Where a person is made bankrupt, and the assets vesting in the Trustee in Bankruptcy (‘TIB’)as the bankrupt estate include a property interest, the TIB is likely to seek to sell the property interest in order to distribute the net proceeds of sale (after transaction costs and any relevant secured creditors have been satisfied) received by the TIB from the sale, to the bankrupt’s unsecured creditors.
A TIB with a property interest vestedin the bankrupt estate may issue within the bankruptcy proceedings an applicationto the Court for orders against the bankrupt (and any other defendants), that: (a) the property be sold; (b) vacant possession of the property be delivered up to the TIB for the purpose of facilitating that sale; and (c) the proceeds of sale be paid to TIB. In the High Court in London, this application is to the Business and Property Courts of the High Court of Justice, Insolvency and Companies List, for listing usually before a Insolvency and Companies Court Judge.
This article will consider how the Business and Property Court, Insolvency and Companies List (‘Insolvency Court’) is required to balance the interests of the creditors entitled to a distribution from the bankrupt estate (realised through the statutory obligation on the TIB to liquidate the bankrupt estate for the benefit of the creditors), against the interests of the occupant family members living with bankrupt to live in the subject property. It will also consider when the mandatory assumption that the creditors interests prevail/take priority applies, as well as when 'exceptional' circcumstances exist to displace it, and when the Court might postpone the date posession must be given up to the TIB on.
Terminology - ‘Trustee' of Land and ‘Trustee in Bankruptcy’
Prior to considering the applicable law, it is necessary to briefly make clear the distinction between ‘Trustee in Bankruptcy’ and ‘Trustee’ of land. A ‘Trustee’ is a property law term, referring to a person who holds the legal title to a property interest, who owes fiduciary obligations to at least one other who holds the beneficial interestin the property. Conversely, a ‘Trustee in Bankruptcy’ is an insolvency term, referring to an office-holder administering a bankrupt estate. The TIB might be, but is not necessarily, a trustee (in the property law sense). Evans-Lombe J in Holtham v Kelmanson  BPIR 1422 explained that:
‘A trustee in Bankruptcy, although called a trustee, is not a trustee of the assets comprised in the estate for the creditors or the bankrupt. He holds the assets subject to statutory duties to liquidate them and distribute their proceeds in satisfaction of the debts pari passu and any surplus to the bankrupt.’
The exact rules which apply to an application by the TIB for an order for possession and sale will depend on what property interest vests in the TIB under s.306(1) of the Insolvency Act 1986. Given that the vesting of the bankrupt's property interest in the TIB under s.306(1) simply transfers rather than alters the property interest, it is necessary to consider the position of the bankrupt, in relation to the property, immediately before the bankruptcy order was made.
Bankrupt held Property Absolutely
Where the bankrupt held the property absolutely, and neither s.336 nor s.337 apply, then s.363(2) of the Insolvency Act 1986 will apply. By absolutely, what is meant is that the bankrupt was the sole legal title and sole beneficial interest holder (though technically the beneficial interest does not split from the legal title where both are held solely by the same person). In such a situation, s.335A(1) is not engaged as the applicant TIB is neither a ‘trustee’ nor person holding a property interest ‘subject to a trust of land ‘.
Section 363 reads:
‘(1) Without prejudice to any other provision in this Group of Parts, an undischarged bankrupt or a discharged bankrupt whose estate is still being administered under Chapter IV of this Part shall do all such things as he may be directed to do by the court for the purposes of his bankruptcy or, as the case may be, the administration of that estate.’
(2) Without prejudice to any other provision in this Group of Parts, an undischarged bankrupt or a discharged bankrupt whose estate is still being administered under Chapter IV of this Part shall do all such things as he may be directed to do by the court for the purposes of his bankruptcy or, as the case may be, the administration of that estate.
(3) The official receiver or the trustee of a bankrupt's estate may at any time apply to the court for a direction under subsection (2).
(4) If any person without reasonable excuse fails to comply with any obligation imposed on him by subsection (2), he is guilty of a contempt of court and liable to be punished accordingly (in addition to any other punishment to which he may be subject).’
In Holtham v Kelmanson  BPIR 1422 (‘Holtham’) the bankrupt had held a leasehold interest absolutely. Evans Lombe J said, after quoting s.363(2), at a paragraph 16:
‘Pursuant to that sub-section [the bankrupt] can be ordered to deliver up possession of the property to the Trustee for the purposes of a sale of the property for the benefit of the creditors notwithstanding that the (sic) has been discharged from his bankruptcy. It follows from this conclusion that…Section 335A of the Insolvency Act 1986 is not engaged because it was unnecessary for the Trustee to apply for relief under Section 14 of the 1996 Act.’ ('bankrupt' is probably the missing word from the first sentence)
Re Gonsalves (A Bankrupt)  BPIR 419 (‘Re Gonsalves’) also involved a bankrupt who had held the property absolutely. Section 363 applied because the daughter (who had mental health issues) who was living with the bankrupt was over 18 years of old.
In Re Gonsalves, Deputy Registrar Schaffer held that the Insolvency Court has the power to suspend its any possession order its makes under s.363; such discretion is not constrained and the Insolvency Court is entitled to exercise its discretion in an appropriate and just manner.
Where others also have an Interest in Property
Section 363 will not apply where the property was not held absolutely, that is, it was held on trust, and/or where s.336 or s.337 of the Insolvency Act 1986 apply. Section 336 applies where the bankrupt has a spouse or civil partner holding home rights under Family Law Act 1996, and s.337 applies where the bankrupt was entitled to occupy the property, which is a dwelling house, by virtue of a ‘beneficial estate or interest’, and the bankrupt had occupied it with a person/persons under the age of 18, who had the property as their home both when ‘…the bankruptcy petition was presented and at the commencement of the bankruptcy’. Given the obvious complexity of each section, the reader is recommended to consult s.336 and s.337 for their exact wording.
For the TIB to hold any interest in the property, prior to the bankrupt order the bankrupt must have held some beneficial interest in the property. Where the bankrupt did hold some of the beneficial interest, this will have vested in the bankrupt estate. A typical scenario will be where the bankrupt was sole legal title holder, with the bankrupt holding some of the beneficial interest, and the remaining beneficial interest being held by his/her partner (e.g. spouse/cohabitee). In such a scenario, the TIB will apply under s.14 Trusts of Land and Appointment of Trustees Act 1996 (‘TOLATA’) for the order for possession and sale. The TIB will be a ‘person who is a trustee of land or has an interest in a property subject to a trust of land’within s.14(1) of TOLATA.By s.15(4), s.335A of the Insolvency Act 1986 will govern the Insolvency Court’s approach to the TIB’s application.
To a certain extent, the approach the Insolvency Court must take to an application for an order for possession and sale, is very similarwhether s.335A, s.336 or s.337 applies – each requires the Insolvency Court to undertake a balancing exercise between various competing interests, considering‘all the circumstances of the case other than the needs of the bankrupt’ (see s.335A(2)(c), 336(4)(e) and s.337(5) respectively) but with balancing exercise being constrained by the imposition of a mandatory assumption in favour of the creditor’s interests, ‘unless the circumstances of the case are exceptional.’ (see s.335A(3), 336(5) and s.337(6) respectively). Each of s.335A, s.336 and s.337 application routes requires the Insolvency Court to make such order as it thinks ‘just and reasonable’, having regard to those circumstances.
For convenience, this article will focus on a s.14 of TOLATA and s.335A of the Insolvency Act 1986 based TIB application.
£1,000 Net Threshold for TIB Applications
Where a TIB application is made under s.14(1) of TOLATA and s.355A, the first issue to consider is whether the property interest the TIB wishes to realize, has a value above the minimum threshold. Where the net value of the property interestin the bankrupt estate held by the TIB is below a prescribed threshold, currently, £1,000, the Court is required to dismiss the application. In reality, with a threshold so low, this is unlikely to have any relevance to most cases.
Mandatory Assumption and Exceptional Circumstances
The second issue to consider is whether the mandatory assumption applies. The mandatory assumption applies ‘where such an application is made after the end of the period of one year beginning with the first vesting…of the bankrupt’s estate in the [TIB]’. Necessarily, this requires a comparison between: (a) the date of appointment of the TIB (when the vesting occurs); and (b) the date the application was issued, to determine whether the TIB waited at least one year before issuing.
Almost all TIB’s wait one year before issuing their applications, in order to gain the benefit of the mandatory assumption. The TIB is though at liberty to issue the application at any point after this appointment.By incentivizing TIBs to wait one year, Parliament has, in effect, granted to the bankrupt and those living with him, a one year ‘breathing space’to accept the bankruptcy and make suitable alternative accommodation arrangements.
Where the TIB delays at Least 1 Year before Issuing
Where the TIB delays issuing until 1 year has passed since the date of his appointment, the mandatory assumption will, subject to one important exception, apply to the application, and the task of balancing the various interests (all the circumstances apart from the needs of the bankrupt) is removed from the Insolvency Court. Instead, Parliament instructs the Insolvency Court to assume (‘…the court shall assume…’) that the balancing exercise produces the prescribed result, namely that the interests of the creditors outweigh all other considerations. On such an assumption that the creditors interest prevail; logically the Insolvency Court must make orders for possession and sale, though the other interests are not ignored. George Bompas QC, sitting as a Deputy High Court Judge, said obiter in Re Haghighat  1 FLR, after quoting s.336(4) of the Insolvency Act 1986 (including para (a) the interests of the creditors), at paragraph 16:
'By IA 336(5), the application being made more than a year after the appointment of the trustee, the court is directed to ‘assume, unless the circumstances of the case are exceptional, that the interests of the bankrupt’s creditors outweigh all other considerations’. I do not regard that provision as requiring the court to ignore all the other considerations referred to above apart from that in para (a), assuming that the circumstances of the case are not exceptional; rather, in that situation the para (a) consideration is to be preponderant.'
The exception is that the mandatory assumption will not apply where the facts of the case are ‘exceptional’. This raises the third issue for consideration, whether or not the ‘…circumstances of the case are exceptional…’
Determining whether the Circumstances are Exceptional
The classic formulation of what is exceptional and what is unexceptional/ordinary (i.e. not exceptional), at least on the bankrupt/bankrupt’s family side of the balancing exercise, can be found in Re Citro  Ch 142 (‘Re Citro’), a case still highly relevant although it was decided under a previous statutory regime:
‘What then are exceptional circumstances? As the cases show, it is not uncommon for a wife with young children to be faced with eviction in circumstances where the realisation of her beneficial interest will not produce enough to buy a comparable home in the same neighbourhood, or indeed elsewhere. And, if she has to move elsewhere, there may be problems over schooling and so forth. Such circumstances, while engendering a natural sympathy in all who hear of them, cannot be described as exceptional. They are the melancholy consequences of debt and improvidence with which every civilised society has been familiar.’
