In the recent decision of Grant & Another (as joint trustees in bankruptcy of Ronald Charles Henry Baker) v Baker [2016] EWHC 1782 (Ch) the court considered whether the existence of exceptional circumstances should give rise to the indefinite postponement of the sale of a property which was jointly owned by the bankrupt and his spouse.

The Facts

The Joint Trustees in Bankruptcy (“the Trustees”) had applied for the sale of the jointly owned property. The bankrupt and his spouse had a disabled adult daughter living with them, as such that she was incapable of living on her own.

The application came before the District Judge, who ordered that the Trustees were entitled to one half of the beneficial interest in the property and that the non-bankrupt spouse was entitled to the other half. The District Judge further ordered the sale of the property, but it was to be postponed until the disabled daughter no longer resided at the property, without any long stop date.

The Trustees appealed the postponement on the grounds that the District Judge had erred in the exercise of her discretion, both in making the order she did and failing to include a long stop date by which the sale had to take place.

The Decision

Henderson J allowed the appeal and ordered a postponement in the sale for 12 months.
Section 335A(3) of the Insolvency Act 1986 (“the Act”) provides:

”… after the end of the period of one year beginning with the first vesting … of the bankrupt’s estate in a trustee, the court shall assume, unless the circumstances of the case are exceptional, that the interests of the bankrupt’s creditors outweigh all other considerations.”

Hence, on an application made one year (or more) after the first vesting of a bankrupt’s estate, the respondent is required to show exceptionality. The judge then has discretion as to how to proceed in light of the exceptionality of the case.

Henderson J accepted that the District Judge had correctly held that there were exceptional circumstances, within the meaning of Section 335A of the Act, which included circumstances where a child of a bankrupt suffered from a medical or mental condition and would be impacted by being required to move due to the sale of the home, before moving on to consider the exercise of her discretion which followed that finding of exceptionality, however, Henderson J considered that the District Judge had erred significantly in exercising her discretion by ordering an indefinite postponement of the sale of the property which operated to negate the underlying purpose of the bankruptcy legislation (which was to enable a bankrupt’s interest in a property to be realised and made available for distribution among his creditors).

Henderson J was not convinced by the District Judge’s conclusion that it would be unreasonable to require the disabled daughter to live in private rented accommodation for four reasons:

  • the District Judge was unduly influenced by the perceived lack of security for the disabled adult child if they were to move into rented accommodation. Rental accommodation was secure on a long-term basis;
  • the Respondents were able to meet the rental payments from their incomes, and the second Respondent’s remaining equity in the property;
  • the disabled adult child had moved previously, and the medical evidence was not enough to justify an open-ended postponement of the sale; and
  • the District Judge was wrong not to consider any alternative to indefinite postponement of the sale.

Conclusion

This decision is one that will be welcomed by practitioners. It is a helpful reminder of the personal difficulties which give rise to exceptional circumstances and the weight that ought to be afforded to those circumstances when considering when it would be appropriate to effect a sale of the property in question.

For further information about this case or any insolvency queries please contact Lauren Hartigan-Pritchard on 01905 677051 or lhartiganpritchard@thursfields.co.uk

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