Brake & Anor v The Chedington Court Estate Ltd

Factual and Procedural Background

Two individuals (“the Respondents”) were made bankrupt in May 2015. A trustee in bankruptcy (“the Trustee”) was appointed to administer their estates. One of the estates’ assets was a cottage (“Property A”) adjacent to land (“Property C”) and a larger house (“Property B”) situated on a farm (“The Farm”). In 2018 the Trustee entered into agreements with a third-party purchaser, Company A (the Appellant), under which:

• Property C and other chattels vested in the Trustee were sold to Company A.
• The Trustee purchased the partnership’s interest in Property A, financed by a loan from the beneficial owner of Company A (“Person A”), and agreed to transfer the combined interests to Company A.
• Company A was granted a licence to occupy Property A pending completion.

Agents of Company A took possession of Property A and changed the locks. The Respondents, contending that the Trustee’s arrangements were unlawful and prejudiced their possessory and other rights, issued:

• a “liquidation application” under section 168(5) (as trustees of a family settlement) challenging the liquidators’ sale to the Trustee; and
• a “bankruptcy application” under section 303(1) (both personally and as trustees) challenging the Trustee’s agreements, seeking the Trustee’s removal, and asserting re-vesting of the properties under section 283A.

At first instance a judge struck out both applications for lack of standing. The Court of Appeal restored part of the bankruptcy application, holding that the Respondents (in their personal capacities) had standing because their “substantial interests” were affected. Company A appealed to the Supreme Court.

Legal Issues Presented

1. Whether a discharged bankrupt has standing under section 303(1) Insolvency Act 1986 to challenge acts, omissions or decisions of a trustee in bankruptcy when there is no likelihood of a surplus in the estate.
2. What categories of persons may invoke section 303(1), and whether the Respondents’ possessory rights over Property A fall within any recognised category.

Arguments of the Parties

Appellant’s Arguments (Company A)

• Standing under section 303(1) is confined to: (i) creditors acting in their capacity as creditors, (ii) bankrupts or contributories where a surplus is probable, and (iii) exceptional matters arising solely from insolvency legislation. The Respondents fit none of these categories.
• The Respondents’ complaint concerns ordinary possessory rights entirely separate from the administration of the bankrupt estates; such disputes should be litigated in the ordinary civil courts, not via section 303(1).
• Allowing standing on the broader “substantial interest” test would undermine parliamentary limits on section 303(1) and lead to unwarranted interference with trustees’ functions.

Respondents’ Arguments (Bankrupt Individuals)

• A bankrupt needs only to demonstrate a “legitimate and substantial interest” directly affected by the trustee’s conduct; a surplus is not a universal requirement (relying on Engel v Peri and Deloitte & Touche).
• The Trustee wrongfully interfered with their existing possessory rights in Property A; that interference was carried out by the Trustee qua trustee and therefore engages section 303(1).
• Denying standing would leave serious trustee misconduct unchecked, contrary to the protective purpose of section 303(1).

Table of Precedents Cited

Court's Reasoning and Analysis

Judge Richards, delivering the unanimous judgment, traced the history of section 303(1) and its corporate counterpart, section 168(5). On “principle and authority” the Court identified three narrowly-defined groups with standing:

1. Creditors challenging acts that prejudice them qua creditors.
2. Bankrupts or contributories where a surplus is probable, giving them a proprietary interest in the estate.
3. Applicants (whether creditors, bankrupts or strangers) whose rights are directly affected by statutory powers unique to insolvency—for example disclaimer of onerous property or quantification of trustee expenses for annulment.

The Respondents did not fit any category: their possessory rights over Property A existed independently of the bankruptcy; similar interference with third-party occupiers would be actionable only in ordinary civil proceedings. Expanding standing to “any person whose rights were wrongfully interfered with by a trustee” would:

• Contradict the legislative scheme, as Parliament created a separate, leave-based misfeasance procedure (section 304) for broader complaints.
• Expose trustees to unfiltered litigation, defeating efficiency and creditor interests noted by earlier case-law and the Cork Committee Report.
• Distort fiduciary principles by allowing strangers to enforce duties owed to the estate or creditors.

The Court rejected the Court of Appeal’s “substantial interest” test as too broad and inconsistent with previous authority. References to Deloitte & Touche could not justify such expansion because that case itself confined standing to those interested in the insolvent estate (creditors).

Holding and Implications

ALLOWED – The appeal was allowed and the bankruptcy application was struck out in its entirety for want of standing.

Implications: The Supreme Court confirms that section 303(1) (and by analogy section 168(5)) is available only to (a) creditors acting in that capacity, (b) bankrupts or contributories where a surplus is realistically in prospect, and (c) persons directly affected by insolvency-specific statutory powers. Possessory or other general civil rights do not suffice. The decision re-affirms the narrow gatekeeping function of standing in insolvency supervision and is likely to limit future challenges by bankrupts or third parties to trustees’ commercial decisions, preserving estate resources and procedural economy.