Section 283A(2) of the Insolvency Act 1986 (the Act) provides a trustee in bankruptcy three years from the commencement of the bankruptcy to deal with an interest in the family home– after which the interest will revest in the bankrupt. Section 283A(5) of the Act also provides that, in circumstances where the bankrupt does not inform the trustee or the official receiver of the bankrupt’s interest in a property within three months beginning with the date of the bankruptcy, the three-year period will begin to run from the date on which the trustee or official receiver becomes aware of the bankrupt’s interest.
In Re Khilji the court has clarified its approach to when a trustee in bankruptcy “becomes aware” of the bankrupt’s interest in a property in circumstances where the bankrupt only asserts a beneficial interest in the home some time after the commencement of their bankruptcy.
The matter concerned a property (the Property) forming part of the estate of Ms Khilji’s late husband, who had died intestate. Ms Khijli had interests in the Property under her husband’s intestacy, and also had matrimonial home rights registered over the Property.
Chronology:
The parties’ arguments
Mrs Khilji sought to argue that the existence of circumstances, including a claim in her late husband’s intestacy and registered matrimonial home rights, which sufficed to ‘inform’ the official receiver and Trustee of a potential claim interest in the Property. Ms Khilji contended that these matters should have alerted the Trustee, as at September 2018, to the fact that she had a potential claim in respect of the Property, in which case the Trustee’s application concerning the Property was out of time and the interest had re-vested in her.
The Trustee however argued that it was required that the official receiver or the Trustee must have had actual knowledge of the fact that Ms Khilji had an actual interest in the Property. Assertion or claims that Ms Khilji might have had an interest would not suffice.
The judge’s decision
The judge held that there was no support to an argument that ‘notice’ to the Trustee or official receiver of a ‘potential claim’ is a sufficient trigger for time to run for the purposes of s283A(2) of the Act. The Trustee or Official Receiver required actual knowledge of the claim.
In respect of the specific interests asserted and whether or not they were interests in the Property for the purposes of section 283A, the judge held that, although an interest in an administered estate gives a right to the due administration of the estate, and matrimonial home rights operated as a charge on the interest of another – neither was a legal or beneficial interest in the Property. Further, contributions to the mortgage alone did not show a beneficial interest in the Property. Only knowledge of the beneficial interest arising under the constructive trust would have been sufficient to have started time running under section 283A and the Trustee only became aware of this when Ms Khilji served her defence and counterclaim.
The judge went on to confirm that a bankrupt who failed to notify their trustee, in clear terms, of an interest they consider that they hold in a property within the meaning of s283A(1) will struggle to persuade the court that the trustee was nonetheless aware of that interest such that the property is no longer available to the estate.
However, the judge did stress that this was still a fact sensitive approach – although in this case a Trustee or the official receiver could not be expected to infer from the facts in front of them that Ms Khilji might have a proprietary claim under a common intention trust caught by section 283A, the court did reject the Trustee’s arguments that the Trustee’s awareness of the bankrupt’s interest needs to amount to an actual knowledge of an actual interest. The court stated that, where a bankrupt makes a clear assertion to their trustee of a beneficial interest in a property, this would make the trustee sufficiently ‘aware’ to start time running. This is because the reality of beneficial interests in domestic properties are often advanced by way of assertion, because by definition they are not legal interests and are often undocumented.
This case reinforces the fact that failure by a bankrupt to provide sufficient detail of an interest in a family home may prevent them from taking advantage of the revesting provisions under section 283A. The case also continues the general theme of case law that the court will not look favourably on a bankrupt’s attempt to advance an argument when they themselves had failed to comply with their statutory obligations under the Act to inform the Trustee or official receiver of all relevant matters relating to their bankruptcy estate.
However, a prudent trustee should remain alive to the possibility that a bankrupt may seek to raise arguments regarding actual knowledge to try to gain the benefit of the three-year re-vesting period when there is any suggestion involving a bankrupt’s potential interest in their or their partner’s (or former partner’s) home.
