Dear insolvency practitioner > Chapter 18 > Matrimonial homes

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1.    Bankruptcy - Interest in Dwelling Houses - The Release of the Trustee - Section 332(2) Insolvency Act 1986

(First published in Dear IP no. 44 March 1999)

Article Withdrawn December 2006


Enterprise Act (Individual Insolvency Provisions)

2. Bankrupt’s Home

This article has been temporarily removed


3. Transfer of bankruptcy cases to IPs from the Protracted Realisations Unit where the principal asset is a property interest – establishment of a new rota

  Article Withdrawn December 2007

 


4. Notification of interest in property – Rule 6.237/Form 6.83 

This article has been temporarily removed


5. Notification of Interest in Matrimonial Home 

Article 4 in Dear IP 20 referred to the form to be used when the trustee claims an interest in the property; the amended version of which will be included in the 2005 Amendment Rules. 

It might assist insolvency practitioners to know that the Insolvency Service considers that as soon as the decision is made that the property is a “qualifying property” under rule 6.237, form 6.83 should be served on the bankrupt and, if applicable, his spouse or former spouse.  Where, in recent cases, the Official Receiver (OR) was trustee prior to the appointment of an insolvency practitioner, the OR should have served the form and a copy should be included in the “handover” papers. If there is any doubt about whether this has been done the insolvency practitioner should contact the appropriate OR to clarify the position.  

In cases where the insolvency practitioner’s appointment has been initiated by the Protracted Realisations Unit, an OR will not have had an opportunity to serve form 6.83 and insolvency practitioners are asked to consider each case with regard to this new requirement; such notice could be included with any early communication with the debtor/bankrupt. 

In all cases, where an insolvency practitioner does not intend to pursue an interest in a property he should, having made that decision, serve a copy of form 6.84 on the bankrupt/debtor and any other persons on whom form 6.83 was served (Rule 6.237B(1)). 

Insolvency practitioners are reminded that section 283A(3) provides that the three year time period, after which the property vests in the debtor, does not apply where the property has been realised, proceedings have been commenced in respect of the property, or the insolvency practitioner has entered into an agreement under the provisions of subparagraph (e) of that section.   

Finally, as insolvency practitioners are aware the Insolvency Service technical manual is now available on our website and Chapter 33 of the manual provides guidance on issues concerning matrimonial homes.  

 

General enquiries may be directed to policy.unit@insolvency.gov.uk

Telephone: 0207 291 6740


6. Income Payments Orders – Date of Discharge 

Under the transitional provisions of the Enterprise Act 2002, where the bankruptcy order was made prior to 1 April 2004, the bankrupt will now be discharged on 1 April 2005.  

It has come to our attention that some Income Payments Orders (IPOs) obtained prior to 1 April 2004 state that payments should continue “until the date of discharge”, rather than referring to the specific date of discharge.  There may be scope for confusion due to the earlier date of discharge, as to the date payments should be made up to.  The Insolvency Service has, on behalf of Official Receivers (ORs), obtained legal advice, and the counsel considers that the courts should interpret any reference in an IPO to the date of discharge as referring to the original date of discharge.  However, the advice does not exclude the possibility of the court taking an alternative view.  If the court did take such a view, and the OR, as trustee, has continued to collect payments of the IPOs, there might be an obligation to reimburse bankrupts for payments made after 31 March 2005.  

Counsel advised that the safest course is for the OR to apply to the court in each relevant case, where he/she is trustee, to have the IPO varied to reflect the parties’ original intentions. 

Pursuant to the legal advice, the Service has decided to make applications to the courts to vary those affected IPOs.  In light of such proposed applications, insolvency practitioners may wish to review the Income Payments Orders in relation to their cases, and consider whether they have any similarly worded Orders and decide whether, as trustee, they wish to make a similar application(s).  A copy of the specimen applications drawn up by the Treasury Solicitors for use by ORs is attached, which insolvency practitioners are welcome to adopt and tailor to their own needs. These documents are: 

(a) Form 6.64 - application for variation of IPO

(b) Statement of grounds in support

(c) Form 6.68 - Variation of Order

(d) Form 6.65 - Specimen varied order

(e) Letter to bankrupts

(f) Consent form. 

