Robert Armstrong & Anor v Biraja Pada Bhattacharya & Anor

Where a trustee in bankruptcy applies for sale of a bankrupt’s home more than one year after vesting, the court must assume that creditors’ interests outweigh all other considerations unless the circumstances are exceptional. Exceptional circumstances are fact-sensitive and cannot be reduced to fixed categories. Personal medical or financial hardship will not usually suffice if it falls within the ordinary consequences of debt and improvidence. Creditors’ interests remain relevant even where sale proceeds may be absorbed by bankruptcy expenses.

Where the statutory presumption is not displaced, the court should make the order for sale that is fit and reasonable, having regard to the statutory factors. Beneficial ownership depends on legally effective arrangements and reliable evidence; informal family expectations do not create proprietary interests.

The joint trustees in bankruptcy applied for declarations concerning ownership of a valuable freehold property, vacant possession and sale, and recovery of rental income and other assets received or retained after bankruptcy. The bankrupt respondents contended that parts of the property were beneficially owned by their daughters under resulting trusts arising from earlier leasehold interests, gifts or payments used to reduce secured borrowing.

The court also considered whether the respondents’ age, health, long residence and local connections constituted exceptional circumstances under section 335A of the Insolvency Act 1986, so as to displace the statutory assumption favouring creditors. The central issues were the property’s beneficial ownership, the application of the sale presumption, and the trustees’ entitlement to the other assets.

1. Ownership. The property was wholly owned, legally and beneficially, by the respondents when they were made bankrupt. The Land Registry entries, the 2008 transfer, the deed surrendering the second-floor leasehold interest, and the respondents’ later sworn statements and financial documents were consistent with sole ownership by the respondents. Their changing accounts, inadequate documentary evidence and the unexplained absence of evidence from the daughters and their aunt further undermined the alleged resulting trusts. Informal expectations that children would share in family wealth did not create a legal or beneficial interest.
2. Vesting. The respondents’ interests vested in the trustees under section 306 of the Insolvency Act 1986.
3. Sale. Section 14 of the Trusts of Land and Appointment of Trustees Act 1996 permitted the application for relief. Section 335A of the Insolvency Act 1986 applied instead of section 15 of the 1996 Act. Because the application was made more than one year after vesting, section 335A(3) required an assumption that creditors’ interests outweighed all other considerations unless the circumstances were exceptional. Applying Re Mushtaq Hussain Dean [2004] EWHC 3315, the court treated exceptionality as a value judgment, with no fixed categories. The respondents’ medical conditions, age, long residence and local connections were unhappy but fell within the ordinary consequences of debt and improvidence. They did not displace the presumption.
4. Orders. The court ordered possession within four weeks and sale of the property. It declared the trustees entitled to rental income received since 21 February 2022 and ordered an account and payment. It also ordered payment of £7,700 from the BMW sale proceeds, £7,471 received from Lovell Son & Pitfield, and £20,353.11 representing retained jewellery proceeds.