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Sale under Insolvency Act 1986 s 335A should not be postponed because of respondents’ disabled child

Court allows appeal by trustee in bankruptcy

In Grant & Another v Baker [2016] EWHC 1782 (Ch) the High Court has determined that the sale of a property, sought by the trustee in bankruptcy, should not be postponed until the respondents' disabled adult child no longer resided at the property.

The trustees in bankruptcy had applied for the sale of the first respondent's home which he jointly owned with the second respondent. The first and second respondent had a disabled adult child (aged 30) who had the mental age of an 8/9 year old and was incapable of living on her own.

At first instance it was ordered that the trustees were entitled to one half of the beneficial interest in the property and that the second respondent was entitled to the second half. The District Judge ordered the sale of the property but ordered that the sale was to be postponed until the disabled child no longer resided at the property without putting a longstop date on the sale of the property.

The trustees appealed the postponement. The grounds of appeal were that the judge had erred in making certain findings of fact and, in any event, 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 appeal was heard by Henderson J who allowed the appeal.

Section 335A(2) of the Insolvency Act 1986 provides that where an application is made in respect of a bankrupt's house which is or has been the home of the bankrupt or the bankrupt's spouse the court must consider:

(i) the conduct of the spouse …, so far as contributing to the bankruptcy,

(ii) the needs and financial resources of the spouse …, and

(iii) the needs of any children; and

(c) all the circumstances of the case other than the needs of the bankrupt.

Section 335A(3) provides:

'… after the end of the period of one year beginning with the first vesting under Chapter IV of this Part 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.'

The respondent to an application one year after the first vesting of a bankrupt's estate is therefore required to show exceptionality. Thereafter the judge has a discretion as to how to proceed in light of the considerations in subsection (2) and the exceptionality of the case. 

Henderson J accepted that the circumstances in the case were exceptional before moving on to consider the exercise of the District Judge's discretion following the finding of exceptionality. Henderson J concluded that the underlying purpose of the bankruptcy legislation was to enable a bankrupt's interest in a property to be realised and made available for distribution among his creditors. This purpose had not been met through the District Judge's order.

Henderson J highlighted that the District Judge had considered that it would be unreasonable to require the disabled adult child to live in private rented accommodation but Henderson J was unconvinced by this decision for four reasons:

i. the 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 is secure on a long-term basis.

ii. the first and second respondents were able to meet the rental payments from the first and second respondent's incomes and the second respondent's remaining equity in the property.

iii. The disabled adult child had previously undertaken a move and the medical evidence was not enough to justify a postponement of the sale.

iv. The judge was wrong not to consider any alternative to indefinite postponement of the sale.

Henderson J therefore allowed the appeal and imposed a further postponement of the sale of 12 months.

For the judgment and summary by Joshua Viney of 1 Hare Court, from which this item is derived, please click here.