Insolvency and Property

In general terms, where a person becomes insolvent, their estate – which includes property - vests in a trustee in bankruptcy (s.306, Insolvency Act 1986). Where the estate includes any interest in a dwelling-house which, at the date of the bankruptcy, was the sole or principal residence of the bankrupt (or their spouse/civil partner or former spouse/civil partner), then the trustee has three years to deal with the property after which the interest will return to the bankrupt and cease to be capable of being realised by the trustee (s.283A, Insolvency Act 1986). If, however, the bankrupt has failed to “inform” the trustee of the interest in the dwelling-house, then the three year period does not start to run until the trustee becomes aware of it (s.283A(5)).

In the case of Mehers (Trusteee in Bankruptcy of Schrzade Khilji) v Sherzade Khilji and others [2023] EWHC 298 (Ch) Ms Khilji was made bankrupt in 2018. At the time, she was living in the family home. In answer to questions from her trustee about her assets, she disclosed that she was not a registered owner of the house; and, that she had contributed to the mortgage but did not consider herself to be a joint owner. The trustee therefore took no further action in respect of the family home.

The registered owner of the home was her husband. He subsequently died and the administrators of his estate brought a possession claim against Ms Khilji. She filed a defence and counterclaim and averred that that she had a one third interest in the property under a constructive trust as a result of her contribution to the mortgage; she further contended that, whilst that interest would have vested in her trustee in 2018, more than three years had passed and so the interest had re-vested in her by virtue of s.283A. That pleading was subsequently served on the trustee, who denied that the property had re-vested in her because the trustee had not been “informed” of her interest until, at the earliest, the defence and counterclaim had been served on the trustee. The Trustee then took steps to realise the interest in the property, which Ms Khilji resisted. On application by the trustee, the question was whether there had been a statutory re-vesting under s.283A.

The court found for the trustee. The information originally provided to the trustee did not come close to informing the trustee of the interest and the trustee had not been informed of that interest until, at the earlier, the service on him of the defence and counterclaim. It followed that there had not been any statutory re-vesting and the trustee was entitled to realise the interest of the bankrupt in the property.

Oliver Kew

Published on 03/03/2023