The Supreme Court held that Mr and Mrs Brake could not use section 303(1) of the Insolvency Act 1986 to challenge their trustee’s arrangements with The Chedington Court Estate Ltd. Those arrangements led to Chedington’s agents entering a cottage the Brakes possessed and changing the locks. A right of possession unconnected with the bankruptcy did not give them standing.
The issue
Section 303(1) of the Insolvency Act 1986 allows a bankrupt, a creditor or any other dissatisfied person to ask the court to confirm, reverse or modify an act, omission or decision of a trustee in bankruptcy, or to give directions. Section 168(5) is the equivalent for liquidators. Differences in wording do not change the scope. The provisions are widely drawn, but they are not read literally. This appeal decided whether two discharged bankrupts could use section 303(1) against steps taken to facilitate their exclusion from a cottage in their possession but not occupied by them. A former bankrupt counts as a bankrupt for this purpose.
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The cottage arrangements
Mr and Mrs Brake were made bankrupt in 2015. A dispute then arose over a cottage bought with partnership money. Although the legal title remained in the names of the partners, the cottage was partnership property. A separate claim the Brakes had made to personal rights in it had passed to the bankruptcy trustee.
The Brakes, acting as trustees of a family settlement, and Chedington made competing offers for the cottage. The partnership liquidators accepted Chedington’s £500,000 bid subject to contract. There was a difficulty in transferring a clear legal title.
Under a later agreement the bankruptcy trustee would buy the partnership interest with money supplied by Chedington’s owner and pass the combined interests to Chedington. A licence allowed Chedington to occupy in the meantime. Its agents entered the cottage in January 2019 and changed the locks.
On Chedington’s strike-out application, the Brakes’ pleaded facts were assumed to be true. They alleged that the trustee had acted to assist Dr Guy, without inviting them to bid, had disregarded claimed interests, and had tried to frustrate a statutory revesting. They alleged no fraud. Chedington resisted in order to preserve the purchases.
What the lower courts decided
The High Court struck out the challenge for lack of standing. In their capacity as trustees of the settlement, the Brakes were unsuccessful prospective buyers. As bankrupts, they had shown no likely surplus in the estates. A separate argument that the cottage should revert to them as their principal residence failed in later proceedings.
The Court of Appeal agreed that an unsuccessful bidder lacked standing but reinstated the personal challenge. In its view the interference with possession gave the Brakes a substantial interest affected by the trustee’s conduct and a direct interest in the remedy. Chedington appealed that ruling.
The limits on standing
Lord Richards, with whom Lord Briggs, Lord Hamblen, Lord Leggatt and Lady Rose agreed, held that the Court of Appeal’s test was too wide. On bankruptcy, the bankrupt’s property vests in the trustee and is held on a statutory trust for getting in, realisation and distribution. The bankrupt has no beneficial interest, only a contingent right to any surplus after creditors, interest, costs and remuneration. Without a real prospect of a surplus, the bankrupt cannot interfere in the administration or require the trustee to sue or defend. Creditors may challenge office-holders only in their capacity as creditors: a sale said to be at an undervalue may affect them, but a disappointed wish to buy does not. Even a bankrupt who can show a surplus must be complaining about an interest in the estate, not some separate interest.
There is a third, narrow category. Standing may exist without a surplus where the complaint concerns a power peculiar to bankruptcy or liquidation, the applicant is directly affected, and there is otherwise no way to challenge it. A landlord could challenge disclaimer of a lease. A bankrupt, and a spouse who had paid the debts so as to seek annulment, could challenge fees that had to be met before the bankruptcy could be brought to an end. A claim to a home, or to tools and similar property, under the special statutory provisions might also qualify. Those were not the live claims here.
Why possession was not enough
Possession gave the Brakes rights enforceable by ordinary proceedings. Indeed, they had succeeded in a separate unlawful eviction claim against Chedington. But those rights did not arise from the bankruptcy, and the trustee had used powers of a kind any owner might exercise. The supervisory procedure in section 303(1) was not an additional way to enforce an ordinary right of possession.
Verdict: The Supreme Court unanimously allowed Chedington’s appeal. The Brakes lacked standing under section 303(1) to challenge the trustee’s dealings with the cottage. The decision concerned who could bring that application. It did not decide whether the transactions themselves were lawful.
Source: Brake and another v The Chedington Court Estate Ltd [2023] UKSC 29
