Legal Principles and Key Points
- In the case of Barca v Mears  E.W.H.C. 2170, it was held that in the general run of bankruptcy cases, the general interests of creditors would outweigh. However, it was open to the court to find that, on the facts of a particular case, to consider it an exceptional case in which an order for possession or sale could be withheld for substantial periods of time.
Facts of the Case
- C was declared bankrupt on 9th August 1995. D was appointed C’s trustee in bankruptcy with effect from 9th December 2003.
- Due to the valuations on C’s property, there was a substantial surplus available for C’s creditors if the property was sold.
- On 8th December 2003, D applied for a declaration that they had an absolute beneficial interest in the property and an order for possession and sale.
- The main ground on which C resisted the order was that such an order would disrupt the education of his son, who had special educational needs.
- His son had improved in his difficulties due to C’s assistance and C argued that his being made homeless would curtail this progress. C argued that this constituted exceptional circumstances in which the order could be withheld.
- C argued that the court had failed to take into account his or his son’s right to family life and that the Insolvency Act 1986 was ‘particularly brutal’ in this area.
- Did the potential disruption to C’s son’s special education needs constitute exceptional circumstances, thereby justifying an order to take possession when his son’s education was completed.
Held by the High Court (Chancery Division)
- Finding for D, that the special education needs of C’s son could not be considered extreme. The case was distinguished from Re Citro  as C’s son would not have to leave his school if C lost the property.
- While it was questionable whether the narrow reading of the 1986 Act was compatible with the European Convention of Human Rights, the current case still favoured D on a more generous interpretation.
Mr Strauss Q.C.
- Under the 1986 Act, the court must assume that the interests of the bankrupt’s creditors outweigh all other considerations unless the case circumstances are exceptional. While disruptions to school and eviction ‘are the melancholy consequences of debt and improvidence,’ they cannot be considered exceptional.
- The only cases in which possession orders have been withheld for substantial periods involved the bankrupt or their spouse being terminally or very seriously ill. This is unsurprising as Re Citro  indicated that the circumstances would have to be highly unusual to be exceptional.
- Whether the narrow approach to exceptional circumstances adopted in Re Citro  is compatible with the Convention is questionable. It requires the court to adopt an almost universal rule which prefers the property rights of the bankrupt’s creditors over the personal rights of the bankrupt’s family members. Such rights are fundamentally different and require more careful consideration.
- “It seems to me that a shift in emphasis in the interpretation of the statute may be necessary to achieve compatibility with the Convention. There is nothing in the wording of section 335A, or the corresponding wording of sections 336 and 337, to require an interpretation which excludes from the ambit of ‘exceptional circumstances’ cases in which the consequences of the bankruptcy are of the usual kind, but exceptionally severe” .