Insolvency Act 1986, section 304

Liability of trustee

Part IX Bankruptcy

(1)Where on an application under this section the court is satisfied—

(a)that the trustee of a bankrupt’s estate has misapplied or retained, or become accountable for, any money or other property comprised in the bankrupt’s estate, or

(b)that a bankrupt’s estate has suffered any loss in consequence of any misfeasance or breach of fiduciary or other duty by a trustee of the estate in the carrying out of his functions,

the court may order the trustee, for the benefit of the estate, to repay, restore or account for money or other property (together with interest at such rate as the court thinks just) or, as the case may require, to pay such sum by way of compensation in respect of the misfeasance or breach of fiduciary or other duty as the court thinks just.

This is without prejudice to any liability arising apart from this section.

(2)An application under this section may be made by the official receiver, the Secretary of State, a creditor of the bankrupt or (whether or not there is, or is likely to be, a surplus for the purposes of section 330(5) (final distribution)) the bankrupt himself.

But the leave of the court is required for the making of an application if it is to be made by the bankrupt or if it is to be made after the trustee has had his release under section 299.

(3)Where—

(a)the trustee seizes or disposes of any property which is not comprised in the bankrupts estate, and

(b)at the time of the seizure or disposal the trustee believes, and has reasonable grounds for believing, that he is entitled (whether in pursuance of an order of the court or otherwise) to seize or dispose of that property,

the trustee is not liable to any person (whether under this section or otherwise) in respect of any loss or damage resulting from the seizure or disposal except in so far as that loss or damage is caused by the negligence of the trustee; and he has a lien on the property, or the proceeds of its sale, for such of the expenses of the bankruptcy as were incurred in connection with the seizure or disposal.

Cases considering section 304 14

Brake and another v The Chedington Court Estate Ltd

[2023] UKSC 29 · 10 August 2023Limits

The express right of a bankrupt to bring estate misfeasance proceedings despite the absence of a likely surplus demonstrates that Parliament did not intend section 303(1) to confer a comparable general right (see paras [88]-[91]). Prior permission is required for misfeasance proceedings brought by a bankrupt. The filter protects trustees and creditors from inappropriate litigation, distraction, delay and expense (see para [89]).

Oraki & Anor v Bramston & Anor

[2017] EWCA Civ 403 · 24 May 2017Interprets

The court held that section 304 provides a framework for claims concerning loss to the bankruptcy estate but, because of its without-prejudice wording, does not exclude a possible personal common-law duty owed to the bankrupt. (see paras [213]-[217]) The court read subsection (1) as addressing misapplication or retention of estate property and loss suffered by the estate through trustee misfeasance or breach of duty. It did not treat the subsection as exhaustive of personal claims. (see paras [213]-[217]) The court identified paragraph (a) as concerning money or property comprised in the bankrupt’s estate and therefore estate relief rather than personal loss. (see paras [213]-[214]) The court identified paragraph (b) as concerning loss suffered by the bankruptcy estate through trustee misfeasance or breach of duty. It did not decide the circumstances of any personal duty. (see paras [213]-[217]) The court applied the leave requirement to a bankrupt’s claim concerning loss to the bankruptcy estate, while distinguishing personal claims brought for the bankrupt’s own loss. (see paras [8]; [213]-[214])

McGuire v Rose & Anor

[2013] EWCA Civ 429 · 25 April 2013Interprets

Section 304 provides the statutory basis for claims against a trustee in bankruptcy and was used to frame the permission application and the possible substantive claims. (see paras [2]; [12]; [29]-[32]) Section 304(1) identifies circumstances in which the court may order a trustee to repay, restore or account for estate property, or pay compensation for misfeasance or breach of duty. The court used those possible claims to assess whether permission under section 304(2) should be granted. (see paras [12]; [29]-[32]) Section 304(2) requires leave for a bankrupt’s application against a trustee, but does not make a likely surplus for the bankrupt a condition of permission. The filter permits consideration of the claim’s merits, likely benefit to the estate, obvious defences, limitation and the manner in which litigation would be conducted. (see paras [14]-[19]; [21]-[29]; [37]-[40])

What each judgment says about section 304 is in the case-law panel in the full Act.

Amendments and notes

1 notes from legislation.gov.uk

Modifications

  1. C1015Ss. 298-307 applied (with modifications) by S.I. 1986/1999, art. 3, Sch. 1 Pt. II