Abdulla v Whelan & Ors

A trustee in bankruptcy may disclaim only property comprised in the bankrupt’s estate. Where jointly owned leasehold property is held by the bankrupt and a co-owner as trustees, the legal estate is excluded from the bankrupt’s estate under the Insolvency Act 1986. The trustee cannot therefore disclaim that legal estate. The bankrupt’s beneficial interest may fall within the estate, but disclaimer of that interest does not determine the legal lease or remove liability for rent. The statutory deeming approach discussed in Hindcastle Ltd v Barbara Attenborough Associates Ltd does not apply where the legislation clearly excludes the legal estate from the bankrupt’s estate.

The appeal concerned jointly owned business premises held under an underlease by the bankrupt and another tenant as joint legal owners. The trustee in bankruptcy served a disclaimer under section 315 of the Insolvency Act 1986. The appellant argued that the disclaimer ended the bankrupt’s legal interest in the underlease and prevented the landlords proving for rent accruing after the disclaimer.

The County Court at Kingston upon Thames held that the disclaimers did not prevent the landlords proving for future rent. The issue before the High Court was whether the legal estate in the jointly held underlease formed part of the bankrupt’s estate and could be disclaimed.

1. The appeal was dismissed. The County Court was correct to hold that the disclaimers did not prevent the landlords proving for rent falling due after the disclaimers.
2. The underlease was held by the bankrupt and the co-tenant as joint legal owners on trust for themselves. Under section 283 of the Insolvency Act 1986, property held on trust for another person is excluded from the bankrupt’s estate. The legal estate therefore remained in the names of the bankrupt and the co-tenant and did not vest in the trustee.
3. Section 315 permits disclaimer only of property comprised in the bankrupt’s estate. Since the legal estate was not comprised in that estate, the trustee could not disclaim it. Any step concerning the trust property would in any event require the two trustees to act together, and a legal joint tenancy could not be severed in this way.
4. The appellant’s reliance on Hindcastle Ltd v Barbara Attenborough Associates Ltd was rejected. That case addressed a statutory and property-law conundrum concerning the effect of disclaimer on other parties’ rights and liabilities. Here the legislation was clear: the legal estate was excluded from the bankrupt’s estate, so there was no conundrum requiring a flexible or deeming solution.
5. Lee v Lee did not assist the appellant. The point now in issue had not been argued in that litigation and the courts had proceeded on an assumed basis. It did not establish that a trustee could disclaim the legal estate in jointly held trust property.
6. The legal interest in the underlease remained in the names of the bankrupt and the co-tenant. Rent continued to be payable to the landlords. Counsel were invited to agree a draft order giving effect to the dismissal.

• High Court (Chancery Division): appeal dismissed.
• County Court at Kingston upon Thames: on 7 July 2016, the District Judge held that the purported disclaimers did not prevent the landlords proving for rent falling due after the dates of service.