Bankruptcy — Trustee — Bankrupt and business partner trading as property developers through company — Trustee in bankruptcy, partner and company compromising dispute over beneficial ownership of properties by settlement deed — Company entering into members’ voluntary liquidation — Trustee in bankruptcy seeking indemnity for reasonable remuneration, costs and expenses of realising properties — Whether terms of settlement deed precluding claim for period prior to it coming into effect – Application granted in part
T and his partner (G) carried on business as property developers through the second respondent company, which had been incorporated for that purpose. Each of them became a director holding one share. They acquired a number of properties, most of which had been purchased in the names of one or both of them with the aid of mortgage finance advanced to them personally.
In 2004, T resigned as a director and the second respondent was thereafter controlled by G. T was declared bankrupt in May 2006 and his share in the second respondent was vested in the applicant trustee as part of the bankruptcy estate. A dispute arose over the beneficial ownership of three properties; T maintained that the registered owners were also the beneficial owners while his partner claimed that the properties were beneficially owned by the second respondent.
The applicant sought an order for an indemnity for his reasonable remuneration, costs and expenses of the realisation of the three properties out of their net proceeds of sale. He needed to do so because, although the properties were vested in T’s name, they were all held on trust for the benefit of the second respondent so that they did not form part of the bankruptcy estate and the benefit of the applicant’s work had accrued to the second respondent rather than to the estate. The application was based on the jurisdiction identified in Re Berkeley Applegate (Investment Consultants) Ltd (No 1) [1989] 1 Ch 32, pursuant to which a liquidator might be remunerated and allowed expenses for work carried out in respect of dealing with property that did not constitute part of the assets of the company, with such remuneration being paid from the proceeds of the property in question.
The second respondent was in creditors’ voluntary liquidation. The first respondent liquidator said that such a claim was precluded by the terms of a settlement deed dated 24 September 2008, at least in respect of matters occurring prior to that date. Alternatively, the applicant’s claim in respect of matters before 8 October 2008, when the company went into liquidation, ranked as an unsecured claim in the liquidation. An issue also arose as to the scope of any Berkeley Applegate award; the liquidator contended that it should not extend to costs incurred in determining the beneficial interest in the properties held by the second respondent.
Held: The application was granted in part.
(1) The applicant’s entitlement to bring a Berkeley Applegate claim in respect of matters arising before the date of the settlement deed had not been compromised by the entering into that deed. Although the jurisdiction was to be exercised in respect of property in which an equitable interest subsisted and was to be enforced, it was not to be exercised only in favour of a party standing in the position of trustee with regard to that property. The claim for an allowance was a claim made by a party that had carried out work or incurred expenditure that benefited the beneficiary.
The claims compromised by the deed were those subsisting between the stated parties and those vested in the applicant or otherwise affecting the bankruptcy estate. The applicant’s personal claim for a Berkeley Applegate allowance did not fall within the terms of the settlement since, even if it could be said to be a claim “vested in the trustee” in the sense that he was the party entitled to bring it, it had never been a claim subsisting between T and the second respondent.
(2) With regard to the scope of the award, the plain language of the settlement could not be overcome by any inference to be drawn from the recital referring to the intention of the parties to compromise their various claims where one of the parties was the trustee. The extent of the compromise was to be determined from the operative provision and not from the recital, unless that were unambiguous. The allowance was discretionary and not circumscribed by precise rules.
In the instant case, the applicant had been pursuing an interest that was or could be adverse, to the interest of the true beneficiary, namely the second respondent. Further, if the applicant had not carried out that work, it would not have fallen on the liquidator to do so. At the time that element of the work had been undertaken, the second respondent was not in liquidation and the work of representing it as beneficially entitled to the properties was carried out on its behalf by: Berkeley Applegate and Re Eastern Capital Futures (in liquidation) [1989] BCLC 371 distinguished.
Since the allowance to be given was a matter of discretion, it would not be appropriate to make an allowance in respect of the applicant’s work in the investigation and negotiations in respect of the beneficial ownership of the properties as between the bankrupt and the company. The court was not saying that there could never be any circumstances in which an allowance could be given out of trust property in respect of work that would be recoverable from other sources, but it would be unlikely to be appropriate to make such an award if its effect was to subject the interests of the beneficiaries to the costs of advancing an interest that was adverse to their own.
(3) The allowance that the court gave in the exercise of the Berkeley Applegate jurisdiction did not create a personal claim against the beneficiary of the trust property. The exercise of the discretion created a proprietary interest in priority to that of the beneficiary whose equitable interest was to be enforced. If the trust property were insufficient, there could be no suggestion that the beneficiary would be personally liable to pay any shortfall. Nor could the beneficiary be entitled to the delivery of the property, leaving the fiduciary to enforce a personal claim against him for the remuneration and costs allowed to him by the court. Thus, in the instant case, once the court had made a Berkeley Applegate award to the applicant, the asset available to the liquidator in the winding-up of the company was the beneficial interest in the proceeds of sale of the properties after that award had been satisfied. No personal claim arose against the second respondent enforceable by proof in the liquidation.
James Morgan (instructed by Freeth Cartwright) appeared for the applicant; Peter Shaw (instructed by Howes Percival LLP) appeared for the respondents.
Eileen O’Grady, barrister