11/08/2010

Bankruptcy and possession – permission granted

North British Housing v Sharples [2010] EWCA Civ 539 [Not on Bailii or Lawtel]

This is the second permission to appeal hearing on this topic that we have reported recently, after Godfrey v A2 Dominion (on which we are still seeking more detail). Sadly the transcript of the judgment in this renewed application for permission hearing is also short of detail, but it does set out the issue on appeal. More information on this case would also be gratefully received if anyone from Glaisyers (or Jan Luba QC) are reading.

The issue is whether possession proceedings are a ‘remedy against the person or the property of the bankrupt in respect of a debt provable in the bankruptcy’ (s.258 Insolvency Act 1986) and thus barred under s.186(3)(a).

As far as I can gather, the tenant, S, had an assured tenancy. The tenant went bankrupt and, at some point after that,North British brought possession proceedings (presumably for rent arrears) and obtained a possession order. S appealed, presumably lost and applied for permission to appeal to the Court of Appeal. On the paper application, Patten LJ refused permission on the basis that:

the sense behind the judgments in Ezekiel v Orakpo [1977] QB 260 and Harlow District Council v Hall [2006] 1 WLR 2116 , together with the apparent policy of excluding an assured tenancy from the definition of the property comprised in the bankrupt’s estate in section 283 of the Insolvency Act 1986, give the present appeal somewhat low prospects of success.

On renewed application, S, via Jan Luba QC, argued that this case could be distinguished on its facts from both Ezekiel and Harlow v Hall as here the possession order was made after tenant’s bankruptcy order. Further, S argued:

that section 285(6) of the 1986 Act expressly provides that references in section 285 to the property or goods of a bankrupt are to any of his property or goods whether or not comprised in his estate.

This would be an issue of wider application – not just assured but also secure tenancies, now that these no longer end on possession order but on eviction.

We’ll watch for this appeal with interest. At a guess it will be joined with Godfrey v A2 Dominion, which appears to be similar. More on both cases as and when we get it.

Giles Peaker is a solicitor and partner in the Housing and Public Law team at Anthony Gold Solicitors in South London. You can find him on Linkedin and on Twitter. Known as NL round these parts.

7 Comments

  1. kjetilniki

    The cases of Bird v Hildage [1947 2 All ER 7], and of Beavis v Carmen [1920] WN 159 (and also quoted in Bird) make it clear that the claim for possession crystallises at the date of issue of proceedings.

    The grounds for possession ground 1 (secure tenancies) and ground 8 + 10 assured tenancies (including assured shorthold tenancies) require rent lawfully due from the tenant

    Ground 1

    Rent lawfully due from the tenant has not been paid or an obligation of the tenancy has been broken or not performed.

    Ground 10

    Some rent lawfully due from the tenant—

    (a) is unpaid on the date on which the proceedings for possession are begun; and

    (b) except where subsection (1)(b) of section 8 of this Act applies, was in arrears at the date of the service of the notice under that section
    relating to those proceedings.

    Ground 8

    Both at the date of the service of the notice under section 8 of this Act relating to the proceedings for possession and at the date of the hearing—

    a) if rent is payable weekly or fortnightly, at least [F9 eight weeks’] rent is unpaid;
    ……..

    and for the purpose of this ground “rent” means rent lawfully due from the tenant.

    The cases of Bird and Beavis also make it clear that lawfully due means recoverable by legal process ie distraint or court proceedings.

    If I go bankrupt before the issue of proceedings in respect of arrears pre bankruptcy date it is money no longer lawfully due from me s285(3) as opposed to my trustee in bankruptcy.

    Ground 11 is a little more problematical

    Whether or not any rent is in arrears on the date on which proceedings for possession are begun, the tenant has persistently delayed paying rent which has become lawfully due.

    The changes to the law made in the 1988 Housing Act s117 were intended to enable bankrupt tenants to keep their home unless the home had a substantial market value. Originally tabled in the Commons through the late Allan Roberts MP.

    The Earl of Caithness
    I welcome this new clause, which gives effect to a reform proposed in another place, and the associated consequential amendments to which the noble Lord referred. I believe that a bankrupt tenant whose tenancy has no financial value is put in an even more unfortunate position if he should lose his tenancy too. If he loses his home, he is not going to be in a position to sort out his affairs, nor possibly to use the tools of his trade which the Insolvency Act also allows him to keep.

