Possession
The meaning of "possession" is not legally defined and its meaning varies depending on the circumstances in which the issue of possession is raised. Generally speaking, possession of an asset means control, direct or indirect, either of the asset itself or of land or buildings on or beneath which it is situated, to the exclusion of others.
Before deciding whether to apply for an order for possession, the trustee should therefore consider two things:
- is there anyone in possession? If no one is in possession, the trustee could take possession, or if practicable sell the property before anyone else tries to take possession (although the trustee should be careful he does not illegally evict residential occupiers); and
- if there is someone in possession, would the trustee make a greater realisation with them in situ? For instance, if a tenant is in place, paying a good rent, the trustee may be able to realise more than if it was a vacant "to let" property.
The trustee in bankruptcy's ability to obtain an order for possession depends on whether there is a person with rights to occupy the property which prevail over the trustee's interests or those of the creditors. If the property is jointly owned, the court can give the trustee a right to take possession and sell. If squatters are in possession, a trespasser action to evict them would be necessary. If there are tenants, the trustee would need to consider whether the terms of the leases would permit the trustee to forfeit and take possession. For residential properties, a landlord will usually have to go to court to bring forfeiture proceedings in order to forfeit a lease. More details on such actions are at Property Account Statements PA002 and PA003.
Orders for sale
An order for sale of a property usually directs that the property be sold, and carriage of that sale be taken by the trustee in bankruptcy and the trustee's agents.
Where the legal and beneficial interest in a property is solely owned by the bankrupt, the trustee in bankruptcy does not need to obtain an order for sale. That is because, pursuant to Schedule 5 to the Insolvency Act 1986, the trustee in bankruptcy has the power to sell any property in the bankrupt's estate and execute a deed.
However, the trustee only has the power to sell the bankrupt's interest in a property without a court order. Therefore, where there are joint legal owners of a property, if the joint owner refuses to sell, or buy out the trustee's interest, the trustee must apply for an order for sale. On the trustee's application, the Court will make such order as it considers just and reasonable having regard to:
- the interests of the bankrupt's creditors;
- the needs of any spouse and/or children; and
- all the circumstances in the case, other than the needs of the bankrupt.
When an application for possession and sale is made after the expiry of one year from the date of the trustee in bankruptcy's appointment, the interests of the creditors prevail in all but "exceptional circumstances".
The Court has a wide discretion when considering "exceptional circumstances" and the cases turn on their own facts. There is much case law on this issue, but by way of example, the existence of a young family and/or disruption to children's education is not an exceptional circumstance. But a spouse's terminal illness and other humanitarian considerations may be exceptional circumstances.
The trustee should also be aware of the "use it or lose it" provisions in the Insolvency Act, which can prevent some actions if they are brought more than three years after the date of the bankruptcy.
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.
