Tools of the Trade

A consideration of the Court of Appeal’s recent bankruptcy decision concerning whether a bankrupt was entitled to claim the benefit of a car hire purchase agreement as a “tool of his trade”.


A bankrupt may claim the benefit of section 283(2) of the Insolvency Act 1986 (the Act) in respect of a car used as a tool of his trade (such that it does not vest in the trustee); a hire purchase agreement on a car does not fall within the scope of section 283(2).


The Bankrupt, a photographer specialising in wedding photography, was declared bankrupt in June 2010. At the time of the bankruptcy order the Bankrupt was acquiring a BMW car by way of hire-purchase. The finance company terminated the agreement; the car was subsequently sold in February 2011. Following the sale of the car, the finance company returned a surplus of £2,652 to the Trustee, the outstanding liabilities under the contract having been paid in full. Subsequently, in 2013 (after the car had been sold), the Bankrupt asserted that the car was a tool a necessary tool of his trade as defined within section 283(2) of the Act 1986.

The Bankrupt asserted that the Trustee could have invoked section 308 of the Act, thereby allowing him to purchase a replacement vehicle. In allowing the finance company to sell the car, the Bankrupt argued, he had been wrongly deprived of a vehicle crucial to his business. At first instance, the Deputy District Judge decided the question in the Trustee’s favour. Permission to appeal was granted by Lewison LJ.

The decision on appeal

The court found that the contract would vest in the Trustee, the Bankrupt having no right of property in the vehicle itself.

The court concluded that what does and does not vest must depend on the true interpretation of the statute within the framework of the Act as a whole and the personal insolvency scheme.

There were three possible outcomes:

  1. The literal wording is applicable. A bankrupt is not entitled to the benefit of the contract because it is not a tool of his trade. The trustee has the benefit of the contract, and the finance company can prove for any debt arising pursuant to the contract.
  2. The benefit of the contract remains with the bankrupt as a tool of the trade; the finance company can, however, prove for any shortfall.
  3. Neither the benefit not the burden of the contract vests in the estate. The benefit of the contract vests in the bankrupt, and the burdens of it also remain with the bankrupt.

The first option was considered to work clearly within the Act and personal insolvency scheme. If there is no equity in the car, the finance company can repossess it, and the Trustee has not valuable interest at all. If there is equity in the car, the trustee can seek possession and work with the finance company to realise it. If there is a shortfall, then the company can prove; if there is a surplus (as there was in this case) it is returned to the trustee, having benefit of the contract.

Accordingly, the benefit of the hire purchase contract vested in the Trustee; the Trustee could not be criticised for seeking to realise it, and could have been open to criticism if he had not taken steps to realise it.

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