The Singapore Law Gazette

A Last Resort Legal Option for a Trustee in Bankruptcy?

Applying to Court to Sell a Private Property Co-owned by a Bankrupt

This article discusses the legal basis for a Trustee in Bankruptcy (TIB)¹ See section 2 of the Bankruptcy Act, where “trustee” in relation to a bankruptcy and a bankrupt means the trustee of the bankrupt’s estate. to apply to Court for a forced-sale order of a private property that is co-owned by a bankrupt, where the other co-owners are unable, or refuse, to buy out the bankrupt’s interest in the property, and also refuse to sell the property in the open market. The TIB’s application would be in the exercise of his right as owner of the bankrupt’s interest in the property, which has been vested in the TIB.² See section 76(1)(a) and 78(2) of the Bankruptcy Act. See also section 110(1) of the Land Titles Act which states that the OA claiming land under a bankruptcy order against a proprietor may make an application for the transmission of the land so claimed to become registered as proprietor.

Vesting of Bankrupt’s Immovable Property in the Trustee in Bankruptcy

Where a bankrupt’s private property is held in his sole name or as a tenant-in-common with another person, his beneficial interest in the property passes to the TIB. Where a bankrupt’s private property is held in joint tenancy with another person, it is trite law that the joint tenancy is severed automatically by the bankruptcy, and converted into a tenancy-in-common.³“it has always been understood that a joint tenant’s interest in land will vest in the Official Assignee on the bankruptcy of the joint tenant, which would in turn result in severance of the joint tenancy.” – Peter Low LLC v Higgins, Danial Patrick (2018) SGHC 59, at (137). See also Malayan Banking Bhd v Focal Finance Ltd (1998) SGHC 402 at (16). The TIB has the power to deal with a bankrupt’s property, whether to sell all or any part of it, by tender, public auction, or private contract under the Bankruptcy Act (BA).⁴ See section 111(a) of the Bankruptcy Act (Cap 20, 2009 Rev Ed). This is for the purpose of the TIB realising the property for the benefit of the bankrupt’s creditors.

However, the BA is silent on whether the TIB can sell an entire property which is jointly owned or owned as tenants-in-common by a bankrupt and one or more solvent co-owners, in the open market. If the TIB were to sell a private property which is held by a bankrupt and one or more solvent co-owners, the TIB would, in doing so, be selling the property of non-bankrupts. Where there is no agreement by the solvent co-owners to the sale of the private property, the TIB has the option of “force-selling” the entire property by seeking an order for its sale from the Court on the basis that it is necessary or expedient to do so.⁵ See section 18(2) of the Supreme Court of Judicature Act read with paragraph 2 of the 1^st Schedule. However, there are no reported cases in Singapore where a TIB had instituted legal proceedings to seek an order for sale of a bankrupt’s private property. One possible reason for this is that there is a high proportion of bankrupts with Housing and Development Board (HDB) flats, which are generally protected assets that do not vest in the TIB.⁶ See section 51(5) of the Housing and Development Act. See also Re Ng Lai Wat; Official Assignee v Housing and Development Board (1996) 2 SLR(R) 261, which extends the protection to the sale proceeds of HDB flats. Another possibility is that TIBs may take a conservative approach in bringing such applications before the Courts, and a suitable case has not been found to litigate this issue.

Court May Order the Sale of a Property if it is Necessary or Expedient to Do So

There are numerous reported cases involving a co-owner successfully seeking an order of sale of a property which is jointly owned or owned as tenants-in-common in Singapore. However, there is hardly any local case-law on TIBs bringing applications before the Courts in Singapore, in contrast with a relative wealth of case-law regarding such applications in other jurisdictions like Hong Kong,⁷ See Official Receiver, The Trustee of the Property of Lau Yuet Ming Daisy (A Discharged Bankrupt) v Lau Yuet Ming Daisy and Another (2014) HKCFI 1289 the United Kingdom,⁸ See Barca v Mears (2004) EWHC 2170 (Ch) and Australia⁹ See Official Receiver v Tregaskis (2006) FMCA 1915 under their respective legislation.

