March 2009


30.45 Introduction

This part covers property that is either:

(a)   Considered to be exempt, but is of a higher (excess) value than necessary (see paragraph 30.47), or

(b)   Claimed as exempt by the bankrupt, but that claim is rejected by the official receiver (see paragraph 30.46).

In both cases the official receiver as trustee will need to claim that property for the benefit of the estate, unless in the case of (b), the property is not considered to be worth the costs of realisation.


30.46 Trustee’s right to reject bankrupt’s claim to exempt property (amended May 2010)

The official receiver, as trustee, may reject a claim to exempt property by the bankrupt if it is considered that none of the grounds for exemption apply [note 1]. A written record should be made of any claim made by the bankrupt to exempt property in the telephone interview notes [note 2], narrative statement or additional questions as appropriate [note 3], even if it is likely to be rejected.

Where the asset is straightforward to deal with, the notice rejecting the bankrupt’s claim can be sent as soon as the official receiver becomes trustee [note 4, 5]. If there is any doubt as to whether an asset is exempt, or whether it is of excess value, the matter should be discussed with line management before notice is sent to the bankrupt. The bankrupt should not be led to believe that an asset is, or is not, exempt property in cases where an insolvency practitioner is likely to be appointed as trustee, as any decision is for the trustee to make. See paragraph 30.59.

For information regarding the bankrupt’s right to appeal a decision to reject a claim, see paragraph 30.56.


30.47 Trustee’s right to claim exempt property of excess value (amended May 2010)

The official receiver, as trustee, may claim exempt property for the bankrupt’s estate if it appears to the trustee that the realisable value of the whole or any part of the property exceeds the cost of a reasonable replacement for that property or that part of it [note 6, 7] and the costs of protecting and realising it (see paragraph 30.18 on valuing exempt assets).


30.48 42-day period to make claim to property

The official receiver in his capacity as trustee must make the claim against the property in question by notice in writing [note 8] within 42 days of becoming aware of the property or, where the official receiver is trustee, within 42 days of becoming trustee if he/she was already aware of the existence of the property prior to becoming trustee [note 9, 5]. Note that the time limit, set by the Act, can be extended on application to the court [note 10].

The court may refuse to permit the claim to be made after the expiry of the 42-day period [note 11].


30.49 Property vesting in trustee

Once the official receiver has claimed the exempt property in writing [note 5] the property will vest in the trustee as part of the bankrupt’s estate from the date the bankrupt receives the notice; and except against a purchaser in good faith, for value. The trustee’s title to the property has relation back to the commencement of the bankruptcy i.e. the date of the bankruptcy order [note 12].  The trustee cannot then disclaim property claimed for the estate without the leave of the court [note 13].


30.50 Bankrupt allowed to temporarily retain exempt property of excess value

Where the official receiver, as receiver and manager of a bankrupt’s estate, is satisfied that there will be a net value from replacing a ‘necessary’ item, the bankrupt should only be allowed to keep control of the item, pending a trustee’s appointment, if he/she agrees to insure it (comprehensively in the case of motor vehicles) with the official receiver’s interest being noted on the policy. The official receiver should write to the insurance company to ask them to note his/her interest (see Chapter 49, Part 2) and notify him/her of any activity in relation to the policy. The bankrupt should be informed in writing that they may not validly dispose of the item and that their trustee will contact them regarding it once the appointment has been made. The bankrupt should also be informed that even though the official receiver has allowed them temporarily to retain possession of the item, this action in no way binds the trustee, who may take a different view as to whether the item is exempt or may take a decision to claim it for the estate [note 14].


30.51 Bankrupt’s failure to protect exempt property of excess value (amended May 2010)

If proper arrangements cannot or will not be made by a bankrupt to protect the asset as required by the official receiver, the official receiver should take steps to protect it, by taking it into safe-keeping if possible, and, if appropriate, by applying to the court for directions that he/she sell the property and purchase a replacement before a trustee is appointed [note 15].  Depending on the circumstances of the case, the official receiver may also protect the property by becoming trustee of the estate so that a claim on the asset can be made immediately. As the property does not form part of the estate until it is claimed by the trustee, the official receiver as receiver and manager of the bankrupt’s estate cannot dispose of the item without the sanction of the court. If a dispute arises between the official receiver and a bankrupt about the necessity of an item, the official receiver should immediately apply to the court for directions to safeguard his/her position.


30.52 Replacement property (amended May 2010)

Where the official receiver, as trustee, claims for the estate an item which is exempt property of excess value, funds comprised in the estate must be applied to purchase by, or on behalf of the bankrupt, a reasonable replacement (see paragraph 30.57). This duty on the trustee has priority over any duty on the trustee to distribute the estate [note 16]. A purchase of replacement property can be made either before, or after the realisation of the property by the trustee [note 17]. The official receiver is under no obligation to apply funds to the purchase of the replacement property until there are funds in the estate to do so [note 18].


