Insolvency – Trustee in bankruptcy – Vesting order – Surplus – Deceased’s estate being administered as insolvent estate in bankruptcy – Trustee disclaiming assets – Assets subsequently realised to create surplus – Trustee applying for vesting order – Whether trustee entitled to vesting order in relation to surplus – Application dismissed
The deceased died in December 2014. Her estate was being administered by the claimant trustee as an insolvent estate in bankruptcy under the Administration of Insolvent Estates of Deceased Persons Order 1986. The Deceased owned some 27 properties. In about February 2016, 24 of those properties appeared to be in a situation of negative equity (in that sums secured over them by way of charge exceeded their then value), as well as being subject to tenancies, with ongoing obligations on the landlord. Receivers having been appointed in relation to certain of the properties, the claimant disclaimed about 20 of them as “onerous property”.
Two of the properties were freehold, subject to charges in favour of a bank. In 2018, the bank sold both properties and, after discharge of the debts, the sale realised a surplus of some £19,000. If that sum were to be received into the insolvent estate, the projected dividend for creditors would become 33p in the pound rather than 26p in the pound. Therefore, the claimant applied for the surplus to be vested in him pursuant to section 320 of the Insolvency Act 1986.
The claimant argued that the surpluses in question were in effect not claimed by anyone and that justice required that they should be vested in him for the benefit of the creditors of the deceased.
Held: The application was dismissed.
(1) The claimant had no standing to apply for a vesting order. it was clear from the legislative scheme that section 320(2)(a) was referring to a person who at the time of the application in fact had (or at the very least claimed, for example in relation to a proprietary estoppel) a proprietary interest in the asset in question and not simply someone who was interested in a much looser legal sense in the asset. So far as the statutory scheme was concerned that was confirmed by the existence of section 320(2)(b) and (c) which would be unnecessary if section 320(2)(a) was given a wide reading beyond an existing proprietary interest, the link between section 320(2)(a) and 320(3)(a) and the use of “interest” in section 315(3)(a) (which in any event would mean that the trustee could not fall within section 320(2)(a) whatever “interest” meant): Hindcastle Ltd v Barbara Attenborough Associates Ltd [1996] 1 EGLR 94 applied. Hill v The East and West India Dock Company (1884) 9 App. Cas. 448 considered.
(2) There was a further complication in that the properties which were disclaimed were freehold property. The power of the court under section 320 was to vest those freehold properties in a proper applicant for the vesting order. However, that was not possible or appropriate in any event because the property had since been sold to a third party and it would not be realistic to assume that the court would now make a vesting order in favour of any applicant under section 320 in relation to the properties themselves (unless perhaps the current owners).
When land was subject to escheat the freehold title simply determined and the Crown became the owner of the land in question freed from the previous freehold interest, without any action on the part of the Crown to bring about that result. However, such automatic vesting did not result in the land in question becoming part of the Crown Estate under the management and responsibility of the defendant commissioners. There were three possibilities by which freehold title to the land might be dealt with after a disclaimer: (a) The Crown might create a new freehold title; (b) A chargee/mortgagee might apply for a vesting order; or (c) The mortgagee might have relied upon its existing proprietary interest in the properties and section 315(3) of the 1986 Act preserving its rights and interest as would be applicable if the freehold interest remained in being. In the absence of any vesting order and on the assumption that the third of the alternatives was adopted in the present case, the prima facie position would be that the entitlement to the surpluses in this case would have vested in the Crown. However, there was no locus on the claimant to apply for a vesting order in relation to such surpluses. Accordingly, the unsatisfactory position was that had a vesting order been sought and obtained by the mortgagee in this case the likelihood was that the surplus could have been ordered to be paid to the claimant for the benefit of creditors, exercising the discretion described in Lee v Lee [1999] BPIR 926 to direct, with the mortgagee’s consent, that the surplus should be paid to the trustee. However, notwithstanding that neither the Crown nor the mortgagee wished to assert a claim to the money, the court could not order that the surplus was paid to the claimant. The likely result was that the money would languish with and be held by the court funds office for an indefinite period: Scmlla Properties v Gesso Properties (BVI) Ltd [1995] BCC 793, LBC v Crown Estate Commissioners [1996] BPIR 428, Lee v Lee [1999] BPIR 926 and Hunt v Withinshaw [2015] EWHC 3072 (Ch); [2015] PLSCS 299 considered.
(3) By virtue of rule 19.11 of the Insolvency (England and Wales) Rules 2016, an application for a vesting order under section 320 had to be made within three months of the applicant becoming aware of the disclaimer of receiving a copy of notice of disclaimer delivered under certain earlier rules. There was power to extend the time under section 376 of the 1986 Act and the 2016 Rules. In the present case, it was said that the trustee acted promptly when he found out about the surpluses in question. However, in light of the court’s conclusions as to the locus of the trustee, there was no point in extending time: WH Smith Ltd v Wyndram Investments Ltd [1994] 2 BCLC 571 considered.
James Malam (instructed by LCF Law, of Leeds) appeared for the applicant; The respondents did not appear and were not represented.
Eileen O’Grady, barrister