The recent Court of Appeal (CA) decision of Su Emmanuel v Emmanuel Priya Ethel Anne and another¹⁰ (2016) SGCA 30.would be the highest local authority relevant to bankruptcy cases.¹¹ It should be highlighted that none of the parties in this case was a bankrupt or a TIB, though Priya, one of the co-owners of the property, was facing bankruptcy proceedings.

In this case, an Housing and Urban Development Company privatised apartment was held by a married couple, Philip and Su, and Philip’s sister, Priya, as tenants-in-common, in the shares of 1 per cent, 50 per cent, and 49 per cent respectively. Priya applied to Court to sell the apartment in the open market as she was facing bankruptcy proceedings. Su resisted Priya’s forced-sale action on the basis that a clause in the sale and purchase agreement signed by Priya (for the purpose of adding her as a tenant-in-common) prohibited her from evicting Su or her children from the apartment.

The CA held that the apartment could be sold based on the following:

1. the relationship between the parties had broken down, preventing them from cooperating in future;

2. the relationship between the parties would deteriorate further if a sale was not granted;

3. Priya would face disproportionate prejudice if she were to be adjudged a bankrupt than Su would face by being evicted from the apartment, especially since Su had an avenue of financial support through her children and would be able to seek alternative accommodation; and

4. the clause in the sale and purchase agreement signed by Priya did not constitute a prior agreement concerning the matter in which the land may be disposed of, especially since it concerned the occupation of the land, which should be distinguished from its sale.

In arriving at its decision, the CA examined a host of local authorities that dealt with the issue of forced-sale, and distilled the following points:¹² See Su Emmanuel v Emmanuel Priya Ethel Anne and another (2016) SGCA 30 at (57).

1. In deciding whether it is necessary or expedient for a sale to be ordered in lieu of partition, the Court conducts a balancing exercise of various factors, including (i) the state of the relationship between the parties (which would be indicative of whether they are likely to be able to co-operate in the future); (ii) the state of the property; and (iii) the prospect of the relationship between the parties deteriorating if a sale was not granted, such that a “clean-break” would be preferable.

2. Regard should be had to the potential prejudice that the various co-owners might face in each of the possible scenarios, namely, if a sale is granted and if it is not granted.

3. A sale would not generally be ordered if to do so would violate a prior agreement between the co-owners concerning the manner in which the land may be disposed of.

Notably, the CA highlighted that “if no order for sale was made and Priya were to be adjudged a bankrupt, it would likely be the Official Assignee who would be seeking an order for the sale of the Property in order to meet the claims of Priya’s creditors”.¹³Ibid at (74). This observation by the CA suggests that a TIB may apply to Court to force-sell private properties which are co-owned by bankrupts, if the circumstances justify it.

The Trustee in Bankruptcy’s Position

The TIB has to realise “all the bankrupt’s estate or so much of it as can [be realised]” under section 119(1) of the BA.

Where the bankrupt owns a private property with others, the TIB may lodge a caveat¹⁴ See section 111 read with 115(1) of the Land Titles Act. Where the OA is entitled to take possession of land of a proprietor under a bankruptcy order, he may lodge a caveat. against it and may propose to the other co-owners (if any) and the creditors that the bankrupt’s interest be sold to them,¹⁵ Since creditors have an interest in the bankrupt’s assets, there is a possibility that one or more creditor(s), may be interested in buying over the bankrupt’s share in the property, especially if the creditor is related to the bankrupt. To exhaust all avenues in liquidating the bankrupt’s share in the property, and for the purpose of securing the highest possible offer, the TIB will also write to the creditors. This scenario would be more applicable to personal creditors (e.g. a relative) rather than institutional creditors (e.g. a bank). and request for reasonable offers in this regard. The TIB may also ask the bankrupt to look for potential buyers.

In addition, the TIB may negotiate with the bankrupt to downgrade to a HDB flat, so that he and his family will continue to have a place to stay, should the TIB proceed to sell the private property. The rationale for allowing the downgrade (which means that some of the sale proceeds from the private property will be used to purchase the HDB flat) is to ensure that the basic domestic needs of the bankrupt and his family are met.¹⁶ See section 78(2) with 82(1)(b) of the Bankruptcy Act. It should also be reiterated that HDB flats (including the sale proceeds) are generally protected assets that do not vest in the TIB. In order to negotiate with the TIB to try and avoid the sale of the private property, the bankrupt may, with the help of a third party, propose paying the TIB a sum that is equivalent to the market value of the private property, for the TIB’s consideration.

