In my personal life, I don’t recall ever meeting someone who had given property to family members via a declaration of trust, yet when I’m appointed trustee in bankruptcy at the request of disgruntled creditors, it’s more likely than not that trust deeds have been entered into.
For those not familiar with this kind of arrangement, an individual enters into a deed by which they give the beneficial interest in land and/or buildings to a specific beneficiary, or beneficiaries, but remain on the title at the Land Registry as titleholder. Anyone looking at the Land Registry, unaware of the trust deed, would presume the registered titleholder is the owner of the value of the property.
Unsurprisingly creditors don’t like learning about trust deeds in a bankruptcy as they reduce the value of assets available for realisation and distribution.
The frequency with which these scenarios come across my desk is also unsurprising. A creditor in a bankruptcy would only go to the lengths of requesting the appointment of a specific insolvency practitioner (rather than leaving the Official Receiver in office) where they felt the situation required the attention of someone with relevant specialist experience and/or when there is a suspicion that the creditors have been prejudiced by certain actions.
I’m not suggesting that every bankruptcy with a trust deed is suspicious, but the facts speak for themselves. During my career I have come across a number of cases where such documents have been produced and challenged, and there are many, many judgements made in the UK courts where trust deeds have been successfully challenged for a whole variety of reasons.
With a duty to recover all assets to the benefit of creditors and perhaps appointed to investigate a specific transaction, the trustee in bankruptcy cannot simply take at face value a declaration of trust which appears to give away a valuable asset. Instead the insolvency practitioner will test the veracity of the documents, gather detailed accompanying explanations and, importantly, look for contemporaneous evidence that records the events at the time they took place. This is a painstaking process where an eye for the most minute detail can make all the difference. I once had a case that turned in my favour on a benign, automatically generated footer which appeared on a printed document. I’ve heard of other cases where a judge found the font of the document, and the fact that it wasn’t in regular use when the document was allegedly created, to be compelling evidence in favour of one party.
Once the investigation is completed, the findings are referred to solicitors for advice on whether there are grounds to challenge the documents. The precise detail of any challenge will depend upon the specific circumstances of the case and will usually rely on precedent created by many past judgements.
If the solicitor agrees that there are grounds for a challenge, the merry dance of litigation commences, usually with a letter before action sent to the beneficiary of the trust deed. In a perfect world a response is received immediately, agreeing with all the excellent analysis of the trustee in bankruptcy and their solicitors. More likely however, is an enraged reply refuting all claims with a threat of adverse costs.
Eventually, if the evidence supports the claim, a successful conclusion will be reached either by settlement out of court or by the judge’s findings, and an element of the property value will become available for distribution to creditors. It is not a straightforward exercise and nor is it cheap. There is no way of accurately knowing the likely costs at the start, but the practitioner should always set out the potential benefit and risk to creditors before commencing.
My experience in forensic accounting and contentious insolvency leaves me well positioned to assist disgruntled creditors where a deed of trust is said to have transferred value out of the bankrupt’s estate.