Bankruptcy – Realisation of interest – Deferred consideration – Respondent couple registered as joint tenants of matrimonial home – Trustees in bankruptcy selling first appellant’s interest to creditor for consideration of £1 plus percentage of net proceeds in event of future sale – Section 283A(2) and (3)(a) of Insolvency Act 1986 – Whether first appellant’s interest automatically reverting to him three years after date of bankruptcy – Whether reversion prevented by realisation of interest in meantime – Whether sale for deferred consideration a realisation – Appeal allowed
The appellant married couple owned the matrimonial home as registered joint tenants. A bankruptcy order was made against the first appellant, whereupon his interest in the property vested in his joint trustees in bankruptcy. The respondent was a creditor in the bankruptcy. The trustees investigated the extent of the first appellant’s interest in the property, but were faced with the second appellant’s assertion that she was entitled to the entire equity pursuant to an equity of exoneration. The joint trustees disputed that claim but did not want to incur the expense of seeking an order for sale. Accordingly, they entered into a deed under which they assigned the estate’s interest in the property to the respondent in consideration of a payment of £1 and 25% of the net proceeds should the respondent sell the property.
The appellants subsequently applied to the court for a declaration that the first appellant’s interest in the property had automatically reverted to him by virtue of section 283A(2) of the Insolvency Act 1986, since it was his sole or main residence and the trustees had not, within three years of the bankruptcy, realised the interest within the meaning of section 283A(3)(a) or taken any of the other steps referred to in section 283A(3). They contended that realisation required a sale for an immediate monetary consideration, payable and actually paid within the three-year period, not merely a contingent, deferred entitlement to payment such as the trustees held under the arrangement with the respondent. Dismissing the application, the judge held that a sale for a deferred consideration was a realisation for the purposes of the Act: see [2008] EWHC 2760 (Ch); [2009] 09 EG 198. The appellants appealed.
Held: The appeal was allowed.
The word “realise”, construed by reference to its ordinary meaning and the surrounding context of the 1986 Act, did not encompass a sale for a deferred consideration. Although an undefined term did not have to bear the same meaning throughout an Act, it was likely to do so. In other provisions of the 1986 Act, the word “realise” was used in the sense of turning the realised property into distributable or useable cash; this was consistent with the ordinary meaning but was inconsistent with part of the value of the property being left outstanding in an unfulfilled monetary or other obligation: Re Oxford Benefit Building & Investment Society (1887) LR 35 Ch D 502 and Board of Trade v Block (1888) LR 13 App Cas 570 considered.
That construction was supported by the overall purpose of section 283A as a “use it or lose it” provision: Re Byford (deceased) [2003] EWHC 1267 (Ch); [2004] 1 P&CR 12 considered. Where a property was co-owned and the interest that belonged to the bankrupt’s estate had significant value, the scheme of the Act provided for trustees in bankruptcy to take various steps to obtain the equivalent value of the property at that time. It did not permit them to hold onto the property as co-owner, in the hope that the value of the property would increase. Such a scheme achieved a reasonable degree of certainty for the bankrupt and the co-owner in that, by the end of the third year, they would know whether the property had to be sold; how much the trustee would receive from it; that the trustee would no longer be a co-owner; and the opportunity to make money from a rising market would not remain with the trustee, but would enure to the benefit of the bankrupt, the co-owner or some other assignee. A sale of the beneficial interest in exchange for a future price would not fit into that scheme since it would create the very uncertainty that the scheme sought to remove. Accordingly, such a transaction did not qualify as a realisation within section 283A(3)(a). A realisation involved obtaining the full cash consideration for the deal and, while a trustee in bankruptcy had the power to sell for a deferred future consideration, the realisation would take place only once all the cash had been received.
Stephen Davies QC and Stephen Schaw Miller (instructed by Edwin Coe LLP) appeared for the appellants; John Briggs (instructed by Mishcon de Reya) appeared for the respondent.
Sally Dobson, barrister
