Miller v Bayliss

A trustee in bankruptcy inviting offers for estate property ordinarily makes an invitation to treat, not an offer to sell to the highest bidder. The trustee may accept an offer conditionally and stipulate that no binding contract arises until cleared funds are received. The trustee’s primary duty is to maximise realisations for creditors. Under section 303 of the Insolvency Act 1986, the court should intervene only on the stringent grounds identified in the authorities, including bad faith, fraud or conduct so perverse or unreasonable that no properly advised trustee could have adopted it. A person seeking to challenge the trustee must also show a substantial interest adversely affected by the impugned act or decision.

The applicant, Nicholas Miller, was trustee in bankruptcy of Keith Bayliss. The respondent, Donna Jane Bayliss, had received 187 shares in UK Business Watch Limited from the bankrupt at an undervalue. The trustee sought relief under section 339 of the Insolvency Act 1986 and asserted an entitlement to sell a further 300 shares.

Mrs Bayliss alleged that correspondence concerning competing bids created a binding agreement under which the trustee agreed to sell all 487 shares to her for £30,500. She alternatively challenged the trustee’s sale of the shares to Mrs Peckham for £20,000 under section 303. The issues were whether a contract had arisen, whether the trustee’s conduct justified intervention, and whether Mrs Bayliss had standing to apply.

1. Contract. The trustee’s correspondence, objectively construed, invited offers from prospective purchasers. It did not constitute an offer to sell to the highest bidder. The shareholders’ agreement did not alter that construction.
2. Mrs Bayliss’s communication on 28 February 2007 was an offer to purchase the 487 shares for £30,500. The trustee’s response that he was prepared to progress the offer, expressly stating that formal acceptance would occur only when cleared funds were received, was a conditional response and not an unconditional acceptance. No interest in the shares passed before payment.
3. Section 303 supervision. The applicable test was stringent. The court should not interfere with a trustee’s discretionary decision unless it was made in bad faith, fraudulently, or so perversely, unreasonably or absurdly that no properly advised trustee could have acted in that way. The court declined to impose a special or more onerous duty merely because the trustee was contracting with a third party.
4. The trustee was entitled to prioritise the creditors’ interests and to prefer a secure cash offer of £20,000 over an uncertain promise of £30,500. His conduct was prudent, professional and within his discretion. It was neither dishonest nor dishonourable, and did not justify intervention under section 303.
5. Locus standi. In any event, Mrs Bayliss had no substantial interest adversely affected by the trustee’s conduct. Once the alleged contract failed, her asserted contractual interest disappeared. She therefore was not a person dissatisfied entitled to invoke section 303.
6. The trustee’s application under section 339 was granted. Mrs Bayliss’s section 303 application was refused, and she remained obliged to transfer the 187 undervalue shares to the trustee.