In other words, while the typical consequences of a bankrupt’s family having to vacate their home may be distressing, these are merely the ordinary consequences of debt and improvidence. Having to move out of the neighbourhood, or having to move into rented accommodation, having problems with the children having to move schools and alike, are all classed as being the usual consequences of a family member’s bankruptcy. They are not exceptional consequences per se in terms of nature or extent. For a particular case to stand out from all other cases, that is, for a case to be outside the normal run of cases ('out of the ordinary course, or unusual, or special, or uncommon' Hosking v Michaelides  BPIR 1192, paragraph 73), and so be an ‘exceptional’ case, the likely consequences of vacating the property must be discernibly worse for the occupants of the property – whether in nature or extent, than would ordinarily be experienced by those forced to vacate a property. Some disruption unhappiness, inconvenience and discomfort are almost inevitable aspects to involuntarily moving. Elevated adverse impact might be felt, for instance, physically, emotionally, socially, educationally or alike (see Everitt v Budhram  Ch 170 ('Everitt'), paragraph 36), and it might be from ‘pulling up roots’ and/or ‘putting down roots’ elsewhere. The elevated impact might arise from the process of moving itself, or for instance because a congenial and suitable present set up is likely to be difficult, if not impossible to reproduce at the likely alternative address. By way of example, those less able-bodied, or suffering from a debilitating illness, are likely to experience the impact of having to vacate a property much more acutely than the average person would.
Determining whether the likely consequences to the occupants of vacating a property will be ordinary, or exceptional, requires the Court to reach a value judgment. In Claughton v Charalambous  BPIR 558, Jonathan Parker J said at 562H:
‘What is required of the court in applying s335A(3) is, in effect, a value judgment. The court must look at all the circumstances and conclude whether or not they are exceptional.’
The principles which the Insolvency Court should follow when considering whether the circumstances of the case are exceptional, were conveniently summarised in Dean v Stout  BPIR 1113, by Lawrence Collins J, at paragraphs 6 to 11:
‘The principles which can be derived from the authorities may be summarised as follows. First, the presence of exceptional circumstances is a necessary condition to displace the presumption that the interests of the creditors outweigh all other considerations, but the presence of exceptional circumstances does not debar the court from making an order for sale.
Secondly, typically the exceptional circumstances in the modern cases relate to the personal circumstances of one of the joint owners, such as a medical or mental condition.
Thirdly, the categories of exceptional circumstances are not to be categorised or defined and the court makes a value judgment after looking at all the circumstances.
Fourthly, the circumstances must be exceptional and this expression was intended to apply the same test as the pre-Insolvency Act 1986 decisions on bankruptcy … that is to say exceptional or special circumstances which are outside the usual "melancholy consequences of debt and improvidence"…or…"compelling reasons not found in the ordinary run of cases".
10. Fifthly, it is not uncommon for a wife with children to be faced with eviction in circumstances where the realisation of her beneficial interest will not produce enough to buy a comparable home in the same neighbourhood or, indeed, elsewhere. Such circumstances, while engendering a natural sympathy, cannot be describedas exceptional, and it was in that context that Nourse LJ referred to the "melancholy consequences of debt and improvidence" with which every civilised society has been familiar…
11. Sixthly, for the purposes of weighing the interests of the creditors, the creditors have an interest in the order for sale being made, even if the whole of the net proceeds will go towards the expenses of the bankruptcy, and the fact that they will be swallowed up in paying those expenses is not an exceptional circumstance justifying the displacement of the presumption that the interests of the creditors outweigh all other considerations.’
This summary was recently approved by Henderson J in Grant v Baker  EWHC 1782 (Ch) (‘Grant’), paragraph 26. These principles will be returned to below, when considering how the reported decisions in this area illustration how the Insolvency Court evaluate the importance the competing considerations.
Exceptional Circumstances on Creditors’ Side of Balancing Exercise
It is not just on the bankrupt’s side of the balancing exercise, that exceptional circumstances can be found; the creditors’ circumstances can make the circumstances exceptional. In Re Citro, Nourse LJ, at 157, construed the reasoning in Re Holliday  Ch. 405(‘Re Holliday’), and found the decisive factor in Re Holliday for why the wife’ voice prevailed, was because of one ‘special feature’on the creditors’ side, namely that it was ‘…it was highly unlikely that postponement of payment of the debts would cause any great hardship to any of the creditors…’Nourse LJ saidit was ‘…exceptional for creditors in a bankruptcy to receive 100p. in the £ plus statutory interest in full…’The debt and interest would be ‘well covered’(including 6 years worth of interest, the debt would be ‘less than £9,000, well covered by the £13,250’ equity in the bankrupt estate).
Nourse LJ in Re Citro said, at 157, that:
‘Admittedly, it was detrimental to the creditors to be kept out of a commercial rate of interest and the use of the money during a further period of five years. But if the principal was safe, one can understand that that detriment was not treated as being decisive, even in inflationary times.’
So where the bankrupt estate is predicted to have sufficient funds to meet the creditors’ proofs of debt in full, including statutory interest thereon, and estate expenses at the proposed sale date, it is likely (though not inevitable) that the circumstances will be found to be exceptional. Demonstrating that his is not inevitable, is Donohoe v Ingram  BPIR 417 (‘Donohoe’). In Donohoe, Stuart Isaacs QC, sitting as a Deputy High Court Judge, did not interfere with a first instance judge’s decision that the circumstances were not exceptional. At paragraph 18, the Deputy High Court Judge said:
‘In my judgment, it cannot properly be said that the district judge was wrong to have concluded that the circumstances were not exceptional. On the facts of the present case, he took into account the consideration that that the creditors were likely to be paid in full but nevertheless decided that, taken together with all the other circumstances, they were not exceptional. Re Holliday, which I accept needs to be approached with a degree of caution, did not require him to reach the contrary conclusion. I do not accept that, on the arithmetic in this case, it would have been impossible, without the trustee's half-interest in the property being exceeded, for the district judge to have concluded that the creditors were going to be repaid in full with statutory interest, having regard to a delay in the sale of the property until 2017, statutory interest at 8% pa and continuing costs in the meantime, and taking into account the fees payable to the DTI. However, I do regard the position in the present case as less clear-cut than in Re Holliday, in particular given the considerable length of the delay. It is, however, unnecessary to express a concluded view on that aspect.’
Further, unusual circumstances not are likely to be held to be exceptional in themselves, would include: (i) the bankrupt estate being currently solvent; (ii) there being only two unsecured creditors; and (iii) a family member property interest holder being represented by the Official Solicitor due to illness.
Where the Circumstances are Exceptional
Where the Insolvency Court finds that the circumstances are ‘exceptional’, the mandatory assumption does not apply. The Insolvency Court’s evaluation of the prescribed s.335A(2) list of matters to be weigh up in the balancing exercise is unconstrained by the mandatory assumption. As Evans Lombe J said in Martin-Sklan, paragraph 9, the Insolvency Court has ‘…a complete discretion…’provided those prescribed matters are had regard to. Those matters are:
(a) the interests of the bankrupt's creditors,
(b) where the application is made in respect of land which includes a dwelling house which is or has been the home of the bankrupt or the bankrupt's spouse or civil partner or former spouse or former civil partner
(i) the conduct of the spouse, civil partner, former spouse or former civil partner, so far as contributing to the bankruptcy,
(ii) the needs and financial resources of the spouse, civil partner, former spouse or former civil partner, and
(iii) the needs of any children; and
(c) all the circumstances of the case other than the needs of the bankrupt.’
Although certain matters are specifically listed here, the Insolvency Court is required to have regard to ‘all the circumstances of the case other than the needs of the bankrupt’ – a sweeping up provision. Consequentially, the Insolvency Court must consider all relevant matters, whether or not they are specifically identified in (a) or (b). Of all the circumstances, the only aspect not to be taken into account by the Insolvency Court is the ‘needs of the bankrupt’.
The relative degree of weight to be placed on each of the matters will of course depend on the facts of each case. Necessarily, as a precursor to this balancing exercise, will be a fact finding stage, where the Insolvency Court will determine what the salient facts are in the case, from an evaluation of the evidence put forward by the parties.
Though here the Insolvency Court has found that the circumstances are exceptional, this in no way impedes the Insolvency Court from finding, following its evaluation of the various matters in the balancing exercise, that the creditors’ interests outweigh all others and that an order for possession and sale within a short periodis the ‘just and reasonable’order.
Balancing the Competing Interests
In Re Holliday (A Bankrupt)  Ch. 405, the husband went bankrupt and the wife held a beneficial interest. Goff LJ at 420, described in plain language, the typical question faced by the Insolvency Court:
‘So we have to decide having regard to all the circumstances, including the fact that there are young children . . . whose voice, that of the trustee seeking to realise the debtor's share for the benefit of his creditors or that of the wife seeking to preserve a home for herself and the children, ought in equity to prevail.’
The problem for the Insolvency Court, is that when attempting to balance these competing interests, the court has to weigh up considerations with quite different characteristics and qualities. As the Deputy High Court Judge stated in Nicholls v Lan  1 FLR 744 (‘Nicholls’), at paragraph 46:
‘The difficulty in a case like the present is that one has to balance the interests of the creditors and the needs of the bankrupt's spouse but, in truth, the considerations are of a different character or quality. This has long been recognised…’
The outcome of the balancing exercise is a value judgment because contrasting the components that make up the interests of the occupant family members, against the interests of the creditors, is a comparison between sets of factors that are in no way commensurable.On the one hand, there are the financial interests of the creditors, and on the other, there are the personal and human interests of the bankrupt’s family. As Goulding J said in the Divisional Court case of Re Lowrie (A Bankrupt)  3 All ER 353 (decided under the previous s.30 of the Law of Property Act 1925 regime), at 358:
‘In all cases where a home is the subject of co-ownership between a trustee in bankruptcy for the benefit of the bankrupt's creditors on the one hand and the wife of the bankrupt on the other, the court, in exercising its discretionary jurisdiction to order or not to order a sale…has to effect a comparison of merits and hardship which in its nature is very difficult, because the position of creditors on the one hand and a family on the other are in themselves hard to compare.’
Balancing Exercise Undertaken For All Future Points in Time
Before turning to the various likely matters to be weighed in the balance, it is important to appreciate that the Insolvency Court does not, at the hearing, just weigh up the various interests as at the date of the hearing. In the event that an immediate, or outright order for possession and sale (say, possession to be given up within 28 days of the date of hearing) is not to be ‘just and reasonable’, the Court will not simply dismiss the TIB’s application. The Court will go on to consider how the balance of the various interests will change over the foreseeable future, in order to see whether, at a discernable point in the future, the balance will tip - at which point, it would be ‘just and reasonable’ for a possession and sale order to bite. Where the Court discerns such a point, the Court may make an order for possession and sale, suspended/postponed/deferred until that future point in time arrives.
While undertaking this prospective evaluation, the Court may consider it appropriate to include reasonable expectations as to how the occupants ought to act during the interim period. For instance, the Court may build into its evaluation, the expectation that the occupant family members will, or ought to, spend the interim period making reasonable preparations to reduce as far as possible, the adverse affect the move will have on them. The Insolvency Court may also consider whether the passage of time will materially reduce the adverse impact of a move on the occupant family member. If extended periods of time will not reduce the expected adverse consequences of moving, then is it in interests of the occupants to be granted such extended time.
