Patley Wood Farm LLP & Ors v Kristina Kicks & Anor

Under Insolvency Act 1986, section 303, dissatisfaction with a trustee’s conduct is insufficient. The applicant must have a legitimate and substantial interest in the relief sought. The court may intervene for fraud, bad faith, or conduct that is so utterly unreasonable and absurd that no reasonable trustee would have acted in that way.

A trustee’s mistake does not itself establish perversity. However, maintaining a decision after relevant mistakes and concerns have been corrected may do so. Trustees must act in the interests of creditors as a class. They need not remain neutral between creditors and bankrupts, and third-party funding does not inherently compromise their independence.

The applicants were two major creditors and a company involved in proceedings concerning West Axnoller Cottage. The cottage was held by the bankrupts as bare trustees for their trustees in bankruptcy. The Court of Appeal had allowed part of the bankrupts’ appeal concerning their eviction and invited the trustees to apply to intervene in consequential proceedings.

The trustees declined to intervene, citing cost, funding, neutrality, independence and uncertainty about the cottage’s value. The applicants sought directions under section 303(1) of the Insolvency Act 1986. The central issues were standing, whether the trustees’ decision was perverse, and the appropriate relief.

1. Standing. The first and second applicants, as creditors representing about 60% of the debts, had a legitimate and substantial interest in obtaining relief which could generate funds for the bankruptcy estates. Estimated and unliquidated trustee remuneration did not remove that interest. The bankrupts’ interest in regaining possession was neither substantial nor legitimate because they held the cottage only as bare trustees for the bankruptcy estates and had offered to vacate on notice.
2. Statutory test. Section 303(1) requires more than dissatisfaction. In the absence of fraud or bad faith, intervention requires conduct or decision-making that is perverse: not merely wrong, but so utterly unreasonable and absurd that no reasonable trustee would have acted in that way. The test is not the public-law Wednesbury test. A mistake, or failure accidentally to consider a relevant matter, is not by itself perversity. Maintaining the decision after the relevant concerns have been corrected may be perverse.
3. Application. The trustees had funding and indemnities, encouragement from the Court of Appeal, and an opportunity to obtain income from the cottage for creditors. Their continuing refusal to intervene was driven by an illegitimate wish to avoid litigation. They had wrongly treated neutrality between the creditors and bankrupts as relevant. No reasonable trustee could have maintained that position by the hearing date.
4. Relief. The court rejected an analogy with interim injunctions and damages. Section 303 is a statutory insolvency remedy and is not restricted by rules developed for equity’s auxiliary jurisdiction. Directions requiring the trustees to apply to intervene were appropriate, but the proposed obligation to grant Chedington a licence was replaced by an option, allowing the trustees to seek a better return.

Costs, permission to appeal and other consequential matters were reserved for written submissions.

This was a first-instance application under section 303(1) of the Insolvency Act 1986. The judgment referred to pending consequential proceedings in the Court of Appeal but did not determine an appeal.