Stonham v Ramrattan & Anor

Section 283A of the Insolvency Act 1986 applies only to an interest in a qualifying dwelling-house which was vested in the bankrupt at the commencement of the bankruptcy and thereby became part of the bankrupt’s estate. It does not apply to property vested in a third party which the trustee might recover through proceedings concerning a transaction at an undervalue.

Accordingly, a trustee does not become aware of the bankrupt’s interest for the purposes of section 283A(5) merely by learning of a possible recovery claim. The trustee must become aware of an interest already vested in the estate. The statutory three-year regime cannot be extended by analogy to recovery claims, although its policy may inform a relevant statutory discretion.

The bankrupt and his wife appealed from orders made by Mann J in [2010] EWHC 1033 (Ch) and [2010] EWHC 1059 (Ch). Those orders allowed the trustee in bankruptcy’s appeal from Registrar Simmonds and granted relief concerning the matrimonial home.

The property had been registered in the bankrupt’s name and was purportedly transferred to his wife in 1990. The registrar found that the transfer contained forged signatures, that the wife had no beneficial interest and that the document was intended to deceive creditors. Mann J held that the wife held the legal estate on trust for the bankrupt absolutely, so the beneficial interest had vested in the trustee on bankruptcy.

The central issue was whether section 283A of the Insolvency Act 1986, as applied by the transitional provisions of the Enterprise Act 2002, caused the interest to cease to form part of the estate because the trustee had failed to act within three years. This required the court to decide whether section 283A extended to a potential claim to recover property under section 339 and when a trustee became aware of an interest for section 283A(5).

1. Appeal dismissed. Lloyd LJ held that section 283A(1) of the Insolvency Act 1986 concerns an interest which formed part of the bankrupt’s estate because it was vested in the bankrupt at the commencement of the bankruptcy. It does not include property then vested in a third party, even where a strong claim might recover it for the estate under section 339 or an equivalent provision. Longmore and Rix LJJ agreed: paras [51], [56]–[60].

2. Section 283A(2) requires the relevant interest first to be comprised in the bankrupt’s estate before it can cease to be so comprised and vest in the bankrupt. Property recovered pursuant to sections 339 and 342 becomes part of the estate only when the recovery order takes effect. Neither section 283(1)(b) nor the restorative language of section 339 gives that vesting retrospective effect: paras [37]–[41], [47].

3. The alternatives in section 283A(3) also show that the section addresses an existing estate interest. Realisation, applications for sale, possession or a charging order, and an agreement with the bankrupt all presuppose an interest already comprised in the estate. They do not naturally address a potential claim against a third party: para [46].

4. A trustee therefore does not become aware of an interest for section 283A(5) merely by becoming aware of facts supporting a possible section 339 claim. Awareness must concern an interest already vested in the estate because it was vested in the bankrupt when the bankruptcy commenced. That construction places the trustee in the position which proper disclosure by the bankrupt would have produced: paras [48]–[51].

5. The policy of section 283A could not be applied by analogy to impose an additional three-year regime on section 339 recovery claims. The detailed statutory scheme could not be enlarged judicially. The policy might, however, legitimately inform the exercise of a discretion where one arose, including under section 342. That question did not determine this appeal: paras [53]–[54], [60]–[61].

1. Court of Appeal (Civil Division): The appeal was dismissed. The court upheld Mann J’s rejection of the contention that section 283A caused the beneficial interest to re-vest in the bankrupt.
2. High Court, Chancery Division: In [2010] EWHC 1033 (Ch), Mann J held that the forged transfer had no legal effect and that the wife held the legal estate on trust for the bankrupt absolutely. In [2010] EWHC 1059 (Ch), he rejected the section 283A argument, allowed the trustee’s appeal and granted relief broadly as sought.
3. Registrar in Bankruptcy: Registrar Simmonds found that the transfer was a sham or, alternatively, a transaction at an undervalue. He nevertheless refused relief because of the trustee’s delay. That refusal was reversed by Mann J.