High Court describes the decision of trustees in bankruptcy as “perverse”
In this case the trustees in bankruptcy of two related individuals Nihal Mohamed Kamel Brake and Andrew Young Brake, were directed by the High Court to intervene in ongoing proceedings to seek possession of a property. In the circumstances, where there would have been a benefit to creditors, and funding and indemnities had been offered for the trustees’ costs, their decision not to intervene was criticised as “perverse” by HHJ Paul Matthews who in his judgment commented:
“The problem for the respondent trustees in this case is that I have held that their decision to continue to resist intervention in the Cottage Eviction Proceedings was perverse, in the sense that no reasonable trustee in bankruptcy would have done so. I have also held that in so acting they did not act in the interests of the creditors but instead sought to be neutral as between the creditors and the bankrupts. In addition, I also impliedly criticised the trustees for lacking the ordinary robustness needed for officeholders.”
The challenge to the trustees’ decision to not intervene in the proceedings relating to the sale of a property was made under section 303 Insolvency Act 1986 by the majority creditors in the bankruptcies and the purported purchaser. The applicants challenged the trustees’ decision on the basis of their duty to act in the best interests of creditors and maximise returns for the bankruptcy estates. In response, the trustees insisted that the cost of intervening would not benefit creditors, because the property was subject to a charging order and therefore would be of no value to the bankruptcy estates.
For the Court to intervene in the decision to not seek possession of the property, the decision had to be “perverse”; that is, so utterly unreasonable and absurd that no reasonable trustee would have taken it in accordance with the decision of (Bramston v Hunt  1 WLR 1720).
On the facts, the Court held that the circumstances of the case met that test.
The trustees had been offered funding and indemnities for intervening, the Court of Appeal had made encouraging comments as to intervention, and there was a clear opportunity to monetise the property to benefit the bankruptcy estates.
The decision may provide some relief for office holders as it sets a high threshold for challenging decisions. The court will tolerate mistakes in decision-making by trustees, except when they are repeatedly based on improper considerations.
The full judgment can be accessed here.