PART 2
March 2009
CLAIMING AFTER-ACQUIRED PROPERTY
31.8.9 Claiming after-acquired property – general
This part of the chapter gives guidance on the procedure for claiming after-acquired property, including the bankrupt’s duty to inform the trustee of after-acquired property (see paragraph 31.8.10), and the time limits on the trustee for claiming the property (see paragraph 31.8.12).
31.8.9A – Electronic delivery of documents and notices (September 2010)
With effect from 6 April 2010 the insolvency rules allow for certain notices and information to be sent or received by electronic means, provided that the intended recipient has consented and provided an electronic address for delivery. Where the notice is sent by the office-holder, the recipient must also be advised that they can request a hard copy from the sender. [note 1]
Any reference in this part to a document or information in “writing” includes that document or information in electronic form provided it is capable of being produced in a legible form. [note 1A] [note 1B]
In terms of after-acquired property, these provisions mean that the official receiver could accept notice of after-acquired property from the bankrupt by email if he/she had given consent to the bankrupt for electronic communication either generally or in relation to this specific notice (see paragraph 31.8.10). The official receiver could also make his/her claim for the after-acquired property electronically provided the bankrupt had consented to that method and provided an electronic address.
31.8.10 (amended September 2010)
As detailed in paragraph 31.8.4, the bankrupt is under a duty to notify the trustee when he/she acquires property during the period of his/her bankruptcy. The notice referred to in paragraph 31.8.4 must be given in writing by the bankrupt to the trustee within 21 days of the bankrupt becoming aware of the relevant facts [note 1C] [note 1D]. The Rules make no special provision regarding the contents of the notice, though it might be expected that the information contained therein would be sufficient to identify the property in question. The notice may be given by post (in accordance with CPR Part 6) ), electronically, or may be personally delivered [note 2]. Where the official receiver receives notification of after-acquired property by telephone, written confirmation should be requested but he/she should still immediately act on the information received – see paragraph 31.8.16
31.8.11 Late notification of after-acquired property
If the bankrupt notifies the official receiver of the acquisition of property outside the 21 days allowed in the Act (see paragraph 31.8.10), but the property has not been disposed of, or otherwise devalued, then it would be in order for the official receiver to overlook the technical deficiency on the part of the bankrupt and (if appropriate) claim the property (see paragraph 31.8.14).
If notification of the acquisition of the property comes from a third party outside the prescribed 21 days and the property has not been disposed of or otherwise devalued then, again, the official receiver should (if appropriate) claim the property (see paragraph 31.8.14). The official receiver may consider the bankrupt’s failure to notify him/her of the acquisition of the property as grounds for a possible BRO/BRU (see paragraph 31.8.27). Where the bankrupt informs the official receiver late (or not at all and the official receiver finds out about the acquisition through a third party) and the property has been disposed of or otherwise devalued then the advice in paragraph 31.8.25 may be followed. Again, this may be grounds for a BRO/BRU (see paragraph 31.8.27).
31.8.12 Trustee has 42 days to claim after acquired property
The official receiver, as trustee, has the power to claim, for the benefit of the bankrupt’s estate, any property acquired by the bankrupt or devolved upon the bankrupt since the date of the bankruptcy order [note 3].
The official receiver, as trustee, has 42 days, beginning with the day on which it first came to his/her knowledge that the property in question had been acquired by, or had devolved upon, the bankrupt in which to make the claim in writing [note 4]. See paragraph 31.8.14 for information on how to serve notice of a claim for after acquired property. The 42 day period for claiming the property cannot commence until a trustee is appointed as the period begins with the day that the knowledge of the property came to the knowledge of the trustee (rather than the receiver and manager) [note 5] (see paragraphs 17.24 and 17.25 for information on circumstances in which the official receiver would be appointed trustee, and paragraph 31.8.18 for action to take where knowledge of after-acquired property comes to the attention of the official receiver as receiver and manager). Where the official receiver takes the decision not to lay claim to the property, it would be good practice to give the bankrupt written notice of this decision. Obviously, written notice of a decision not to claim the property should not be given by the official receiver, as trustee, until a proper assessment of the property has taken place.
