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To consider the gripping subject; can a bankrupt stay a bankruptcy and stop their Trustees let’s absorb the facts and analysis fleshed out by Mrs Justice Bacon from the case of Tyshchenko v Hyde & Ors [2024] EWHC 838 (Ch)

This was an appeal by the bankrupt in part allowed followed by an interesting finale.

Can A Bankrupt Stay A Bankruptcy?

Plainly any suggestion a bankrupt could control their bankruptcy would ordinarily appear to be an absurd proposition. The whole basis of bankruptcy is to take away control of the bankruptcy estate from the bankrupt through the deployment of the skillset of an independent Trustee, realising and hoovering it up so that after costs the surplus can go to creditors. 

This position was in effect confirmed by the Supreme Court in Brake v The Chedington Court Estate [2023] UKSC 29 which was picked up on as follows in this case:

stop trustee

… Parliament cannot have intended a bankrupt to be able to interfere in the administration of an estate in which the bankrupt has no interest

This was a bankruptcy case in which its fascinating facts might captivate not only an Insolvency Practitioner who takes appointments as a Trustee in Bankruptcy but also perhaps an individual who has entered into bankruptcy.

What Is A Bankruptcy Stay?

A key facet facing the appellate court in this matter was the matter of the bankrupt appealing against the dismissal of a stay to her bankruptcy proceedings. A bankruptcy stay is an order of the court that restrains or suspends an aspect of some or all of the usual processes in bankruptcy.

Generally, no provision in the Insolvency Act 1986 expressly provides for bankruptcy proceedings to be stayed. 

David Richards J in Foster v Davenport (unreported 23 December 2011) said that a stay is rather rare due to its potential prejudice to creditors. However, a court may well issue a stay when there is a risk of irreparable harm to the bankrupt.

The court considered the cases in which a stay of a bankruptcy could happen:

Those cases all concerned the question of a stay of a bankruptcy order pending an appeal against the making of that order. Outside that context, the cases in which a stay might be considered appropriate are likely to be unusual, given the weight to be given to the interests of creditors (in particular) in safeguarding and realising the assets of the bankrupt. While this does not mean that a stay should never be granted in such a case, it will be for the bankrupt to put forward compelling reasons why the bankruptcy should not take its normal course. The factors which the court will need to consider are likely to be different depending on whether the application is for a complete stay of the bankruptcy proceedings or a more limited stay of some aspects of the proceedings only, such as a stay of the disposal of a particular asset. In each case, however, the court will need to consider whether the interests of creditors and other parties will be adequately safeguarded.

The Tangles Of Tanglewood

Mrs Tyshcenko (“the Debtor”) petitioned for her bankruptcy on 31 May 2021. Her Trustees in Bankruptcy on 25 August 2022 applied for possession and sale of Tanglewood Villa (“Tanglewood”). Tanglewood is owned by Copper Homes Limited (“CHL”) (an Isle of Man company) but the shares in CHL are property of the bankruptcy estate.

The background to her bankruptcy was proceedings brought by a claim against her for substantial sums of money. However, besides that claim, few other creditors seemed to exist at the relevant time. However, the proceedings involving the sizeable claim have not been determined which is where the potential merit of the stay came into play:

Since both the WWRT and DGF claims are contingent on the outcome of the WWRT proceedings, the Trustees’ position is that they will not and indeed cannot adjudicate on the claims and make any distribution in the bankruptcy until the WWRT proceedings have been determined.

The Debtor opposed the possession of Tanglewood application by issuing a stream of applications to stay the bankruptcy and remove the Trustee or suspend their powers. One of the more notable applications involved seeking an order to set aside the decision by the Official Receiver and the Secretary of State to appoint the Trustees. 

However, notwithstanding all the litigation activities across various courtrooms, the Trustees obtained an order for possession and sale. Vacant possession was provided on 23 August 2023.

The Debtor it seems sought to stop her Trustees through an application to remove the Trustees in Bankruptcy. That appeal did not get off the ground. 

Neither did the Debtor’s appeal against dismissal of an adjournment application on medical grounds due to an absence of evidence it seems, inter alia, as to whether it involved an emergency as against elective surgical procedure. The court appears in recent years to be adopting a reasonably robust approach to the deployment of medical reasons to deal with the progression of court proceedings. Here reference to the well known case of Levy v Ellis-Carr [2012] EWHC 63 sprouted (perhaps unsurprisingly) in the judgment. Another post on this site Medically Unfit To Stand Trial looks also at this piece of case law briefly.

Fees And Conflict Of Interest

In this matter, the court was unimpressed by arguments the Debtor put forward about conflicts of interest and the Trustees’ fees which were by July 2023 north of £650,000. There was also a reference to the level of legal fees which seem to have climbed to more than £1million. 