It is intended to provide further information to insolvency practitioners early in the New Year, once experience has been gained from the outcome of applications made by ORs.

 

      Rules: 6.189 6.193

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notice to Bankrupt of Application under Section 310(6A) of the Insolvency Act 1986 for the variation of an Income Payments Order

 

IN THE [name court]                                             No. [add no.] OF [add year]                

 

IN BANKRUPTCY

 

RE: [add bankrupt’s full name]

 

 

To [add bankrupt’s full name]

 

TAKE notice that I intend to apply to this court as follows:

 

Date

 

Time                                                                hours

 

Place

 

 

for an order under Section 310(6A) of the Insolvency Act 1986 varying the Income Payments Order dated [add date] in accordance with the draft amended order attached hereto.

 

 

Attached is a statement of the grounds for this application. You are required to attend the hearing of my application unless by (a) …………………………………..

                          

you send to me, using the consent form attached, written consent to the making of such order.

 

If you attend the hearing, you will be given an opportunity to show cause why the order should not be made, or why it should be in different terms.

 

Dated:   _____________________________________

 

Signed:  _____________________________________  

a) Insert a date not less than 7 days before the hearing

                                                                           Trustee

 

Name:   ________________________________

             (in BLOCK LETTERS)

 

Address of Trustee:

 

Statement of grounds in support of the Official Receiver’s

application under section 310(6A) of the Insolvency Act 1986

 

This statement is drafted in general terms to reflect the changes introduced to the insolvency regime by the commencement of certain provisions of the Enterprise Act 2002. As a result it is not intended to reflect the position of individual bankrupts. This statement outlines the position of the Official Receiver and should not be regarded as constituting legal advice. 

This application is one of over 370 intended similar applications by Official Receivers across the United Kingdom. The applications all concern Income Payments Orders (IPOs) made before the commencement of the insolvency provisions of the Enterprise Act 2002.  

The insolvency provisions on discharge from bankruptcy introduced by section 256 of the Enterprise Act 2002 (reflected by consequential amendment to section 279 of the Insolvency Act 1986) came into effect in April 2004. A person whose bankruptcy existed as at 1 April 2004 is now discharged from bankruptcy at the end of the period of one year beginning with the date on which the bankruptcy commences. Prior to April 2004, the standard period of bankruptcy was three years (or two years if the court issued a certificate of summary administration). Those individuals subject to IPOs made before April 2004 (pre-commencement IPOs) can now expect to be discharged from bankruptcy at a point sooner than they would have expected when their IPOs were made. For example, an individual made bankrupt in March 2004 would not, under the old provisions, have been discharged from bankruptcy until March 2007; however, following the transitional provisions set out in Schedule 19(4) of the Enterprise Act 2002, the bankrupt can now expect to be discharged from bankruptcy at the end of a period of one year beginning with the commencement of the Enterprise Act 2002 provisions on insolvency – i.e. 1 April 2005. 

Each pre-commencement IPO records that the bankrupt is to pay a specified sum of money to his estate by monthly instalments of a set amount. It was intended at the time the IPO was made that the date on which the lump sum was to be fully paid off would be identical to the date on which the bankrupt would be discharged from bankruptcy. With this in mind the pre-commencement IPOs state that the bankrupt do pay monthly instalments ‘until the date of discharge from bankruptcy’.   

As a result of this amendment to the underlying legislation, an unintended consequence of this form of order is that the date of the bankrupt’s discharge will no longer coincide with the date on which the final IPO instalment payment is to be made. As a bankrupt subject to a pre-commencement IPO is now discharged earlier from their bankruptcy, the date on which the final instalment payment is set to occur arises after the bankrupt’s discharge. There is no provision under the Insolvency Act 1986 which restricts an IPO to the period in which the individual is bankrupt; in fact, section 310(6) of the Insolvency Act 1986 (which was reconstituted by section 259 of the Enterprise Act, with effect from April 2004) states that the period of an IPO may end after the discharge of the bankrupt (but may not end after the period of 3 years beginning on the date the order was made).  

