[1] It is at most a prospective or contingent interest, which may never arise. It only becomes an interest in property upon a surplus being finally ascertained / determined / declared at the end of the bankrupt estate administration.

Seemingly, the position is clear (at least, pretty clear):

(a) In Ram v Ram [2004] EWCA Civ 1684; [2005] 2 FLR 75; [2005] BPIR 628 ('Ram'), Court of Appeal (Thorpe LJ; Arden LJ; Neuberger LJ) (, Arden LJ, with whom the Thorpe LJ and Neuberger LJ agreed, said 'it is, in my judgment, clear that the interest of a bankrupt in a surplus is not an interest in property at all until the surplus has been finally determined.' (paragraph 42) [bold added]; and

(b) In Brake v The Chedington Court Estate [2023] UKSC 29, [2023] 1 WLR 3035 ('Brake 2023'), Supeme Court (Lord Richards gave the only judgment - with whom Lord Briggs, Lord Hamblen, Lord Leggatt and Lady Rose agreed), Lord Richards said, 'The bankrupt has only a contingent statutory right to participate in any eventual surplus...' (paragraph 11) [bold added].

(3) Until the surplus is finally determined/ascertained, there exists a 'phenomenon' - a statutory trust (Ayerst (Inspector of Taxes) v C & K (Construction) Ltd [1976] AC 167, at 178) - the TIB holds the bankrupt estate as statutory trustee: (a) not for his own benefit, but (b) for the benefit of others, though there is actually nobody holding the beneficial interest in the bankrupt estate. In particular, the bankrupt does not hold: (a) a beneficial interest in any individual property in the bankrupt estate, by virtue of his s.330(5) right in due course to any surplus in the bankrupt estate; and (b) seemingly, any property/proprietary interest at all, in the yet to be ascertained surplus (if any) of the bankrupt estate; his s.330(5) entitlement does not give the bankrupt a property/proprietary right, prior to the moment his surplus is finally determined/ascertained. This view is supported by Oraki v Bramston [2014] BPIR 1374, Deputy Master Julia Clark, and Oraki v Bramston [2016] 3 WLR 1231('Oraki 1231'), Proudman J.

Readers may wish to read 'Bankrupt Estate - Surplus for the Bankrupt', an article by the same author, available here.

[2] The label 'fresh' estate is not a label used in any of the authorities. It is used here, just as a convenient label for the estate the bankrupt has, after the bankrupt estate is removed from him under section 306 of the Insolvency Act 1986. It is the estate he has, and rebuilds using, after the bankruptcy order divests him of most of his assets. In other words, it is the estate into which he puts assets he acquires after the moment he is declared bankrupt.

[3] Section 306 of the Insolvency Act 1986 is comprised of 2 subsections. The subsection quoted in the main body of the article, and subsection 2, which, for completeness, reads:

'Where any property which is, or is to be, comprised in the bankrupt’s estate vests in the trustee (whether under this section or under any other provision of this Part), it shall so vest without any conveyance, assignment or transfer.'

[3a] In Ord v Upton [2000] 2 WLR 352 (Ch) ('Ord'), the Court of Appeal said, at 360A to D:

'Section 436 is not in truth a definition of the word 'property.' It only sets out what is included. As will appear later from the cases that have been decided over many years, actions which relate to a bankrupt's personal reputation or body have not been considered to be property and therefore they do not vest in anybody other than the bankrupt. They relate solely to his body, mind and character and any damages recovered are compensation for damage to his body, mind and character as opposed to other causes of action which have been considered to be a right of property. Thus causes of action to recover damages for pain and suffering have been held not to vest in the trustee. That has led to a number of oddities. For example, the parties agree that if at the time of the bankruptcy, the bankrupt had in his bank a sum which included money paid as damages for a libel, that sum would vest in his trustee because the right to the money formed part of his estate and therefore was available to pay off the bankrupt's creditors. That was to be contrasted with an action personal to the bankrupt, such as libel action, which was not settled before the end of the bankruptcy. In such circumstances the cause of action would remain with the bankrupt as would any damages awarded after discharge. If a cause of action is not personal to the bankrupt, it vests in the trustee and therefore any damages awarded whether before or after the discharge will be available to discharge the bankrupt's liabilities…'

Note, where the cause of action is a hybrid claim, the cause of action is vested in the TIB (but the TIB must hand over the body, mind and character damages, to the bankrupt, upon the TIB's receipt of them)

In Ord, the Court of Appeal said, at 361A to C:

'In modern parlance Mr. Ord's claim is a single cause of action. However, I cannot accept Mr. Doyle's submission that the cause of action is personal. It is a claim for damages for injury to his body and mind and also his capacity to earn and can therefore be considered as a 'hybrid' claim, in part personal and in part relating to property. I have come to the conclusion that such an action vested in the trustee. It would only have remained with Mr. Ord if it fell within an exception established by the authorities to be excluded from the definition of property now found in section 436 of the Act of 1986. To do so it must relate only to cause of action personal to the bankrupt. All causes of action which seek to recover property vest in the trustee whether or not they contain other heads of damage to which the bankrupt is entitled. The authorities to I which now turn lead to that conclusion.'

[4] Section 285(4) of the Insolvency Act 1986 provides:

'Subject as follows, subsection (3) does not affect the right of a secured creditor of the bankrupt to enforce his security.'

What follows is:

'Where any goods of an undischarged bankrupt are held by any person by way of pledge, pawn or other security, the official receiver may, after giving notice in writing of his intention to do so, inspect the goods.

Where such a notice has been given to any person, that person is not entitled, without leave of the court, to realise his security unless he has given the trustee of the bankrupt’s estate a reasonable opportunity of inspecting the goods and of exercising the bankrupt’s right of redemption.'

[5] For completeness, section 285 of the Insolvency Act 1986 provides:

'(1) At any time when proceedings on a bankruptcy application are ongoing or proceedings on a bankruptcy petition are pending or an individual has been made bankrupt the court may stay any action, execution or other legal process against the property or person of the debtor or, as the case may be, of the bankrupt.

(2) Any court in which proceedings are pending against any individual may, on proof that a bankruptcy application has been made or a bankruptcy petition has been presented in respect of that individual or that he is an undischarged bankrupt, either stay the proceedings or allow them to continue on such terms as it thinks fit.

(3) After the making of a bankruptcy order no person who is a creditor of the bankrupt in respect of a debt provable in the bankruptcy shall(a) have any remedy against the property or person of the bankrupt in respect of that debt, or

(b) before the discharge of the bankrupt, commence any action or other legal proceedings against the bankrupt except with the leave of the court and on such terms as the court may impose.

This is subject to sections 346 (enforcement procedures) and 347 (limited right to distress).

(4) Subject as follows, subsection (3) does not affect the right of a secured creditor of the bankrupt to enforce his security.

(5) Where any goods of an undischarged bankrupt are held by any person by way of pledge, pawn or other security, the official receiver may, after giving notice in writing of his intention to do so, inspect the goods.

Where such a notice has been given to any person, that person is not entitled, without leave of the court, to realise his security unless he has given the trustee of the bankrupt’s estate a reasonable opportunity of inspecting the goods and of exercising the bankrupt’s right of redemption.

(6) References in this section to the property or goods of the bankrupt are to any of his property or goods, whether or not comprised in his estate.'

[6] A key difference is whether the right of appeal against an adverse decision vests in the Trustee in Bankruptcy ('TIB') or not (as part of the bankrupt estate). In Re GP Aviation Group International Ltd (also known as: Williams v Glover) [2013] EWHC 1447 (Ch); [2014] 1 WLR 166, HHJ Pelling QC sitting as a Judge of the High Court, concluded (obiter) that a right of appeal, attaching to an adverse judgment establishing a liability in a person/bankrupt, was not property which vested in a TIB upon an individual being adjudged bankrupt. The decision was obiter in relation to personal insolvency as the case was one of corporate insolvency, but the Judge said, at paragraphs 26 to 31:

'26. I have come to the conclusion that a bare right of appeal of the sort I am now considering is not property within the meaning of the 1986 Act. I reach that conclusion for the following reasons.

27. First, the classical definition of a chose in action is that identified by Channell J in Torkington v Magee [1902] 2 KB 427, 430 - that it is an expression used to describe “all personal rights of property which can only be claimed or enforced by action and not by taking physical possession”. A bare right to appeal against what would otherwise be a liability does not satisfy this definition. It is not a right that must be claimed by action. It is a right that is unconditionally conferred on the company (in this case) by operation of statute. It is not a property right that can only be enforced by action. That is a cause of action and a bare right to appeal does not fall within the scope of that concept either.

28. Secondly, the authorities maintain a distinction between a chose and the remedies available for its enforcement. As I have said already, the right to a remedy is an incident of the ownership of the chose. The remedy is not something that is capable of being sold or assigned separately from the right to which it relates. It is this point that underlies the reasoning of Ramsey J in Ruttle Plant Ltd v Secretary of State for the Environment, Food and Rural Affairs (No 2) [2009] 1 All ER 448. It was this point too that underpins the reasoning in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 where the substantive conclusion of the House of Lords was that a claim to rescission could be made only by the owner of the mortgaged property and was not a separately assignable chose in action being simply part of the process of rescission: see pp 914H-915F. A chose in action can be assigned but not a particular remedy by which that chose can be enforced. As Lord Hoffmann put it, at p 915, (speaking for the majority in that case):

“what is assigned is the chose … The existence of a remedy or remedies is an essential condition for the existence of the chose … but that does not mean that the remedies are property in themselves, capable of assignment separately from the chose.”

Lord Hoffmann defined a chose as being “something capable of being turned into money” and “The assignee either acquires the right to the money … or he does not. If he does, he necessarily acquires whatever remedies are available to recover the money”. A liability does not satisfy this requirement. If that is so, it is difficult to see how a right vested in the person otherwise liable to appeal can have such status. Aside from that, a right of appeal relating to an estate in which the proposed assignee of the right to appeal has no proprietary interest is not something capable of being turned into money in this sense. It is akin to assigning a remedy without the right in respect of which the remedy exists.

29. The right of appeal is a right conferred on the company by statute by reason of it having been assessed to tax. The liability to which the bare right to appeal relates could not on conventional analysis be assigned: see Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85, 103. What is in issue here is a tax liability. It is difficult to see on what basis it would be treated any differently. Thus the liability to which the right of appeal is appurtenant cannot be assigned. Thus all that could be assigned would be the right to appeal. Such a right is no more capable of assignment than is a remedy independently of the chose to which it relates. Whilst I accept that as a matter of legal theory it may be possible to novate the legal relationship that exists in a manner than enables a liability to be passed from one party to another, that requires the consent of both the obligor and the obligee and it is difficult to see any circumstances in which such a situation could arise where the purpose of the exercise is to enable a right of appeal to be exercised that if exercised successfully will be adverse to the interests of the person to whom the liability is owed. This is all the more the case where the right to appeal is vested in a trustee in bankruptcy or company in liquidation.

30. Thirdly, this analysis is entirely consistent with the orthodox approach to whether a bankrupt has locus to appeal, as to which see Heath v Tang [1993] 1 WLR 1421. As I have said already Hoffmann LJ could have but did not approach the issue on the basis that a right to appeal was a property right that vested in the trustee as part of the bankrupt's estate. Introducing an entirely artificial concept of property for the purpose of concluding that an office holder can assign a right of appeal without being able to assign the liability that goes with it may have all sorts of unintended consequences for the conventional approach in relation to personal orders that it is entirely unnecessary to create.

31. All this leads me to conclude that a bare right to appeal is not property within the meaning of section 436 of the 1986 Act. A right of appeal available to a bankrupt is one that the bankrupt loses locus to bring or maintain once he or she is adjudicated bankrupt because the only assets out of which the underlying liability can be met have vested in the trustee and not because the right is a chose that vests in the trustee. The trustee has a statutory right (but not the obligation) to exercise any right of appeal that the bankrupt might have had as and from the moment at which the bankrupt is made the subject of a bankruptcy order. Similarly a right to appeal available to a company in liquidation can only be exercised by the office holder once appointed because he she or they then become the only agents of the company entitled to do so. Again however that is not the result of the right to appeal being treated as a property interest.'

