Lewis & Anor v Metropolitan Property Realisations Ltd

For the purposes of section 283A(3)(a) of the Insolvency Act 1986, a trustee in bankruptcy does not realise an interest in the bankrupt’s home merely by selling or assigning it for deferred cash consideration. Realisation requires the full cash consideration to be received within the statutory three-year period.

A trustee’s statutory power to sell for future consideration does not determine when realisation occurs. The section’s purpose is to crystallise the estate’s return within a reasonable period and prevent the trustee from retaining exposure to future increases in the property’s value.

The bankrupt and his wife jointly owned their principal residence. The trustees assigned the bankrupt’s beneficial interest to a creditor one day before the third anniversary of the bankruptcy. The creditor paid £1 immediately and undertook to pay a proportion of the proceeds received upon an eventual sale.

Proudman J refused the owners’ claim for a declaration that the creditor had no interest. She held that a sale for deferred contingent consideration amounted to realisation under section 283A(3)(a) of the Insolvency Act 1986.

The owners appealed. The central issue was whether an assignment for consideration which had not been received in full within three years amounted to realisation, thereby preventing the interest from revesting in the bankrupt.

1. Appeal allowed. The word “realises” in section 283A(3)(a) of the Insolvency Act 1986 requires the trustee to receive the full cash consideration for the transaction. A sale or assignment for future cash consideration is not a realisation while that consideration remains outstanding.

2. The ordinary English meaning of realisation is conversion into cash. Earlier judicial uses of the term supported the impression of a completed transaction in which the relevant value had become available as cash. Uses of “realise” and its derivatives elsewhere in the insolvency legislation generally also indicated a final change into distributable or usable cash.

3. The statutory scheme supported that construction. Section 283A gives the trustee three years to decide how to deal with an interest in the bankrupt’s home. If the trustee takes no qualifying step, the interest revests in the bankrupt. An order for sale, a charging order, an agreement with the bankrupt or a completed sale ordinarily crystallises the estate’s return by reference to the interest’s then value. The scheme prevents the trustee from retaining an indefinite interest in future increases in property value and gives the bankrupt and any co-owner a reasonable degree of certainty.

4. The trustee’s power under Schedule 5 to sell property for money payable at a future time did not alter the result. The existence of a power to enter such a sale was distinct from the question when the asset was realised. A deferred-consideration sale was, before payment, only a step towards realisation.

5. The assignment therefore did not satisfy section 283A(3)(a). Not all the cash consideration had been received within three years. The bankrupt’s interest revested in him under section 283A(2), and the creditor no longer owned any interest in the property. This conclusion did not depend upon the consideration being contingent.

1. Court of Appeal (Civil Division): By [2009] EWCA Civ 448, allowed the appeal and declared in substance that the bankrupt’s interest had revested in him and that the respondent no longer owned an interest.
2. High Court, Chancery Division in Bankruptcy: Proudman J refused the claim for a declaration that the respondent had no interest. She held that a sale for deferred contingent consideration was a realisation under section 283A of the Insolvency Act 1986.