Registrar Baister looks at what circumstances justify a s 313 charge on a bankrupt's home as an alternative to realising the property

On 8 April 2014, Chief Registrar Baister gave judgment in the case of Neale v Parkins  [2014] Lexis Citation 47 , where the court looked at the circumstances which would justify an application being made under IA 1986, s 313 (placing a charge on a bankrupt's home) due to an inability to be able to apply to realise the trustee's interest in the property by way of application for possession and sale.

What happened in the case?

A bankruptcy order was made against Parkins on 13 October 2010 following a petition presented by the Commissioners for Her Majesty’s Revenue and Customs (HMRC). Shortly after the bankruptcy order was made, Parkins made an application seeking to annul the bankruptcy order and that application was, following a full hearing, dismissed.

In October 2013, Parkins' trustee in bankruptcy (Neale) made an application to court seeking a charge under IA 1986, s 313 over Parkins' property. The application was adjourned so the court could consider why that application was being made, as such applications are only made where there is an inability for the trustee to realise his interest in some other way (typically by way of an order for possession and sale). The court needed to consider the scope of IA 1986, s 313 which provides where the property:

'...is comprised in the bankrupt’s estate and the trustee is, for any reason, unable for the time being to realise that property, the trustee may apply to the court for an order imposing a charge on the property for the benefit of the bankrupt’s estate.'

The applicant argued that the application was being made for two reasons. These were:

  1. Parkins had made a complaint to HMRC's adjudicator, and, although the trustee had made inquiries about the progress of the complaint, no information had been forthcoming.—the applicant considered that should the complaint be upheld, this could have an impact on HMRC's claim in Parkin's bankruptcy
  2. in January 2014 Parkins lodged an appeal either against the bankruptcy order/the dismissal of her application to annul which was pending—the applicant was of the opinion that any application for possession and sale of the property would be contested and would be disproportionate in the circumstances

In the circumstances, an application for a charge under IA 1986, s 313 was considered by the applicant as a better way to secure the creditors' interests.

What issue did the court address?

The issue the court looked at was whether the reasons put forward by the applicant (ie concern over an appeal over the bankruptcy order and a challenge to the petitioning creditor's claim) would amount to an 'inability' to realise the trustee's interest in the property and therefore justify an application being made for a charge under IA 1986, s 313.

What did the court say?

The court noted there was no specific authority on this point. When analysing the wording of IA 1986, s 313 (where it provides that the application can be made where the trustee is for any reason, unable to realise the interest) the court found that these applications were not restricted to cases where exceptional circumstances under IA 1986, ss 335A337 were applicable, and that the scope could be applied and extended to cases such as these. In the circumstances the court granted the charge and accepted the applicant's position that the circumstances amounted to an 'inability' to realise the interest at that time.

What does this mean to practitioners?

This case shows us that the matters giving rise to an application for a charge under IA 1986 s 313 can be extended to cases where there may be question over the validity of the bankruptcy order, and therefore may make applications for possession and sale heavily disputed. It also illustrates that the scope of circumstances to make an application under IA 1986, s 313 does not have to be interpreted narrowly.

For further reading on this topic for subscribers to LexisPSL, please see our note on the factors which can give rise to the court not making an order for possession and sale.

Benn Richards, solicitor in the Lexis®PSL Restructuring & Insolvency team.

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