What is a disclaimer?
In the general legal sense, a disclaimer is an act of renouncing one’s claim over property. In the more specific sense of insolvency legislation, a disclaimer is an act provided for in the legislation allowing a liquidator or trustee to renounce his/her claim over property vested in the insolvent’s estate, but only where the property brings with it some onerous obligation.
Why issue a disclaimer?
Whilst many assets with no value may simply be abandoned (as often happens with jewellery), this is simply not an option for those assets where ownership of the asset brings with it an obligation to perform a specific act; for example, an obligation to maintain a leasehold property or pay rent. If the ability to issue a disclaimer was not available the only option available to the liquidator or trustee would be to bring the obligation to an end by dealing with the property by way of transfer or sale thereby unnecessarily prolonging the administration of the estate, and adding costs and reducing the amount available to return to creditors.
Additionally, in a bankruptcy estate the property (and, therefore, the obligation) vests in the trustee personally; leaving the possibility of the trustee being personally liable for financial penalties relating to ownership of the asset.
How is a disclaimer issued?
A disclaimer is issued by describing the property to be disclaimed on a statutory form, having the liquidator or trustee authenticate and date the form and serving the form on parties with an interest in the property.
See Part 3 – Procedure for disclaiming for further information on this subject.
When should a disclaimer be issued?
A disclaimer should be issued where the official receiver, as liquidator or trustee becomes aware of property in the estate that has no value, and to which there is an obligation to perform some onerous task. Whilst, in these circumstances, a disclaimer should be issued as soon as possible, care should be taken not to disclaim an interest in property having a value to the estate which, instead, should be dealt with as any other asset.
See Part 1 – Matters to consider prior to the issue of a disclaimer, particularly paragraph 34.3 for further information on this subject.
Who may issue a disclaimer?
The official receiver, when acting as liquidator, may issue a disclaimer at any time.
In a bankruptcy case the official receiver may only issue a disclaimer when acting as trustee, not as receiver and manager.
See Part 1 – Matters to consider prior to the issue of a disclaimer, particularly paragraph 34.4 for further information on this subject.
Who should receive notice of a disclaimer?
Notice of the disclaimer, including a copy of the disclaimer once authenticated and dated by the liquidator or trustee, should be served on any party having, or appearing to have, an interest in the disclaimed property. Notice should be given to the Land Registry where solely owned registered property is being disclaimed.
See Part 3 – Procedure for disclaiming, particularly paragraph 34.57, for further information on this subject.
What may be disclaimed?
Effectively, there is no limit to the type of property that may be disclaimed. Typically, disclaimers are issued in respect of leased property, but may also be issued in relation to freehold or leasehold property, rights of actions, property licences or shares, to give a few examples.
See Part 1 - Matters to consider prior to the issue of a disclaimer, particularly paragraph 34.6, for further information on this subject.
What is a notice to elect / notice requiring disclaimer decision?
A party with an interest in a property forming part of an insolvency estate may require the official receiver as liquidator or trustee to make a decision as to whether or not the property in question is to be disclaimed. This request will be made in writing and was previously required to be in a prescribed form known as ‘notice to elect’ (the prescribed form is no longer required). The official receiver must issue a disclaimer (where it is appropriate to do so) within 28 days of receiving the request to make a decision; otherwise, the official receiver will be considered to have adopted the property and the obligations (for example, to pay rent) attaching to it.
See Part 2 – Notice to elect / notice requiring disclaimer decision for further information on this subject.
What happens to the property once the official receiver’s interest has been disclaimed?
That depends. The effect of a disclaimer is to end, as from the date of the disclaimer, the rights, interests and liabilities of the insolvent in relation to the property. This might result in the property passing to a joint owner or, even, to the Crown. A person with an interest in the property may apply to court for an order to take possession of the property. This is known as a vesting order.
See Part 3 – Effect of a disclaimer for further information on what happens to the property after a disclaimer.
See Part 5 – Vesting Orders for further information on applications to take possession of disclaimed property.