ACTION TO BE TAKEN BY THE OFFICIAL RECEIVER IN RELATION TO PPI
In order that a PPI complaint can be successfully pursued it is essential that all relevant information with regards to any PPI policy obtained in the last six years is obtained from the bankrupt as soon as possible after the making of the bankruptcy order. See paragraph 31.9A.10 as to why this only applies to policies obtained in the last 6 years.
Where it is identified that the bankrupt has a PPI policy with regard to a loan, even if that loan is now repaid, the bankrupt should be requested to provide an account of the purchasing of the policy by answering the questions on the appropriate questionnaire (see paragraph 31.9A.25).
The bankrupt should be asked to provide confirmation as to whether or not any PPI policies have been taken out in relation to any debts at the initial enquiry stage or (where initial enquiries are not made) as part of the vetting interview, regardless of whether that debt has been paid in full prior to the making of the bankruptcy order (see paragraph 31.9A.21-23). Where a PPI policy is identified at the initial enquiry stage, the official receiver should send the PPI questionnaire (Annex B) to the bankrupt with the interview pack.
The questionnaire should only be sent out with the interview pack where a PPI policy has already been identified. PPI questionnaires should not be sent to a bankrupt speculatively. Where possible the official receiver should complete the PPI questionnaire at the vetting interview on behalf of the bankrupt to prevent any misunderstanding about who has the right to any subsequent compensation.
A separate questionnaire should be completed for each PPI policy held. The questionnaire is derived from the questionnaire held on the Financial Services Ombudsman’s website and should not be altered.
Information should also be sought for any PPI policy taken out by the bankrupt on any secured borrowings that have been paid off from consolidated loans in the 6 years prior to the bankruptcy order, [note 1], see paragraph 31.9A.10.
Where the bankrupt confirms that he/she has a PPI policy at the interview stage (rather than initial enquiry stage – see paragraph 31.9A.25), the examiner should note the bankrupt’s response regarding any PPI policies held in the interview record or preliminary examination [note 2]. The official receiver should ensure that either;
(a) the completed questionnaire(s) have been returned by the bankrupt (if previously sent), or
(b) the questionnaire(s) is completed during the interview.
Where possible, the official receiver should complete the PPI questionnaire at the vetting interview on behalf of the bankrupt to prevent any misunderstanding about who has the right to any subsequent compensation.
Where the official receiver considers that the bankrupt may have a PPI policy prior to his/her bankruptcy and the bankrupt fails to complete or sign the PPI questionnaire, this should be treated in the same way as any other failure by the bankrupt to provide information, with early discharge not being proceeded with and an application to the court for suspension of the bankrupt’s discharge being considered (See Chapter 22, Part 4).
Each case should be reviewed on its own merits as to the materiality of the failure to co-operate with the official receiver.
If the bankrupt cannot recall whether a PPI policy was purchased, the official receiver should make enquiries of any secured creditors using the document production mortgage letter [note 3]. To obtain information with regards to any PPI policy taken out by the bankrupt, additional paragraphs should be inserted into this mortgage letter, see Annex C for the text to insert and guidance on how to insert it.
The letter to the mortgage lender should seek to establish:
(a) Details of any PPI policy sold in connection with the borrowing.
(b) Details of the PPI provider including their address and policy number.
(c) If any PPI policy exists, whether any complaint has been commenced with regards to its potential mis-selling.
(d) Where the lender is the PPI provider, a copy of the policy.
If the mortgage lender responds to the mortgage enquiry letter [note 3] confirming that the bankrupt holds a PPI policy which has not previously been disclosed, arrangements should be made with the bankrupt for the questionnaire to be completed and the bankrupt’s consent to the enquiries being made obtained. If the bankrupt cannot recall the necessary information and that is not possible, the questionnaire should be issued to the bankrupt for completion with as many details as possible (Annex B), and ISCIS updated (see paragraph 31.9A.48). Provided the bankrupt’s consent is obtained on the questionnaire, then that, along with the details provided by the mortgage lender which may include a copy of the PPI policy, should be sufficient for the complaint to be progressed (see Part 4).
Where a bankrupt cannot recall whether he/she took out a PPI policy and there is no evidence to suggest that he/she did, e.g. copies of credit agreements, credit card statements, etc. no further action should be taken.
Where the official receiver has obtained information on a PPI policy taken out in relation to a secured or unsecured loan or credit card, the official receiver will need to decide whether or not to pursue a complaint based on the following:
(a) Does the complaint have any merit? See paragraph 31.9A.35; and
(b) Is there any benefit to the estate? See paragraph 31.9A.70.
