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December 2002
This chapter is divided into 6 parts as follows:
Part 1 - Distress (paragraphs 9.2 to 9.54).
Part 2 - Execution (paragraphs 9.55 to 9.89).
Part 3 - The appointment of a receiver (paragraphs 9.90 to 9.100).
Part 4 - Charging orders (paragraphs 9.101 to 9.107).
Part 5 - Liens (paragraphs 9.108 to 9.122).
Part 6 - Miscellaneous (paragraphs 9.123 to 9.132).
Part 7 - Proceeds of Crime Act 2002 (paragraphs 9.133 to 9.174) (Amended March 2010)
Annex 1 - Official Receiver’s undertaking (1).
Annex 2 - Official Receiver’s undertaking (2).
Annex 3 - Legislation governing the costs of distress.
DISTRESS - GENERAL
Distress is a remedy whereby a person is entitled, without legal process or court order, to take possession of personal property belonging to another in order to satisfy the payment of a debt. Distress developed as a common law remedy of landlords and can be traced back to before the 13th century. Common law distress has developed through case law over the centuries.
Statutory distraint is a power to seize goods granted under a particular statute. Distress is the remedy. The creditor who carries out the act of distraint or levies distress is referred to as the distrainor.
Only certain creditors are entitled to distrain. The right to levy common law distress is available to landlords who have a right to distrain for rent arrears and sometimes other payments due to them, e.g. service charges (see paragraphs 9.6 to 9.8).
The right to levy statutory distress is available to the following:
9.4 Who carries out the distraint?
(Amended December 2010)
It is usual for the above creditors to use a bailiff to levy distress on their behalf. A bailiff must be certificated by a county court judge and any person acting without a valid certificate acts unlawfully. A county court bailiff also has the power to levy execution on behalf of a judgment creditor (see Part 2). It should not therefore be assumed that distress has been levied where a bailiff is acting.
Officers of HMRC are authorised to recover unpaid direct and indirect tax, National Insurance contributions, duties and other debts (treated as if they were tax) by distraint but a bailiff may be asked to accompany the officer.
Notes: [Commissioners for Revenue & Customs Act 2005 (CRCA), sections 6 and 7]
The common law rule is that distress for rent can only be levied between sunrise and sunset and not on Sundays or public holidays like Christmas or Easter. Under the Distress for Customs & Excise Duties Regulations 1997, regulation 7, distress for VAT can only be levied between the hours of 8am and 8pm. The CSA restricts levies to between 7am and 9pm.
In all other distraints commenced under statute bailiffs may distrain at any time but it may be assumed that similar limitations to distress for rent will apply in statutory distraint (i.e. Monday to Saturday). Failing to comply with these restrictions will render the distress irregular (see paragraph 9.23).
Notes: [Distress for Customs & Excise Duties Regulations 1997, reg 7]
Landlords have a right to distrain for unpaid rent under the Law of Distress Amendment Act 1908. It is now common for an express right to distrain to be included in lease agreements. The right to distrain is only available to the person who is legally entitled to the landlord’s interest both at the time the rent falls due and at the time of the distress.
Under common law the right is limited to distraint for rent. Any sum treated as rent in the lease may be distrained for e.g. service charges.
Notes: [Law of Distress Amendment Act 1908]
9.7 Items the landlord can distrain on
The basic common law rule is that the landlord can distrain on any item on the leased premises whether or not owned by the tenant. The landlord is not allowed to distrain on the following items:
Where goods are seized they can only be sold after the expiry of 5 days in order to allow the tenant time to pay the outstanding rent plus the costs of distraint (see also paragraph 9.18).
Notes: [County Courts Act 1984, s89]
9.8 Third party property
The landlord has a right of distress against any goods found on the premises (see paragraph 9.7). This is because the landlord has a lien on goods in respect of the place where they are found and not in respect of whom they belong to (see Part 5). Third party owners of goods which are under threat of distress can do the following:
No protection will be available where the goods either -
Notes: [Law of Distress Amendment Act 1908, s1]
9.9 HM Revenue and Customs – unpaid VAT
HMRC can distrain for unpaid VAT including unpaid penalties and surcharges in accordance with the VAT Act 1994 and the Distress for Customs & Excise Duties Regulations 1997. They can also distrain for general betting duties (this tax was changed on 6 October 2001 and is now a tax on the bookmaker’s gross profits) and gaming duties including bingo duty. Distress cannot be levied within 30 days of the final demand for payment of the outstanding tax.
Notes: [VAT Act 1994, Distress for Customs & Excise Duties Regulations 1997]
Only the defaulting tax payer’s goods can be seized. In distraints for VAT and income tax the bailiff may also seize other chattels. Chattels include property and items only recoverable by court action. Shares, insurance policies, leases and rights under contracts are classed as chattels. Goods which are situated in a dwelling house and are reasonably required for the domestic needs of persons residing there cannot be seized. Where goods are seized the debtor has 5 days to pay the outstanding amount, plus the costs of distraint before the goods are sold.
