Trustee’s Knowledge Of The Bankrupt’s Home Overview
In the case of Mehers v Khilji [2023] EWHC 298 (Ch) the revesting of a Bankrupt’s home claim failed because of the state of awareness of the Trustee’s knowledge of the Bankrupt’s home.
… none of the earlier pieces of evidence relied on by Ms Khilji came close to informing the Trustee or the OR of any such interest or was otherwise capable of causing them to become aware of one …
This case was rooted in the point in time when the Trustee in Bankruptcy became aware of the Bankrupt’s interest in a property.
At the point of awareness, the Trustee in Bankruptcy had three years to either realise the property or commence legal proceedings for an order for repossession of a Bankrupt’s home.
The Bankruptcy Order was made against Ms Khilji (“Ms K”) on 2 July 2018. The Trustee in Bankruptcy climbed into office on 7 August 2018.
In proceedings brought by the Administrator seeking possession of the matrimonial home, of Ms K’s late husband (“Mr K”) on 6 September 2019, Ms K claimed a third share of the matrimonial home which had been in the sole name of Mr K.
On 10 December 2021 Ms K applied to amend her pleadings to say the property had revested due to Section 283A of the Insolvency Act 1986.
Attendance On The Official Receiver
When Ms K attended on 28 September 2018 on the Official Receiver (“OR”) who is the government official at the Insolvency Service who initially attends to all Bankruptcy cases until a private Trustee might be found to take over, she said she had contributed to the mortgage after her husband passed away.
There was also a letter from the Administrator of Mr K showing a Land Registry official copy of the property register which showed she had occupational rights. She said this gave her higher rights to claim some of the property.
The Onion-Layers Argument
Her Barrister said it ought to have sparked some thoughts in the mind of the Trustee as to the basis of Ms K’s occupation of the property and presented his onion-layers argument:
“in the way of an onion, there are layers to this; the constructive trust point adds weight to the intestacy point.”
However, a layer to this that Ms K could not peel away was her statement to the OR which said:
I don’t think I was ever joint owner of this property.
Furthermore, her Barrister acknowledged that Ms K had “not positively asserted” her interest in the property.
The argument put forward by Mr Wareing which it is difficult perhaps not to have some sympathy for, was that the onion had a sufficient number of layers to it that some sort of interest could have been inferred by the Trustee.
When Is The Trustee Aware Of An Interest In Property?
The problem however with that argument would appear that Section 283A(5)(b) refers to matters of becoming “aware”; it does not appear to refer to matters reliant upon deduction. Awareness conveys a state of mind reliant upon knowledge, not speculation.
It would perhaps be rather unfair on the Trustee In Bankruptcy if the limitation period of three years were to commence on a proposition rooted in matters of legal speculation.
Most limitation periods start at the point that someone has a period of time to move on with proceedings if a consensual disposal cannot be organised with the relevant claim known about. Here you appear to have a claim put forward based on a common intention constructive trust by way of suggestion through a snippet of information put to the Official Receiver about mortgage contributions and yet conflated with a statement in which the Bankrupt said she didn’t think she was ever an owner of the property.
It is difficult to escape the supposition that the Bankrupt’s statement to the Official Receiver might come close to the opposite of a positive assertion of an interest in the property. It would likely have been fatal to her case; it was certainly picked upon by the judge – see below.
It appears unsurprising the Court said the claim struggled to get off the ground:
… I agree with Mr French that Henderson J’s discussion of the position where a bankrupt does not themselves inform their trustee of after-acquired property set out at §40 above is apt to apply to the revesting regime under s.283A. In particular, it is both pragmatically desirable and plainly just that a bankrupt who fails to comply with their duty to notify their trustee either of after-acquired property or of an interest in a property within the meaning of s.283A(1) will face an uphill struggle in persuading a court that the trustee was nonetheless aware of that interest such that the property is no longer available to the estate.
…
… it is likely that if a bankrupt does not tell their trustee in clear terms that they consider themselves to have an interest in a property falling within s.283A(1) then the court is likely to be slow to find that the trustee has nonetheless been informed or has become aware of such an interest by means of a process of inference from equivocal facts. This view is supported by the following observations of Lloyd LJ in Stonham v Ramrattan, at [48], in relation to cases where the bankrupt does not provide their trustee with information about the relevant interest at the commencement of the bankruptcy and the trustee is said to have “become… aware” subsequently:
“…the position in which the trustee in bankruptcy becomes aware of the interest must be equivalent of that in which he would be having received information from the bankrupt that he does have an interest in the property, from whatever source he may gain this knowledge. If becoming aware means anything less than that, then it does not put the trustee in bankruptcy into an equivalent position as regards knowledge as he would be in if the bankrupt had provided the information in the first place. It seems to me that there is no sufficient reason to suppose that the legislature intended the trustee in bankruptcy to be put on the spot, so to speak, with the limited time provided for under 283A in which to take steps with a view to the realisation in one way or another for the benefit of creditors of the interest of the bankrupt, unless he knows of an interest which is already vested in the bankrupt’s estate.”
…
I should add for completeness that although there was no reference to proprietary estoppel in any of the Defence and Counterclaim, Mr Wareing’s skeleton argument, or the evidence filed by Ms Khilji, it was suggested in oral submissions that Ms Khilji might also have an interest in the Property on that basis. Mr French and Mr Evans both made the point that an unlitigated claim on the part of Ms Khilji arising from proprietary estoppel in relation to the Property would not equate to an “interest in a property” within s.283A(1) and capable of vesting in the bankruptcy estate at the commencement of the bankruptcy. If such a claim were litigated to judgment, it is possible, although not inevitable, that the court would award a proprietary interest in the Property: see Guest v Guest [2022] UKSC 27, [2022] 3 WLR 911, [74]-[75]. But no such proprietary interest in the Property capable of vesting in the estate would have existed at the commencement of the bankruptcy, which is fatal to any suggestion that the interest was one within s.283A(1): see Stonham v Ramrattan, [51].
…
I am unable to accept Mr Wareing’s onion-layers argument (see §35 and §42 above), by which it was submitted that the existence of interests such as the intestacy or the matrimonial home rights ought to have alerted the Trustee to the fact that Ms Khilji had an interest in the Property under a common intention constructive trust that fell within s.283A(1).
The Court said both intestacy rights and matrimonial home rights are not an interest in the property under Section 283A(1) of the Insolvency Act 1986:
It is a matter of chance that in the instant case the party claiming a beneficial interest by way of constructive trust happens also to be the principal beneficiary under the statutory trusts on intestacy.
…
In my judgment, contributions to the mortgage are not an interest in the Property within the meaning of s.283A(1) and are consistent both with setting up a claim to a beneficial interest under a common intention constructive trust and not doing so. Accordingly, in informing the OR that she had made such contributions after the death of the Deceased, Ms Khilji did not inform either the Trustee or the OR of an interest in the Property within the meaning of s.283A(1) and nor did the Trustee or the OR otherwise become aware of such an interest as a consequence.
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