Insolvency Act 1986 s.308 – Vesting in trustee of certain items of excess value

(1)Subject to [^F807section 309^F807] , where—

(a)property is excluded by virtue of section 283(2) (tools of trade, household effects, etc.) from the bankrupt’s estate, and

(b)it appears to the trustee that the realisable value of the whole or any part of that property exceeds the cost of a reasonable replacement for that property or that part of it,

the trustee may by notice in writing claim that property or, as the case may be, that part of it, for the bankrupt’s estate.

(2)Upon the service on the bankrupt of a notice under this section, the property to which the notice relates vests in the trustee as part of the bankrupt’s estate; and, except against a purchaser in good faith, for value and without notice of the bankruptcy, the trustee’s title to that property has relation back to the commencement of the bankruptcy.

(3)The trustee shall apply funds comprised in the estate to the purchase by or on behalf of the bankrupt of a reasonable replacement for any property vested in the trustee under this section; and the duty imposed by this subsection has priority over the obligation of the trustee to distribute the estate.

(4)For the purposes of this section property is a reasonable replacement for other property if it is reasonably adequate for meeting the needs met by the other property.

Cases considering section 308 3

Mikki v Duncan

[2017] EWCA Civ 57 · 3 February 2017Limits

The court used section 308 as evidence that the statutory scheme contemplated replacement of physical exempt property with a reasonable physical replacement. It found that the provision did not support extending the tools-of-trade exemption to contractual hire-purchase rights (see paras [30]-[32]). The court considered section 308(1) as part of a statutory mechanism directed to property excluded under section 283(2). Its terms did not support treating a contractual hire-purchase benefit as exempt property (see paras [30]-[32]). The court used section 308(1)(a) to show that the replacement mechanism applies where physical property is excluded under section 283(2). It did not extend that mechanism to contractual rights under a hire-purchase agreement (see paras [30]-[32]). The court considered section 308(1)(b)’s focus on realisable value exceeding the cost of a reasonable replacement. That physical-property framework did not support extending the tools-of-trade exemption to a hire-purchase contract (see paras [30]-[32]). The court relied on section 308(3), requiring estate funds to purchase a reasonable replacement for property vested under the section, to reinforce that the mechanism concerns physical property. It did not fit naturally with replacing a hire-purchase contractual benefit (see paras [30]-[32]). The court used section 308(4)’s concept of a reasonable replacement as one reasonably adequate for the needs met by the original property. This physical replacement concept did not support treating a hire-purchase contract as exempt property (see paras [30]-[32]).

Stonham v Ramrattan & Anor

[2011] EWCA Civ 119 · 16 February 2011Interprets

The provision concerning items of excess value was considered as statutory context when rejecting the proposed construction of section 283(1)(b). (see paras [33]; [36]–[37])

Birdi v Price & Anor

[2018] EWHC 2943 (Ch) · 30 November 2018

Used as limited contextual support for describing the section 283(2) exception as tools of trade and household effects. The short-form description was given little weight in construing the exception. (see para [56])

What each judgment says about section 308 is in the case-law panel in the full Act.

Amendments and notes

2 notes from legislation.gov.uk

Amendments

F807Words substituted by Housing Act 1988 (c. 50, SIF 61, 75:1), s. 140, Sch. 17 Pt. I para. 73

Modifications

C1025S. 308 applied with modifications by S.I. 1986/1999, art. 3, Sch. 1 Pt. II