9.10 HM Revenue and Customs – unpaid taxes
Under the Taxes Management Act 1970, section 61, HMRC can distrain for unpaid income tax. HMRC can also distrain for unpaid corporation tax under the Income and Corporation Taxes Act 1988 and for unpaid capital gains tax under the Taxation of Chargeable Gains Act 1992. Distraint cannot be levied for unpaid stamp duty or inheritance tax. Failure to pay the tax following demand results in the Revenue and Customs officer being able to distrain on the taxpayer’s goods.
Only the defaulting taxpayer’s goods and chattels (see paragraph 9.9) can be seized. There are no restrictions on the type of goods that can be seized but HMRC usually do not seize basic tools and household items. Where goods are seized they can only be sold after 5 days in order to allow the taxpayer time to pay the outstanding amount plus the costs of distraint.
Notes: [Taxes Management Act 1970, s61, Income and Corporation Taxes Act 1988, Taxation of Chargeable Gains Act 1992]
Crown distress (i.e. distress levied by HMRC) has priority over other forms of distress. This right originates from common law.
9.11 Local authorities
(November 2008)
Each local authority collects council tax, which is payable in respect of dwellings in its area, or non-domestic (i.e. business) rates, which are payable in respect of business premises. Local authorities are able to distrain for unpaid council taxes and non-domestic rates. Their right to distrain is contained in:
Distress may only be levied under each of these statutory instruments once a liability order has been made by the magistrates’ court. Where the local authority has obtained a liability order, prior to the insolvency order being made, the whole debt as notified within the liability order becomes due and it is therefore a provable debt in the insolvency (see paragraphs 40.12 and 40.101). A liability order may only be made after the date of the insolvency order, with permission of the court, in accordance with sections 130 or 285 of the Insolvency Act 1986.
9.11A Local authorities – timing of distress in winding up proceedings
(November 2008)
The local authority has the right to distrain, for unpaid council tax and non-domestic rates, against the property of a company, until the commencement of winding up proceedings. Section 128 of the Insolvency Act 1986 renders void any attachment, including distress, against the estate or effects of a company after the commencement of compulsory winding up proceedings (see paragraph 9.36).
Where the liquidator continues the business of the company at existing premises, or if the company owns or leases premises, a liability for council tax or business rates may arise after the winding-up order, even if the property is unoccupied (see paragraph 3.60). Any liability arising after the winding-up order has been made, as a result of any action or inaction of the liquidator, is treatable as a cost in the liquidation and is payable in order as such (see Chapter 36, Part 3). The levying of distress for council tax or rates may take place only against the goods of the company and not against the liquidator personally, therefore section 128 of the Insolvency Act 1986 prevents distress for any post insolvency liability incurred. Where the local authority has distrained upon the company’s assets in the period of three months ending with the date of the winding-up order, the goods or their proceeds of sale are charged for the benefit of preferential creditors (see paragraph 9.33).
9.11B Local authorities – timing of distress in bankruptcy proceedings
(November 2008)
The right of local authorities to distrain for unpaid council tax and non-domestic rates (pre and post bankruptcy order) is exercisable at any time, including after the bankruptcy order and even against property comprised in the bankrupt's estate, in accordance with section 347(8) and (9) of the Insolvency Act 1986. The only exceptions being where an application for an interim order, under section 253 of the Insolvency Act 1986 is pending, whereby the court may forbid the levying of distress under section 254(1)(b) of the Insolvency Act 1986. Additionally, where an interim order has been made under section 252 of the Insolvency Act 1986, permission of the court must be obtained before distress is levied (see paragraph 9.37).
Any liability for council tax or rates arising after the bankruptcy order, is not provable in the bankruptcy proceedings and the local authority can use all of the collection methods available to it in the recovery of such a debt, Where the local authority has distrained upon the bankrupt’s assets in the period of three months ending with the date of the bankruptcy order, the goods or their proceeds of sale are charged for the benefit of preferential creditors (see paragraph 9.33).
9.11C Local authorities – council tax – distress process and restrictions
(November 2008)
The local authority must give 14 days notice of the bailiff attending. The bailiff can only seize the goods of the person(s) assessed to pay council tax, including property vested in the trustee. Goods which are situated in a dwelling house and are reasonably required for the domestic needs of the debtor and his/her family cannot be seized when distraining for unpaid council tax. Rented or hired goods and utility fittings are also exempt from distraint for unpaid council tax.
