Earlier this year, the High Court gave judgment in a case involving a bankrupt who owned property in Morocco (Saunders v Donovan, unreported). The bankrupt had also granted someone a power of attorney in respect of the Moroccan property. The question that fell to be decided by the High Court was four-fold:
- which law applied to the bankruptcy proceedings?
- which law applied to the power of attorney granted by the bankrupt?
- did the power of attorney have any effect on the TiB’s claim to the bankrupt’s property?
- did the Moroccan property vest in the TiB in English law?
The High Court’s decision sets down important principles which need to be borne in mind when dealing with bankruptcy proceedings involving foreign assets.
Facts of Saunders v Donovan
In 1995, a bankruptcy order was made against DCD in England. Under normal circumstances, DCD would have been a discharged bankrupt after a year. However, by reason of his noncooperation, the discharge of DCD’s bankruptcy was suspended i.e. he remained a bankrupt.
In 2006, following discovery of the fact that DCD owned 16.7 hectares of land in Morocco, the TiB commenced court proceedings in Morocco to realise that property. In the Moroccan court proceedings, an individual (DD) challenged the TiB’s claim on the basis that DCD had granted him a power of attorney in respect of the Moroccan property.
The power of attorney (which was written in French) gave DD the power to sell the Moroccan property, sign any contract of sale relating to that property, receive the sums due from that sale and “generally [do] everything necessary to complete [the] said sale.”
The Moroccan courts recognised the English bankruptcy and the role of the TiB in relation to DCD’s estate. The proceedings eventually reached the Supreme Court of Morocco, which asked the TiB to obtain an order from the English courts as to the effect of the power of attorney on his claim to the Moroccan property.
The decision of the High Court
The High Court gave its answer in the following way.
Which law applied to the bankruptcy proceedings?
The law which applied to the bankruptcy proceedings was English law and, therefore, the relevant provisions of the Insolvency Act 1986 had to be considered.
Which law applied to the power of attorney?
The power of attorney was made by an English donor in favour of an English attorney and was executed (i.e. signed) in England. No evidence or proof of an applicable foreign law was put forward by DD or DCD.
It followed, therefore, that English law applied to the power of attorney also.
Did the power of attorney have any effect on the TiB’s claim to DCD’s property?
A power of attorney is described as ‘a document by which one person (donor) gives another person (attorney) the power to act on his behalf and in his name’ – generally speaking, therefore, it does not create any proprietary interest.
Section 284 of the Insolvency Act 1986 provides that when a person is made bankrupt, any disposition of property made by him in the period between the presentation of the bankruptcy petition and the vesting of his estate in the TiB will be void unless it is made with the consent of the courts.
In DCD’s case, the power of attorney was granted after the presentation of the bankruptcy petition and before his estate vested in the TiB, which meant that it was caught by the relevant period specified in Section 284 of the Insolvency Act 1986. Therefore, the High Court held that the power of attorney did not create or give rise to any valid disposition of DCD’s property.
In any event, in English law, the bankruptcy of a donor automatically revokes any power of attorney he may have granted prior to the bankruptcy. Hence, in that respect, the timing of the power of attorney granted by DCD was immaterial.
Accordingly, it was held that the power of attorney stood revoked and had no effect on the TiB’s claim to DCD’s property.
Did the Moroccan property vest in the TiB in English law?
The Insolvency Act 1986 provides that the bankrupt’s estate vests in the TiB immediately upon the latter’s appointment. The bankrupt’s estate is defined as ‘all property belonging to or vested in the bankrupt’ and property is defined as ‘money, goods…land and every description of property wherever situated…’.
Given the clear wording of the legislation, the High Court had no hesitation in holding that the property in DCD’s estate which vested in the TiB included ‘land wherever situated’ which, in turn, included the property in Morocco.
Accordingly, the TiB was entitled to realise the property in Morocco for the benefit of DCD’s creditors and the power of attorney granted to DD had no effect in respect of the assets in DCD’s estate.
In an increasingly globalised world, it is no longer uncommon to encounter foreign assets in bankruptcy proceedings and the decision in Saunders v Donovan is likely to be of assistance to insolvency practitioners when dealing with assets situated overseas.