Reid-Roberts v Mei-Lin – what is the court’s approach to ‘special circumstances’?

Background of the case

The Insolvency Act 1986 provides that on the first anniversary of the bankruptcy order, the interest of creditors falling within the bankruptcy estate become paramount. In practical terms, in the context of the property owned by the bankrupt at which he resided when he was declared bankrupt, this means that a trustee in bankruptcy can look to realise his interest in that property, by seeking an order for possession and sale of the property.

The court’s jurisdiction to make an order for possession and sale arises under s.14 of the Trusts of Land and Appointment of Trustees Act 1996. When determining a trustee’s application, s.335A of the Insolvency Act 1986 requires the court to have regard to and to consider the financial, medical, emotional and mental needs of the bankrupt’s spouse/civil partner, former spouse/civil partner and/or children residing at the property.

The authorities reveal that these needs must be exceptional in order to defeat a trustee’s application, or indeed for an order to be made deferring the enforcement of an order for possession and sale.  

The facts of the Reid-Roberts case are, in themselves, not exceptional, however it was the number of present factors which led the court to reach the decision it did.

What did the court decide?

The complex factual matrix of this case included the following factors:

• Misconduct by the bankrupt which not only prejudiced the wife, but also hindered the ongoing proceedings (withholding information from the court and indeed misleading the court), which the court took a very dim view on.
• There was also a long history of abuse at the instigation of the bankrupt.
• That abuse caused trauma to such a level and resulted in not insignificant emotional and mental ill-health, which not only affected the bankrupt’s former wife, but the bankrupt’s children. The abuse also constituted trauma and ill-health in respect of which the stability of remaining at the property the subject of the trustee’s application and being able to continue to receive the benefit of the various services and support from the local community, was paramount.
• The former wife was potentially the largest creditor within the bankruptcy estate in respect of which there was significant doubt as to the validity/existence of the debt.

Given the factual matrix, the court was persuaded to postpone the enforcement of the order for possession and sale of the property until 2032. 

What can trustees learn from this case?

This judgment perhaps indicates a ‘softening’ of the court of what is considered to constitute special circumstances. Arguably it’s an appropriate softening, and simply reflects the awareness of the existence and impact that abuse, and emotional and mental ill health can have, an awareness which was not present 15 or so years ago. 

The judgment however does present practical considerations for trustees in bankruptcy. Trustees will need to fully explore assertions of emotional and mental ill health and allegations of abuse, in order to gain an understanding of the full factual matrix to allow them to effectively progress the bankruptcy estate, especially where contested proceedings are anticipated. This will also enable them to properly assess the likely length of the bankruptcy estate and the risk of a possible deferred order for possession and sale in the context of managing their portfolio of estates. 

For further information, please contact the restructuring and insolvency team.