‘NEGATIVE’ OPTIONS FOR DEALING WITH A RIGHT OF ACTION
As outlined elsewhere in this Chapter there are, essentially, six ways of dealing with a right of action:
Generally speaking, it is best to take one of the first three options as these will maximise the return to creditors whilst minimising the risk to the official receiver. In some exceptional cases, the fourth option (litigation) will be appropriate – but only very rarely.
This Part of the chapter concentrates on the two remaining options – to be used where it is impossible or inappropriate to take one of the four ‘positive’ options.
The most likely scenarios where it will be impossible to use one of the ‘positive’ options for dealing with a right of action are:
A disclaimer is a process that allows the official receiver, as liquidator or trustee, to disclaim his/her interest in onerous property (in short, property which comes with an obligation to pay money or perform an act) which forms part of the estate. The effect of the disclaimer is to end the interest of the liquidator/trustee and the insolvent in the property and, also, discharges the liquidator/trustee of any liability in respect of the property (see Chapter 34 for full information on the disclaimer process).
Generally speaking, a right of action cannot be described as onerous property unless it has entered the stage of being litigated when the insolvency order is made. In those circumstances, it is often the case that the parties to the claim (particularly, the defendants) will put pressure on the official receiver, as liquidator or trustee, to decide what his/her intentions are with regards to the claim (usually, with a hearing date imminent).
With the assistance of solicitors (see paragraph 31.9.89), it should be possible to negotiate a settlement or assignment in pretty short order. Where none of the ‘positive’ options are possible/appropriate, the official receiver may disclaim his/her interest in the claim (rather than seeking to discontinue or adjourn the proceedings as these may lead to an adverse costs order – see paragraph 31.9.130).
The notice of the disclaimer (see paragraph 34.52) should be served on the bankrupt (and his/her advisors), the defendants (and his/her advisors) and the court/tribunal at which the hearing was taking place.
The legislation allows any person with an interest in disclaimed property to apply for a vesting order (effectively, an order that they become ‘owner’ of the property – see Chapter 34, Part 5 for more details). The person most likely to do this is the defendant as this will have the effect of bringing the claim to an end.
The bankrupt cannot apply for a vesting order as he/she has no interest in the property once it has been disclaimed [note 1]. This should be made clear to the bankrupt when discussing the possibility of disclaiming so that he/she does not get the impression that he/she will be able to take ownership of the claim following the disclaimer (effectively, getting a ‘cheap’ assignment).
If the claim is not in the process of litigation, and none of the ‘positive’ options for dealing with the right of action are possible or appropriate, then the best course of action is for the official receiver, as liquidator or trustee, to, effectively, abandon the claim. The bankrupt cannot bring the claim (see paragraph 31.9.71) and it will, eventually, become statute-barred (see paragraph 31.9.143).
Where the official receiver, as liquidator, is not prepared to litigate (whether he/she is without funds or because he/she has been legally advised not to), a creditor or contributory may make an application to court for leave to carry on the action [note 2]. In these circumstances, the official receiver should attend the hearing and object to the application unless it is granted on the basis that no costs fall to the company or official receiver.
[Back to Part 9 – Dealing with the fruits of a right of action]