To challenge Trustees’ fees you apply under Rule 18.35 of the Insolvency (England and Wales) Rules 2016. You cannot realistically remove an officeholder or in this case, stay a bankruptcy, on the basis you consider or assert the costs are too high. The reason for this is removing a Trustee in Bankruptcy or staying a bankruptcy is a serious matter that requires persuasive evidence. Anyone wishing to embark upon such actions needs to lay down the red carpet for the court by identifying those issues that appear deserving of removal or a stay. Concerns about costs are a matter to be addressed through the deployment of the discrete gateway provided in the rules, not by invoking alternative provisions.

Refusing A Stay Of Bankruptcy Proceedings Successfully Appealed

When Insolvency and Companies Court Prentis determined the matter of the stay application, he refused it because the court in Kingston was dealing with the possession application of the Trustees and there were insufficient reasons for him to halt that process. However, the appellate court said that was in effect to conflate two separate points i.e. the matter of an application for a stay of the bankruptcy by the bankrupt with the matter of the application for possession brought by the Trustees in Bankruptcy.

As a result, the court allowed the appeal saying:

In that regard I consider that the judge fell into error. The issue before the Kingston-upon-Thames County Court was the Trustees’ application for possession and sale of Tanglewood Villa pursuant to s. 335A of the Insolvency Act 1986. That application was brought on the premise that the bankruptcy proceedings were continuing and were not stayed. The County Court did not have before it the (logically prior) question of whether the bankruptcy proceedings or some aspect of those proceedings should be stayed: that was the subject of the hearing before ICC Judge Prentis.

In my judgment, therefore, the judge erred in failing to consider the impact of the WWRT proceedings on the application for a stay of the bankruptcy, and instead deferring that to the Kingston-upon-Thames possession hearing. The appeal in relation to the dismissal of the stay application must therefore be allowed, in so far as that application concerned the Trustees’ possession and sale of Tanglewood Villa.

Remaking The Decision After Allowing The Appeal On A Stay

The judge in this case remade the decision after allowing the appeal on a stay.

Although initially indicating a stay on the sale of Tanglewood possession and sale proceedings, the judge then amended the draft decision after hearing further on the matter and permitted the Trustees to crack on with the sale of the property.

Tanglewood being a substantial property had deteriorated and dropped in value. This provided what the court said was:

… the evidence now provided in relation to the deterioration of the property and its ongoing decline in value provides in itself a compelling reason why the property should now be sold. The Trustees have a responsibility to realise the best possible price for the property. It is apparent that the property has historically not been well maintained, with the consequence that its value has very significantly declined since it was purchased. While Mrs Tyshchenko contends that she will continue to maintain the property if she returns to it, there is no proposal to carry out any major refurbishment work, nor any evidence that she would have the funds to do so. In those circumstances the Trustees have a justifiable concern that if unsold now the value of the property will continue to decline, thereby prejudicing the interests of the creditors of the estate.

On the basis of the evidence before me, therefore, I am not satisfied that in the event of success in the WWRT litigation Mrs Tyshchenko is likely to be able to meet the costs and expenses of the bankruptcy without selling Tanglewood Villa. On the contrary, it appears probable that even if Mrs Tyshchenko is successful in the WWRT proceedings, the property will have to be sold in any event. That is a factor which strongly weighs in favour of the bankruptcy proceeding in this regard.

The overall position is that on the basis of the evidence now before the court, I am not able to conclude that there are compelling reasons why the bankruptcy should not take its normal course, in respect of the possession and sale of Tanglewood Villa. Quite the contrary, I consider that the reasons set out above weigh heavily in favour of the possession and sale of the property now proceeding unhindered so as to enable the Trustees to recoup their expenses already incurred in relation to the preparation and marketing of the property, avoid further ongoing expenses which will diminish the value of the estate, and achieve the best possible price for the property in the interests of the creditors of the estate.

While, therefore, the appeal has been allowed, in light of the further evidence now before the court I ultimately reach the same conclusion as ICC Judge Prentis, and conclude that Mrs Tyshchenko’s application to stay the bankruptcy proceedings in relation to the possession and sale of Tanglewood Villa must be dismissed.

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Author: Elliot Green
Last Updated: June 12, 2024

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Disclaimer: Can A Bankrupt Stay Their Bankruptcy And Stop Their Trustees? The Tangles Of Tanglewood

This page is not legal advice and is not to be relied upon as such. This article Can A Bankrupt Stay Their Bankruptcy And Stop Their Trustees? The Tangles Of Tanglewood is provided for information purposes only. You should take independent advice on the facts of your case. No liability is accepted for reliance upon this post.

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