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Bankrupts fail in claim to have interests in land revested in them

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Posted by Caroline Benfield on 30 July 2020

Caroline Benfield - Insolvency Lawyer
Caroline Benfield Partner

The claim by Mr and Mrs Brake (Brake v Swift), heard in the High Court in May, to have a cottage and adjacent land revested in them under Section 283A of the Insolvency Act 1986, was set against a background of convoluted litigation extending over a number of years, described by Matthews HHJ as ‘complex’. The claimants had been made bankrupt in 2015 and the matter before the Court concentrated on whether or not the property concerned was, indeed, the claimants’ principal residence at the time of the bankruptcy. The cottage in question was sold by the liquidators of a partnership (of which the claimants had been members) to Mr Swift, the Trustee in Bankruptcy, in early 2019 which he then sold to Chedington Court Estate Ltd. The Brakes argued that, as three years had lapsed since being declared bankrupt, the property belonged to them.

Background to the case

In 2004 Mrs Brake bought West Axnoller Farm in Dorset from a local landowner from which she and her husband ran an events company. At this point the nearby cottage (the focus for the current dispute) was owned by an unrelated third party, although Mrs Brake had bought two parcels of land immediately adjacent to it in 2006. After the financial crash in 2008, the Brakes were unable to raise additional funds from their bank, Adam & Co, to expand the business so entered into partnership with Patley Wood Farm LLP (PWF), an investment vehicle owned by Mrs Brehme. In 2010 the partnership bought the cottage. In 2013 a dispute between the partners went to arbitration, which found in favour of PWF, and an order was made for the partnership to be dissolved and the Brakes to pay costs. To complicate matters further, the Brakes had, before the conclusion of the arbitration, launched a damages claim against Mrs Brehme and PWF for the failure to make promised investments and also an alleged promise to transfer the cottage to the Brakes. The latter also launched a claim for a proprietary estoppel equity relating to the cottage (a claim that remains outstanding).

In 2015, following the Brakes’ bankruptcy as a result of their failure to pay debts owed to their bank, the latter appointed receivers to sell the house (but not the cottage as this was not subject to the bank’s charge). The eventual buyer was a company owned by a friend of the Brakes who allowed them to remain in the house and to continue to run the events company. In 2016 the partnership entered administration and was liquidated in 2017. In 2017, the house was sold again, this time to Chedington Court Estate Ltd. Mrs Brake was employed by Chedington to run the events company, renamed Axoller Events. Not long after, the parties fell out. Chedington then went on to buy the two parcels of land, originally bought by Mrs Brake in 2006, from Mr Swift in late 2018 and then the cottage in early 2019 which is the point at which these proceedings began.

Evidence of a principal residence must convince ‘reasonable onlooker’

The Brakes’ claim, launched in February 2019, was ‘to unwind the disputed transactions…’ and  ‘establish that the Brakes' pre-existing interests in the cottage and the adjacent parcels had revested in them and Mrs Brake respectively on 12 May 2018 under the Insolvency Act 1986, section 283A, on the basis that they were the Brakes' sole or principal residence at the date of bankruptcy, and Mr Swift had taken no steps to realise them three years later.’

The court heard a considerable amount of evidence, not all of it entirely convincing, that the cottage had been the Brakes’ main residence before they became bankrupt in May 2015. The Brakes admitted that they had swapped between living in the house and the cottage before the date of their bankruptcy but that they had moved into the cottage by late 2014 and relied on several elements to prove their case. Among others, the cottage was indicated as their principal residence on an insurance policy dated November 2014; they were registered to vote at the cottage’s address; certain items of property had been moved from the house to the cottage in early 2015; they gave it as their address to Mr Swift; and various friends attested to visiting them at home at the cottage. Matthew HHJ went through each element but found each, from the point of view of a ‘reasonable onlooker,’ lacking, not least as there was also evidence the Brakes were staying in the house after they had been made bankrupt. After the bank’s receivers had sold the house to the Brakes’ friend, Mrs Foster, they continued to live in the house with Mrs Foster’s blessing, only moving to the cottage when the house was booked.

No requirement to take a generous approach to ‘principal residence’

At the end of the hearing, Matthew HHJ could find no concrete or compelling evidence that the cottage had ever been the Brakes’ principal residence. They had certainly lived there for extended periods, particularly during the peak season for events when the house was booked out, but this was insufficient to convince the ‘reasonable onlooker’. Thus, he dismissed the application under 283A. During his judgment he also noted that, although Section 283A was ‘to designed to prevent trustees in bankruptcy from abusing their position, and depriving the bankrupt of a home after (for example) simply waiting for the market to rise..’ it was not there to protect the bankrupt from the interests of their creditors. He also observed that, as creditors’ claims were likely to outweigh all other interests, ‘..courts were likely to order a sale under 335A of the Insolvency Act… there is therefore no need for a generous or expansive approach to the concept of "sole or principal residence".

About the author

Caroline advises on all aspects of contentious and non-contentious personal and corporate insolvency matters.

Caroline Benfield

Caroline advises on all aspects of contentious and non-contentious personal and corporate insolvency matters.

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