What Is The Revesting Of A Bankrupt’s Home?
In the past, an individual who was insolvent and went into Bankruptcy at a time when their home may have been in negative equity could still lose it many years later but now there is the revesting of a Bankrupt’s home.
By virtue of the vesting of the Bankrupt’s property in the Trustee in Bankruptcy being automatic by virtue of Section 306 of the Insolvency Act 1986 and the function of the Trustee with a duty to creditors to realise it, there were many cases of repossession of a Bankrupt’s home many years later. This was deemed unfair and stopped when Section 261 of the Enterprise Act 2002 brought in Section 283A of the Insolvency Act 1986.
In a post called Trustee’s Knowledge Of The Bankrupt’s Home was a reference to a case overseen by Deputy Insolvency and Companies Court Judge Curl KC which highlighted the Court’s assessment of this position as follows:
Section 283A was inserted into the IA 1986 by the Enterprise Act 2002. The problem at which it was directed was identified by Lawrence Collins J (as he then was) in In re Byford, decd [2003] EWHC 1267 (Ch), [2004] 1 P & CR 159, 163, subsequently cited with approval by the Court of Appeal in Lewis v Metropolitan Properties Realisations Ltd [2009] EWCA Civ 448, [2010] Ch 148, at [18] as follows:
“…it is undesirable for trustees to wait for many years before resolving their rights in respect of the home of the bankrupt or his spouse. This [i.e. s.283A] introduces a general rule that the trustee must take steps to realise his interest in the home of the bankrupt or his spouse within three years of the bankruptcy, subject to specified exceptions. If he fails to do so the property vests in the bankrupt and the creditors lose all rights to it…”
As a result, no longer would a Bankrupt have to rely upon exceptional circumstances to stop repossession of their home by the Trustee in Bankruptcy. Now, if the Trustee has not either realised the home or commenced legal proceedings to take possession of it within three years of commencement of Bankruptcy, then Section 283A(2) of the Insolvency Act 1986 kicks into effect and it ceases to be part of the Bankrupt’s estate under Section 283 of the Insolveny Act 1986 and revests in the Bankrupt.
The Trustee In Bankruptcy Repossession Duty
This presents a duty of the Trustee in Bankruptcy of the utmost seriousness as was highlighted in the post Section 303 Trustee In Bankruptcy Application Succeeds when His Honour Judge Paul Matthews in the case of Pateley Wood Farm LLP v Kicks [2002] EWHC 2973 (Ch) said:
It is their job to advance the interests of the creditors against the bankrupts.
So if the Trustee in Bankruptcy does not take the appropriate action stipulated by the legislation to act in the interests of creditors and repossess the home then an action against them could arise through the tort of negligence.
Bankrupt’s Duty To Inform Trustee Of The Assets
Compliance with the general disclosure duty that a Bankrupt has will typically start being tested when the Bankrupt is called upon by the Official Receiver under Section 291 of the Insolvency Act 1986 to flesh out full details of their assets and hand over their records. If assets are highlighted then it will be the norm for an Insolvency Practitioner (the Trustee in Bankruptcy) then to take over.
The Trustee in Bankruptcy then assumes office as a stranger to the affairs of a Bankrupt. There are only two ways in which the Trustee can become aware of the assets. Being informed of them or through discovery.
The starting point is that the Trustee in Bankruptcy does not assume office to be a detective notwithstanding a general duty to investigate. When conceivably forced into the position of forensic reviewer then the position of some of the difficulties of this can perhaps be seen by an earlier post Trustee In Bankruptcy Section 366 Costs which explored the case Horton v Eurobeam Services Ltd & Ors [2023] EWHC 173 (Ch) case.
The starting point of the Trustee in Bankruptcy is to identify the Bankrupt’s assets through the Bankrupt themselves. As a result, it is a duty under Section 333 of the Insolvency Act 1986 for the Bankrupt to give information to the Trustee so that they can become aware of the assets they are charged with protection and realisation of.
Non-Disclosure By A Bankrupt Of A Property
In view of this position it is unsurprising that when Section 283A sprouted in the legislation, provision was made for a situation where a Bankrupt had not informed the Trustee of a relevant interest in a property.
Indeed Section 238A(5) of the Insolvency Act 1986 says that the three-year time limit does not begin to run if, within three months of the commencement of Bankruptcy, the Bankrupt has not told the Trustee or Official Receiver about the same. Instead, the three-year period starts when the Trustee or Official Receiver becomes aware of the same.
