The Insolvency Act 1986 (“the Act”) provides Trustees in bankruptcy with a number of mechanisms to reverse transactions, entered into prior to a person being declared bankrupt by the court, which have the effect of diminishing a bankrupt’s estate to the detriment of his or her creditors. Antecedent transaction claims aim to recover assets back into the bankrupt’s estate for the benefit of creditors. Some commonly used provisions are transactions at an undervalue, preferences and transactions defrauding creditors.

Such actions are powerful tools but Trustees should pay careful attention to the strict statutory time limits that exist for each action and ensure they don’t fall foul of them as doing so may have serious implications for the bankrupt’s estate and the Trustee.

In this article we focus on some recent case law that deals with the issue of time limits and the extension or postponement of them. The cases below focus on specific actions and factual scenarios but the principles from each may be applied across the board.

LIMITATION

When does time start to run?

The normal rule is that the date from which the limitation period starts to run, for the above types of claims, is from the date of the making of the bankruptcy order. This was found in Hill v Spread Trustee Company Ltd & Anor [2006] as the Court of Appeal held that the “limitation period started to run only when all the constituent elements of the cause of action came in to existence” as it was not until a bankruptcy order was made that the trustee was identified as the person entitled to sue. However, In Stonham v Ramrattan [2011] the court stated that the limitation period ran, not from the bankruptcy order, but from when the trustee in bankruptcy was first appointed or when the official receiver became the trustee. This case related to claim under section 339 of the Act and the court remarked that until a trustee was constituted proceedings could not be brought and time should therefore not run. The remarks however were made obiter so we are yet to know whether they will be followed.

Postponement under section 32(1) of the Limitation Act 1980 (“LA 1980”) and the date of discovery

Many of the reported cases on the matter of postponement of limitation periods relate to fraud, concealment or the person under investigation wilfully hiding something, for example hiding an asset or transaction from a Trustee, which relates to section 32(1) of the LA 1980.

A postponement of the limitation period operates to delay the start of the limitation period until a certain date.

In Giles v Rhind [2009] a concealment of a transaction defrauding creditors under section 423 of the Act was alleged and the Court held that this was a breach of duty under section 32 of the LA 1980 and hence the running of the time limit was postponed. In Horner v Allison [2014] the Judge allowed an extension of the limitation period in a claim for deceit under s32(1) of the LA 1980 as the claimant could not, with reasonable diligence, have discovered the fraud until a specific date and hence the limitation ran from that date of discovery. The question was not whether the fraud was obvious, but whether the Claimant had discovered it and whether he had proved that he could not have discovered it within a person’s exercise of reasonable diligence. The claimant will bear the burden of showing this.

In Haysport Properties Ltd v Ackerman [2016] an extension of the relevant limitation period was allowed but the court in this case paid attention to a director’s fiduciary duties and a director’s duty to disclose his own misconduct.

In Paragon Finance Plc v DB Thakerar & Co [1998] it was held that the relevant test was when the Claimant could have discovered the concealment and not when it should have discovered it. This may be important for Trustees in the level of investigation they undertake into a bankrupt and his or her estate following their appointment as Trustee.

IMPACT ON TRUSTEES IF CAUSE OF ACTION TIME BARRED

A failure by a Trustee to take action within the prescribed statutory time limits may be a cause for a professional negligence claim by the creditors of the bankrupt. This of course may have serious financial and reputational ramifications for a Trustee.

On the other side of the coin the decision of Oraki and Oraki v Bramston and Defty [2015] focused on a trustee’s duty to the bankrupt. The court rejected the argument that there is any common law duty of care and confirmed that trustees are simply bound by statutory duties under the Act and hence loss to a bankrupt’s estate and the creditors (rather than to the Bankrupt) should be the predominant focus for a Trustee.

CONCLUSION

Although there are cases where there has some been some movement on the postponement of limitation periods, it is always a high test and therefore Trustees should always play close attention to and comply with the statutory time-limits for each class of action. It is always advisable for Trustees to obtain good legal advice where necessary when a Trustee is having difficulty in administering a bankrupt’s estate or when they are approaching the end of a time limit.