Sue Spencer examines the circumstances in which the sale of a bankrupt's home may be postponed

The timing of the sale of a bankrupt's family home is relatively familiar territory, which was revisited by Stuart Isaacs QC sitting as a deputy High Court judge in Donohoe v Ingram [2006] EWHC 282 (Ch), [2006] All ER (D) 132 (Jan).


The starting point for these matters is in Re Holliday [1981] 1 Ch 405. H and W separated. W commenced ancillary relief proceedings, and on the same day H petitioned for his own bankruptcy. On that day, his liabilities did indeed exceed his assets, though that may not have been his main reason for the petition. The Court of Appeal found that the petition was not an abuse of court; that the court could deal with the question of sale under section 30 of the Law of Property Act 1925; and that the existence of minor children was a factor, but not a decisive one, in deciding the competing interests of family and creditors.


Having weighed up the competing interests, the appeal court ordered the sale, but postponed it until 1985 when the second of the three children would reach 17 years of age (the oldest would then be 20 and the third would be 12).


The tide rolled back for families in the next major decision - Re Citro [1991] Ch 143. This case involved two brothers who were bankrupt, and their respective wives and children. Somewhat in line with Holliday, this decision postponed the sale in each case until the youngest child reached 16 years, on the basis that there was inadequate equity in the wives' half-share to allow them to rehouse themselves and the children. The matter again proceeded under section 30 of the Act. On appeal, Lord Justice Nourse said the usual position would be for the rights of the creditors to prevail; only in exceptional circumstances would the rights of the wife prevail. Homelessness for these wives and children was not an 'exceptional circumstance', but rather part of the 'melancholy consequences of debt and improvidence with which every civilised society has been familiar'.


Holliday was distinguished on the basis that the arithmetic of that case showed that the creditors would not suffer undue hardship by being made to wait, whereas in Citro they would have suffered hardship. The result of these decisions has been that only in cases where either the bankrupt or his spouse was seriously or terminally ill have postponements been ordered.


Matters remained in that state for many years, until the issue was once again before the Chancery Division in 2004 in the matter of Barca v Mears [2004] EWHC 2170, [2004] All ER (D) 153 (Sep), [2005] 2 FLR 1, when the effect of the incorporation of the European Convention on Human Rights in particular needed to be considered. This time the matter proceeded under section 14 of the Trusts of Land and Appointment of Trustees Act 1996 and section 335A of the Insolvency Act 1986, which provides at section 335A(3) that where the application for sale is made after the end of a year from first vesting, 'unless the circumstances of the case are exceptional... the interests of the bankrupt's creditors outweigh all other considerations'.


In Barca, the home was in the sole name of the bankrupt. He asserted two exceptional matters: the so far undetermined interest of his former partner, and the special educational needs of their son, who spent time living with him in the home, and whose education would be disrupted if this could no longer occur.


Deputy Registrar Agnello refused to proceed with a determination of the interest (if any) of the former partner, and also found that the child's difficulties were not 'exceptional' as set out in section 335A. Therefore, the sale should not be postponed.


This was upheld on appeal. Nicholas Strauss QC found that article 8 of the European convention might well require a change to the test under section 335A(3) - if the 'usual melancholy consequences' of bankruptcy were in fact destructive of family life, then it would not be right to say that they could not be relied on, simply because they were 'usual' and not 'exceptional' consequences. To place so narrow an interpretation on the word 'exceptional' might well offend against the rights enshrined in article 8. In Barca, this issue remained academic, as, on the facts, the creditors' interests would still have prevailed.


The recent case of Donohoe also considered the article 8 point. Dismissing an appeal from District Judge Bazley-White, Stuart Isaacs QC made it clear that on the facts in Donohoe, 'even if a wider interpretation of exceptional circumstances is required, the district judge's conclusion that there were no exceptional circumstances is... correct'.


The essential facts were that the applicant cohabitee had four children aged at the time of trial ten, eight, six and four. She sought postponement until the youngest was 16 in 2017 because of problems of rehousing and loss of family support network if she had to move. At neither first instance nor on appeal were these found to be exceptional, even taking a broader approach to 'exceptional' that might possibly be required by article 8 (1). Article 8 is not an absolute right, but is (at 8(2)) subject to the necessity of interference by a public authority in the interests of a democratic society.


The judge made it clear that he regarded Holliday with some caution. One aspect of that case - which is constantly referred to - is that on the arithmetic, the creditors could not be said to suffer hardship if the sale was postponed as sought by the wife. That situation has not existed in any of the subsequent cases mentioned above. The decision to postpone during the minority of the middle child in the case of Holliday cannot be relied on in isolation from the arithmetic of the situation in any future case.


It appears that those seeking postponements, even with article 8 in their armouries, still have a difficult task ahead in persuading the court that family distress and upheaval is 'exceptional' within a possibly broadened section 335A(3).


District Judge Sue Spencer sits at Leeds Combined Court Centre