[7] In Heath v Tang [1993] 1 WLR 1421, under the heading 'The bankrupt as plaintiff' (plaintiff being the old label for claimant), Hoffmann LJ giving the judgment of the court said, at 1423:

'The property which vests in the trustee includes “things in action:” see section 436. Despite the breadth of this definition, there are certain causes of action personal to the bankrupt which do not vest in his trustee. These include cases in which “the damages are to be estimated by immediate reference to pain felt by the bankrupt in respect of his body, mind, or character, and without immediate reference to his rights of property:” see Beckham v. Dale (1849) 2 H.L.Cas. 579, 604, per Erle J. and Wilson v. United Counties Bank Ltd. [1920] A.C. 102. Actions for defamation and assault are obvious examples. The bankruptcy does not affect his ability to litigate such claims. But all other causes of action which were vested in the bankrupt at the commencement of the bankruptcy, whether for liquidated sums or unliquidated damages, vest in his trustee. The bankrupt cannot commence any proceedings based upon such a cause of action and if the proceedings have already been commenced, he ceases to have sufficient interest to continue them. Under the old system of pleadings, the defendant was entitled to plead the plaintiff's supervening bankruptcy as a plea in abatement. Since the Supreme Court of Judicature Act 1875 (38 & 39 Vict. c. 77), the cause of action does not abate but the action will be stayed or dismissed unless the trustee is willing to be substituted as plaintiff: see Jackson v. North Eastern Railway Co. (1877) 5 Ch.D. 844. An illustration of the incapacity of the bankrupt to bring proceedings is Boaler v. Power [1910] 2 K.B. 229 in which an action brought by the bankrupt had been dismissed with costs. The bankrupt then commenced another action to have the judgment set aside on the ground of fraud. The successful party presented a bankruptcy petition based on the unsatisfied order for costs and the bankrupt was adjudicated on the petition. The trustee declined to proceed with the second action. The petitioner then applied to have it dismissed and the judge's order of dismissal was affirmed by the Court of Appeal. Farwell L.J. said, at p. 232: “The right to continue [the action] is a chose in action vested in the trustee, and the bankrupt has no locus standi …”

The rule that the bankrupt could not sue on a cause of action vested in his trustee was enforced with such rigour that he could not even bring proceedings claiming that the intended defendant and the trustee were colluding to stifle a claim due to the estate and which, if recovered, would produce a surplus. But in any case in which he was aggrieved by the trustee's refusal to prosecute a claim he could apply to the judge having jurisdiction in bankruptcy to direct the trustee to bring an action, or to allow the bankrupt to conduct the proceedings in the name of the trustee. The jurisdiction of the bankruptcy judge to give such directions is now conferred by statute. Section 303(1) of the Insolvency Act 1986 says:

“If a bankrupt or any of his creditors or any other person is dissatisfied by any act, omission or decision of a trustee of the bankrupt's estate, he may apply to the court; and on such an application the court may confirm, reverse or modify any act or decision of the trustee, may give him directions or may make such other order as it thinks fit.”

But the jurisdiction goes back many years, to the decisions of Lord Alvanley M.R. in Spragg v. Binkes (1800) 5 Ves. 583 and Lord Eldon L.C. in Benfield v. Solomons (1803) 9 Ves. 77. In the latter case the bankrupt alleged collusion between his assignees in bankruptcy and persons by whom he said he had been owed substantial sums of money and payment of which would make him solvent. He commenced an action in Chancery for an account, joining his assignees as parties. Lord Eldon L.C. allowed a demurrer to the bill, saying, at pp. 83-84:

“it is clear at law, the whole interest in the property, which was his previously to the bankruptcy … is after the bankruptcy legally vested in the assignees … It is familiar therefore at law to plead bankruptcy: the bankrupt having no interest in what he is suing for. In equity the whole order, management, and disposition, of the bankrupt's affairs are placed under that authority, which the Lord Chancellor exercises in bankruptcy … Prima facie the bankrupt has no demand: but if he states, that apparent incumbrances upon the property are no substantial charge, that the assignees are prevented by the creditors from interfering, or, if the creditors would permit them, refuse, or if both refuse, to interfere, and give him the chance of a surplus, the court would say, with reference to the circumstance, that the bankrupt cannot sue, the law supposing, that he has no interest in the property, yet that is not to be acted upon to the effect of gross injustice. Therefore, if he can give security for the costs, the Lord Chancellor will order the assignees to permit him to use their names, to enable him to recover the property; indemnifying them. The bankrupt therefore is without any ground of complaint.”

Thus the supervision of the insolvency administration by the bankruptcy judge protects the bankrupt from injustice which might otherwise be caused by his inability to bring proceedings outside the bankruptcy jurisdiction.'

[7a] Another example would be Mariaddan v Solicitors Regulation Authority Ltd ('Mariaddan') [2023] EWHC 207 (Admin), before Foster J. In Mariaddan, the Solicitors Regulatory Authorit ('SRA') commenced proceedings against a solicitor before the Solicitors Disciplinary Tribunal ('SDT')(paragraph 3), making various allegations of dishonest and making misleading statements (paragraph 68). Following a hearing, the SDT determined that all the allegations were proved (save for one irrelevant one for present purposes), and found the solicitor guilty of misconduct (paragraph 4). The solicitor was accordingly struck off the Roll and ordered to pay costs. The solicitor then appealed to the High Court (King's Bench Division Administrative Court) against the findings of the SDT (paragraph 5). Shortly before the High Court hearing, it transpired that the solicitor was an undischarged bankrupt (paragraph 6). Foster J said, at paragraph 7:

'The question arose whether [the appellant/solicitor] was entitled, nonetheless, to pursue his appeal, by reference to the rule concerning the vesting of a bankrupt's estate in the Trustee in Bankruptcy. Whilst the SRA were neutral as to the position, it was appropriate for the court to satisfy itself that [the appellant/solicitor] was able to pursue this appeal in his disciplinary matter.'

In answering this question, Foster J said, from paragraphs 8 to 20:

'8. The effect of section 306(1) of the Insolvency Act 1986 ("the 1986 Act") is that a bankrupt's estate vests in the Trustee upon the latter's appointment taking effect. Where the Official Receiver is involved, then the estate vests upon his becoming Trustee.

9. A bankrupt's estate comprehends " all property belonging to or vested in the bankrupt at the commencement of the bankruptcy " (section 283(1)). The definition of " property " is found in section 436 of the 1986 Act :

"… money, goods, things in action, land and every description of property wherever situated and also obligations and every description of interest, whether present or future or vested or contingent, arising out of, or incidental to property."

10. As the question was put by Hoffmann LJ as he then was in Heath v Tang [1993] 1 WLR 1421 :

"By section 306 of the Insolvency Act 1986 the bankrupt's estate vests in his Trustee when appointed and by section 285(3) no creditor has after the making of a bankruptcy order any remedy against the property or person of the bankrupt in respect of any debt provable in the bankruptcy. The effect is that the bankrupt ceases to have an interest in either his assets or his liabilities except in so far as there may be a surplus to be returned to him upon his discharge. What effect does this have upon legal proceedings to which he is a party?"

Dealing with the bankrupt when plaintiff Hoffmann LJ continued:

"The property which vests in the Trustee includes "things in action" see section 436 . Despite the breadth of this definition, there are certain causes of action personal to the bankrupt which do not vest in his Trustee. These include cases in which "the damages are to be estimated by immediate reference to pain felt by the bankrupt in respect of his body, mind, or character, and without immediate reference to his rights of property" see Beckham v Dale [1849] 2 HL Cas 579604, per Erle J and Wilson v United Counties Bank Ltd [1920] AC 102 . Actions for defamation and assault are obvious examples. The bankruptcy does not affect his ability to litigate such claims. But all other causes of action which were vested in the bankrupt at the commencement of the bankruptcy, whether for liquidated sums or unliquidated damages, vest in his Trustee. The bankrupt cannot commence any proceedings based upon such a cause of action and if the proceedings have already been commenced, he ceases to have sufficient interest to continue them."

11. Hoffmann LJ explained that since the Supreme Court Judicature Act 1875 the cause of action does not abate but it will be stayed or dismissed unless the Trustee is willing to be substituted as the plaintiff. The right to continue an action was a chose in action vested in the Trustee, if he chose not to continue the bankrupt himself had no locus standi . In such cases there was a right (now statutory) to apply to the court for directions to allow a bankrupt to take over or to direct a Trustee to bring an action.

12. As a defendant a distinction exists where, although a plaintiff may be deprived of their remedy against a bankrupt or his property, where personal relief for example, an injunction which does not directly concern the bankrupt's estate is sought, such might be maintained against the bankrupt himself personally (Heath v Tang at 1424 E-H). A bankrupt will have no interest in any order as to costs but could appeal the " personal order " in the form of an injunction. Heath v Tang was the case of a builder who, whilst solvent, did not appeal against a judgment which eventually founded the petition.

13. Mr Butler KC drew my attention to a survey of the authorities by HHJ Pelling QC in Re GP v Aviation [2014] 1 WLR 166, which considered the meaning of " property " in the 1986 Insolvency Act .

14. In Judge Pelling's case the issue was whether the right of a company, which had gone into liquidation, to appeal from a tax assessment was in itself a property right under the 1986 Act . He described the effect of the judgment in Heath v Tang: whilst a bankrupt does not have locus to prosecute an appeal following his or her bankruptcy, that is not because the right to appeal is property vested in the Trustee, but because the appeal relates to a judgment that can be enforced only against assets that are vested in the Trustee [16]. He referred to the distinction between the personal injunction which was " a personal order against him " and an order for costs. A bankrupt was not entitled to appeal in relation to a cost order because he had no interest in the outcome of the order as his estate had vested in the Trustee. The right to challenge a judgment would take effect against the estate which vests in the Trustee so the right to seek leave to appeal also vests in the Trustee.

15. Judge Pelling QC in Re GP adverted to Arnold v Williams [2008] BPIR 247 where Warren J heard submissions that a bankrupt was entitled to bring judicial review because it was a personal right of the sort described in Heath v Tang. A number of tax cases have considered the position see e.g. McNulty v The Commissioners for Her Majesty's Revenue and Customs [2012] FTC 2110 (Arnold J) who considered the personal exception, concluding the correct analysis was that a bankrupt loses locus to bring or maintain an appeal because the assets out of which the underlying liability could be met had vested in another – not that a right to appeal is in fact a property interest. See also Sharafat Ali v HMRC [TC/2014/04224] relying on Heath v Tang for the proposition that actions against the bankrupt personally, not directly concerning the estate, could be maintained against him and he was entitled to defend them.

16. There have also been cases holding that personal injury compensation cannot be claimed by the Trustee for the estate: Lang v McKenna [1996] BPIR 419 and in Grady v HM Prison Service [2003] EWCA Civ 527 a claim for unfair dismissal was held to be personal, it did not vest within the bankrupt's estate.

17. The personal interest exception persists in the caselaw and as was submitted, the judgment of Addison v London European Securities Limited [2022] EWHC 1077 (Ch), of Jonathan Hilliard QC sitting as a Deputy Judge of the High Court is of particular help.

18. There it was argued that a bankrupt had standing to pursue an appeal against a statutory demand – which statutory demand authorised the creditor to present a bankruptcy position. The Judge analysed the effect of the numerous authorities, both as regards the bankrupt as claimant and as defendant. He referred to Mulkerrins v Pricewaterhouse Coopers (a firm) [2003] UKHL 41) per Lord Walker at paragraph [22]:

"The wide language used in successive statutes to describe the bankrupt's estate was from an early stage interpreted by the court as excluding rights of action which are classified as personal to the bankrupt, rather than relating to his property."

These personal rights were not limited to rights coming within a particular description and there was no simple bright line test (by reference to Mulkerrins). There were cases where the claim or application brought against the defendant was sufficiently personal to the bankrupt defendant that he had standing to litigate in respect of them - such as by appealing an order made against him [104]. Deputy HCJ Hilliard QC set out his conclusions upon the effect of the case law, including Heath v Tang as follows:

"111. I draw from the case-law in this section on the bankrupt as defendant the following points:

(1) A bankrupt who is a defendant will normally not have standing to bring an appeal.

(2) However, there are cases where the bankrupt can appeal an order against him.

(3) The latter group of cases is not limited to cases concerned solely with his body, mind or character.

