August 2005

31.2.9 Finance agreements generally

A vehicle may be subject to a simple rental agreement or an agreement under which the ownership of the vehicle is intended to pass to the insolvent at a specific date or when certain conditions have been met. Subject to any express terms in the agreement (see paragraph 31.2.10) the rights of the insolvent under the agreement, both to exercise rights over the vehicle (to use it) and acquire ownership will become exercisable by a liquidator or pass to a trustee in bankruptcy. Any such rights are referred to hereafter as the rights of the insolvent. The official receiver should establish the nature of the rights of the insolvent in order to deal with the vehicle in an appropriate way.

If there are any doubts as to whether the vehicle is subject to a finance agreement this can be confirmed by contacting HPI Limited who maintain a register of vehicles subject to outstanding credit or lease agreements. There is a charge for this service and HPI can be contacted directly where the official receiver has an account on 01722 422422 or at www.newhpi.co.uk or through agents.

31.2.10 Vehicles subject to rental or lease agreements

The rights of an insolvent under a leasing agreement may be no greater than simply a right to possession and use while rental payments are kept up to date. In such cases the official receiver should send notice of the winding up or bankruptcy order to the lessors as quickly as possible and make the necessary arrangements for the lessors to deal with the vehicle without delay. The official receiver should also inform the bankrupt of this proposed action.

In any case where the agreement contains a clause permitting ownership to be transferred at some point to the insolvent, before deciding whether to terminate the agreement, the official receiver should consider if there would be any potential benefit to the insolvent’s estate through the exercise of the right to transfer ownership. It should be noted that many finance arrangements now provide for substantial final payments which may make obtaining title impractical.

31.2.10A Vehicles subject to an employee car loan scheme

(May 2010)

A number of UK based motor manufacturers operate employee car loan schemes as tax efficient benefits to their employees.  As only employees of the motor manufacturer are eligible to join the scheme and membership will terminate if the employment with the manufacturer ceases, the membership is considered to be personal to the individual member and will not vest in the bankruptcy.

In general these schemes give the member an opportunity to purchase a car by means of a 12 month rental period with an option to buy at the end of the period.   The car is purchased originally from the Group Manufacturing Company (GMC) by the Group Parent Company (GPC) with finance provided by the Group Finance Arm (GFA).  The GPC will own the car and be able to exert control of the car as evidenced by the scheme terms and conditions.  The GPC loans the car to the employee who enters a credit agreement with GPC for the full value of the car.  After the end of the first year the member will have an option to purchase the vehicle and acquire ownership and full control.

It is not uncommon for a scheme to have a bankruptcy clause within its rule.  If this is the case then the GPC may exercise this clause and take possession of the vehicle and sell it upon the making of a bankruptcy order, with any proceeds obtained used to offset the finance provided and outstanding from the GFA.

31.2.10B Action to be taken when vehicle subject to a car loan scheme

(May 2010)

Where a bankrupt is a member of a car loan scheme then a standard notice of bankruptcy should be sent to their employer.  Enquiries should also be made with regard to what action the employer has taken, or is planning to take with regard to the vehicle.

Where the agreement is of the type described at 31.2.10A and less than 12 months has run on the agreement then no claim should be made against the car.  If there is any doubt as to the nature of the agreement then a copy of it should be obtained.

If the bankrupt has taken the option of purchasing the vehicle outright prior to the making of the bankruptcy order the vehicle should be dealt with like any other vehicle see chapter 31.2 part 1

31.2.11 Agreements where ownership may be transferred to insolvent

Where a leasing agreement contains a clause permitting ownership to be transferred, it may be known as a "lease-purchase" agreement but more commonly it will be either a "conditional sale" agreement or a "hire-purchase" agreement. Where any such agreement is a credit agreement involving an individual and under which the creditor provided the individual with credit not exceeding £25,000, it will usually be a regulated agreement under the Consumer Credit Act 1974. The main distinction between a hire purchase agreement and a conditional sale agreement is that the former will generally contain an option to purchase the vehicle after complying with the terms of the agreement and in the latter title will inevitably pass after complying with the terms of the agreement [note 1]. Where either type of agreement exists in respect of a vehicle purchased by a private purchaser in good faith and without notice of the finance agreement good title will be transferred to such a purchaser [note 2]. However the Hire Purchase Act 1964 does not exonerate the seller from any liability under the finance agreement.

