Joseph Ackerman v Michael Thomas Leeds & Ors

A bankrupt generally lacks standing under Insolvency Act 1986, s 303(1), unless the challenge concerns the bankruptcy and the applicant has a direct and legitimate interest. A personal desire to pursue allegations against former litigation opponents is insufficient where the relevant cause of action vested in the trustees on bankruptcy. A trustee’s release does not, merely by reason of the word liability in s 299(5), prevent a properly interested person from seeking non-monetary relief under s 303. The court will intervene in a trustee’s decision only for bad faith, perversity, fraud, or conduct so unreasonable and absurd that no reasonable trustee could have acted in that way.

The applicant sought to restore and pursue an application under Insolvency Act 1986, s 303(1), challenging former trustees’ assignment of litigation claims and settlement of an appeal. The trustees had assigned the claims to related respondents while the applicant was bankrupt. The trustees later vacated office and obtained their releases. The respondents applied to strike out the s 303 application or obtain reverse summary judgment. The issues were whether the applicant had standing, whether the trustees’ release prevented the application, and whether the challenge disclosed reasonable grounds or had a realistic prospect of success.

1. Standing. The respondents’ applications were granted and the s 303 application was struck out. Under s 303(1), a bankrupt ordinarily must show an actual or likely surplus after payment of creditors and bankruptcy costs. A bankrupt may also have standing in limited cases concerning a matter arising only in bankruptcy where the applicant has a direct and legitimate interest. The applicant could not establish a likely surplus, even on his proposed chain of successful appeals and claims. Nor did he have a legitimate interest in challenging the settlement: his loss of control of the litigation resulted from bankruptcy and vesting under s 306, not from the later settlement.
2. Release. Although unnecessary to the result, the court held that s 299(5) did not prevent a properly interested person from pursuing non-monetary relief under s 303 after a trustee’s release. The statutory definition of liability in s 382(4) was not displaced by the context. The court considered that the Official Receiver, who became trustee after the former trustee vacated office, would need to be substituted as respondent.
3. Merits. Also alternatively, the application disclosed no reasonable grounds and had no real prospect of success. The high threshold for intervention in a trustee’s decision was not met. The trustees had obtained legal advice, invited competing offers, consulted creditors and acted under time pressure. The applicant’s contingent offer was commercially inferior to the respondents’ unconditional payment. There was no general rule preventing assignment of litigation involving allegations of dishonesty to the alleged defendants.