Landmark High Court Decision on the effect of disclaimer in Bankruptcy

I have been acting as Trustee in Bankruptcy in a case which has now proceeded to an important reported High Court decision concerning the operation of the disclaimer provisions in insolvency legislation in the case of jointly owned leasehold property.

At the time of the bankruptcy order, the Bankrupt was a joint tenant of business premises in Kingston upon Thames. The joint tenants held the property under the terms of an underlease which did not expire until more than 8 years after the date of the bankruptcy order.

I was appointed Trustee and served a notice of disclaimer by which I disclaimed my interest in the underlease. Whilst this was effective in ensuring that I had no personal liability arising from the underlease, I took the view, on advice from Counsel and supported by the landlords, that the disclaimer did not end the legal estate in the underlease and that the estate of the Bankrupt remained liable for the payment of rent until the expiry of the term.

The Bankrupt’s husband, claiming to be a creditor, contended that the disclaimer was effective to disclaim all of the Bankrupt’s interest in the underlease and that the estate of the Bankrupt was liable for no further rent after the disclaimer. We were not able through correspondence to resolve the issue, so I sought the directions of the Court.

On 7 July 2016 judgment was handed down in the County Court in which the arguments advanced by me were accepted. The Bankrupt’s husband appealed to the High Court.

The appeal hearing took place on 7 March 2017 and judgment was handed down in the High Court on 20 April 2017. The appeal was dismissed, with the judge again preferring the submissions made on my behalf, holding that the legal interest in the underlease remains and rent continues to be payable to the landlords.

This is, perhaps surprisingly, the first High Court decision on this question, and its importance both for landlords and for joint tenants is clear.

The full High Court judgment is available here – http://www.bailii.org/ew/cases/EWHC/Ch/2017/605.html