PART 2
April 2010
NOTICE TO ELECT / NOTICE REQUIRING DISCLAIMER DECISION
34.37 Notice to official receiver requiring a disclaimer decision – general
The official receiver, as liquidator or trustee, may receive an application from an interested party requiring a decision as to whether or not property is to be disclaimed [note 1] [note 2]. Prior to 6 April 2010 this request had to be in a prescribed form known as a ‘Notice to Elect’. Whilst the notice to elect form is still available and may be used, the application can be made in any written format.
The liquidator or trustee then has 28 days from the date that the application was made to give notice of disclaimer if he/she decides that a disclaimer is appropriate. Failure to disclaim constitutes adoption of the agreement and brings with it all the liabilities and obligations relating to the property. The trustee or liquidator, having chosen not to disclaim, cannot change his/her mind.
Additionally, failure to deal properly with an application may constitute negligence, leading to a personal liability on the liquidator [note 3] or trustee [note 4].
It is, therefore, vitally important that, having received an application requiring a disclaimer decision or a notice to elect, the official receiver makes the decision regarding whether or not to issue a disclaimer as soon as practical after the receipt of the notice, and certainly within the 28 day period (see also paragraph 34.48). Detail of the matters to be taken into account when considering a disclaimer is included in Part 1 of the chapter.
34.38 Format and delivery of a notice requiring disclaimer decision
(Amended June 2010)
Prior to 6 April 2010 an application to the official receiver as trustee or liquidator under section 178(5) or 316 requiring a decision on a disclaimer had to be made on the ‘Notice to Elect’ form [note 5] [note 6] prescribed by the Rules, or on a substantially similar form, and had to be delivered personally or sent by registered post [note 7] [note 8]. These provisions still apply to cases with petitions before 6 April 2010 although in practice official receivers should accept and act upon applications received under the wider provisions of the amended rules.
As a result of The Insolvency (Amendment) Rules 2010 (IAR) in cases where the petition was presented on or after 6 April 2010, the application is no longer required to be in the form known as ‘Notice to Elect’, or substantially similar form, although that format may still be used. The application must be delivered to the liquidator or trustee personally, by electronic means, or by any other means of delivery which enables proof of receipt of the application to be provided if requested [note 9] [note 10]. The rules regarding electronic delivery apply when a notice is delivered to the official receiver as liquidator or trustee by electronic means. The official receiver must have given consent to the other party to receive notices and documents electronically and must have provided an electronic address for delivery [note 10A]. The consent may be in the form of a general consent for electronic communication or a specific consent relating to this particular notice. Electronic delivery of a notice requiring a disclaimer decision will only be valid if consent has been given and it has been sent to the electronic address specified by the official receiver.
34.39 Notice to elect not complying with prescribed rules
Where, in a pre 6 April 2010 petition case, the official receiver receives a letter or notice appearing to ask for a decision regarding a disclaimer, but it is not in the prescribed format or manner of delivery (see paragraph 34.38), he/she may inform the person that, if a formal decision is required, proper notice must be given in the prescribed form and manner of delivery. In practice, and bearing in mind the wider provisions introduced by the IAR, the official receiver should act upon the communication as if it was in the correct format.
For cases with petitions after 6 April 2010 the amended format and delivery provisions make it unlikely that an application will not comply with the rules (see paragraph 34.38).
34.40 Persons who may serve a notice requiring a disclaimer decision
The Act states that an application requiring the trustee or liquidator to decide whether to issue a disclaimer or not may be made by “a person interested in the property” [note 11] [note 12]. There is no definition of ‘a person interested’ in the Act.
Previously, local authorities have served notices to elect on official receivers in order to accelerate the disclaimer process with, perhaps, the intention that a party other than the insolvent could be looked to as the new rateable occupant of the property.
Legal advice has been received which suggests that, for the purposes of the provisions relating to notices to elect, a local authority cannot be considered a “person interested” as it has no rights which are exercisable in respect of the property. A local authority only has powers to recover unpaid rates by bringing proceedings for recovery against the owner or occupier of the property (as opposed, for example, to a mortgagee or landlord, who have the right to take possession of the property itself) [note 13].
Similarly, a bankrupt cannot be considered to have an interest in property formed in his/her estate as it would, following the making of the bankruptcy order, become vested in the trustee [note 14], thereby ending the bankrupt’s interest.
34.41 Action to be taken where official receiver receives a notice requiring a disclaimer decision from a local authority
In the circumstances that the official receiver receives an application under section 178(5) or section 316 requiring a decision on a disclaimer from a local authority acting as a rating authority (see paragraph 34.40) (or any other party whom the official receiver considers not to be an interested party), he/she should respond by stating that he/she will not accept the application as he/she does not consider the person who served it to be a person with an interest in the property. If the authority disagrees with this view, the advice of Technical Section should be sought, as it is possible that court proceedings will result.
