Brake & Ors v Lowes & Ors (Ruling on striking out the Bankruptcy Application)

A person seeking to challenge a trustee in bankruptcy’s decision under the Insolvency Act 1986 must show both statutory qualification and a legitimate or substantial interest in the relief sought. A mere desire to acquire an asset, or an interest arising from a separate claim to that asset, is insufficient. The court distinguished the bankrupts’ personal position from their position as trustees of a family settlement. An allegation of unfairness or a fraud on a power does not itself confer standing where the applicant lacks the requisite financial interest. The application was therefore struck out insofar as it challenged a liquidation transaction concerning the cottage and related land.

The applicants sought relief under section 303 of the Insolvency Act 1986 against a former trustee in bankruptcy and the purchaser of interests in West Axnoller Cottage and an adjacent ransom strip. They applied in two capacities: as trustees of the Brake Family Settlement and as bankrupts who had since been discharged.

The respondents argued that the applicants lacked standing to challenge the transaction. The court considered authorities concerning standing to challenge decisions of liquidators and trustees in bankruptcy, the applicants’ separate claim to revesting under section 283A, and allegations that the bidding process had been unfair or rigged.

1. Standing under the statutory jurisdiction. The applicant had to show both that he was qualified to invoke the statutory power and that he was a proper person with a legitimate interest in the relief sought. The relevant interest was not merely an interest in the outcome, but a substantial or recognisable financial interest in the insolvency estate. The approach in Deloitte & Touche v Johnson [1999] 1 WLR 1605, together with Re Edennote Ltd [1996] BCC 718 and Mahomed v Morris [2001] BCC 233, was applicable by analogy to the present bankruptcy application.
2. Separate capacities. As trustees of the family settlement, the applicants were outsiders to the insolvency process. Their complaint was that they had been denied an opportunity to acquire the cottage. That did not give them a sufficient interest in challenging the trustee’s decision. Their position had to be assessed separately from that of the bankrupts personally.
3. Bankrupts’ personal position. The applicants’ possible claim to revesting under section 283A did not confer standing in this application. If the revesting claim succeeded, the impugned sale would operate on no interest held by the trustee. If it failed, the claim added nothing to the applicants’ interest in challenging the transaction. The alleged bidding process occurred in the liquidation, not in the bankruptcy, and any relevance to the liquidation application did not establish standing in this application.
4. Authorities relied upon by the applicants. Faryab v Smith [2001] BPIR 246 did not assist because standing had not been argued or decided and the Court of Appeal had not been referred to Mahomed v Morris. The decision was therefore put to one side. The exception discussed in Re Edennote Ltd concerned fraud involving deception or deceit. It did not extend to a fraud on a power, which under Vatcher v Paull [1915] AC 372 need not involve such conduct.
5. The application to strike out relief paragraphs (a), (b), (f), and the ancillary parts of paragraph (c), insofar as they concerned the transaction, succeeded.

The judgment is a first-instance ruling. It records earlier proceedings and related claims but does not state an appellate history.