The Official Receiver makes these applications in order to vary the pre-commencement IPOs so that the references to the date of discharge are removed in accordance with section 310(6). If the pre-commencement IPOs are varied in this manner, they will continue to accurately reflect the intention of the court and the parties at the time the IPO was made.

 


Rule 6.193

 

 

 

 

 

 

 

 

 

 

 

Discharge or Variation of Order for Income Claimed Under Section 310 of the Insolvency Act 1986

 

IN THE [name court]                                     No. [add no.] OF [add year]

 

IN BANKRUPTCY

 

RE: [add bankrupt’s full name]

 

District Judge/Mr Registrar [amend as appropriate] ……………... in chambers

 

 

Upon the application of [add full name], Official Receiver

 

the trustee of the above-named bankrupt’s estate

 

 

And upon hearing ……………………………………

 

And upon reading the evidence

 

It is ordered that the order for income claimed under Section 310 of the Insolvency Act 1986 dated [add date of order] be varied as follows:

 

1.  By deleting the words ‘until the date of discharge from bankruptcy’.

 

2.  By inserting therein ‘until [insert specificoriginal date of discharge]’.

 

3.  By inserting the requisite number of monthly instalments, namely ‘[insert total number of instalments]’.

 

4.  By making provision for ‘Liberty to apply in respect of any failure to make the payments referred to in this order’.

 

All in accordance with the draft amended order attached hereto.  

 

 

Dated: ______________________________________

 

Order for Income Claimed Under Section 310(3)(a) of The Insolvency Act 1986 

IN THE [COURT NAME AND CASE NUMBER] 

IN BANKRUPTCY 

RE: [BANKRUPT’S NAME]

 

Before District Judge ……………………….. 

Upon the application of [INSERT NAME], Official Receiver 

And upon the consent of the above named bankrupt 

And it appearing to the Court that the sum of £    be paid by the above named bankrupt by monthly instalments of £    to the Trustee until [original date of discharge]. 

It is Ordered that until [insert original date of discharge from bankruptcy] , the bankrupt do pay [insert number] monthly instalments of £    out of his income, the first of such instalments to be paid on or before [date]. 

And it is Ordered that there be Liberty to Apply in respect of any failure to make the payments referred to in this order. 

And it is Ordered that the above named bankrupt do send payments to:  

The Official Receiver or to any subsequently appointed Trustee of his estate or to their debt collection agent. 

Dated: [date] 


Dear Sir 

In Bankruptcy

In the [name court]                                                  No. [add number] of [add year]

Application for a variation of your Income Payments Order 

As you will be aware, District Judge/Mr Registrar [amend as appropriate and add name] made an Income Payments Order (“IPO”) against you on [add date]. The IPO states that you are to pay a total of £[how much] in monthly instalments of £[how much], with instalments commencing on [when].  

Introduction of the Enterprise Act 2002

At the time your IPO was made, it was not anticipated that you would be discharged from bankruptcy until [add date]. However, the commencement of the insolvency provisions of the Enterprise Act 2002 means that, in respect of bankruptcy orders made from 1 April 2004, the standard date of discharge from bankruptcy is now 1 year from the date of the bankruptcy order. The effect of this on individuals like yourself, who are subject to a bankruptcy order made before 1 April 2004, is that they will, unless they are subject to other restrictions, be discharged from bankruptcy 1 year from the date of commencement of the insolvency provisions of the Enterprise Act 2002 (i.e. 1 April 2005), unless the applicable period of bankruptcy ends before that date. Accordingly, the date of your discharge from bankruptcy now differs to what it was when your IPO was made. As a result of this, the reference in your IPO to making payments until ‘the date of discharge from bankruptcy’ is now incorrect, as it no longer reflects the instalment plan set out by your IPO. 

