Dear insolvency
practitioner > Chapter 18 > Matrimonial homes
(First published in Dear IP no. 44 March 1999) Article Withdrawn December 2006 Enterprise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
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.
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.
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]
____________________________________________________________________________________ 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.
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
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
|
||||||||||