Brake and another v The Chedington Court Estate Ltd

The Supreme Court considered the standing of bankrupts to apply under section 303(1) of the Insolvency Act 1986 to challenge acts, omissions or decisions of a trustee. The Court confirmed that standing under section 303(1) is limited. Creditors may apply only in respect of matters affecting their interests as creditors; a bankrupt (or contributory) will have standing where there is or is likely to be a surplus or in very limited circumstances where the challenge concerns rights or matters arising specifically from the bankruptcy or liquidation regime (for example, issues peculiar to the insolvency process such as disclaimer or costs relevant to annulment). The Court rejected a broader test that would permit any person whose rights had been wrongfully interfered with by a trustee to apply under section 303(1). Applying these principles to the facts, the Court held that the applicants, the Brakes, did not fall within the recognised categories and therefore lacked standing to pursue their challenge to the trustee's dealings with the Cottage.

This appeal concerned two former bankrupts (Mr and Mrs Brake) who challenged steps taken by their trustee involving the sale and transfer of an interest in a cottage and related conduct said to have facilitated their eviction. The factual background included partnership and property disputes, the appointment of a trustee in bankruptcy, a facilitation arrangement by which the trustee acquired the partnership's interest in the cottage and arrangements for its transfer to a purchaser, and an ensuing licence and change of locks.

The procedural history was: applications were issued under section 168(5) (liquidation) and section 303(1) (bankruptcy); the trustee and liquidators largely did not contest the substantive claims; HHJ Matthews at first instance struck out substantial parts of the applications for lack of standing and dismissed the claim to revesting under section 283A(2) (Brake v Swift [2020] EWHC 1810 (Ch)). The Court of Appeal ([2020] EWCA Civ 1491) upheld the strike-out as regards the applicants in their capacities as trustees (potential bidders) and in respect of the liquidation application, but concluded that in their personal capacities as former bankrupts the Brakes had a sufficient substantial and direct interest to have standing under section 303(1).

The Supreme Court examined the relevant statutory provisions, historic context and authorities (including Mahomed v Morris, In re Edennote, Engel v Peri, In re Hans Place Ltd and Deloitte & Touche) and framed the applicable principles. The Court emphasised three classes in which standing may arise: (i) creditors as regards their interests as creditors; (ii) bankrupts or contributories where there is or is likely to be a surplus; and (iii) a narrow category of persons in respect of matters arising specifically from powers or provisions peculiar to the insolvency regime. The Court rejected the Court of Appeal's broader formulation that a bankrupt need only show a "substantial interest which has been affected" and also rejected the submission that any person whose rights were wrongfully interfered with by a trustee could bring an application under section 303(1). The Court held that allowing such a broad approach would be inconsistent with the statutory scheme (notably section 304 and the requirement of leave for misfeasance claims), would create unacceptable exposure to litigation and would undermine the statutory trust-based administration for the benefit of creditors.

Accordingly, the Supreme Court allowed the appeal and held that the Brakes lacked standing to pursue the bankruptcy application insofar as it challenged the trustee’s dealings with the Cottage.

Appeal allowed. The Supreme Court held that standing under section 303(1) is limited: creditors may apply only in respect of their interests as creditors; bankrupts or contributories require a real prospect of a surplus (or fall within very limited categories where rights arise specifically from the insolvency regime). The Court rejected a broad test permitting any person whose rights were wrongfully interfered with by a trustee to apply under section 303(1). The Brakes did not fall within the recognised categories and therefore lacked standing to challenge the trustee's conduct regarding the Cottage.

First instance: HHJ Matthews (Chancery Division) struck out substantial parts of the applicants' claims and refused revesting (Brake v Swift [2020] EWHC 1810 (Ch)). Court of Appeal: [2020] EWCA Civ 1491 — affirmed strike-out in respect of the applicants as trustees and the liquidation application, but held that the Brakes in their personal capacities had sufficient interest to have standing under section 303(1). Supreme Court: [2023] UKSC 29 — allowed the appellant's appeal and held the Brakes lacked standing in respect of their challenge to the trustee's dealings with the Cottage.