Quite how this pans out practically and whether trustees’ response to it could lead to a change in the legislation remains to be seen. What is clear is that the case drives a coach and horses through the three year rule, which was put in place to prevent bankrupts and their families having as the judge said ‘a sword of Damocles’ continuing to hang over them.
Since 2004 trustees have only had a three year window in which to secure their interest in the matrimonial home. A few days ago, a case passed through the courts which I believe will have a huge impact on way trustees approach the three year ‘use it or lose it’ rule.
The case involved was ‘Lewis & Anor v Metropolitan Property Realizations’. In this case, before the three years elapsed the trustee sold his interest in the home to Metropolitan Property Realizations (‘MPR’) on terms which provided for the trustee to share in MPR’s share of the equity when the home was eventually sold.
A nominal £1 was paid up front by MPR to the trustee, the remainder of the sale price was to be paid later, after the sale, and was to be calculated as a percentage of the equity realised.
The question was did such a transaction, on largely deferred terms and for an uncertain amount, amount to a realisation of the trustee’s interest under s283 of the Insolvency Act 1986, the section that governs the three year rule? The court said that it did, the deal was sound. And having read the case, I find no reason to query the court’s decision. The likelihood of appeal seems, in my view, to be remote.
We can now expect trustees to sell their interest, where say there is currently no equity in the home, on similar terms to a major creditor of the bankrupt or to an operator in a new industry spawned by the decision. Trustees will not be as quick as they were before to hand over their interest in the home to the bankrupt without some payment, even if there is no equity.