At first instance, a bankrupt's claim that she had informed her trustee or that her trustee had become aware of such an interest was dismissed. The bankrupt appealed.

In summary:

• Notice of a potential claim to an interest in a property does not constitute informing nor does it amount to a trustee becoming aware – notice is not the same as knowledge.
• Informing a trustee, in clear terms, that a bankrupt considers themselves to have an interest may be sufficient.
• A bankrupt who fails to comply with their duty to notify their trustee of an interest will face an uphill struggle in persuading a court that the interest has revested.

The facts

Ms Khilji’s husband (“the Deceased”) was the sole registered proprietor of a property ("Property") and died intestate on 23 August 2014. A bankruptcy order was made against Ms Khilji on 2 July 2018 and the trustee ("Trustee") was appointed on 7 August 2018.

If Ms Khilji told the Trustee that she had an interest in the Property (a "Relevant Interest") by 2 October 2018 (three months after the date of the bankruptcy), it would have revested in Ms Khilji on 2 July 2021 (three years after the date of the bankruptcy) under section 283A(2) of the Act. However, if Ms Khilji did not inform the Trustee of a Relevant Interest by 2 October 2018, the three year period would expire three years after the Trustee became aware of a Relevant Interest. In this case, if the Trustee only became aware after 11 January 2019, the three year period expired after the Trustee had issued possession and sale proceedings meaning there would be no revesting of the Relevant Interest in Ms Khilji.

Ms Khilji suggested that the Trustee was sufficiently on notice of a Relevant Interest by 28 September 2018 at the latest, being the date on which Ms Khilji was interviewed by the Official Receiver. It was suggested that the Trustee should have appreciated that a Relevant Interest existed by reason of Ms Khilji's interest in the Deceased's estate and by virtue of her mortgage contributions made following the Deceased's death.

When interviewed by the Official Receiver, Ms Khilji said that she didn’t think she was ever joint owner of the Property.

The decision

At first instance, Deputy ICC Judge Curl KC considered the quality of information imparted by a bankrupt, or knowledge held by a trustee, required for a trustee to have been informed of or become aware of a Relevant Interest.

For the Trustee, it was submitted that actual knowledge was required of the fact that the bankrupt had an actual interest in property and that assertions or claims that she might have an interest would not suffice. For Ms Khilji it was submitted that the various matters to which Ms Khilji had referred (mortgage contributions, putting the Official Receiver on notice of a potential claim etc) was enough.

The judge decided that notice of a potential claim was insufficient and that a trustee must be informed or become aware, both requiring knowledge on the part of the trustee. However, a bankrupt telling their trustee in clear terms that they consider themselves to have an interest may be sufficient.

The judge agreed that the position applicable to after-acquired property would apply equally to the revesting regime such that a bankrupt who fails to comply with their duty to notify their trustee either of after acquired property or of an interest in a property will face an uphill struggle in persuading a court that the trustee was nonetheless aware of that interest such that the property is no longer available to the estate.

In this case, neither an interest in the Deceased’s intestacy, registered matrimonial home rights or mortgage contributions were, of themselves, interests in the Property within the meaning of section 283A(1) of the Act and the only interest capable of falling within that section was one arising under a common intention constructive trust.

The appeal

Ms Khilji claimed that the judge below should have found that the Trustee had been informed or had become aware of a Relevant Interest by reason of the information she had been given and that the Trustee should have realised that Ms Khilji had a Relevant Interest under a common intention constructive trust. This was rejected and the approach of the judge at first instance was confirmed as correct.

Ms Khilji also challenged the judge's application of the facts to the law suggesting that, on the facts, the judge should have found that she had informed the Trustee or that the Trustee had become aware of a Relevant Interest. The supposed 'killer facts' in this regard were said to be:

The appeal court described the presentation of supposed killer facts as "an attempt to island hop among a sea of evidence", with Ms Khilji failing to refer to evidence against her (which included her informing the Official Receiver that she did not consider that she had any interest in the Property).

The court found no issue with approach at first instance that payment of mortgage contributions does not necessarily give rise to an interest in a property.

The interim charging orders only indicated that the applicant creditors thought that Ms Khilji might have an interest in the Property. A court had in fact refused to make one of the charging orders final due to insufficient evidence that Ms Khilji had any such interest.

The findings of the judge at first instance were said to be far from "rationally insupportable" and the appeal failed.

Comment

The decision should be welcomed by insolvency practitioners and is pragmatic. It would be wholly undesirable if the revesting provisions were to be invoked where there are mere vague references to a potential interest in property. As a stranger to the facts, it is reasonable that a trustee requires knowledge, rather than notice, of an interest in property before revesting applies.

However, care is still required by trustees. Indications of a claim to an interest in a property should be investigated without delay to avoid any risk of revesting.

DAC Beachcroft LLP acted for the Respondent trustee in bankruptcy.