(4) One way of characterising the latter group of cases is as those concerning something personal to the bankrupt. Sands, [ Sands v Layne [2017 1 WLR 1782 ] for example, was a case concerning the status of the bankrupt.

(5) However, as in cases where the bankrupt is claimant, there is no more specific bright-line rule than that for determining in marginal cases whether the matter should be regarded as personal to the bankrupt or not.

(6) Some of the factors relied on in the cases to determine whether the matter should be regarded as personal to the bankrupt are:

(a) whether the bankrupt's status is at issue: [Sands;]

(b) what common sense and fairness dictates: [Sands;]

(c) whether it is natural to regard the action as vesting in the trustee in bankruptcy and for the trustee rather than the bankrupt to continue the litigation: [Sands;]

(d) whether the judgment in the litigation is or would be enforceable against the estate of the bankrupt (as where it will result in a provable debt or a proprietary claim against assets held by the trustee in bankruptcy) or not (as in the case of an injunction to restrain the bankrupt from taking particular steps): [Heath;]

(e) tied to that, whether there are other routes by which the litigation can or could have been dealt with, such as (i) the bankrupt seeking to invoke section 303 of the 1986 Act or (ii) the bankrupt persuading the Court not to make a bankruptcy order in the first place and therefore the defendant continuing the substantive litigation in the ordinary way:[Heath;]

(f) the breadth of the concept of the bankrupt's estate, and the public interest that lies behind this: [Heath.]"

19. I am entirely clear on the basis of these authorities, that the Appellant in the case before me has standing to pursue his appeal. I expressed this conclusion after argument and indicated my reasons would be recorded in this judgment. It seems to me this conclusion is amply supported by the dicta cited above. The concept of the case concerning something personal to the bankrupt meets the current position entirely.

20. The disciplinary jurisdiction of the professional bodies is exercised so as to police the personal and professional behaviour of the individuals who are within the purview of their authority. The regulatory function is carried out in the public interest and in respect of the actions and omissions of the professional acting in a professional, and sometimes a personal, capacity.'

[8] In Heath v Tang [1993] 1 WLR 1421, Hoffmann LJ giving the judgment of the court, went on to say, at 1423:

'This implies that the bankrupt would not have been entitled to appeal against an order which was enforceable only against his estate. This appears clearly from the decision of the House of Lords in Rochfort v. Battersby (1849) 2 H.L.Cas. 388. The bankrupt was entitled to estates in Ireland subject to an annuity in favour of his mother. He had mortgaged the estates to a creditor who brought foreclosure proceedings in which he joined the bankrupt, his assignees and the annuitant. The action raised the question of whether the mortgage had priority over the annuity and the Lord Chancellor of Ireland decided in favour of the annuitant. The bankrupt alone appealed to the House of Lords which dismissed his appeal on the ground that he had no locus standi. Lord Cottenham L.C. said, at p. 406, that the question was whether he had “that interest in the subject matter which would entitle [him] to appear here [as a party] questioning the propriety of the decision below.” The bankrupt did not:

“the courts have always considered these acts of Parliament as divesting the insolvent of all title and interest in the property, which would authorise and justify him in entering into any litigation respecting it.”

In this particular case, the bankruptcy had occurred before the foreclosure proceedings were commenced and the House of Lords said that the bankrupt should never have been joined as a party in the first place. But the reasoning would equally have precluded him from appealing if bankruptcy had supervened after the Irish proceedings had been concluded.'

[9] A defence of set off based on the defendant having his own cause of action is different; such a cause of action would (unless exceptional) vest in the TIB. Not all causes of action vest. There are exceptions, as set out in Heath v Tang [1993] 1 WLR 1421.

[10] That is, not including an inchoate potential interest the bankrupt may have in any bankruptcy surplus, should one turn out to, at the end of the bankrupt estate administration, to exist. Readers may wish to read 'Bankrupt Estate - Surplus for the Bankrupt', an article by the same author, available here.

[11] See 'Bankruptcy Discharge and Release, the Exception for Fraud and Fraudulent Breach of Trust', an article by the same author, available here.

[11a] In Re GP Aviation Group International Ltd (also known as: Williams v Glover) [2013] EWHC 1447 (Ch); [2014] 1 WLR 166 ('GP Aviation'), HHJ Pelling QC sitting as a Judge of the High Court said, at paragraphs 9 to 31

'9. The statutory framework against which this question is to be resolved is contained in the 1986 Act. Section 144 obliges a liquidator to take control of “all the property and things in action to which the company is or appears to be entitled”. “Property” is defined by section 436 as including:

“money, goods, things in action, land and every description of property wherever situated and also obligations and every description of interest, whether present or future or vested or contingent, arising out of, or incidental to, property.”

The liquidator's powers are set out in Schedule 4 to the 1986 Act. Those powers include:

“Part II “Powers Exercisable without Sanction in Voluntary Winding Up, with Sanction in Winding Up by the Court

“4. Power to bring or defend any action or other legal proceeding in the name and on behalf of the company.”

“Part III “Powers Exercisable Without Sanction in any Winding Up

“6. Power to sell any of the company's property by public auction or private contract with power to transfer the whole of it to any person or to sell the same in parcels.”

10. Clearly the liquidator is entitled to conduct the appeals on behalf of the company with sanction if necessary pursuant to paragraph 4 of Schedule 4. The power to conduct the appeal is not of itself capable of assignment: see (most recently) Ruttle Plant Ltd v Secretary of State for the Environment, Food and Rural Affairs (No 2) [2009] 1 All ER 448, para 43, following earlier authority to similar effect including Grovewood Holdings plc v James Capel & Co Ltd [1995] Ch 80, 89G, per Lightman J. Thus the liquidator can have power to assign the appeals only if the right to appeal is property capable of being sold within the meaning of paragraph 6 of Schedule 4. It is this issue that was the principal one argued by the parties before me.

11. On behalf of the former directors it is submitted that a thing in action is included within the statutory definition of the property of the company and that a right to appeal against a liability is such a thing in action. The liquidator submits that the right to appeal the discovery assessments is not property but rather is a right conferred on the company by statute that the liquidator has a right to exercise for the purpose of conducting the liquidation. It is common ground that this issue has not been decided by any English authority although it is submitted by the liquidator that the issue has been decided for the purposes of Australian law by a decision of the High Court of Australia. It is submitted that this authority is highly persuasive and ought to be followed unless a good reason for saying that English law is different from Australian law in this regard. Many of the authorities that touch on the issue are bankruptcy not corporate liquidation cases. It is to be borne in mind that on a person being adjudicated bankrupt, all his property vests in his trustee whereas the property of a company in liquidation does not vest in a liquidator. This distinction needs to be remembered when considering the various authorities.

12. It has long been recognised that a cause of action (being a chose or thing in action) is property within the meaning of paragraph 6 of Schedule 4 that either vests in the trustee or is part of the assets of the company in liquidation and thus is an asset that a liquidator (or trustee in bankruptcy) may assign to a third party pursuant to the statutory power of sale: see Seear v Lawson (1880) 15 Ch D 426 (assignment of a cause of action by a trustee) and In re Park Gate Waggon Works Co (1881) 17 Ch D 234 (assignment by a liquidator of a cause of action). It is common ground that in this regard at least the law was correctly stated by Lightman J in the Grovewood case [1995] Ch 80, 86. This does not involve any attempt to assign a statutory power to enforce because the right to enforce is an incidental right of the owner for the time being of the chose that is the cause of action.

13. The question that arises in this case is whether the right of the company to appeal from the assessment is itself a property right. This is not an issue that it is necessary to decide other than where an assignment is being contemplated. This is so because (absent a purported assignment of the right to appeal) in company liquidations, the only person entitled to authorise the commencement or continuation of an appeal in the name of the company concerned is the office holder, and, in personal bankruptcies, the bankrupt loses his locus standi to commence or continue an appeal on adjudication and thereafter any appeal can be advanced only by the trustee exercising his statutory powers.

14. There is an interesting debate within the authorities as to whether in personal bankruptcies the reason why the bankrupt loses standing to prosecute an appeal is because the right to appeal is a property right that has vested in the trustee or whether it is simply an incident of the fact of bankruptcy. This issue was the subject of detailed submissions from the parties. In essence, it was submitted by the former directors that if the reasons why a bankrupt did not have standing to prosecute the appeal was because the right to appeal was a property right that vested in the trustee, it followed that the right of a company to appeal would also be a property right and thus it was a right that a liquidator was entitled to sell if minded to do so. I turn to the authorities where this issue has been considered. It is necessary to note at the outset however that in each of the cases where the issue has been considered, it was not necessary to decide the question whether the right to appeal was a thing in action because the only issue was whether the bankrupt was entitled to commence or continue the challenge under consideration and in relation to that point, it has long been recognised that the bankrupt loses standing as I have described already.

15. The leading authority on this issue in England is Heath v Tang [1993] 1 WLR 1421. That case concerned attempts by each respective bankrupt to appeal from the judgment in respect of which the bankrupt had been adjudicated bankrupt in circumstances where the trustee concerned was either unwilling to appeal or a trustee had yet to be appointed. The Court of Appeal concluded that on adjudication a bankrupt was divested of his interest in his property and liability for his debts and therefore did not have standing to appeal. The judgment of the court was given by Hoffmann LJ. He cited with apparent approval, at p 1423D-F, the earlier decision of the Court of Appeal in Boaler v Power [1910] 2 KB 229, where it had been held that the right of a bankrupt to continue with an action commenced before he was adjudicated bankrupt vested in the trustee and the bankrupt thereafter had no locus to prosecute it. In relation to cases where the bankrupt is a defendant Hoffmann LJ said, at p 1424:

“there is … usually no question of the cause of action having vested in the trustee. Unless the defence is set off … the bankrupt will not be asserting by way of defence any cause of action of his own. But in cases in which the plaintiff is claiming an interest in some property of the bankrupt, that property will have vested in the trustee. And in claims for debt or damages, the only assets out of which the claim can be satisfied will have likewise vested. It will therefore be equally true to say that the bankrupt has no interest in the proceedings.”

In adopting that approach Hoffmann LJ cited Rochfort v Battersby (1849) 2 HL Cas 388. In that case a bankrupt sought to appeal to the House of Lords and was held not to be entitled to do so because the bankruptcy legislation then in force had the effect of “divesting the insolvent of all title and interest in the property, which would authorise or justify him in entering into any litigation respecting it”. This led Hoffmann LJ to conclude that “in principle a bankrupt cannot in his own name appeal from a judgment against him which is enforceable only against the estate vested in his trustee”.

16. The effect of this decision is therefore that whilst a bankrupt does not have locus to prosecute an appeal following his or her bankruptcy, that is not because the right to appeal is property that is vested in the trustee but because the appeal relates to a judgment that can be enforced only against assets that have vested in the trustee.

17. Hoffmann LJ recognised that there was a residual category of case where the bankrupt retained a right to appeal, following the decision of the Court of Appeal in Dence v Mason [1879] WN 177. In that case the Court of Appeal held that a bankrupt was entitled to maintain an appeal against an order made before his bankruptcy by which an injunction had been granted against him personally. The court held he was entitled to maintain the appeal against the injunction because it was “a personal order against him” though not in relation to the costs order made against him below because he had no interest in the outcome of an appeal against that order because his estate had vested in the trustee. This led Hoffmann LJ to conclude, at p 1425A, that “the bankrupt would not have been entitled to appeal against an order that was enforceable only against his estate”. Thus he did not analyse the outcome by reference to the right of appeal being a property right but simply by reference to the enforceability issue.

18. Heath v Tang [1993] 1 WLR 1421 establishes the negative proposition that a bankrupt has no right to appeal a decision or judgment that is enforceable only against his estate but in my judgment it does not establish the affirmative proposition that such a right of appeal is property. That issue was not one that it was necessary for the Court of Appeal to decide. The approval of the approach in Dence v Mason [1879] WN 177 is consistent with that view. An injunction against the bankrupt personally does not affect the bankrupt's estate, a claim for such an injunction can be maintained against a bankrupt notwithstanding his bankruptcy, and common sense suggests that he entitled to defend a claim for such an order and to seek permission to appeal, and appeal if permission is given, if the outcome is adverse. This issue does not as such engage the issue of whether a right of appeal is a right of property because it has always been recognised that causes of action personal to the bankrupt do not vest notwithstanding the wide statutory definition of what constitutes property: see Heath v Tang [1993] 1 WLR 1421, 1423A-C.

