Attaining certainty in the uncertain (Sale of Property on behalf of a Trustee in Bankruptcy)
In a post Brexit market it is clear an individual’s house or home will face greater risk and exposure to market forces and the management of this risk and adapting to change will be the agenda for all. Whether an individual managing property to secure their pension, or using the residence as the family home, there is an inevitability in our market comparable to taxes; unfortunately some people will see the need to, or be forced, to declare bankruptcy.
When the Trustee in Bankruptcy (“TIB”) is appointed to realise the assets within the estate, further professionals such as solicitors will also be appointed to realise these assets in the most commercially beneficial way to the estate. Correct instruction can define whether or not the TIB will see a return.
A big issue that can arise is when those declared bankrupt are unwilling to assist in the realisation of assets. It creates ambiguity as to the real value attached to the estate, valuations are resisted, letters can be ‘lost’ or ‘misplaced’ and an already difficult and costly process is allowed to endure for longer than it should.
- The sale of property on behalf of the TIB can often be complicated by the property being held through a joint tenancy, the remaining interest which exists on the Property will be equal to that of the TIB.
- The size of a debt charged to the estate can quite often be the tip of the ‘Titanic’s Iceberg’, whereby a charge could be held by a third party over the estate which is not initially declared when, for example an order for sale is sought. The true value of such a charge may only materialise when ascertaining the value of a property in the estate, in anticipation of redemption which of course will be much further down the line after the Order for Sale is made.
- The Insolvency Act and Insolvency Rules bring their own complications when requiring an Order for Sale, as opposed to the rigidity imposed within the civil procedure rules. After all, the Court’s decision will impact on people’s pensions or make a family homeless.
- Conveyancing complications are compounded when the sale is being progressed by a TIB who will not have sufficient background knowledge or title information to provide to a prospective Buyer. It is important to manage this risk before it impacts on the realisable value to the property or estate generally.
In Depth Review
If properties are held jointly, a sale can be hindered if there is a non-bankrupt party, even though the joint tenancy will in fact be severed on bankruptcy. However, the non-bankrupt will be seen as having a favourable interest over the property in the first 12 months, as any order making the non-bankrupt party or even an associated family member homeless, will be viewed negatively by the Court and orders for sale are seldom granted on first application in such circumstances. However, if the property is the bankrupt’s home the TIB will be required to realise the interest within three years in any event, so will need to be vigilant of this window of time when seeking an Order for Sale (s.283A IA 1986).
Else Solicitors raise the issue on Orders for Sale over multiple properties previously held by joint tenants, having recently acted on a matter which required far greater clarification on the debts associated with a bankrupts’ estate than initially anticipated.
The TIB had initially anticipated a certain value to be attributed to the properties in question and apportioned accordingly for the debts to be redeemed against the value of the property. However the parties had not been cooperative when determining an accurate value for the charges over the property and had frequently avoided or missed Court hearings, which would have assisted in establishing an accurate value over the properties held by the two joint tenants. Further, due to their divorce neither the bankrupt nor non-bankrupt was inclined to communicate to each other.
After achieving an Order for Sale, investigation highlighted that the bankrupt and the non-bankrupt party had not declared an accurate figure as to the full charges listed over the properties. The non-bankrupt party had intimated that two interim charging orders held by a third party, were of a minimal value at a final court hearing. In fact they amounted to thousands of pounds. The matter was further complicated by an inherent aversion from the bankrupt party to assist in any way with regard to the sale.
These issues however were managed by achieving an Order from the Court that would balance the need of the non-declared bankrupt and the TIB. As the parties had originally owned more than one property, it was decided to allow the non-bankrupt party the opportunity to purchase the interest of the bankrupt party by allowing the TIB to realise the interest in the other two properties.
The TIB was entitled to realise the interest in the remaining property, should the proceeds realised from the sale of the other properties not be of a satisfactory value to the estate. This allowed for an Order for Sale to be granted that day, despite the non-bankrupt party intimating the need for further adjournment which would have of course, caused interest and costs to rise for the TIB.
It is important therefore when applying for an Order for Sale in favour of the TIB to anticipate the future needs of the TIB, particularly when the debts charged over the estate are already of a significant value and could quite easily consume the entirety of the estate. It should also be noted that even though over a year had passed since the bankruptcy, the Court was still averse to order the sale of all properties within the estate, despite the lack of cooperation from the Bankrupt and non-Bankrupt party.
The matter was passed over to our property department, who ascertained a final value for redemption and further ensured that any charges placed over the non-bankrupts estate were paid out of their share and not the TIB’s. This was only achieved through having the continuous involvement in the case, necessary to monitor such developments and the specialist knowledge to deal with the different stages of such a technical transaction.
Key Issues For Assistance
Due to the draconian but at the same time fluid nature of the Insolvency Act, the sale of properties on behalf of a TIB can become a convoluted process. It is vital to instruct a solicitor or firm who has expertise in contentious insolvency matters, alongside the accurate property expertise to deal with the unusual title issues that arise from a similarly unusual conveyance.
Else is a modern, dynamic and forward thinking solicitors who have the expertise you expect from a large, traditional law firm.
Else Solicitors have an enviable reputation for always going the extra mile and offering a personal, jargon free service. Your business is not only in trusted legal hands but will also benefit from our extensive business knowledge, experience and contacts.
If you are a licensed insolvency practitioner looking to realise the value of an estate to a commercially sensible outcome, our Insolvency and Bankruptcy solicitors are here to help. You are invited to call Daniel Woodall on 01283 526200 or e-mail him at email@example.com at your earliest convenience.
These matters are inevitably assisted through the expertise of our property department.