Date 22 September 2006
A Trustee in Bankruptcy, who more than 12 years previously had been granted a charging order over the bankrupt's property, was not statute barred by s.20 Limitation Act 1980 (“1980 Act”) from seeking the sale of the property. The trustee’s right to receive the proceeds of sale would not crystalise until either an order for sale of the property was been made by the court (or a sale occurred by consent).
Background:
Since April 2004 and the insertion of Section 283A Insolvency Act 1986 (“1986 Act”), trustees have a period of 3 years from the date of the bankruptcy order within which to realise a bankrupt’s interest in a residential property which at the date of the order was the sole/ principal residence of the bankrupt, bankrupt’s current/ former spouse or civil partner. The deadline for pre-April 2004 bankruptcy orders is April 2007.
Where (for instance) the debtor or other resident at the property is terminally ill or elderly, it may be inappropriate to apply for an order for possession and sale. Where a suspended possession order is also not appropriate the trustee has had the option of seeking a charge under Section 313 1986 Act. When a Section 313 charge is granted, the trustees interest in the property returns to the debtor and the trustee retains the charge under which he will receive payment upon a future sale of the property. Were the trustee’s rights under such charges affected by the1980 Act?
Statute:
Section 20(1) of the 1980 Act states: No action shall be brought to recover - (a) any principal sum of money secured by a mortgage or other charge on property (whether real or personal) after twelve years from the date on which the right to receive the money accrued.
Main Issue
The main issue was whether the trustee’s application to enforce, by orders for possession and sale of the bankrupt’s property, was time barred by s 20(1) of the 1980 Act.
In the first of three hearings, the High Court found that it was not. The second court dealing with the appeal of the Registrar’s decision thought that it was. The resolution by the third court (the Court of Appeal) centred on the interpretation of s.20(1) of the 1980 Act and particularly its application to the rights conferred on the trustee by the 1992 orders.
It was accepted that an order under s 313 created a “charge” for the purposes the 1980 Act and that the security represented was to be treated as a “principal” sum for the same purposes. The Court of Appeal considered that the right to receive that principal sum of money arose on the making of the orders under s 313 in 1992.
It followed then the “right to receive” had to be a present not a deferred right and it had to have accrued when the order for the s 313 charge was made in 1992. The only source of payment was the proceeds of sale of the property subject to the charge; but the whole object of the section was to defer the realisation of the property until the circumstances justified its sale. If the bankrupt wished to remove the charge he would have to pay the sums required to the trustee in bankruptcy (or to the Court).
No right to “receive” the sum secured could accrue until the obligation was a present one. The Court held that it was not inconsistent for the Trustee to have a right to enforce the security that preceded or followed the Trustees right to receive the sums secured.
Where there was a s.313 Order (1986 Act) that created a charge but the right to receive the proceeds of sale could not predate an order for the sale of the property. In light of the above time could not be said to have started to run under s 20(1) of the 1980 Act. The Trustee therefore retained the right to seek sale and possession of the residential property in order to redeem the charge imposed by s313 of the 1986 Act.
Please contact Robert Ryall with any queries on this or any other Insolvency or Corporate Recovery matters. Please email robert.ryall@salaw.com or call 01727 798192.
© SA Law 2006
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