It is often the case, however, that the co-owners of the bankrupt’s private property either do not wish, or may not have sufficient funds, to buy over the bankrupt’s interest in it, and do not wish to sell the property in the open market. In these situations, the bankrupt’s interest in the property cannot be realised.

Possible Approach: TIB May Consider Seeking an Order for Sale of a Bankrupt’s Private Property Against the Wishes of Other Co-owners, if Other Options are Not Viable

For the purpose of making a complete distribution of a private property that is co-owned by a bankrupt, an option available to the TIB is to apply to the High Court for directions in the bankruptcy and seek the Court’s decision on a question of the disposal of the bankrupt’s interest in that private property.¹⁷ See sections 31(3) and 6(1) of the Bankruptcy Act. As part of the direction sought and the question posed to the Court, the TIB may seek an order to compel the sale of the property in the open market in which the bankrupt holds an interest, on the ground that it is necessary or expedient that an order for the sale be made.¹⁸ See section 18(2) of the Supreme Court of Judicature Act read with paragraph 2 of the 1^st Schedule.

In administering bankruptcy cases involving private property, the TIB could consider taking the following steps:

Prior to making the Court application, the TIB can first ask the solvent co-owner(s) whether they have any objection to the sale of the private property, or wish to buy over the bankrupt’s share of the property for a reasonable sum. If they agree, then the TIB can proceed to sell the private property in the open market immediately, or transfer (other than by way of sale) the bankrupt’s share of the property to the co-owner(s) for cash consideration. If they object (or do not respond within a given deadline), then the TIB could, as a last resort, consider whether it would be worth taking this matter to the Court to seek an order for the sale of the private property, and if so, give the co-owners advance notice before doing so. In general, it would be preferable for the TIB to only proceed with such an application if the bankrupt’s creditors are agreeable to this course of action, and if there are sufficient funds in the bankrupt’s estate (to secure the TIB’s potential liability for costs).¹⁹ In the case of Singapore Telecommunications Ltd v Official Assignee (2001) 2 SLR(R) 525, the High Court held that the Official Assignee was obliged to pay the party-and-party costs to the defendants amounting to $201,119.46, even though there was an undertaking as to costs given by a third party to the Official Assignee. If the estate has insufficient funds, one option is for the TIB to seek funding from the bankrupt’s creditors or a third party to place an adequate amount in the way of cash or a banker’s guarantee, to fully secure the payment of party-and-party costs by the TIB in the event that the application is dismissed and the TIB is required to pay costs.²⁰ As a last resort, the Official Assignee (though not a private TIB) may pay such costs out of the Insolvency Assistance Fund under section 165(3)(b) of the Bankruptcy Act.

A major obstacle that the TIB has to overcome is that force-selling the bankrupt’s private property may actually result in a negative sale. This situation arises if the resale price of the private property is insufficient to settle the outstanding mortgage loan and/or the Central Provident Fund (CPF) moneys utilised by the co-owners for the purchase of the private property together with the accrued interest, which all have to be refunded, thereby resulting in a shortfall in the event of a sale. If this were the case after the TIB has meticulously done its calculations, it will be pointless proceeding with the application for a forced-sale order as nothing can be realised for the bankrupt’s estate, and the TIB might even be out-of-pocket as a consequence. Supposing there is no shortfall after deducting the outstanding mortgage loan and CPF refunds, other costs may eat into the net sale proceeds, which the TIB should bear in mind in its calculations, including the valuation fees, property agent’s commission, conveyancing legal fees, seller stamp duty (if applicable), outstanding property tax and maintenance fees (if any), and the legal costs of taking up a forced-sale application.

