How exceptional do
exceptional circumstances
have to be?
By way of background a trustee in
bankruptcy has to realise their interest in
the bankrupt’s sole or principal residence
within 3 years of it vesting otherwise it
will revert to the bankrupt. In this case
the bankruptcy order was made 20
November 2013 and the application for
possession was made within the 3 year
period and the possession order granted
26 November 2015.
The Insolvency Act provides, amongst
other matters, that when an application is
made for possession and sale one year
after the bankrupt’s interest has vested
in the trustee then save in exceptional
circumstances the interest of creditors
“outweigh all other considerations”.
As Mr Justice Henderson pointed out
the interest of creditors will normally
require that the property be sold so
that the bankrupt’s share in it can
be realised for their benefit. Once
exceptional circumstances have been
established and been determined by
the district judge at first instance, the
court then need to consider other factors
including the needs of any children. It
is at this stage that court has to attach
appropriate weight to these factors, in
this case the needs of the child and the
interest of creditors.
More often than not in a bankruptcy it will be that the family home
is the main or only asset to be realised for the benefit of creditors,
it is also the most emotive of issues. The home is where children
are growing up or have grown up, a safe haven for them when
other things in life may not be straightforward. Rarely is the home
seen as merely bricks and mortar.
In cases where ill health affects a child or
spouse, the issue of whether exceptional
circumstances exist will need to be
considered, if they do exist then how will
they affect the Trustee in Bankruptcy’s
application for possession and sale?
Mr Justice Henderson sitting in the High
Court in July this year had to consider
an appeal by a trustee in bankruptcy of
a decision by a district judge who found
that exceptional circumstances existed
and that the order for possession and
sale should be suspended until the
daughter of the bankrupt “no longer
resides at the property”.
In this case the bankrupt had three
children of adult age all living at home.
However it was the health of the eldest
of the three, the bankrupt’s daughter,
which caused the court concern. She was
now aged 30 but had been born with a
condition known as global development
delay, and also suffered from dyspraxia
and obsessive compulsive disorder. It had
been accepted in evidence by the district
judge that the daughter had a mental age
of an 8 or 9 year old and was incapable
of living on her own. She had difficulty
with mobility over uneven ground and
negotiating stairs. There was no prospect
of her ever being able to live alone.
The family had moved to a four
bedroomed bungalow due to its layout
being more suitable than the families
previous three bedroom flat.
There was no evidence that that the
daughter’s life expectancy had been
reduced therefore the effect of the order
by the district judge was that the sale
could have been postponed for many
years despite being the only asset in the
bankruptcy estate.
The trustee’s appeal was limited to
the provision within the order that
suspended the possession order. The
trustee’s position was that there should
be a longstop date of no more than 12
months.
It should be noted that the order for
possession and sale was granted, it was
the finding of exceptional circumstances
which led the district judge to postpone it
from taking effect without a longstop date.
Mr Justice Henderson considered that
the district judge was right in concluding
that exceptional circumstances existed
but found that the district judge
was wrong to conclude that it was
unreasonable to order a sale whilst the
daughter lived at the property. The court
should have considered alternatives to
an indefinite suspension of its order,
which was incompatible with the
underlying statutory purpose. Without
elaborating as to what may be truly
exceptional circumstances the court
found that in their absence a trustee in
bankruptcy must be allowed to realise
their interest within a short time frame,
measured in months rather than years.
Exceptional circumstances will delay
rather than prevent a trustee from
realising their interest in the bankrupt’s
home. In the absence of exceptional
circumstances it will always be in the
interest of the parties to attempt to
seek an agreement rather than to force
the matter into court even if it means
agreeing to a voluntary sale of the
property.
By Darren Stone
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