See Part 4 for further guidance.
Where a bankrupt has commenced a complaint for mis-selling of a PPI policy prior to the date of the bankruptcy order, the complaint is one that vests in the official receiver, as trustee (see paragraph 31.9A.9). The official receiver should not agree to the bankrupt continuing any complaint. The official receiver, as trustee, may choose to continue the complaint if it is considered that it has merit.
The official receiver should firstly notify the financial institution of the official receiver’s interest and give consideration to continuing with the complaint, see Part 4.
The bankrupt may have instructed a Claims Management Company to pursue a complaint for mis-selling of PPI, if so see paragraphs 31.9A.36 to 31.9A.44 for guidance on establishing how far the complaint has been taken.
In respect of mis-sold PPI, a claims management company (‘CMC’) will offer advice and/or services in respect of complaints for compensation. They usually operate on a ‘conditional fee’ basis whereby any fee for services provided is payable only if there is a favourable result and compensation is paid.
The official receiver may discover at the initial enquiry stage or first interview, that a bankrupt has employed the services of a CMC prior to the date of the bankruptcy order.
The official receiver should not agree to the bankrupt continuing any complaint via the CMC, as any right to complain for the mis-selling of a PPI policy vests in the official receiver as trustee (see paragraph 31.9A.9).
Details with respect to the CMC and progress made in relation to the complaint should be obtained from the bankrupt. Where the complaint has already progressed to conclusion, i.e. a settlement or adjudication has been obtained, the official receiver should contact the Financial Institution and attempt to have any compensation awarded paid directly to the insolvent estate.
Where the bankrupt has already instructed a CMC prior to the making of the bankruptcy order, the official receiver, should seek to take control of the complaint and write to the CMC advising that:
(a) The complaint now vests in the official receiver, as trustee of the bankrupt’s estate.
(b) The bankrupt is without standing to instruct in this matter [note 4].
(c) The official receiver does not intend to adopt the contract.
(d) The CMC may wish to submit a claim for any amounts outstanding to them up to the date of the bankruptcy order.
(e) Any compensation payment should be remitted to the official receiver as trustee of the bankrupt’s estate.
There is usually no benefit to retaining the services of a CMC, as in most cases the only action required is the completion of the questionnaire by the bankrupt (Annex B) and passing the information to the Financial Institution.
Where a PPI complaint has commenced at the date of the bankruptcy order, any further action with regards to the complaint should be managed by the official receiver, as trustee (see Part 4).
31.9A.40 (deleted August 2013)
Where a CMC has pursued a PPI mis-selling complaint to the point that compensation is payable, the official receiver should firstly ensure that any PPI compensation is collected for the benefit of the insolvent estate.
Having successfully pursued the complaint, the CMC is likely to request payment of their fees (see paragraph 31.9A.37) and it is reasonable for the official receiver to allow some payment from the compensation proceeds realised; the proceeds having resulted, in part, from the CMC’s efforts. It should be noted however, that the official receiver is not bound by the terms of the CMC’s contract with the bankrupt (see paragraph 31.9A.38), and fees based on a percentage of the compensation awarded are likely to be excessive in relation to the amount of work actually undertaken by the CMC (fees claimed may be as high as 25-30%). The official receiver should, consequently, offer a reasonable remuneration following the guidance in paragraphs 31.9A.42 to 31.9A.44.
The official receiver, as trustee of the bankrupt’s estate, has discretion in the negotiation/establishment of what should be paid to a CMC as a fee for work undertaken. Typically, 10% of the net realisation to the bankruptcy estate, i.e. the amount received after application of set-off (see Part 5), should be offered to the CMC from the bankruptcy estate. The 10% offer should be inclusive of VAT. The payment in all cases should be limited to the amount received by the estate, i.e. a debit balance can not be incurred to meet CMC charges.
Ultimately the agreed fee to be paid to the CMC is a matter for the official receiver, as trustee, to decide and the official receiver should always act in the best interests of the creditors.
Where the CMC claims a fee which is in excess of £600, the official receiver should consider requesting the CMC to provide a time and rate breakdown of the work they have undertaken. The sum of £600 does not represent the maximum that may be paid by the official receiver, as trustee, to a CMC in respect of their fees. The figure should simply be used as a trigger for approaching the request for payment on a ‘time and rate basis’, instead of arbitrarily offering 10%.
Where 10% of the net realisation is under £600 and the CMC reject the official receiver fee payment offer, the official receiver should consider requesting the CMC to provide a time and rate breakdown in support of their fee claim and then use this breakdown to determine what fee is appropriate taking into consideration the ‘reasonable costs’ of the CMC.
