A recent High Court decision has provided important clarification on two increasingly significant issues for insolvency practitioners and property lawyers: whether digital communications – specifically WhatsApp messages – can satisfy the statutory requirement for a signed disposition of an interest in land, and how far the courts may go in postponing the sale of a bankrupt’s home where hardship is claimed.

The judgment offers valuable guidance for trustees in bankruptcy, insolvency practitioners and legal advisers navigating the interaction between modern digital communications and long-established property and insolvency law principles.

The issues before the High Court

The appeal concerned two related but distinct questions:

1. The trustees’ appeal against an order of the Insolvency and Companies Court deferring vacant possession and sale of a former matrimonial home for more than eight years, based on a finding of “exceptional circumstances” under section 335A of the Insolvency Act 1986; and
2. The cross-appeal by the bankrupts’ former wife, who argued that the trustees had no interest in the property because the bankrupt had already transferred his beneficial interest to her prior to bankruptcy via WhatsApp and email correspondence. 

WhatsApp Messages and Section 53(1) LPA 1925

Was there an immediate disposition of the beneficial interest?

The cross-appeal required the Court to consider whether informal digital communications exchanged in 2018 amounted to an immediate transfer of the bankrupt’s beneficial interest in the property.

Mr Justice Cawson rejected this argument. The communications, viewed objectively, did not demonstrate a clear and unequivocal intention to effect an immediate disposal of the interest. Instead, they formed part of ongoing discussions within the context of divorce proceedings, where both parties anticipated that solicitors would formalise matters at a later stage. As such, they lacked the certainty required to dispose of an interest in land.

Did the WhatsApp messages satisfy the requirements for a “signed writing”?

Although not strictly necessary to determine the outcome, the Court went on to address whether the WhatsApp messages complied with section 53(1) of the Law of Property Act 1925.

While it was accepted that WhatsApp messages and emails constitute “writing”, the Court drew an important distinction between the two when it comes to signatures. An email footer or typed name can, in principle, demonstrate the necessary intention to authenticate the document. By contrast, a WhatsApp header – automatically generated by the platform and often dependent on how a recipient has saved a contact – is not consciously applied by the sender.

The Court held that such headers are incidental to the message rather than part of it and generally lack the deliberate, authenticating intent required to amount to a legal signature for disposing of an interest in land.

Exceptional circumstances and Section 335A IA 1986

The trustees also appealed the earlier decision to postpone sale of the property until 2032. Under section 335A (3) of the Insolvency Act 1986, once a year has passed since the trustee’s interest vested, the interests of creditors are presumed to outweigh all other considerations unless exceptional circumstances are shown.

Where exceptional circumstances present?

The High Court agreed that this was not an ordinary case. Two factors, taken together, justified a finding of exceptional circumstances:

• Procedural delay in the Family Court, which meant that a property adjustment order was not made before the bankruptcy petition was presented. This delay resulted in an unexpected benefit – or “windfall” – to creditors, which the Court considered relevant; and
• Evidence of health-related issues affecting those living at the property, placing the case beyond the usual hardship that accompanies bankruptcy.

The limits of judicial discretion

However, the Court made clear that a finding of exceptional circumstances does not give the court free rein. Mr Justice Cawson concluded that the Deputy Judge’s decision to defer vacant possession for over eight years was plainly wrong.

In exercising discretion under section 335A (2), the court must remain faithful to the statutory purpose of bankruptcy: the realisation of assets to pay creditors and meet the costs and expenses of the estate. A deferment of such length was, in practical terms, close to an indefinite suspension and unfairly prejudiced creditors.

The High Court therefore substituted a significantly shorter deferment, ordering vacant possession by 31 July 2027. This provided a reasonable period for the former wife to secure alternative accommodation, while properly reflecting creditors’ rights.

Key takeaways for practitioners

• Digital communications – Informal messages, particularly via WhatsApp, are unlikely to effect a transfer of beneficial interest in land where they lack clear intention or a consciously applied signature.
• Section 53 (1) LPA 1925 – A system-generated WhatsApp header will not normally amount to a valid signature for the disposal of an interest in land.
• Exceptional circumstances – Procedural delays in other courts and resulting creditor windfalls may contribute to a finding of exceptionality, but such findings remain fact-specific.
• Deferment is not indefinite – Even where exceptional circumstances exist, lengthy postponements that effectively deny creditors access to assets will not be justified.

Insolvency litigation funding options

Litigation funding, the assignment of claims and/or ATE insurance can play a pivotal role in assisting insolvency practitioners (IPs) in meeting their obligations. Insolvency practitioners involved in insolvency litigation can make use of the following funding methods:

After-the-event (ATE) legal insurance – ATE insurance is generally used to protect from adverse costs risk & Security for Costs requirements. After-the-event (ATE) legal expenses insurance is perhaps best thought as similar to a ‘swap’. For either no upfront fee or a small upfront fee, the insurer takes on all of the risk of the potential adverse costs award. The claimant has swapped their obligation to pay the defendants in the event of a loss, with the obligation to pay the insurer in the event of a win.

This ‘swap’ is generally an attractive swap as the client is likely to be in a better financial position following a win than following a loss. Also, the payment to the insurer will only be a percentage of the adverse costs rather than the whole amount.

Third party litigation funding – In some cases, third party litigation funders may be willing to provide funding for an insolvency dispute claim in exchange for a percentage of any financial settlement or damages awarded. This option can be attractive for individuals who cannot afford to pay for legal fees themselves but have a strong case. ATE insurance is often used in conjunction with this type of funding.

Assignment of litigation – Some types of disputes can be assigned to a third party, usually for an upfront payment and a share of recoveries (after costs). This model can be useful on smaller cases when the ATE and CFA model would not deliver value. But giving up control can sometimes be costly, especially on larger disputes. Working with a broker can be an effective way to understand the options and evaluate the best course of action, as well as providing the insolvency with a written record of the process undertaken.

How can Annecto Legal assist?

Disputes arising in insolvency and bankruptcy possession proceedings can be costly and procedurally challenging. Annecto Legal regularly assists licensed practitioners and liquidators who are involved in the administration or liquidation of a company, as well as trustees in bankruptcy.

We assist a wide range of clients in finding the appropriate insolvency litigation funding, assignment options and after-the-event (ATE) insurance. We ensure you meet your professional obligations in a cost-effective manner and provide written reports to place on file.

If you are in the process of pursuing or defending an insolvency dispute and want to find out whether we can assist in helping you fulfil your obligations and secure the right deal, then contact Annecto Legal.