News and Recent Changes

The Official Receiver’s general fee

This new fee is a fixed single fee and was introduced to replace the Secretary of State fee in all cases where the order is made on or after 21st July 2016. This means that creditors will know at the start of a case the maximum amount that will be charged for it to be administered. As with the Secretary of State fee it replaces, this fee will go towards meeting all the costs of the Official Receivers’ operations. The previous Secretary of State fee was charged as a percentage of assets realised in a case. The maximum amount charged under the Secretary of State fee per case was £80,000. The new fee will be set at £6,000 and the Insolvency Service hopes that this will result in more funds available to return to creditors in cases that have assets.

This fee will be charged to the case upon the making of the bankruptcy or winding up order.

 

 

Online Debtor Bankruptcy Applications

The bankruptcy application process and fee were changed on 6th April 2016. Previously all bankruptcy applications had to be submitted to the court and looked at by a Judge.

On 6th April 2016 the application process for people wishing to make themselves bankrupt moved online and out of the Courts. This means that you now have to fill in your bankruptcy application online rather than using a paper form and you no longer have to go to Court. Instead, you submit your completed application electronically to an Adjudicator who makes a decision about your application. The Adjudicator is not a Judge. They are a government official who work for the Insolvency Service, and their role is to review and make decisions about individuals’ bankruptcy applications.

The fee is £680 and for the first time you can now also pay your fee online and in instalments.

The process for making someone else bankrupt remains unchanged.

 

 

Can Undrawn Pension Entitlements be claimed by a Trustee in Bankruptcy?

Welfare Reform and Pensions Act 1999

Section 11 of the Welfare Reform and Pensions Act 1999 reversed the High Court decision in Re Landau (1998), by providing that a bankrupt’s rights in an approved pension scheme will not automatically vest in a trustee in bankruptcy. The 1999 Act does however provide that ‘any payment under a pension scheme’ may be included in the bankrupt’s ‘income’ for the purposes of an application for an income payments order (IPO). However the conflicting decisions of Raithatha v Williamson (2012) and Horton v Henry (2014) threw doubt on the rights of the Trustee with regards to pensions.

 

Horton v. Henry (2016)

After much deliberation, The Court of Appeal has held that the bankrupt did not have a duty (under s333) to the Trustee to comply with a request for him to elect to draw down the pension and that, in the absence of such an election, the pension was excluded from the bankruptcy estate. The Court also decided that the ability of the bankrupt to elect to draw down a pension was not “a payment in the nature of income… to which (the bankrupt) from time to time becomes entitled”.

In effect, this means that the previous case of Raithatha v Williamson (2012) was wrongly decided.

 

Abolition of distress / Commercial Rent Arrears Recovery (CRAR)

Section 71 of the Tribunal Courts and Enforcement Act 2007 (which came into force on 6th April 2014) states that “the common law right to distrain for arrears of rent is abolished” and has been replaced with Commercial Rent Arrears Recovery (otherwise known as CRAR).

The new law sees a shift towards a more tenant friendly solution and the key differences between the old and new law can be found on our helpsheet:

CRAR Helpsheet

 

 

Court of Appeal Rules on Treatment of Rent as an Expense

The Court of Appeal has overruled the decisions in Goldacre (Offices) Ltd v Nortel Networks UK Ltd and Leisure (Norwich) II Ltd v Luminar Lava Ignite Ltd. In the former case, it had been held that if a quarter’s rent payable in advance fell due during a period in which administrators were retaining the property for the purposes of the administration, the whole of the quarter’s rent was payable as an administration expense even if the administrators were to give up occupation later in the same quarter. In the latter, it had been held that where a quarter’s rent payable in advance fell due before entry into administration none of it was payable as an administration expense even if the administrators retained possession for the purposes of the administration; the rent was simply provable as a debt in the administration. A crucial factor in these cases had been that rent payable in advance is due and payable in full on the rent day and is not subject to apportionment.

The Court of Appeal decision involved an analysis of the scope and application of the so-called ‘salvage principle’. The salvage principle is a creation of equity which permits the concept of a liability incurred as an expense of the insolvency proceedings to be expanded to include liabilities incurred before the insolvency proceedings in respect of
property afterwards retained by the office holder for the benefit of the insolvent estate. Lewison LJ called the period during which the property was so retained ‘the period of beneficial retention’.

Lewison LJ said that the fact that rent payable in advance is not apportionable under the Apportionment Act 1870 does not lead inevitably to the conclusion that the salvage principle does not apply. Where an instalment of rent falls due before the insolvency, the whole of the instalment is a provable debt, so the tenant remains liable to pay it.
Whether that liability is satisfied by a dividend or by a payment in full is not a question of apportionment. The application of the salvage principle treats part of a single liability as an insolvency expense, by requiring that it be paid in full.

 

 

ESC C16 – DIY Members Voluntary Liquidations

The government has radically restricted the ESC C16 system and since March 2012 distributions over £25,000 made in that way are treated as being income rather than capital in the hands of the shareholders.

See the sections on Solvent Liquidations and Voluntary Strike Off for more details.