19. In subsequent cases however the distinction between standing and an appeal right being of itself property has not always been maintained. This issue arose in a case that came before the Upper Tribunal (Finance and Tax Chamber) in R (Singh) v Revenue and Customs Comrs [2010] STC 2020. The issue in that case was whether the bankrupt taxpayer was entitled to bring judicial review proceedings against a decision of HMRC, which his trustee (Mr Rose) did not wish to pursue. Warren J said, at paras 25-26:

“25. Although it was not, as far as I can see, expressly stated in Heath v Tang [1993] 1 WLR 1421 that the right to appeal vested in the trustee, authority demonstrates that that is the position. Thus in Wordsworth v Dixon [1997] BPIR 337, Sir Thomas Bingham MR, giving the judgment of the court, said this (at p 338), referring to Heath v Tang : ‘that clearly establishes that on the vesting of a bankrupt's estate in the trustee, the right to challenge a judgment which would take effect against the estate vests in the trustee. That means that the right to seek leave to appeal … vests in [the trustee] …’

“26. …Hoffmann LJ was also a member of the court of appeal which decided Wordsworth v Dixon : there can be no doubt, therefore, that he was of the view that the right to appeal vested in the trustee even if he did not expressly say as much in Heath v Tang.”

20. There are three difficulties about this. First strictly it is obiter because it was not necessary for the decision. The question whether or not Mr Singh was entitled to bring judicial review proceedings was decided by reference to a submission that his entitlement to do so was a personal right in the sense discussed in Heath v Tang. As Warren J observed [2010] STC 2020, para 40 if that were not the case then Mr Singh could not assert the right because he had no interest in the outcome of the challenge. Indeed as Warren J acknowledged at para 35 of his judgment, when questioning whether Arnold v Williams [2008] BPIR 247 was properly decided, Heath v Tang was decided not on the basis that a right of appeal vests in the trustee, but on the basis that a bankrupt has no standing to proceed with the appeal because he has no interest in the estate which has vested in the trustee. Secondly, the authority on which Warren J relied was a decision on an application for permission to appeal. Finally, I am not at all sure that the Court of Appeal in Wordsworth v Dixon [1997] BPIR 337 intended to decide the question whether a bare right to appeal was property. The report in that case was not cited to me. It was not suggested that the property issue was one that it was necessary to the decision and I would be reluctant to regard a question of this importance to be one that has been decided by a judgment given on application for permission to appeal when (if what is said to be the result of that decision is correct) it would contradict the clear reasoning set out in Heath v Tang and that in the later Court of Appeal case of Royal Bank of Scotland v Farley [1996] BPIR 638, referred to by the majority in their judgment in Cummings v Claremont Petroleum NL [1998] BPIR 187, 195, as to which see further below.

21. The final English authority that I need to refer to is McNulty v Revenue and Customs Comrs [2012] STC 2110, a decision of the Upper Tribunal (Arnold J). The facts of this case are complex. What matters is that the application that was made to the First-tier Tribunal was to strike out an appeal brought by a bankrupt on the basis that he had no locus standi to bring it. The appeal was struck out and there was an appeal to the Upper Tribunal. The issue was not whether any right of appeal the appellant had was property but whether he had locus to bring the appeal on the basis that the particular appeal right was to be regarded as personal applying the exception identified in Heath v Tang [1993] 1 WLR 1421. It is true to say that Arnold J held at para 24 of his judgment that things in action in section 436 of the 1986 Act included rights of appeal but strictly that was unnecessary for the decision since the issue in that case turned on whether the relevant appeal right was personal, and if it was whether it had been compromised, not on whether it was a property interest. Other than a reference in para 31 to Wordsworth v Dixon [1997] BPIR 337 there is no reasoning that takes the matter further. It is not clear that the question whether a right of appeal was a property right had been fully argued in that case.

22. I turn now to the decision of the High Court of Australia in Cummings v Claremont Petroleum NL [1998] BPIR 187. In that case the issue was whether the appellants retained a right to appeal against an order requiring them to pay damages for breach of fiduciary duty notwithstanding that they had been made bankrupt. The definition of property under the Australian Bankruptcy Code is not materially different from that contained in the 1986 Act. It is set out in the judgment of the majority at p 191D-E. The conclusion reached by the majority was that the right to appeal was not property that vested in the estate but in any event that the appellants had no locus to bring the appeals. In their judgment, the majority expressed their conclusion in these terms, at pp 191-192:

“Some rights created by statute can constitute property, but a right to appeal does not have the character of property merely because it is the creature of statute. A chose in action may be the property of the person entitled to enforce it, but a liability to satisfy a judgment enforcing a chose in action is not property of the person against whom the judgment is entered. A liability is not property of the person liable. Nor is a right to appeal against a money judgment property of the judgment debtor … As a matter of ordinary language, a judgment debtor's right to appeal against the judgment is not property.”

Some time is taken up explaining Boaler v Power [1910] 2 KB 229 that had apparently been relied on in earlier Australian decisions for the proposition that a right of appeal was to be treated as property. In my judgment that was mistaken because Boaler v Power was concerned with whether a bankrupt could continue an action in which he was seeking to set aside an earlier judgment on the ground that it had been obtained by fraud. That was refused because the right to continue the actions commenced by the bankrupt was a chose in action that had vested in the trustee on the making of the bankruptcy order. The commencement or continuation of the actions was not in any sense an exercise of a right of appeal. It was a fresh claim, which was necessarily a chose in action. On that ground alone that case does not provide central assistance on the issue now under consideration. That was precisely the point made by the majority in Cummings v Claremont Petroleum NL [1998] BPIR 187, 194. I respectfully agree with that analysis.

23. The majority concluded that the bankrupt was not entitled to exercise a right of appeal outside the exceptions identified in Heath v Tang [1993] 1 WLR 1421 for the reasons identified in that case - that is that adjudication divests the bankrupt of his interest in his property and liability for his provable debts - in other words following the reasoning adopted by Hoffmann LJ in Heath v Tang : see the majority judgment at p 195. Thus as I see it the conclusion of the majority that a right to appeal is not a property right was strictly speaking unnecessary for the decision.

24. The issue of whether a right of appeal is property for the purposes of a liquidation or bankruptcy is a novel point. Heath v Tang does not support such a conclusion and the Upper Tribunal cases referred to above are not binding on the point because it was unnecessary to decide that issue in either of those cases. The High Court of Australia has concluded that a bare right of appeal is not property. That decision is not binding on me and it was not necessary on the facts of that case to decide the point that now arises. For both those reasons, that authority is at best of persuasive value only. Thus as I see it there is one Court of Appeal authority (Heath v Tang) that suggests by implication that a right to appeal is not to be treated as property, there is one later Court of Appeal authority (Royal Bank of Scotland v Farley [1996] BPIR 638) that is apparently consistent with the orthodox approach adopted in Heath v Tang, there is a decision of the Court of Appeal on an application for permission to

appeal that on one reading is consistent with a right of appeal being a thing in action and two Upper Tribunal decisions that contain obiter observations that support this approach. In my judgment this is not a sound foundation on which to conclude that a right of appeal is a chose capable of being property and thus capable of being assigned by an office holder.

25. It is necessary therefore to approach this issue as a novel point that has not been decided by binding authority, but from a starting point that (a) the definition of property in section 436 of the 1986 Act is cast in the widest terms, and (b) Hoffmann LJ could have but chose not to proceed in Heath v Tang on the basis a right of appeal was a property right that vested in a trustee on the making of a bankruptcy order.

26. I have come to the conclusion that a bare right of appeal of the sort I am now considering is not property within the meaning of the 1986 Act. I reach that conclusion for the following reasons.

27. First, the classical definition of a chose in action is that identified by Channell J in Torkington v Magee [1902] 2 KB 427, 430 - that it is an expression used to describe “all personal rights of property which can only be claimed or enforced by action and not by taking physical possession”. A bare right to appeal against what would otherwise be a liability does not satisfy this definition. It is not a right that must be claimed by action. It is a right that is unconditionally conferred on the company (in this case) by operation of statute. It is not a property right that can only be enforced by action. That is a cause of action and a bare right to appeal does not fall within the scope of that concept either.

28. Secondly, the authorities maintain a distinction between a chose and the remedies available for its enforcement. As I have said already, the right to a remedy is an incident of the ownership of the chose. The remedy is not something that is capable of being sold or assigned separately from the right to which it relates. It is this point that underlies the reasoning of Ramsey J in Ruttle Plant Ltd v Secretary of State for the Environment, Food and Rural Affairs (No 2) [2009] 1 All ER 448. It was this point too that underpins the reasoning in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 where the substantive conclusion of the House of Lords was that a claim to rescission could be made only by the owner of the mortgaged property and was not a separately assignable chose in action being simply part of the process of rescission: see pp 914H-915F. A chose in action can be assigned but not a particular remedy by which that chose can be enforced. As Lord Hoffmann put it, at p 915, (speaking for the majority in that case):

“what is assigned is the chose … The existence of a remedy or remedies is an essential condition for the existence of the chose … but that does not mean that the remedies are property in themselves, capable of assignment separately from the chose.”

Lord Hoffmann defined a chose as being “something capable of being turned into money” and “The assignee either acquires the right to the money … or he does not. If he does, he necessarily acquires whatever remedies are available to recover the money”. A liability does not satisfy this requirement. If that is so, it is difficult to see how a right vested in the person otherwise liable to appeal can have such status. Aside from that, a right of appeal relating to an estate in which the proposed assignee of the right to appeal has no proprietary interest is not something capable of being turned into money in this sense. It is akin to assigning a remedy without the right in respect of which the remedy exists.

29. The right of appeal is a right conferred on the company by statute by reason of it having been assessed to tax. The liability to which the bare right to appeal relates could not on conventional analysis be assigned: see Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85, 103. What is in issue here is a tax liability. It is difficult to see on what basis it would be treated any differently. Thus the liability to which the right of appeal is appurtenant cannot be assigned. Thus all that could be assigned would be the right to appeal. Such a right is no more capable of assignment than is a remedy independently of the chose to which it relates. Whilst I accept that as a matter of legal theory it may be possible to novate the legal relationship that exists in a manner than enables a liability to be passed from one party to another, that requires the consent of both the obligor and the obligee and it is difficult to see any circumstances in which such a situation could arise where the purpose of the exercise is to enable a right of appeal to be exercised that if exercised successfully will be adverse to the interests of the person to whom the liability is owed. This is all the more the case where the right to appeal is vested in a trustee in bankruptcy or company in liquidation.

30. Thirdly, this analysis is entirely consistent with the orthodox approach to whether a bankrupt has locus to appeal, as to which see Heath v Tang [1993] 1 WLR 1421. As I have said already Hoffmann LJ could have but did not approach the issue on the basis that a right to appeal was a property right that vested in the trustee as part of the bankrupt's estate. Introducing an entirely artificial concept of property for the purpose of concluding that an office holder can assign a right of appeal without being able to assign the liability that goes with it may have all sorts of unintended consequences for the conventional approach in relation to personal orders that it is entirely unnecessary to create.

31. All this leads me to conclude that a bare right to appeal is not property within the meaning of section 436 of the 1986 Act. A right of appeal available to a bankrupt is one that the bankrupt loses locus to bring or maintain once he or she is adjudicated bankrupt because the only assets out of which the underlying liability can be met have vested in the trustee and not because the right is a chose that vests in the trustee. The trustee has a statutory right (but not the obligation) to exercise any right of appeal that the bankrupt might have had as and from the moment at which the bankrupt is made the subject of a bankruptcy order. Similarly a right to appeal available to a company in liquidation can only be exercised by the office holder once appointed because he she or they then become the only agents of the company entitled to do so. Again however that is not the result of the right to appeal being treated as a property interest.'

[11b] In the author's view, this is not brought into doubt by:

(1) Muhammed v Robert [2014] EWHC 4800 (Ch), wherein David Richards J heard a bankrupt's application for permission to appeal, against a decision (amongst others) of a DJ, whereby the DJ refused to set aside judgment in default against the bankrupt, made against the bankrupt pre-bankruptcy order. Permission to appeal was refused for 2 reasons:

(a) on the merits, David Richards J said, at paragraph 24 'In my judgment, the circumstances of this case are clearly circumstances in which the court should not give permission to [the bankrupt] to appeal long out of time against the default judgment and other orders.'

