The Court of Appeal, in the case of Grant & Another v Baker & Another [2016] EWCH 1782 (Ch), has held that a judge had been wrong to postpone an order for possession and sale of a matrimonial home indefinitely due to the postponement being incompatible with the underlying purpose of bankruptcy legislation.

Background

In November 2013, Mr Baker (the “Bankrupt”) was declared bankrupt following a petition of HMRC. The Trustees gave notice to the Bankrupt of their intention to sell the matrimonial home (the “Property”) for the purpose of paying the Bankrupt’s sole creditor (HMRC).

The Property, a four bedroomed bungalow, was occupied by the Bankrupt, his wife and their three adult children (aged 22, 26 and 30). The eldest child (“Samantha”) had a condition called Global Development Delay and as a result had the mental age of an 8-9 year old child.  Samantha’s condition had no prospect of improvement and she would never be able to live on her own.

On application to Chelmsford County Court, the Trustees sought an order for possession and sale of the Property (under Section 14 Trusts of Land and Appointment of Trustees Act 1996 and Section 335A Insolvency Act 1986) which was heard in October 2015. The judge awarded an order for the sale of the Property with vacant possession, however sale of the Property was to be postponed until such time as Samantha Baker no longer resided at the Property. No longstop date was provided in the order.

The judge’s decision focussed on the needs of Samantha which provided “exceptional circumstances” for the purposes of rebutting the presumption (that was applicable by such time) that the Bankrupts’ creditors interests outweighed all other considerations. Exercising her discretion, the judge postponed granting the order for possession and sale on the basis that there was no real prospect for Mrs Baker to purchase another property and that moving into privately rented accommodation would be detrimental to the well being of Samantha.

The Court of Appeal’s decision

On appeal His Honour Mr Justice Henderson (as he was known at the time) accepted that the circumstances presented by the care of Samantha were indeed exceptional and that the earlier judge was clearly entitled to reach this decision. Henderson J then moved on to consider whether, upon the finding of exceptionality, the earlier judge had erred in the exercise of her discretion when postponing the order for possession and sale.

It was held that in postponing the order for possession and sale indefinitely the earlier judge had prevented the underlying purpose of bankruptcy legislation, in that the Trustees were prevented from realising the value in the Property and paying the Bankrupt’s creditors.  

Henderson J went on to consider the earlier judge’s decision that it would be unreasonable to require Samantha to live in private rented accommodation as justification for the indefinite postponement. This he disagreed with for the following reasons:

1.the judge was unduly influenced by the perceived lack of security to Samantha if they were to move into rented accommodation. Rental accommodation  serves as suitable accommodation to many in the UK and the Bankrupt’s family would be no different;

2.the Bankrupt’s family only need a two bedroom house given the perceived independence of their two sons. On this basis the Bankrupt and Mrs Baker would be able to meet the rental payments from their incomes and if necessary any residual equity received from the sale of the Property;

3.Samantha has already undertaken a move and experienced temporary distress when adjusting to her new home. The medical evidence provided was not sufficient in convincing that a further move would have a lasting effect on her; and

4.the judge was wrong not to consider any alternative to indefinite postponement of the sale.

The appeal was allowed on the basis that there was no evidence that Samantha’s condition would improve and as such there would always be a need to remain living at the Property. There was no need for a postponement for any longer than it would take to find suitable alternative accommodation and plan the move in a way which caused the least amount of distress to Samantha.

This case provides some guidance on the limits of the Court’s discretion to postpone orders for possession and sale and perhaps gives some comfort to insolvency practitioners that strong consideration is given to the underlying purpose of bankruptcy legislation being allowed to succeed.