Sir Bradley Wiggins was recently declared bankrupt by Lancaster County Court and it has been reported that his medals might be sold off to pay his debts.
Wiggins' extensive collection, which includes eight Olympic medals, is likely to be a significant and valuable asset in his estate. With Wiggins' personal debts reportedly standing at around £1 million, the value of the medals may be realised to meet creditor claims. Famously, Boris Becker, another high-profile bankrupt in the sports world, was ordered to hand over his Wimbledon trophies after being made bankrupt in 2022.
High profile stories of this type serve to highlight the true impact of personal insolvency. So, what property actually falls into a bankrupt's estate, and are there any exemptions?
What property falls into the bankrupt's estate?
When a bankruptcy order is made, the bankrupt's estate automatically vests in the official receiver or trustee in bankruptcy ("trustee"), without the need for any formal transfer. The role of the trustee is to realise and distribute the assets contained in the bankrupt's estate to satisfy the debts owed to their creditors (so far as possible).
The bankrupt's estate, as defined in the Insolvency Act 1986 (the "Act") at section 283, comprises all property in which the bankrupt had a beneficial interest at the date of their bankruptcy order. The definition of property, as set out at s. 436 of the Act, is very wide and covers both tangible and intangible assets, wherever situated, and obligations and interests relating to the property, even if those are future or contingent. The legislation intends for the bankruptcy estate to be as broad as possible, to protect the interests of creditors.
What are the exemptions?
There are some types of property that either do not automatically vest in the trustee or in respect of which the bankrupt may argue an exemption. The following are key examples of such assets:
Property held on trust for another
Although all property in which the bankrupt has a legal interest automatically vests in the trustee, the trustee may only deal with property in which the bankrupt has a beneficial interest. This would apply, for example, where the bankrupt is the legal owner of a house but holds the property on trust for their child. The child would be the true beneficial owner and so the trustee would not be entitled to deal with the house. The bankrupt would need to establish that this is the case.
Bankrupt's income or salary
Income from employment does not fall within the bankruptcy estate. The trustee may, however, seek an income payments order or income payments agreement, which typically lasts for a period of 36 months.
Tools of their trade
The bankrupt is entitled to retain personal items to the extent that they are necessary in the course of their employment, business or vocation. This applies both to the employed and self-employed. The burden would be on the bankrupt to prove that the item in question falls within this exemption, which is determined on a case-by-case basis. The court will have regard to a number of factors, including the need to balance the creditors' right to repayment against enabling the bankrupt to continue to work and contribute to society.
Basic domestic items
Assets required for the purpose of satisfying basic domestic needs of the bankrupt and their family do not vest in the trustee. This includes items such as clothing, bedding, furniture, household equipment and provisions. However, if an item is particularly valuable the trustee can enforce its replacement with a cheaper reasonable alternative. This might apply to precious antique furniture, for example.
Undrawn pension rights
UK state pension schemes or schemes approved by HM Revenue and Customs are excluded from the definition of property. That does not mean, however, that bankrupts can use pensions to put assets beyond the reach of their creditors. Trustees can apply to court to set aside excessive pension contributions. For an application to succeed, the court must be satisfied that the contribution was excessive, and it was made in such a way that the bankruptcy creditors were unfairly prejudiced.
Property which is "peculiarly personal" to the bankrupt
Trustees will generally have little regard to the personal or sentimental value that a bankrupt places on an asset. However, the Court has previously shown that it is willing to accept that there are items which are especially personal to the bankrupt, to the extent that the bankrupt should not be deprived of them. This includes personal correspondence.
In Haig v Aitken [2001] Ch 110, personal correspondence of the bankrupt, who was a former government minister subject to significant media attention, was held not to vest in the trustee. The correspondence was held to be peculiarly personal to the bankrupt, and its sale would amount to a gross invasion of privacy.
Certain personal claims will also not vest in the trustee, such as the right to claim for remedies on divorce; Robert v Woodall [2016] EWHC 538 (Ch)) established that the right to apply for financial orders on divorce will not count as property in the bankrupt's estate. This means that the trustee cannot seek to satisfy debts through a financial claim on the bankrupt's spouse.
Commentary
Arguably the statutory regime provides a fair balance between property that falls within, and outside, the bankruptcy estate, and in so doing balances the rights and interests of creditors as against the bankrupt. But could it be argued that Wiggins' medals are particularly personal to him, such that they do not in fact vest in his trustee?
It seems unlikely however that such a challenge would be successful. Jonathan Aitken was able to keep his correspondence because its dissemination would be a gross invasion of privacy and the Court found that, in passing the Act, Parliament had not intended that a bankrupt's personal correspondence should be made available for sale to the public. No such considerations would arise on the sale of Wiggins' medals, and his trustee could point to similar sales in recent years: it was widely reported that trophies won by tennis ace Boris Becker were auctioned off for c. £700,000 to pay his debts.
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