The Competing Interests
In this balancing exercise, the components to the occupant family members interests can be very varied. However certain life circumstances have been argued in Court and guidance exists on them. While there is no rigid categorisation is appropriate, certain life circumstances have received judicial scrutiny in the reported cases. While considering these reported cases, it is important to remember that each case is just an illustrative example of how the Insolvency Court might weigh up the various interests. Every case will be decided on its own facts.
The Creditors’ Interests
Returning to the interests of the creditors, these must of course be weighed into the balance. As to the appropriate weight to attribute to them, that is a matter of discretion/evaluation, depending on the financial position of the bankrupt estate. As Henderson J in Grant said, at paragraph 25:
‘In making that assessment, the interests of the bankrupt's creditors must still be taken into account, by virtue of paragraph (a), but the appropriate weight to attach to them will be in the discretion of the court.’
In Nicholls, Paul Morgan QC (later Morgan J), sitting as Deputy High Court Judge said, at paragraph 45:
‘The statute requires that the interests of the creditors are taken into account, but in an exceptional case like the present, the statute does not prescribe the weight which is to be given to those interests. What ultimately matters is what appears to the judge to be fair and reasonable.’
In Re Holliday, Buckley LJ said at 424:
‘Of course, the creditors are entitled to payment as soon as the debtor is in a position to pay them. They are entitled to payment forthwith; they have an unassailable right to be paid out of the assets of the debtor.’
As to the particular weight to be attributed to them, in Nicholls, the Deputy High Court Judge said, at paragraph 47:
‘In most of the cases, there does not appear to be any detailed consideration of the particular circumstances of the creditors. It is taken to be almost axiomatic that what the creditors want is to be paid their money and, in particular, they want to be paid sooner rather than later.’
To be paid sooner rather than later, the interest of the creditors lie in an immediate and outright possession order, or failing that, the shortest suspension / postponement to the possession order as it appropriate.
Henderson J expressed this sentiment in Grant, where he said, at paragraph 25:
‘To state the obvious, the interests of the bankrupt's creditors will normally require that the property be sold so that the bankrupt's share in it can be realised for their benefit.’
It might be said therefore that the creditors’ interests are given, at least as a starting point, a ‘conventional weight’. Any specific evidence may then move the weigh of the creditor’s interest way from this starting point.
Furthermore, the interests of the creditors are not necessarily static (as will be seen, this is also the case for the interests of the occupant family members). It is conceivable that the creditors’ interests could change over time, but more typically it will be the weigh to be attributed to the creditors’ interest that will change over time. Creditors ought to be financially compensated for being kept out of their money because a dividend cannot be made until the property interest is liquidated. Where the bankrupt estate cannot, or will not be able to make a dividend distribution for statutory interest, the creditors will suffer additional losses due to postponement. The Court will be astute to weigh the consequence of postponement into the balance.
This concern can be seen in Bank of Ireland Home Mortgages Ltd v Bell  2 FLR 809, where Peter Gibson LJ at paragraph 31:
‘…a powerful consideration is and ought to be whether the creditor is receiving proper recompense for being kept out of his money, repayment of which is overdue …In the present case it is plain that by refusing sale the judge has condemned the bank to go on waiting for its money with no prospect of recovery from Mr and Mrs Bell and with the debt increasing all the time, that debt already exceeding what could be realised on a sale. That seems to me to be very unfair to the bank.’
Conversely, where it is plain that there will be a net surplus of assets in the bankrupt estate, sufficient to cover: (a) all the debts due to the unsecured creditors, and, importantly (b) all or most of the interest which will accumulate on those debts during any proposed postponement in those debts being paid due to a postponement in the order for possession and sale (payable pursuant to s.328(4) of the Insolvency Act 1986), then the Court will be astute to weigh this fact into the balance.. It is noted here that section 328 (5) prescribes the rate of interest for s.328 (4) as the ‘…greater of the following – (a) the rate specified in section 17 of the Judgments Act 1838 at the commencement of the bankruptcy, and (b) the rate applicable to that debt apart from the bankruptcy.’
Evaluating the probable impact of various possible possession order postponement lengths, upon the bankrupt estate’s ability to pay interest to the creditors under s.328(4) as compensation for being kept out of their money, requires a number of variables to be considered:
(a) the value of the property interest, and whether it is likely to increase or decrease in value over time (whether through house price inflation or deflation, or disrepair/lack of maintenance to the property itself);
In Martin-Sklan, Evans Lombe J criticising the TIB’s figures as to the impact of postponing the date for possession to be given up - approximately 7 years hence, to 2013. Evans Lombe J said, at paragraph 28:
‘No allowance in assessing what the estate of the bankrupt will look like in April 2013 was made for the fact of likely house price inflation or even a genuine relative increase in house values which may take place over the years from now until 2013.’
Evans Lombe J in Martin-Sklan also considered whether how the condition of the property was likely to fare over the proposed postponement period. Fundamental repairs would be undertaken he held, notwithstanding that internal decorations had been neglected up to that point..
(b) size of the TIB’s recoverable remuneration and expenses bill, and how this might change over time.
(c) any lending secured against the property interest and how this will change over time; consequentially the existence and size of any net equity in the property over time (and whether that will be a sufficient surplus, or net equity, to fund distributions to unsecured creditors);
By way of example, in Martin-Sklan the bankrupt estate contained a property interest valued at £120,000, subject to a £41,000 mortgage. TIB remuneration and solicitors costs amount to slightly more than £30,000 (the recoverability of all of this was queried). The unsecured debts (including interest at 8%) amounted to £17,126, leaving a surplus of at least £31,874 to pay s.328(4) interest to compensate unsecured creditors for being kept out of their money, during the c.7 year order for possession postponement (2.6.06 to 30.4.13).
In Martin-Sklan, the first instance judge had said (Evans Lombe J quoting DJ Jackson, at paragraph 17):
‘I find that it is highly unlikely that an appropriate delay in the sale of the property would cause hardship to the creditors in this case. There is a sufficient surplus in the value of the property to protect the creditors’ interests. While this would of course reduce the sum available to the bankrupt, as the sums due to creditors increase this would be an inevitable consequence of delay in selling the property and the bankrupt could at any earlier time agree to vacate in favour of a trustee.’
Evans Lombe J said, in Martin-Sklan, at paragraph 24:
‘…we have here … a circumstance where the evidence before the district judge was that there was a sufficient equity in the property which was sought to be realised to ensure that the interests of the creditors were protected in the sense that they would receive in due course the totality of their debts together with statutory interest.’
As will be apparent from the above, the fact that postponement will increase the unsecured creditors s.328(4) interest claim, and so consequentially reduce the size of any surplus to be received by the bankrupt under s.330(5) of the Insolvency Act 1986, is not relevant. It is the price the bankrupt is required to pay to protect the creditors’ financial position during a postponement period designed to benefit those around him.
It is worth stating that the Court is likely to view the rate of interest the creditors will get pursuant to s.328(4) and (5), as full compensation for being kept out of their money – at least at prevailing interest rates. Evans Lombe J in Martin-Sklan noted (in 2006), at paragraph 29, that:
‘…the rate of interest which results in the creditors’ indebtedness increasing to £25,000 is with the benefit of a rate of interest of 8%. I think that anybody today obtaining 8% on an indebtedness would be pleased to be receiving it. The amount obtainable today on money deposited at a bank does not often exceed 4%. An 8% return would be regarded today as being an exceptional return.’
(d) the identity, size and, where known, general financial position/cash flows of the bankrupt’s unsecured creditors;
This is can be a relevant factor. In Martin-Sklan, Evans Lombe J said, at paragraph 30:
‘Finally, the identity of the creditors. The Inland Revenue is hardly short of money, neither is a bank. I cannot believe that the Mid Kent Water Authority will regard itself as being seriously undermined by a debt of £295 remaining unpaid at interest of 8% until 30 April 2013.’
The above evaluation, will lead the Court to a view as to what prejudice and hardship will be caused to the creditors’ interests, by any length of postponement.
Creditors' Interest in TIB’s Expenses Being Met
In the converse situation where the net proceeds of sale of the property interest will be absorbed higher up the distribution hierarchy/order of priority, leaving none for a distribution to unsecured creditors, the creditors do hold an interest in sale notwithstanding, as articulated in Dean v Stout  BPIR 1113’s sixth principle. In Harrington v Bennett  BPIR 63, Lawrence Collins QC, sitting as a Deputy Judge of the High Court, summarised at paragraph 12(e), the proposition in Trustee of the Estate of Bowe v Bowe  BPIR 747:
‘For the purposes of weighing the interests of the creditors, the creditors have an interest in the order for sale being made even if the whole of the net proceeds will go towards the expenses of the bankruptcy; and the fact that they will be swallowed up in paying those expenses is not an exceptional circumstance justifying the displacement of the assumption that the interests of the creditors outweigh all other considerations’
Purpose of the Bankruptcy Legislation
In Grant v Baker  EWHC 1782 (‘Grant’), Henderson J emphasised that ‘all the circumstances of the case…’ is wider than simply the creditors’ interest and encompasses consideration of the purpose of the statutory scheme in the bankruptcy legislation – namely to make a distribution within, save for truly exceptional circumstances, time frames normally measured in months rather than years. He said, at paragraphs 44 and 45:
‘The judge directed herself…that she needed to weigh up the interests of the only creditors, HMRC, against the interests of [the occupant family members]. This was true as far as it went, but in my view paid insufficient attention to the requirement in section 335A(2)(c) to have regard to "all the circumstances of the case other than the needs of the bankrupt". The circumstances of the case include the statutory scheme of the bankruptcy legislation, at the heart of which is the vesting of the bankrupt's property in his trustee, with the object that the trustee should then realise the property and distribute the net proceeds among the unsecured creditors on a pari passu basis. Moreover, the clear effect of section 283A of the 1986 Act is that there is a limited period of three years within which the trustee must either take steps towards realisation of the bankrupt's interest in his home, or forfeit that interest as part of the bankrupt's estate. If, as in the present case, the trustee does take action within the requisite period, it seems to me that the court should then exercise its powers under section 335A with the object of enabling the bankrupt's interest in the property to be realised and made available for distribution among his creditors. Only in that way can the underlying purpose of the bankruptcy legislation be achieved.
…I think she … failed to give appropriate weight to the fundamental point that an indefinite suspension of the order for sale, for a period that could be measured in decades, 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.’
Ill Health of an Occupant Family Member
The serious ill health of an occupant family member can lead to findings of exceptional circumstances, and result in postponed possession orders.
Physical disability, physical ill health and mental health problems, can elevate/magnify the likely adverse impact of vacating a property and relocating elsewhere. Reported cases involving physical ill-health include Judd v Brown  BPIR 470 (cancer), Claughton v Charalamabous  BPIR 558 (chronic renal failure and osteoarthritis) and Pickard v Constable  BPIR 140 (myasthenia gravis – autoimmune conditions affecting muscles), while mental ill health examples include Raval (paranoid schizophrenia) and Nicholls (schizophrenia)
Serious disability/illness, whether acute or chronic, can inhibit a person’s ability to deal with the problems of finding and moving to alternative accommodation, with all the consequential changes necessary to a person’s affairs. With this in mind, the Court is likely to want evidence as to the diagnosis, typical symptoms, loss of amenity, prognosis and affect of any treatment. Further, any unique or hard to reproduce aspect to the property or its locality will be relevant. For example, community support networks existing in the neighbourhood, or installed home adaptions (for example stair lifts).
