Only those to whom a trustee in bankruptcy owes a duty have standing to challenge any act, omission or decision by the trustee by application to court under section 303(1) of the Insolvency Act 1986.
The Supreme Court has considered the meaning of section 303(1) of the 1986 Act in Brake and another v Chedington Court Estate Ltd [2023] UKSC 29.
The case was part of long-running litigation and concerned a cottage owned by a partnership between Mr and Mrs Brake and Mrs Brehme which carried on an accommodation and events business at West Axnoller House. The cottage was used by the Brakes when the house was let.
The Brakes were adjudicated bankrupt and a trustee in bankruptcy (TIB) appointed in July 2015. The partnership subsequently went into administration and liquidation. The house and land were sold by receivers of the partnership and subsequently acquired by Chedington who gave the Brakes notice to quit.
The Brakes and Chedington both sought to purchase the cottage from the liquidators of the partnership. Chedington’s higher bid was preferred.
The liquidators were unwilling to apply for a court order for possession of the cottage and so it was agreed that the TIB would purchase the cottage with funds lent by Chedington and sell it to Chedington, making the necessary court application to obtain clean legal title. Chedington took possession of the cottage in January 2019.
The Brakes issued an application under section 303 of the 1986 Act alleging that the TIB had wrongfully enabled Chedington to interfere with their right of possession of the cottage. Chedington succeeded in striking out the application in the High Court, but the Court of Appeal decided that in their personal capacity the Brakes had standing to bring the claim.
The Supreme Court unanimously allowed the appeal. An applicant has standing under section 303(1) of the 1986 Act only where a duty is owed, which is limited to: creditors where the application concerns their interests; the bankrupt or contributories where there is/ likely to be a surplus; and those whose rights/interests are directly affected by powers conferred by the statutory regime.
The Brakes did not have any legitimate interest in the relief sought because their possessory rights to the cottage were unconnected to their position as bankrupts. Their challenge was to the action of the TIB as persons in possession of the cottage, not as bankrupts.
It was contrary to principle for a person to whom a duty is not owed to be able to seek relief for breach of that duty.
Louise Clark is a property law consultant and mediator
