When a person is made bankrupt a trustee in bankruptcy is often appointed.  Legislation, however, allows the bankrupt to keep some of his assets.   The trustee cannot literally take the shirt from the bankrupt’s back, nor, amongst other exceptions can he take tools of the bankrupt’s trade.[1]  As you may imagine, this can lead to some interesting arguments about what does and does not form part of the bankrupt’s estate.

This was highlighted in a recent decision of the Court of Appeal[2] that will be of interest to anyone involved in hire purchase. In that case it was decided that the benefit of a hire purchase agreement does form part of the assets which are managed by a trustee in bankruptcy.  The court disagreed with the bankrupt’s assertion that the benefit was a tool of his trade and that it should therefore be exempt.


Mr Mikki was made bankrupt in June 2010.  At the time, he had a car which was being supplied to him by a finance company on hire purchase.  When he was made bankrupt, the finance company terminated the HP agreement and requested the return of the vehicle from the Official Receiver (the trustee in bankruptcy having not yet been appointed).  As an alternative, the finance company offered to sell the vehicle to the Official Receiver. When the Official Receiver did not take up the offer, Mr Mikki offered to buy it himself (having raised the money from family and friends).  However, in order to do this he required the Official Receiver’s approval.  The Official Receiver did not authorise the purchase because he considered that there was equity in the vehicle, which he wished to claim for the benefit of the bankrupt’s estate.

The Official Receiver therefore allowed the finance company to exercise its rights under the HP agreement to recover and sell the vehicle.  This left a surplus, which the finance company paid to the trustee in bankruptcy.

Two years later, Mr Mikki claimed that the car was a tool necessary for his trade or business and so fell within the legislative exemption.  If this were the case it meant that rights in the vehicle did not fall to the trustee.


Mr Mikki was unsuccessful in his argument. The legislation exists to help bankrupts continue to earn a living.  Mr Mikki had no legal ownership of the car itself and the legislation does not extend to the non-physical asset that was the benefit of the HP agreement. The Court of Appeal concluded that the benefit of a hire purchase agreement should only remain with the bankrupt in very narrow circumstances.  There was no justification in widening the extent of the exemption. The trustee could not be criticised for claiming the benefit of the “equity” in the vehicle for the bankrupt’s estate.


This decision provides practical guidance for trustees in bankruptcy who must deal with exemption claims for equipment bought on finance which has equity in it.  It also provides further confirmation of the correct test when reviewing how a trustee has exercised its discretion.


[1] Section 283(2)(a) of the Insolvency Act 1986

[2] Mikki v Duncan [2016] EWCA Civ 1312

For further information please contact Credit, finance and leasing solicitor Joshua Howells on  0121 234 0104 or email joshua.howells@gateleyplc.com 

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.