31.2.12 Termination of agreement

In practice a hire-purchase, conditional sale or lease-purchase agreement almost invariably gives the other party to the agreement i.e. the hiring owner, creditor or lessor, depending on the type of agreement, (referred to hereafter as "the hiring owner"), the right to terminate the agreement in certain circumstances, such as default in the payment of instalments or the making of a winding-up or bankruptcy order. Where a hiring owner exercises any such right, the potential benefit to the estate will be restricted to the rights of the insolvent on termination of the agreement. The principal right of the hiring owner on termination will usually be to recover the vehicle. In cases where the agreement is regulated under the Consumer Credit Act 1974 (see paragraph 31.2.11) the relevant provisions of Part VII of the Act will apply including, in particular, a restriction on repossessing the goods, without a court order, where at least one-third of the total price for the goods has been paid [note 3].

31.2.13 Value of motor vehicle

Where an insolvent owns a motor vehicle or may acquire ownership through the completion of an agreement the official receiver, when acting as liquidator or trustee, should consider whether there is any value in the vehicle for the benefit of the estate. If the vehicle is subject to a hire purchase, conditional sale or lease-purchase agreement, the amount required to settle the agreement must be taken into account when calculating the likely benefit for the estate.

31.2.14 Repayment to finance company made on behalf of insolvent

The payment of instalments by a person other than the hirer under an agreement where ownership may be transferred does not result in the transfer of any rights or ownership to that person [note 4]. Any such repayments should be treated as a loan and the person who made them may claim in the proceedings as an unsecured creditor for any repayments he/she has not been reimbursed.

31.2.15 Disposal of vehicle subject to finance agreements

Where a vehicle is subject to a hire purchase, conditional sale or lease-purchase agreement the official receiver should contact the hiring owner, initially by telephone, followed up in writing. He/she should check the nature of the agreement, the amount outstanding under the agreement and the settlement figure required to complete the agreement and obtain ownership of the vehicle. The official receiver should consider whether there is any benefit for the estate (by consulting agents if necessary). If there is no equity, the official receiver should inform the hiring owner that he/she does not intend to deal with the vehicle and that it should be collected as soon as possible.

If there is sufficient equity in the vehicle to provide a benefit for the estate after paying the costs of sale, the hiring owner should be asked in advance to confirm that he/she has no objection to a sale by the official receiver. The sale of a vehicle subject to any form of agreement should always be placed in the hands of agents. If there is doubt as to whether the vehicle can be sold for a sum sufficient to pay the settlement figure under the agreement, it may be possible to agree with the hiring owner that he/she will deal with the vehicle and hold any surplus to the order of the official receiver or any insolvency practitioner subsequently appointed as liquidator or trustee.

31.2.15A Vehicles subject to finance with a cherished/personalised registration mark (inserted August 2008)

If a vehicle has a cherished/personalised registration mark, the official receiver will need to establish whose name is on the registration document for that vehicle. It is the registered keeper of a vehicle that has the right to transfer the registration mark, so where a finance agreement is in place, if the finance company are the registered keeper of the vehicle they will have acquired the rights to that registration mark (see paragraph 31.2.5A).

It may be that the director or bankrupt had prior agreement with the finance company to co-operate on their behalf in any subsequent transfers of the registration mark. If so the official receiver should obtain the relevant documentation and approach the finance company if they are the registered keeper of such a vehicle, and enquire as to whether they are willing to co-operate with the trustee in such cases.

If not, the finance company should be requested to use any sale proceeds of the registration mark to reduce the insolvent’s liability under the agreement, and account to the official receiver in respect of any surplus that may arise.

31.2.16 Exempt property

The exempt property provisions [note 5] (see Part 3) apply to items acquired by the bankrupt whether for cash or subject to finance agreements. The provisions apply even if there is no equity in the agreement. The hiring owner should be notified of the bankruptcy order, whether a claim has been made to the item as exempt property and, if so, whether the claim has been accepted by the official receiver. If the hiring owner is discontent with the position, e.g. the bankrupt is in arrears with payments, it may choose to exercise a right under the agreement to repossess the vehicle (see paragraph 31.2.12).

[Back to Part 1 - General] [On to Part 3 - Vehicles which are Exempt Property (bankruptcy only) (revised April 2006)]