Case Report:

Gareth-Lee Smith, advocate on the Midlands Circuit, provides an over view of the High Court’s decision in Stephen Paul Grant & Anthony Malcolm Cork v Ronald Charles Henry Baker [2016] EWHC 1782 (Ch)

 

The High Court allowed an appeal made by trustees in bankruptcy against a district judge’s order that the sale of the property in which the bankrupt had a beneficial interest would be postponed indefinitely until the bankrupt’s adult daughter no longer resides at the property.

The District Judge directed herself to consider whether the circumstances of the bankrupt’s daughter – who suffered from disabilities making her incapable of living independently – were “exceptional” for the purposes of section 335A of the Insolvency Act 1986 (the 1986 Act).

At first instance, the Judge found:

 

  1. The circumstances were exceptional;
  2. The only option available to the bankrupt and his family was to rent alternative accommodation. Purchasing a similar property was outside the family’s means;
  3. It was short-term thinking to suggest that the money realised out of the sale of the bankrupt’s wife’s beneficial interest of the property [expected to be £30,000] could contribute to the monthly rent of a property. Such a rental would be approximately £1,300 per month, compared with a current monthly mortgage payment of £1,060. The money realised by the sale of the property would soon be eaten away; an
  4. To order the sale of the property would be to turn the family to the rental market, which would have the effect that the bankrupt’s daughter would not be guaranteed a home for the rest of her life; circumstances which would be detrimental to her due to her condition.

 

For those reasons, the District Judge granted an order for sale of the property, but postponed until such time that the daughter no longer lived at the property. The judge declined to give a longstop date.

 

Allowing the appeal by the Trustees, and ordering that the order for sale should be postponed for a period of 12 months from the date of judgment in the appeal [and 21 months from the date of the original order], Mr Justice Henderson found:

 

  1. The District Judge was clearly entitled to find that the circumstances of the present case were exceptional. The value judgement formed was entirely legitimate;
  2. The District Judge paid insufficient attention to “all of the circumstances of the case other than the needs of the bankrupt”, as required under section 335A(2)(c) of the 1986 Act. Such an assessment required consideration of the object of the statutory scheme of bankruptcy legislation: to realise the property and distribute the proceeds to unsecured creditors;
  3. The only way in which the object of the statutory scheme could be met was if the Court exercised its powers under the 1986 Act to enable the realisation of the asset and distribution of the proceeds to such creditors;
  4. The District Judge failed to give appropriate weight to the fundamental point that an indefinite suspension of an order for sale is incompatible with the underlying purpose of the bankruptcy code. “In all save the most truly exceptional circumstances, that purpose must require realisation within a much shorter time frame, normally to be measured in months rather than years”;
  5. On the facts, more medical evidence would be required to sustain a finding that the daughter would suffer significant detriment as a result of moving house, especially to such an extent that justified an indefinite suspension of an order for sale;
  6. The District Judge had erred in holding that it would not be right for the bankrupt’s wife to be expected to use her proceeds from the sale of the property to make up the shortfall when renting a property. The rental shortfall could be met for at least a decade and the bankrupt’s wife [aged 48] could expect to resume employment in the future; and
  7. It was wrong for the District Judge not to have considered an alternative to indefinite postponement. The need for the property to be sold was a nettle that needed to be grasped. The bankrupt’s daughter’s interests did not require a postponement for longer than it would take to find suitable alternative accommodation and to plan it in a way that would cause the least distress.