Lewis v Metropolitan Properties Realisations Limited

The Court of Appeal considered the meaning of "realises" in section 283A(3)(a) of the Insolvency Act 1986, added by section 261 of the Enterprise Act 2002. The court held that in the context of section 283A "realises" requires the trustee to have got in the full cash consideration within the three year period; a sale for deferred or contingent monetary consideration that has not been paid in full by the end of that period is not a "realisation" for the purposes of s.283A(3)(a). The court reached that conclusion by reference to the ordinary English meaning of the word, relevant authorities, and the statutory scheme (in particular the purpose of s.283A read with sections such as 313, 313A and 332), and therefore concluded that an assignment of a beneficial interest for deferred consideration did not prevent revesting under s.283A(2).

Background and parties: Mr and Mrs Lewis owned the legal title to 35 Little Common, Stanmore. Before Mr Lewis's bankruptcy (12 July 2004) the property was the couple's sole or principal residence. The trustees in bankruptcy investigated the estate's interest but did not proceed to obtain the cash value of Mr Lewis's beneficial interest. Metropolitan Property Realisations Limited (MPRL), a major creditor, took an assignment of the trustees' beneficial interest dated 11 July 2007, which provided for immediate nominal payment and a future or contingent share of net sale proceeds.

Nature of the claim and procedural posture: The Lewises sought a declaration that MPRL had no interest in the property because the bankrupt's interest had revested in him under s.283A(2) after three years. Proudman J in the High Court (Chancery Division, Bankruptcy) refused the claim. The Lewises appealed with permission; this is the appeal to the Court of Appeal.

Issues framed:

• Whether an assignment of the trustee's beneficial interest for deferred or contingent monetary consideration amounts to the trustee having "realised" the interest for the purposes of s.283A(3)(a) of the Insolvency Act 1986.
• The temporal point at which a realisation occurs (whether a sale on deferred terms is a completed realisation before the cash is received).

Court's reasoning: The court began from the ordinary English meaning of "realise" as conversion into cash and surveyed authorities which treated realisation as reduction to cash. It examined the use of "realise" and related words across the Insolvency Act and related rules, and analysed the statutory scheme introduced by the Enterprise Act 2002 (including provisions enabling charging orders and fixing values) to infer Parliament's purpose of ensuring certainty by requiring trustees to crystallise interests within three years. The court concluded that allowing a sale for unpaid deferred consideration to count as a realisation would be incongruous with the scheme because it would leave value outstanding and permit the trustee or a third party purchaser to sit and benefit from future increases in value, undermining the "use it or lose it" purpose. The court distinguished the trustee's power to sell for deferred payment (a power exists) from the question of when a realisation occurs, holding that the power does not determine the temporal occurrence of realisation for s.283A purposes.

Result: The Court of Appeal allowed the appeal, holding that the assignment to MPRL did not amount to a realisation within s.283A(3)(a) because not all cash had been got in within three years, and therefore Mr Lewis's interest revested in him under s.283A(2).

Appeal allowed. The court held that "realises" in s.283A(3)(a) of the Insolvency Act 1986 requires the trustee to have got in the full cash consideration within the three year period; an assignment for deferred or contingent consideration which has not been paid in full by the end of that period is not a "realisation", so the bankrupt's interest revested under s.283A(2). The court relied on the ordinary meaning of "realise", relevant authorities, and the statutory scheme (including ss.313, 313A and 332) to reach that conclusion.

Appeal from the High Court of Justice, Chancery Division (Bankruptcy), Proudman J, judgment dated 21 November 2008 (judgment below). The present judgment of the Court of Appeal is reported at [2009] EWCA Civ 448.