Background
Section 284 IA 1986 provides that any disposition of property made by a bankrupt during the period from the date the bankruptcy petition is presented, or a debtor’s bankruptcy application is made, until the estate vests in the trustee in bankruptcy on appointment, is void unless made with the consent of or is subsequently ratified by the Court. It does not set out the remedy available to trustees seeking to recover monies paid away under void dispositions.
Under section 306 IA 1986 the bankrupt's estate vests in the trustee immediately on his appointment taking effect or, in the case of the Official Receiver, on his becoming trustee.
Under section 291(1) IA 1986 once a bankruptcy order has been made, the bankrupt is under a duty to deliver possession of his estate to the Official Receiver and to deliver up to the Official Receiver all books, papers and other records of which he has possession or control and which relate to his estate and affairs.
Key facts
On 31 July 2012 a bankruptcy order was made against Dean Jonathan D’Eye (“Mr D’Eye”) on a petition presented to the Croydon County Court on 28 May 2012. The petition had followed service of a statutory demand on 11 July 2011 which Mr D’Eye had tried unsuccessfully to challenge.
A public examination of Mr D’Eye took place on 19 March 2013. The examination was then adjourned to 25 June 2013 when an adjournment generally was ordered along with suspension of the discharge period. Unless such an order is made, the bankruptcy will be automatically discharged after one year from the date the bankruptcy commenced. Such an order was made as a result of Mr D’Eye’s failure to cooperate with the Official Receiver.
On 24 January 2012, the joint trustees in bankruptcy discovered that Mr D’Eye had transferred £321,919 from a bank account in his own name to a linked current and savings account in the name of his father, Derek D’Eye. This was at a time when the statutory demand was being challenged. This initially seemed to be a transaction at an undervalue, however in his preliminary information questionnaire and at his public examinations, Mr D’Eye claimed that his father was a creditor and that the transfer represented a partial repayment. If so, Derek D’Eye had received a preference.
The joint trustees in bankruptcy commenced a claim against Derek D’Eye on the basis that the payment to his accounts had been either a transaction at an undervalue or a preference. Shortly before the trial, the joint trustees discovered that after presentation of the bankruptcy petition but before the making of the bankruptcy order, a large part of the money transferred had been used to purchase a long leasehold of a flat in the name of Mr D’Eye’s wife, Susan.
The matter was listed before Chief Registrar Baister to be heard on 10 November 2015. At the start of the trial, counsel for Derek D’Eye applied to adjourn it on the basis that Derek D’Eye disavowed substantial parts of his witness evidence. His evidence had been written for him by his son, and the accounts into which the monies had been paid were beneficially owned and operated by Mr D’Eye. He had no knowledge of the monies in the accounts and was not a creditor of his son’s. Unsurprisingly, Chief Registrar Baister awarded indemnity costs against Derek D’Eye and set down directions for further evidence and the relisting of the claim.
As a result of the admissions made, the joint trustees revised their case, putting it on the footing that the accounts in Derek D’Eye’s name were bankruptcy assets, that various identifiable parties who had received payments from these accounts had received them from Mr D’Eye and that the flat purchased post-petition had been purchased directly by the Mr D’Eye. It was contended that the post-petition payments were void under section 284 IA 1986 whilst any post-bankruptcy payments were straightforward misappropriation of bankruptcy assets under section 306 IA 1986. The flat and the bank accounts were assets that Mr D’Eye had failed to deliver up in contravention of section 291 IA 1986. The joint trustees also added various third parties who had benefited from the accounts in Mr D’Eye’s name to the claim.
Judgment
Chief Registrar Baister found that Mr D’Eye had been dishonest and manipulative and had used his father and others as his stooge. The factual issues were all disposed of in the joint trustees’ favour including a rejection of Mr D’Eye’s assertion that the money had belonged to various third parties.
The Registrar noted that section 284 IA 1986 does not set out the appropriate relief as a result of a disposition being void and that it was unclear whether and if so how payments made post-petition but pre bankruptcy should be treated differently from payments made after bankruptcy pursuant to section 306 IA 1986.
The joint trustees had contended that the appropriate remedy was an account for monies had and received. The respondents had contended that the remedy for payments under section 284 IA 1986 was restitutionary and that the Court should look to see whether various ingredients were made out. This included whether the payments fell within an established category of unjust enrichment; whether the enrichment was unjust and whether a defence of change of position could be made out. The joint trustees had contended that was unnecessary given the comprehensive regime set out in statute.
The court held that section 284 IA 1986 created a statutory obligation to account for monies had and received. This approach was consistent with the approach taken in an earlier case, Pettit v Novakovic [2007] BPIR 1643, and applied the fundamental principle in insolvency in applying pari passu payment, or equal right of payment, to creditors in each class in accordance with the statutory priorities. It was also consistent with the obligation to deliver up the bankruptcy estate to the Official Receiver found in section 291(1) IA 1986.
The court also confirmed that the remedy for the joint trustees’ claim to recover monies paid away after the bankruptcy order was made is also an account of monies had and received.
Conclusion
This case carries some weight as being made by Chief Registrar Baister. It makes it clear that the remedy pursuant to section 284 IA 1986 is an account for monies had and received. The position is the same in respect of payments that are void pursuant to section 284 IA 1986 or post-bankruptcy payments made contrary to section 306 IA 1986. Where an asset is purchased with a payment which is void pursuant to section 284 IA 1986, then that asset may simply be declared to be part of the bankruptcy estate.
Please contact [javascript protected email address] for more information on this subject, or to ask a question.