Of course, if the official receiver is in the position to issue a disclaimer and this is, otherwise, the correct course of action, there would be no need to challenge the validity of the application. In these circumstances, the official receiver should still inform them that they are not considered to be an interested party but that he/she has concluded anyway that a disclaimer is appropriate
34.42 Notice to elect or notice requiring disclaimer decision served on official receiver acting as receiver and manager
(Amended July 2013)
An application requiring a decision as to a disclaimer can only be served on the official receiver when acting as liquidator or trustee [note 15] [note 16]. In the circumstances that the application is served on the official receiver when acting in any other capacity, he/she should inform the person who made the request that until a trustee is in office no application can effectively be served, and should undertake to inform the person concerned when an insolvency practitioner is appointed as trustee in order that the notice can be re-served. Where the official receiver expects to be appointed trustee he/she should agree to accept notice with effect from his/her appointment as trustee.
34.43 Notice served on official receiver where another party is liquidator or trustee
Where the official receiver receives an application under section 178(5) or section 316 at a time where another person is acting as liquidator as trustee, he/she should ensure that the communication is forwarded to the acting insolvency practitioner as a matter of urgency. It would be prudent to telephone the practitioner to bring the matter to their attention at the earliest possible opportunity.
34.44 Official receiver agreeing to be appointed as trustee to deal with disclaimer
Where, on receipt of a notice to elect or other application for a disclaimer decision, the official receiver considers that it is essential that the disclaimer be dealt with immediately, and the case is one in which it is intended to hold a meeting of creditors, he/she may consider issuing a notice of no meeting [note 17] [note 18] together with a letter explaining that a general meeting will be issued in due course. An example of where this course of action may be necessary is where there may be a “duty of care” aspect to the case – perhaps, where a property belonging to the bankrupt has been condemned as dangerous and another agency is awaiting issue of the disclaimer to allow them to formally take control of the property and make the property safe.
See also Chapter 16 regarding meetings of creditors.
34.45 Consultation with potential appointee following receipt of a notice requiring a disclaimer decision.
Where the official receiver is liquidator or trustee and it is likely that an insolvency practitioner whose identity is known will be appointed in his/her place, the official receiver should make immediate contact with him/her to ascertain whether he/she, when appointed, would disclaim the property.
The advice in paragraph 34.44 should be followed where the identity of the potential appointee is not known.
34.46 Potential appointee agrees to disclaimer following receipt of notice
If the potential liquidator or trustee is of the opinion that the property should be disclaimed then the notice can be issued in the usual way by the official receiver (see Part 3). In these circumstances, the insolvency practitioner’s views should be obtained in writing.
34.47 Potential appointee not able to agree to disclaimer following notice
If, on the other hand, the potential liquidator or trustee feels that a disclaimer is not appropriate, the official receiver should inform the person who has made the application requiring a disclaimer decision of the position and ask that they agree to the withdrawal of their request pending the appointment of the insolvency practitioner. Any withdrawal of notice should be in writing. The view of the potential liquidator or trustee in this matter should be obtained in writing.
If the person who served the notice or application does not agree to withdraw it then the advice and information in paragraph 34.48 should be followed.
34.48 Extension of time to issue disclaimer following receipt of application requiring disclaimer decision
It is possible for the liquidator or trustee to seek an extension of the 28-day limit allowed for dealing with an application under section 178(5) or section 316 by application to court - even if the 28-day period has already expired [note 19] [note 20], [note 21].
For such an application to be successful the court would wish to be satisfied that there was a good cause for the extension to be granted. In reaching its decision, the court is likely to consider the length of the delay (if the application is out of time); the merits of the application having regard to the overall position of the bankruptcy and any prejudice caused to interested parties [note 22].
34.49 Circumstances where extension of period allowed following receipt of a notice requiring disclaimer decision is appropriate
An example of a circumstance where an extension of the period allowed to issue a disclaimer following receipt of an application requiring a decision on a disclaimer would be appropriate is given in paragraphs 34.47. Another reason may be where the official receiver was unable, for reasons outside his/her control to obtain sufficient information to allow for a decision to be made regarding whether or not a disclaimer should be issued.
In the circumstances outlined in paragraphs 34.47 this application should be accompanied by an alternative request for directions in the event that no extension of time is allowed [note 23] [note 24].
34.50 Extension of time where claimed property subject to notice requiring disclaimer decision.
If a trustee has claimed exempt or after acquired property, any disclaimer of that property requires the court’s permission (see paragraph 34.33). Where an application requiring a disclaimer decision is received in respect of that property it is likely that an extension of the 28-day period will be required to allow for an application for permission to disclaim to be heard by the court. In the circumstances where an application for permission to disclaim is made within the 28-day period the court must extend the time allowed to the date fixed for the hearing of the application for permission [note 25].
34.51 Consequences of failure to disclaim following an application requiring a disclaimer decision
The consequences of the failure to disclaim by the official receiver are discussed in paragraph 34.37. The official receiver will normally be unable to issue a disclaimer if he has not done so within the 28 day period or extended period, although an application for extension or further extension of time after the original period has lapsed is possible (see paragraph 34.50).
[Back to Part 1 – Considering a disclaimer] [On to Part 3 – Procedure for disclaiming]