Jonathan Harris Sinclair v Rodney Whiston-Dew & Anor

A liquidator may seek a declaration determining competing claims to funds held in escrow where the relevant contractual conditions and insolvency consequences are established by the evidence. A bankrupt’s disputed interest in an asset vests in the trustee in bankruptcy from the commencement of the bankruptcy. A creditor cannot retain the benefit of execution issued before bankruptcy unless execution was completed before the bankruptcy commenced. The court may grant declaratory relief where the evidence shows that the opposing parties have no legal basis for claiming the fund, including where purported proceedings or orders were used as part of a fraudulent attempt to obtain it.

The claimant, liquidator of Judmick Estates Limited, held approximately £276,378 in an escrow account under an undertaking originally given in connection with the sale of company property and pending criminal proceedings against the first defendant. Following the first defendant’s conviction and confiscation order, and his subsequent bankruptcy, the parties disputed entitlement to the fund.

The defendants had also obtained or sought purported orders and a charging order directed at the escrow money. The court had previously set aside the purported Tomlin order and discharged the charging order. The present Part 8 claim sought a declaration that neither defendant had any right, title or interest in the escrow account. The defendants did not participate in the claim.

1. Declaration granted. The court determined that neither defendant had any basis for claiming the escrow sum. The claimant was entitled to the declaration sought.
2. The undertaking permitted release to EGC Remco Limited only if the first defendant was acquitted, or was convicted without a compensation or confiscation order. Those conditions were not met. Following conviction and the making of the confiscation order, EGC’s right to claim the fund fell away and the Crown was the only party capable of calling on the undertaking.
3. Even if the escrow sum had constituted an asset of the first defendant, it would have vested in his trustee in bankruptcy on 24 June 2021 under Insolvency Act 1986, section 306(1). The first defendant could therefore not validly assign or direct the transfer of that interest after bankruptcy.
4. Under section 346(1) of the Insolvency Act 1986, a creditor who had issued execution before bankruptcy could not retain its benefit unless execution had been completed before commencement of the bankruptcy. Section 278 fixed commencement of the bankruptcy at the date of the bankruptcy order. The purported judgment and charging order, both dated after that date, could not validly charge the asset.
5. The court also found that the related proceedings were part of a concerted attempt to perpetrate a fraud and that the first defendant’s application to set aside the earlier order was an abuse of process and a fraud on the court. The evidence supported the conclusion that neither defendant had any legal entitlement to the fund.

Not stated in the judgment. This was a first-instance Part 8 claim.