Secretary of State for Business and Trade v Mustafa Hassanali Abdulali & Anor

The statutory definition of “property” in Insolvency Act 1986 is wide but has limits. An interest must exist, at least as a present vested or contingent interest, at the commencement of bankruptcy to fall within property belonging to or vested in the bankrupt. A mere hope that the Government might later create an ex gratia compensation scheme is insufficient.

An entitlement under a government scheme established after the bankrupt’s claims against the original defendant had been compromised does not necessarily arise out of, or remain incidental to, those claims. Contractual assignments of causes of action are construed by their language and context. References to proceedings between the original parties and to a proportionate share of recoveries did not extend to later ex gratia payments from the Government.

The Secretary of State applied for directions and declarations concerning compensation payable under the GLO Compensation Scheme to postmasters who had participated in litigation against Post Office Limited and had subsequently been discharged from bankruptcy.

The respondent trustees in bankruptcy contended that the entitlement to claim or receive compensation was property within the bankrupt estates under the Insolvency Act 1986. Alternatively, they relied on assignments by which causes of action had been assigned back to the bankrupts in return for £11,000 and 49 per cent of the relevant proportionate share of recoveries.

The central issues were whether the compensation entitlement vested in the trustees and whether the assignments captured compensation paid under the later Government scheme.

1. Compensation entitlement. The application was determined in favour of the Secretary of State. The GLO Scheme was an ex gratia scheme established by the Government after the GLO Claimants’ claims against Post Office Limited had been exhausted and compromised by the Settlement Deed. It did not involve further claims against Post Office Limited.
2. Section 283(1) of the Insolvency Act 1986 requires property to belong to, or be vested in, the bankrupt at the commencement of bankruptcy. The definition in section 436(1) is non-exclusive and comprises a first limb concerning property such as things in action and a second limb concerning obligations and interests arising out of, or incidental to, property. Even an interest within the second limb must exist at the commencement of bankruptcy.
3. The entitlement to GLO Scheme compensation was not property within the first limb. Nor did it arise out of, or remain incidental to, the causes of action against Post Office Limited. The scheme was created by governmental decision and discretion, was not inexorably linked to the original causes of action, and permitted claims by linked individuals whose original corporate or partnership entities no longer existed.
4. The distinction from PPI and FCA redress cases was material. In those cases, an existing complaints mechanism connected with the original property or obligor was available. Here, at most, the bankrupt had a hope or expectation that the Government might later provide compensation. That was not a present contingent interest.
5. Assignment. The Assignment transferred rights to pursue claims against Post Office Limited. Its references to the “Action”, “proceedings” between Post Office Limited and Ms Palmer, and her “Proportionate Share” referred to recoveries from those claims. They did not extend to ex gratia payments made under a later Government scheme. Clearer language would have been required.
6. The entitlement and payments therefore did not vest in the trustees, and Ms Palmer was not liable to account for any GLO Scheme compensation. The parties agreed that there should be no order as to costs.

First-instance decision. The court invited the parties to agree a minute of order reflecting the judgment and appropriate declarations. No order as to costs was agreed.