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ANNEX 3
May 2008
ENTERPRISE ACT 2002 – TRANSITIONAL PROVISIONS ON THE FAMILY HOME
The guidance in this Annex should only be applied to cases where the bankruptcy petition was presented before 1 April 2004 and the bankrupt's interest in a dwelling house falls to be dealt with under section 283A. Most properties that this Annex applied to will have now been dealt with by the trustee or have re-vested in the bankrupt at the end of the normal transitional period i.e. 31 March 2007 (paragraph 2). The only cases this Annex will apply to are those where the petition was presented before 1 April 2004, and there was late notification of the bankrupt’s interest in the property to the official receiver or trustee (paragraph 8) or where the court has extended the 3 year period in which the interest in the property vests in the trustee (paragraph 5).
This Annex should be read in conjunction with Parts 2 to 8 of this chapter. In cases where the bankruptcy order was made on a petition presented on or after 1 April 2004 and the bankrupt's interest in a dwelling-house falls to be dealt with under section 283A, the guidance given in Part 1 should be followed.
If dealing with a property/dwelling-house to which section 283A does not apply reference should be made to Parts 2 to 8.
2. Interpretation of this Annex/definitions
The guidance in this Annex should be followed where all conditions in paragraph 3, (a) to (c) are met.
References in this Annex to property or dwelling-house should be taken to include both freehold and leasehold titles, such titles being held solely by the bankrupt or jointly with another unless otherwise stated.
Pre-commencement bankrupt - in relation to section 283A a pre-commencement bankrupt is an individual who is adjudged bankrupt on a petition presented before 1 April 2004.
Transitional period is the period of three years beginning on 1 April 2004 [note 1].
For a definition of ‘spouse’ and ‘dwelling-house’ see Part 1, paragraph 33.5A and 33.5B.
The Civil Partnership Act 2004 came into force on 5 December 2005. Throughout this Annex where there is reference to ‘spouse’, consideration should be given as to whether a civil partner’s rights may also be affected where a bankrupt has failed to inform the official receiver or trustee of his/her interest in a property by the 30 June 2004. (See paragraph 8.)
3. When do the transitional provisions apply?
The provisions in this Annex should be applied to all cases where:
(a) The individual was adjudged bankrupt on a petition presented before 1 April 2004;
(b) The bankrupt has an interest in a dwelling-house either solely or jointly; and
(c) That dwelling-house was the sole or principal residence of the bankrupt, the bankrupt's spouse or former spouse at the date of the bankruptcy order.
4. Bankrupt’s home ceasing to form part of the estate
Section 283A was introduced by the Enterprise Act 2002 and applies where a property is considered to be a dwelling-house, which at the date of the bankruptcy order was the sole or principal residence of;
a) the bankrupt,
b) the bankrupt’s spouse, or
c) a former spouse of the bankrupt [note 2].
The official receiver, as trustee, should have dealt with any qualifying property within the transitional period, 3 years beginning on 1 April 2004, i.e. by 31 March 2007. Failure to do so would have resulted in that interest;
a) ceasing to form part of the estate; and
b) re-vesting in the bankrupt without conveyance, assignment or transfer [note 3].
Unless one of the exceptions in paragraph 5 or Part 1, paragraph 33.14 apply.
The provisions of section 283A apply only to the sole or principal residence of the bankrupt, his/her spouse or former spouse at the date of the bankruptcy order. It should be noted that the bankrupt's interest in any residential properties falling outside section 283A will remain vested in the official receiver or insolvency practitioner as trustee until they are dealt with by him/her. Such properties should be dealt with in accordance with Parts 2 to 8 of this chapter.
5. Exceptions to the 3 year transitional period applying
For a pre commencement bankrupt the 3 year transitional period will not apply where:
(a) The bankrupt fails to inform the official receiver or trustee of his/her interest in a dwelling-house by 30 June 2004 then the transitional three year period will not begin on 1 April 2004. Instead it will begin with the date on which the official receiver or trustee becomes aware of the bankrupt's interest [note 4] (see paragraph 8);
(b) The court extends the three year period in which the interest in the dwelling-house vests in the trustee [note 5] (see paragraph 33.37);
(c) The official receiver or other trustee has sent notice to the bankrupt that he/she considers that the continued vesting of the dwelling-house in the bankrupt’s estate will be of no benefit to creditors or that re-vesting will facilitate a more efficient administration of the bankrupt’s estate. Where the trustee sends such notice, the property re-vests one month from the date of the notice. The notice will be sent by the official receiver as trustee after a review has been completed [note 6] (see paragraph 13 and 14 for solely and jointly owned property).