The bankrupt can refuse access to the property and a bailiff distraining for unpaid council tax cannot use force to gain initial entry to a property. However, walking through an unlocked door or climbing in through a window without causing damage is considered to be a peaceful means of entry. A bailiff who has previously been allowed entry to the premises can force entry, to recover goods which have previously been seized by walking possession (see paragraph 9.17). If goods are removed, or impounded, they must be held for a minimum of 5 days before sale to allow the bankrupt to settle the debt. If a levy of distress is completed by the sale of property but does not recover sufficient funds to discharge the debt under the liability order the local authority, before the bankrupt’s discharge, can levy a second or subsequent distress. A person aggrieved by the levy of, or an attempt to levy, a distress may appeal to a magistrates' court.
9.11D Local authorities – relationship between remedies
(November 2008)
The debt due under a liability order for council tax or non-domestic rates is a provable debt in insolvency proceedings and can form the basis of a petition for a winding-up order or bankruptcy order; see regulations 18 of the Non-Domestic Rating (Local Lists) (Collection and Enforcement) Regulations 1989 or 49 of the Council Tax (Administration and Enforcement) Regulations 1992 respectively.
Other enforcement measures available to the local authority include:
Each remedy may be employed against a debtor under a liability order in turn (subject to the exceptions detailed below), however, whilst steps by way of one method are being employed another may not also be instigated simultaneously. Collection from benefit, attachment of earnings and distress may be resorted to more than once, and in any order or alternately (or both). Sums collected are applied initially to the costs and charges of the enforcement action prior to being applied to the discharge of the debt subject to the liability order.
[Notes: Non-Domestic Rating (Local Lists) (Collection and Enforcement) Regulations 1989, regulation 19 and the Council Tax (Administration and Enforcement) Regulations 1992 regulation 52]
Where the insolvency petition is presented by a party other than the local authority, the position of the local authority will depend upon the stage reached in their current enforcement measures prior to the insolvency order being made. That is with the exception in bankruptcy regarding the right to distrain which survives until discharge. The remaining enforcement measures require court orders and as such will fall within the general restrictions applicable to creditors under sections 130 or 285 of the Insolvency Act 1986. The right to collect from ongoing benefit payments or wages will continue where an attachment order is in place. That order may be varied or discharged by the court.
Where a local authority obtains a committal warrant against an individual following distraint none of the other enforcement methods detailed above may subsequently be taken to recover the sums due under the liability order. The bankruptcy court has jurisdiction to stay any committal proceedings ongoing at the date of the bankruptcy order (Re Smith (A Bankrupt) [1989] 3 All ER 897).
9.11E Local authorities – council tax – joint liability
(November 2008)
The Council Tax (Administration and Enforcement) Regulations 1992 regulation 54 defines joint taxpayers as two or more individuals who are jointly and severally liable to pay an amount in respect of council tax. A liability order may be made against one or more joint taxpayers in respect of an amount for which they are jointly and severally liable. Where a liability order has been made against two or more joint taxpayers, collection from ongoing benefit, an attachment of earnings order, distress, or a charging order may be made against one of them, or different such orders may be made against more than one. However, the local authority may not take enforcement action in respect of one of the joint taxpayers while steps by way of that or another enforcement method are being taken in respect of another of them. There is no requirement to target all taxpayers for collection equally. Where a committal warrant is issued against one of the joint taxpayers no further steps, may be taken against any of them by way of collection from ongoing benefit, attachment of earnings, distress, bankruptcy or charging orders.
Where a defendant defaults on payment of any sum adjudged to be paid following conviction or an order, the magistrates’ court can enforce payment by distraint. A bailiff employed by the courts will usually levy distress. The bailiff may seize the money or goods of the named person but must leave the beds and clothes of the person and family and also the tools of his/her trade. The goods cannot be sold earlier than 6 days after the levy. Sale cannot proceed if the sum due plus the costs of distraint are paid.
Notes: [Magistrates Court Act 1980, s75 to 78, [Criminal Procedure Rules 2010, Part 52]
9.13 Child Support Maintenance
Under the Child Support Act 1991, section 35, the CSA can recover unpaid child support maintenance by distraint. After obtaining a liability order in the magistrates’ court, if arrears of maintenance remain unpaid, a warrant will be issued by the Secretary of State for the Department for Work and Pensions. Bailiffs will normally levy the distraint. The bailiff may seize any of the liable person’s goods but not the goods needed to satisfy the basic domestic needs of the debtor and his/her family. There is no required minimum period before sale, though probably at least 5 days will generally be allowed for the debtor to pay the arrears of maintenance plus the costs of distress.
Notes: [Child Support Act 1991]
9.14 When debtor can halt distress
Distraint can only be halted by the debtor at one of two specific stages. The debtor can pay the sum owed before the seizure of his/her property or before the sale of the seized goods in order to halt the distraint. At no other time can the debtor halt the distraint (Wilson v South Kesteven District Council [2000] 4 All E.R. 577).
