Court confirms “actual knowledge” standard

In Khilji v Mehers [2025], the Court confirmed that time only begins running on a trustee in bankruptcy’s three year “period of action” to realise an asset when the trustee has actual knowledge that the asset falls within the bankrupt estate.

The factual background to this case was that Ms Khilji received the beneficial interest in a property held on constructive trust. 

Upon Ms Khilji’s bankruptcy in 2018, any interest in the property should have fallen into the bankrupt estate and been subject to the trustee in bankruptcy’s authority to manage and dispose of the interest. However, as the property was held on trust for Ms Khilji, the trustee didn't become aware of the existence of the interest until 2022, at which point the trustee made a claim for possession of the property. 

Ms Khilji argued that as more than three years had passed since the date of the bankruptcy without the trustee taking any action in relation to the property, the effect of s.283A(2) of the Insolvency Act 1986 was that the interest in the property had revested in Ms Khilji and no longer formed part of the bankrupt estate.

In response, the trustee argued that under s.283A(5), Ms Khilji had been required to inform the trustee of her interest in the property within three months of the date of the bankruptcy, and had failed to do so. And that as such, the three-year period for action did not start to run until the date on which the trustee became aware of the interest.

Ms Khilji submitted that her interest in the property was readily discoverable, having been raised in legal proceedings in 2019 regarding the administration of her late husband’s estate. She therefore argued that the trustee should be deemed to have constructive knowledge of the interest from the date of those proceedings.

The Court held that Ms Khilji’s arguments were not compatible with the wording of s283A(5) and that, on the section’s proper construction, whether a trustee in bankruptcy had become aware of the bankrupt's interest in an asset was a question of the trustee's actual subjective knowledge, not what they could have known had they made reasonable enquiries.

The Court therefore held that the interest in the property fell within the bankrupt estate.

Khilji v Mehers | [2025] EWHC 548 (Ch).

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