There are some strict rules which apply when an individual is
made bankrupt. Some of them were brought to the fore recently in
the case of Floyd Foster v Davenport Lyons (A Firm) in the Chancery
Division EWHC 275 (Ch).
The main cardinal rules are:
- when a person is made bankrupt there is a deeming provision in the Insolvency Act which provides that all of the bankrupt's property vests in the Official Receiver (OR) or the Trustee in Bankruptcy (TB). In other words, the OR or the TB takes control of the bankrupt's financial affairs as soon as the Bankruptcy Order is made;
- where a person is adjudged bankrupt, that individual is not allowed to make any dispositions of property and if he does those dispositions will be void unless they were with the consent of the court or was subsequently ratified by the court. This applies to payments (whether in cash or otherwise) and dispositions of property;
- during the period of the Bankruptcy (usually one year) the bankrupt is ring fenced from pursuing creditors and his assets cannot be touched, except with permission of the court.
In the case of Floyd Foster, the bankrupt had, shortly after the Bankruptcy Order was made, applied to appeal against the Bankruptcy Order and sought a stay of that Order.
The main issues for the Court were, a) whether a stay of the Bankruptcy Order should be lifted, and b) whether the TB should be granted interim injunctive relief to prevent the bankrupt from making dispositions and intimidating his tenants. Both of these issues were brought before the court on short notice, for reasons which will become apparent later in this article.
The Bankruptcy Order was made on 14 November 2011 and in a period of 6 weeks, both Mr Foster and the TB had made several applications to the court.
The bankrupt's main asset was a five storey building in Shoreditch comprising a bar and restaurant on the ground and basement floors, two office units on the first floor and flats on the upper floors. The Bankruptcy Order had been stayed earlier pending determination of the bankrupt's appeal. The stay was imposed on 12 December 2011 in ignorance of the TB's warrant to enter the basement of the building.
The TB had the matter transferred to the High Court and although the stay was set aside, the TB could not sell the property or any chattels before the appeal was determined. A warrant of seizure regarding the basement and ground floor was reissued on short notice. The bankrupt applied for a non-interference order which was delayed slightly because he needed to file evidence. Although the bankrupt's assets had vested in the TB, the bankrupt had tried to make dispositions of property by contacting, through intermediaries, the tenants in the residential parts of the property and directed them to pay their rent to a company in which Mr Foster was the shareholder. Mr Foster also purported to transfer all of his shares in that company to his daughter.
The court heard evidence of threatening behaviour, intimidation and harassment of tenants in the property. The court also heard the bankrupt admitted entering the property after the issue of the second warrant, in breach of that warrant.
The bankrupt submitted that the removal of the stay was invalid as there had been no application to remove it before the court, which the Judge had directed was to be by letter. The bankrupt also submitted that the TB had not been personally appointed as required by the Insolvency Act. The TB on the other hand sought an interim injunction against the bankrupt to prevent him from contacting, intimidating or threatening tenants in the property, re-entering the basement or ground floor of the property, interfering with the TB's rent collection, dealing or disposing of rent already collected and entering or interfering with the property generally.
The court rejected all of the bankrupt's submissions and held that:
- no separate application for discharge of the stay was required when the application (and written evidence in support thereof) to transfer proceedings to the High Court was made;
- the purpose of the letter was to make it clear that a formal application notice need not be issued, it was clear from the written evidence that the court was being asked to lift the stay;
- the TB had proper standing in the proceedings;
- the TB had applied in time for injunctive relief and lifting the stay; and
- there were good reasons for the application being one of great urgency and where the court had to act on short notice.
The court also found the bankrupt's evidence to be wholly inadequate, the bankrupt to be uncooperative, unwilling to surrender possession of the property, and had failed to attend proceedings and submit to enquiries of the TB. Further, the bankrupt had also been slow to cooperate with the TB, dealt with trust assets during the currency of the Bankruptcy Order and all of those were good reasons why the Bankruptcy Order should not be stayed and injunctive relief granted to the TB.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.