Application to vary your IPO

In order to ensure your IPO continues to reflect the intentions of the parties at the time it was made, the Official Receiver, as trustee of your bankruptcy estate, has made an application to the [name court] under section 310(6A) of the Insolvency Act 1986 for the variation of your IPO. The application is to be heard at [name court] on [add date and time].  

The application will not seek to add to the payment arrangements currently set out in your IPO, but will request that the reference to payments being made ‘until the date of discharge from bankruptcy’ be removed. It is intended to replace these words with the date upon which your last instalment is due to be repaid under your IPO. This change will eliminate any unintended confusion regarding the duration of your IPO which may have been caused by the changes introduced to the bankruptcy regime by the introduction of the insolvency provisions of the Enterprise Act 2002. The Insolvency Act 1986 permits IPOs to continue beyond the period of an individual’s bankruptcy; section 310(6) states as follows: 

“An income payments order must specify the period during which it is to have effect; and that period-     

a)     may end after the discharge of the bankrupt, but

b)     may not end after the period of three years beginning with the date on which the order is made. 

Further, in the interests of clarity, the Official Receiver has requested that the precise number of monthly instalments you are to pay be introduced into the IPO. The order will also include a ‘liberty to apply’ provision which allows the court to review your IPO in the event that you miss an instalment payment.   

Enclosures

Enclosed with this letter are the following documents: 

a)     Annex A: A copy of your IPO in its present form. 

b)     Annex B: Form 6.64 – ‘Notice to Bankrupt of Application Under Section 310(6A) of the Insolvency Act 1986 for the Variation of an Income Payments Order’. This is the Official Receiver’s application to have your IPO varied; attached to it are: i) a statement of grounds upon which the application is made ii) draft Form 6.68 (this is a draft of the order sought by the Official Receiver – annexed to it is a draft of your IPO in the varied form sought). 

c)      Annex C: ‘Notice to Trustee: Consent of Bankrupt to Variation of Order under section 310 of the Insolvency Act 1986’ (this is essentially the same document as at b(ii), above; it is for you to sign and return if you wish to consent to the variation of your IPO – the following paragraph provides more information about this).  

Attendance at the hearing

If you wish to consent to the variation of your IPO, you are not required to attend the hearing of the Official Receiver’s application. To consent to the variation sought by the Official Receiver, please sign the ‘Notice to Trustee: Consent of Bankrupt to Variation of Order under section 310 of the Insolvency Act 1986’ enclosed at Annex C to this letter (the Notice has at its foot the words ‘I [add full name] consent to the variation to the Income Payments Order dated [insert date] as provided for in the terms set out above and in the draft order attached hereto’, with a space for your signature and the date). This consent form, signed and dated, should be returned to me at the above address by [date to be added and underlined].  

If you do not wish to consent to the order sought by the Official Receiver, you are required to attend the hearing of the application. At the hearing you will be given the opportunity to show cause why the order should not be made. 

Legal advice

The object of this letter is to explain to you the nature of the application made by the Official Receiver and the reasons for it in light of the recent changes to the bankruptcy regime introduced by the Enterprise Act 2002. This letter reflects the views of the Official Receiver and is not intended to constitute legal advice. Consequently, you may wish to seek independent legal advice before responding to any of the points raised in this letter.

 

Yours faithfully

 

[Add name and position]

 

Rule 6.193

 

 

 

 

 

 

 

 

 

 

 

Discharge or Variation of Order for Income Claimed Under Section 310 of the Insolvency Act 1986

 

IN THE [name court]                                     No. [add no.] OF [add year]

 

IN BANKRUPTCY

 

RE: [add bankrupt’s full name]

 

District Judge/Mr Registrar [amend as appropriate] ……………... in chambers

 

 

Upon the application of [add full name], Official Receiver

 

the trustee of the above-named bankrupt’s estate

 

 

And upon hearing ……………………………………

 

And upon reading the evidence

 

It is ordered that the order for income claimed under Section 310 of the Insolvency Act 1986 dated [add date of order] be varied as follows:

 

1.  By deleting the words ‘until the date of discharge from bankruptcy’.

 

2.  By inserting therein ‘until [insert specific date of discharge]’.

 

3.  By inserting the requisite number of monthly instalments, namely ‘[insert total number of instalments]’.

 

4.  By making provision for ‘Liberty to apply in respect of any failure to make the payments referred to in this order’.

 

All in accordance with the draft amended order attached hereto.

