In this case analysis, we will consider the decision handed down in Hyde & Another v Djurberg and Others [2024] EWHC 1188 (ChD) and the practical implications of the same.
The Background
The background is that Myck Djurberg ("the First Respondent") was adjudged bankrupt by order of the Central London County Court on 20 September 2021. The Applicants were jointly appointed to act as the First Respondent's Trustees in Bankruptcy on 30 September 2021 ("the Trustees").
The First Respondent was the registered proprietor of a property known as The Chalet in Hampton Court ("the Chalet"). The First Respondent lived at the Chalet with her son ("the Second Respondent"). Prior to the First Respondent's bankruptcy, Receivers were appointed to the Chalet by a secured lender. The Receivers instituted proceedings for possession of the Property in March 2020. The Chalet was sold in February 2022; however, the First and Second Respondents remained in occupation.
To achieve vacant possession of the Chalet, the new proprietor negotiated a settlement to which both the First and Second Respondent were named as parties. The central issue concerned the sum of £217,990.71 ("the Settlement Payment") and whether this amounted to after-acquired property.
The Settlement Payment was transferred to a firm of solicitors ("the Firm"), acting on behalf of the Second Respondent. These funds were transferred from the Firm to a Barclays' account held in the Second Respondent's name. Thereafter, sums compromising the Settlement Payment were transferred to (amongst others) the other respondents named in these proceedings, such that after only a few weeks of receiving the Settlement Payment, the whole sum had been almost entirely dissipated.
The Trustees were made aware of the Settlement Payment on 22 July 2022, and immediately wrote to the Firm requesting that this sum be held to order pending determination of ownership. The Firm confirmed that the funds had already been distributed.
The Trustees faced difficulty in reaching a resolution with the First Respondent and were required to take steps towards protecting their interest by way of service of a notice and, thereafter, Court proceedings.
The Trustees' application and the law
Section 307 of the Act relates to after-acquired property. Section 307(3) of the Act provides that "… upon the service on the bankrupt of a notice under this section the property to which the notice relates shall vest in the trustee as part of the bankrupt’s estate; and the trustee’s title to that property has relation back to the time at which the property was acquired by, or devolved upon, the bankrupt."
Section 309(1) of the Act required that the Trustees serve the section 307 notice within a period of 42 days of it coming to the knowledge of the Trustees. The effect of a validly served section 307 notice is that the relevant property vests in the Trustees from the date on which the property was acquired by, or devolved upon, the bankrupt.
Per rule 10.125 of the Rules, if a bankrupt disposes of after-acquired property without notice to the Trustees, then the Trustees may serve a notice under rule 10.126 of the Rules on the recipient of the property. Here, the Trustees served a notice on the Second Respondent in compliance with the Rules.
Section 307(4) provides that, in the event of a person acquiring the property in good faith, for value and without notice of the bankruptcy, then the Trustees shall have no recourse against that person.
The Trustees claimed that the Settlement Payment belonged to the bankruptcy estate and must, therefore, be returned. The burden of establishing that the property was indeed after-acquired property fell to the Trustees. The Trustees put to the Court the following points:
- The Chalet was solely and beneficially owned by the First Respondent;
- a sum of £60,000 was used from the Settlement Payment to pay for the First Respondent's rent; and
- the Settlement Payment was dissipated quickly after receipt and no plausible explanation for the payments were made by the recipients.
Other issues
The First Respondent was imprisoned at the date of the hearing and did not attend and could not be cross examined and therefore his evidence was not admitted. Additionally, in the earlier possession proceedings relating to the Chalet, the First Respondent had lacked mental capacity. The judge was mindful of this, but proceeded as there was no finding of lack of capacity in this application.
The Trustees also raised significant concerns about the evidence submitted for the other respondents, such that much of their evidence was also not admitted. The Judge noted that there was 'late' and 'selective' disclosure by the respondents.
The Court's Findings
The Court found that, in taking into consideration all of the relevant factors and on the balance of probabilities, the Settlement Payment was after-acquired property of the First Respondent within the meaning of section 307 of the Act. The Trustees gave valid notice of their interest, and therefore the Settlement Payment vested in them.
The Court found that the other respondents named in these proceedings, who received a distribution from the Settlement Payment, were not purchasers for value in good faith. They could not, in these circumstances, rely on section 307(4) of the Act.
Practical Implications
Trustees in Bankruptcy must remain alert to the potential of after-acquired property, and ensure that they comply with the tight timescales provided by section 309 of the Act. Bankrupts may attempt to circumvent the bankruptcy regime by quickly distributing after-acquired property to others, without giving notice to their Trustee in Bankruptcy. In these cases, when the Trustee becomes aware of the property, they must act promptly and carefully.
Interestingly, the notices served by the Trustees were served at a time when the Trustees did not have accurate information as to the precise sum, but the Judge considered this was immaterial and did not affect the validity of the notices. Although obiter, this may be useful to Trustees who are required to act against a strict deadline in circumstances where the full picture may not be available.
The Trustees had also challenged the payment of the Settlement Payment to the Second Respondent as a potential transaction defrauding creditors pursuant to section 423 of the Act. As the Court found it amounted to after-acquired property, this point was not considered further.
