Re Citro [1990] 3 All ER 952

Facts

• Mr. and Mrs. Citro were declared bankrupt, with their main asset being their mortgaged family home.
• The bankruptcy trustee sought to sell the home to pay their creditors.
• The sale was delayed due to the family's need for the children to continue their schooling.
• This delay prompted consideration of whether court approval under section 284 of the Insolvency Act 1986 was required for the sale.

Issues

1. Whether the sale of a family home by a bankruptcy trustee constitutes "usual business operations" under insolvency law.
2. Whether section 284 of the Insolvency Act 1986 requires court approval for such a sale where family hardship is involved.
3. How the rights of secured creditors are affected by delays or objections to asset sales in bankruptcy proceedings.

Decision

• The Court of Appeal held that selling a family home by a bankruptcy trustee generally falls within "usual business operations."
• The court determined that "usual business operations" should be assessed factually, focusing on the action itself rather than its effects on family members.
• The trustee did not need court approval under section 284 to sell the home, despite the resultant loss to the family.
• The rights of secured creditors remained of primary importance and were not displaced by family hardship.

Legal Principles

• "Usual business operations" is interpreted by reference to the nature of the action, not its consequences.
• Section 284 of the Insolvency Act 1986 restricts sales outside the normal course of business but does not apply where the trustee acts in line with usual business practice.
• Trustees must prioritize the rights of secured creditors in bankruptcy asset sales.
• The principles in Re Citro have been reaffirmed in subsequent cases, which follow a factual approach to determining what counts as "usual business operations."

Conclusion

Re Citro established that asset sales by bankruptcy trustees, including family homes, are typically considered part of usual business operations, allowing such sales without court approval under section 284. The ruling confirms that the focus is on the character of the transaction, securing the position of creditors in bankruptcy proceedings.