In Judd v Brown  2 FLR 360 (‘Judd’), critical to the decision to refuse the application was the damage that the stress and loss of security from an eviction would have on the spouse’s chances of recovery from cancer. Similarly, in Raval and Nicholls, the court had to weigh up the risk that eviction would lead to relapses.
Acute afflictions might warrant a postponement more thana long-term illness of indeterminate duration (though this might not always be so). In Judd, Harman J said, at 364E-G (note: Josephine is the bankrupt’s wife):
'Josephine's illness for which everyone must feel deep sympathy, plainly creates difficulties of a very different character from such difficulties as obtaining substitute accommodation or arranging for children's schooling which are foreseeable and long-term conditions. This event must have been sudden, unforeseeable, of very recent occurrence, of gravity and is directly affected by the orders now sought. Although cancer in various forms attacks many people yet I think that as a matter of normal language people would say that a sudden and serious attack was an exceptional circumstance in any individual's life. When recovery from the attack is directly related to the order sought it is, in my judgment, what is properly to be described as an exceptional reason for refusing the orders. If the occurrence of life-threatening illness is not an exceptional event I find it difficult to know what such an event can be. In this case the oncologist's view of the importance of security to his patient's possible recovery seems to me to reinforce the relevance of Josephine's illness. Further, the fact that a comparatively short time will enable matters to be resolved, it is to be hoped by a happy outcome, differentiates this particular case on its facts from the case of some person who suffers a long-term illness of indeterminate duration.'
Conversely, in Raval, Blackburne J said, at 725:
‘I can well envisage circumstances, for example, a person who suffers from terminal cancer but whose life expectancy simply cannot be judged, and whose illness therefore could properly be described as long term and of indeterminate duration, which it would be proper to describe as exceptional and where no order for possession should be made.’
In Raval, the bankrupt’s wife Mrs Raval suffered from paranoid schizophrenia. Adverse life events, such as a move to a small property away, from her supportive friends and family, could said by her doctor cause a relapse in her condition, Blackburne J said, at 725:
‘In this case the uncontroverted evidence is that a move to accommodation which is too small to serve the family's needs having regard to the ages of the children for whom the Ravals continue to have day-to-day responsibility, or which, because of its location, deprives Mrs Raval of her current support network both from family and from neighbours, could trigger a relapse. That to my mind is plainly an exceptional circumstance within the meaning of the legislation. However, it does not follow that, as [counsel] submits, either I should make no order for possession or if an order ought to be made I should accede to the suggestion that it be suspended until Sanjay, the youngest of the Raval's three children, has reached 21 when Mr and Mrs Raval will have discharged what Dr Ikkos describes as 'the major part of their responsibilities towards their children'.
Blackburne J ordered possession to be delivered up after 12 months.
The facts of Claughton v Charalambous  BPIR 558 (‘Charalambous’) show that, in an appropriate case, the exceptional circumstances may be such as to justify a postponement of any order for sale until the bankrupt's spouse either dies or vacates the property. In that case, Mrs Charalambous (the bankrupt's wife) was in very poor health, suffering from chronic renal failure and chronic osteoarthritis. She could walk only with great difficulty and with the aid of a Zimmer frame, and she needed a wheelchair. She was about 60 years old, and evidently had a reduced life expectancy, although how reduced does not appear from the judgment.
In Pickard v v Constable  BPIR 140 (‘Pickard’), the bankrupt’s husband suffered from myasthenia gravis, an autoimmune condition which affected his muscles. He used a ventilator during the night and for three to four hours during the day to assist with breathing. He used a wheelchair and had a carer. A possession and sale order was made, postponed for 12 months, providing liberty to make a further application for a further postponement upon further evidence being tendered. The Court took into account of that the fact that the local authority would, upon hearing of the impending eviction of a seriously disabled person,take steps to ensure that he was not simply thrown onto the street, but found suitable accommodation as a priority need.
See also Everitt, where the husband's needs were exceptional and taken into account in his wife's bankruptcy (the relevant bankruptcy; notwithstanding that he was also bankrupt with the same TIB). Possession order was suspended 1 year (or until 3 months after the obtaining of a possession order against him (in his bankruptcy).
The Court will also take into account the statutory obligations imposed on the relevant local authority, by reason of Part VII of the Housing Act 1996, to rehouse families made unintentionally homeless by involuntary eviction (See Re Haghighat, paragraph 63 onwards)
The bankrupt’s needs are not directly relevant to the balancing exercise, as they are expressly excluded by from the list of circumstances to be considered, s.335A(c). If confirmation is needed, then this can be found at paragraph 25 of Grant, where Henderson J said ‘…by virtue of section 335A(2)(c), the needs of the bankrupt himself are to be disregarded.’ However, the bankrupt’s ill-health may generate in an occupant family member, an enhanced need to remain in the property. In Re Bremner  1 FLR 912 ('Bremner'), the court recognised the bankrupt’s wife/carer had an independent need to remain in the property to care for her 79 year old terminally ill house-bound bankrupt husband. In this indirect, reflective sense, the bankrupt’s needs were taken account of. The circumstances were ‘exceptional’.
In Everitt, Henderson J held that the 'needs' of the bankrupt was to be broadly construed (like 'needs' of any children and 'needs'...of the spouse) so as to include financial, medical, emotional, psychological and mental needs. Henderson J in Everitt said, at paragraph 37:
'...the court must disregard not only the financial needs of the bankrupt but also... the medical and psychological needs of the bankrupt.'
As to the length of the postponement, an indefinite suspension was imposed in Bremner on the order, in that possession and sale ordered to be deferred until 3 months after the bankrupt’s impending death. A likely postponement measured in months rather than years (with inoperable cancer, he had probably no more than 6 months to live). The creditors’ interests were mostly met - the evidence was that on an immediate sale of the property there should be enough money to pay all the creditors in full, with some (but not all) of the statutory interest to which they were entitled. However, Mr Jonathan Sumption QC (now a Supreme Court Justice), sitting as a deputy judge of the High Court, added, at 188E:
‘I should make it clear that I would not necessarily have reached the same decision if Mr Bremner had been younger or less ill, or if his life expectancy had been longer than, in fact, it appears to be.’
Children’s Well-Being and Welfare
Where it is likely that the occupant child(ren) will experienced an elevated adverse impact from moving, a Court may find exceptional circumstances, and postpone when possession and sale orders will bite. The ‘needs of any children’ are specifically prescribed as a consideration in the balancing exercise.
In Martin Sklan, a postponement on the possession order of about 7 years was imposed, until the youngest child was 17 years old. The situation was exceptional and two children’s safety and welfare warranted such a postponement (when balanced with the creditors’ interests). In that case, the bankrupt and his chronically alcoholic partner had two girls, aged 10 and 14. From time to time, their mother would leave the home without notice for several days to indulge in a period of alcoholism, leaving the children anxious as to her whereabouts and safety. On returning, perhaps the worse for drink, domestic incidents might occur leading to the children seeking refuge with neighbours or other family members. The girls’ well-being and welfare was protected by a delicate combination of their father, their home and a long-established support network of close neighbours, relatives and their schools. Living close to neighbours who understood the family’s problems without need of explanation and who could provide refuge to two young girls on their own quickly, what time of day or night, was ‘priceless’and ‘almost impossible to replicate’. Substitute accommodation compared very poorly. Eviction was likely to have a seriously negative impact on the children’s well-being, educational attainment and self-esteem. Such circumstances were exceptional, and when the needs of the children were weighed against the interests of three large institutional creditors, who were very likely to be fully compensating in interest for being kept out of their money during the postponement period, postponement until the youngest child was 17 years old, was appropriate.
Returning to the case of Grant, Henderson J considered the weight to be given to the needs of an adultchild of the bankrupt and his wife (the bankrupt and wife each owning 50% of the beneficial interest in the dwelling house). Samantha, the adult child, was 30 years old and had been born with a condition known as global developmental delay, suffered from dyspraxia and obsessive compulsive disorder (‘OCD’). She had a mental age of a 8/9 year old, and was incapable of living on her own. She had difficulties with mobility, finding it hard to get up and down stairs, and felt unsteady on uneven ground. There was no prospect of her condition ever improving, and she was never going to be able to live alone. She needed lots of supervision. The Bakers had always cared for Samantha at home. Originally they have lived in a 3 bedroom flat in Hackney, before moving 8 years before, from the flat to a bungalow with 4 bedrooms, because its layout, and the absence of stairs, were sell suited to Samantha’s needs. A further advantage of the move was that it provided her with a bigger bedroom. Samantha’s live expectancy was no lower than normal.
A letter from Samantha’s GP said ‘She lives in a bungalow with her parents which enables her easier access to the toilet and bedroom, as well as the rest of the house. She lives in a commutable distance from her college, which she very much enjoys, and benefits from. The fear of moving home has been detrimental on her mental well-being and has caused her a lot of distress. Her life requires routine, and her home has been adapted to meet her requirements, therefore moving from her home of 8 years would have a real negative impact on her well-being.’ It was common ground between the parties that the bungalow was well-suited to Samantha rather than actually adapted for her.
There was no medical evidence about Samantha’s OCD, though the bankrupt referred to it in his statement as follows: ‘Sam also suffers with OCD and finds great comfort in routine. Her bedroom is her sanctuary and it would stress her greatly knowing she would have to leave her home. We would find it very difficult to rent as we feel Sam needs the security of a permanent home and not a place that we could be forced out of with just two months notice.’
The Baker’s two other adult child lived with the bankrupt and his wife but ‘they clearly are independent’ and were able to live without parental support.
Henderson J held, at paragraph 41, that the first instance judge had ample grounds for concluding that the circumstances were ‘exceptional’ circumstances. However he reduced the indefinite postponement to the possession and sale order (i.e. ‘until such time as Samantha … no longer resides at the Property’ (paragraph 2)), down to a 12 month postponement measured from the date of his judgment (the bankruptcy was 20.11.13; TIB’s application was about 8.10.14, and possession would have to be given up by 0.7.17). He said, at paragraph 52:
‘This would allow ample time for a suitable replacement property to be found on the rental market, and for the move to be prepared with Samantha’s welfare and best interests at heart.’
The length of the postponement was reduced because: (1) rental accommodation would not be as transitory as initially perceived; (2) a suitable 2 bed-roomed bungalow (which would suffice given the independence of the Bakers’ two sons) was affordable with Mrs Baker contributing her lump sum or working; (3) Samantha’s previous move indicated that, if sensitively handled, a further move would not be an unreasonable thing to inflict upon her; and (4) there was no evidence Samantha’s condition was likely to improve with time; the need to move was a nettle that needed to be grasped, to fit within the statutory bankruptcy scheme, and so postponement need only be sufficient to enable suitable alternative rented accommodation to be found, and the move planned in order to cause her the least amount of distress.
