Donaldson v O'Sullivan

When a trustee in bankruptcy is removed under section 298 of the Insolvency Act 1986, the court may appoint a replacement. Section 303(2), which permits directions on any particular matter arising under bankruptcy, is wide enough to include such an appointment. The specific appointment provisions in sections 292 and 297 do not exclude that power. The court’s general control of bankruptcy under section 363(1) supports this construction, subject to any express statutory restriction. The same approach permits appointment of a replacement liquidator in a compulsory winding-up.

Mrs Donaldson was made bankrupt in 1990 and discharged in 1993, with liabilities remaining outstanding. In 2006 the High Court made a block transfer order removing Mr Gilderthorp as trustee in a number of insolvency estates and appointing Mr O’Sullivan. When Mr O’Sullivan sought an order for sale of the Donaldsons’ home, Mrs Donaldson applied to set aside the order so far as it concerned her bankruptcy.

The High Court dismissed the application in [2008] EWHC 387 (Ch), reported at [2008] BPIR 288, but granted permission to appeal. The central issue was whether the court had jurisdiction to appoint a replacement trustee after removing the former trustee.

1. Appeal dismissed. The block transfer order was valid so far as it removed Mr Gilderthorp and appointed Mr O’Sullivan as trustee in bankruptcy.
2. The specific appointment provisions in sections 292 and 297 of the Insolvency Act 1986 concern particular methods and circumstances of appointment. They do not constitute an exclusive code which prevents the court using its general bankruptcy powers to appoint a replacement after removing a trustee.
3. Section 303(2) enables the trustee to apply for the court’s assistance in relation to any particular matter arising under the bankruptcy. The replacement of a trustee removed under section 298 is such a matter. The reference to directions is not to be read so literally that the court can give guidance about a proposed act but cannot make the specific order required to give effect to its assistance.
4. Section 363(1) reflects the nature of bankruptcy as a court-controlled process. The court has wide powers directed to the administration of the insolvency, including powers which may appear to conflict with an express provision. A strong case would be required where the Act expressly limited the court’s power to specified circumstances, but the provisions concerning replacement after removal contain no such restriction.
5. The same reasoning applies to compulsory liquidations. The court may appoint a replacement liquidator when exercising its power to remove the existing liquidator. The different express provisions for voluntary liquidations, administrations and voluntary arrangements did not justify a contrary construction, since the differences could reflect legislative history and the distinct nature of the insolvency regimes.

Lord Justice Dyson and Lord Justice Ward agreed with the judgment of Lord Justice Lloyd.

1. Court of Appeal (Civil Division): appeal dismissed unanimously on 30 July 2008.
2. High Court (Chancery Division, Bristol District Registry): application to set aside the block transfer order dismissed in [2008] EWHC 387 (Ch), reported at [2008] BPIR 288; permission to appeal granted.