 

 

 

Dated: ______________________________________

 

 ____________________________________________________________________________________

I [add full name in bold] consent to the variation to the Income Payments Order dated [insert date] as provided for in the terms set out above and in the draft order attached hereto:

Signed: …………………………….                            Dated: ………………….

 


7. Income Payments Orders update  

Article Withdrawn December 2006


8. The transitional provisions relating to Section 283A of the Insolvency Act 1986- Bankrupt’s home ceasing to form part of the estate.

Issues 16, 18, 20 and 21 of Dear IP, contain articles on this topic. Section 283A of the Insolvency Act 1986 (introduced through the Enterprise Act 2002) sets out that in general terms the trustee in bankruptcy has a three year period (commencing on the date of bankruptcy) to deal with cases where property comprised in the bankrupt’s estate consists of an interest in a dwelling-house which at the date of bankruptcy was the sole or principal residence of

a)     the bankrupt,

b)     the bankrupt’s spouse, or

c)      a former spouse of the bankrupt.

After that three year period ends, if the trustee has failed to deal with the relevant interest it will “ vest in the bankrupt (without conveyance, assignment or transfer)”  -section 283A (4) of the Insolvency Act 1986

The transitional provisions relating to section 283A are contained in Section 261 (7) to (10) of the Enterprise Act 2002. Section 261 (7) sets out the definitions of  ‘pre-commencement bankrupt’ and ‘the transitional period’: -

(7) In subsection (8)-

(a)     “pre-commencement bankrupt” means an individual who is adjudged bankrupt on a petition presented before subsection (1) comes into force, and

(b)     “the transition period” is the period of three years beginning with the date on which subsection (1) comes into force.

As it may take some time for the trustee to actually deal with the bankrupt’s interest, recipients are reminded that the relevant provisions came into force on 1 April 2004 and the three-year period ends on 31 March 2007.

Practitioners need to exercise care, especially in creditor’s petition cases, when assessing applicable cases. This is because of the wording of Section 261 (7) (above) which is underlined and in bold above. Practitioners may be administering cases where the petition was presented before 1 April 2004 but the actual bankruptcy order may have been some time after that date, say 21 July 2004. In such circumstances the case would still fall under the transitional provisions and so need to be dealt with by 31 March 2007 and not 20 July 2007. 

 

General enquiries may be directed to policy.unit@insolvency.gov.uk

Telephone: 0207 291 6740


9. Exemption certificates under the provisions of Section 332(2)(c) of the Insolvency Act 1986 

Practitioners will be aware that Section 332 (2)(C) provides the Secretary of State may issue a certificate to a trustee in circumstances where it would be inappropriate or inexpedient for the trustee to make application under Section 313 to impose a charge on property for the benefit of the estate. 

However, more recently, Section 283A, introduced by the Enterprise Act 2002, provides at the end of a period of 3 years beginning with the date of bankruptcy, the debtor’s interest in a dwelling house shall cease to be comprised in the debtor’s estate and vest in the bankrupt without conveyance, assignment or transfer. 

Consequently, the issuing of an exemption certificate will effectively appoint the Official Receiver as Trustee ex-officio to deal with a property that is unlikely to be of any benefit to creditors, until such time as the property re-vests. 

Accordingly, in circumstances where the equity in a relevant property is deemed insufficient to warrant an application under Section 313(the minimum amount currently prescribed for under Section 313A (2) is £1000) and the trustee has been unable to attract an offer for it, the Trustee is directed toward Rule 6.237CA enabling a Trustee to expedite the re-vesting process in order to facilitate a more efficient administration of the estate.  The process requires an application to HM Land Registry using form RX4 which is available on the Registry website at no cost to the estate.    

