The Supreme Court clarifies who has standing to challenge office holder decisions
In the recent case of Brake & Anor v Chedington Court Estate Limited [2023] UKSC 29, the Supreme Court has clarified the categories of persons who have standing to make a challenge to the conduct of a trustee in bankruptcy under s303 of the Insolvency Act 1986 (the “Act”). The Supreme Court confirmed that its decision will also apply to creditors and others seeking to challenge the actions of a liquidator under s168(5) of the Act. The decision will be welcomed by practitioners.
This case relates to the ongoing litigation between Mr and Mrs Brake (the “Brakes”) and Chedington Court Estates Ltd (“Chedington”), in respect of which there are already many reported cases.
The case serves as a helpful reminder that in certain instances, the wording of the Act should not be interpreted literally but should be interpreted alongside longstanding principles set out in case law.
As drafted, s303(1) allows “a bankrupt or any of his creditors or other personi” to challenge the acts or omissions of a trustee if they are dissatisfied with their conduct. The Supreme Court affirmed the judgment in the Dodsworth case from 1949ii, that Parliament cannot have intended a bankrupt to be able to interfere with the administration of an estate in which he has no interest, a scenario which would have been caught under the wording of the legislation. Therefore, case law has restricted the categories of persons who have standing to challenge a trustee, moving away from a literal reading of s303.
The Supreme Court noted that neither s303 nor s168(5) are intended to provide a means of redress to a party with no connection to the bankruptcy or liquidation. Therefore, the difference in the wording of the relevant sections in the statute does not affect the scope of the provisions.
Background
The Brakes sought to challenge the actions of the trustee in relation to the property known as West Axnoller House (the “House”) and the adjoining cottage (the “Cottage”) that were owned by Patley Wood Farm LLP (the “Partnership”). The Brakes resided at the House and had use of the Cottage. A dispute arose between the Brakes and the Partnership which was determined in favour of the Partnership. The Brakes were made bankrupt in 2015, after failing to meet the terms of a costs order to pay the Partnership’s costs of the litigation.
The Partnership was placed into liquidation in May 2017. The liquidators invited bids from the Brakes and Chedington to purchase the Cottage. Chedington’s bid was successful and, to obtain clean title to the Cottage, the trustee entered into several agreements with Chedington to facilitate this. Chedington took possession of the Cottage, and the Brakes were evicted.
The Brakes issued an application under s303 to set aside the trustee’s transactions. Chedington opposed the application on the basis that the Brakes lacked standing. At first instance, the Court agreed. On appeal, the Court of Appeal found in favour of the Brakes on the basis that, in their personal capacities, the Brakes had standing because their interests were substantially affected by the impugned conduct of the trustee and, as bankrupts, had a direct interest in the relief sought. Chedington appealed to the Supreme Court.
What did the Supreme Court decide?
The Supreme Court held that the Brakes lacked standing to challenge the trustee’s transaction for the following reasons:
- They were not creditors;
- They were not bankrupts or contributories in a bankruptcy estate that was likely to have a surplus; and
- Their rights and interests were not directly affected by matters arising from the trustee under the statutory insolvency regimes.
In their personal capacities as bankrupts, the Brakes did not have a legitimate and substantial interest in the relief sought because their possessory rights to the Cottage were unconnected to their position as bankrupts.
What are the practical implications of this case?
This case is a reminder of the rigour and gravity with which the Court will consider any challenge to the conduct of an office holder.
The overarching message is that the Court will not allow challenges to the acts or omissions of insolvency office holders unless the challenger can demonstrate that they have a substantial, legitimate and justifiable interest in the complaint. The judgment will provide reassurance to office holders that the decisions they make can only be challenged by specific categories of persons and/or in specific circumstances.
i S303 Insolvency Act 1986
ii Re A Debtor, Ex p The Debtor v Dodwell (The Trustee) [1949] CH 236, 240-241
