This case started like any other ordinary bankruptcy. The debtor was made bankrupt on 28.09.11 and the trustees were appointed on 18.01.12. At the date of the bankruptcy, the debtor was the sole registered proprietor of a portfolio of properties that were used for student-lettings. There were no restrictions on the title indicating that the titles might be held on trust.
On 30.08.12 an application was made for the registration of 13 freehold titles to properties, of which the debtor was the sole registered proprietor, to be registered in the Trustees’ names (“the Properties”).
One of the mortgagees brought possession proceedings in November 2012 and there was no mention in those proceedings that anyone, other than the debtor and now the Trustees, might have an interest in the properties.
By an application dated 17.04.13 in his son’s bankruptcy proceedings, Mr Thandi sought, amongst other things:
- a declaration that he had a 100% beneficial interest in the Properties pursuant to a Deed of Trust dated 08.08.03;
- transfer of the Properties into his name, pursuant to his right to demand the same of a bare trustee;
- damages for breach of trust arising from the registration of the legal title into the Trustees’ names.
At this point, many insolvency practitioners will be unsurprised by a deed of trust or similar being relied upon as grounds for preventing distribution of the debtor’s assets to his creditors.
However, what may be unusual, is that the deed in this case was apparently witnessed by a solicitor, who had acted on the remortgage of some of the portfolio in 2003.
Ordinarily, at this stage most Trustees would accept the validity of the deed. However, in this case, there were a number of factual inconsistencies and the Trustees had to defend the claim for the breach of trust, in any event. Accordingly, the Trustees opposed the application and put Mr Thandi to proof that he was the sole beneficiary. They also counterclaimed for a declaration that if the deed of trust were held to be valid it should be set aside as a transaction at undervalue under s.423 of the Insolvency Act 1986.
Notably the Trustees refused, despite Mr Thandi’s insistence, to be put to an election between their apparently inconsistent cases: that is, whether the deed was invalid or genuine but open to challenge?
Prior to the application, the only documents which Mr Thandi had proffered were the deed, his will from 2005 and some his son’s tax returns (in which he declared the rental income).
The Trustees’ solicitors arranged to interview the solicitor who had allegedly witnesses the deed of trust and to inspect his file. His answers and the supporting documentation were unsatisfactory.
Disclosure had been late, piecemeal and did not present a complete explanation for the acquisition of, and dealings with, the portfolio.
They argued at trial that their investigations of the debtor’s assets was akin to shining a torch in a darkened room: the light beam might fall on assets if it was pointed in the right direction, but otherwise they would remain in the dark. The true extent of his assets was within the debtor’s knowledge and it was always within the debtor’s power to turn the light on for them. Why should they have to make such an election based on the limited information that the debtor (and his family) were prepared to disclose? Most of the 3,500 pages in the trial bundle had been disclosed by the Trustees.
At a 4-day trial in Birmingham High Court, Mr Thandi, the debtor, his sister and the solicitor were put through a thorough and structured cross-examination and presented with numerous inconsistencies in the documentation. The solicitor was also recalled by the judge to give further evidence after his original conveyancing file was produced for the Court.
In a reserved judgment, HHJ Cooke held that the deed had not been executed in 2003 as Mr Thandi claimed, but that even if it had been, he would have held it to be sham. HHJ Cooke had made a number of findings of dishonesty against both the applicant and the debtor. The application was duly dismissed.
For further information, please refer to the judgment in Thandi v Sands  EWHC 2378.