31.8.13 Bankrupt not to dispose of after-acquired property
Having served notice on the trustee of the after-acquired property, the bankrupt is not, without the trustee’s consent in writing, allowed to dispose of the property within a period of 42 days beginning with the date of the notice [note 6]. This is the period within which the trustee must make his/her decision on whether or not to claim the property for the benefit of the bankrupt’s estate (see paragraph 31.8.12).
Obviously, written consent of disposal should not be given by the official receiver, as trustee, until a proper assessment of the property has taken place.
31.8.14 Serving notice by the trustee of a claim for after-acquired property
Where the official receiver, as trustee, wishes to lay claim to after-acquired property, he/she is required to serve notice in writing on the bankrupt [note 7] [note 8]. The notice should generally be served by 1st class post and recorded delivery although, with the bankrupt’s consent, it can be served by electronic means if in all the circumstances the official receiver is satisfied that service by this means will be effective -. see paragraph 31.8.9A. Where there are any non-cooperation issues or the disclosure of the property came from a third party the official receiver may decide to use all available methods of service. See paragraph 31.8.12 for important information on the time limit for serving notice claiming after-acquired property.
The claim may be notified to others, as appropriate (for example a bank holding a sum of cash, an executor of a will (see paragraph 31.8.37) or the National Lottery claims department -see paragraph 31.8.36). Where the trustee takes possession of the property without serving the requisite notice, it is possible to remedy the situation by serving the notice retrospectively [note 9].
31.8.15 Serving notice of a claim for after-acquired property out of time
The 42 day period for claiming the after-acquired property (see paragraph 31.8.12) may be extended by the court [note 10]. The court has viewed that the 42 day period is a substantive provision, rather than a procedural time limit [note 11] and, therefore, in order to agree to an extension, it will need to be persuaded that there has been “good cause” for the delay. The court will also take into consideration the effect of the delay on the bankrupt (particularly, where the bankrupt has already disposed of the property) [note 12] [note 13]. A simple administrative oversight is unlikely to be viewed as “good cause” by the court.
Where a failure on the part the bankrupt has, in some way, been a cause of the trustee’s failure to serve the notice in time, the court may allow the service of the notice out of time [note 14].
31.8.16 Notification of after-acquired property – care to be taken
Whilst the Rules state that the bankrupt must provide the trustee with information in writing (see paragraph 31.8.10), it is not unknown (indeed, it is more likely) that the first notification will be by the means of a telephone call by the bankrupt to the official receiver’s office. This “notification” may even be a passing comment on which the bankrupt will later seek to rely to argue that the notice claiming the property (see paragraphs 31.8.12 and 31.8.14) was out of time.
The Act makes no mention that the 42 day time limit for the trustee to claim the property (see paragraph 31.8.12) starts at the day that the bankrupt serves notice on the trustee - it simply states that the 42 days begins “with the day on which it first came to the knowledge of the trustee that the property in question had been acquired by, or had devolved upon, the bankrupt” [note 15]. From the point of view of starting the 42 days, valid notification can therefore be made by any means including phone calls and e-mails to the official receiver. Note that this wording does not even require that this knowledge originates from information provided by the bankrupt – the information may come from a third party.
31.8.17 Enquiries and action to take following notification of after-acquired property
Following receipt of information indicating that the bankrupt has come into possession of after-acquired property, the official receiver, acting as trustee, should make appropriate (written) enquiries of the bankrupt confirming information given orally or by third parties, and, as soon as sufficient information is received (but, certainly within 42 days – see paragraph 31.8.12), claim the property if it is appropriate to do so.
Where appropriate, the official receiver should arrange for the property to be valued to ascertain whether there will be a net benefit to the estate. See paragraph 31.8.18 for information on action to take where further information not available.
