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Insolvency Law

Expert guidance on all aspects of corporate and personal insolvency

14 DEC 2011

Fenland District Council v Sheppard & Ors [2011] EWHC 2829 (Ch) (03 November 2011) - disclaimer in bankruptcy

Mr Justice Roth has handed down a relatively short but interesting judgment which relates to disclaimer in bankruptcy. The case has been reported as: Fenland District Council v Sheppard & Ors [2011] EWHC 2829 (Ch) (03 November 2011). In particular the learned judge has considered, "...a short but somewhat difficult point under the provisions governing the vesting of disclaimed property of a bankrupt's estate under section 320 of the Insolvency Act 1986..." The judge continues, The facts are relatively simple. The case concerns a property at 24 High Street, Wisbech, Cambridgeshire ("the Property"), which is a derelict former shop-site close to the centre of town. The freehold of the property had been owned by Mr Chris Constantine, who was adjudicated bankrupt on 9 June 2008 ("the Bankrupt"). The Property is in very poor condition and in 2008, around the time of the bankruptcy, the appellant as the local authority carried out building work to make the Property safe pursuant to section 78 of the Building Act 1984. The appellant's cost of that work was close to £72,000 and in consequence the appellant has an interest in the form of a charge over the Property under section 107 of the 1984 Act. That charge is a local land charge within the meaning of section 1(1)(a) of the Local Land Charges Act 1975 and was duly registered on 21 November 2008."

In relation to the insolvency provision discussed in the case, the judge notes: "There are few authorities concerning the disclaimer provisions on personal bankruptcy in sections 315-321 of the Act, but there are rather more concerning the parallel provisions that apply on corporate insolvency in sections 178-182. In Hindcastle Ltd v Barbara Attenborough Associates Ltd [1997] AC 70, Lord Nicholls of Birkenhead gave the leading speech (with which the other members of the House of Lords agreed) and referred to these provisions as follows (at 86-87):

"The fundamental purpose of these provisions is not in doubt. It is to facilitate the winding up of the insolvent's affairs. There is a further purpose in personal insolvency cases. A bankrupt's property vests automatically in his trustee. The disclaimer provisions operate to discharge the trustee in bankruptcy from all personal liability in respect of the Property: see section 315(3)(b).

Equally clear is the essential scheme by which the statute seeks to achiever these purposes. Unprofitable contracts can be ended, and property burdened with onerous obligations disowned. The company is to be freed from all liabilities in respect of the property. Conversely, and hardly surprisingly, the company is no longer to have any rights in respect of the property. The company could not fairly keep the property and yet be freed from its liabilities.

Disclaimer will, inevitably, have an adverse impact on others: those with whom the contracts were made, and those who have rights and liabilities in respect of the property. The rights and obligations of these other persons are to be affected as little as possible. They are to be affected only to the extent necessary to achieve the primary object: the release of the company from all liability."

Although those observations refer to the sections concerning disclaimer and not the following provisions concerning a vesting order, it seems to me that this should similarly characterise the approach to a vesting order. So far as possible, the interests of third parties should be preserved."

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