Court grants bankrupt permission to appeal against the Official receiver in a case of intermeddling due to inadequate disclosure
In the case of Walker v The Official Receiver (as trustee in bankruptcy of Martin Walker)  EWHC 2868 (Ch), a bankrupt ("Bankrupt") brought an application for compensation from the Official Receiver on the basis that land which had formed part of his estate and, vested in the trustee in bankruptcy, had been negligently sold by the Official Receiver at an undervalue. However, because of a failure by the Official Receiver to disclose key documents at an early stage (in particular, the original bankruptcy file), the application was advanced on mistaken grounds due to an incorrect analysis of the true legal position. At the court of first instance, neither of the parties nor the District Judge comprehended the correct legal analysis and the District Judge decided in favour of the Official Receiver. The Bankrupt then appealed the decision on the grounds that the District Judge had misdirected herself and failed to adequately deal with his submission.
At a hearing in the High Court, the appeal judge quickly identified the correct legal analysis and gave the parties permission to file and serve further written submissions. Based on evidence contained in the bankruptcy file, which was only adduced at a very late stage of the initial application, a proper reading of the legal position found that the Bankrupt had held the legal title to the land on trust and only one-third of the beneficial interest had vested in the Official Receiver on bankruptcy. The consequence of this was that the Official Receiver did not have authority to sell the land and had intermeddled with trust property when she purported to do so. Therefore, the Official Receiver was potentially liable to account to the beneficiaries (subject to statutory defences which may be available to her).
Although the Official Receiver sought to prevent the Bankrupt from amending his appeal to incorporate this new evidence, the Court gave the Bankrupt leave to rely on the correct legal analysis in the appeal. It was clear from the facts that the Bankrupt had requested full disclosure for several years, and it was only because of failures of the Official Receiver that the evidence which he now wished to rely on had not come to light sooner. Therefore, it was not open to the Official Receiver to criticise the Bankrupt for not advancing his appeal on the correct analysis until this late stage.
In considering whether the application was likely to produce a benefit to the estate if successful, The Official Receiver argued that the Bankrupt's claim would be for a "modest" sum of £38,000. However, the Court considered that £38,000 remains a significant sum for all but a very small minority of society. On the facts, the "modest" sum would be enough to discharge the unpaid creditors and produce a surplus for the estate. Therefore, the Court concluded that it would be reasonably likely to produce a benefit for the estate.
The case reminds us of the significance of early and full disclosure. It also makes clear that, in certain (albeit limited) circumstances, an appellant may be allowed to rely on an amended legal analysis and not be bound to the mistaken grounds on which its appeal was made. Finally, we can see that the Courts are minded to take seriously any claim that is likely to benefit a bankrupt's estate even where is involves a relatively modest sum.