(b) on the 'right to a challenge' (paragraph 26) being vested in the TIB. David Richards J said, at paragraph 26:

'....this is a further reason for rejecting her application, that there appears to be a fundamental legal bar to the application which she seeks to make. It is established by Court of Appeal authority that, once a bankruptcy order is made, the right to challenge a judgment entered against the debtor before the bankruptcy order vests in the trustee in bankruptcy. In Royal Bank of Scotland v. Farley [2006] BPIR 638 (decided on 17 March 1994), an appeal against an order of Harman J whereby he set aside an order annulling a bankruptcy order was dismissed, Hoffmann LJ said:

“The matter is complicated by the fact that the bankrupt had in fact no locus standi to make the application to set aside the default judgment in the first place. That, in my view, appears from the decision of this court in Heath v. Tang [1993] 1 WLR 1421. The essence of that decision is that a bankruptcy order divests the bankrupt of any further interest in what debts he owes because it provides that he shall no longer be under any personal liability. An appeal from the judgment against him or an application to set aside the judgment against him is therefore a matter for his trustee but does not concern the bankrupt.”

Hoffmann LJ went on later in the judgment to explain further the rationale for that approach. It was treated as entirely correct by the Court of Appeal in James v. Rutherford Hodge [2005] EWCA Civ.1580, reported at [2006] BPIR 973.'

This does not generated serious doubt as: (a) the judgment does not properly differentiate between the right to appeal, and standing. His interpretation of Heath, Farley and Rutherford Hodge did not extend to this nuance; and GP Aviation was not referred to him; and (b) a permission to appeal decision; (c) arguably, this second reason, was obiter, coming after the first, which rendered it unnecessary for the decision.

(2) Horsley v Revenue and Customs Commissioners [2019] UKFTT 13 (TC); [2019] BPIR 359, wherein the first tier tribunal judge held that the bankrupt / applicant / would be (re-instated) appellant, to pre-bankrutpcy tax assessments against her, 'no longer has any right to pursue an appeal before the Tribunal'. This does not generated serious doubt as: (a) this finding does not properly differentiate between the right to appeal, and standing; (b) is consistent with both; (c) is a first tier tribunal decision, so not binding. For completeness, the first tier tribunal judge's reasoning, at paragraphs 30 to 36, is set out:

'30. Section 283(1)(a) of the Insolvency Act 1986 provides that a bankrupt's estate comprises amongst other matters "all property belonging to or vested in the bankrupt at the commencement of the bankruptcy".

31. According to Muir Hunter on Personal Insolvency, Vol 1, Part III, para 3-621:

All things in action relating to property are included in the bankrupt's estate … So, for example, even where the bankrupt and trustee are co-defendants in proceedings relating to property, the bankrupt has no standing to appeal against an adverse judgment … In relation to tax assessments, the right of appeal against assessments would, it is submitted, normally be vested in the Trustee in bankruptcy by operation of law (see Heath v Tang (above), Re Hurren (A Bankrupt) [1983] 1 W.L.R. 183, and Ahajot v Waller [2004] S.T.C. 151). The Authors doubt the correctness of the decision to the contrary of H.H. Judge Purle QC in Arnold v Williams [2008] EWHC 218 (Ch); [2008] B.P.I.R. 247).

32. This paragraph of Muir Hunter goes on to refer to Pathania v Adedeji [2014] EWCA Civ 681, in which the Court of Appeal said at [15]-[16]:

[15] Where a bankrupt is commencing or pursuing a claim which he knows he does not have, the abuse of process in commencing or pursuing that claim is obvious. No claimant is entitled to sue on a right which he knows belongs to someone else. The abuse lies in knowingly pursuing a claim which, as presently constituted, is bound to fail. The abuse does, however, depend on actual knowledge of the lack of title to the cause of action, not on what he or she ought to have known.

[16] Nevertheless, where an action is commenced or continued after the cause of action has vested in a trustee in bankruptcy, the action does not abate and the position is capable of being regularised by the joinder of the trustee or by the taking of an assignment from him. Whether the court will permit that to happen will involve an exercise of discretion. It will be necessary to have regard to the interests of those likely to be affected, including the creditors in the bankruptcy. The court would be likely to stay the action until the position in the bankruptcy is clarified.

33. Muir Hunter also states at para 3-310.1:

In Arnold v Williams [2008] EWHC 218 (Ch); [2008] B.P.I.R. 247, HH Judge Purle QC held that where an assessment is raised against a discharged bankrupt in respect of tax due at the date of the bankruptcy order, the right of appeal under the statutory procedure is vested in the discharged bankrupt and not in his trustee. This conclusion, the inconvenience of which was acknowledged by the judge (ibid., at [55]), appears to be at odds with the tenor of the comments of Harman J in Re A Debtor Ex p. The Debtor v Dodwell [1949] Ch. 236 at 244 on the subject of the debt owed by the bankrupt in respect of tax going back some seven years before his bankruptcy:

"[I]t has been recently agreed by the trustee with the revenue after long negotiations. With these the [bankrupt] is dissatisfied … the complaint is an idle one. It is for the trustee and for him alone to settle with the Crown as with any other creditor, and … the bankrupt has no right whatever to call his decision in question"

In R. (on the application of Singh) v Revenue and Customs Commissioners [2010] UKUT 174 (TCC); [2010] B.P.I.R. 933, Warren J doubted the correctness of the decision in Arnold v Williams, above.

"[T]he bankrupt has no standing to proceed with the appeal because he has no interest in the estate which has vested in the trustee and which comprises the only assets out of which the tax could be paid. If the bankrupt has no standing then the trustee must have standing otherwise the unacceptable result would be reached under which no-one had a right of appeal at all. The answer may be that an appeal has to be brought in the name of the bankrupt, but if that is so, the decision whether to do so is that of the trustee and not of the bankrupt and the bankrupt is under a duty to co-operate accordingly under s.333 " (ibid., at [35]).

See further Count Artsrunik v Waller [2005] B.P.I.R. 82, a decision of the Special Commissioners applying Re Hurren and in which the Special Commissioners ruled that in relation to tax assessments for periods preceding the bankruptcy the right of appeal against such assessments was vested in the trustee in bankruptcy who had sole responsibility for determining the debts outstanding and for accepting or challenging them. There was no basis for departing from that general position since in the case in question the taxpayer had no personal interest in the appeals which did not directly concern his estate as vested in the trustee: no penalties had been imposed but, even if they had been, they would be debts provable in the bankruptcy and the discharge of the taxpayer meant that he had already been released from such debts (Heath v Tang [1993] 1 W.L.R. 1421 applied). This case was followed by the First-Tier Tribunal (Tax Chamber) in Ali v Revenue and Customs Commissioners [2015] UKFTT 464 (TC); [2015] B.P.I.R. 1348.

34. None of the authorities referred to in paragraphs 31-33 above that post-date Heath and Artsrunik were cited by the parties at the hearing. The Tribunal has given consideration to whether it should before issuing its decision give the parties the opportunity to make submissions on other authorities. The Tribunal has decided against that course. The question of the effect of the Appellant's bankruptcy on her standing to bring this appeal was squarely identified to the parties prior to the hearing as one of the main issues that was to be addressed at the hearing. Both parties have therefore had a full opportunity to make whatever submissions they wish. In reaching its decision, the Tribunal does not place any reliance on authorities not cited by the parties, other than to take into account that some of these authorities arguably are less unfavourable to the Appellant than Heath and Artsrunik. The Tribunal is persuaded on the basis of the authority of Heath and Artsrunik that by operation of the law of bankruptcy, the Appellant in this case no longer has any right to pursue an appeal before the Tribunal in respect of tax assessments or penalties in respect of periods preceding the bankruptcy, particularly given that the assessments were issued before the bankruptcy order.'

The bankrupt/applicant / would be (reinstated) appellant's application to reinstate this appeal was refused (paragraph 38).

(3) R. (on the application of Singh) v Revenue and Customs Commissioners [2010] UKUT 174 (TCC); [2010] BPIR 933 ('Singh'). As HHJ Pelling QC points out in GP Aviation Group International Ltd (also known as: Williams v Glover) [2013] EWHC 1447 (Ch); [2014] 1 WLR 166, paragraph 20, Warren J's decision on this point in Singh is obiter.

[12] In Heath v Tang [1993] 1 WLR 1421, Hoffmann LJ giving the judgment of the court said, at 1423:

'Is there anything different about the judgment upon which the bankruptcy petition was founded? It is submitted that the difference is that in such a case the bankrupt does have an interest, because if he can get rid of the judgment, he may be able to have the bankruptcy order annulled on the ground that it should never have been made. Whether it is set aside or not will depend upon whether apart from the judgment the bankrupt would have been solvent or whether an order would in any event have been made on the application of supporting creditors: see In re Noble (A Bankrupt) [1965] Ch. 129. On the other hand, it may equally be said that if only the bankrupt could pursue a claim for a large sum which he claims to be owing to him, he would be able to pay all his creditors and have the bankruptcy annulled on that ground. It is clear, however, that this is not a ground upon which he may bring proceedings. Furthermore, an exception for the petitioner's judgment would give rise to anomalies in cases in which the defence was a claim of set-off, such as the applicant Mr. Heath asserts in this case. The contractual claim relied upon as a set-off would undoubtedly have vested in the trustee and therefore no longer be available to the bankrupt as a common law set-off to challenge the petitioner's claim. It would fall to be set off for the purposes of proof under section 323 of the Insolvency Act 1986 : see New Quebrada Co. Ltd. v. Carr (1869) L.R. 4 C.P. 651, In re A Debtor; Ex parte Peak Hill Goldfield Ltd. [1909] 1 K.B. 430. This right of set-off can be asserted only by the trustee. So in my view there is nothing sufficiently special about the petitioner's judgment to take it out of the general principle.

It must be borne in mind that rule 6.25(2) of the Insolvency Rules 1986 (S.I. 1986 No. 1925) says:

“If the petition is brought in respect of a judgment debt, or a sum ordered by any court to be paid, the court may stay or dismiss the petition on the ground that an appeal is pending from the judgment or order, or that execution of the judgment has been stayed.”

Although this provision confers upon the court a discretion (see In re Flatau; Ex parte Scotch Whisky Distillers Ltd. (1888) 22 Q.B.D. 83) it has been said more than once that if the appeal appears to be bona fide, the court should adjourn the petition until it has been heard: Ex parte Yeatman; In re Yeatman (1880) 16 Ch.D. 283, In re Noble (A Bankrupt) [1965] Ch. 129'

[12a] In Addison v London European Securities Ltd [2022] EWHC 1077 (Ch) ('Addison'), Jonathan Hilliard QC sitting as a Deputy Judge of the High Court, described the bankrupt's standing in a wider set of circumstances. At paragraph 111, the Deputy Judge said in Addison:

'I draw from the case-law in this section on the bankrupt as defendant the following points:

(1) A bankrupt who is a defendant will normally not have standing to bring an appeal.

(2) However, there are cases where the bankrupt can appeal an order against him.

(3) The latter group of cases is not limited to cases concerned solely with his body, mind or character.

(4) One way of characterising the latter group of cases is as those concerning something personal to the bankrupt. Sands, for example, was a case concerning the status of the bankrupt.

(5) However, as in cases where the bankrupt is claimant, there is no more specific bright-line rule than that for determining in marginal cases whether the matter should be regarded as personal to the bankrupt or not.

(6) Some of the factors relied on in the cases to determine whether the matter should be regarded as personal to the bankrupt are:

(a) whether the bankrupt’s status is at issue: Sands;

(b) what common sense and fairness dictates: Sands;

(c) whether it is natural to regard the action as vesting in the trustee in bankruptcy and for the trustee rather than the bankrupt to continue the litigation: Sands;

(d) whether the judgment in the litigation is or would be enforceable against the estate of the bankrupt (as where it will result in a provable debt or a proprietary claim against assets held by the trustee in bankruptcy) or not (as in the case of an injunction to restrain the bankrupt from taking particular steps): Heath;

(e) tied to that, whether there are other routes by which the litigation can or could have been dealt with, such as (i) the bankrupt seeking to invoke section 303 of the 1986 Act or (ii) the bankrupt persuading the Court not to make a bankruptcy order in the first place and therefore the defendant continuing the substantive litigation in the ordinary way: Heath;

(f) the breadth of the concept of the bankrupt’s estate, and the public interest that lies behind this: Heath.'

