Matrimonial home – Sham transaction – Bankrupt’s estate vesting in trustee – Appellant purportedly transferring property to wife prior to bankruptcy – Respondent appointed as trustee in bankruptcy — Respondent seeking to set aside property transfer – Judge finding transfer devoid of legal effect — Full beneficial interest in property vesting in respondent as asset of appellant — Whether transitional provisions under section 283A of Insolvency Act 1986 applicable – Appeal dismissed
The first appellant was made bankrupt in 1995 and the respondent was appointed as his trustee in bankruptcy. Five years earlier, the first appellant had purported to transfer his interest in his home to his wife, the second appellant, as a gift. However, he had forged her signature and those of witnesses on the transfer form.
The respondent applied for the transaction to be set aside, under section 339 of the Insolvency Act 1986, but did not issue proceedings until October 2007. A trial before the registrar was held in November 2009.
Under section 283A of the 1986 Act, which was introduced by section 261 of the Enterprise Act 2002, a trustee in bankruptcy had three years from the date of the bankruptcy in which to decide what, if anything, to do about any interest in the home of the bankrupt or that of his spouse or civil partner. If within that three-year period, the trustee did not take action of the kind specified in the section, the bankrupt’s former interest would cease to be part of his estate and would vest in the bankrupt. In the instant case, the first appellant had not informed the official receiver or the respondent of his interest in the property before the end of the transitional period.
The registrar found that although the transaction was a sham and/or a transaction at an undervalue, the respondent was not entitled to any relief because of his delay in bringing proceedings. Mann J allowed the respondent’s appeal against the decision, finding that the transfer was devoid of legal effect: see [2010] EWHC 1033 (Ch); [2010] BPIR 1210. At a separate hearing, he considered the relief to be granted to the respondent following his successful claim to set aside the transfer. The appellants submitted, inter alia, that even accepting that the first appellant’s beneficial interest in the property had always been part of his bankrupt estate, or had become so under section 339 of the 1986 Act, it had ceased to be so after a period of three years and now vested in the first appellant under section 283A. The court rejected that argument and ordered the property to be sold with vacant possession: see [2010] EWHC 1059 (Ch); [2010] BPIR 1210. The appellants appealed.
Held: The appeal was dismissed.
Section 283A(2) made it clear that before an interest in property could vest in the bankrupt it first had to be comprised in the bankrupt’s estate, as was apparent from the juxtaposition of section 283A(2)(a) and (b). Pursuant to section 283A(3), the trustee might apply to the court for an order for sale or possession or for a charging order. A trustee could apply for such an order together with his proceedings under section 339, which is what the respondent had done in the proceedings of October 2007. Accordingly, section 283A(3) showed that the interest referred to in section 283A(1) was an interest that, at the relevant time, was comprised in the bankrupt’s estate and did not include a possible claim to recover such an interest for the benefit of the creditors, whether under section 339 or under any other equivalent provision.
The straightforward reading of section 283A(2) was to take it consistently with section 283A(1) and to hold that it was concerned only with an interest in the relevant home that not only was at the date of the bankruptcy the sole or principal residence of a relevant person but where the interest was also at that date vested in the bankrupt and accordingly became part of the bankrupt’s estate by virtue of the direct operation of section 283(1)(a). That was also consistent with the natural reading of section 283A(5), which dealt with the situation where the bankrupt did not inform the official receiver or the trustee in bankruptcy of his interest in the relevant property before the end of the period of three months beginning with the date of the bankruptcy.
The interest with which section 283A(1) was concerned was one that was part of the bankrupt’s estate because it was vested in the bankrupt at the beginning of the bankruptcy. It did not include an interest in property that was at the current time vested in a third party, even if it might be recovered for the benefit of the estate by proceedings under section 339 or a similar provision. Correspondingly, the trustee in bankruptcy did not become aware of such an interest for the purposes of section 283A(5), unless the interest of which he became aware was one that was already vested in the bankrupt estate because it had been vested in the bankrupt at the beginning of the bankruptcy.
James Mather (instructed under the Bar pro bono scheme) appeared for the appellants; Stephen Davies QC and Richard Ascroft (instructed by Ashfords LLP, of Exeter) appeared for the respondent.
Eileen O’Grady, barrister
