Case study: defeat for bankrupt barrister as non-contractual fees vest in trustee

Do unpaid non-contractual ad honorarium fees owed to a bankrupt barrister vest in his trustee in bankruptcy?

Yes. The Court of Appeal has found in Gwinnutt v George & Anor (2019) EWCA Civ 656 that non-contractual fees owed to a bankrupt barrister can be considered property under the insolvency rules. Unpaid non-contracutual fees are sums that a barrister has “more than a mere moral claim…and more than just a hope… he would receive them”, therefore, despite their unique non-contractual nature, they should properly be considered property and vest in the trustee.

The Court of Appeal bankruptcy judgment

Lord Justice Newey, sitting at the Court of Appeal, overturned the High Court, and found that a barrister’s non-contractual fees owed to him, should be considered property for the purposes of the Insolvency Rules, and as such vest in the trustee in bankruptcy to utilise to the satisfaction of his debts owed to creditors.

LJ Newey placed weight on the fact that were any other professional to become bankrupt, his or her aged debt would vest in their trustee, and the anomalous nature of non-contractual barristers’ fees (re-enforced in the now overturned High Court case) should not prevent a trustee from taking control of this “property”.

Gwinnutt v George & Anor (2019): The facts

The case concerns the non-contractual fees of Nicholas Frank Raymond George, a barrister at New Walk Chambers. Mr George was declared bankrupt on 21 March 2012 and his trustee in bankruptcy (Simon Matthew Gwinnutt) claimed that anything owed to Mr George when the bankruptcy order was made, vested in him to dispose of his assets under section 306 Insolvency Act 1986.

The trustee in bankruptcy claimed that the barrister received almost £44,000 in professional fees during bankruptcy (which were owed to him before the bankruptcy order) and as such, he ought properly have paid these to the trustee in bankruptcy.

The High Court found in favour of the barrister and stated that if fees arose on a non-contractual basis they do not vest in the trustee to bankruptcy.

The Bankrupt’s estate explained: section 306 Insolvency Act

Lord Justice Newey stated that section 306 of the 1986 Act provides for “[t]he bankrupt’s estate” to “vest in the trustee immediately on his appointment taking effect or, in the case of the official receiver, on his becoming trustee” without any conveyance, assignment or transfer. By section 283(1), subject to exceptions relating to, for example, equipment necessary for the bankrupt’s business and items satisfying basic domestic needs, a “bankrupt’s estate” encompasses “all property belonging to or vested in the bankrupt at the commencement of the bankruptcy”. Section 436 states: “‘property’ includes money, goods, things in action, land and every description of property wherever situated and also obligations and every description of interest, whether present or future or vested or contingent, arising out of, or incidental to, property”.

Non-contractual fees are property pursuant to section 436 Insolvency Act 1986

LJ Newey’s leading judgment at paragraph 29 summarises the decision succinctly:

a barrister’s fees, even when non-contractual, are “property” for the purposes of the 1986 Act and so vest in a trustee in bankruptcy. “Property” is explained in the widest of terms in section 436, but even that “definition” is inclusive rather than comprehensive. The Huggins case illustrates the breadth of “property” and provides an analogy to the present case. It would, moreover, be entirely anomalous if barristers’ fees were not viewed as “property”. Were any other professional to become bankrupt, his aged debt would vest in his trustee, and so should a barrister’s. The statutory objective, reflecting the principle of public policy recognised in Hollinshead v Hazleton, is that “subject to certain specific exceptions, all a debtor’s property capable of realisation should be vested in the trustee for him to realise and distribute the proceeds among the creditors” (in the words of Mummery LJ). Unpaid fees, regardless of whether they are contractual, are capable of realisation. The fact that something can be realised or turned to account does not invariably make it “property”, but it seems to me to point in that direction and, here, the expectation of payment is not founded on mere hope or morality but reflects the unique nature of non-contractual barristers’ fees. As I say, payment of such a fee was not to be regarded as voluntary.

LJ Newey, Gwinnutt v George [2019] EWHC Civ 656 at para 29

Can you challenge the trustee in bankruptcy’s fees / costs?

Yes, a person who has been declared bankrupt has (since 6 April 2010) the right under the Insolvency (Amendment) Rules 2010, specifically Rule 6.207A to apply to challenge the fees received by a trustee in bankruptcy.

What are the trustee in bankruptcy’s costs / fees?

Your assets are likely to be sold to pay the bankruptcy debts. Once a bankruptcy order is made against you then your assets have to be handed over to the person that has been appointed to manage your bankruptcy. This person is known as the trustee in bankruptcy and it will be either the Official Receiver or an insolvency practitioner.

The trustees costs / fees are the charges for the time spent in managing the bankruptcy estate.

The order of priority i.e. the list stating which creditor gets paid out of your assets first, places the trustee top of that list, so they will get paid first.

As specialist bankruptcy Solicitors and Barristers, we can make an application if you instruct us to do so. The Court would then decide (based on the evidence presented) whether to reduce the fees of the trustee in bankruptcy.

Challenge a Trustee’s Fees: Instruct Specialist Bankruptcy Annulment Solicitors

We are a specialist City of London law firm made up of Solicitors & Barristers operating from the only law firm based in the Middle Temple Inns of Courtadjacent to the Royal Courts of Justice. Generally many solicitors are unfamiliar with the Insolvency Rules and the minutiae of the bankruptcy process, we are experts in dealing with matters surrounding individual insolvency.  Our team have unparalleled experience at cancelling bankruptcy orders, liaising with the Official Receiver, providing a solicitor’s undertaking, representing you at any bankruptcy hearing at the Bankruptcy Court, at the Royal Courts of Justice (Rolls Building), or the relevant High Court District Registry or County Court with jurisdiction under the Insolvency Rules.

Our expert Bankruptcy Solicitors & Barristers provide professional and specialist legal advice to guide you to the best legal outcome. Our team of London lawyers are based in Middle Temple adjacent to the Royal Courts of Justice. For your case assessment and for more information about our legal services get in touch using our online form, ☎ 02071830529 or email us on .
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