In Barca v Mears  BPIR 15, the bankrupt argued that he was able to help his child with his concentration and physical coordination problems during his staying contact with him. He argued that if he, the bankrupt, was forced to move, he would have a reduced ability to help his child with his homework. This argument was unsuccessful; this was not ‘exceptional’; the judge found that the child’s special educational needs were not extreme, the sale of the property would not require the child to change school (as the child would continue to live with his mother separately) and it was unclear whether the bankrupt’s ability to assist the child would in fact be impaired, or to what extent if it was impaired. Counterbalancing this was substantial prejudice to the creditors’ interests if made to wait the 3 years proposed as the postponement. The appeal judge unhesitatingly dismissed these grounds of the appeal.
In Re Karia  BPIR 1226, no ‘exceptional’ circumstances were found and, seemingly, no postponement was made to the possession and sale order. The bankrupt had a 5 year old daughter who lived with her mother separately, but had perhaps staying access with the bankrupt 3 nights each week, sometimes more. The bankrupt claimed if the flat was sold, he would be ‘…rendered destitute; he will have no home and, because he will have no permanent address, he will lose his present employment. All this, he says, will have the most serious effect on his daughter's mental health and on their continuing relationship.’. The Judge found this was an over-exaggeration and that he would, on his income, obtain an alternative one-bedroomed flat, which while it might not be as commodious and might be less conveniently located, perhaps less suitable for his daughter to stay in, this was not an unjustifiable interference with his rights.
In Re Haghighat (also known as Brittain v Haghighat  1 FLR 1271, the bankrupt and his wife lived with their 3 adult children. The eldest child (c.24 years old) was a seriously disabled vulnerable adult ('Mani'). Mani had congenital quadriplegic cerebral palsy with learning disability and epilepsy, was doubly incontinent, with no speech and little comprehension, used a wheelchair, and had to be carried between his bed, his chair, and the shower. He required continuous care. Mani's needs reflected into Mani's mother's needs, in that her needs included an ability to care for Mani. The trial judge George Bompas QC, sitting as a Deputy High Court Judge, made a possession and sale order, but deferred his order for 3 years, or until, if sooner, 3 months after Mani, has ceased permanently to reside at the property . The Court of Appeal in Brittain v Haghighat  BPIR 328 dismissed an appeal against that decision.
The facts in Re Citro involved disruption to children’s education.
Very significant delays between the commencement of the bankruptcy and an application for an order for possession and sale are no longer possible. Prior to the introduction on 1.4.04of s.283A of the Insolvency Act 1986, there was a long stop on such delays, but only if the delay: (1) was inordinate; and (2) materially and disproportionately affected some interest to which the court is directed to have regard. In Foyle v Turner  BPIR 43 ('Foyle'), the TIB had waited until rising house prices had eliminated initial negative equity - over a 13-year period. The Insolvency Court in Foyle found this justified – neither aspect was made out. See also Turner v Avis  1 FLR 74.
This legal landscape has now changed. Now by reason of s.283A, the TIB must fulfil at least one of the 4 provisions in s.283A(3) within 3 years of the commencement of the bankruptcy. As explained in Holtham, at paragraph 14:
‘The effect of that Section was to require a trustee in bankruptcy to make up his mind in a period of three years from the commencement of the bankruptcy whether to realise for the benefit of creditors any interest of the bankrupt in a dwelling house which was his sole or principle residence. In the event that the trustee fails during that period of three years to realise that interest or to apply to the court for orders which will lead to such realisation, the dwelling house in question re-vests automatically in the bankrupt who will, in the vast majority of cases, have obtained his discharge.’
Henderson J in Grant explained the rationale behind the introduction of this provision, at paragraph 22:
‘In general terms, the mischief which this section was designed to remedy was "the practice adopted by certain trustees of not realising family homes immediately but allowing the matter to lie dormant, only acting many years after discharge where the value of the property had increased due to inflation" (Sealy & Milman, Annotated Guide to the Insolvency Legislation, 18th edition, vol. 1, p 357).’
Unless s.283A(5) to (9) apply, the automatically re-vesting in the bankrupt, of the property interest means that TIB can no longer delay taking some action.
Purchasing the Property Interest on the Bankrupt Estate
An order for possession can be avoided where the property interest held in the Bankrupt Estate is purchased from the TIB by a person who does not require vacate possession. The only candidates likely to want to purchase a property interest without also obtaining vacant possession of the property, are the bankrupt’s close family members – in other words, the property interest is kept in the family because it is sold by the TIB to someone close to the bankrupt, who is content to let the current position on possession continue.
Where for instance the bankrupt’s spouse proposes to purchase the property interest held in the bankrupt estate, but the would-be purchaser does not have the money yet, the Insolvency Court must consider whether it will postpone the date possession must be given up, to provide time for the would-be purchaser to raise the purchase funds. In Re Gorman  1 All ER 717, a postponement was granted for 6 months where the bankrupt’s wife had a strong prime facie and well-progressed claim against her former solicitors for negligence and where the damages would have equally the sum necessary to purchase the property interest in the bankrupt estate (liberty to apply was incorporated in the postponement, so that the TIB could bring the case back to court if bankrupt wife did not pursued her claim with due dispatch or abandoned it) (see also Foenander v Allan  BPIR 1392). Unissued claims for solicitors negligence, of dubious or uncertain merit, failed to secure postponements in similar circumstances in Trustee of the Estate of Eric Bowe (A Bankrupt) v Bowe  2 FLR 439 and Jackson v Bell  All ER (D) 2280.
Evidence is essential in these applications. A non-exhaustive list would include: (1) HM Land Registry Office Copy Entries; (2) property valuation(s); (2) mortgage redemption statement(s); (4) TIB’s fees and expenses (estimate); (5) Statement of Affairs; what creditors there are and what overall bankrupt estate picture is. Expert evidence will often be required to support any purported medical, educational or welfare consequences from vacating the property. For instance, medical reports were available in Judd. Claughton and Haghighat, psychiatric reports in Nicholls and Raval, occupational therapist report in Haghighat, social worker report in Martin-Sklan, and school reports in Barca.
Likelihood that Some Form of Possession and Sale Order
A broad and tentative statement can be made that, where exceptional circumstances are found, an immediate outright possession and sale order is unlikely to be made, however, almost always the Insolvency Court will find it ‘just and reasonable’ to impose some form of postponed possession and sale order, in light of the bankruptcy legislation’s purpose, and since over time, generally speaking, the creditors’ interests are likely to grow weightier, while the adverse impact on the bankrupt’s family interests can, with time and planning, usually be mitigated. Typically, therefore, at some point in the discernable future, the balance will tip and it will be ‘just and reasonable’ at that point for a possession and sale order to bite. The Court is seeking to strike the right balance; neither too generous nor too servere; sufficiently recognising the competing interests (preservation of family home vs rights of the creditors) and the importance of finality (see Everitt, paragraph 59).
For instance, in Re Gonsalves, a s.363 case since the bankrupt had held the property absolutely prior to her bankruptcy, the order for possession was suspended for four months from the date of the handed-down judgment, in order to gave the bankrupt sufficient time to arrange suitable rehousing and to enable the TIB to take possession at a time of year when there was more prospect of a sale. In Everitt, the possession order was suspended until the earlier of: (a) 1 year; (b) 3 months after a possession order being obtained against the bankrupt's husband (in his bankruptcy).
TIB issues Application before One Year Elapses
Where the TIB issues within one year of his appointment, the existence of mandatory assumption is not completely ignored by the Court. The existence of the mandatory assumption in the statute, though if not directly engaged, still has an influence on how the Insolvency Court sees the various competing interests balance out. The mandatory assumption is a snap shot of how Parliament viewed the balance between the various competing interest at one moment in time – at the 1 year point. This is instructive as to how the balance between the various considerations is likely to fall. For instance, in the event that the TIB’s application is issued just less than 12 month after the date of TIB appointment, then the Insolvency Court is likely to require something akin to exceptional circumstances, for the interests of the creditors (warranting as sale) not to prevail/be outweighed.
In Martin-Sklan, the TIB issued 5 days before the one year period had elapsed. Evans-Lombe J, at paragraph 8, referred to the statutorily prescribed considerations (discussed in detail below) and said, at paragraph 9, that ‘…the district judge therefore had a complete discretion provided that he took into account those specific matters if applicable and the facts of the case.’ and that ‘at least in theory’the application was governed by s.337(5). However, he then said that the following approach of the first instance judge ‘cannot be faulted’, at paragraphs 10 to 13:
‘Mr Hill, counsel for the trustee, argued that nevertheless the interests of the creditors should weigh more heavily than other considerations because the intention of Parliament was to provide a breathing space of 12 months to the bankrupt and/or his family to enable them to make alternative living arrangements. In my judgment, that argument has merit. The relevant provision is repeated in other sections of the Act, leaving no doubt as to Parliament’s intentions. The alternative would be a technical situation based upon the timing of the application notice, which could be overcome if necessary after these proceedings are concluded by a fresh application by the trustee. That could bring the law into disrepute and put the bankrupt and his family through a repeat of the anxiety which they have undoubtedly been facing during the time that this application has taken to be resolved.’
Accordingly, while I do not apply the provisions of s 337(6) strictly, I do approach this application on the basis that the interests of the creditors are a very important consideration in the balancing exercise which I must perform under s 337(5) and that those interests would need to be outweighed by a more important consideration or considerations in order to avoid an immediate order for sale of the property.’
The district judge was examining the facts of the case 22 months after the vesting order. I do not understand that the district judge’s approach to ss 337(5) and 337(6) is criticized as a matter of law.
I think I should also refer to what the district judge said at para 13 of his judgment where he indicates that he is in effect applying the exceptional circumstances test contained in s 337(6), although only s 337(5) applies. In my judgment, the district judge’s approach on this aspect of the case cannot be faulted.’
Postponement Power despite Exceptional Circumstances not being found
Where exceptional circumstances are not found, the Insolvency Court does still have a limited power to postpone the order for possession and sale. On ‘common humanity’ grounds, a three-month postponement was granted to allow arrangements to be made in Donohoe v Ingram  BPIR 417, paragraph 24. This would appear to fit with the effect of the mandatory assumption, which does not mandate an outright and immediate possession and sale order, ‘merely’ that the Insolvency Court must order what the Insolvency Court thinks ‘just and reasonable’on a mandated finding that ‘…the interests of the bankrupt’s creditors outweigh all other considerations’. Arguably ‘outweigh’ does not mean totally eclipse all other interests, such that they are removed from all consideration; it might still be ‘just and reasonable’ to postpone possession and sale though the creditors’ voice prevails.
An appeal can be lodged against an adverse first instance decision. However an appellant court hearing an appealagainst finds on exceptionality and which set of interests prevail, will be reluctant to interfere. In A. E. I. Rediffusion Music Ltd v Phonographic Performance Ltd  1 WLR 1507, Lord Woolf MR, at 1523, endorsed an earlier description of the conventional approach in the following terms:
‘Before the court can interfere it must be shown that the judge has either erred in principle in his approach, or has left out of account, or taken into account, some feature that he should, or should not, have considered, or that his decision is wholly wrong because the court is forced to the conclusion that he has not balanced the various factors fairly in the scale.’
Appellant courts are acutely aware of the need not to rob the first instance judge of the width of his discretion. The observations of Lord Fraser in G v G (Minors: Custody Appeal)  1 WLR 647 at 652 are relevant here, where he emphasised the point:
‘that the appellate court should only interfere when they consider that the judge of first instance has not merely preferred an imperfect solution which is different from an alternative imperfect solution which the [appellate court] might or would have adopted, but has exceeded the generous ambit within which a reasonable disagreement is possible.’