6. Action by the official receiver when dwelling-house ceases to form part of the estate
On re-vesting, the official receiver as trustee must notify the bankrupt, the bankrupt's spouse, former spouse, (where the dwelling-house is their sole or principal residence) and any person claiming an interest in the dwelling-house or under any liability in respect of it, of the re-vesting and must make application to the Chief Land Registrar, Land Registry, to amend the register of proprietorship where the dwelling-house is on registered land [note 7]. The official receiver should follow the guidance on giving notice of the re-vesting in paragraph 13 and 14 for solely and jointly owned property.
7. Bankrupt’s home vesting in trustee and re-vesting in bankrupt
The bankrupt's estate vests in the trustee immediately on his/her appointment [note 8]. In the transitional period (paragraph 2), the bankrupt's interest in the dwelling-house remains part of the estate and vests in the trustee. If the trustee (whether the official receiver or an insolvency practitioner acting as such) takes no action in respect of the bankrupt's interest in a dwelling-house to which section 283A applies then the interest will automatically re-vest in the bankrupt at the end of the transitional period. (For exceptions see paragraph 5.)
The interest in the dwelling-house could be in the legal estate or a beneficial interest. For an explanation of these terms refer to Part 2, paragraph 33.44.
8. Effect of late notification by bankrupt of interest in dwelling-house
If a bankrupt fails to inform the official receiver or trustee of his/her interest in a property before the end of the period of three months beginning with the date of bankruptcy, then the 3 year period [note 9];
a) shall not begin with the date of bankruptcy, but
b) shall begin with the date on which the trustee or official receiver becomes aware of the bankrupt’s interest [note 10].
If a pre-commencement bankrupt fails to inform the official receiver or trustee of his/her interest in a dwelling-house by 30 June 2004 then the date of the bankruptcy is taken to be 1 April 2004 [note 11] and the 3 year period in which the trustee is given to deal with the bankrupt’s interest will commence on the date the official receiver or trustee becomes aware of it.
It is possible that a bankrupt may have an interest in more than one dwelling-house under section 283A, see paragraph 33.12 for more information.
Where the bankrupt has an endowment mortgage for the purchase of the dwelling-house the endowment policy needs to be considered separately to the dwelling-house. The endowment policy should be dealt with in accordance with paragraphs 33.81 to 33.83. If a dwelling-house automatically re-vests [note 9] and the official receiver has taken no action to deal with an endowment policy, that endowment policy does not re-vest but remains part of the bankruptcy estate.
10. Solely owned property – need to review
The pre-commencement bankrupt’s interest in the dwelling-house may be reviewed at any time provided at least 2 years and 3 months have elapsed since the date on which the official receiver first became aware of the bankrupt’s interest (where delayed disclosure has extended the date for re-vesting of the bankrupt’s interest - see paragraph 8). The official receiver should commence the review at least 9 months before the interest is due to re-vest in the bankrupt to allow sufficient time for the interest to be dealt with before the property automatically re-vests.
If the official receiver is trustee and;
(a) the mortgagee has not realised their security in the dwelling-house; and
(b) the official receiver as trustee has not taken any steps to deal with the bankrupt's interest in the dwelling-house (as outlined in Part 1, paragraph 33.14); and
(c) the bankrupt’s interest in the dwelling-house still vests in the trustee 2 years and 3 months from the date on which the official receiver first became aware of the bankrupt’s interest; then
the bankrupt’s interest in the dwelling-house should be reviewed by the RTLU, at the 2 year and 3 month point detailed above as this should allow sufficient time for the bankrupt’s interest to be dealt with before the property automatically re-vests at the end of the transitional period [note 9].
For further information in the review process see Part 1, paragraph 33.25.
11. Jointly owned property – need to review (minimal/negative equity)
The pre-commencement bankrupt’s interest in the dwelling-house may be reviewed at any time provided at least 2 years and 3 months have elapsed since the date on which the official receiver first became aware of the bankrupt’s interest (where delayed disclosure has extended the date for re-vesting of the bankrupt’s interest - see paragraph 8). The official receiver should commence the review at least 9 months before the interest is due to re-vest in the bankrupt to allow sufficient time for the interest to be dealt with before the property automatically re-vests.
Where the official receiver is trustee;
(a) if the mortgagee has not realised their security in the dwelling-house; and
(b) the trustee has not taken any steps to deal with the bankrupt's interest in the dwelling-house (as outlined in Part 1, paragraph 33.14); and
(c) the bankrupt’s interest in the dwelling-house still vests in the trustee 2 years and 3 months from the date on which the official receiver first became aware of the bankrupt’s interest; then
the bankrupt’s interest in the dwelling-house should be reviewed by the RTLU, at the 2 year and 3 month point detailed above as this should allow sufficient time for the bankrupt’s interest to be dealt with before the property automatically re-vests at the end of the transitional period [note 9].
For further information on the review process see Part 1, paragraph 33.31.
