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Disclaiming A Lease – Abdulla v Whelan [2017]

In a case that addresses the effect of disclaimer provisions of the Insolvency Act where one or more tenants are declared bankrupt, Abdulla v Whelan, provides useful review of what comprises a Bankrupt’s estate and whether items specified in section 283 can be disclaimed.

By way of a background to this judgment:

  • The Bankrupt was a joint tenant of a business premises held under an underlease
  • The Trustee in Bankruptcy served notice disclaiming all interest in the property in accordance with section 315 IA 1986
  • On advice from counsel, the Trustee in Bankruptcy took the view that the disclaimer did not sever the legal estate and as such, the Bankrupt remained liable for the rental payments of the property
  • The Bankrupt’s husband did not accept the Trustee’s view and the Trustee sought directions from the court

In coming to its decision, the court considered both ss283(3)(a) and 315 IA 1986.

Section 283(3)(a) has the effect of excluding from the Bankruptcy estate any property held on trust for any other person. The court stated that as the tenants held the underlease as joint legal owners on trust for themselves, the legal estate was vested in the joint owner and the Bankrupt. As such, the underlease was exempt from the Bankrupt’s estate and remained in the names of the Bankrupt and joint tenant.

By virtue of Section 315(2)(a) a trustee can only disclaim property that is comprised in the Bankrupt’s estate. Accordingly, as the legal title did not vest in the Bankrupt’s estate, it could not be disclaimed. The court stated:

‘A Trustee in Bankruptcy cannot disclaim something which is not in his ownership. Further, and in any event … any step taken in relation to trustee property, such as a disclaimer in relation to the legal estate in the underlease, would need to be taken by the two trustees acting together.’

This case provides a useful confirmation that a trustee cannot disclaim the legal interest in a lease when it is held jointly between the Bankrupt and one or more others.

Posted: 26.07.2017
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