Everitt v Budhram & Anor

On an application for sale of a bankrupt’s home, the court must apply the statutory scheme in Insolvency Act 1986, including the presumption that, after one year, creditors’ interests outweigh other considerations unless exceptional circumstances exist.

The bankrupt’s own needs cannot be considered. The needs of a spouse or other co-owner may be relevant, and medical or mental conditions of a co-owner may amount to exceptional circumstances. The court must not revisit the bankruptcy order, substitute the remedies available to a judgment creditor, or allow procedural unfairness to affect the decision. Exceptional circumstances may justify suspending enforcement for a limited and defined period, but not indefinitely.

The trustee in bankruptcy appealed against a decision of Deputy District Judge Somerville refusing an order for sale of the Budhrams’ home. The judge had instead charged Mrs Budhram’s beneficial interest with the trustee’s professional and legal costs.

The bankruptcy orders had been made in 2006 following unpaid council tax. The petition debt and costs were later paid, but other creditors, undisclosed assets and substantial trustee costs remained. Mr Budhram lacked capacity and Mrs Budhram suffered serious medical conditions. The central issues were whether the district judge had applied the statutory test correctly, whether procedural irregularities affected the decision, and whether exceptional circumstances justified postponing sale.

1. Appeal allowed. The district judge’s order could not stand because his reasoning was flawed in substance and procedure.
2. It was impermissible to treat the council’s choice to commence bankruptcy proceedings, rather than pursue a judgment and charging order, as relevant to the sale application. The bankruptcy order had not been annulled, set aside or challenged. Nor could the court replicate the position of a judgment creditor, since bankruptcy required assets to be realised and distributed pari passu among creditors.
3. Under section 335A of the Insolvency Act 1986, the bankrupt’s own needs must be disregarded. That exclusion extends to medical, psychological and other non-financial needs. The needs of a spouse, co-owner or children remain relevant where the statutory provision permits them.
4. The interests of creditors remain relevant even where sale proceeds may be absorbed by bankruptcy expenses. The court applied the principles stated in Re Karia [2006] BPIR 1226 and Dean v Stout [2005] EWHC 3315 (Ch), and treated the exceptional-circumstances guidance in Re Citro [1991] Ch 142 as applicable.
5. Mr Budhram’s incapacity, serious physical illness and lack of representation were exceptional circumstances in relation to the application against Mrs Budhram. They justified suspension of enforcement, but not refusal of the sale order. No sale was to take place until the earlier of one year from judgment or three months after an order for possession against Mr Budhram.
6. It was procedurally unfair to rely on a letter criticising the trustee without giving him an opportunity to respond. The district judge also acted prematurely in ordering assessment of remuneration without an application under the applicable remuneration procedure.
7. The trustee’s costs of the appeal application, including VAT, were summarily assessed at £14,280.18.

• High Court (Chancery Division): Appeal from the decision of Deputy District Judge Somerville dated 19 February 2009 allowed. The refusal of sale and the charging order were set aside. A sale order was made subject to a limited suspension.