9.15 Entry to premises [Taxes Management Act 1970]
The right to levy distress includes the common law right to enter the premises of the debtor but not to break into them. If a debtor refuses to admit a person trying to levy distress, the attempt will be defeated. The posting of a written notice of distraint through the debtor’s letter box will not be a valid alternative to entry (Re Evans v South Ribble Borough Council [1992] 2 WLR 429).
Under the Taxes Management Act 1970, section 61(2), HMRC may force entry to premises during daytime. Before forcing entry the officer must have obtained a warrant from the General Commissioners of HMRC.
Having completed the seizure the bailiff will normally leave the debtor with a notice of seizure confirming what has occurred. The notice will include details of the debt due and the costs incurred to date, an inventory of the goods seized and often a walking possession agreement (see paragraph 9.18). No notice at all is required from the Magistrates’ bailiff or HMRC, though the Crown departments do provide one as a matter of good practice.
Certain errors on notices will not invalidate them e.g. errors in the name of the debtor (Wootley v Gregory [1828] Y & J 536). Where the bailiff supplies an inventory, it must make it clear what goods have been seized. In Davies v Property & Reversionary Investments Corp Ltd [1929] 2 KB 222 it was held that a notice should either list and identify each item seized or imply that all the goods on the premises have been seized.
Where a landlord levies distress, the bailiff acting for the landlord must, in addition to the notice of seizure, produce a certificate/letter of his/her appointment from the landlord for the tenant. To sell the tenant’s goods without serving such notice is irregular (see paragraph 9.22). In distress for rent the debtor is entitled to know where the goods have been taken or where they are being stored.
9.17 Actual possession and walking possession (with agreement)
The process of distress consists of three stages; the entry into the premises, the seizure of the goods and the subsequent securing of the goods (generally called impounding) (Evans v South Ribble Borough Council [1992] 2 All ER 695).
The debtor’s goods may be impounded on or off the debtor’s premises. Where the goods remain on the
premises, walking possession will usually have been taken. Walking possession is a process whereby the debtor agrees to the following (usually in writing):
The purpose of walking possession is to provide a breathing space during which arrangements to pay the debt can be explored.
A walking possession agreement is usually signed by the debtor but any responsible person on the premises, including a spouse or partner, can in most cases make the agreement (National Commercial Bank of Scotland Ltd v Arcam Demolition & Construction Ltd [1966] 2 QB 593). Children cannot make the agreement. Local authorities require the signature on the agreement to be that of the debtor named in the liability order.
9.18 Walking possession - without agreement
If the debtor, or a responsible person, is present during the levy of distraint, and it is made quite clear to that person what is happening, then the impounding will be valid. This type of impounding is also called walking possession but without a signed agreement with the debtor (McLeod v Butterwick [1996] 1 WLR 995, Khazanchi v Faircharm Investments [1998] 2 All ER 901).
Case law indicates that a second distress cannot generally be made by a bailiff for the same debt if –
9.20 Distress and individual voluntary arrangements
Depending upon the circumstances, distress may be levied whilst an interim order is in force in a voluntary arrangement. Distraint for rent, income tax and VAT does not involve any court action and so they may continue uninhibited (McMullen & Sons v Cerrone [1994] BCC 25). If legal action is necessary before distress can be levied (e.g. for local taxes, road traffic penalties and child support maintenance), the distress will not be valid as no legal process may be continued whilst an interim order is in force unless permission of the court has first been obtained.
Notes: [s252(2)(b)]
It is possible that a bailiff may make an error in his/her procedure or conduct when levying distress. If one of the procedures referred to in paragraphs 9.3 to 9.20 has not been correctly followed, there may have been wrongful distress. Wrongful distress can take three forms:
9.22 Remedy for wrongful distress
Where there has been illegal, irregular or excessive distress, the debtor or other owner of the goods can sue the bailiff, or officer levying the distress, for damages.
Another remedy for wrongful distress, though rarely used due to its cost and obscurity, is replevin. Replevin will only be granted by the court if an undertaking is given by the debtor or owner of the goods to bring a separate legal action to challenge the legality of the distress and to seek damages.
Where the official receiver becomes aware of a possible wrongful distress, legal action should only be considered when he/she has adequate funds or indemnities to cover the costs and any possible adverse costs and once he/she has obtained sanction from Technical Section to commence proceedings (see Chapter 32.2).
9.23 Distress and insolvency - General
When an insolvency order is made distress is more significant as a creditor with rights of distress may achieve a priority over other creditors that he/she would not otherwise have. The rights of the distrainor differ depending on the type of insolvency order made.