Practitioners are reminded that it will not be appropriate to obtain release until the property has been dealt with.    

General enquiries may be directed to IPU.Email@insolvency.gov.uk  


10. Inter-relationship between Section 283A Rule 6.237 and Form 6.83 

A query was recently raised as to what the consequences would be if a trustee in bankruptcy takes action under section 283A(3) to prevent the re-vesting of a bankrupt’s home after three years but fails to issue Form 6.83 (“Notice to interested parties of a dwelling house falling within section 283A”), which is a requirement under Rule 6.237. It was suggested that if a reliance was placed on the information contained within article 2 of this chapter  “Bankrupt’s home” (published in Dear IP in February 2004) such a failure would render any action taken under section 283A(3) invalid. If this were the case, the property in question would re-vest in the bankrupt. 

Rule 6.237 provides that the trustee shall issue Form 6.83 as soon as reasonably practicable after he has formed the view that the property in question is within the description set out in section 283A(1), but no later than 14 days from the end of the three year period. This rule does not set out what is the effect of a failure to issue such a notice. 

Section 283A was introduced by the Enterprise Act 2002 and subsection (1) specifies that this section applies where a property comprised in the bankrupt’s estate consists of an interest in a dwelling-house which at the date of the bankruptcy was the sole or principal residence of the bankrupt or his spouse, former spouse, civil partner or former civil partner. Section 283A(2) provides that the interest will re-vest in the bankrupt after the three year period unless any of the actions identified in section 283A(3) have been taken. Such actions include where proceedings have been commenced in respect of the property or where the bankrupt’s property has been realised. 

We have considered the inter-relationship between section 283A and Rule 6.237 and in The Insolvency Service’s view, provided one of the steps set out in section 283A(3) has been taken during the relevant period, the fact that no notice was issued within the time period does not affect the question of the vesting of the property. There is no indication in the statute that the issuing of the notice is a pre-condition of any sort which would affect the operation of section 283A(3). 

The Insolvency Service would suggest to insolvency practitioners that, notwithstanding this view, following the principles of best practice Form 6.83 should be issued as soon as reasonably practicable. 

Article 2 of this chapter referred to above has now been withdrawn and is replaced by article 11 which follows this article. 

 

General enquiries may be addressed to IPPolicy.Section@insolvency.gov.uk; telephone 020 7291 6772  


11. Bankrupt’s home 

This article replaces article number 2 of this chapter. 

Following changes made to the Enterprise Act 2002 for a more equitable treatment of the bankrupt’s family home, trustees no longer have an indefinite period in which to deal with that interest.  In most cases the bankrupt’s interest in the family home will cease to form part of the bankruptcy estate and re-vest in the bankrupt if the trustee in bankruptcy has not disposed of or transferred that interest, or obtained a charging order against the property within a maximum of three years from the date of the bankruptcy order.  

Insolvency practitioners are reminded of the following relevant provisions relating to the time limit imposed on trustees within which a bankrupt’s family home is to be dealt with, following its vesting in the estate.   

  • The trustee must notify the bankrupt and other interested parties where a property vesting in the bankrupt’s estate consists of an interest in a dwelling-house which at the time of the bankruptcy was the sole or principal residence of the bankrupt or his spouse, former spouse, civil partner or former civil partner (modified Rule 6.237 and section 283A(1)).  

  • The notification should be by way of Form 6.83 (as prescribed in Rule 6.237), which should, as a matter of good of practice, be issued as soon as reasonably practicable and no later than 14 days of the expiry of the three-year period. 

  • A failure to issue the notice, however, will not affect the vesting of the property if any of the actions identified in section 283A(3) have been taken. Such actions include where proceedings have been commenced in respect of the property or where the bankrupt’s property has been realised.

  • Where a property ceases to vest in the trustee in the circumstances set out in the Act, and reverts to the bankrupt, the trustee must make the appropriate application under the Land Registration Act 2002 and notify the bankrupt accordingly (Rule 6.237A).

