Litigation between Mr and Mrs Brake, Axnoller Events Ltd and various other parties has been the subject of a significant number of judgments covering a wide range of legal issues. The underlying facts are convoluted but can be briefly summarised for the purpose of the recent decision of the Supreme Court in Brake & Anor v The Chedington Court Estate Ltd [2023] UKSC 29 as follows.
Mr and Mrs Brake became the subject of a costs order following an arbitration involving a partnership called Patley Wood Farm LLP. In 2015 they were made bankrupt after failing to satisfy it, and a trustee in bankruptcy was appointed. Receivers of the partnership’s property appointed by its bank sold the farm it had run and on which the Brakes lived to a company called Axnoller Events Ltd, whereafter the partnership went into administration and later into liquidation.
Both the Brakes (in their capacities as trustees of the Brake Family settlement) and a Dr Guy (on behalf of a company called Chedington) bid for a cottage which was being sold by the liquidators. The liquidators accepted Chedington’s higher bid, but they were not willing to apply to the court for an order removing the Brakes as registered proprietors of the cottage. (The cottage, along with a house, formed part of the farm where the Brakes had lived.) Instead, Dr Guy and Chedington made an arrangement with the Brakes’ trustee in bankruptcy under which the trustee would purchase the cottage from the liquidator with funds lent by Chedington and would then sell the cottage to Chedington, making the necessary application to the court to obtain clean legal title to the cottage. The trustee also assisted Chedington in changing the locks to the cottage.
The Brakes issued an application under s 303(1) Insolvency Act 1986, both in their capacities as bankrupts and in their capacities as trustees of the Brake Trust, challenging the conduct of the trustee in bankruptcy on the basis that he had wrongfully enabled Chedington to interfere with their right of possession of the cottage. Chedington applied to strike out the relevant parts of the application on the ground that the Brakes lacked standing. HHJ Matthews, at first instance, struck out the application. The Court of Appeal dismissed an appeal brought by the Brakes in their capacities as trustees of the Brake Trust, because in that capacity they were third parties whose only interest was as disappointed bidders; but it held that the Brakes had standing in their personal capacities, because their interests were substantially affected by the trustee’s conduct and because, as bankrupts, they had a direct interest in the relief they were seeking.
The Supreme Court unanimously allowed Chedington’s appeal, Lord Richards giving the only judgment (with which Lords Briggs, Hamblen, Leggatt and Lady Rose agreed). Lord Richards held that an applicant will have standing under s 303(1) Insolvency Act 1986 (or s 168(5)) in three cases. First, creditors have standing where their application concerns their interests as creditors, because the bankrupt’s estate or the assets of the company in liquidation are administered under the terms of the statutory trust for their benefit as creditors. Secondly, where there is, or is likely to be, a surplus, the bankrupt or contributories have standing by reason of their interest in the surplus. Thirdly, in a limited class of cases, creditors, bankrupts, contributories or others will have standing, but only in relation to matters directly affecting their rights or interests and arising out of powers conferred on trustees or liquidators which are peculiar to the statutory bankruptcy or liquidation regime. In Lord Richards’s own words:
“99. […] Creditors have standing where their application concerns their interests as creditors, because the bankrupt’s estate or the assets of the company in liquidation are administered under the terms of the statutory trust for their benefit as creditors. Likewise, where there is or there is likely to be a surplus, the bankrupt or contributories are also persons for whose benefit the estate or assets are being administered and they have standing in respect of their interests in the surplus. Beyond that, there is a limited class of cases where creditors, the bankrupt, contributories or others will have standing, but only in respect of matters directly affecting their rights or interests and arising from powers conferred on trustees or liquidators which are peculiar to the statutory bankruptcy or liquidation regime. Engel v Peri and In re Hans Place Ltd provide good examples of cases within this category.
The Brakes do not fall within any of these categories and therefore do not have standing to make the bankruptcy application insofar as it deals with the Trustee’s dealings with the Cottage in December 2018 and January 2019. Accordingly, I would allow the appeal.”
This is one of a number of cases on this issue, the most recent among which was Re Edengate Homes (Butley Hall) Ltd in which the Court of Appeal this time was astute to see that an applicant had standing based on the right capacity in which she was applying before allowing a challenge to an office-holder’s decision. The reference in Lord Richards’s judgment to Re A Debtor, Ex p The Debtor v Dodwell (The Trustee) illustrates the long standing and robust approach the courts have always taken in applying the principle that the bankrupt should not be able to interfere in the administration of an estate in which he has no interest.