30.53 Replacement of motor vehicles

(Amended August 2011)

As a reasonable vehicle can be purchased for approximately £1,000 this should be the guideline figure used by the official receiver when considering the cost of a reasonable replacement. In most cases it will be necessary to wait until the item is sold before there are sufficient funds from which to provide the replacement but the official receiver should make efforts to minimise the period that the bankrupt will be without the asset.

The replacement should be purchased by providing the bankrupt with a cheque made payable to the vendor, but not until the bankrupt has provided written details of the item being purchased (e.g. car registration number, model and vendor’s name and address). Whilst the onus is on the bankrupt to ensure that the replacement property is suitable for its intended purpose, the official receiver should nonetheless use his/her judgement to assess the reasonableness of the replacement cost, e.g. the minimum amount below which it would not be reasonable to expect to obtain a roadworthy and reliable vehicle.


30.54 Money provided in lieu of sale

If a third party offers the official receiver the difference between the value of the property and the value of the replacement, the official receiver can accept that offer, enabling the bankrupt to retain possession of the property that would otherwise vest in the official receiver as trustee [note 19]. The official receiver as trustee, may accept a third party’s proposal if satisfied that it  is a reasonable one, and that the estate will benefit to the extent of the value of the property in question less the cost of a reasonable replacement [note 20]. The expenses of sale, which would otherwise be incurred, should also be taken into account in assessing any such offer.


30.55 Need for a net benefit to the estate (amended May 2010)

In all cases the official receiver should not normally take any steps to claim exempt property unless there is going to be a net benefit to the estate after taking into account any costs of sale and of a replacement item/vehicle. For further information on exempt motor vehicles of excess value see paragraph 30.141. This means that the official receiver should take a conservative view of the value of the property so as to provide a reasonable margin of safety, after payment of agents’ costs and the cost of a suitable replacement. Official receivers are expected to rely on advice from their agents as to whether such a net benefit can be achieved and may incur a debit balance on the estate to obtain such advice. Where a number of items, such as some pieces of antique furniture, would together achieve a net figure, the official receiver can consider them as a group. 


30.56 Challenge by bankrupt

The bankrupt should be made aware that it is possible to challenge the official receiver's decision by making application to the court [note 21]. The section provides that if a bankrupt or any of his/her creditors or any other person is dissatisfied by any act, omission or decision of a trustee of the bankrupt's estate, he/she may apply to the court; and on such application the court may confirm, reverse or modify any act or decision of the trustee, may give him/her directions or may make such other order as it thinks fit.


30.57 ‘Reasonable replacement’ – practical examples (amended May 2010)

A county court has reversed a trustee's decision to replace the Rolls Royce of a hire car driver who worked in the luxury end of the market with a vehicle of lesser value and restored exempt property of excess value to the bankrupt as they could not undertake their business with a lower prestige motor vehicle (of lesser value).

In another case, the trustee seized and sold a horsebox for the benefit of the creditors. Later the court found on appeal that the horsebox was an asset by which the bankrupt earned his income, and that the trustee had not provided a reasonable replacement [note 22]. The judge ordered that the trustee either provided the bankrupt with the sale proceeds of £9,653, or the value of a reasonable replacement whichever was the less. The trustee argued that a reasonable replacement could be obtained for £1,500 and the judge stated that it would be for the trustee and the bankrupt to argue before the county court if they could not agree on a figure. In this case, ‘replacement’ meant not a similar asset to that which was seized, but a less expensive asset, which it would be reasonable for the bankrupt to use in his business.


30.58 Information to creditors

If a decision that a bankrupt is to be allowed to retain exempt property of excess value has been made before the issue of the report to creditors [note 23], the information about exempt property should be included in the report. Similarly all other assets, which have been judged to be exempt property, should be identified in the report to creditors. Items which are generally exempt in every case, such as household goods and furniture, may be listed in a note at the bottom of the report to creditors and grouped together as such, but items that are likely to give rise to queries, such as a motor vehicle or higher value items, should be individually listed. All other enquiries from creditors about exempt property matters should be dealt with as they arise.


30.59 Appointment of an insolvency practitioner as trustee

Where an insolvency practitioner is to be appointed as trustee, the official receiver should hand over the estate as soon as possible when there are exempt items of excess value, due to the time limits on claiming property (see paragraph 30.48). 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 24]. The insolvency practitioner’s attention should specifically be drawn to the property which the official receiver, as receiver and manager, considers may be claimed and the trustee’s record book [note 25] should include details of any action taken by the official receiver in respect of that property.

The handover of the estate should take place so as to leave the trustee ample time to make the claim to the property. If necessary, the trustee may be given advance information about the property prior to the formal handover of the estate. To avoid property being lost for the benefit of the estate, the official receiver, where he/she is trustee, should serve the notice upon the bankrupt so that the property is claimed for the estate and proceed to hand over the estate to the insolvency practitioner trustee without delay [note 8]. Any action taken by the official receiver in relation to the property should be included in the trustee’s record book [note 25].



[Back to Part 2 – Items that may be claimed as exempt property] [On to Part 4 – Tenancies]