Henderson J in Grantrecently reaffirmed this appellant court approach, at paragraph 43. In Claughton v Charalambous  BPIR 558, Jonathan Parker J described the decision on exceptionality as a value judgment, and said at 562H:
‘That process leaves, it seems to me, very little scope for the interference by an appellate court.
No doubt there may be cases where an appellate court can and should interfere. For example, where there is an error of law appearing on the face of the judgment, or where the conclusion which the court below has reached is so plainly wrong as to raise the inference that in reaching that conclusion the court somehow misdirected itself in law.’
Aside from appealing, disgruntled litigants can apply under s 375 of the 1986 Act for a review or variation of the order. For instance, where a sale is postponed, an application to vary it could be made, but there would have to be exceptional circumstances – such as new or newly revealed facts, to justify overturning the original order (see Papanicola v Humphreys  2 All ER 418).
Re-Vesting where TIB’s Application for Order for Sale is Dismissed
Where a TIB’s application for an order for sale or possession fails, unless the Court orders otherwise, the property will cease to form part of the bankrupt estate, and will re-vest in the bankrupt. This is the effect of s284A of the Insolvency Act 1986, which reads:
‘(4) Where an application of a kind described in subsection (3)(b) to (d) is made during the period mentioned in subsection (2) and is dismissed, unless the court orders otherwise the interest to which the application relates shall on the dismissal of the application—
(a) cease to be comprised in the bankrupt's estate, and
(b) vest in the bankrupt (without conveyance, assignment or transfer).’
Subsection (3)(b) to (d) read, as far as is directly relevant:
(b) the trustee applies for an order for sale in respect of the dwelling-house,
(c) the trustee applies for an order for possession of the dwelling-house,
This position was confirmed in Holtham v Kelmanson  BPIR 1422, were Evans-Lombe J said at paragraph 14 ‘…if the Trustee's application for possession and sale ultimately fails it will re-vest in [the bankrupt]’.
The statutory framework creates a structure for balancing and resolving the conflict that arises following bankruptcy, between, on the one hand, the interests of the bankrupt’s creditors for a sale of all assets with the bankrupt estate, including in particular any dwelling house, to meet the debts of the bankrupt upon bankruptcy, and, on the hand, the interests of the occupants of the dwelling house, to continue living in the dwelling house undisturbed. Third party purchasers are unlikely to be interested in purchasing the dwelling house interest held in the bankrupt estate, unless it is with vacant possession. Without an order vacant possession and for sale, what is likely to be a main asset in the bankrupt estate cannot be sold and the unsecured value in it realized and distributed in order of priority, class by class, pari passu. But evicting the occupants of the dwelling house will cause upheaval, inconvenience and life disruption, since a home will represent stability and security to them. Accordingly, a balance must therefore be struck between these two completing sets of interests, in order to find where justice lies.
Built into the law of credit and bankruptcy, is the sale of the bankrupt’s assets, and bankruptcy law does not exclude the bankrupt’s interest in a home from falling within the bankrupt estate and so to be liquidated. Some assets are excluded, but an interest in a home is not. This being the case, and the fact that third parties will not purchase it without vacant possession, means that involuntary vacating a home (within the normal life disruption that brings) is an almost unavoidable consequence of debt and wider structure of insolvency law. The question then becomes, whether the life disruption in a particular case is likely to be outside what would normally be experienced, in nature or extent, weighed against the consequences of delay to the interests of the creditors. Where these are likely to be no more than what an ordinary family might suffer, the law is clear. Indeed Parliament has taken the decision out of the Court’s hands, mandating an outcome that the interests of the creditors will prevail, and so compelling the Court to make orders for possession and sale on the basis.
Where the circumstances, the consequences and impact of involuntary vacating, are exceptional, then the Court is free to balance the various interests, to determine where the balance lies. This determination is not just as to whether, presently, the interests of the creditors are outweighed by other considerations. The Court will go on to determine whether, at any future date, or upon any future occurrence, the balance will tip in favour of the creditors. The Court may take the view that during the intervening period of time, consequences for the occupants of involuntary vacating, will lessen, whether because circumstances will change (children will finish school, family members will die etc.) or time will enable preparations to be made, suitable alternative properties to be found, and alike. In contrast to this amelioration, the Court may also take the view that the interests of the creditors will tend to become more pressing as time passes (inherently, and because TIB expenses will escalate, reducing likely dividends for creditors and/or creditors will suffer escalating costs of being kept out of their money (unlikely to be compensated for by recoverable interest))
The point in the future at which the balance of considerations tip in favour of the creditors will be determined by the Court. Up until that point, the order for sale should be suspended or execution postponed. But from the date the balance is expected to tip on, and so the interests of the creditors prevail, there should be an immediately exercisable order for possession and sale.
SIMON HILL © 2018
33 BEDFORD ROW
NOTICE: This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.
The role of TIB can be fulfilled either by the Official Receiver, acting as TIB, or by a private insolvency practitioner, acting as TIB. A TIB is not automatically appointed to a bankrupt estate upon a bankruptcy order being made. Typically there is a gap, when the Official Receiver acts as receiver and manager; s.287(1) of the Insolvency Act 1986 reads ‘Between the making of a bankruptcy order and the time at which the bankrupt’s estate vests in a trustee under Chapter IV of this Part, the official receiver is the receiver and (subject to section 370 (special manager)) the manager of the bankrupt’s estate and is under a duty to act as such.’ See Pathania v Adedeji  EWCA Civ 381
Whether the bankrupt holds an interest in the property is governed by general principles. As to who holds the beneficial interest(s) in the property, whether beneficial interest joint tenants or beneficial interest tenants in common, and as to the latter, the size of the beneficial interests, see Jones v Kernott  3 WLR 1121 and Stack v Dowden  2 WLR 831. For registered land, as to whether the bankrupt holds legal title, this is a matter of looking at the HM Land Registry and the relevant entry. By section 58 of the Land Registration Act 2002 that registration is conclusive as to whether a person is or is not a legal title holder (whether jointly or solely)(unless altered or rectified pursuant to schedule 4 of the Land Registration Act 2002).
Vesting takes place under s.306 of the Insolvency Act 1986
Section 335A (1) reads ‘Any application by a trustee of a bankrupt’s estate under section 14 of the Trusts of Land and Appointment of Trustees Act 1996 (powers of court in relation to trusts of land) for an order under that section for the sale of land shall be made to the court having jurisdiction in relation to the bankruptcy.’
Other parties ought to be joined if their rights will be directly affected by a decision in the case. For instance, if a declaration must also be made as to the size of various people’s beneficial interests in the property. See CPR r.19; a recent Etherton MR decision on joinder is Re Pablo Star  1 WLR 738, though in respect to company law.
Otherwise called a suspension, or deferment
Otherwise known as ‘equitable interest’ or ‘equitable title’.
Section 336 (2) reads ‘Where a spouse’s or civil partner’s home rights under the Act of 1996 are a charge on the estate or interest of the other spouse or civil partner, or of trustee for the other spouse or civil partner, and the other spouse or civil partner is made bankrupt – (a) the charge continues to subsist notwithstanding the bankruptcy and, subject to the provisions of that Act, binds the trustee in the bankrupt’s estate and persons deriving title under that trustee, and (b) any application for an order made under section 33 of that Act shall be made to the court having jurisdiction in relation to the bankruptcy.’The reference to section 33 is a reference to section 33 of the Family Law Act 1996.
‘Dwelling house’ is defined by s.385 of the Insolvency Act 1986 as “dwelling house” includes any building or part of a building which is occupied as a dwelling and any yard, garden, garage or outhouse belonging to the dwelling house and occupied with it’
Section 337 (1) of the Insolvency Act 1986 reads ‘This section applies where – (a) a person who is entitled to occupy a dwelling house by virtue of a beneficial estate or interest is made bankrupt, and (b) any persons under the age of 18 with whom that person had at some time occupied that dwelling house had their home with that person at the time when the bankruptcy application was made or (as the case may be) the bankruptcy petition was presented and at the commencement of the bankruptcy’. For an example of a case decided, or ought to have been decided, under s.337 of the Insolvency Act 1986, see Barca v Mears  2 FLR 1, particularly paragraph 16 (though note the last sentence of paragraph 16 does not appear to consider s.363 of the Insolvency Act 1986).
Since the TIB can only sell what is in the bankrupt estate, and what is included in the bankrupt estate is determined by s.283 of the Insolvency Act 1986. Section 283(1) sets out what is comprised in the bankrupt estate, while s.283 (3) reads ‘Subsection (1) does not apply to- (a) property held by the bankrupt on trust for any other person.’ In the event that the bankrupt held the legal title, but none of the beneficial interest, neither the legal title nor the beneficial interest would have vested in the bankrupt estate under s.283 and be available for TIB to sell.
Section 14 (1) of the Trusts of land and Appointment of Trustees Act 1996 reads: "Any person who is a trustee of land or has an interest in property subject to a trust of land may make an application to the court for an order under this section."
Section 15(4) of the Trusts of Land and Appointment of Trustees Act 1996 states that ‘This section does not apply to an application if section 335A of the Insolvency Act 1986 … applies to it’.
To assist with a comparison: s.336(4) reads ‘On such an application as is mentioned in subsection (2) the court shall make such order under section 33 of the Act of 1996 as it thinks just and reasonable having regard to—
(a) the interests of the bankrupt's creditors,
(b) the conduct of the spouse or former spouse or civil partner or former civil partner, so far as contributing to the bankruptcy,
(c) the needs and financial resources of the spouse or former spouse [ or civil partner or former civil partner,
(d) the needs of any children, and
(e) all the circumstances of the case other than the needs of the bankrupt.’
And s.336(5) reads ‘Where such an application is made 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.’ Whereas s.337(5) reads: ‘On such an application the court shall make such order under section 33 of the Act of 1996 as it thinks just and reasonable having regard to the interests of the creditors, to the bankrupt's financial resources, to the needs of the children and to all the circumstances of the case other than the needs of the bankrupt.’
And s.337(6) reads ‘Where such an application is made 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.’
See s.335A(2), s.336(4) and s.337(5) respectively.
See Insolvency Proceedings (Monetary Limits) Order 1986/1996 and Insolvency Proceedings (Monetary Limits) (Amendment) Order 2004 (SI2004/547). SI 1986/1996, as amended, reg.5 reads ‘The court shall, in determining the value of the bankrupt's interest for the purposes of section 313A(2), disregard that part of the value of the property in which the bankrupt's interest subsists which is equal to the value of: (a) any loans secured by mortgage or other charge against the property; (b) any other third party interest; and (c) the reasonable costs of sale.’
Once the interest, and value of it, is identified, that value is compared to that prescribed amount. Schedule 1 reads for s.313A(2) of the Insolvency Act 1986 ‘Minimum value of interests in a dwelling-house for application by trustee for order for sale, possession or an order under section 313, is £1,000’
Sealy & Milman: Annotated Guide to the Insolvency Legislation 2017 explains the rationale behind the introduction of the rule that unless the interest in the dwelling house had at least a minimum value, the application to realize it by the TIB would be dismissed. In the commentary to s.313A to the Insolvency Act 1986, the authors state ‘The feeling is that the marginal benefit to creditors from realizing such an asset is outweighed by the disproportionate suffering imposed upon the bankrupt by the loss of his home.’
