THE EFFECT OF A RIGHT OF ACTION VESTING
This Part of the Chapter gives information and guidance where a right of action forms part of a liquidation or has vested in the bankrupt’s estate – whether as a hybrid action (see paragraph 31.9.43) or a ‘straight’ property claim (see paragraph 31.9.35).
Part 3 of this chapter gives information and advice to assist the official receiver in deciding whether a right of action vests in the trustee of a bankrupt’s estate or not.
Where a right of action vests in the estate, the bankrupt has no standing (locus standi) to bring or continue the action without the official receiver (as trustee) becoming, at least, the co-claimant [note1] [note 2] [note 3] [note 4].
This point should be made clear to the bankrupt and his/her advisors as soon as the official receiver becomes trustee and is aware of a right of action has vested in the him/her as trustee.
The official receiver may use the letter attached at Annex D, for this purpose.
At the date the action vests, liability for costs will most likely pass to the trustee in bankruptcy if he/she continues the litigation (see Part 7). If the action is subsequently assigned back to the bankrupt (see Part 6) , who pursues the claim unsuccessfully, any award for costs against the bankrupt in those circumstances will most likely be a post bankruptcy liability.
Where the bankrupt continues a claim which is vested in the bankruptcy estate without the authority of the trustee, and costs are awarded against them post bankruptcy at the conclusion of the case, the present view is that the order for costs will be a provable debt in the bankruptcy (see paragraph 40.71).
The official receiver should not, under any circumstances, give effective or explicit consent to a director of a company in liquidation or the bankrupt continuing with the litigation (including the issuing of proceedings) of any right of action belonging to the company in liquidation or vesting in him/her as trustee.
If such action were taken the director or bankrupt, as the case may be, may be considered to have been appointed as the official receiver’s agent in this matter [note 5].
To do so would leave the official receiver, as trustee, in the position of being, at least, co-claimant (in a bankruptcy) and possibly exposing the company or him/her to an adverse costs order.
The right of action does not vest in the official receiver, as trustee, until he has issued the notice of no meeting [note 6] [note 7] or a meeting has been concluded and no appointment of an insolvency practitioner has been made [note 8]. It has been held that notwithstanding that the action has yet to vest, the bankrupt has no standing to bring or continue the action after the date of the bankruptcy order and pending the appointment of the trustee (see paragraph 31.9.70) [note 9].
The inability of a bankrupt to bring or continue a vesting right of action that vests in the official receiver, as trustee (see paragraph 31.9.71) is unaffected by him/her having been granted legal aid [note 10].
It has been held that the fact that a bankrupt is unable to bring a vesting action (see paragraph 31.9.71) is not contrary to a bankrupt’s right to access the courts under the human rights legislation [note 11]. Essentially, it was held that the right has not been denied, rather it has vested in the bankruptcy estate [note 12].
There are, essentially, six ways that a right of action may be dealt with by the official receiver, as trustee or liquidator. Four of these options might be termed ‘positive’:
The remaining two options might be termed ‘negative’ (see Part 10):
Often, a case will already be going through litigation when it comes to the attention of the official receiver, and it is not unusual for there to be an imminent (sometimes a very imminent) hearing. The insolvent’s solicitors will frequently try to encourage the official receiver to seek an adjournment.
The seeking of an adjournment of a court hearing in relation to an ongoing claim, including written application, may be considered by the court to be a formal application which, particularly if opposed, could result in the court refusing to make the adjournment order and making an adverse costs order against the official receiver.
Seeking an adjournment would constitute the continuation of legal proceedings – for which the sanction of the Secretary of State is required (see paragraph 31.9.133) and, instead, an early settlement or assignment should be sought.
See paragraph 31.9.23 for alternatives to the seeking of an adjournment.
It is open to a bankrupt to make an application to court for declaration that a right of action does not vest in the trustee of the bankruptcy estate. It has been held that such an order would have no effect on any person who was not made a party to the application [note 13].
It would be vitally important, if the official receiver, as trustee, is served with such an application, that he/she oppose the application (assuming he/she was of the view that the action did vest), seeking advice from Technical Section if necessary.
Some solicitors acting for bankrupts in hybrid claims will try to ‘drop’ the property part of the claim in the hope that the claim can then proceed as a personal, non-vesting, claim. Following the relevant authorities [note 15] [note 16], this approach is, legally, incorrect and should be resisted.
This approach (the ‘splitting’ of a claim) may be allowed in certain discrimination claims (see paragraph 31.9.44).
It has been held that the official receiver (as trustee) should not allow himself/herself to accept engagement as a ‘hired gun’ [note 17]. What this means is that the liquidator or trustee should not accept payment in return for bringing a claim.
Where the bankrupt issues a claim in a vesting right of action without the permission of the official receiver as trustee, it is likely that the claim will be struck out as an abuse of process [note 18] or as being frivolous or vexatious [note 19].
The issuing of a claim by a bankrupt’s solicitors in circumstances where the solicitor is acting contrary to the advice of the official receiver is likely to be a breach of the standards of professional conduct, for which the official receiver should consider making a complaint to the Solicitors’ Regulation Authority (http://www.sra.org.uk/solicitors/solicitors.page).
31.9.82Judgment made before making of a bankruptcy order
(amended June 2014)
Where a bankrupt is bringing an action that has proceeded to judgment prior to the making of the bankruptcy order, any monies awarded would form part of the bankruptcy estate.
It is possible that the bankrupt may have ‘lost’ the case and be liable for costs in relation to the action taken. Such costs would be a provable debt in the proceedings (see paragraph 40.71).