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PART 1
SEPTEMBER 2008
IDENTIFICATION OF INTEREST IN PROPERTY
31.3.2 Interpretation of chapter
References in this chapter should be taken to include both freehold and leasehold property unless otherwise stated. It may be useful to refer to Chapter 50 - Dealings with the Land Registry for further guidance on, for example, registered and unregistered land. Chapter 33 provides explanations of various matters relating to property including terms such as ‘beneficial interest’ and ‘legal estate’ (see paragraph 33.38). In the Annex to this chapter there is a summary of the main areas, which the official receiver needs to consider when dealing with property.
The official receiver should make enquiries at an early stage to discover the extent and nature of interest that the insolvent has in the property. If the official receiver is in any doubt about the ownership of registered land, this may be verified by making a search of the Land Registry (see Chapter 50).
It is possible to obtain the title number and check if a property is freehold or leasehold by inputting the full postcode into the search facility on the Land Registry’s website (www.landregistry.gov.uk). This service is available free of charge. The title numbers for the relevant property can then be recorded and used in carrying out the required search.
Where the property is unregistered land, it will be necessary to have sight of the title deeds where possible (see paragraph 50.75 to 50.78 for more information). Reference should also be made to paragraph 31.3.10 as a beneficial interest may be held in the property even though a party’s name is not recorded at the Land Registry or on the title deeds.
31.3.4 Establish details of any mortgages/charges
Details of any amount due under mortgages or other charges against the property should be established, as well as details of any steps that may have been taken to recover the amount due, including action taken against the property. Written notification of the insolvency order should be sent to all mortgagees and charge-holders [note 1] (see also paragraph 31.3.14).
The official receiver should also check the validity of the mortgage(s) and charge(s) (see paragraph 31.3.12).
31.3.5 Ascertain value of property
A current valuation of the insolvent’s interest in the property should be established, a variety of methods can be used including:
(a) Insolvent's valuation:
(b) Local knowledge;
(c) Information from mortgagee;
(d) Use of internet (www.upmystreet.com or www.nationwide.co.uk);
(e) Drive-by valuation; and
(f) Professional valuation.
The official receiver should initially decide which form of valuation is appropriate on a case-by-case basis. At a later date, if the case has been passed to RTLU, who are reviewing it following the receipt of new information, a current valuation should be obtained if no valuation has been undertaken within the previous 6 months (see paragraph 31.3.16). The RTLU should review cases with property on a regular basis (see paragraph 31.3.8).
The insolvent’s interest in the property should be protected (see Chapter 31.3 Part 2).
31.3.6 Property with equity (amended February 2011)
Where there is equity in a property and a willing purchaser and the realisation of the property is not likely to be protracted, the case should be transferred to RTLU for realisation of the property. The level of equity in these circumstances is not relevant.
In a bankruptcy case, if the official receiver is appointed as trustee, (either pending an appointment via the Secretary of State rota or pending transfer to the RTLU), notice that the bankrupt’s interest in the property vests in the trustee (in the case of family homes) should be sent to the bankrupt and any joint owner [note 2]. For information on how to deal with the bankrupt’s interest in a family home see Chapter 33 Part 1.
In a company case, if the officers have shown no interest in purchasing the property, it is likely that the case will be transferred to an insolvency practitioner to realise the property. Where the equity is too small to attract an insolvency practitioner, reference should be made to paragraph 31.3.8.
31.3.7 Property with equity (no willing purchaser)
In cases with equity where the realisation of a property is likely to be protracted (usually, this will be where the official receiver is not aware of any willing purchaser for the property) the official receiver should seek the appointment of an insolvency practitioner as liquidator or trustee – whether by a meeting of creditors (see Chapter 16) or via an appointment by the Secretary of State (see Chapter 17, paragraphs 17.47 to 17.68) and arrange for handover of the estate as soon as possible. Paragraph 17.3 provides general guidance on the matters to be considered when considering whether the appointment of a liquidator or trustee is appropriate.
Other circumstances where the appointment of a liquidator or trustee may be appropriate would be where there are other assets of a complex nature in the case, or where there has been a request from creditors (see paragraphs 16.13 to 16.19) for the appointment of a trustee other than the official receiver.
31.3.8 Equity insufficient to attract an insolvency practitioner (amended February 2011)
It may be the case that the equity in a property is insufficient to attract a nomination of an insolvency practitioner (this amount is not set at any particular level and would vary depending on local and general circumstances).