For an example of a TIB that issued before waiting 12 months, see Martin-Sklan v White  BPIR 76;
In reality, the ‘breathing space’ granted to accept the bankruptcy order, will be much longer than 12 months as: (1) one year to counted from the date of appointment of the TIB, not the date the bankrupt is adjudged bankrupt; and (2) there will be a delay between issuing proceedings and those proceedings being heard by a Insolvency Court.
The application in Re Citro  Ch 142 by the TIB for an order for sale was brought under section 30 of the Law of Property Act 1925, which read:
‘If the trustees for sale refuse to sell ...any person interested may apply to the court for a vesting or other order… directing the trustees for sale to give effect thereto, and the court may make such order as it thinks fit.’
One of the consequences of the old 1925 property legislation was that the legal estate in any property which is beneficially owned jointly or in common was necessarily held on trust for sale and was thus subject to the jurisdiction of the court under section 30. When Re Citro was decided in May 1990, the Insolvency Act 1986 was in force but did not apply on the facts. Nourse LJ at 147 said: ‘It should be stated at the outset that section 336 of the Insolvency Act 1986 has no application to either case.’
The current statutory mandatory assumption can be said to be an enactment of the prior established judicial approach to striking a balance between the competing interests of creditor and occupants. Re Holliday and Re Citrobest promulgated this old judicial approach. In Re Citro, Nourse LJ said at 159, after quoting s.336(5) ‘I have no doubt that that section was intended to apply the same test as that which has been evolved in the previous bankruptcy decisions, and it is satisfactory to find that it has.’ He further said, at 157 ‘Where a spouse who has a beneficial interest in the matrimonial home has become bankrupt under debts which cannot be paid without the realisation of that interest, the voice of the creditors will usually prevail over the voice of the other spouse and a sale of the property ordered within a short period. The voice of the other spouse will only prevail in exceptional circumstances.’
Bingham LJ in Re Citro cast the balance slightly differently, when he said, at 161 ‘…the principle which, as I conclude, clearly emerges from the cases, that the order sought by the trustee must be made unless there are, at least, compelling reasons, not found in the ordinary run of cases, for refusing it.’
In Re Raval  2 FLR 718, at 724, Blackburne J described the ordinary case as ‘where eviction would cause problems to the bankrupt's family, for example, the difficulty faced by the bankrupt's wife and family in finding a suitable alternative home, or the disruption to his children's education likely to be caused by the need to move, all of which were memorably described by Nourse LJ in Re Citro (Domenico) (A Bankrupt), Re Citro (Carmine) (A Bankrupt)  Ch 142, 157D,  1 FLR 71, 82E, as 'the melancholy consequences of debt and improvidence.’
In Barca v Mears  2 FLR 1, Mr Nicholas Strauss QC, sitting as a deputy High Court Judge, said at paragraphs 41 to 42:
‘It seems to me that a shift in emphasis in the interpretation of the statute may be necessary to achieve compatibility with the European Convention. There is nothing in the wording of s 335A, or the corresponding wording of ss 336 and 337, to require an interpretation which excludes from the ambit of 'exceptional circumstances' cases in which the consequences of the bankruptcy are of the usual kind, but exceptionally severe. Nor is there anything in the wording to require a court to say that a case may not be exceptional, if it is one of the rare cases in which, on the facts, relatively slight loss which the creditors will suffer as a result of the postponement of the sale would be outweighed by disruption, even if of the usual kind, which will be caused in the lives of the bankrupt and his family. Indeed, on one view, this is what the Court of Appeal decided in ReHolliday (a Bankrupt) ex parte Trustee of the Property of the Bankrupt v Holliday and Another  Ch 405, (1980) FLR Rep 320.
Thus it may be that, on a reconsideration of the sections in the light of the Convention, they are to be regarded as merely recognising that, in the general run of cases, the creditors' interests will outweigh all other interests,  2 FLR 1 at 13 but leaving it open to a court to find that, on a proper consideration of the facts of a particular case, it is one of the exceptional cases in which this proposition is not true. So interpreted, and without the possibly undue bias in favour of the creditors' property interests embodied in the pre-1998 case-law, these sections would be compatible with the European Convention.
I do not need to reach a conclusion on this in the present case, because, even if this tentative view as to the proper approach to the interpretation of these sections is correct, I would still uphold the deputy registrar's decision on the facts of this case.’
He said the above, following his view, at paragraph 28, that:
‘…the majority judgments in Re Citro (Domenico) (a Bankrupt)  Ch 142,  1 FLR 71 indicated that only circumstances which were inherently unusual qualified as 'exceptional circumstances'. (in original quote, bold ‘unusual’ was in italics)
And then, at paragraph 40:
‘…it may be incompatible with Convention rights to follow the approach taken by the majority in Re Citro (Domenico) (a Bankrupt)  Ch 142,  1 FLR 71, in drawing a distinction between what is exceptional, in the sense of being unusual, and what Nourse LJ refers to as the 'usual melancholy consequences' of a bankruptcy. This approach leads to the conclusion that, however disastrous the consequences may be to family life, if they are of the usual kind then they cannot be relied on under s 335A; they will qualify as 'exceptional' only if they are of an unusual kind, for example where a terminal illness is involved.’(in original quote, bold ‘kind’ was in italics)
See Foyle v Turner  BPIR 43
The full quote of Nourse LJ in Re Citro  Ch 142 is as follows:
‘…it is not uncommon for a wife with young children to be faced with eviction in circumstances where the realisation of her beneficial interest will not produce enough to buy a comparable home in the same neighbourhood, or indeed elsewhere. And, if she has to move elsewhere, there may be problems over schooling and so forth….It was only in In re Holliday  Ch. 405 that they helped the wife's voice to prevail, and then only, as I believe, because of one special feature of that case. One of the reasons for the decision given by Sir David Cairns was that it was highly unlikely that postponement of payment of the debts would cause any great hardship to any of the creditors, a matter of which Buckley L.J. no doubt took account as well. Although the arithmetic was not fully spelled out in the judgments, the net value of the husband's half share of the beneficial interest in the matrimonial home was about £13,250, against which had to be set debts of about £6,500 or £7,500 as the sum required to obtain a full discharge. Statutory interest at 4 per cent. on £6,500 for five years would have amounted to no more than £1,300 which, when added to the £7,500, would make a total of less than £9,000, well covered by the £13,250. Admittedly, it was detrimental to the creditors to be kept out of a commercial rate of interest and the use of the money during a further period of five years. But if the principal was safe, one can understand that that detriment was not treated as being decisive, even in inflationary times. It must indeed be exceptional for creditors in a bankruptcy to receive 100p. in the £ plus statutory interest in full and the passage of years before they do so does not make it less exceptional. On the other hand, without that special feature, I cannot myself see how the circumstances in In re Holliday could fairly have been treated as exceptional.’
From Re Raval  2 FLR 718, at 721
As described by Jonathan Parker J in Trustee of the Estate of Eric Bowe (A Bankrupt) v Bowe  2 FLR 439, at 444.
While the statute might not prevent, where ‘exceptional’ circumstances are found, an outright and immediate (immediate being within 28 days) order for possession being made, the view might be taken that this is unlikely to occur in practice. It is hard to imagine circumstances where the circumstances warrant a finding of exceptionality, yet the s.335(A) balancing exercise results in an outright and immediate possession order being made. Some postponement would be likely, to accommodate the exceptional circumstances identified.
Sir David Cairns in Re Holliday described it thus, at page 421:
‘When considering whether in the existing circumstances a sale should be ordered or not, the conflicting legal and moral claims to be taken into account and weighed against each other are, as I am at present inclined to think those of the creditors asserted through the trustee in bankruptcy on the one hand (rather than any claim of the trustee in bankruptcy) and those of the wife on the other, taking all relevant facts, including the existence of the children, into account.’
See Goulding J in Lowrie ex parte the Trustee of the Bankrupt v The Bankrupt  3 All ER 353 at 358-359 and Hoffmann J, at first instance, in Re Citro (Domenico) (A Bankrupt) at 150B. In Barca v Mears  2 FLR 1, the deputy High Court Judge said, at paragraph 43: ‘As was pointed out by Hoffmann J in Re Citro it is difficult to balance the creditors' interests in obtaining payment and the bankrupt's family's personal interests, because they are different in kind.’
An example of this, can be seen in Re Holliday, where Sir David Cairns said at 426, when justifying deferring sale for 5 or so years, ‘It may well be, however, that the hardship for the wife and children would be much less, or would have disappeared altogether, in five years' time or possibly even earlier.’
Indeed, Lawrence Collins, sitting as a Deputy High Court Judge in Harrington v Bennett  All ER (D) 351, summarized a proposition from Claughton v Charalamabous  BPIR 558, at 562, as ‘But the categories of exceptional circumstances are not to be categorised or defined. The court makes a value judgment after looking at all the circumstances’
As will be apparent, the sooner the possession order requires possession to be given up, the sooner the property can be sold, the sooner the property interest in the bankrupt estate liquidated, and the sooner the TIB can declare a dividend distribution to the unsecured creditors (preferential and then ordinary), according to the statutory hierarchy/order of priority, pari passu.
See Nicholls v Lan  1 FLR 744,Paul Morgan QC sitting as a Deputy High Court Judge (as he then was), at paragraph 48.
Where there is surplus remaining after the payment in full of all debts, down to and including the ordinary debts, the excess funds are to be applied in paying interest in respect to the period between the bankruptcy order and the debts being satisfied. Section 328(4) of the Insolvency Act 1986 reads:
‘Any surplus remaining after the payment of the debts that are preferential or rank equally under subsection (3) shall be applied in paying interest on those debts in respect of the periods during which they have been outstanding since the commencement of the bankruptcy; and interest on preferential debts ranks equally with interest on debts other than preferential debts.’
This is interest to creditors for being kept out of their money since the bankruptcy order was made.
For instance, as was assessed to be the case in Martin-Sklan v White  BPIR 76.
In Martin-Sklan v White  BPIR 76, Evans Lombe J said, at paragraph 27 that:
‘It is submitted that I have to take account of the fact that the evidence before the district judge showed that the bankrupt was not making any effort to maintain the house, which was in a shabby and deteriorating condition and that that was something that would be likely to continue. I think it highly unlikely that that will be correct. It may well be that the house will not receive any further interior decoration, but I think it highly unlikely that the bankrupt would attempt to live in it with his daughters if, for instance, the roof was allowed to leak seriously. I have no doubt, and there is certainly no evidence to the contrary, that he would be able to obtain assistance from the local authority to make fundamental repairs to the house to make it habitable and I would expect that his neighbours and relations living locally would ensure that it was so.’
