Court refuses to approve appointment of capital to an undischarged bankrupt

29th July 2021

Hope Crawshay died on 3 November 2010 leaving behind her four children: Sarah, Simon, Deena and John. By her Will dated 24 May 1999, she left the residue of her estate into four equal shares. One each for Sarah, Simon and Deena, and one upon a discretionary trust for the benefit of a class consisting of John, his children and remoter issue.

In the last years of her life, Mrs Crawshay had been in partnership with her son, John, in a property development business. Unfortunately, however, the affairs of the partnership had not been settled on her death and the executors of her estate and John proceeded to litigation. On 30 September 2019, by judgment of HHJ Matthews, John was ordered to pay the executors the sum of £391,417.51 plus costs to be assessed. As a result of this, John was declared bankrupt in May 2020.

John was to be discharged from bankruptcy on 15 May 2021. Eight days before this date, the trustees of the discretionary trust under Mrs Crawshay’s Will sought the court’s approval to make an appointment of capital to John. John submitted that he did not want to receive this distribution, as any funds transferred to him before 15 May 2021 would vest in his trustees in bankruptcy, who would then use the money to part-settle his debts, including those owed to his mother’s estate. He would receive no benefit from the distribution. The day before the hearing, John, therefore, executed a deed disclaiming his interest under the discretionary trust.

At the hearing, the court refused to approve the distribution of funds from the discretionary trust to John on the grounds that the proceedings had not been properly constituted. Despite having an interest under the trust, John’s children and remoter issue, who were also potential beneficiaries, had not been joined to the proceedings. Nevertheless, the court still considered the merits of the application.

The court concluded that the proposed distribution to John would only pay a small fraction of his debts and in any event would benefit Mrs Crawshay’s estate, rather than John. If there was no appointment, the funds would still be available to benefit John’s children and remoter issue. The court, therefore, concluded that the proposed distribution was not within the scope of the trustees’ powers as it would not benefit an intended beneficiary. Accordingly, it would be a fraud on a power for the trustees to make this appointment. Further, the court also concluded that despite John having known about his interest for around a decade, he was still entitled to disclaim it for he had not accepted or relied on it in any way.

This case serves as a warning for trustees or executors where there are bankrupt beneficiaries involved. Professional advice should always be obtained in order to ensure that executor/trustee duties, responsibilities and powers are being dealt with properly in these circumstances.

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