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to scrutinise both the behaviour of the company’s directors in the period leading up to insolvency, and transactions entered into by the company during that period.
In the bankruptcy of an individual, the trustee in bankruptcy performs very similar functions, but also takes on title to all the bankrupt’s assets. Title to the property of a bankrupt automatically transfers from the bankrupt to her trustee in bankruptcy as soon as the bankruptcy order is made, and the trustee then has statutory powers and duties essentially the same to those enjoyed by a liquidator.
An additional complicating factor in both liquidation and bankruptcy is that there is a significant process to be gone through before it can be established who will receive what payments from the estate. Anyone who thinks they may be entitled must first put in a proof of their claim, and it is for the liquidator or trustee in bankruptcy to determine the admissibility and value of each claim. Contingent claims, claims for future debts and claims for as yet unascertained amounts are all allowable (for example, a claim for damages for personal injury where neither liability nor quantum has yet been settled) and the liquidator or trustee in bankruptcy must put a value on each of these (subject to a right of appeal to the court). At the outset, the question of precisely who is a prospective beneficiary, and precisely what their interest might be, is therefore much less clear than it is in the case of an estate of a deceased person.
Given these factors, it is not surprising that the courts have had no difficulty in concluding that neither the creditors nor anyone else has a beneficial interest in the insolvent’s assets pending completion of the liquidation or bankruptcy, as we see from Ayerst v. C&K (Construction) Ltd [1976] AC 167, extracted at www.cambridge.org/propertylaw/.
Notes and Questions 8.2
1Read Commissioner of Stamp Duties v. Livingston [1965] AC 694, either in full or as extracted at www.cambridge.org/propertylaw/, and consider the following:
(1)The court acknowledged that someone in Mrs Coulsdon’s position has a ‘transmissible interest’ in the unadministered estate, in the sense that, if she dies, the right to receive the benefit under the testator’s will will pass to whoever becomes entitled to her property on her death. Similarly, if instead of dying she had become bankrupt when the testator’s estate was still in the course of administration, her right to receive the benefit under the testator’s will would have passed automatically to her trustee in bankruptcy. According to Viscount Radcliffe, what is the nature of this transmissible right that she holds at this point? Is it a property right? If yes, why was it not a ‘beneficial interest in real property in Queensland or . . . beneficial personal property [interest] locally situate in Queensland’?
(2)According to Viscount Radcliffe, why is an unadministered estate incapable of forming a trust fund? Do you agree? See section 8.4.2.1 (under the heading ‘The beneficiaries’) above on the idea of property in a fund.
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(3)If by his will Mr Livingston had left his widow a specific item he owned – perhaps the house where they lived, or his wedding ring – should Mrs Coulsdon be taken to have any property interest in that item pending completion of the administration by the executors?
(4)Compare the position of executors with that of (a) company directors (b) trustees and (c) liquidators. In each case, who has title to the assets? Who the right/power to manage them? For whose benefit must they exercise those rights/powers? What is the mechanism for ensuring (i) that they do not exercise them for their own benefit and (ii) that they do exercise them to realise the maximum benefit for those intended to benefit?
2Read Ayerst v. C&K (Construction) Ltd [1976] AC 167, either in full or as extracted at www.cambridge.org/propertylaw/. In argument, counsel for the taxpayer argued that the mere fact that restrictions are imposed by law or contract on an owner’s right to use his property does not deprive him of the beneficial ownership of it:
In the case of a tree preservation order one is deprived of the right to cut it down but not of the beneficial ownership. A company in liquidation, though it must pay its creditors, holds its property for its own benefit. Its assets remain its assets though they must be dealt with in a particular way [by the liquidator, acting as a ‘superior director’ of the company] . . . The liquidator has fiduciary duties imposed by statute but is not really a trustee. The beneficial ownership is not in the creditors
. . . A company only ceases to be the beneficial owner of its assets if the beneficial ownership passes to someone else. A man remains the beneficial owner of his property, however much the law may restrain the use of it.
Do you agree that an owner of a tree subject to a tree preservation order remains beneficial owner of it? Do you agree with the final sentence? Is there a valid distinction to be drawn between a person who is prohibited from using her property, and a person who is required to use it wholly for the benefit of someone else?
8.5. Group ownership
Only legal entities can hold private property interests. Human beings, corporations and partnerships come within the category of legal entity, but many other socially recognised groupings (for example, married couples, families, parent and subsidiary companies, and unincorporated associations) do not, even though there may be a legally recognised relationship between the members of the group. However, it is possible for two or more legal entities to hold the same private property interest simultaneously, through private co-ownership.
