High Court clarifies “exceptional circumstances” in bankruptcy property repossession cases.
The High Court has recently provided clarification of what may be considered “exceptional circumstances” under section 335A of the Insolvency Act 1986 where a possession and sale order is being sought by a trustee in bankruptcy.
The case: Reid-Roberts & Anor v Mei-Lin & Anor [2026] EWHC 49 (Ch)
Section 335A Insolvency Act 1986
It is well established law that after the first year of a bankruptcy order, the interests of the bankrupt’s creditors shall outweigh all other considerations, unless exceptional circumstances apply (s335A(3) IA 1986).
What this means is that a trustee will often only look to take steps to sell or dispose of a bankrupt’s interest in the family home after the first year of the bankruptcy. It is often necessary for a trustee to apply for an order for possession and sale.
Section 335A(1) IA 1986 provides that where a trustee in bankruptcy applies to the Court for an order for the sale of a property, the Court shall have regard to the matters set out in s335A(2). Specifically, section 335A(2)(c), states that the Court is to have regard to all the circumstances of the case other than the needs of the bankrupt.
This was one of the points that was being considered in the recent appeal case.
The Background
The dispute involved the joint trustees in bankruptcy (the Trustees) of Mr Audun Mar Gudmundsson’s estate, his former wife, Ms Hsiao Mei-Lin, and a property in London.
At first instance, the deputy judge held that both Ms Mei-Lin and the Trustees each held 50% beneficial interest in the property. The deputy judge found that there were exceptional circumstances and, pursuant to section 335A(2) of the Insolvency Act 1986, the judge decided to postpone the date for possession and sale until 31 July 2032, some 12 years after the bankruptcy order in February 2020.
This was appealed by the Trustees. There was also a cross-appeal by Ms Mei-Lin in which she argued that she in fact owned the whole of the beneficial interest following a series of WhatsApp messages, during which, she argued, the bankrupt had transferred his beneficial interest in the property to her prior to his bankruptcy. This aspect of the appeal will be considered separately.
The Court’s review of section 335A and the Decision
The Trustees stated that there were no exceptional circumstances to displace the statutory presumption in favour of the creditors, per s335A(3) IA 1986. Accordingly, the Trustees argued that the interests of the creditors outweighed all other considerations, and any postponement of the sale should only be for a short period.
On the point of ‘exceptional circumstances,’ the High Court appellant judge held that exceptional circumstances did exist, noting (as found by the first instance judge):
- The bankrupt’s conduct and the Court’s delay during the family proceedings, which was also in part due to the bankrupt’s conduct, had arguably disadvantaged Ms Mei-Lin’s position in obtaining an earlier property adjustment order that might have otherwise changed her position in the ensuing bankruptcy proceedings.
- The court accepted evidence of Ms Mei-Lin’s mental health, namely that she had suffered mental health issues following the breakdown of the marriage and the bankrupt’s past behaviour.
- Evidence was also accepted that had she been ordered to move from the family home immediately, as sought by the Trustees, this would have deteriorated her mental health further. It was noted that Ms Mei-Lin’s condition was “beyond the everyday emotional strain of eviction” that distinguished her situation from the “run of the mill” hardship. The appellant judge accepted these findings.
- In regard to the welfare of her son, the Court accepted evidence that the son had been diagnosed with various conditions and required stability.
- In particular, the deputy judge accepted that the son’s health and welfare would be meaningfully harmed by an immediate displacement from the home environment. This was a factor that elevated his situation above the “melancholy consequences” of debt that the Court of Appeal described in Re Citro.
It is noted that the Court found there was an interplay with the Bankrupt’s conduct and delay in the underlying family proceedings, which had exacerbated the vulnerabilities of Ms Mei-Lin and her son. Therefore, the Court was satisfied that the combination of personal harm, disruption and culpable behaviour by the bankrupt could, and did, amount to exceptional circumstances in this case.
However, the existence of exceptional circumstances did not, and would be very unlikely to ever, prevent a sale of a property. Rather, the Court’s finding of exceptional circumstances instead, simply, means that a Court can consider whether to grant more time for the possession and sale of a property.
The High Court held that the postponement of some 12 years from the date of the bankruptcy order, was excessive and inconsistent with the generally statutory scheme of the Insolvency Act, which is to enable timely realisation of assets for the benefit of the creditors of the bankrupt.
The High Court judge ordered vacant possession and the commencement of the sale process by 31 July 2027, instead of 2032.
Summary
This decision provides a careful restatement of how s335A’s presumptions operate in line with the Insolvency Act’s overarching aim of realising a bankrupt’s estate within a reasonable timeframe.
It also appears to open the door to allow a court to consider a bankrupt’s pre-bankruptcy conduct (in so far as it is fair to do so and does not involve a challenge to the bankruptcy order itself).
If a Trustee in Bankruptcy is threatening to sell your property, please get in touch with us via email or call us on 020 8305 3610. Our dedicated and experienced insolvency solicitors will be able to consider if “exceptional circumstances” or other options are available to you, which might delay or prevent the sale of your home.