THE EFFECT OF A RIGHT OF ACTION VESTING

PART 4

November 2010

THE EFFECT OF A RIGHT OF ACTION VESTING 

31.9.70 Scope of this Part (amended September 2014)

This Part of the Chapter gives information and guidance where a right of action forms part of a liquidation or has vested in the official receiver as trustee – 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.

 

31.9.71 Bankrupt has no standing to bring or continue vesting claim (amended September 2014)

Where a right of action vests, 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 should use the letter attached at Annex D, for this purpose.

 

31.9.71a Important that official receiver takes initiative in dealing with a right of action and deals with trustee appointment effectively (added September 2014)

Despite the general inability of a bankrupt to continue an action once it has vested (see paragraph 31.9.71), it has been held that a bankrupt may continue to pursue the claim where he/she is in ignorance of the appointment of a trustee or of the vesting of his/her estate (including the right of action) in the trustee, whether or not he/she ought to have known of the appointment and vesting [note 4a].  By extension of this decision, it is also possible for the bankrupt to pursue the claim in the period between the making of the order and the appointment of the trustee.

Assuming that the official receiver follows the guidance elsewhere in this Chapter and takes proactive steps in respect of the claim (in particular issuing the letter attached at Annex D), this situation is unlikely to arise.

It will, of course, also be necessary that the official receiver completes the formalities of the appointment of a trustee both properly and expeditiously, whether this be the appointment of an insolvency practitioner to act as trustee through a meeting of creditors (see Chapter 16) or Secretary of State appointment (see Chapter 17), or the official receiver becoming trustee through the filing of the notice of no meeting [note 4b] at court.

 

31.9.72  Official receiver should not give indication that bankrupt or director may continue with claim

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. 

 

31.9.73  Bankrupt has no standing to bring claim which has yet to vest

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].

 

31.9.74  Bankrupt’s inability to bring a claim unaffected by having been awarded legal aid

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].

 

31.9.75  Bankrupt’s inability to bring a claim not contrary to human rights legislation

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].

 

31.9.76  Ways of dealing with a vesting right of action

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’: 

  • Litigation (take the case to court) (see Part 7)
  • Assignment (sell the right of action) (see Part 6)
  • Settlement (do a deal with the defendant to bring the claim to an end) (see Part 5)
  • Complaint (see paragraph 31.9.11)

The remaining two options might be termed ‘negative’ (see Part 10): 

 

31.9.77 Seeking an adjournment of a court hearing (amended May 2015) 

For guidance on the seeking of the adjournment of a court hearing see paragraph 31.9.23.

 

31.9.78  Bankrupt making application for an order/declaration that action does not vest

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.

 

31.9.79  Claim cannot be split

It is not possible for a hybrid action (see paragraph 31.9.42) to be split between the property and personal elements of the claim. [note 14].

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).

 

31.9.80  Official receiver should not allow claim to be brought in his/her name

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.

 

31.9.81  Claim issued when official receiver has not agreed

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). 

 

31.9.82 Judgment 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).

 

[Back to Part 3 – Deciding whether a right of action vests] [On to Part 5 – Settlement of a right of action]