Once a Petition has been presented dispositions of property may be void unless they fall outside section 127 (companies) or section 284 (individuals) of the Insolvency Act 1986 (“the 1986 Act”).
If a Bankruptcy Petition is presented against an individual who is the sole registered legal owner of a property the Land Registry is required to enter a Notice against the title to that property[1] that will remain in place until a Restriction is registered by the Trustee, the Trustee is registered as proprietor or it’s cancelled by the Registrar[2].
Howes Percival acted recently for a client who, in 2023, entered into a Settlement Agreement genuinely intended to conclude Court proceedings to which he was one of the named Defendants. The Settlement Agreement contained a Declaration of Trust, over a property owned by our client, in favour of the Claimant and obliged our client to redeem the mortgage over that property and transfer title, free of any mortgage or encumbrance, to the Claimant.
In 2024 however, before our client was able to comply with his obligations under the Settlement Agreement, a Bankruptcy Petition was presented against him.
Section 284 of the 1986 Act invalidates any disposition of property (whether or not it would be comprised in the Bankruptcy Estate) by a debtor after the date of presentation of a Bankruptcy Petition unless it is validated by the Court. Section 284(6) provides an exception in the case of property held on trust for someone else.
As legal proceedings between the parties had been less than amicable we couldn’t risk transferring legal title to the Claimant if the transfer might be subject to a challenge by a Trustee in Bankruptcy at a later date (and we also had to deal with the Bankruptcy Notice). We therefore applied to the Court seeking 3 forms of relief:
Counsel, Nathan Webb of Forum Chambers, appeared before ICC Judge Barber on behalf of our client.The petitioning creditor remained neutral and therefore did not attend and was not represented.
The Judge considered whether it was appropriate to make a Declaration supported by a Validation Order but was, ultimately, satisfied by Counsel’s submissions that the transfer would not engage section 284 because it fell within section 284(6) by reference to case law which determined that, where the property was no longer beneficially owned by the debtor or where a party had entered into an unconditional contract prior to presentation of the Petition, section 284 would not be engaged.
The Judge also made provision in the Order for the Bankruptcy Notice to be removed from the register of title.
This unusual case demonstrates how insolvency proceedings can impact the resolution of unrelated disputes. But a genuine transfer of beneficial ownership, on trust, via a Settlement Agreement before presentation of a Petition will generally fall outside the scope of section 284.
[1] Section 86 Land Registration Act 2002
[2] Section 86(3) Land Registration Act 2002
The information on this site about legal matters is provided as a general guide only. Although we try to ensure that all of the information on this site is accurate and up to date, this cannot be guaranteed. The information on this site should not be relied upon or construed as constituting legal advice and Howes Percival LLP disclaims liability in relation to its use. You should seek appropriate legal advice before taking or refraining from taking any action.
To contact us, please fill out this form and we will get back in touch as soon as possible. Your personal data will be processed in accordance with our privacy policy which can be found here.
Thank you for your enquiry. We will respond as soon as possible.