31.8.18 Claiming property where available information limited.
Where the information available to the official receiver is limited, and the end of the 42-day period (see paragraph 31.8.12) is approaching, the official receiver (as trustee) may have to claim the property (see paragraph 31.8.14) without full information. In the case of inheritances, this may lead the official receiver to claiming assets, which are not valuable or are not economic to realise, but this is preferable to the alternative – which is the risk of a potentially valuable asset being lost to the estate. As an alternative, the official receiver may apply to court for an order extending the period for claiming the property (see paragraph 31.8.15) until a certain act has been carried out (for example, until the bankrupt provides a copy of a will).
It is quite permissible for further enquiries to be made about the property after it has been claimed and, if necessary, the official receiver can subsequently disclaim the property – having obtained the requisite permission of the court (see paragraph 31.8.29).
31.8.19 Action to take following issue of notice claiming after-acquired property
Once the notice referred to in paragraph 31.8.14 has been served on the bankrupt, the after-acquired property vests in the trustee as part of the bankruptcy estate, and the trustee’s title to the property goes back to the time that the bankrupt acquired the property [note 16]. Once the property has vested, the official receiver should take such action as is necessary to protect and realise the property including, where appropriate, the issue of letters to third parties such as a bank or the executor of a will [note 17]. Where appropriate, the official receiver should seek to insure the property (see Chapter 49 for further information on Insurance). Where the after-acquired property is land, the official receiver should register his/her interest in line with the advice and information given in paragraph 50.42.
Essentially, once the property forms part of the estate, the official receiver should deal with it as he/she would with any other asset forming part of the estate. From this point in the process, there are no special procedures for dealing with the asset, and the information and guidance given elsewhere in the Manual (particularly Chapters 8 and 31) should be followed.
31.8.20 After-acquired property where official receiver is receiver and manager
After-acquired property may only be claimed by the bankrupt’s trustee [note 18]. It is not unlikely, however, that the official receiver may become aware of after-acquired property whilst acting as receiver and manager.
In this circumstance, the official receiver should, pending the appointment of the trustee, inform the bankrupt that the trustee will be contacting him/her regarding whether or not the property is to be claimed for the estate and, in the meantime, that he/she should not dispose of the property. Where the property is being left with the bankrupt, it should be made clear that this is a temporary arrangement and that the trustee will make a decision as to whether or not to claim the asset, once appointed.
The official receiver should take steps to protect the property including checking that there is adequate insurance cover. Where any insurance is in the name of the bankrupt, the insurance company should be informed of the official receiver’s interest in the property. Where the property is being held by a third party (for example, cash at bank), the third-party should be instructed to hold the property to the further order of the official receiver or trustee. Where some other party has control of the asset (for example, the executor of a will) that party should, similarly, be instructed to take the minimum action necessary to preserve the asset pending the appointment of the trustee.
Should it be considered necessary to sell the asset prior to the trustee’s appointment, the official receiver will need to apply to court for directions [note 19]. In these circumstances, the official receiver should, where appropriate, consider the early appointment of a trustee (including him/her-self) to deal with the property (see paragraph 31.8.21).
31.8.21 Transfer of case with after-acquired property to insolvency practitioner trustee
Where an insolvency practitioner is to be appointed trustee in a case where the official receiver has received information to suggest that the bankrupt has come into the possession of after-acquired property, the estate should be handed over as soon as possible to maximise the time available to the trustee to claim the property (see paragraph 31.8.12). Any delay by the official receiver may result in his/her being liable to recompense the estate for any loss due to the dissipation of the assets in the interim period [note 20].
It would be in order for the official receiver to give the insolvency practitioner notice of the property in advance of the formal handover and, obviously, there should be a full account of the information relating to the property, and the official receiver’s actions in respect of the property, in the handover papers.
Where, in these circumstances, the official receiver is trustee (rather than receiver and manager) and cannot be completely sure that the insolvency practitioner trustee will claim the property in the 42 day period (see paragraph 31.8.12), he/she should make the claim, perhaps in the knowledge that the realisation will be handled by the insolvency practitioner. It is better to act in this way than to lose the property.