9.24 Initial action by the official receiver
The official receiver should at an early stage in the insolvency establish from the directors, bankrupt (or in the absence of these, the insolvent’s employees) whether any distress has been levied against any of the insolvent’s property.
Once distress has been levied, the goods are within the custody of the law and the official receiver should not attempt to remove them until the distraining creditor, and any bailiff acting on his/her behalf, have agreed that the official receiver may deal with them as part of the insolvent’s estate. It may be necessary for the official receiver to give certain undertakings before the goods are removed (see also paragraphs 9.36 and 9.51).
9.25 Obtain details of the distraint
Once the official receiver has established that distress has been levied, he/she should ascertain from the insolvent, or other third party, the following:
9.26 Notify distraining creditor/bailiff of the insolvency order
Written notification of the making of the insolvency order and the appointment of the official receiver should immediately be sent to the distraining creditor and to any bailiff acting on his/her behalf.
If any of the goods seized are third party goods, the official receiver should inform the third party of the distress and provide details of the distraining creditor. The third party should then take their own action to recover the property.
9.28 Effect of a charge on the assets (companies only)
Where there is a fixed charge over a company’s assets which have been seized by the distrainor, the official receiver should inform the chargeholder of the distress and take no further action in the matter (provided he/she is satisfied as to the validity of the charge). The official receiver should inform the chargeholder that if HMRC levied the distress, they are likely to lift the distress on confirmation of the fixed charge (see paragraph 9.39).
9.29 Receiver/administrative receiver appointed
Where a receiver or administrative receiver has been appointed, the question of distress should be left to him/her to resolve, provided the charge under which he/she was appointed covers the goods which are subject to distress. If there is a floating charge over the assets which have been seized, but a receiver or administrative receiver has not been appointed, an early appointment of a receiver or administrative receiver should be sought by the official receiver. If the floating charge was created on or after 15 September 2003 an administrative receiver cannot be appointed unless one of the exceptions to section 72A applies ( see Chapter 56, Part 2). If the chargeholder refuses to make an appointment, the official receiver should consider the circumstances of the case and if the distraining creditor or bailiff agree that the official receiver may deal with the goods, the goods or their proceeds can be recovered for the benefit of the estate (see paragraph 9.25).
Notes: [s72A]
9.30 Can the goods be claimed for the estate?
The official receiver needs to consider whether the goods may be claimed for the benefit of the insolvent’s estate. It is likely that further enquiry will be necessary before a decision is made. The official receiver needs to consider –
In all cases the official receiver should consider the effect of the Insolvency Act 1986 provisions on the distress (see paragraphs 9.33 to 9.39).
9.31 Goods held by agents on behalf of distraining creditor
Where the goods are held by agents, on behalf of the distrainor, and the official receiver has ascertained that he/she has a right to them, the official receiver may consider instructing those agents to sell the goods on his/her behalf should it be beneficial to the estate to do so (i.e. by avoiding removal costs and possibly additional storage costs).
The "three month rule" applies where the landlord or other bailiff distrains on a debtor’s goods and that person or company is declared bankrupt or is wound up within three months of the levy.
Notes: [s176(2) and s347(3)]
9.33 Distress within three months of the WUO or BO (amended October 2008)
If distress was levied by any person within three months prior to the winding-up order or bankruptcy order (i.e. the goods were seized in that period), then the goods or their proceeds of sale are charged for the benefit of preferential creditors to the extent that any assets comprised in the insolvents estate is insufficient to meet the preferential creditors claims.
The distraining creditor who is required to surrender goods or the proceeds of sale has a claim as a preferential creditor for the value of the goods surrendered or the proceeds of sale of the goods. The distraining creditor and the preferential creditors will rank equally in respect of any distribution, except against the amount available to pay preferential creditors by virtue of the funds surrendered. The distraining creditor has a subrogated claim once the surrendered funds have been distributed. It should be noted that in this respect the crown departments will retain their preferential status for a subrogated claim, notwithstanding the abolition of the general right to preferential status contained within the provisions of EA2002.
Where there are other assets comprised in the estate which would pay in full preferential creditors then the distaining creditor is entitled to retain the goods or proceeds of sale.
Any amount held by the landlord under s347(2) (i.e. the amount in excess of the accrued six months rent before the bankruptcy or any later rent due) must be delivered to the official receiver as trustee (or any insolvency practitioner trustee appointed) for the benefit of the bankrupts estate (see paragraph 9.44). If part of the distraining creditor’s entire claim is preferential (other than by virtue of sections 176 and 347) the preferential element of that debt will rank equally with the other preferential creditors.
