Stonham v Ramrattan & Anor

This appeal concerned the interaction between section 283A of the Insolvency Act 1986 (as inserted by the Enterprise Act 2002 and applied by transitional provisions) and a trustee's claim under section 339 to recover a bankrupt's beneficial interest in the matrimonial home from a third party. The registrar had found that the 1990 transfer was a forgery, that Mrs Bortolussi had no beneficial interest, and nonetheless declined to grant relief because of delay; the High Court allowed the trustee's appeal and ordered relief. The appellants argued that section 283A operated to divest the trustee of any interest unless the trustee had taken specified steps within the three year transitional period or had "become aware" of the bankrupt's interest by that time.

The Court of Appeal rejected the appellants' construction of section 283A(5). Section 283A is concerned with interests that were vested in the bankrupt at the commencement of the bankruptcy and therefore formed part of the bankrupt's estate; it does not embrace a mere potential claim against a third party recoverable under section 339. The court held that a trustee only "becomes aware" for the purposes of section 283A(5) when he becomes aware of an interest that already forms part of the bankrupt's estate; potential claims do not trigger the running of the section 283A period. Consequently the appeal was dismissed.

Background and facts:

• The property at 76 Rosendale Road had been the matrimonial home since 1987. The property was registered in the husband’s name in 1987 and on 28 September 1990 was transferred on its face into the sole name of his wife. A bankruptcy order was made against the husband on 16 October 1995 and the trustee was appointed on 28 December 1995.
• After a private examination in 1997 the trustee’s solicitors warned the transferee that the trustee intended to apply to set the transfer aside as a transaction at an undervalue; no proceedings followed for some years. In 2007 the trustee issued proceedings seeking declarations that the 1990 transfer was at an undervalue and should be set aside, that the transferee had no beneficial interest, that the property be vested in the trustee and sold, and for vacant possession.
• At trial the registrar found the 1990 transfer to be forged by the husband, that the wife had no beneficial interest and that the transfer was a sham or, alternatively, a transfer at an undervalue. The registrar nonetheless refused to grant relief because of the delay in bringing proceedings but gave permission to appeal. The High Court (Mann J) held that, as a forgery, the legal registration of the wife was subject to a resulting trust for the husband and therefore the full beneficial interest had always been an asset of the husband and had vested in the trustee. Mann J allowed the trustee’s appeal and made orders in the trustee’s favour.

Nature of the claim and relief sought:

• The trustee sought declaratory and consequential relief under the bankruptcy provisions: declaration that the 1990 transfer was a transaction at an undervalue or otherwise void, that the transferee had no beneficial interest, vesting of the property in the trustee, sale and vacant possession (relief available under sections 339 and 342 and related provisions).

Procedural posture:

• Initial hearing and findings by Mr Registrar Simmonds (26 January 2010) — registrar declared sham/undervalue but refused relief because of delay. Appeal to Mr Justice Mann (judgments [2010] EWHC 1033 (Ch) and [2010] EWHC 1059 (Ch)), who allowed the trustee’s appeal and granted relief. The husband and wife appealed to the Court of Appeal, which heard the appeal on 3 February 2011 and delivered judgment on 16 February 2011 ([2011] EWCA Civ 119).

Issues framed by the Court:

1. Whether section 283A of the Insolvency Act 1986 (as applied by transitional provisions in the Enterprise Act 2002) operates to divest the trustee of any beneficial interest recoverable under section 339 where the trustee had not taken one of the specified steps within the three year period, and whether that three year period begins to run from the time the trustee first had reason to suppose he might have a viable claim against a third party.
2. Whether the trustee "becomes aware" of a bankrupt's interest for the purposes of section 283A(5) when the trustee becomes aware of a possible section 339 claim or only when the trustee becomes aware of an interest already vested in the bankrupt's estate.

Court’s reasoning and decision:

• The Court analysed section 283A and its subsection (5) in light of the statutory scheme. It concluded that section 283A is directed to interests that are already comprised in the bankrupt’s estate because they were vested in the bankrupt at the commencement of the bankruptcy. Subsection (3) lists remedies and applications by the trustee that presuppose an interest already in the estate (realisation, order for sale, possession, charging order or an agreement), which indicated that the provision does not target mere potential claims against third parties.
• The Court held that property recovered under section 339 vests in the trustee by virtue of the order and that vesting takes effect from the date of the order; such recovery does not retrospectively make the recovered property part of the bankrupt’s estate at the commencement of the bankruptcy for the purposes of section 283A.
• The Court rejected the contention that the trustee’s awareness of a potential section 339 claim starts the running of the section 283A period. That construction would upset the statutory scheme, introduce uncertainty about the start date, and in effect truncate the ordinary limitation position for statutory claims. The appropriate meaning of "becomes aware" in subsection (5) was confined to awareness of an interest already vested in the bankrupt’s estate.
• The Court therefore dismissed the appellants’ challenge to Mann J’s orders, upholding the conclusion that the trustee's relief was not barred by section 283A.

Wider context: The court noted the policy behind the Enterprise Act 2002 to encourage trustees to decide promptly about home-related interests and observed that that policy might be considered when exercising judicial discretions (for example under section 342), but that the statute does not extend to treating potential third-party claims as interests within section 283A.

Appeal dismissed. The Court of Appeal held that section 283A(1)–(5) of the Insolvency Act 1986 (as applied by transitional provisions) applies only to interests that were vested in the bankrupt at the commencement of the bankruptcy and therefore formed part of the bankrupt’s estate; it does not catch a mere potential claim against a third party recoverable under section 339. For the purposes of section 283A(5) a trustee "becomes aware" of an interest only when he becomes aware of an interest that already forms part of the bankrupt’s estate. Property recovered under section 339 vests in the trustee from the date of the court order and is not treated as having been vested in the bankrupt at the commencement of the bankruptcy.

Appeal from orders of Mr Registrar Simmonds (trial before the registrar, judgment 26 January 2010). Appeal to the High Court (Chancery Division) before Mr Justice Mann with judgments at [2010] EWHC 1033 (Ch) and [2010] EWHC 1059 (Ch), who allowed the trustee's appeal. The present appeal was to the Court of Appeal, neutral citation [2011] EWCA Civ 119.