31.8.22 Time limit for claiming after-acquired property not extended where trustee subsequently appointed
If an insolvency practitioner is appointed trustee of the estate in succession to the official receiver holding that office, and the notice of the devolved property was given by the individual to the official receiver, the insolvency practitioner is deemed to have had knowledge of the asset at the same time as the official receiver [note 21] and, therefore, the 42 day period for claiming the property (see paragraph 31.8.12) begins with the date that the official receiver as trustee became aware that the bankrupt had acquired the property, and not the date of the appointment of the subsequent trustee.
31.8.23 Transfer of case with after-acquired property to RTLU
The relationship between a “home” office, to which notice of the acquisition of the property is likely to be made, and an RTLU, which may be expected to deal with the realisation of the property, should be considered. As detailed in paragraph 31.8.22, the 42 day period (see paragraph 31.8.12) for claiming the property runs from the day that the official receiver (as trustee) first becomes aware of the property. A second period does not commence to run if the case is transferred between offices (and a new official receiver trustee is appointed), or where an insolvency practitioner is appointed to be trustee.
Thus, if the official receiver in the “home” office cannot be completely sure that a subsequent office or trustee will claim the property in the 42 day period, he/she should make the claim, perhaps in the knowledge that the realisation will be handled by someone else. It is better to act in this way than to lose the property.
31.8.24 Identification of person to whom after-acquired property has passed
If the bankrupt has disposed of the property before giving notice of its acquisition to the trustee, or in contravention of the rule barring disposal of the property (see paragraph 31.8.13), he/she is under a duty forthwith to disclose to the trustee the name and address of the person to whom the property has passed, and to provide any other information necessary to enable the trustee to trace and recover the property [note 22].
31.8.25 Claiming after-acquired property disposed of by bankrupt
Where property has been disposed of by the bankrupt before, or despite, his/her receiving notice of the trustee’s claim (see paragraph 31.8.14), the trustee may serve notice on the person to whom the property has passed, claiming the property for the estate [note 23].
Any notice in this respect must be served by the trustee within 28 days of his/her becoming aware of the identity and address of the person to whom the property has passed [note 24]. This period may be extended by the court [note 25], but the court is unlikely to be persuaded to extend the period unless it can be shown that there is “good cause” to do so. An administrative oversight is unlikely to be viewed as sufficient “good cause”.
31.8.26 Third party acquires property in good faith
(updated October 2013)
Where the third party acquires the property in good faith, for value and without notice of the bankruptcy the trustee will have no power to recover the property [note 26]. In these circumstances the trustee may, of course, lay claim to the funds received by the bankrupt in respect of the disposition of the property. Where it is not possible to lay claim to these funds, the official receiver should consider applying for an order suspending the discharge from bankruptcy until the value of the property lost has been restored to the estate (assuming, of course, that the bankrupt has not already received their discharge) [note 27] (see Chapter 13, Part 9 and Chapter 22, Part 4 for further information on applying for a suspension of discharge). As stated at paragraph 31.8.6, any early discharge process should normally be halted when dealing with after-acquired property, and early discharge does not apply to cases where the bankruptcy order was made on or after 1 October 2013 (Chapter 22, Part 2).
31.8.27 Misconduct relating to the disposal of after-acquired property
Where a bankrupt disposes of after-acquired property before, or despite, his/her receiving notice of the trustee’s claim (see paragraph 31.8.14) or having failed to notify the trustee that he/she has acquired the property (see paragraph 31.8.10), then this may be a matter of misconduct for which the official receiver should consider the submission of a report to Authorisations Team (see Enforcement Guide chapters 62 and 69 for further information on this).
