Donaldson v O'Sullivan

The Court of Appeal held that the court has power to appoint a replacement trustee in bankruptcy when removing an existing trustee by a "block transfer" order. The court derived that power from the court's general supervisory jurisdiction in bankruptcy, notably section 303(2) and section 363(1) of the Insolvency Act 1986, together with the court's inherent jurisdiction; the power may be exercised where it is appropriate to avoid unnecessary expense and injustice to creditors or others affected by the administration of the estate. The panel rejected the argument that the specific appointment powers in section 297(4) and (5) and the statutory scheme confined courts to the limited appointment circumstances mentioned there. The court endorsed earlier authorities authorising block transfer orders and concluded that replacing a trustee removed under section 298 by court appointment is permissible in bankruptcy and the equivalent position in compulsory liquidation.

Background and procedural posture.

Mrs Donaldson had been made bankrupt in 1990 and discharged in 1993 but with liabilities outstanding. Her trustee, Mr Gilderthorp, prepared a notice of intended dividend in 2004 and by late 2005 the outstanding sum was small. A block transfer order made on 18 May 2006 in the High Court (Chancery Division) removed Mr Gilderthorp from a number of offices and appointed Mr O'Sullivan in his place. Mrs Donaldson sought to set aside the transfer as it affected her bankruptcy because the new appointee pursued a greater realisation (including applying for an order for sale of the matrimonial home). Judge Havelock-Allan dismissed the application on 29 February 2008 ([2008] EWHC 387 (Ch)) but granted permission to appeal.

Nature of the application.

• The appellant sought relief setting aside the Block Transfer Order so far as it appointed a new trustee in her bankruptcy; in substance she argued that the court had no jurisdiction to appoint a replacement trustee except in the limited circumstances in section 297.

Issues framed by the court.

1. Whether a court removing a trustee under the Insolvency Act 1986 (section 298) can appoint a replacement trustee by way of a block transfer order.
2. Whether such power can be found in section 303(2), section 363(1), the Insolvency Rules, or the court's inherent jurisdiction, and whether that construction is consistent with the statutory scheme.

Court's reasoning and outcome.

The court reviewed the statutory scheme for bankruptcy and comparable insolvency regimes (compulsory and voluntary liquidations, administrations and voluntary arrangements), the relevant rules (notably Insolvency Rules 1986, rule 6.132(5) and rule 6.121), and a line of judicial authority developing "block transfer" practice since the early 1990s. The panel accepted that sections 292 and 297 set out express appointment powers in particular situations but concluded that section 303(2) and section 363(1) confer broad supervisory powers enabling the court to appoint a replacement trustee when removing a trustee under section 298. The court viewed this construction as consistent with the nature of bankruptcy and compulsory winding-up as court-administered processes and with prior authorities that had sanctioned block transfer orders. The appeal was dismissed.

Appeal dismissed. The Court of Appeal held that the court has power, under its supervisory jurisdiction in bankruptcy (notably section 303(2) and section 363(1) of the Insolvency Act 1986 and the court's inherent jurisdiction), to appoint a replacement trustee when removing a trustee under section 298; that power supports block transfer orders and is consistent with the statutory scheme and prior authorities.

The matter arose from the bankruptcy proceedings in which Mrs Donaldson was made bankrupt in 1990 (Swansea County Court). A Block Transfer Order removing the existing office-holder and appointing another was made on 18 May 2006 in the High Court, Chancery Division (Bristol District Registry). The application to set aside the order was heard by His Honour Judge Havelock-Allan Q.C., who gave judgment on 29 February 2008, [2008] EWHC 387 (Ch), dismissing the application but granting permission to appeal. This judgment is the Court of Appeal decision, [2008] EWCA Civ 879.