    This new clause ensures that tenancies which do have a value, assured tenancies for which a premium can be charged, for example, will continue to vest in the trustees, so that the creditors of the bankrupt will have access to any funds which that sort of tenancy may realise.

    I believe this is a worthwhile amendment which could make a lot of difference to some unfortunate tenants, and in welcoming it I pay tribute to the noble Lord, Lord McIntosh of Haringey, and his noble and honourable friends and their advisers in identifying and acting upon this problem.

    Reply
  2. CB

    But Grounds 10 & 11 are discretionary and so the DJ is looking at whether it is reasonable to grant possession or not?

    If a tenant were to continually make themselves bankrupt to clear off arrears then a DJ might consider that unreasonable and grant possesion under Ground 11.

    Reply
  3. kjetilniki

    CB.

    You appear to miss the point.

    You cannot establish ground 10 [or ground 1 re secure tenancies] relying upon prebankruptcy debt if bankruptcy predates issue of proceedings becos there is no money lawfully due from the tenant at issue.

    [ground 11 is a little more difficult]

    Reply
  4. CB

    I was postulating about Ground 11 – apologies for the confusion.

    I’m not sure the situation is entirely clear on Ground 10 though.

    I think you’re right that in cases where debts are cleared and remain so then Ground 10 wouldn’t be a runner for a landlord.

    However, lets say that a tenant were in arrears (say £100) but that the amount had been higher prior to the landlord seeking possession but these were cleared through bankrupcy. Could the DJ take prebankrupcy debt into account when considering reasonableness?

    Reply
  5. Non-Lawyer-Type

    So what your saying is, as long as an order for posession has been made prior to a tenant being made bankrupt, you can still enforce the possession order after they going bust ?

    Reply
  6. JAC

    I think the issue is not whether section 8, 10 or 11 are engaged because the debt is not owed (as the assumption would be that more than 2 months of rent is owed since the date of bankruptcy) but whether or not the landlord has to go to the relevant bankruptcy court and get permission to bring a claim against the bankrupt for possession of the property under ss. 285(3)(b), 346 and 373 of the 1986 Insolvency Act. In essence, I think, the issue is whether or not a claim for possession of a premises subject to an assured tenancy in the bankrupt’s name is a legal proceedings against the bankrupt brought by a creditor of the bankrupt in respect of a debt provable in the bankruptcy. Or, put another way, if the 2 months of rent arrears relate to a period after the bankruptcy order date and the landlord additionally is owed rent that is provable in the bankruptcy are the possession proceedings “in respect of” the landlord in his capacity as creditor of the debt provable in the bankruptcy? Ezekial v Orakpo suggests that if the tenancy is entered into before the bankruptcy and is not brought to an end before the bankruptcy order is made then permission of the bankruptcy court is required before proceedings can be issued. 2 relatively recent cases point in different directions as to whether the court should give retrospective permission for such possession proceedings (Bristol & West BC v Saunders [1997] and Re Taylor [2007]). The more recent High Court case of Godfrey v Torpy [2007] favours Saunders (that retrospective permission can be given) rather than Taylor (which was a HHJ Kershaw decision) but Sealy & Millman’s Annotated Guide to the Insolvency Legislation 2010 at p.331 appears to favour the Taylor interpretation in the light of the Seal v CC of South Wales Police [2007] HL analysis that civil proceedings being void from the beginning cannot be retrospectively validated.

    Reply
  7. JAC

    Further to my last post, consider two example cases.

    In Case A the tenant did not owe the landlord any rent at the time the bankruptcy order was made but subsequent to the order 2 months of arrears accrued. In this example as the landlord is not a creditor with a debt provable under the bankruptcy there is no need to seek permission from the bankruptcy court before issuing possession proceedings.

    In Case B the tenant owed 2 months rent to the landlord at the time the bankruptcy order was made and then accrued a further 2 months of arrears afterwards. In this example it would be said by the tenant (and Jan Luba QC) that s.285(3)(b) of the Insolvency Act 1986 kicks in and so the landlord must apply to the bankruptcy court (which, in London at lease, is likely to be a different court to the court in which possession proceedings must be issued) and get permission before he or she can issue the possession claim.

    It seems inequitable to me that the landlord in Case A should find it easier than the landlord in Case B to get an order for possession.

    Reply

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