[13] In Addison v London European Securities Ltd [2022] EWHC 1077 (Ch) ('Addison'), Jonathan Hilliard QC sitting as a Deputy Judge of the High Court reviewed the authority GP Aviation Group International Limited [2013] EWHC 1447 (Ch). The Deputy Judge in Addison said, at paragraphs 105 to 110:

'106...I was taken... to the decision of HHJ Pelling QC sitting as a Judge of the High Court in In the Matter of GP Aviation Group International Limited [2013] EWHC 1447 (Ch). The Judge had to decide whether a company’s statutory right of appeal against a tax assessment constituted property for the purposes of s.436 of the Insolvency Act, as part of considering whether this right of appeal could be assigned to the respondents in that case. The Judge concluded, at [26] to [31], that it was not.

106. The Judge stated at [14] that “[t]here is an interesting debate within the authorities as to whether in personal bankruptcies the reason why the bankrupt loses standing to prosecute an appeal is because the right to appeal is a property right that has vested in the trustee or whether it is simply an incident of the fact of bankruptcy”. He went on, having received detailed submission from the parties, to set out the authorities that he considered bore on the point.

107. As part of his reasoning, he concluded at [30] that Hoffmann LJ in Heath was not deciding that the right to appeal was a property right that vested in the trustee as part of the bankrupt’s estate, and concluded at [31] that:

“All this leads me to conclude that a bare right to appeal is not property within the meaning of s.436 of the IA. A right of appeal available to a bankrupt is one that the bankrupt loses locus to bring or maintain once he or she is adjudicated bankrupt because the only assets out of which the underlying liability can be met have vested in the trustee and not because the right is a chose that vests in the trustee. The trustee has a statutory right (but not the obligation) to exercise any right of appeal that the bankrupt might have had as and from the moment at which the bankrupt is made the subject of a bankruptcy order. Similarly a right to appeal available to a company in liquidation can only be exercised by the office holder once appointed because he she or they then become the only agents of the company entitled to do so. Again however that is not the result of the right to appeal being treated as a property interest.”

108. In GP Aviation, the situation before the Judge was one where the company had been seeking to dispute through its appeal that it owed a tax liability. I consider that it is important to read the judgment in that context, because as [counsel] pointed out, in many cases rights of appeal have been treated as property forming part of the bankrupt’s estate.

109. The Judge concludes in [31], referring to what the situation would have been had the case concerned an individual rather than a company, that the reason the trustee in bankruptcy is the party that must bring such an appeal is because the assets out of which the tax liability can be met are now vested in the trustee in bankruptcy, so the bankrupt no longer has locus to bring the appeal.

110. In GP Aviation, it was necessary for the Judge to form a view on the precise reason why, and process through which, a bankrupt lost on bankruptcy the standing to exercise a “bare” right of appeal of the type before the Judge, and therefore whether it was “property” was the purposes of the 1986 Act that was capable of assignment. The Judge was not concerned with the question of the circumstances in which the trustee in bankruptcy did and did not have a right to appeal. Our case is concerned with this latter issue. Therefore, in my judgment, the case does not assist in relation to the issue before me.'

[13a] In Muhammed v Robert [2014] EWHC 4800 (Ch), David Richards J:

(1) then said, at paragraph 27:

'In Royal Bank of Scotland v. Farley itself the judgment which the debtor sought to set aside was a default judgment entered against him on which the bankruptcy petition had been based and on which the bankruptcy order had been made.'

(2) earlier, David Richards J explained the submission he had heard on this from the bankrupt/appellant, and the judge's reaction to it, at paragraph 27:

'[Counsel for the bankrupt] pointed to the difficulty which arises for a debtor where the debtor seeks to challenge a judgment against the debtor, being the very judgment on which the bankruptcy petition and bankruptcy order were based. She observed that it was unlikely that the trustee in bankruptcy appointed would seek to undermine the judgment which formed the basis of the bankruptcy. I would not wholly go along with that latter observation.'

[13b] There is also a comment from ICC Judge Mullen to consider. ICCJ Mullen in Re Lambert (also known as Lambert v Forest of Dean DC) [2019] EWHC 1763 (Ch), said, at page 20:

'...although on the face of it service of the applications for the liability orders was also effected at the Service Address (although some of them appear to have been served at addresses with which Mr Lambert does not dispute he was associated) he has in fact had the opportunity to set them aside. He failed to attend the hearing of that application. His evidence is that he was advised that he did not have locus to pursue the application. It is of course right that the making of a bankruptcy order divested him of his interest in relation to the liability orders but he did not attempt to persuade the justices of his locus and nor did he make any attempt to ask the Original Trustee or the current Trustees for consent to him seeking to set aside the liability orders on behalf of the bankruptcy estate. As Ms Brooke notes, in Yang [2013] EWHC 3577 (Ch), the bankrupt successfully set aside the liability orders during the currency of her bankruptcy (that fact is perhaps more evident from the judgment of His Honour Judge Hodge QC at, paragraph 4, than it is from the judgment of the Court of Appeal). He has made a further application to set aside liability orders obtained against him, but these do not relate to the petition debt. The debt remains due and owing and has not been paid. Nor have any of the other liability orders which have underpinned the Council’s claims in the bankruptcy been discharged.’ [bold added]

[14a] Readers might be interested to learn about the equivolent procedure in Australia. In Cummings v Claremont Petroleum [1996] HCA 19; (1996) 185 CLR 124, the High Court of Australia (Full Court) (Brennan CJ, Dawson Tooney, Gaudron and McHugh JJ), Brennan CJ, Gaudron and McHugh JJ said

'13...So far as a judgment entered in an action against a bankrupt creates or evidences a provable debt, we respectfully agree that the bankrupt has no financial interest which would confer locus standi to appeal in his own name against the judgment. That is because it is fundamental to the law of the That is bankruptcy that the the bankrupt is divested of both his interest in his property and liability for his provable debts (44).

14. Of course, a money judgment entered against a bankrupt has the effect of increasing the amount of the debts provable in his estate. But it is immaterial that, if an appeal against the judgment were successful, there would or might be a surplus in the estate after the remaining creditors are paid. A bankrupt's contingent interest in a surplus does not give him an interest which would allow him to sue to enforce proprietary rights (45) and, that being so, it cannot give him an interest to appeal to (45) and, that being so, it give him an interest to appeal to minimise liabilities. If the bankrupt cannot appeal against such a judgment, does his trustee have the the power to to do so? The powers of a a trustee are defined by s 134. By sub-s (1)(j), the trustee is authorised to "bring, institute or  defend any action or other legal proceeding relating to administration of the estate". That s an ample power to permit the trustee to institute an appeal against a judgment entered against a bankrupt that affects he administration of the estate. But if the judgment against which a bankrupt wishes to appeal reflects on his personal or professional character (as the present judgment does), it seems unjust to leave the institution of an appeal to the discretion of a trustee whose interests do nto extend, or do not necessarily extend, to the preservation of the bankrupt's personal or professional character (46). Is the bankrupt without any prospect of relief in such circumstances?

15. When a trustee declines to exercise his power to sue or to appeal against a judgment, the bankrupt may apply to the Court under s 178 of the Act and the Court is empowered to make such order "as it thinks just and equitable". That jurisdiction has long been exercised by the courts by charged with the supervision of administrations in bankruptcy (47). If it was just and equitable that an action should be brought or an appeal instituted in order to prevent an injustice being suffered by the bankrupt, Lord Eldon LC held (48) that -

"the Court would say, with reference to the circumstance, to that the bankrupt cannot sue, the law supposing, that he has no interest in the property, yet that is not to be acted upon to the effect of gross injustice. Therefore, if he can give security for the costs, the Lord Chancellor will order the assignees to permit him to use their names, to enable him to recover the property; indemnifying them. The bankrupt therefore is without any ground of complaint."

The cases were reviewed by Hoffmann LJ in Heath v Tang where his Lordship said (49) that, just as a bankrupt might apply to the court for an order compelling the trustee to lend his name to the bringing of an action, so the bankrupt might "apply to the court exercising bankruptcy jurisdiction to direct the trustee to appeal or to allow the bankrupt, on providing suitable security, to use the trustee's name". He further observed (50):

"The bankruptcy court acts as a screen which both prevents the bankrupt's substance from being wasted in hopeless appeals and protects creditors from vexatious challenges to their claims."

16. The Court's discretion is at large and is to be exercised in the particular circumstances of each case. It may be that, before a bankrupt obtains an order under which an appeal will be instituted for the protection of his reputation, the trustee's costs would have to be met by sources other than the bankrupt estate in which the bankrupt no longer has an interest. The Court would be unlikely to permit the bankrupt to pursue his personal interests, in so far as they are not coincident with the due administration of the estate by the trustee, at the expense of the creditors. But it is unnecessary now to examine how the Court should exercise its jurisdiction under s 178 to safeguard the reputation of the bankrupt and, at the same time, protect the creditors from the risk of costs incurred in an appeal. There is no application under s 178 for consideration in this case.

17. In this case, although we would not regard the right to appeal as property of the respective bankrupt bankrupt appellants, the decision reached by the majority of the Full Court of the Federal Court was correct. The bankruptcy of the appellants leaves them without such an interest in the judgment against them as would support their institution of an appeal in their own names.'

[14] In Benfield v Solomons (1803) 9 Vesey Junior 77 32 E.R. 530, Lord Eldon LC said, at 84 to 85:

'...the bankrupt is not without relief. We have to look to what the law has ordained with respect to what assignees are to do, or not, particularly as to instituting suits. Prima facie the bankrupt has no demand: but if he states, that apparent incumbrances upon the property are no substantial charge, that the assignees are prevented by the creditors from interfering, or, if the creditors would permit them, refuse, or if both refuse, to interfere, and give him the chance of a surplus, the Court would say, with reference to the circumstance, that the bankrupt cannot sue, the law supposing, that he has no interest in the property, yet that is not to be acted upon to the effect of gross injustice. Therefore, if he can give security for the costs, the Lord Chancellor will order the assignees to permit him to use their names, to enable him to recover the property; indemnifying them. The bankrupt therefore is without any ground of complaint.

As to authority, Lord Alvanley has in Spragg v. Binkes stated, not a direct authority upon the subject, but two very weighty dicta ; when the enormous inconvenience of permitting such a Bill is considered; for then the bankrupt may file such a Bill against every other creditor; and if he could, their suits could not be stopped; but must all go on, till the assignees make themselves parties to all those suits; and this is not for the purpose of remedying any mischief; for there is as convenient a mode for the bankrupt to proceed in another form. Lord Alvanley in that case in the most positive terms expresses, that there is no doubt as to the case of bankruptcy; and he thought, there was no case, in which the jurisdiction in bankruptcy cannot give all the relief required. The same sort of doctrine is established in Bowser v. Hughes : but the reasons of the judgment are not explained in the report. The plea there, stating a great variety of circumstances, is very like an answer: but it was held good as a plea. That is an authority therefore, that an insolvent debtor is placed in the situation, in which Lord Alvanley considered the bankrupt to be; that the order, disposition, and management, of the estate, is so far taken out of the party. that he cannot sue in respect of the surplus. The weight of authority is aided by the circumstance, that no such Bill was ever filed; though the occasion is administered in almost every bankruptcy.'

(1) The demurrer was allowed.

(2) Spragg v. Binkes is a reference to Spragg v. Binkes (5 Ves. 583)

[14a] In Heath v Tang [1993] 1 WLR 1421, Hoffmann LJ giving the judgment of the court said, at 1426:

'It must be borne in mind that rule 6.25(2) of the Insolvency Rules 1986 (S.I. 1986 No. 1925) says:

“If the petition is brought in respect of a judgment debt, or a sum ordered by any court to be paid, the court may stay or dismiss the petition on the ground that an appeal is pending from the judgment or order, or that execution of the judgment has been stayed.”