Notes: [s176(2), (3) or s347(3), (4)] [s347(2)] [s176(3) and s347(4)]
9.34 Distress levied more than three months prior to WUO or BO
If distress was levied more than three months before the insolvency order, the distraining creditor is entitled to retain any goods that may still be held by him/her at the date of the order unless the distress was levied after the commencement of the winding up (see paragraph 9.36). If distress was levied more than three months before a winding-up order it could be caught under s128(1) which states that any distress levied after the commencement of the winding up is void (see paragraph 9.36). In cases where HMRC are the distraining creditor, a concession has been agreed and the goods should be treated in the same way as if the distress had been levied within three months of the order.
Notes: [s128(1)] [s176(2) and (3) or s347(3) and (4)]
9.35 Official receiver’s request for creditor to withdraw from the distress
In addition to the notice given to the distraining creditor and any bailiff acting on his/her behalf (see paragraph 9.26), the official receiver, upon giving an undertaking, based on the format of Annex 1 to this chapter, should ask the distraining creditor to withdraw from the distress. A copy of the undertaking should be given to any insolvency practitioner appointed and should also be placed upon the official receiver’s file. The undertaking includes confirmation that a separate account will be kept of the proceeds of sale of the goods and that the costs of the distress will be part of the debt for which a charge is given on the proceeds of sale. Details of the basis of these costs can be found at paragraph 9.54.
9.36 Distress and compulsory liquidation
Any distress levied after the commencement of the winding up is void against the liquidator except with permission of the court. It is extremely unlikely that any court would allow a distraining creditor to gain advantage over the other unsecured creditors after the commencement of the winding up. If distraint was levied before the petition was filed, the distraint can continue (Re Bellaglade [1977] 1All ER 319) subject to the "three month rule" (see paragraph 9.33).
Notes: [s128(1) and s126(1)] [s176(2),(3)]
9.37 Distress and bankruptcy (amended May 2006)
The right to distrain other than for unpaid rent is exercisable at any time, including after the bankruptcy order and even against property comprised in the bankrupt's estate. The only exceptions are where an application under section 253 for an interim order is pending whereby under section 254(1)(b) the court may forbid the levying of distress, or where an interim order has been made under section 252, in which case permission of the court must be obtained before distress is levied. Where the official receiver is aware that there is a creditor who may seek to levy distress against property that is comprised in the bankruptcy estate he/she should take all necessary steps to protect and preserve the property in question. There are also no restrictions on the right of a creditor (otherwise than for rent) to distrain in respect of post-bankruptcy debts (R v Camberwell Green JJ, Ex Parte Gravesande [1973] RA 297) against the goods of a debtor against whom a bankruptcy order has been made even if the title to the goods has vested in the trustee.
The court is not able to intervene under s285 (1) or (2) as distress is not a legal proceeding or undertaken following a court order. Section 285 (1) provides that a court may stay "an action, execution or other legal process" against the property or person of the debtor. Most forms of distraint are exempt from s285(3) which provides that after the making of a bankruptcy order a creditor who is able to prove in the bankruptcy shall not have any remedy against the property of the bankrupt. Where the debt is not provable in the bankruptcy the creditor is able to distrain against the property of the bankrupt after the date of the bankruptcy order. The official receiver should ensure that all the bankrupt’s property is dealt with promptly in order to avoid distress being levied, after the date of the bankruptcy order, by a creditor whose debt is not provable in the bankruptcy (see Chapter 40, Part 1). Bailiffs may therefore proceed to levy against a bankrupt for local taxes, road traffic penalties etc. as normal.
Notes: [s347(8),(9)] [s285(1), (2) and (3)]
A creditor with power to distrain may also levy, for an amount due prior to the bankruptcy order, against exempt property (but this is subject to any limits in the power to distrain (see paragraphs 9.6 to 9.14) and the distrainor’s code of practice) or property acquired by the bankrupt after the order (whether or not in the latter case the property has been claimed by the trustee). This action may result in a challenge under The Human Rights Act 1998.
9.38 Landlord distraining after Bankruptcy Order
There are restrictions upon a landlord who distrains for rent against a bankrupt after a bankruptcy order has been made. Reference should be made to paragraphs 9.46 to 9.52 for details.
Notes: [s347]
9.39 HM Revenue and Customs - distress post Bankruptcy Order
HMRC have agreed that where they have levied distress after the date of the bankruptcy order, the goods distrained upon, or their proceeds of sale, will be passed to the official receiver upon notification of the bankruptcy order and receipt of a request for the goods or the proceeds of sale. HMRC have also agreed that they will not exercise their rights to levy distress after they become aware of the bankruptcy order unless the other creditors entitled to distrain after the making of the bankruptcy order have done so to their detriment or the debtor continues to trade and incurs further debt.
9.40 Distress and non-provable debts
Any fine imposed by a magistrates’ court or a maintenance assessment made under the CSA will be a non-provable debt in a bankruptcy and distress may be levied after the date of the bankruptcy order against property in the bankrupt’s estate.
