PART 2

December 2008

DEALING WITH THIRD PARTY PROPERTY

31.0.20 Confirmation of ownership by third parties

Reference should be made to Chapter 8, paragraphs 8.64 to 8.65 for the action to be taken during an inspection to identify third party property. Until such time as the official receiver establishes, or has reason to believe, that property at an insolvent’s premises belongs to a third party, he/she has a statutory duty to protect that property [note 1]. Once he/she is aware that the property does or is likely to belong to a third party, his/her statutory duty to protect it is replaced with a common law duty of care in negligence, i.e. a duty to take reasonable care of the property until such time as its owner claims it.

31.0.21 Official receiver's duty of care

There is no duty on the official receiver as receiver and manager, trustee or liquidator to protect chattels that do not form part of the estate. A duty of care may arise in respect of such chattels if the official receiver could be considered to be a bailee of the chattels. A bailment arises whenever one person (the bailee), voluntarily takes possession of chattels belonging to another person (the bailor). There need not be a contract between the bailor and the bailee for a bailment to arise. In order for a person to be considered a bailee of a chattel, that chattel must first be in his/her possession. Possession may be actual or constructive and the latter will arise if the person in question is able to exercise control over the chattels in question. An involuntary bailee must not wrongfully dispose of the chattels or take any positive steps to damage or destroy them. If the official receiver volunteers to keep chattels, he/she is under a duty to take reasonable care to keep the chattels safe. The extent of the care that the official receiver will need to take of third party chattels will depend upon the circumstances of the case but he/she should notify persons identified as owning chattels at the insolvent’s premises of the proceedings as a matter of urgency and ensure that arrangements are made for them to collect their chattels. Where the official receiver instructs agents to deal with the chattels, the official receiver should nevertheless give initial notification of the proceedings to the owners [note 2]. See paragraphs 31.6.52 and 31.6.53 for information on contacting third parties and further information on bailment.

31.0.22 Insuring third party property

The official receiver should not incur expenditure on insuring third party property except to protect him/herself from any public liability. This includes buildings where it is apparent that no surplus will accrue to the estate. Where he/she will not insure the property, he/she must immediately inform the owner of this decision, particularly where the insolvent had a duty, e.g. under a hire purchase or lease contract, to insure the property. Where the official receiver has sent out the initial notification to the third party then this form also notifies them that insurance will not be obtained [note 2]. If the official receiver is unable to contact the owner, he/she should insure the property until he/she is able to make contact. Where this insurance will result in a high premium the matter should be discussed with Technical Section in advance (see also paragraph 31.0.6 and Chapter 49, paragraph 49.5).

31.0.23 Retention of title claims

Unpaid creditors may attempt to claim the return of goods supplied to the insolvent under retention of title clauses, see Chapter 63. Before giving up any property claimed by third parties, detailed enquiries are necessary, especially in the case of a party connected or associated with the insolvent [note 3]. The official receiver should seek to avoid claims for damages for wrongfully taking possession (actual or constructive) of property to which he/she or the insolvent may have no title. The official receiver has some protection against wrongfully taking possession of goods, provided at the time of seizure; he/she believed it was property of the insolvent [note 4]. The official receiver will not be able to rely upon this protection where he/she has notice of a claim by a third party unless he/she has reasonable grounds for rejecting such a claim.

31.0.24 Statutory declaration (bankruptcy cases)

In bankruptcy cases a statutory declaration may be requested by the official receiver as evidence of ownership of property by third parties [note 5]. Such statements should generally be tested by careful enquiry and scrutiny of supporting documentation, particularly where the third party is associated with the bankrupt [note 6]. If the official receiver is satisfied that the claim cannot be substantiated, the claimant should be informed that if the claim is not withdrawn within seven days, the official receiver may apply to the court [note 7] for an order that the property claimed forms part of the assets of the estate and that in that event application will also be made for costs to be awarded against the claimant.

31.0.25 Collection of property by third parties

Wherever possible, owners should be requested to collect their property from the former trading address or other premises of the insolvent. The official receiver may consider it necessary to instruct agents to remove third party property to store pending its return to its owners if the property is exceptionally valuable, there is particular risk as a result of leaving it at the premises, the official receiver wishes to vacate the premises (see paragraph 8.100) or if the insolvent has a lien for sums due from the third parties e.g. for repairs made to their property. The official receiver may wish to consider making a charge on the owners of the property concerned for the costs incurred in this activity and/or for insuring the property where the insolvent does not have an interest in it. The official receiver or his/her agents should, where possible, inform third parties that their property is to be moved.

31.0.26 Disposal of unclaimed third party property

In some cases the official receiver may find the Torts (Interference with Goods) Act 1977 will assist in the disposal of unclaimed third party property. Where the official receiver is the bailee of goods a right to sell those goods may in certain circumstances arise [note 8]. The relevant text of this provision is contained in Annex 1.

Briefly, proper notice of the intention to sell the goods has to be given to the bailor, giving them a set time within which to collect their goods. If they do not collect them within this time, then the official receiver will be entitled to sell the goods and account to the bailor with the net sale proceeds. The amount paid to them will be after deductions are made for any sum owing to the insolvent for any repair etc to the goods, and the agent’s costs of disposal.

Where the official receiver makes a distribution or performs a task for which there is no fee applicable such as selling third party goods, he/she should charge the time and rate fee for his/her remuneration [note 9] (see Chapter 36, paragraph 36.32).

31.0.27 Disposal of unclaimed third party goods – owner cannot be traced

If the owners of third party goods cannot be traced, and the official receiver has made reasonable efforts to do so (i.e. searching the accounting records and internet etc), then consideration should be given to advertising in an appropriate trade journal for claims to be submitted by a specific date.

The likelihood of the sale proceeds covering the advertising costs needs to be considered and a balanced view taken on whether or not to advertise. If, following the advert, the owners of the goods still cannot be traced; the proceeds of sale should be paid into the insolvent’s estate. If the advertisement is not proceeded with due to prohibitive costs, the proceeds of sale should be held on a suspense account for a certain period in case the verified owner comes forward to claim the goods in which case the balance of the suspense account should be paid to the owner.

[Back to Part 1 – General protection and collection of assets] [On to Annex – Section 12 and Schedule 1 of the TORTS (Interference with Goods) Act 1977]