English Court of Appeal finds bankruptcy trustees are not required to act in the interests of creditors at all costs

The Court of Appeal has recently referred to established case law that the court will only interfere with the act of an officeholder “if he has done something so utterly unreasonable and absurd that no reasonable man would have done it”.

While the judge in the lower court had not made any error of law, on the facts there were identifiable flaws in the judge's reasoning that the trustees' decision not to join in the proceedings was perverse. 

The judge had failed to recognise that:  

• the trustees are experienced professionals who have a statutory discretion as to what steps they should take
• it is not the trustees’ duty to act in the interests of the creditors at all costs
• it was unlikely that this claim would result in any benefit to the bankruptcy estates, and hence to the creditors
• the trustees were right to be concerned about their exposure to costs and their independence being compromised. 

Key takeaways

This is a reassuring decision for officeholders and affirms the courts' reluctance to interfere with officeholders' statutory discretion to decide what actions will benefit creditors of insolvent estates.  Readers from outside of the UK, where the courts and creditors routinely intervene to direct insolvency officeholders, may be surprised at the amount of discretion the UK system gives officeholders.  

Find out more 

To discuss the issues raised in this article in more detail, please contact a member of our Restructuring & insolvency team.

Patley Wood Farm LLP and others v Kicks and another [2023] EWCA Civ 901 (28 July 2023).

Also featuring in this month's update:

• English court considers directors' "creditor duty" in context of failed tax avoidance scheme
  Louise Jennings and Isy Moisy examines one of the first court decisions to consider the Supreme Court's landmark decision in BTI v Sequana in deciding when the directors' duty to creditors arises.
• Favourable changes on the horizon for debtors in the Czech Republic
  David Volek and Thomas Rechberger review a proposed amendment to the Insolvency Act currently under discussion in the Czech Parliament which is expected to significantly alleviate the situation for debtors seeking debt relief.
• Requirement to substantiate German debtor's illiquidity remains high 
  Dr Rembert Graf Kerssenbrock reviews a recent decision of the District Court of Hamburg on the requirements to substantiate a “third-party application” for the insolvency of the debtor on grounds of illiquidity.

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