Private co-ownership must be distinguished from public ownership and communal ownership. We considered the differences between private ownership, public ownership and communal ownership in Chapter 2. As we saw there, in
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the case of communal property rights, as a member of the community you cannot be excluded from use and benefit by any other member of the community but you do not have any separate or separable property right that can be sold or bequeathed to anyone else: the only way in which any person can become or cease to be entitled to use and benefit is by joining or leaving the community. Private co-ownership resembles communal ownership in that no co-owner can be excluded from use and benefit by any other co-owner, and no co-owner has a separate interest during the co-ownership. However, it differs from communal ownership in that, in general (subject to exceptions explained below), in private co-ownership each co-owner has a separable share in the co-owned property, and, once it has been notionally separated off, that share can be sold or bequeathed to someone else, who thereby becomes a new member of the co-ownership group. By the same token, every private co-owner continues to have a proprietary entitlement unless and until it is positively transferred to someone else (or, in the case of a joint holder who dies before severing his interest, until he dies: see below).
It will be apparent from the above that, in this jurisdiction we do not recognise private co-ownership where the right to participate is defined by reference to status. In other words, the co-owners must comprise a fixed (as opposed to a fluctuating) group of ascertained legal entities. In fact, the only types of co-ownership that we now recognise are ownership in common and joint ownership (usually called tenancy in common and joint tenancy where the co-owned interest is an interest in land).
In ownership in common, each co-ownership has a defined but not yet separated off (and not necessarily equal) share in the co-owned interest. For example, you and I might own a car in common, with me having a one-fifth and you having a four-fifths share. We are each equally entitled to the use and benefit of the car, in the sense that neither of us can exclude the other from any part of it (although see below as to what happens if we fail to agree on a modus vivendi). Neither of us can sell or otherwise deal with the car except with the co-operation of the other. If, however, the car is hired out or sold, I will be entitled to a one-fifth share in the hire fee or sale price and you will take the other four-fifths. Although I cannot sell the car itself without your co-operation, I can at any time sell or give my one-fifth share in it to anyone else (in which case of course I will take the whole of any sale proceeds of my share) and you can do the same with your four-fifths. And, if either of us dies, our respective share will go to our personal representatives, to be passed on to whoever becomes entitled to inherit our property.
Joint ownership differs from ownership in common in one crucial respect. Instead of each co-owner having a defined but not yet separated off share, as in ownership in common, each joint owner is fully entitled to the whole of the co-owned interest, subject only to the exactly similar entitlement of each of the other joint owners. Furthermore, no individual joint owner can sell or give away his joint ownership interest. However, what he can always do (subject to the exceptions below) is to convert his joint ownership interest into an interest in
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common, which he can then either keep as a separable but as yet unseparated share in the co-ownership, or sell or give away, as he chooses. He can do this unilaterally at any time provided (if he is an individual) it is done before he dies. If he dies without having converted his joint interest into an interest in common (and an attempt to do so by will is too late) then on his death his interest expires, and the other joint interests are correspondingly enlarged. If during his lifetime he attempts to deal separately with his own interest under the joint ownership (for example, by purporting to sell or mortgage it) this will automatically of itself sever his interest from the joint ownership – i.e. convert his joint interest into an interest in common – and the purported sale or mortgage or whatever will take effect over what is now his interest in common.
In practical terms, therefore, joint owners can separate off their interests as easily as can tenants in common, except in the cases considered below where the joint tenancy is made unseverable by statute. This leaves only two differences between joint ownership and ownership in common which are of any importance in practice. First, in any joint ownership, the entitlements of each joint owner are necessarily equal, so if there are five joint owners and one severs (i.e. converts her joint interest into an interest in common) she will now hold a one-fifth share and the other four will jointly hold a four-fifths share (her action has no effect on the relationship between the other four – they remain joint owners of their share). Secondly, as already explained, when a joint owner dies, her interest expires and the entitlement of the survivors is correspondingly enlarged, whereas, when an owner in common dies, he dies owning a share which is passed on to whoever inherits his property and the entitlements of the other owners in common are not affected in any way. In technical terms, joint owners have a right of survivorship (as each dies, the survivors’ entitlements enlarge, until the last survivor takes everything) whereas owners in common do not.
In all other respects, however, joint ownership and ownership in common are identical in effect. Like owners in common, joint owners can only dispose of or deal with the jointly owned asset by acting in unison, and any proceeds of any dealing or disposition are divisible rateably between them (in the case of joint ownership, necessarily in equal shares). Meanwhile, however, just as in the case of ownership in common, no joint owner can be excluded from the use and benefit of the jointly owned asset or any part of it by any other joint owner.
It will be apparent from the above that, in practice, private co-ownership, whether by ownership in common or by joint ownership, would often be unworkable without mechanisms for resolving disputes and enforcing co-operation between the owners. We consider these mechanisms in Chapter 16, but one of them, applicable only to co-owned interests in land, must be briefly mentioned here. This is the automatic imposition of a trust on all co-owned interests in land. Specifically, when co-owners acquire an interest in land, it automatically vests in them (or in whoever they nominate, or, if they fail to nominate anyone and there are more than four of them, in the first four of them named as co-owners in the