To avoid an asset reverting to a bankrupt after the end of his period of bankruptcy, the asset must be realised. An assignment of a beneficial interest for a future price does not amount to a realisation.

In Lewis & Anor v Metropolitan Property Realisations Ltd, a husband and wife owned their main residence jointly. The property was mortgaged and when the husband was declared bankrupt, the wife claimed to be the sole owner of the equity in the property. Although that claim was not accepted by the trustee in bankruptcy, the creditors were not prepared to fund the litigation to obtain an order for sale of the property. Instead, one of the major creditors, Metropolitan, took an assignment from the trustee of the husband's beneficial interest for £1 and 25 percent of any future sales proceeds. The claimants subsequently claimed that, pursuant to s 283A(2) of the Insolvency Act, after three years the husband's interest in the property reverted to him as it had not been "realised." He argued that, to be "realised", an interest had to be "turned into cash" and a deferred contingent consideration was not a realisation.

The Court of Appeal agreed with the claimants. "Realised" meant that there had to be a completed transaction, not one where the price was still outstanding, as here. A "reduction into cash" did not occur until the cash was actually available. The purpose of s 283A (2) is to prevent the trustee hanging on to a beneficial interest in the bankrupt's principal residency indefinitely without taking any steps to realise it but waiting to see if the property increases in value. The provision also provides a reasonable degree of certainty for the bankrupt (and any co-owner) in that by the end of the third year they will know whether the property has to be sold. An assignment of the beneficial interest for a future price not achieved within the three-year period does not provide that certainty. The court found that Metropolitan no longer owned any interest in the property as the husband's interest reverted to him after the three-year period.

Things to consider

This judgment should particularly be born in mind in the current economic climate where an interest in a borrower's principal residence might have been acquired by assignment and the assignee is waiting for the current property market to improve in order to recover a more substantial sum. Assignees should not wait too long or they might miss out altogether.