Appleyard v Wewelwala

Where a bankruptcy order is set aside after a trustee has been appointed, the court has inherent jurisdiction to address the trustee’s reasonable expenses. The jurisdiction is not a review of the appellate order. It arises as a necessary consequence of the order divesting the trustee of estate property.

A trustee who has acted properly and innocently is entitled to recover reasonable expenses incurred before learning that the bankruptcy order was set aside. The expenses should ordinarily be secured against property re-vested in the bankrupt, rather than imposed as a personal liability. The trustee should seek directions before incurring further expenses after receiving notice of the order.

Mrs Wewelwala was made bankrupt on a petition based on an admitted judgment debt. The Official Receiver appointed Mr Appleyard as trustee after her written application for permission to appeal had been refused.

On a later application, of which Mr Appleyard was not notified, the bankruptcy order was set aside on appeal. The order made no provision for his release from office or payment of his expenses. He subsequently applied for directions concerning his accrued and further expenses.

The issues were whether the court had jurisdiction to make provision for those expenses, whether they should be paid, and whether liability should fall on the bankrupt personally, her re-vested property, or the petitioning creditor.

1. Jurisdiction. Section 375(1) of the Insolvency Act 1986 did not permit a first-instance court to review an order made in the exercise of appellate jurisdiction under section 375(2). The present application was not, however, a review of the appellate order. It concerned the necessary consequences of an order which had made no provision for the trustee’s expenses. The court therefore had inherent jurisdiction: Butterworth v Soutter, Thornhill v Atherton and London Borough of Redbridge v Mustafa.
2. The jurisdiction extended to a bankruptcy order set aside on appeal. The position was closely analogous to annulment under section 282(1)(a), because both processes divested the trustee of estate property which would otherwise be available to meet proper expenses.
3. The discretion whether expenses should be paid, and by whom or from what fund, had to be exercised in accordance with relevant principles. A trustee acting properly and innocently was entitled to reasonable expenses and was not expected to act gratuitously. The right to recover from the estate prevailed over the bankrupt’s right to enjoy the estate fully on its re-vesting. Fault as between the bankrupt and petitioning creditor was irrelevant to the trustee’s entitlement.
4. Mr Appleyard’s reasonable expenses incurred before he learned of the setting aside order were secured by a charge over Mrs Wewelwala’s re-vested beneficial interests in land and bank accounts. No personal order was made against her. Her additional expenses incurred after notice were disallowed in principle because he should first have sought directions.
5. The reasonableness and timing of the claimed sum remained open for agreement or challenge. The trustee was released from office, and the bankrupt remained at liberty to pursue any compensation claim against Davenham.

• Central London County Court: bankruptcy order made against Mrs Wewelwala on 20 April 2011.
• High Court: Floyd J subsequently allowed Mrs Wewelwala’s appeal, set aside and removed the bankruptcy order from the Bankruptcy Register, and made no provision for the trustee’s expenses.
• High Court (Chancery Division): the present directions application resulted in a charge securing the trustee’s reasonable pre-notification expenses, refusal in principle of post-notification expenses, and release from office.