Later Evans Lombe J confirmed his agreement with the first instance judge’s approach and analysis, when Evans Lombe J said, at paragraph 32 to Martin-Sklan v White  BPIR 76:
‘In my judgment, the approach of the judge as to the law and s 337 in particular cannot be faulted and the judge’s conclusions on the facts of the case, in his admirably clear judgment, from which I have quoted from at length, are well within the ambit of reasonable disagreement…’
Section 330(5) of the Insolvency Act 1986 reads ‘If a surplus remains after payment in full and with interest of all the bankrupt’s creditors and the payment of the expenses of the bankruptcy, the bankrupt is entitled to the surplus.’
See also, Re Karia  BPIR 1226 (case dated 12.11.01), where Lightman J said, at paragraph 8:
‘It is well established that for the purpose of weighing the interest of creditors, the creditors have an interest in an order for sale being made, even if the whole of the net proceeds would go towards the expense of the bankruptcy. The fact that they will be swallowed up in paying those expenses is not an exceptional circumstance justifying the displacement of the assumption that the interest of the creditors outweigh all other considerations. I therefore take the view that, looking at the provisions of the Insolvency Act, I must proceed on the basis that the interests of the creditors do require a sale and that I ought to give effect to that interest unless some exception circumstance exists.’
See also, Everitt v Budhram  Ch 170, Henderson J at paragraphs 39 to 42.
In Grant v Baker  EWHC 1782, Henderson J said, at paragraph 30:
‘It is … clear, I think, that "the needs of any children" in section 335A(2)(b)(iii) are not confined to their needs while under the age of 18, and can therefore include the needs, broadly defined, of an adult child such as Samantha. The contrary was, in my view rightly, not argued by Ms Bowmaker for the Trustees.’
See also Everitt v Budhram  Ch 170, where Henderson J said, at paragraph 36 and 37:
' Counsel for the trustee submits..., in my view correctly, that the needs of children must be given a very broad interpretation and refer to needs of any kind, and is certainly not confined to needs of a financial nature. Further support for that approach is found in the preceding sub-paragraph, with its reference to “the needs and financial resources of the spouse” of the bankrupt. Again, he submits, and again I would agree, that “needs” should there be given a wide interpretation, and appears to be at least potentially distinct from financial needs or resources, which are the subject of separate express mention. It is true that the reference is to “financial resources” rather than financial needs, but nevertheless the point is still one of some force.
Curiously enough, there seems to be no authority, so far as the researches of counsel have been able to uncover, on the meaning of the word “needs” in this subsection. However, I consider that counsel for the trustee is substantially correct in his submission and that the needs of the bankrupt in paragraph (c) should be broadly interpreted, just as the same word should be broadly interpreted in sub-paragraphs (b)(ii)(iii). Accordingly, the court must disregard not only the financial needs of the bankrupt but also, relevantly for present purposes, the medical and psychological needs of the bankrupt.'
Henderson J in Grant v Baker  EWHC 1782 said, at paragraphs 47 to 50:
‘In the first place, the judge was in my view unduly influenced by the perceived lack of security for Samantha if she and her parents had to move into private rented accommodation. The judge thought that such accommodation could not "be considered in any way as permanent because of the possibility of being asked to leave or to give up possession at very short notice" (paragraph 17 of the judgment). But millions of people in England live in the private rented sector, and I see no reason to doubt that the Bakers would be model tenants of the kind that most landlords (including, in particular, buy-to-let landlords) would be very happy to retain on a medium to long term basis, even if technically they held under an assured shorthold tenancy terminable on two months' notice. Furthermore, what matters from Samantha's perspective is the practical reality of settled residence in a suitable property, rather than the precise legal relationship by which such residence is provided.
Secondly, I think the judge was wrong to dismiss as "quite short term thinking" (in paragraph 16) the suggestion that Mrs Baker's share of the equity from a sale of the Property could be used to make up a shortfall in paying the rent for a suitable replacement. The evidence adduced by the Trustees indicated that the rent for a suitable three bedroomed bungalow in the area would be about £1,300 per month, or some £240 more than Mr Baker's current monthly mortgage payments of £1,060. This is a comparatively small gap, particularly bearing in mind that a two bedroomed bungalow should suffice given the independence of the Bakers' two sons. If Mrs Baker's share of the equity in the Property were about £30,000, it should be enough to meet a rental shortfall of this approximate size for at least a decade. Furthermore, Mrs Baker is now aged 48, and there must be a reasonable prospect that she will again be able to find paid employment, if not in the same job as before. I therefore agree with counsel for the Trustees that the judge erred in principle in holding, in effect, that it would not be right for Mrs Baker's share of the net sale proceeds of the Property to be put towards securing alternative accommodation for the family.
Thirdly, Samantha's ultimately positive experience of moving from London to the Property eight years ago shows that the prospect of a further move, sensitively handled, cannot be dismissed as something which it would be unreasonable to inflict upon her. There is no suggestion that her condition has worsened over the last eight years, and the medical evidence of Dr Lindford says only that a move would "have a real negative impact on her well-being", without addressing the question how serious that impact would be, or for how long it would last. Far more detailed and cogent medical evidence would have been needed, in my judgment, to justify a postponement of the sale of the Property for more than a relatively short period.
Fourthly, the judge was in my view wrong not to consider any alternative to indefinite postponement of the sale. As I have already explained, such a postponement, on the facts of the present case, cannot be reconciled with the statutory scheme and purpose of the bankruptcy legislation. The need for the Property to be sold within a reasonable period is therefore a nettle which has to be grasped, and since there is no evidence that Samantha's condition is likely to improve, her interests do not require a postponement for longer than it will take to find suitable alternative rented accommodation, and plan the move in a way which will cause her the least distress.’
Enterprise Act 2002, s.261 inserted s.283A into the Insolvency Act 1986, from 1.4.04. For bankruptcies commenced before 1.4.04, transition provisions exist – as explained in Holtham, at paragraph 14: ‘Transitional provisions contained in sub-sections 7 to 10 of Section 261 deal with similar circumstances arising in bankruptcies which commenced before the coming into force of that Section of which the bankruptcy in question in this case is one. Those sections provide that for such bankruptcies a similar regime to that contained in the new Section 283A shall apply to any interest of the bankrupt in a dwelling house which was his sole or principle residence as if the bankruptcy commenced on the coming into force of Section 261.’
Section 283A (5) to (9) reads:
‘5) If the bankrupt does not inform the trustee or the official receiver of his interest in a property before the end of the period of three months beginning with the date of the bankruptcy, the period of three years mentioned in subsection (2)–
(a) shall not begin with the date of the bankruptcy, but
(b) shall begin with the date on which the trustee or official receiver becomes aware of the bankrupt’s interest.
(6) The court may substitute for the period of three years mentioned in subsection (2) a longer period–
(a) in prescribed circumstances, and
(b) in such other circumstances as the court thinks appropriate.
(7) The rules may make provision for this section to have effect with the substitution of a shorter period for the period of three years mentioned in subsection (2) in specified circumstances (which may be described by reference to action to be taken by a trustee in bankruptcy).
(8) The rules may also, in particular, make provision–
(a) requiring or enabling the trustee of a bankrupt’s estate to give notice that this section applies or does not apply;
(b) about the effect of a notice under paragraph (a);
(c) requiring the trustee of a bankrupt’s estate to make an application to the Chief Land Registrar.
(9) Rules under subsection (8)(b) may, in particular–
(a) disapply this section;
(b) enable a court to disapply this section;
(c) make provision in consequence of a disapplication of this section;
(d) enable a court to make provision in consequence of a disapplication of this section;
(e) make provision (which may include provision conferring jurisdiction on a court or tribunal) about compensation.’
See Stonham v Ramrattan  EWCA Civ 119
That is, for the possession and sale order to require possession within a short period of time and for that order to be enforceable.
See how the Insolvency Court was influenced by the existence of the mandatory assumption in Martin-Sklan v White  BPIR 76, notwithstanding that it, strictly speaking, did not apply, because the application had not been delayed at least 1 year.
‘immediate and outright order’ or ‘immediate and unconditional order’
An appeal is a ‘true appeal and not a rehearing’ Harrington v Bennett All ER (D) 351; see Re Gilmartin  1 WLR 513; Claughton v. Charalamabous  BPIR 558.
See also Nicholls, Paul Morgan QC sitting as a Deputy High Court Judge (as he then was), at paragraph 26; Donohoe v Ingram  2 FLR 1084, paragraph 7;
For a similar approach to balancing these two sets of interests, where the debtor is not bankrupt, see Bank of Ireland Home Mortgages Ltd v Bell  2 FLR 809 and Mortgage Corporation plc v Shaire  1 FLR 973
The TIB has a statutory obligation to realize the bankrupt estate's assets for the benefit of the creditors. Bingham LJ in Re Citro  Ch 142 said, at 160:
‘Where a trustee in bankruptcy is a person interested, his statutory duty to realise the bankrupt's assets for the benefit of the creditors may well require him in the ordinary way to seek an order for sale of the trust property where such sale is likely to raise money available for distribution.’
Re Haghighat (also known as Brittain v Haghighat)  1 FLR 1271, George Bompas QC sitting as a deputy High Court judge said, at paragraphs 80 to 83:
' The difficulty in balancing the competing interests in the present case arises from the fact that they are of an essentially different nature. The possible alternatives, contended for before me, are on the one hand: (a) simply to refuse the application insofar as the trustee seeks possession of the property; and on the other (b) to make an order for possession in a period of, say, 3 or 6 months. The difficulty with both of these alternatives is that in effect each of the two sides is contending that the interests identified by that side as pointing to that side’s favoured order completely displace the inherently different interests on the other side.
 I believe that the correct course is to make an order somewhere between these two extremes. The former order to my mind attaches insufficient weight to the interests of Mr Haghighat’s creditors while leaving the position uncertain: it is not clear what would then become of the leasehold interest in the property; but, in the absence of disclaimer, it would be open to the creditors to renew the application as and when they judged they had a prospect of successfully obtaining a possession order. The latter order, for possession to be given within a matter of months, would not give sufficient weight to the matters, referred to above (namely the interests of Mani and his mother), which make the circumstances of the present case exceptional.
 After careful consideration of the matters set out in this judgment, my clear conclusion is that I should make an order for possession of the property to be given to the trustee; but, nevertheless, the order for possession should be deferred for a substantial period or until, if sooner, 3 months after Mani has ceased permanently to reside at the property. That substantial period, which I think should be 3 years, I have decided on with a view to allowing: (a) the local authority to make provision for Mrs Haghighat and Mani to be rehoused (together, if appropriate but not necessarily, with Mr Haghighat and the other children) in accommodation which will be suitable to their needs; and (b) an orderly change to be effected (so far as change is made necessary by the move to new accommodation) in the care arrangements for Mani. As to this I did not understand Mr Eyres’ evidence to be that the council neither could nor would ever offer suitable alternative accommodation; rather, it was that in the absence of an order for possession an offer of suitable alternative accommodation could be expected within 6 to 8 years. While recognising that the council may have difficulty in accelerating any offer in the short term, I cannot think it unrealistic to expect the council to make a suitable offer within 3 years in the face of an order for possession within that time.
 The order I have decided on is a compromise between the two other possible alternatives. It is far from ideal; but in the circumstances I consider that it is the best possible balance between the competing interests of those concerned in the present case, and that it is just and reasonable having regard to the matters which IA 336(4) and 337(5) direct to be taken into account.'