Pick v Sumpter & Anor

Where a trustee in bankruptcy seeks possession of a jointly owned home more than 12 months after the bankrupt’s interest vested, the court must apply the statutory presumption that creditors’ interests outweigh all other considerations unless exceptional circumstances are shown. A possession order should not ordinarily be suspended on payment of a fixed sum where the bankruptcy liabilities, statutory interest, remuneration and costs remain estimated or uncertain. The proper course is generally an unconditional possession order, leaving the bankrupt to seek annulment or appropriate directions if sufficient funds are raised. The court may review an earlier order where exceptional circumstances exist, particularly where the order has a materially different effect from that intended and correction is required to protect creditors.

The trustee in bankruptcy appealed against orders made by District Judge Freeborough in the Croydon County Court on 2 May and 1 August 2006. The orders required possession of the respondents’ home unless a specified sum of £25,571 was paid. That sum had been calculated from an earlier schedule of estimated bankruptcy liabilities, costs, remuneration and statutory fees.

The trustee contended that the figure was outdated and uncertain, and that the District Judge had wrongly refused to review the original order. The central issues were whether the order should have been conditional on payment of the specified sum, whether the District Judge had jurisdiction to review it, and whether the interests of creditors had been properly considered.

1. The appeal was allowed. The order of 1 August 2006 was discharged, and the words making possession conditional on payment of £25,571 were deleted from the order of 2 May 2006. The possession order therefore became unconditional and the warrant could take effect.

2. Under section 335A(3) of the Insolvency Act 1986, where more than 12 months have elapsed since the bankrupt’s interest vested in the trustee, the court must assume, absent exceptional circumstances, that creditors’ interests outweigh all other considerations. Neither respondent had attended the original hearing or produced evidence of exceptional circumstances. The trustee was therefore entitled to a possession order.

3. The District Judge’s conditional order was misconceived. The specified figure was an estimate, was out of date, and did not account reliably for continuing statutory interest, possession-application costs or the amount of the trustee’s remuneration. Treating it as a fixed sum risked leaving creditors unpaid, particularly because costs and remuneration ranked ahead of unsecured creditors.

4. The appropriate approach was to make an unconditional possession order. If sufficient funds were raised to discharge or secure the bankruptcy liabilities, including properly claimed costs and remuneration, the bankrupt could apply for annulment and, if necessary, directions preventing a sale until that application was determined. A sale of the trustee’s interest below full value could be permissible only where the bankruptcy liabilities were discharged from the proceeds and the bankrupt consented.

5. The District Judge had jurisdiction under section 375(1) of the Insolvency Act 1986 to review the earlier order. Applying the guidance summarised in Papanicola v Humphreys [2005] 2 All ER 418, exceptional circumstances were established. The original order had a radically different effect from that intended, later material exposed the error, the creditors’ interests required correction, and the review application had been made promptly.

6. After further submissions, possession was ordered within 28 days and the trustee was awarded his costs in the bankruptcy both below and on appeal.

• Croydon County Court: District Judge Freeborough ordered possession on 2 May 2006 unless £25,571 was paid, and on 1 August 2006 extended the time for payment and refused to amend the specified sum.
• High Court (Chancery Division): The appeal was allowed. The order of 1 August 2006 was discharged and the payment condition in the order of 2 May 2006 was deleted.