Where a CMC has been required to send in a time and rate breakdown, the CMC may simply provide the official receiver with a copy of the contract it holds with the bankrupt as evidence that they are entitled to a certain percentage of the gross realisation. The official receiver should not accept this as evidence of entitlement to that fee. As the official receiver, as trustee, did not instruct the CMC, he/she is not bound by the contract. The official receiver should reiterate a request for a time and rate breakdown in order that the ‘reasonable costs’ of the CMC may be calculated (see paragraphs 31.9A.42 and 43 above).
The Service is aware that some bankrupts and former bankrupts have used CMCs to pursue PPI policy mis-selling complaints on their behalf after the date of the bankruptcy order. If these services are used after the date of the bankruptcy order, it is possible that the bankrupt will remain responsible for all or part of the CMC fee charged as a post-bankruptcy debt.
The bankrupt will not receive any direct benefit from the compensation, which is vested in the official receiver (see paragraph 31.9A.9), and, consequently, may be left without any funds with which to settle the CMC’s fees. In these circumstances, the bankrupt may wish to seek independent advice on the enforceability of the claim, specifically whether the CMC should have accepted an instruction when knowing (or failing to enquire) about the bankruptcy and its effect on the bankrupt’s standing to make a complaint [note 4].
In practice where the insolvent estate has benefited from the compensation payment, the official receiver should agree to pay the reasonable costs of the CMC (see paragraph 31.9A.41 to 44). Problems may occur where the PPI provider has exercised a right to set-off (see Part 5). In such circumstances this may result in no compensation received by the insolvent estate from which the CMC’s fees could be paid.
Ultimately, where the bankrupt’s instruction to the CMC is after the date of the bankruptcy order, it is the bankrupt who is liable under the contract with the CMC and, any liability will be a post-bankruptcy debt.
Where a CMC is pursuing a PPI mis-selling complaint prior to the date of the bankruptcy order, the CMC may claim that the right to pursue the complaint was assigned to them by the bankrupt. It is unlikely that any purported assignment of a PPI mis-selling complaint to a CMC would be a formal assignment. It is more likely that the bankrupt has entered into a contract for services offered by the CMC. Any purported assignment after the presentation of the bankruptcy petition, would be automatically void [note 5].
The official receiver should obtain copies of any written documentation to establish whether it is a legally binding assignment of the right to make the complaint.
Where it is considered that there may be a legal assignment of the right to make a PPI mis-selling complaint, the advice of Technical Section should be sought.
Where the bankrupt indicates that he/she holds a PPI policy and the PPI questionnaire has been sent/given to the bankrupt for completion (Annex B), ISCIS should be updated. An ‘Other (General)’ note should be added to the case in ISCIS on the date the questionnaire is sent in order that it may be chased for return.
It is essential that The Service is able to accurately identify PPI compensation monies received and the source (whether direct from lenders or bankrupts, or from agents instructed prior to September 2013). Consequently the PPI complaint should only be recorded as an asset on ISCIS when:
(a) Confirmation has been received from the official receiver’s agents that a payment has been received and is to be remitted to The Service (in relation to pre September 2013 instructions on secured debts, see Part 3).
The asset should then be recorded, in Asset Type ‘Other’ under ‘PPI Compensation Claims’.
There is a list of frequently asked questions attached to this chapter (FAQ), which may assist the official receiver in dealing with queries in relation to PPI.
Where a bankrupt has contacted the official receiver indicating that he/she intends to pursue a PPI complaint, the bankrupt should be informed that he/she has no legal standing to do so (see paragraph 31.9A.9), and directed to the PPI information on the Insolvency Service website.
When a bankrupt is discharged from bankruptcy, this does not operate to re-vest any asset in the bankrupt. This includes the right to complain or receive compensation in relation to the mis-selling of a PPI policy [note 6]. This is the case even where the policy mis-selling did not come to light until after the bankrupt’s discharge, provided the mis-selling took place prior to the making of the bankruptcy order (see paragraph 31.9A.13).
Where a bankrupt has obtained an annulment of the bankruptcy proceedings (see Chapter 6A), then any compensation payable as the result of a PPI mis-selling would be payable to the former bankrupt and not the bankruptcy estate.
It is possible that the payment of PPI compensation might result in sufficient funds becoming available to meet a bankrupt’s debts in full. If this is the case, the bankrupt should be informed of this possibility so that he/she may obtain independent advice and decide whether to apply for an annulment of the bankruptcy order (see Chapter 6A).