Miscellaneous Aspects of Property in Bankruptcy Flashcards
Insolvency Act 1986, s.283(2)
Certain assets necessary for enabling the bankrupt to achieve rehabilitation as a useful and productive member of society do not form part of the bankrupt’s estate.
These are tools, books, vehicles and equipment necessary for business/vocation and basic domestic needs of the bankrupt and his family.
N.B. Other family members can establish arguable claim to ownership of chattels used try the family (it will often be the case that the realisable value of the chattels is not worth incurring the costs of realisation and that the bankrupt will manage to keep many of these possessions)
Insolvency Act 1986, s.308
If it appears that the realisable value of property excepted under s.283(2) exceeds the cost of reasonable replacement for that property, the trustee may by notice in right within 42 days (s.309) of first learning of its existence claim the property for the estate.
Upon service of the notice, the property vests in the trustee as of the date of the commencement of the bankruptcy although any purchaser of the property in good faith, for value and without notice of the bankruptcy will be protected against the claim.
The trustee must provide a reasonable replacement.
Pike v Cork Gully [1997] BPIR 723
Case: Trustee in bankruptcy seized a horse box used by the bankrupt to earn about £1,000 a month (sold for £9.9877.50)
Decision: Held that the horse box had been in the category of except assets and the trustee had either to repay the net proceeds of the sale or, if less, the cost of a reasonable replacement
Re Rayatt [1998] BPIR 495
- Case: Involved the car needed by the bankrupt for use in his employment
- Decision: Bankrupt successfully argued that the costs of private education for his children within reasonable domestic needs (s.310) and effect of eldest child chasing schools meant reasonable domestic needs
Rule: The court ought to consider what was ‘necessary for meeting the reasonable domestic needs of the bankrupt and his family’ not what was ‘necessary to enable the bankrupt to live’ i.e. the court will not make an order which would have the effect of reducing the income of the bankrupt below what appears to the court to be necessary fro meeting the reasonable domestic needs of the bankrupt and his/her family
Insolvency Act 1986, s.283
The trustee may, by serving a notice in writing, claim property acquired by or which devolves upon the bankrupt during the period of bankruptcy unless it is except or subject to an income payments order (s.310)
The notice must be served within 42 days of the day on which the acquisition by the bankrupt first came to the knowledge of the trustee (s.309).
The property will vest in the trustee on service of the notice and the trustee’s title will relate back to the time at which the bankrupt acquired the property.
If, however, a person has acquired in good faith, for value and without notice of the bankruptcy or a bank has entered into a transaction in good faith and without such notice, the trustee will not have a remedy against that person or banker or anyone deriving title to property from them.
Insolvency Act 1986, s.333
The bankrupt has a duty to inform the trustee whenever he or she acquires property during the period of the bankruptcy within 21 days of becoming aware of the relevant facts. The bankrupt must then keep the property for 42 ays unless he or she has the trustee’s consent in writing to depose of it: r.6.200.
A bankrupt running a business may provide the trustee with a half-yearly report instead.
Insolvency Act 1986, s.310
The court may, on application of the trustee before the discharge of the bankrupt, make an income payments order claiming for the bankrupt’s estate so much of the income of the bankrupt during the period for which the order is in force as may be specified in the order.
The order may last longer that the period of bankruptcy, although not longer that three years from the date of the order.
Affleck v Hammond [1912] 3 KB 162
Rule: The test of whether a payment is income (s.310) is largely a matter of common sense
Re Landau [1998] Ch 223
- Decision: S.310 held to include payments received under a maintenance order made against the bankrupt’s former spouse; does not apply to income whose source is property which has vested in the trustee in bankruptcy - the income is automatically that of the trustee
- Rule: Established that contractual rights under a personal pension scheme would vest in the trustee in bankruptcy, whether or not the scheme contained a provision prohibiting assignment of the policy. The rights would remain vested in the trustee even after discharge of the bankrupt, unless disclaimed by the trustee or, perhaps, re-assigned to the bankrupt in return for a suitable payment.
Insolvency Act 1986, s.310A
Provides for the making of an ‘income payments agreement’ between the bankrupt and the trustee/official receiver which may then be enforced as if it were an income payments order
Krassner v Dennison [2001] Ch 76
Rule: At common law pension entitlements form part of the debtor’s estate
Official Assignee v NZI Life Superannuation Nominees Ltd [1995] 1 NZLR 684
In NZ it was considered that a forfeiture clause in an occupational pension scheme was a fraud on the bankrupt laws (Higinbotham v Holmes)
Re Trusts of Scientific Investment Pension Plan [1999] Ch 53
Rule: Forfeiture clauses are valid in occupational pension schemes where source is third party for money (contravenes Higinbotham v Holmes); more likely that discretionary trust - therefore as personal pension schemes have sole beneficiary they must be vested in the trustee
(considered unfair in Green Paper)
cf Welfare Reform and Pensions Act 1999
Welfare Reform and Pensions Act 1999, s.11(1)
Excluded from the bankrupt’s estate benefits under all approved (IR) pension arrangements
Welfare Reform and Pensions Act 1999, s.12
Allows unapproved pensions to be excluded from bankrupt’s estate by court order or by agreement with the trustee in bankruptcy