There are also practical challenges in marketing the private property and ascertaining the actual amount that the TIB can realise from it for the benefit of the bankrupt’s creditors. Apart from sourcing and obtaining a valuation report of the private property through realtors and other evidence with regards to its value, the TIB will have to seek the cooperation of the co-owners in retrieving their CPF Property Statements, and liaise with the appropriate bank(s) in obtaining the latest mortgage loan information. The lack of cooperation on the part of the co-owners (ie, due to their refusal to sell the private property), CPF Board and banks (ie, due to confidentiality reasons) may prove to be difficult hurdles to cross. The TIB will also have to search for potential buyers and ensure that offers are close to the valuation price. All these actions will involve costs, so the TIB will have to assess whether pursuing this route is practicable in the first place, balancing the resources required, with the probability and extent of the benefits which could be obtained for the creditors.

Assuming the TIB has managed to overcome all the above challenges, and decides to apply to Court for a forced-sale order, then, depending on the facts of the case, the TIB may highlight that as long as the bankrupt and co-owners do not sell the property, the creditors will not be able to use any part of it to satisfy their debts. The TIB will have to convince the Court that he has made best efforts in trying to realise this asset, and in view of this deadlock, argue that the creditors will suffer prejudice as the property cannot be liquidated for the benefit of the estate, and that the creditors’ interests need to be protected.

Possible issues which the other solvent co-owner(s) may raise include:

1. that the solvent co-owner will suffer prejudice as he and his family will be evicted,²¹ See Chiam Heng Luan v Chiam Heng Hsien and others (2007) 4 SLR(R) 305 at (97), where the Court highlighted, “This was not a case of a wife being evicted from her matrimonial home or an elderly person who may be put to great disadvantage if asked to leave his home.” and they will face considerable inconvenience and hardship as a result;²² See Wong Kim Wan (alias Wong Loretta) v Leong Ong Meng Jerome Matthew and another (2010) SGHC 318 at (14), where the Court observed, “What is clear is that there will be no hardship or injustice to any of the owners of the property if the property is sold.”

2. that the solvent co-owner is unable to secure alternative accommodation for himself and his family, due to the high property prices in Singapore;

3. that the solvent co-owner has a sentimental attachment to the private property;

4. that the solvent co-owner is unable to find a buyer for the bankrupt’s interest in the private property and is unable or unwilling to buy out the bankrupt’s interest; and

5. that the bankrupt represents a minority share in the private property, and hence, the solvent co-owner(s) should have a greater say than the bankrupt or TIB in how they wish to deal with the property.²³ See Abdul Razak Valibhoy and another v Abdul Rahim Valibhoy and others (1995) SGCA 27 at (19), where the CA dismissed the appeal in favour of the respondents, stating, “It was clear that so long as there was no consensus reached as to a partition, the respondents, who owned 75 percent of the land, would not be able to deal with the land in any way.”

Possible issues which the TIB may raise are:

1. Inconvenience and hardship caused to co-owners in the event of a sale of the property, and families being evicted from the property, were not good enough reasons not to order a sale of the property in previous cases,²⁴ See Abu Bakar v Jawahir and others (1993) 1 SLR(R) 865 and Su Emmanuel v Emmanuel Priya Ethel Anne and another, supra. particularly when weighed against the prejudice which would be caused to the requesting party if the property were not sold. Moreover, the Hong Kong²⁵ See Official Receiver, The Trustee of the Property of Lau Yuet Ming Daisy (A Discharged Bankrupt) v Lau Yuet Ming Daisy and Another (2014) HKCFI 1289 at (13), where the Court held, “In these circumstances, while the prospect of being evicted from their home will no doubt be very unwelcome and cause some difficulty, I am not satisfied that there is such great hardship as to justify a refusal of an order for sale. The interests of the creditors of Madam Lau cannot be ignored. They are, prima facie, entitled to be paid out of what can be realised from Madam Lau’s assets, and these include her interests in the property.” and United Kingdom²⁶ See In re Citro (Domenico) (A Bankrupt) (1991) Ch 142 at (157D), where the Court held that being evicted from one’s home is simply one of the “melancholy consequences of debt and improvidence with which every civilized society has been familiar”. Courts have held that the interests of creditors outweigh the prospect of the bankrupt and the solvent spouse being evicted from their matrimonial home. In this regard, the TIB’s case would probably be stronger if the bankrupt owned more than one property, so that he still has one property to stay in, after the forced-sale.

