Bankruptcy orders are relatively rare. Having never exceeded 10,000 per year before 1990, they exceeded 100,000 in 2009, and have only occasionally dipped beneath that figure. Even at those numbers, in recent years they approximate to 26 people per 10,000, or about a quarter of one percent. However they will inevitably rise as an economic consequence of COVID-19 and its various lockdowns.

So whether a practitioner has had to deal with a bankrupt personal injury claimant or not in his or her career to date, we will all almost certainly have to address the issue at some time in the future.

The good news is that the issue is reasonably straightforward to address and manage.

However, it is vitally important that solicitors ask a new claimant client whether they are bankrupt, and if not, ensure that in the event that they are declared bankrupt thereafter, they communicate this immediately.

Consequences of a Claimant’s Bankruptcy on Litigation

When considering the various heads of abuse under which a court can strike a claim out for abuse of process under CPR 3.4(2)(b), most practitioners’ eyes will have passed over Pickthall v Dickinson LLP [2009] EWCA Civ 543. In that case, a claim brought by an undischarged bankrupt was struck out as an abuse of process given that his cause of action had vested in the trustee in bankruptcy.

This is further to section 306 of the Insolvency Act 1986. On the appointment of the trustee in bankruptcy, the bankrupt’s estate vests in the trustee. That estate includes property, which is defined by section 436 of that Act to include “things in action”, namely a claim or a right to claim.

The bankruptcy order, and subsequent appointment of the trustee (which will usually happen within 12 weeks of the bankruptcy, the date on which the official receiver will become trustee absent an appointment or creditors’ meeting) will either happen before or after the issue of a claim. This can have important consequences.

Do All Claims Vest in the Trustee in Bankruptcy?

No.

In Heath v Tang [1993] 3 All ER 694 the Court of Appeal noted that the property which vests in the trustee includes “things in action”, but despite the breadth of this definition there are certain causes of action personal to the bankrupt which do not vest in his trustee. These include cases where “the damages are to be estimated by immediate reference to pain felt by the bankrupt in respect of his body, mind, or character, and without immediate reference to his rights of property”.

This was restated in Ord v Upton [2000] Ch 352. In Ord, the claim was a negligence action for personal injury, including special damages, and the issue was whether the existence of the special damages claim took the case out of the exception, meaning that it vested in the trustee, or remained wholly within the exception, or could be severed so that the general damages claim remained with the bankrupt but the special damages claim vested in the trustee. The Court of Appeal held that that was a single, indivisible action and therefore it either all remained with the bankrupt (if it was PSLA alone) or all vested in the trustee (if there was any claim for special damages). The Court of Appeal held that the action vested in the trustee and to fall within the exception a claim must relate only to a cause of action personal to the bankrupt, adding “All causes of action which seek to recover property vest in the trustee whether or not they contain other heads of damage to which the bankrupt is entitled.”

In the personal injury and disease context, therefore, if the claim is for personal injury (and general damages for PSLA) alone, then it does not vest in the trustee in bankruptcy under section 306. However if there is any claim for special damages (even minimal travel expenses), then the entire claim (including the PSLA component) vests in the trustee in bankruptcy.

All general damages recovered, however, will be held on trust for the claimant. Special damages, meanwhile, will be for the benefit of his or her creditors.

Practical Considerations

Given that the right to claim (if not issued), or the claim (if issued), either does or does not vest in the trustee in bankruptcy on his or her appointment, this leads to a matrix of considerations for next steps.

If the claim is not yet issued:

  1. Consider whether there are any material special damages.
  2. If there aren’t, then the sensible thing to do will be to waive the right for special damages, and claim PSLA alone. That claim remains vested in the claimant, and he can issue in his own name.
  3. If there are, and they can’t properly be waived, then the right to claim will vest in the trustee. Liaison with the trustee will be necessary. Does he or she wish to be the claimant? If not, then they should assign the right to the claim to the claimant. The claimant then issues, but has to plead his right to claim further to the assignment.
  4. If the claimant issues without that assignment, then the defendant should apply to strike the claim out as an abuse of process under CPR 3.4(2)(b).

If the claim is already issued at the time of the trustee’s appointment:

  1. Consider whether there are any special damages at all. This might be the case in a minor RTA without treatment, loss of income, care or travel. It might be the case in an NIHL claim without advanced aiding.
  2. If there aren’t, then the claim can continue in the claimant’s name. It has not vested in the trustee in bankruptcy.
  3. However if even a pound is claimed by way of special damages, then the entire claim vested in the trustee on his or her appointment. Although there is no decided authority on the point, it would be unwise simply to surrender the right to a modest claim for special damages (in an attempt to maintain the right to claim without assignment) because the vesting event would already have taken place. Simply put, it would be too late.
  4. That said, assuming the claimant instructs his solicitor about the bankruptcy order, and before the appointment of the trustee, a decision could be made in that brief window to waive the right to special damages, reducing the claim to one for PSLA alone, which would remain vested in the claimant at the moment of appointment of the trustee. This would have to be done in an unequivocal fashion.
  5. If there is a claim for special damages, then the entire claim is vested in the trustee, and the same steps as at 3 above are required: does the trustee wish to be substituted as claimant? He or she probably will wish to be claimant in a large claim, given the entitlement of the creditors to those special damages, such that there will be an interest in controlling the litigation. If not, the claim needs to be assigned to the claimant, and an application made to amend the claim form and particulars of claim to rely on the right to claim further to the assignment.
  6. Again, if the claimant does not take these steps, then the defendant should apply to strike the claim out as an abuse of process.
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