What constitutes property for the purposes of section 436 of the Insolvency Act 1986?

  • Insolvency
  • Personal Bankruptcy

Where an individual is adjudged bankrupt, all his property (subject to certain exceptions) will vest in his Trustee in Bankruptcy immediately upon their appointment pursuant to section 306 of the Insolvency Act 1986 (“the Act”).

“Property” is broadly defined in legislation. Section 436 of the Act defines property as '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'.

Certain items are exempt and will therefore not vest in the Trustee in Bankruptcy.

These exemptions include:

  • Tools of the trade necessary for the bankrupt to trade and/or earn a living;
  • Clothing and bedding which is deemed necessary to satisfy the basic domestic needs of the bankrupt and their family;
  • Property which the bankrupt holds on trust for another (see section 283(3) of the Act);
  • Specific types of statutory tenancies (see section 283(3A) and 308A of the Act).

Gwinnutt (as the First Defendant's Trustee in Bankruptcy) v George and another [2019] EWCA Civ 656

Background

The Respondent barrister, Mr George, was adjudged bankrupt in March 2012. Mr Gwinutt was appointed as his Trustee in Bankruptcy on 24 April 2012. In carrying out his role, the Trustee sought to realise monies owed to the Bankrupt for outstanding fees (in the region of £76,000) for the benefit of creditors, the majority of which were expressly incurred on a non-contractual basis. It was originally held that where a barrister has no contractual right to a fee, this could not amount to property cable of vesting in a Trustee in Bankruptcy because in these circumstances, the barrister has no more than a mere expectation of receipt of payment at some point in the future.

The appellant Trustee in Bankruptcy appealed against this decision.

Decision

The decision was overturned and it was held that payment of an outstanding non-contractual fee was not to be regarded as voluntary. Further, in the usual course of practice, barristers are likely to be paid.

It was therefore held that non-contractual fees constitute property capable of vesting in the Trustee.  This decision furthers the statutory objective, namely, that all of a bankrupt’s property (excluding the exemptions referred to above) should be capable of realisation.

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Article Author

Alice Court

Alice Court

Solicitor