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01 February 2019

James Sleight (as Trustee in Bankruptcy of Jullian Paula Mascall (deceased)) v Crown Estate Commissioners [2018] EWHC 3489 (Ch)

A trustee who disclaims his interest in a property, loses any entitlement to apply to court at a later date for an order that the property (or any surplus arising from its sale) be vested in him.

Facts

Ms Mascall died in December 2014 and, it becoming apparent that the estate was insolvent, the executrix applied to Court for an Insolvency Administration Order. The Applicant Trustee was appointed in the bankruptcy estate of the late Jullian Mascall in December 2015.

Prior to her death, Ms Mascall owned 27 properties. By February 2016, 24 of these properties were in negative equity.  Receivers were appointed in relation to certain of those properties and a further 20 were disclaimed by the Trustee as being ‘onerous’.

The case in question relates to two properties which were disclaimed by the Trustee in 2012 and 2016. Notably, the Trustee had obtained valuation advice prior to disclaimer. The effect of the disclaimer was that any rights and interest in the properties reverted to the Crown.

In 2018, the two properties were sold by the mortgagee bank but, having discharged their charge, costs of sale and other expenses, there was a surplus on the two properties of just under £19,000.

The bank (Bank of Scotland) proposed to pay the surplus into court. The Trustee applied for an order that the surplus sums be vested in him, as the Trustee, the effect of which (if successful) would be to raise the projected dividend for creditors from 26p in the £ to 33p in the £.

Law

Pursuant to s315(3) of IA86, a disclaimer:

operates so as to determine, from the date of the disclaimer, the rights, interest and liabilities of the bankrupt and his estate in or in respect of the property disclaimed…”

Under s320 of IA86, where a Trustee has disclaimed property under s315, an application may be made to court by:

(a)        any person who claims an interest in the disclaimed property;

(b)        any person who is under a liability in respect of the disclaimed property; or

(c)        a person who was in occupation of or entitled to occupy the property, where that property is a dwelling house.

Application

The Trustee applied for an order that the surplus sums vest in him pursuant to s320 of the Insolvency Act 1986. A major premise of the Trustee’s case was that the surplus in question was not being claimed by anyone else (including the Crown Estate Commissioners or the Government Legal Department) and, accordingly, justice was best served by vesting the sums in the Trustee for the benefit of Ms Mascall’s creditors.

The Trustee argued that, despite the fact that he was the one who disclaimed the property originally, he was a person “who claims an interest in the disclaimed property” because he was, in fact, claiming to have an interest.

The Crown took no steps in the proceedings – Burges Salmon (instructed by the Crown) were at pains to ensure that no steps were taken in relation to the properties which may give rise to the suggestion that the Crown had undertaken an “act of management” in relation to the properties, which would result in the benefit (or burden) resting with the Crown.

Judgment

The Judge described the Trustee’s claim to locus as “obviously bad” on the basis that it would create a circular position if the law was to confer the right to apply for a vesting order on any person who applies for one. Further, the Judge noted that the Trustee had knowingly disclaimed any interest in the properties and was therefore no longer a “person who claims an interest”.

The Judge went on to conclude that s320 IA86 applies to a person who has “a proprietary interest in the asset in question and not simply someone who is “interested” in a much looser legal sense in the asset”.

The Judge therefore summised that the Trustee had no standing to apply for an order vesting the surplus in him. Effectively, by disclaiming the properties, the Trustee had lost any rights to claim any interest in those properties (or the surplus arising as a result of their sale).

As a technical side point, the Judge explained that had the bank applied for a vesting order, vesting title to the properties in it before the sale had taken place (thus, in effect, recreating the freehold title), he could have ordered that the surplus be paid to the Trustee for the benefit of the creditors. However, this had not happened and despite the fact that neither the bank nor the Crown were claiming an interest in the surplus, the Judge stated that he could not order that the surplus be paid to the Trustee on his own application.

The Judge did, however, recognise that this position was “unsatisfactory” and the result would be that the money would “languish with and be held by the court funds office for an indefinite period”.

Conclusion

Until such time as the Crown can overcome its concerns of assuming potential liabilities on a property (or, as in this case, the surplus from the sale of a property), Trustees and other insolvency office-holders should take steps to ensure that properties which he or she intends to disclaim do not have any potential to be sold at a surplus at a later date. Once a property vests in the Crown, a Trustee will face difficulties convincing it to engage in future proceedings.

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