Where trustees in bankruptcy act perversely, their decisions can be reversed or modified, the High Court has confirmed, ordering trustees in bankruptcy to join eviction proceedings in the Court of Appeal, against their wishes, in Patley Wood Farm LLP and others v Kristina Kicks and another [2022] EWHC 2973(Ch).
The proceedings in the Court of Appeal are between the bankrupts, Nihal Brake and Andrew Brake, and the third applicant, the Chedington Court Estate Ltd, and concern West Axnoller Cottage. The first and second applicants are creditors of the Brakes claiming 60% of the debts due in the bankruptcies. In October 2022, the Court of Appeal allowed the Brakes’ appeal against the recovery of possession of the cottage by Chedington, which had contracted with the Brakes’ then trustee in bankruptcy, Mr Swift, to purchase the cottage. They also held a licence to occupy it, granted by Swift.
The remaining appeal concerns the Brakes’ entitlement to damages and a possession order of the cottage. The Court of Appeal directed that, if so advised, the trustees should apply to join the proceedings and file evidence setting out their position on the Brakes’ further relief claim.
The applicants urged the trustees to oppose an order for possession. However, the trustees took a neutral view in respect of Chedington’s claim under the contract for sale pending the outcome of a reference to the Supreme Court. They argued that the cottage had no value to the bankruptcy estates and so it was inappropriate for them to be joined to the proceedings or incur costs in doing so. They refused Chedington’s offers to pay their costs of being joined to the proceedings, to indemnify them in respect of adverse costs and a monthly licence fee on the basis that it would be inappropriate owing to their neutral stance.
A bankrupt or creditor who is dissatisfied by any act, omission or decision of a trustee in bankruptcy can apply to the court under section 303 of the Insolvency Act 1986, which may confirm, reverse or modify any such act or decision. A court can only interfere where there has been bad faith or fraud, or if the trustee has done something so utterly unreasonable and absurd that no reasonable person would have done it: Re Edengate Homes [2022] 2 BCLC 1. While it is not perverse for a trustee in bankruptcy to make a mistake or to get things wrong, it can be perverse to maintain a decision even when mistakes have been corrected.
The trustees were professional officeholders remunerated at professional levels to take on difficult jobs. Their initial refusal to join the proceedings was based on factors which were mistaken – financing involvement in proceedings and challenges by the Brakes. Their intervention would have several benefits, including the ability to obtain an income stream from the cottage in the near future and to avoid further deterioration of the cottage. There would be no risk to them if the Supreme Court reference succeeds. The court was entirely satisfied that, by the time of the hearing, the trustees’ decision not to intervene was an absurd one to which no trustee could have come.
Louise Clark is a property law consultant and mediator