Gotham v Doodes

A bankruptcy trustee’s charge under section 313 of the Insolvency Act 1986 is a proprietary charge within section 20(1) of the Limitation Act 1980. The amount secured is a principal sum even though it fluctuates and no person is personally liable to pay it.

However, the statutory limitation period runs only when the trustee has a present right to receive the secured money. A section 313 charge defers realisation. Where payment can come only from a sale, interest is rolled up, and sale requires the court’s discretionary order, that right does not accrue until an order for sale is made. The trustee’s earlier right to seek sale does not itself start time running.

The trustee in bankruptcy obtained, in 1992, a charge over the bankrupt’s interest in a jointly owned dwelling house under section 313 of the Insolvency Act 1986, instead of an immediate order for possession and sale. In 2004 he sought possession and sale after a valuation showed equity for the bankrupt’s creditors.

The bankrupt contended that the application was time-barred under section 20(1) of the Limitation Act 1980. Chief Registrar Baister rejected that contention. On appeal, Lindsay J held that the limitation period began when the section 313 charge was imposed and allowed the bankrupt’s appeal. The trustee appealed to the Court of Appeal. The central issue was when the trustee’s right to receive the money secured by the statutory charge accrued.

Decision

1. The appeal was allowed unanimously. The Chancellor gave the judgment, with which Carnwath and Moses LJJ agreed. The application for possession and sale was not barred by section 20(1) of the Limitation Act 1980.

2. An order under section 313 of the Insolvency Act 1986 creates a proprietary charge for the purposes of section 20(1). The property is appropriated to meet the sums payable from the bankrupt’s estate and is capable of judicial realisation. No associated personal liability is required: see Swiss Bank v Lloyds Bank [1982] AC 584.

3. The sum secured under section 313(2) is a principal sum of money. Its amount may fluctuate, but it remains distinguishable from the accrued interest secured alongside it.

4. The expression right to receive in section 20(1) imports a present, rather than deferred, right. The omission of the word “present” from the current provision did not displace the relevant principles in Hornsey Local Board v Monarch Investment BS (1889) 24 QBD 1. A right to receive is distinct from a right to enforce the security.

5. The purpose of section 313 is to defer realisation of the dwelling house. The only payment source was sale proceeds, interest was rolled up pending sale, and an order for sale was discretionary under section 335A. The trustee therefore had no present right to receive the secured money when the charge was imposed. That right could arise only upon an order for sale. Time had not begun to run in 1992.

1. Court of Appeal (Civil Division). In [2006] EWCA Civ 1080, allowed the trustee’s appeal and restored the conclusion that section 20(1) of the Limitation Act 1980 did not bar the proposed enforcement of the section 313 charge.
2. High Court, Chancery Division in Bankruptcy (Lindsay J). Allowed the bankrupt’s appeal, holding that limitation began when the section 313 charge was imposed in 1992.
3. Chief Registrar Baister. Rejected the bankrupt’s limitation defence, holding that no right to receive the secured sum had accrued and that the trustee’s application was not barred.