “person who is a trustee of land or has an interest in property subject to a trust of land”, within section 14(1) of the Trusts of Land and Appointment of Trustees Act 1996. By that time, the value of the property had recovered to a point where, if sold, the proceeds would probably enable the mortgage to be redeemed and the bankruptcy debts to be repaid in full. The claim was allowed, and the defendant’s appeal was refused.
On a second appeal, the defendant contended that the making of the order for sale contravened his rights under Article 6(1) of the European Convention on Human Rights in the light of the delay in administering his bankrupt estate and in taking steps to realise his interest in the property. He argued that the breach of his Article 6 rights was an “exceptional circumstance” within the meaning of section 335A(3) of the Insolvency Act 1986, sufficient to rebut the presumption that the court should consider only the interests of creditors when deciding whether to make an order for sale.
Held: The appeal was dismissed.
(1) The defendant’s reliance upon section 335A was misconceived. A trustee in bankruptcy, although called a trustee, was not a trustee of the assets comprised in the estate for the creditors of the bankrupt. Instead, he or she held those assets subject to statutory duties to liquidate them and distribute the proceeds in satisfaction of the debts pari passu and any surplus to the bankrupt. Accordingly, the application for an order for sale had fallen to be made under section 363(2) of the 1986 Act, not section 14 of the 1996 Act, and section 335A of the 1986 Act was not engaged. Even if section 335A had applied, it would not have assisted the defendant, since section 335A(ii)(c) excluded the needs of the bankrupt from consideration and there was no evidence of anyone other than him and his creditors having any interest in the property.
(2) Article 6 was not otherwise capable of conferring any defence to the claimant’s claim for possession and sale of the property. The administration of a bankrupt’s estate was not a process that resulted in the determination of his “civil rights and obligations” within Article 6(1), but was a process whereby his assets were gathering in, liquidated and applied for the benefit of his creditors, with any surplus being returned to him: Mitchell v United Kingdom 44808/98 (2003) 36 EHRR 52 distinguished. The defendant had had no right to occupy the property enforceable against the trustee at any time after the commencement of the bankruptcy and the vesting of the property in the official receiver and, later, the claimant. As against the defendant, the trustee’s right to possession and sale of the property had, at all times since the bankruptcy, been unchallengeable. A criticism could not be made of a delay in taking steps to realise the property at a time when its value did not produce an equity over the amount secured by the mortgage, and given that, as a result, the creditors might now receive payment in full of their debts. The trustee’s duty was primarily to the creditors.
(3) To the extent that the defendant had, after his discharge from bankruptcy, paid off the mortgage debt and interest, he was entitled to be subrogated to the mortgagee’s security, but he would have to give credit for a notional rent in respect of his occupation of the property over the same period. There would have to be an equitable accounting, and, to the extent that such accounting showed a credit to the defendant, he would be entitled to receive that amount from the proceeds of sale of the house ranking equally with the mortgagee: Re Byford (Deceased) [2003] EWHC 1267 (Ch); [2004] 1 P&CR 12 applied.
Gary Pryce (instructed by Judge Sykes Frixou) appeared for the claimant; Duncan Macpherson (instructed by Johnson Silllett Bloom) appeared for the defendant.
Sally Dobson, barrister