Although this provision confers upon the court a discretion (see In re Flatau; Ex parte Scotch Whisky Distillers Ltd. (1888) 22 Q.B.D. 83) it has been said more than once that if the appeal appears to be bona fide, the court should adjourn the petition until it has been heard: Ex parte Yeatman; In re Yeatman (1880) 16 Ch.D. 283, In re Noble (A Bankrupt) [1965] Ch. 129'

[15] Two things:

(1) where the bankrupt commences/continues proceedings without standing, proceedings: (a) may or may not be an abuse of process; and (b) would be irregular - but capable of being regularised/being made regular (it seems). This would be by analogy with what was said in Pathania v Adedeji [2014] EWCA Civ 681, wherein the Court of Appeal said at paragraphs 15-16:

'[15] Where a bankrupt is commencing or pursuing a claim which he knows he does not have, the abuse of process in commencing or pursuing that claim is obvious. No claimant is entitled to sue on a right which he knows belongs to someone else. The abuse lies in knowingly pursuing a claim which, as presently constituted, is bound to fail. The abuse does, however, depend on actual knowledge of the lack of title to the cause of action, not on what he or she ought to have known.

[16] Nevertheless, where an action is commenced or continued after the cause of action has vested in a trustee in bankruptcy, the action does not abate and the position is capable of being regularised by the joinder of the trustee or by the taking of an assignment from him. Whether the court will permit that to happen will involve an exercise of discretion. It will be necessary to have regard to the interests of those likely to be affected, including the creditors in the bankruptcy. The court would be likely to stay the action until the position in the bankruptcy is clarified.'

(2) In Heath v Tang [1993] 1 WLR 1421, Hoffmann LJ giving the judgment of the court said, discussed a particular disadvantage to the rule against the bankrupt using his own name. At 1426:

'The main respect in which the bankrupt may be disadvantaged by not being allowed to appeal in his own name is that in that capacity he would almost certainly (subject to consideration of the merits of his appeal) qualify for legal aid. On the other hand, the trustee would not. If therefore the bankrupt is merely allowed to use the trustee's name in an appeal, legal aid will probably not be available.'

[15a] Later, Cave J said 'The proper course, as I. have said, is to make a preliminary application for leave to use the name of the trustee on indemnifying him against costs'

Note, the bankruptcy court can give a direction to a TIB to ignore/disregard a direction of the creditors, and direct the TIB to act contrary to the creditors' direction. See Re Poole Ex p. Cocks (1882) 21 Ch. D. 397 CA, decided under the Bankruptcy Act 1869.

In Agba v Luton BC [2020] EWHC 1160 (Admin)('Agba'), Choudhury J said, at paragraph 13, while referring to the bankrupt:

'...in any case in which he was aggrieved by the trustee's refusal to prosecute a claim he could apply to the judge having jurisdiction in bankruptcy to direct the trustee to bring an action, or to allow the bankrupt to conduct the proceedings in the name of the trustee. The jurisdiction of the bankruptcy judge to give such directions is now conferred by statute. Section 303(1) of the Insolvency Act 1986 says:

'If a bankrupt or any of his creditors or any other person is dissatisfied by any act, omission or decision of a trustee of the bankrupt's estate, he may apply to the court; and on such an application the court may confirm, reverse or modify any act or decision of the trustee, may give him directions or may make such other order as it thinks fit."'

[16] For completeness, r.10.24 of Insolvency Rules 2016, entitled 'Decision on the hearing' (the replacement for r.6.25 of the Insolvency Rules 1986 (now obsolete) reads:

'(1) On the hearing of the petition, the court may make a bankruptcy order if satisfied that the statements in the petition are true, and that the debt on which it is founded has not been paid, or secured or compounded.

(2) If the petition is brought in relation to a judgment debt, or a sum ordered by any court to be paid, the court may stay or dismiss the petition on the ground that an appeal is pending from the judgment or order, or that execution of the judgment has been stayed.

(3) An order dismissing or giving permission to withdraw a bankruptcy petition must contain(a) identification details for the proceedings;

(b) the date of the presentation of the bankruptcy petition;

(c) the name, postal address and description of the applicant;

(d) a statement that the petition has been heard;

(e) the order that the petition be dismissed or that, with the permission of the court, the petition is withdrawn;

(f) details of any further terms of the order;

(g) the date and reference number of the registration of the petition as a pending action with the Chief Land Registrar;

(h) an order that the entry relating to the petition in the register of pending actions be vacated on the debtor’s application; and

(i) the date of the order.

(4) The order must notify the debtor that it is the debtor’s responsibility and in the debtor’s interest to ensure that the registration of the petition as an entry, both with the Chief Land Registrar and in the title register of any property owned by the debtor, is cancelled.

(5) In the case of a petition preceded by a statutory demand, the petition will not be dismissed on the ground only that the amount of the debt was over-stated in the demand, unless the debtor, within the time allowed for complying with the demand, delivered a notice to the creditor disputing the validity of the demand on that ground; but, in the absence of such notice, the debtor is deemed to have complied with the demand if the correct amount is paid within the time allowed.'

[17] In Osborn v Cole [1999] BPIR 251 Ch D, Registrar Baister held that the words “person dissatisfied” are wide enough to encompass/cover the bankrupt after discharge.

[18] In Brake v The Cheddington Court Estate Ltd [2023] UKSC 29; [2023] BPIR 1272 ('Brake 2023'), Lord Richards said, under the heading 'Legislation' at paragraphs 3 to 7:

'Section 303(1) of the Insolvency Act 1986 (“IA 1986”) provides:

“If a bankrupt or any of his creditors or any other person is dissatisfied by any act, omission or decision of a trustee of the bankrupt’s estate, he may apply to the court; and on such an application the court may confirm, reverse or modify any act or decision of the trustee, may give him directions or may make such other order as it thinks fit.”

The power of the court to intervene in the conduct of a bankruptcy on the application of the bankrupt, now contained in section 303(1), has its origins in the inherent jurisdiction of the court as it existed prior to the enactment of the mid-19th  century Bankruptcy Acts. A provision to much the same effect as section 303(1) was included in the Bankruptcy Act 1869 (32 & 33 Vict, c 71) and repeated in the Bankruptcy Act 1883 (46 & 47 Vict, c 52) and in the Bankruptcy Act 1914. Section 303 of the IA 1986 replaced section 80 of the 1914 Act.

Similar provisions entitling creditors and others to challenge liquidators in a compulsory winding-up have applied since the enactment of section 24 of the Companies (Winding-Up) Act 1890 (53 & 54 Vict, c 63). The current provision is section 168(5) of the IA 1986 which provides:

“If any person is aggrieved by an act or decision of the liquidator, that person may apply to the court; and the court may confirm, reverse or modify the act or decision complained of, and make such order in the case as it thinks just.”

The differences in the language of sections 168(5) and 303(1) make no difference to the scope of the two provisions. While the reference in section 303(1) to the bankrupt is appropriate only to personal insolvency, the general term “any person … aggrieved” in section 168(5) will encompass creditors and, where appropriate, members of the company in liquidation as well as any other person who can qualify as a “person aggrieved”. There is no difference of substance between an “aggrieved” and a “dissatisfied” person. “Aggrieved” was the word used in the Bankruptcy Acts and was updated to “dissatisfied” in the extensive re-drafting of the personal insolvency provisions first enacted in the Insolvency Act 1985 and brought into force as part of the IA 1986. A similar process was not undertaken as regards many of the provisions governing corporate insolvency previously contained in successive Companies Acts, including what is now section 168.

[19] To set out what, in Brake v The Cheddington Court Estate Ltd [2023] UKSC 29; [2023] BPIR 1272 ('Brake 2023'), Lord Richards said in full - paragraph 7 to 33, Lord Richards said:

'7. Both section 303(1) and section 168(5) of the IA 1986 express in very broad terms the persons who may apply to challenge a trustee or liquidator, as did their predecessor sections. The express terms are not, however, to be given a literal reading. On both principle and authority, there are limitations on the persons who have standing to apply under these provisions.'

8. Neither section is intended to provide a means of redress to a party with no connection to the bankruptcy or liquidation. I agree with the observation of Peter Gibson LJ in Mahomed v Morris [2000] EWCA Civ 46, [2000] 2 BCLC 536 at para 26: “It could not have been the intention of Parliament that any outsider to the liquidation, dissatisfied with some act or decision of the liquidator, could attack that act or decision by the special procedure of section168(5)”.

9. Limitations apply also to bankrupts, creditors and others who are connected with the bankruptcy or liquidation. In accordance with the principles that serve to confine standing under these sections, the authorities have established the following propositions. First, subject to very limited exceptions discussed below, a bankrupt must show that there is or is likely to be a surplus of assets once all liabilities to creditors, and the costs and expenses of the bankruptcy, have been paid. The same is true of a contributory of a company holding fully paid shares, although there has been no decided authority on this point. Second, a creditor will not have standing, except as regards a matter which affects the creditor in its capacity as such. As a matter of principle, this limitation applies also to bankrupts, even when they can demonstrate a surplus. Third, there are other, very limited, circumstances which will provide standing to an applicant, whether or not the applicant is the bankrupt, a creditor or a contributory. So far as the authorities go, those circumstances are confined to cases where the challenge concerns a matter which could only arise in a bankruptcy or liquidation and in which the applicant has a direct and legitimate interest.

10. The general requirement that a bankrupt must show there is or is likely to be a surplus necessarily follows from the structure and purposes of bankruptcy and from the functions and duties of a trustee in bankruptcy. On the making of a bankruptcy order, all property belonging to the bankrupt, with a few exceptions, vests in the official receiver or other trustee of the bankrupt’s estate. The property is held by the trustee on a statutory trust to be administered in accordance with the provisions of the IA 1986 and the applicable Insolvency Rules. Section 305(2) sets out the function of the trustee as being “to get in, realise and distribute the bankrupt’s estate in accordance with the following provisions of this Chapter [Chapter IV of Part IX]; and in the carrying out of that function and in the management of the bankrupt’s estate the trustee is entitled, subject to those provisions, to use his own discretion”.

11. The bankrupt ceases to have any beneficial interest in his former property, now constituting “the bankrupt’s estate”. Under the IA 1986, as under its statutory predecessors, “the principle that the bankrupt is divested of an interest in his property and liability for his debts remains fundamental”: Heath v Tang [1993] 1 WLR 1421, 1427, per Hoffmann LJ. The bankrupt has only a contingent statutory right to participate in any eventual surplus after payment in full and with interest of all creditors in the bankruptcy and the payment of the costs and expenses of the bankruptcy, including the trustee’s remuneration: James v Rutherford-Hodge [2005] EWCA Civ 1580 at para 12 per Chadwick LJ. Unless, therefore, there is or is likely to be a surplus, the bankrupt has no legitimate interest in the administration of the estate. It follows that he lacks standing under section 303(1) to challenge the administration by the trustee of the estate. Parliament cannot have intended the bankrupt to be able to interfere in the administration of an estate in which he has no interest. For a robust exposition of the principle, see the judgment of Harman J in In re A Debtor, Ex p The Debtor v Dodwell (The Trustee) [1949] Ch 236, 240-241.

12. Accordingly, for example, a bankrupt cannot require a trustee to commence or continue proceedings in respect of any claim that forms part of the bankrupt’s estate, nor can a bankrupt require the trustee to lend his name to proceedings to be prosecuted by the bankrupt, unless there is or is likely to be a surplus in the estate: Benfield v Solomons (1803) 9 Ves 77, 83-84 (Lord Eldon LC), cited by Hoffmann LJ in Heath v Tang [1993] 1 WLR 1421, 1424. Similarly, the bankrupt cannot require the trustee to defend claims to property forming part of the bankrupt’s estate or claims for sums payable only out of the bankrupt’s estate: Heath v Tang (supra) at p 1424-1425.

13. The processes of bankruptcy and insolvent liquidation are primarily for the benefit of creditors. They necessarily have an interest in the proper administration by the trustee or liquidator of that process. Equally, though, their standing to challenge the trustee or liquidator is limited to matters which affect their interests as creditors under the statutory trust, and not in some other capacity.

