(Court of Appeal; Laws and Thomas LJJ and Mann J; 12 June 2009)
When the husband was made bankrupt his half-interest in the matrimonial home vested in the bankruptcy trustees. However, the wife raised as an issue an alleged equity of exoneration, which she claimed exhausted her husband's share of the equity. The trustees, who had already incurred significant costs without payment, were unwilling to institute proceedings without funding from creditors; no such funding was forthcoming. Under Insolvency Act 1986, s 283A, if the trustees had not, within the 3 year period specified by the section: (i) 'realised' the interest; or (ii) applied for an order for sale, an order for possession, or a charge; or (iii) reached an agreement with the husband, the bankruptcy estate's interest in the property reverted to the husband. However, just before the 3 year time limit, one of the creditors entered into a deed whereby the trustees assigned the bankruptcy estate's half-interest in the property to the creditor, in consideration of the sum of £1, on the basis that if the creditor effected a sale of the property, the trustees would be entitled to 25% of the net proceeds of sale. The husband and wife applied to the court, claiming that the trustees had failed to 'realise' the interest in the property within 3 years, and that the interest in the property had therefore reverted to the husband. The husband and wife argued that in order for the trustees to 'realise' the interest, they had to have sold the interest for immediate monetary consideration, both payable and actually paid within the 3-year period. The judge ruled that a sale for a deferred consideration was a realisation, provided the trustee had assigned the estate's interest absolutely and that deferred consideration was not the same as a deferred sale and did not offend against the three-year rule. The husband and wife appealed.
The appeal was allowed; this property had re-vested in the bankrupt. The question for the court was whether, in the context of Insolvency Act 1986, s 283A(3)(a), the word 'realise' was capable of covering a transaction involving a deferred monetary consideration, during the period before that consideration was received. The central feature of the statutory scheme concerning matrimonial homes and bankruptcy was that the trustee, if he could achieve anything worthwhile at all from the property, got the equivalent of the then value of his interest in the property, and was not allowed to hang on for ever as co-owner, waiting to see if property values rose. The provisions achieved a reasonable degree of certainty for the bankrupt and the co-owner, in that by the end of the third year, or the end of litigation commenced within three years, they would, by and large, know whether the property had to be sold, how much the trustee would get, that the trustee would no longer be a co-owner and that the opportunity to make money out of a rising market would not remain with the trustee. Sale of the beneficial interest in exchange for a future price, or partially future price, did not fit into that background. Further, the normal English meaning of 'realise' was 'convert into cash or money'. In all the circumstances, 'realise' in a bankruptcy context meant getting in full cash consideration. The judge had failed to distinguish between sale and realisation. A spouse would still be able to negotiate with the trustee a purchase of the trustee's interest by instalments, if the bankrupt waived the re-vesting rights.