Insolvency – Bankrupt’s estate – Legal charge – Section 313(1) of the Insolvency Act 1986 – Claimant trustee in bankruptcy applying for charge over property of defendant bankrupt on basis of inability to dispose of property – Whether claimant satisfying court of inability to realise property – Application granted
A bankruptcy order was made against the defendant on a petition presented by HMRC claiming to creditors in the sum of just over £112,000. P’s application to annul that order was dismissed and permission to appeal against that decision refused. The claimant trustee in bankruptcy filed an application seeking a charge on a property in Enfield said to have vested in the defendant bankrupt’s estate. The claimant’s first report in support of his application said that the defendant had an interest in the property that was valued at £60,000, there were unsecured creditors with claims amounting to £113,500 and the claimant had been unable to dispose of the defendant’s interest in the property. Since there was no information as to why he had been unable to dispose of the property, the application was adjourned for better evidence to be produced.
The claimant’s second report explained that he had been unable to dispose of the property because the defendant had made a complaint to the petitioner’s adjudicator and no information had been forthcoming regarding the progress of that complaint and, if it was upheld, it might have a bearing on the petitioner’s claim in the bankruptcy. Further, any application for possession and sale of the property would be contested and would be disproportionate in the circumstances. A question arose whether the reasons put forward by the claimant were sufficient to constitute inability for the time being to realise the property within the meaning of section 313(1) of the Insolvency Act 1986.
Section 313(1) provided: “Where any property consisting of an interest in a dwelling house which is occupied by the bankrupt or by his spouse or former spouse [or by his civil partner or former civil partner] is comprised in the bankrupt’s estate and the trustee is, for any reason, unable for the time being to realise that property, the trustee may apply to the court for an order imposing a charge on the property for the benefit of the bankrupt’s estate”.
Held: The application was granted.
(1) The importance given to section 313 of the 1986 Act, as a means of protecting the interests of creditors in the family home, could be seen in section 332. Under that section, in the event of the bankrupt’s interest in the property not being realised for any reason, the final meeting of creditors under section 331 could not be summoned, unless the court had considered an application under section 313 for a charge on the bankrupt’s home; or alternatively, unless the secretary of state had issued a certificate to the trustee, under section 332(2)(c), stating that it would be inappropriate or inexpedient for such an application to be made in the case in question. Accordingly, failure by the trustee to make an application under section 313, or to obtain such a certificate from the secretary of state, would prevent the summoning of a final meeting and the subsequent vacation of office by the trustee, pursuant to section 298(8).
(2) Lack of funds was a factor in the present case, any application would be likely to be contested in the circumstances of the case and an application of this kind was expressed to be an alternative to an application for possession and sale. It was not necessary to demonstrate that it would be impossible to realise the property: inability contemplated something that fell short of that. Furthermore, the possibility of an application failing did not need to be limited to a case in which exceptional circumstances might be argued or demonstrated. That conclusion was supported by the use of the phrases “for any reason” and “for the time being” in section 313(1) itself. The first phrase implied a range of possible matters that might give rise to inability to realise property; the second phrase implied that that range of possible matters might include temporary impediments to realisation. The matters on which the claimant relied fell within the ample range of impediments, whether permanent or temporary, implied by the wording of section 313(1). Accordingly a charge would be imposed on the property for the benefit of the bankrupt’s estate in the sum sought.
Janet Hallamore (Assistant Official Receiver) appeared for the claimant; The defendant did not appear and was not represented.
Eileen O’Grady, barrister