14. This principle is illustrated by two decisions of the Court of Appeal.

15. In In re Edennote Ltd [1996] 2 BCLC 389, three creditors applied to set aside a sale of an asset by the liquidator on the grounds that the sale was at an undervalue. The applicants said that, if offered the opportunity, they would have been willing to pay a higher price. The applicants’ standing under section 168(5) was challenged. The Court of Appeal held that, because the sale was alleged to have been at an undervalue, they had standing as creditors of an insolvent company, but that they would have lacked standing as disappointed prospective purchasers of the asset. Nourse LJ said at p.393:

“…it is perfectly clear that unless and until there proves to be a surplus available for contributories (a most improbable event), ‘persons aggrieved’ must include the company’s unsecured creditors. If the liquidator disposes of an asset of the company at an undervalue, their interests are prejudiced and each of them can claim to be a person aggrieved by his act. Such was the position of the applicants here. Mr Rayner James submitted that they brought the application not as creditors but as persons who had not been given an opportunity to make an offer for the asset. In the latter capacity alone, like any other outsider to the liquidation, they would not have had the locus standi to apply under section 168(5).”

16. The second case, In re Edengate Homes (Butley Hall) Ltd (in liquidation), Lock v Stanley [2022] EWCA Civ 626, [2022] 2 BCLC 1, was decided after the Court of Appeal had given judgment in the present case. It concerned an application under section 168(5) of the IA 1986 by a creditor and former director of a company in liquidation to set aside the assignment of claims by the liquidator to a third party. The claims, totalling some £1.2 million, were against the applicant and members of her family. The liquidator had no funds to proceed with the claims but under the terms of the assignment the company could receive some £800,000 if the claims were fully successful. The application was made on the basis that the applicant and her family had not been given the opportunity to buy the claims and thereby bring them to an end. However, there had been no suggestion that the applicant was prepared to match or beat the third party’s offer.

17. The judgment was given by Males LJ, with whom Asplin and Stuart-Smith LJJ agreed. The decision of the judge below to dismiss the application on the grounds that the applicant lacked standing under section 168(5) of the IA 1986 was affirmed. Although the applicant was a creditor of the company, she was not making the application to advance the interests of the creditors by increasing the funds that might be available for distribution, but she was instead seeking to advance her personal interests and those of her family as defendants to the proceedings brought by the assignee. The fact that she was a creditor did not therefore give her standing.

18. The effect of the principles discussed above is that it is only exceptionally the case that a bankrupt will have standing to make an application under section 303(1).

19. Nonetheless, even where there is no surplus nor the likelihood of one, there may be circumstances in which a bankrupt will have standing. The decision of Ferris J in Engel v Peri [2002] EWHC 799 (Ch), [2002] BPIR 961 is an example. The bankrupt applied under section 282(1)(b) to annul his bankruptcy on the basis that all his debts would be paid in full out of third-party funds or would be secured by a payment into court. The bankrupt was required under the section to pay or secure the expenses of the bankruptcy. He considered the trustee’s remuneration and legal fees to be excessive and applied under section 303(1) for them to be fixed by the court. The trustee objected that the bankrupt had no standing to make the application, on the grounds that there was and would be no surplus after payment of all the debts and expenses. Ferris J rejected the submission that this was a universal requirement, holding that what a bankrupt had to show was “some substantial interest which has been adversely affected by whatever is complained of” (para 14). Whether a bankrupt could do this depended on the facts of the particular case. As regards the case before him, he said at para 19:

“In the context of an application for annulment under section 282(1)(b) the amount of the trustee’s remuneration and expenses may be a matter of considerable significance, because it affects the amount of money required to be paid in order to satisfy the court of the matters referred to in the subsection. In my view the bankrupt has a clear interest in this, for he will want the annulment to be obtained as cheaply as possible. This will clearly be the case where the bankrupt is persuading a third party to lend him the money or intends to enter into an obligation to indemnify a third party who puts up the necessary funds. I consider that it will also be so even where there is to be no formal obligation as between the bankrupt and the third party. The prospects of the third party making funds available are likely to be increased if the amount required is kept to a minimum. Further the bankrupt is likely to feel under a moral obligation to indemnify the third party even where he is under no legal obligation.”

20. We were referred to no other authority where the issue of standing was raised and where, in the absence of an actual or likely surplus, a successful application under section 303(1) of the IA 1986 or its statutory predecessors had been made by a bankrupt. It is an important, indeed critical, feature of Engel v Peri that the bankrupt was applying in his capacity as a bankrupt and in respect of an issue - the level of the trustee’s costs and expenses which was directly relevant to an annulment of his bankruptcy - which arose only by reason of his bankruptcy.

21. Guidance as to the circumstances in which a bankrupt will have standing to apply under section 303(1) may be gained by analogy from the circumstances in which creditors or others have been held to have, or not to have, standing under section 303(1) or section 168(5). I have referred above to cases in which applications by persons who were creditors have failed because they were not applying in support of their rights or interests as creditors but in support of other rights or interests.

22. Cases involving persons other than creditors have likewise shown standing to be limited to rights or interests arising specifically out of the liquidation or bankruptcy.

23. Mahomed v Morris [2000] EWCA Civ 46, [2000] 2 BCLC 536 concerned an application by persons who were not creditors of the company in question (BCCI) but had provided security for debts owed by a third party to the company. The principal debtor had also provided security in the form of a charge over promissory notes issued by a third party. A dispute as to the extent of that security was compromised by the liquidator of the company. The applicants objected to the terms of the compromise, arguing that BCCI was entitled to a greater number of the promissory notes. They claimed to be adversely affected on the basis that, if the compromise had been on terms more favourable to BCCI, they would have been entitled by subrogation to the surplus notes.

24. The Court of Appeal held that the applicants lacked standing under section 168(5) to challenge the decision of the liquidators to compromise the dispute. It was not enough “that the person claiming to be aggrieved by the act or decision of the liquidator in respect of assets of the company is a surety when his subrogation rights do not in any way depend on the company being in liquidation” (para 26 per Peter Gibson LJ). The applicants were “outsiders to the liquidation” (para 28 per Peter Gibson LJ).

25. There are only three cases to which we were referred where a third party has made an application under sections 303(1) or 168(5) of the IA 1986 without a successful challenge to their standing.

26. The first is In re Hans Place Ltd [1992] BCC 737, [1993] BCLC 768. The liquidator had exercised the power conferred by section 178 of the IA 1986 to disclaim by notice “onerous property”, defined so as to include any property of the company “which is unsaleable or not readily saleable or is such that it may give rise to a liability to pay money or perform any other onerous act”. The disclaimer operated to determine “the rights, interests and liabilities of the company in or in respect of the property disclaimed”. Following service by the liquidator of a notice of disclaimer of a lease, the landlord applied under section 168(5) of the IA 1986 for an order that the disclaimer be set aside on the grounds that it had the effect of terminating, as regards future liabilities of the company, a guarantee given by a third party. Under the law as it stood before the IA 1986 came into force, a disclaimer required an order of the court, and the practice of the court had been to refuse the order if the effect would be to release a guarantor of the company’s liabilities.

27. The application was refused, but no objection was taken to the landlord’s standing. In my judgment, the parties and the judge were right in that case to proceed on the basis that the landlord had standing. Disclaimer is a procedure uniquely available in a liquidation. It involves the exercise by the liquidator of a power which is specific to his position as liquidator, and which directly affects the landlord. The liquidator’s decision to disclaim is incapable of challenge by the landlord save under section 168(5) of the IA 1986. In the absence of clear words to contrary effect, Parliament cannot be taken to have conferred such a power on a liquidator without providing some means for the landlord to challenge it. The landlord is properly regarded as a person “aggrieved by an act or decision of the liquidator”.

28. In Mahomed v Morris, Peter Gibson LJ noted at para 24 that In re Hans Place Ltd was the only authority cited to the court where a person who was not a creditor or a contributory had been allowed to apply under section 168(5) of the IA 1986. Having stated that it cannot have been the intention of Parliament that any outsider to the liquidation dissatisfied with some act or decision of the liquidator could challenge it under “the special procedure” of section 168(5), Peter Gibson LJ continued at para 26, in terms which I would endorse:

“However, I would accept that someone, like the landlord in In Re Hans Place Ltd …, who is directly affected by the exercise of a power given specifically to liquidators, and who would not otherwise have any right to challenge the exercise of that power, can utilise section 168(5). It may be that other persons can properly bring themselves within the subsection.”

29. Another case where a third party was held to have standing was Woodbridge v Smith [2004] BPIR 247. The applicant’s husband had been made bankrupt, and she intended to apply for the annulment of his bankruptcy. To that end, she paid all his creditors and she was further required to pay the trustee’s fees and expenses. She applied under section 303(1) of the IA 1986 to challenge the trustee’s remuneration. Registrar Baister held that she had standing to do so. In my judgment, this decision was right. As in Engel v Peri and In re Hans Place Ltd, the application concerned a matter which was unique to a bankruptcy or liquidation and was made by a person with a legitimate interest in making it.

30. The third case was In re Cook [1999] BPIR 881. In response to a demand by HMRC for production of pre-bankruptcy documents protected by legal professional privilege, the trustee waived the bankrupt’s privilege. The solicitor holding the documents challenged the trustee’s authority to waive the bankrupt’s privilege. Stanley Burnton QC, sitting as a deputy judge of the High Court, held that the solicitor had standing to raise the issue in an application under section 303(1), as being a person who came “at the extremity of the class of persons who may be ‘dissatisfied’”: p 883. Although the issue might have been raised in interpleader proceedings, with the bankrupt, the trustee and HMRC as respondents, I think the judge was right to say that the solicitor could raise it under section 303(1). The question of the trustee’s authority, if any, to waive the bankrupt’s privilege concerned the extent of a trustee’s statutory powers and was therefore an issue peculiar to bankruptcy. The Court of Appeal has since held that a trustee has no such authority: Shlosberg v Avonwick Holdings Ltd [2017] Ch 210.

31. The very limited circumstances in which applicants have been held to have standing under section 303(1) of the IA 1986 and its predecessors reflect the position before the mid-19 th century reforms. Although there was no statutory basis for challenge before the enactment of section 20 of the Bankruptcy Act 1869 in terms very similar to section 303(1), bankruptcy law and practice allowed for challenge by the bankrupt. The position was summarised in Griffith and Holmes: The Law and Practice of Bankruptcy Vol II (1867) at p.938:

“In the Court of Bankruptcy [the bankrupt] may petition in all matters relating to his bankruptcy, in which he has a direct interest: as, for instance, to annul the fiat…, to enlarge the time for his surrender…, or, in respect of the allowance …, or of the surplus of his estate…”

32. The “direct interests” of the bankrupt mentioned in that passage all arose specifically in the bankruptcy process. The entitlement to a surplus is self-explanatory. As to the rest: the reference to annulment of the fiat was to annulment of the bankruptcy; “surrender” referred to the bankrupt’s attendance at court for examination, a process which conferred certain privileges on the bankrupt from arrest by other creditors; and the “allowance” was an amount which the court or the creditors could permit the bankrupt to draw from the estate for living expenses.

33. There is no support in the contemporary Parliamentary records for thinking that section 20 of the Bankruptcy Act 1869 was intended to introduce a broader regime. Indeed, it would appear that the language of section 20 was based on the evidence given on 13 May 1864 by Edward Holroyd, a Commissioner in Bankruptcy, to the Parliamentary Select Committee appointed to consider further bankruptcy legislation. When asked about the role of the court, he said: “The interference of the Court under a bankruptcy, is generally at the instance of the assignees, or creditors, or the bankrupt, or it may be of some other party who is aggrieved by the bankruptcy, and who invokes the aid of the Court” (para 1710). I am grateful to counsel for the appellant for their research into the state of bankruptcy law and practice as it existed before the enactment of the mid-19 th century Bankruptcy Acts.'

[20] In Woodbridge v Smith [2004] BPIR 247 Ch D, in respect to an application as to the TIB’s remuneration, Registrar Baister held (correctly, held Lord Richards in Brake v The Cheddington Court Estate Ltd [2023] UKSC 29; [2023] BPIR 1272) that the bankrupt’s wife had standing to apply under section 303 of the Insolvency Act 1986. This was because, she was a person who was either:

(a) contemplating, or seeking, to make an annulment application or,

(b) with a substantial interest in the bankruptcy because of her interest in the matrimonial home - as to which, there was a real possibility of the TIB would apply to sell the matrimonial home - in the event of his remuneration was not paid otherwise out of the bankrupt estate