Summary

A shift in emphasis in the interpretation of the Insolvency Act 1986 s.335A, s.336 and s.337 might be necessary to achieve compatibility with a bankrupt's rights under the European Convention on Human Rights 1950 in that those sections ought to be regarded as recognising that, in the general run of cases, the creditors' interests would outweigh all other interests, but leaving it open to a court to find that, on a proper consideration of the facts of a particular case, it was one of the exceptional cases in which that proposition was not true.

Facts

The appellant bankrupt (B) appealed against an order that he give vacant possession of his property, that the property should be sold and the net proceeds of sale held until determination of the beneficial interests in it. B was declared bankrupt and the respondent (T) was appointed trustee in bankruptcy. T applied for a declaration for an absolute beneficial interest in the property and for an order for possession and sale. B asserted that his former partner (C) had a beneficial interest in the property and that their son (S) lived with B in the property most days per week. B alleged that S had special educational needs that were helped by living with B in the property. The deputy registrar was not prepared to proceed with the application as to the beneficial interests in the property but proceeded with the application for possession and sale of the property, notwithstanding C's claim. The principle issue between the parties was whether the court should make an order for sale pursuant to the Trusts of Land and Appointment of Trustees Act 1996 s.14 and the Insolvency Act 1986 s.335A. The deputy registrar heard argument from both sides as to whether there were exceptional circumstances under s.335A of the 1986 Act and ordered B to give vacant possession of the property. B resisted an order for possession and sale of the property on the basis that (1) such an order would disrupt the education of S and that if B was rendered homeless S's progress would be severely curtailed. Therefore the hardship which would be caused to S by an order for possession and sale constituted "exceptional circumstances" under s.335A of the 1986 Act; and (2) the order had failed to take into account his or S's European Convention on Human Rights 1950 Art.8 rights.

Held

(1) Section 335A of the 1986 Act, which applied if C had an equitable interest in the property, gave statutory effect to the previous case law relating to the interests of a bankrupt's creditors, which was reviewed in In Re Citro, Domenico (A Bankrupt) (1990) 1 FLR 71 (applied), in which it was found that in a case in which both the bankrupt and his spouse had a beneficial interest in the matrimonial home, the creditors' interest in achieving a sale of the property within a short period would usually prevail over the interests of the spouse unless exceptional circumstances were shown. In almost all of the reported decisions the interests of the creditors had prevailed (Re Malcolm Arthur Holliday (A Bankrupt) (1980) 177 LSG 340 distinguished). The view taken by the deputy registrar could not be faulted on the basis that the law was as stated in Re Citro. S's problems could not be said to be extreme and further, unlike Re Citro, the instant case was not one in which there would be any question of S having to leave his present school. (2) The state had to have regard to the fair balance that had to be struck between the general interest of the community and the interests of the individual (Cossey v UK (1990) 13 EHRR 622 applied). It was questionable whether the narrow approach as to what might be "exceptional circumstances" adopted in Re Citro, was consistent with the Convention. In particular, it might be incompatible with Convention rights to follow the approach taken by the majority in Re Citro, in drawing a distinction between what was exceptional, in the sense of being unusual, and what Nourse LJ referred to in Re Citro as the "usual melancholy consequences" of a bankruptcy. A shift in emphasis in the interpretation of the statute might be necessary to achieve compatibility with the Convention. Thus it might be that, on a reconsideration of s.335A, or the corresponding wording in s.336 and s.337, those sections were to be regarded as recognising that, in the general run of cases, the creditors' interests would outweigh all other interests, but leaving it open to a court to find that, on a proper consideration of the facts of a particular case, it was one of the exceptional cases in which that proposition was not true. So interpreted, and without the possibly undue bias in favour of the creditors' property interests embodied in the pre-1998 case law, those sections would be compatible with the Convention. However on the facts of the instant case the decision of the deputy registrar should be upheld as the prejudice to the creditors would be substantial, S's educational problems were not severe and it was unclear if B's ability to help S would be impaired and if so to what extent.

Appeal dismissed.