Notes: [r12.3(2)]
9.41 Appointment of insolvency practitioner
In any case where there is likely to be an insolvency practitioner appointed, and the goods distrained upon are recoverable, the official receiver may seek to recover them from the distraining creditor, or any bailiff acting on his/her behalf, at the earliest possible date if additional costs, such as storage costs, are being incurred subject to the possibility of having that agent sell the goods for the bankruptcy estate. If the proceeds of sale are being held by the distraining creditor, or any bailiff on his/her behalf, the official receiver should request that the funds be held by that party to the order of the official receiver pending the possible appointment of an insolvency practitioner trustee.
Distress levied by landlord
Where distress has been levied by the insolvent’s landlord, the official receiver should ensure that it was valid (see paragraphs 9.3 to 9.20). In addition to this the official receiver should also be satisfied that –
(a) at the time that distress was levied there was an existing lease or tenancy agreement between the insolvent and the landlord under which rent was in arrears;
(b) judgment has not been obtained by the landlord for the arrears of rent. If judgment was obtained, the landlord cannot distrain, his remedy would be to levy execution (see Part 2); and
(c) section 347 has been applied if the distress was levied after the date of the bankruptcy order (see paragraphs 9.37 and 9.38).
Notes: [s347(1)]
9.43 Insolvent is tenant
In bankruptcy the landlord may distrain for rent due, but only for the six months prior to the beginning of bankruptcy. Where distress is levied after the presentation of the petition, anything other than the six months element cannot be included in the distraint and is a provable debt in the bankruptcy. Although the landlord is able to distrain after the presentation of the bankruptcy petition, the "three month rule" is applicable (see paragraph 9.33).
If the landlord distrains between the petition and the bankruptcy order, any surplus over and above the six months rent plus costs, or any sums in respect of rent due after the distress, should be held to the order of the trustee. The official receiver when acting as receiver and manager, should inform the landlord, or the bailiff acting on behalf of the landlord, of the position regarding the goods or proceeds of distress which exceed the six months rent. If no insolvency practitioner is subsequently appointed, the official receiver as trustee should recover such goods seized or their proceeds of sale without delay. If the landlord levied distress within three months prior to the bankruptcy order the "three month rule" is still applicable (see paragraph 9.34).
Notes: [s347(1)] [s347(2)]
Where the insolvent is a sub-tenant (i.e. there is no contractual relationship between the insolvent and the landlord levying distress), the landlord is still allowed to distrain for arrears of rent relating to any period, even though an insolvency order has been made and the goods belong to the insolvent. If the landlord seizes goods belonging to the insolvent in these circumstances, the official receiver can attempt to recover them by making a written declaration under the Law of Distress Amendment Act 1908, section 1. In doing so he/she will have to pay any rent arrears and may have to give an undertaking to pay any future rent to the landlord who has distrained or is threatening to distrain. The value of the goods seized (or threatened to be seized) must therefore exceed the amount of any rent arrears in order for the official receiver to make such a declaration. No protection will be available where the goods either –
(a) belong to the spouse/civil partner or partner of the tenant;
(b) are on premises used for a business in which both the immediate tenant and the insolvent have an interest; or
(c) belong to any company where the immediate tenant is a director or officer of the company or in its employment.
This list is not a complete list of the exceptions to the provisions but contains those most likely to arise.
The right to recover goods or to prevent their seizure under the Law of Distress Amendment Act 1908, section 1, does not apply where the insolvent’s occupation of the premises results in a breach of covenant (or a written agreement) between the landlord and his/her immediate tenant.
Notes: [Law of Distress Amendment Act 1908, s1]
9.45 Right to levy distress after the insolvency order
Where the insolvent’s property is on rented premises at the date of the insolvency order and distress has not been levied, it is not necessary for the official receiver to give notice to the landlord of his/her intention to remove or dispose of the insolvent’s effects. Notice should be given where the landlord has requested to be kept informed or the official receiver intends to dispose of the effects in situ, which might give rise to occupation by him/her of the premises (see also Chapter 8, Part 6). If a landlord intervenes during the removal of goods, in company cases the official receiver should inform the landlord that distress levied after the commencement of the winding up is void, unless permission of the court is obtained (see paragraph 9.36). In similar circumstances in bankruptcy cases, the official receiver may wish to tender a guarantee for the rent or pay it (see paragraphs 9.50).
Notes: [s128(1) and s130(2)]
9.46 Right of landlord after discharge
A landlord to whom rent is payable is not at any time after the discharge of the bankrupt entitled to distrain upon any goods comprised in the bankrupt’s estate.