  • Where the property consists of unregistered land, the trustee must issue a certificate to this effect to the bankrupt (new Rule 6.237B and new Form 6.84).

Where the net interest of a bankrupt in a relevant property is below £1,000, the court will dismiss any application by a trustee for an order for sale, possession or charging order, and that interest will then revert to the bankrupt.  The purpose of this provision is to deter misguided applications whose effect would be simply to incur costs and be of little or no benefit to creditors.  

Charging Orders

Where the trustee decides to deal with the property by applying for a charging order his application must be accompanied by a report specifying how his interest is calculated.  Notice must be given to any interested party.

The property will vest in the bankrupt once a charging order has been made unless the court decides a different date is more appropriate. 

The onus will generally be on the trustee to make any necessary applications to the Land Registry to register the charge and vest the property in the bankrupt (new Rule 6.237A).  

Any enquiries regarding this article should be directed towards Steve Lamb, Insolvency Practitioner Policy Section, area 5.6, The Insolvency Service, 21 Bloomsbury Street, London WC1B 3SS; telephone: 020 7637 6698; email: steve.lamb@insolvency.gov.uk  

General enquiries may be addressed to IPPolicy.section@insolvency.gov.uk  telephone 020 7291 6772

12.  Realisation of personal pension policies 

The Insolvency Service is aware that there remain a number of bankruptcy cases which remain open only because there is a personal pension which is part of the estate.  This raises issues about case progression, not least because many of these cases have a bankruptcy order date prior to 29 May 2000 when the provisions of The Welfare Reform and Pensions Act 1999 came into force.  This matter was discussed at a recent Meeting of Monitors and it was agreed that some guidance should be provided to insolvency practitioners. 

Insolvency practitioners are reminded of their overriding duty to get in, realise and distribute assets, and that the trusteeship should not needlessly be protracted.  Clearly, costs are incurred in keeping a case open – both time costs and administrative costs – and insolvency practitioners should be proactive in dealing with these pension cases, and balance the need to maximise the return to creditors with the requirement to deal with cases efficiently and minimise costs. 

Where the pension is in pay, (i.e. where the trustee is collecting annuity payments) the trustee will have been entitled to a lump sum payment, when the debtor reached pensionable age, followed by annual annuity payments.  One option is for trustees to collect the maximum lump sum payment possible from the pension provider.  A view should then be taken on how to deal with the annuity payments.   

Options might include suggesting that the debtor (providing they are discharged from the bankruptcy) purchase the remaining value of the pension fund from the trustee; or for the trustee to agree to take a number of years of annuity payments and then to return any future interest in the pension to the debtor.  These options are likely to be preferable to the trustee continuing to take annuity payments indefinitely, particularly if the amounts received are so small as to be unlikely to result in any dividend being paid to creditors. 

Insolvency practitioners may be interested to know that the Official Receiver operates a buy back scheme which allows the debtor to purchase the estate’s interest in the pension scheme.   The buy back option is available to those debtors under the age of 60 and the offer is to purchase the Official Receiver’s interest for 45% of the fund value.  If the debtor chooses not to participate in the buy back, the Official Receiver would claim their pension by taking the maximum lump sum and five years annuity payments.  Where the collective fund values are below the limits for commutation of the whole fund as a lump sum (currently £17,500), the pension is collected by the Official Receiver under the trivial commutation provisions. The buy back option is available to those over 60 but the Official Receiver would still require an immediate payment equivalent to 45% of the fund value.    

Further details on this scheme can be found at www.insolvency.gov.uk/pdfs/guidanceleafletspdf/pension.pdf  

Any enquiries regarding this article should be directed towards  Catherine Collinson, 21 Bloomsbury Street, London WC1B 3QW. Telephone:  020 7291 6873,  email:  catherine.collinson@insolvency.gov.uk  

General enquiries may be directed to IPPolicy.Section@insolvency.gov.uk Telephone: 020 7291 6772

 

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It is ordered that the order for income claimed under Section 310 of the Insolvency Act 1986 dated [add date of order] be varied as follows: