In Re Scherzade Khilji (in bankruptcy) the court provided useful guidance on when the three-year "use it or lose it" limitation period to realise a bankrupt’s primary place of residence (provided by section 283A of the Insolvency Act 1986) commences.
This case concerns the property interests of Ms Scherzade Khilji (Ms Khilji), who was declared bankrupt on 2 July 2018. Her trustee in bankruptcy was appointed on 7 August 2018 (the trustee).
Section 283A of the Insolvency Act 1986 (the act) provides the trustee with a three-year limitation period in which to take any necessary action in realising or securing Ms Khilji’s interest in her primary place of residence. Where a trustee fails to take the required action within the three-year limitation period, the interest will automatically re-vest in the bankrupt and will no longer form part of the bankrupt’s estate.
Ms Khilji’s husband had been the sole legal owner of the property which was their family home at 49 Slough Lane, London NW9 8YB (the property) until he died intestate on 23 August 2014. The property formed part of his estate on his death.
On 12 April 2019, the administrator of Mr Khilji’s estate issued proceedings for the possession of the property, to which Ms Khilji and the trustee were respondents (the claim).
In her defence and counterclaim dated 6 September 2019, Ms Khilji claimed a beneficial interest in the property arising under a common intention constructive trust. This was the first time she had argued any interest in the property, contrary to the information previously provided to her trustee (further details below). The hearing of the claim took place on 10 December 2021, and, at the hearing, Ms Khilji sought to argue that her beneficial interest in the property had revested in her pursuant to s.283A of the act, since the three-year "use it or lose it" period for her trustee to realise her interest in the property, beginning with the date of her bankruptcy, had lapsed.
Consequently, the trustee issued an application in the bankruptcy proceedings which, among other matters, sought to determine whether Ms Khilji’s beneficial interest in the property had revested in her, as she sought to argue in the claim (the application). In considering the application, the court provided useful guidance to trustees in bankruptcy as to what interests would fall within s.283A(1) of the act and, therefore, begin the three-year "use it or lose it" period.
Interests in the property
During her interview with the Official Receiver on 28 September 2018, Ms Khilji provided information which, she subsequently argued, should have informed the trustee of her interest in the property or at least make the trustee aware of such an interest. The relevant information considered by the court was as follows:
- There was an ongoing dispute in relation to her husband’s estate, which included the property
- The mortgage was in her husband’s sole name
- Mr Khilji had purchased the property and she made contributions to the mortgage after he had died, but notably
- She did not consider herself to have been a joint owner of the property
The court also considered whether Ms Khilji’s occupational right under the Family Law Act 1996 (which was registered on the title to the property) was sufficient to begin the three-year limitation period under s.283A of the act.
The court's decision
The court did not accept that Ms Khilji’s matrimonial home rights and interest in her husband’s unadministered estate were "interests" vesting in her trustee pursuant to s.283A of the act: at the date of the bankruptcy order, these did not provide Ms Khilji with a legal or beneficial interest in the property as required by s.283A of the act. The court also rejected the notion that Ms Khilji’s mortgage contributions created an "interest" pursuant to s.283A, since she had specifically stated she did not consider herself to be a joint owner of the property.
In reaching these conclusions, the court held that the three-year limitation period under s.283A of the act started to run no earlier than 6 September 2019, the date of Ms Khilji’s defence and counterclaim in which she first claimed an interest in the property. The trustee had, therefore, a period of three years from the date of Ms Khilji’s defence and counterclaim to bring an application to realise the property pursuant to section 283A of the act.
David Steinberg, restructuring and insolvency partner at Stevens & Bolton, commented: “This case provides some comfort to trustees who will be relieved to learn that where a bankrupt fails to disclose their interest in a property, the ‘use it or lose it’ limitation period will not start to run. It will be difficult for bankrupts to argue that they have informed trustees of the existence of such an interest, or at least caused them to have become aware of such an interest, by simply providing some, but all, of the details”