Brake and another (Respondents) v The Chedington Court Estate Ltd (Appellant)

2023] UKSC 29, [2023] 1 WLR 3035 On appeal from: [2020] EWCA Civ 1491

Supreme Court, 10 August 2023

Introduction

This appeal concerns the standing of a bankrupt to challenge the acts, omissions or decisions of the trustee of the bankrupt’s estate under section 303(1) of the Insolvency Act 1986 (‘IA86’). More particularly, it concerns the standing of two bankrupts to challenge steps taken by their trustee to facilitate their eviction from a property which was in their possession (but was not occupied by them).

Section 303(1) of IA 1986 provides:

“If a bankrupt or any of his creditors or any other person is dissatisfied by any act, omission or decision of a trustee of the bankrupt’s estate, he may apply to the court; and on such an application the court may confirm, reverse or modify any act or decision of the trustee, may give him directions or may make such other order as it thinks fit.”

Background

The facts of the appeal are not straightforward, and complex. However, in summary –

The appeal arises from an application to strike out an application made under section 303(1) by Mr and Mrs Brake, on the grounds that they lacked the standing to make it.

• Mr and Mrs Brake ran a partnership – Patley Wood Farm LLP, which operated an accommodation business from West Axnoller Farm, which Mr and Mrs Brake lived on.

• The farm included a cottage known as West Axnoller Cottage; registered in the names of Mr and Mrs Brake and Mrs Brehme. It was held a partnership property.

• Receivers were appointed over the Farm in 2014. However, this did not include the cottage. The Farm was sold to Chedington Court Estate Ltd in 2015.

• Mr and Mrs Brake failed to comply with a costs order that arose from arbitration proceedings concerning the partnership and as a result were made bankrupt in 2015. The partnership entered into liquidation in 2017.

• The Liquidators eventually sold the cottage to Chedington Court Estate Ltd. Mr and Mrs Brake were invited to bid for the cottage. The Trustee in bankruptcy for Mr and Mrs Brakes entered into various transactions with the liquidators and purchaser that ultimately led to the purchaser acquiring the rights to the cottage. Mr and Mrs Brake were formally evicted from the cottage following completion.

• Mr and Mrs Brake were aggrieved with the transactions entered into by their trustee in bankruptcy and as a result issued two application to unwind those transactions –

(1) an application pursuant to section 303(1) of IA86 to set aside the transactions entered into by the Trustee to sell the Cottage to Chedington.

(2) an application pursuant to section 168(5) of IA86 to set aside the sale of the Cottage by the liquidators.

- Prior court decisions

(1) The two applications mentioned above were struck out on the application of Chedington Court Estate Ltd in early 2020.

(2) Mr and Mrs Brake appealed the strike out in 2020 at the Court of Appeal. The appeal in respect of the liquidation application was dismissed, however, the other appeal in the bankruptcy application was granted on the basis that the test for standing should be whether the bankrupt has a substantial interest which has been affected by the conduct complained of and a direct interest in the relief sought to give them standing under section 303(1) of IA86 in their personal capacities as bankrupts. The Court of Appeal held that Mr and Mrs Brake did have such an interest.

Supreme Court Decision

The appeal of Chedington Court Estate Ltd succeeded and the decision of the first instance judge to strike out the bankruptcy application was reinstated. Mr and Mrs Bake did not fall within any of the principles underlying the standing of applicants under section 303(1) of IA86 and therefore did not have standing to make the bankruptcy application insofar as it deals with the trustee’s dealings with the cottage in December 2018 and January 2019.

The principles mentioned by the Supreme Court underlying the standing of applicants under section 303(1) of IA86 were as follows –

1. “Creditors have standing where their application concerns their interests as creditors, because the bankrupt’s estate or the assets of the company in liquidation are administered under the terms of the statutory trust for their benefit as creditors.”

2. “where there is or there is likely to be a surplus, the bankrupt or contributories are also persons for whose benefit the estate or assets are being administered and they have standing in respect of their interests in the surplus.”

3. “there is a limited class of cases where creditors, the bankrupt, contributories or others will have standing, but only in respect of matters directly affecting their rights or interests and arising from powers conferred on trustees or liquidators which are peculiar to the statutory bankruptcy or liquidation regime.”

The Supreme Court also confirmed that the above principles are equally applicable to the equivalent section 168(5) of IA86 relating to the standing of creditors and others to challenge a decision of the liquidators in a compulsory winding-up.

Section 168(5) of IA86 provides -  

“If any person is aggrieved by an act or decision of the liquidator, that person may apply to the court; and the court may confirm, reverse or modify the act or decision complained of, and make such order in the case as it thinks just.”

This decision represents a clear restatement of the longstanding general principle that, subject to very limited exceptions, a party will require a tangible economic interest in an insolvent estate before they will have standing to be heard in relation to the conduct of that estate. For obvious reasons, bankrupts will seldom have such an interest, by reason of the estate being insolvent with no surplus for the bankrupt.  

The judgment is available here.