Khilji v. Mehers [2025] EWHC 548

This was an appeal concerning the “use it or lose it” provisions of s.283A of the Insolvency Act 1986 in respect of the Trustee’s actions against the Bankrupt’s home.

Background

The bankruptcy order had been made in July 2018. The Appellant’s case was that she made clear in early bankruptcy documentation (in late 2018 and within 3 months of the bankruptcy order) that she asserted a beneficial interest in the property. The Trustee argued that the Appellant in fact positively denied (in that documentation) having any such interest: the Trustee’s case was that the first time the Appellant properly articulated her interest was in September 2019. The Trustee issued a claim for possession and sale of the property in January 2022 i.e. more than 3 years after July 2018 but within 3 years of September 2019.

The law

Pursuant to s.283A(2), the Bankrupt’s home (or other applicable property) ceases to form part of the bankruptcy estate and revests in the Bankrupt 3 years from the date of the bankruptcy. That revesting does not occur if the Trustee makes a particular application (including one for possession and sale) within the 3-year period (s.283A(3)). Importantly, ss.(5) reads: –

(5) If the bankrupt does not inform the trustee or the official receiver of his interest in a property before the end of the period of three months beginning with the date of the bankruptcy, the period of three years mentioned in subsection (2)—

(a) shall not begin with the date of the bankruptcy, but

(b) shall begin with the date on which the trustee or official receiver becomes aware of the bankrupt’s interest.

The decision

The Court needed properly to interpret s.283A and to decide whether, or when, (i) the Appellant had “informed” the Trustee of her interest in the property or (ii) the Trustee had “become aware” of that interest.

The Appellant argued that, if the Trustee is put on notice of relevant facts from which the Trustee ought to have realised that the Appellant may have a prima facie claim to an interest in the property, that is sufficient to result (i) in the Trustee being “informed” of the interest and (ii) in the Trustee “becoming aware” of the interest, basically a species of constructive knowledge.

The Court rejected that argument because it was at odds with the words of s.283A(5). The ordinary and natural meaning of the concepts of “being informed of” and “becoming aware” requires a focus on what the Trustee actually knew. That is a focus on the Trustee’s subjective knowledge which does not obviously invite consideration of what the Trustee does not know, but could have found out. The concept of a reasonable enquiry does not feature at all in the statutory language and still less does the concept of what a Trustee could have found out on making such enquiries. Furthermore, given the imbalance in the state of the parties’ knowledge, it was not obvious, particularly given the statutory words used, why Parliament would wish to fix a Trustee with deemed knowledge of matters that are largely within the actual knowledge of the Bankrupt.

Practical point

Trustees need not concern themselves with vague suggestions of an interest in property, at least as regards s.283A(5) (although such an interest may of course be of interest to the estate in general).

 

This case note was produced by Katherine Hallett.