Notes: [s347(5)]
9.47 Amount landlord can validly distrain
When calculating the amount of rent for which the landlord may validly distrain, the Apportionment Act 1870, section 2, should be considered. This section states that all rents should be considered as accruing from day to day and should be apportionable in respect of time accordingly. Where rent is payable in advance, and is due for payment prior to the date of the bankruptcy order, it should not be apportioned even if part of the rent is for a period after the date of the order (Re Ellis v Rowbotham [1900] 1 QB 740). If rent is payable in arrears, it should be apportioned using a figure for the daily rent multiplied by the number of days for which rent is outstanding up to the date of the bankruptcy order.
Notes: [Apportionment Act 1870, s2]
9.48 Official receiver remaining in possession of the premises
Where the official receiver remains in possession of rented premises the landlord may distrain for rent accruing due in respect of the trustee’s occupation from the date of the bankruptcy order. See also Chapter 8, Part 7 where the official receiver wishes to remain in possession of the premises for the convenience of the insolvency proceedings.
If the official receiver has disclaimed a lease, and the bankrupt is still in occupation, the landlord may still distrain (Briggs v Sowry [1841] 8 M & W 729).
9.50 Payment of rent by the official receiver - guarantee to landlord
Where the landlord is in possession of the bankrupt’s premises, or expresses a wish to levy distress after the date of the bankruptcy order, the official receiver must ensure that the landlord is in a position to validly distrain (see paragraphs 9.5 to 9.8 and 9.42 to 9.48).
If the difference between the value of the bankrupt’s property at the premises and the sum owed to the landlord is sufficient to provide a reasonable sum for the bankrupt’s estate and the landlord can validly levy distress, the official receiver should, where possible, make arrangements to avoid the costs of the distraint by guaranteeing to pay all the rent outstanding and any other sum due for which the landlord may be able to distrain. This is only applicable where there are sufficient funds in the bankrupt’s estate to meet that expense. Annex 2 contains the terms of such an undertaking. Before giving such an undertaking the official receiver must ensure, from a valuer’s report or otherwise, that the goods will realise more than sufficient to cover the amount due. A copy of any undertaking given must be placed on the official receiver’s file and also passed to any insolvency practitioner who may subsequently be appointed.
Where the landlord will not accept the official receiver’s undertaking, the official receiver, provided there are sufficient funds in the estate, must take immediate steps to protect the estate by paying the rent.
9.51 Official receiver has insufficient funds to pay the rent
If the official receiver has insufficient funds to pay the amount outstanding, the landlord must be left to take his/her legal remedy, unless the official receiver thinks that the interests of other creditors will materially suffer by such an action. In that case he/she may, with prior approval of Technical Section to create a debit balance, pay the rent and any other sums due for which the landlord could distrain. The request for sanction for such an action must explain the following –
(a) the reason why the other creditors will materially suffer if the distress is levied (or proceeded with);
(b) the realisable value of the assets involved;
(c) the likely balance which will be available to the estate after deducting the costs associated with the sale;
(d) the amount of the advance required (i.e. debit balance); and
(e) that the official receiver is satisfied that the assets are not subject to liens or other third party claims.
For an advance to be agreed the benefit to the estate must be substantial.
9.52 Distress other than for rent
The official receiver may occasionally encounter a landlord or other person distraining for payments outstanding other than for rent. This can only be done if there was an express agreement to that effect with the insolvent, which for a company was registered with the Registrar of Companies, or for an individual was registered as a bill of sale (under the provisions of the Bills of Sale Act 1878) (e.g. a mortgagee where there is an express power in the mortgage). Reference should be made to Chapter 63, Part 4, for the procedure for checking that a bill of sale has been correctly registered in the Bills of Sale Registry. Where the agreement has not been registered, the official receiver should attempt to recover the goods seized or their proceeds of sale. A bill of sale cannot be created in respect of future assets and if power to seize future assets is given by a company, it is likely to amount to a floating charge.
Notes: [Bills of Sale Act 1878]
9.53 Post bankruptcy debts and distress
If debts accrue after the bankruptcy order has been made, distraint can be levied in the normal manner subject to restrictions in s285(1) and (2).
Notes: [s285(1) and (2)]
There are fees, charges and expenses payable when distress is levied, possession of goods is taken, on the subsequent sale of goods and for various other aspects related to the distress. The costs of the distress, or of any abortive distress levied prior to the commencement of the winding up or bankruptcy, may be claimed by the distraining creditor as an unsecured debt in the insolvency. Where an undertaking is given as in paragraph 9.35, the costs of distress will be included as part of the distrainor’s debt. The official receiver should assume that the costs of the distress have been calculated correctly unless information is brought to his/her attention which suggests otherwise. Where the landlord has levied distress on his/her own behalf, the official receiver should make brief enquiries to ensure the accuracy of the costs claimed. The legislation which forms the basis for the costs of distress that are payable can be found in Annex 3.
[Onto Part 2 - Execution]