In bankruptcy cases, where the bankrupt’s interest is greater than £1000 form MP1 should be sent (see Chapter 33 paragraphs 33.22-25 and paragraphs 33.28-35). Any sale of the bankrupt’s interest in a property should clearly be in the interests of creditors, see paragraph 33.21A.
The case should be transferred to the RTLU who will attempt to sell the property under the Property Conveyancing Scheme (jointly owned) or if the property is outside this scheme, negotiate a separate fee with TLT solicitors for the conveyancing (see paragraph 31.3.43). If this is not possible, RTLU will make a note of the property for review at a later date (see paragraph 33.25 and 33.31 and the Case Help Manual Chapter on the sale of the bankrupt’s interest in jointly owned property, the sale of the bankrupt’s interest in solely owned property, or leases with value).
It is rare for property held by companies not to be disposed of at an early stage, and so there is no set procedure for the review of these cases. If a property were to be left for later review in such cases, the dissolution of the company should be deferred to prevent the property reverting to the Crown, see Chapter 38 for further information relating to dissolution of companies.
31.3.9 Treatment of investigation cases
The fact that the case is on the investigation register need not prevent the case from being transferred to the RTLU as there is facility on LOIS for the administrative and investigatory parts of the case to be separated.
It may be that the property is in the sole name of the insolvent or that it is held jointly with others. Alternatively, the insolvent may not appear as the legal owner of the property but he/she may have acquired a beneficial interest in it as a result of action he/she has taken e.g. by making a contribution to the deposit and/or the purchase price. Details on how to assess the amount of the beneficial interest are given in Chapter 33, Part 2 but such calculations are often complicated and it will usually be necessary to obtain legal advice to deal with this, unless an agreement can be reached with all the owners concerned. This guidance is applicable to any property owned by a company or bankrupt although in company cases there are obvious exceptions e.g. it is unlikely that the company will have acquired a beneficial interest in a property by making contributions to household expenses.
In all cases where a company has an interest in property, that interest remains vested in the company. The only exception to this is in the rare cases that the liquidator has applied to have the interest vested in him/her [note 3]. Where a bankrupt owns property in his/her sole name (unless it is held in trust for another), the legal estate will vest in the trustee [note 4]. Even though the bankrupt owns property in his/her sole name it is possible that another party may have acquired an interest in it. Reference should be made to paragraphs 33.45 to 33.57 for further guidance. Where the property is jointly owned by the bankrupt, the legal estate will remain vested in the bankrupt and other co-owner(s) whilst the trustee will have a beneficial interest in the proceeds of sale. Reference should be made to paragraphs 33.58 to 33.60 for a more detailed explanation.
The official receiver should check that any mortgage or charge against the insolvent’s interest in the property was correctly executed. Where the property comprises unregistered land and the mortgage is capable of registration under the Land Charges Act 1972, then it should be registered at the Land Charges Department; this is necessary in order to bind purchasers. Where the property comprises registered land, the mortgage or charge against the property should be registered with the Land Registry (see Chapter 50, Part 5 regarding searching the registers); again, this is necessary in order to bind purchasers. Failure to do so will not invalidate the mortgage or charge, but will mean that a further mortgage or charge could be registered which would then take priority as the earlier registered charge or mortgage. In addition, in company cases only, the official receiver should ensure that the charge has also been registered with the Registrar of Companies [note 5] (see Chapter 9, paragraph 9.94). The official receiver should check that the amount of the loan secured against the property was received by the insolvent in full, particularly where the funds were provided by an associate of the insolvent or a party connected with the company [note 6], as this may otherwise constitute a transaction at an undervalue or a preference [note 7]. (See Chapter 31.4)
31.3.13 Appointment of Law of Property Act receiver
A receiver may be appointed in relation to the land or property. The LPA25 [note 8] gives a receiver power of sale over charged property, where that power has been delegated to him/her by the mortgagee. The mortgage deed may also contain special provisions regarding the appointment of a receiver. If a receiver, other than an administrative receiver, is appointed, he/she need not be a licensed insolvency practitioner [note 9]. Accordingly, for example, a solicitor or a chartered surveyor may act where property is to be realised. (See Chapter 69 – Law of Property Act Receivers for further information.)
