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JANE CAMPBELL, Barrister, 6 Pump Court
Bankruptcy has become an increasingly prevalent feature in ancillary relief proceedings. Many practitioners are familiar with the following scenario: husband and wife are co-owners of their home, husband goes bankrupt and under Insolvency Act 1986, s 306: husband's interest vests in a trustee in bankruptcy. The matrimonial home has little value at the time so there is no application by the trustee to sell it. Husband and wife then continue to live there and, over time, start to believe that the trustee's lack of interest means the home is theirs. Many years later, when the value of the property has increased, the trustee reappears and applies for an order for sale.
It was to counter the perceived unfairness of this situation that the ‘use it or lose it' provisions for trustees in bankruptcy were introduced by the Enterprise Act 2003 and incorporated into the Insolvency Act 1986. Broadly speaking, the position is that a trustee has 3 years to make arrangements to sell a matrimonial home or seek an order for sale of a property. If he fails to do so within this time, the property reverts to the bankrupt. A difficulty for the trustee is that if the value of the bankrupt's interest is less than £1,000 (in practical terms if the property is in negative equity) the court must dismiss any application for sale whereupon the interest in the property reverts to the bankrupt.
As we enter another period of economic uncertainty, it is timely that the Court of Appeal has provided clarification of the ‘use it or lose it' provisions in Lewis v Metropolitan Property Realisations Ltd  EWCA Civ 448,  1 FLR 86. In part, the ruling here assists the bankrupt but it also identifies an important loophole, namely, if a trustee in bankruptcy sells his interest to a third party, that third party is not similarly constrained by the legislation. Unlike a trustee, he may hang on seemingly indefinitely before selling a property, as the 3 year time limit does not apply to him.
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