Mental capacity and the duty of trustees to realise funds for creditors

Riccardo Eerenstein (the bankrupt) was made bankrupt in September 2019. Joint trustees were subsequently appointed.

The bankrupt objected to his trustees trying to sell his property. In the course of proceedings, the bankrupt, a litigant in person, expressed concerns that his trustees would sell the property for less than its true value.  He suggested that if it had to be sold, he should have conduct of the sale. On multiple occasions the court raised concerns about the bankrupt’s capacity to conduct proceedings but found that a mental capacity assessment was unnecessary. In February 2023, the bankrupt made a disclosure application. The application was stayed pending service of a report regarding the bankrupt’s capacity.  

The judge directed that a copy of the order, which confirmed that a report was needed to decide on the bankrupt’s capacity, should be provided to a medical practitioner. However, the standard form of “Certificate as to capacity to conduct proceedings” was not used. Unable to obtain a medical report, the bankrupt appealed the order on the basis that: (i) the direction for a medical assessment was not in the correct form; and (ii) that it was unfair and unjust for his trustees to sell his property when his disclosure application has been stayed.

The appeal was allowed in part. The order was not sufficient to enable a medical practitioner to carry out a capacity assessment. The period of the assessment was, however, limited to the period after February 2023, not from 2019 as the bankrupt had sought (as the court had previously been satisfied that the bankrupt had capacity to conduct proceedings). The court confirmed that the trustees had an obligation to realise the bankrupt's assets, including the property, for the benefit of his creditors; the sale had to proceed. If unsatisfied, the bankrupt could make a complaint and seek appropriate remedies for the estate and himself. There were no grounds for further action by the trustees. 

The case is a reminder that where capacity to conduct proceedings is in question, the correct evidence must be obtained and provided to the court. Further, it confirms the precedence of a trustee’s duty to realise assets for the benefit of creditors.

Eerenstein v Wood [2023] 6 WLUK 193

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