Early written notice of the insolvency order should be given to all mortgagees and charge-holders with a request that any surplus should be passed to the liquidator or trustee [note 10]. In bankruptcy cases the official receiver as trustee should not rely upon the mortgagee informing him/her of any attempt to deal with the property but should also ensure that a bankruptcy restriction or a Form J restriction has been registered or, in the case of unregistered land, a caution against first registration of land has been registered (applicable only to solely owned unregistered land until October 2005) or first registration of the unregistered land (only available where the unregistered land is solely owned) (see paragraph 31.3.25 and 31.3.26 and Chapter 50 - Dealing with the Land Registry).
31.3.15 Potential antecedent recoveries
The official receiver should be satisfied that no property of the insolvent has been transferred to another party at an undervalue, nor that a preference has been given to any party. If such property has been so transferred or preference given in the relevant time period [note 11], following initial enquiries with the relevant parties to establish the transaction details, the official receiver should write to the relevant parties to attempt recovery. If the parties’ reply sets out how they will repay all, or part, of the money owing, then the case can be passed to the RTLU for collection. The home official receiver should always establish the grounds for recovery, the amount recoverable and the prospects of recovery prior to transfer to the RTLU. Where part payment is offered, the RTLU official receiver should consider a compromise of the debt where appropriate, (obtaining the necessary sanction from Technical Section) [note 12]. If there is an offer of part payment, but agreement cannot be reached on the amount, the RTLU may then consider pursuing the appointment of an insolvency practitioner. Reference should be made to paragraph 31.4.7.
Where the parties are not willing to pay the amount due, and the official receiver is without funds to pursue the recovery, he/she should consider reporting the facts to the principal creditors and they should be invited, within say 14 days, to either nominate an insolvency practitioner who is willing to act, or to confirm if they themselves are willing to fund the costs of the recovery action needed. Reference should be made to paragraph 31.4.8 for further details. Following writing to the creditors and depending on the outcome, the case may then be suitable for transfer to RTLU to pursue the recovery, or for the appointment on an insolvency practitioner.
Antecedent recoveries, which includes undervalue transactions and preferences, are dealt with in detail in Chapter 31.4.
Where a freehold or leasehold property is to be sold the official receiver should generally obtain a valuation of the property unless he/she is satisfied that a recent independent valuation is accurate (see paragraph 31.3.5).
The official receiver should estimate the value of the insolvent’s interest in the property for the purpose of reporting to creditors so that the appointment of a liquidator/trustee can be considered (see also paragraph 33.39). In any such calculation, the official receiver will have to consider the nature of the insolvent’s interest in the property, including any beneficial interests (see paragraph 31.3.10), and any mortgages or charges secured upon that interest.
31.3.17 Valuing leasehold property
The following factors should be taken into consideration when deciding whether a commercial lease has any value:
If there is any uncertainty concerning the value of the lease, the official receiver should obtain a professional valuation, by initially contacting the official receiver’s usual agents for advice.
31.3.18 Disclaiming leases with no value
If after considering his/her experience in dealing with leases, the type of lease, business involved and the area that the building is in (and any professional valuation if appropriate), the official receiver is satisfied that there is unlikely to be any value to the estate in the lease, then it should be disclaimed.
For further information on disclaiming a lease, see Chapter 34, and in particular Part 7.
31.3.19 Drive-by valuations - residential property
A drive-by valuation may be obtained, and King Sturge, offer a fixed fee service for residential property of £65 plus VAT. To instruct King Sturge, the following form http://intranet/DocumentLibrary/OROS/Excel/King%20Sturge/M72-02%28attach%29.xls
should be completed and emailed to debbiekingsford@kingsturge.co.uk
The valuation can then be used to inform decisions on insolvency practitioner appointments, at first meetings of creditors, or when deciding whether to accept a nominal offer or not.
31.3.20 Drive by valuations – commercial property
The Insolvency Service does not have any arrangement with King Sturge for the valuation of commercial property, however they may undertake these by agreement on a case-by-case basis. Official receivers may instead decide to use their local agents for the valuation of commercial premises.
Where the official receiver becomes aware that the land is contaminated, reference should be made to Chapter 82 - Environmental Legislation for further guidance. It should be remembered that where waste is on land which forms part of the insolvent’s estate and disclaimer of the waste is to be effected, it will be necessary to disclaim both the waste and the land. If it is proposed to retain the land on which there is waste (because, for example, it is to be sold), it will be necessary to comply with environmental legislation regarding the keeping/disposal of such waste.
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