12. Jointly owned property - review (equity)
The value of the pre-commencement bankrupt's interest in a dwelling-house will be reviewed by the RTLU 2 years and 3 months from the date on which the official receiver or any insolvency practitioner trustee first became aware of the interest (where delayed disclosure has extended the date for re-vesting of the bankrupt’s interest - see paragraph 8). The RTLU should obtain a current valuation of the dwelling-house if one has not been undertaken within the previous 6 months and a current mortgage statement.
In cases with equity where the realisation of a property is likely to be protracted (usually, this will be where the RTLU is not aware of any willing purchaser for the property) the RTLU should seek the appointment of an insolvency practitioner as trustee and arrange for handover of the estate as soon as possible. Chapter 17, paragraph 17.3 provides general guidance on the matters to be considered when considering whether the appointment of a trustee is appropriate.
Other circumstances where the appointment of a trustee may be appropriate would be where there are other assets of a complex nature in the case (although this is unlikely to be the case at the review stage), or where there has been a request from creditors (see paragraphs 16.16 to 16.24) for the appointment of a trustee other than the official receiver.
It may be the case that the equity 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) and, in these circumstances, the RTLU will attempt to sell the property under the Property Conveyancing Scheme or, if this is not possible, and the bankrupt’s interest is in excess of £1,000, apply for a charging order against the property.
Otherwise, the RTLU will deal with the sale of the interest in the property to the willing purchaser.
The RTLU is precluded from taking action to realise a bankrupt’s interest in a qualifying property where the interest is less than £1,000 [note 12]. In these cases the bankrupt’s interest in the property will be allowed to re-vest (see Part 1, paragraphs 33.20 and 33.21).
13. Re-vesting before the end of the 3 year period
After completing the review, if the official receiver, acting as trustee, considers that:
(a) The continued vesting of the property in the bankrupt’s estate is of no benefit to creditors; or
(b) The re-vesting to the bankrupt will facilitate a more efficient administration of the bankrupt’s estate then,
the official receiver should take the following action:
(a) Notify the bankrupt that this is the case.
(b) Inform him/her that the property will re-vest 1 month from the date of the notice to him/her [note 6].
(c) Where the property is on registered land inform the bankrupt that application will be made to the Chief Land Registrar, Land Registry, to amend the register of proprietorship. Such application must be made within 7 days of the dwelling-house re-vesting – see paragraph 14 below.
(d) Where the property is on unregistered land the official receiver should notify the bankrupt of the date the dwelling-house re-vests using Form 6.84 [note 13] with an accompanying letter [note 14].
(e) Notice must be given to other parties with an interest in the dwelling-house (see paragraph 14 below).
14. Action to be taken in all cases whenever the dwelling-house re-vests in the bankrupt
The interest in the dwelling-house will re-vest without the need for any conveyance, assignment or transfer. When the dwelling-house re-vests the official receiver must take the following action dependent on whether the dwelling-house is registered at the Land Registry:
(a) Registered land - within 7 days of the dwelling-house re-vesting in the bankrupt, the official receiver (when acting as trustee) must make an application to the Chief Land Registrar to amend the register(s) [note 15]. The application must be accompanied by a certificate [note 13] stating that the interest has vested in the bankrupt. It is not necessary for the official receiver to send separate evidence of his/her appointment as trustee as BHCERT will suffice. The official receiver should make the application on form RX4 which is available from HM Land Registry's website www.landreg.gov.uk.
The official receiver (when acting as trustee) is required to notify the bankrupt, if applicable his/her spouse or former spouse and every person who (to the official receiver’s knowledge) claims an interest in, or is under any liability in respect of, the dwelling-house that the application has been made. Such notification(s) should be made using form BHLET and should whenever possible be sent within 7 days of the re-vesting of the interest in the bankrupt [note 16].
(b) Unregistered land - when the bankrupt's interest in the dwelling-house re-vests in him/her, the official receiver (when acting as trustee) must send Form 6.84 [note 13] to the bankrupt, his/her spouse or former spouse (if applicable) and every person who (to the official receiver’s knowledge) claims an interest in the dwelling-house or is under any liability in respect of it informing them of the re-vesting. Such notification(s) should whenever possible be sent within 7 days of the re-vesting of the interest in the bankrupt [note 17].
Form 6.84 is proof that the interest has re-vested in the bankrupt [note 18].
(For further guidance on protection of unregistered property see Chapter 50, paragraph 50.75)
15. Further information
For further information on making an application for a charging order see Part 1, paragraph 33.36 and Annex 2.
For further information on when an application can be made to extend the 3 year period, please see Part 1, paragraph 33.37.
For further information on disclaiming an interest in a dwelling-house, please see Part 1, paragraph 33.38.
[Back to Annex 2 – Charging orders under section 313 of the Insolvency Act 1986]