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Abdulla v Whelan et al [2017] EWHC 605 (Ch)

This appeal from the County Court is the first High Court decision on an important question that relates to the disclaimer provisions in s.315 to 321 of the Insolvency Act 1986 and the position of the landlord where one of two or more joint tenants is declared bankrupt. 

The appellant (a potential third party creditor) argued that the purpose and function of the insolvency regime, as explained in dicta by the House of Lords in Hindcastle Ltd v Barbara Attenborough Associates Ltd [1997] AC 70, would be frustrated if the bankrupt tenant was not allowed to escape all of her obligations under a jointly held lease.  His position was that a disclaimer by the trustee in bankruptcy had the effect of terminating the lease such that no rent was payable by the bankrupt’s estate thereafter.

For the trustee in bankruptcy and the landlord it was argued that as a joint legal estate is by definition held on trust by the tenants for each other the tenancy does not fall into the bankrupt’s estate.  S.283(3)(a) of the Insolvency Act 1986 applied.  It therefore followed that a purported disclaimer of a jointly held lease by the trustee in bankruptcy was void insofar as the legal estate was concerned.  For the landlord in particular it was argued that the appellant’s approach failed to distinguish between the rights and liabilities that flow from the legal estate, as opposed to the beneficial interest. All that could be disclaimed was the bankrupt’s beneficial interest in the lease, if any, and the bankrupt tenant remained personally liable for the rent as he or she was before the bankruptcy and until the expiry of the term. Accordingly, the landlord was entitled to prove in the bankruptcy as a creditor of the bankrupt.

Mr John Male QC, sitting as a judge of the High Court, accepted the trustee’s and the landlord’s arguments and dismissed the appeal.  The importance of this decision for landlords, joint tenants and insolvency practitioners generally is clear – as per the closing words in the judgment: “The legal interest in the Underlease remained, and remains, in the names of the Bankrupt and Mr Elhilali.  Rent continues to be payable to the Landlords.”

Joseph Ollech acted for the landlords, instructed by Roland Pingree of Carter Bells LLP.

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