31.8.28 Consequences of bankrupt’s failure to co-operate in respect of after-acquired property
As detailed at paragraph 31.8.4, the bankrupt is under a general duty to co-operate with the trustee and provide information relating to his/her affairs, even after discharge. Specifically regarding after-acquired property, he/she is under a duty to inform the trustee of any property that has been acquired by, or devolved upon, him/her during the period of his/her bankruptcy.
Where a bankrupt fails, without reasonable excuse, to comply with these obligations, he/she is guilty of a contempt of court (see Chapter 13, Part 3 for further information on dealing with contempt of court) [note 28]. The advantage of dealing with the matter in this way is that the court can order the bankrupt to provide the required information as part of the process of purging the contempt. Assuming that the bankrupt has not received his/her discharge, and as an alternative to dealing with the matter as a contempt of court, the official receiver could consider applying for a public examination of the bankrupt [note 29] with a joint application for a suspension of the bankrupt’s period of discharge [note 30] in the event of non-attendance at the public examination (see Chapter 13, Part 4 and Chapter 14 for further information on public examinations and Chapter 13, Part 9 and Chapter 22, Part 4 for information on suspension of discharge). See also paragraph 31.8.27 for information on the misconduct aspect of a failure to co-operate by a bankrupt in respect of after-acquired property.
31.8.29 Disclaimer of after-acquired property claimed by trustee (amended May 2009)
Where the trustee lays claim to after-acquired property that is subsequently considered to be onerous, he/she will not be able to disclaim the property without permission of the court [note 31].
The application for permission to disclaim may be made without notice to any other party, and must be accompanied by a report giving details of the property, setting out the reasons why the property, having been claimed for the estate, is now to be considered for disclaimer and specifying the persons (if any) who have been informed of the trustee’s intention to make the application. If the report states any person has consented to the disclaimer then the consent must be annexed to the report [note 32]. For further information on disclaimers generally see Chapter 34.
31.8.30 After-acquired property - second or subsequent bankruptcies
Where a subsequent bankruptcy order is made, any after-acquired property from a former bankruptcy which has not been distributed by the trustee by the date he/she receives notice of the subsequent bankruptcy petition will form part of the assets of the subsequent bankruptcy [note 33].
Please see Chapter 21 for further information regarding the interaction between the estates where a second or subsequent bankruptcy order is made.
31.8.31A After-acquired property - deceased insolvents and deceased bankrupts (amended May 2009)
The provisions in the Act relating to the power of the trustee to claim after-acquired property are extended to deceased insolvents (that is, a debtor who dies prior to the presentation of a bankruptcy petition against them – see Chapter 54 – Deceased Insolvents), with the exception that the period during which property acquired qualifies as after-acquired for the purpose of the Act begins not with the making of the insolvency administration order, but with the death of the debtor [note 34].
Deceased insolvents do not receive a discharge and, therefore, it is theoretically possible that after-acquired property could devolve on the insolvent some time after the making of the order. In reality, though, it is unlikely that new assets will come to light after the estate is settled. Under the doctrine of lapse [note 35] a gift will lapse and fail if the beneficiary dies before the testator [note 36] [note 37]. With regard to rights of action - these will lapse due to time limits (see paragraph 31.9.3).
31.8.31B After acquired property – deceased bankrupts (amended May 2009)
Where a debtor dies after the presentation of a bankruptcy petition the proceedings will continue as conventional bankruptcy proceedings, and any order made will be a bankruptcy order [note 38]. The provisions of the Act regarding after-acquired property will apply as normal.
31.8.31C Responsibilities of the personal representative of the deceased (Amended May 2009)
In cases both where the debtor dies prior to the presentation of a bankruptcy petition (and is subject to an Insolvency Administration Order), and where the debtor dies after the presentation of the petition (and is subject to a Bankruptcy Order), the duty to co-operate [note 39] and inform the trustee of the acquisition of property [note 40] rests with the deceased’s personal representative (see Chapter 54, Part 3) [note 41] [note 42]
[Back to Part 1 – After-acquired property – general] [On to Part 3 – Considering claiming after-acquired property]