2. The TIB cannot deal with the bankrupt’s property in any other way if a sale in the open market is not ordered. By realising the property in the open market, all the co-owners would benefit from the liquidation of their investment, and be able to redeploy their share of the proceeds to the purchase of other properties.

3. Sentimental attachment is not a good reason to prevent the Court from ordering a sale of a property.²⁷ See Abdul Razak Valibhoy and another v Abdul Rahim Valibhoy and others (1995) SGCA 27 at (19), where the CA stated that this “bordered on luxury”.

4. While it appears that the Courts may take into account the proportionate aggregate shares in the property represented by the persons who are seeking its sale in the open market versus those who are against its sale,²⁸ See Chiam Heng Luan v Chiam Heng Hsien and others (2007) 4 SLR(R) 305. percentage shareholding in itself is not conclusive in determining whether a sale should be ordered.

Alternative Approach: TIB May Disclaim a Bankrupt’s Private Property

On the other hand, the TIB may consider disclaiming the bankrupt’s private property. To do so, the TIB will have to separately show that the property is burdened with onerous covenants, or that it is unsaleable or not readily saleable by reason of its binding the possessor thereof to the performance of any onerous act or to the payment of any sum of money.²⁹ See section 110 (1)(a) and (d) of the Bankruptcy Act. These prerequisites would not be satisfied by the mere fact that a solvent co-owner is unwilling to sell the property. A disclaimer effectively terminates the rights and liabilities of the bankrupt and his property.³⁰ See section 110(2)(a) of the Bankruptcy Act. See also In re Finley; Ex parte Clothworkers’ Co (1888) 21 QBD 475 at (485), where the English Court of Appeal stated, “Now the operation of those clauses in the simple case of a lease is not very difficult to ascertain. If there is nothing more than a lease, and the lessee becomes bankrupt, the disclaimer determines his interest in the lease under subsection (2). He gets rid of all his liabilities, and he loses all his rights by virtue of the disclaimer…” It should be highlighted that a disclaimer does not re-vest the property in the bankrupt, and the property will continue to vest in the TIB even after the bankrupt is discharged.³¹ See Lim Lye Hiang v Official Assignee (2011) SGCA 56 Unless an interested person has made an application in writing to the TIB enquiring on disclaiming the property,³² See section 110(6) of the Bankruptcy Act. the TIB merely has to sign in writing that he wishes to disclaim the property at any time.³³ See section 110(1) of the Bankruptcy Act. Note that section 110(4) is silent on whether it applies to freehold properties. However, the TIB’s decision to disclaim the property may still be subject to review by the Court on application by the bankrupt’s dissatisfied creditor(s) or any other person who want it liquidated, ³⁴ See section 31(1) of the Bankruptcy Act. especially since private properties are usually valuable assets. Moreover, if the bankrupt holds a lease over the private property, the TIB will have to either seek the consent of all interested persons to the disclaimer, or apply for the leave of the Court in order to disclaim the lease.³⁵ See section 110(4) of the Bankruptcy Act.

Conclusion

It appears that it is possible for a TIB to seek an order for the sale of a bankrupt’s private property through the Courts, though this should be as a last resort,³⁶ This is because even if there is a good prospect of the TIB succeeding in getting such an order, depending on the circumstances of each case, the Court may dismiss the TIB’s application, and costs may be awarded against the TIB. if the co-owners are unable or refuse to buy out a bankrupt’s interest in a private property or sell the property in the open market.³⁷ Creditors may assist the TIB in its decision by gathering as much information as they can in respect of the bankrupt’s private property, and raising the necessary funds to ensure that the TIB’s potential liability to pay the party-and-party costs is secured. However, the TIB would have to embark on a rigorous exercise in calculating how much moneys can be realised for the bankrupt’s estate and obtaining the necessary information from the relevant parties, prior to opting for this course of action, in order to ascertain whether it would indeed benefit the creditors of the bankrupt’s estate and whether this solution is justifiable in terms of the resources which would need to be expended on it.

Lawyers acting for a co-owner under such circumstances should advise their client to buy over the bankrupt’s interest in the property, or find a third party to do so, if possible, and as soon as possible. Otherwise, the client risks losing the entire property through the forced-sale mechanism in Court, and may incur further legal costs for resisting the application, if the TIB succeeds in getting such an order.