, Property which the bankrupt keeps despite bankruptcy and what the trustee can do about it part three: leadingcounsel.co.uk
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Property which the bankrupt keeps despite bankruptcy and what the trustee can do about it part three

If the bankrupt holds property on trust for someone else then that property does not fall within the bankruptcy or the bankrupt's estate. In a sense the bankrupt is not keeping the property because it is not his or hers to keep in the first place. So for example, if an individual before the bankruptcy held shares on behalf of someone else (perhaps a child) those shares still remain those of the child and can still be held by the bankrupt on trust for the child. Obviously in any individual instance there may be considerable dispute as to whether property is held in trust or not. It is very easy for a bankrupt just to try and say that property is held to someone else's order or benefit. If there is a dispute the court will have to decide what the true position is. Nonetheless the principle is clear, and in most cases the background circumstances will show pretty readily whether this was really the property of the bankrupt or whether it was in truth held for someone else.

Various tenancies are also excluded from the definition of the bankrupt's estate. Before looking at those, it is important to bear in mind that the trustee can serve notice seeking to vest any such tenancy in the trustee, even though the starting position is that the tenancy is excluded. That ability of the trustee is under section 308A where effectively the same time limit applies as in respect of section 308 referred to last week. The difference is that the wording is different in the sense that although the vesting is the same, there is no question of the trustee deciding what is reasonable from the point of view of the bankrupt as regards an alternative. Instead the trustee is just able to serve a notice to acquire the tenancy.

The tenancies which are not covered by the definition of bankrupt's estate are varied. They include: assured tenancies or assured agricultural occupancies under part 1 of the Housing Act 1988 the terms of which inhibit an assignment as mentioned in section 127 (5) of the Rent Act 1977; certain protected tenancies under the Rent Act 1977; certain dwellinghouse tenancies of which the bankrupt is the protected occupier pursuant to the Rent (Agriculture) Act 1976, the terms of which inhibit an assignment as mentioned in section 127 (5) of the Rent Act 1977; and secure tenancies within the meaning of Part IV of the Housing Act 1985 which are not capable of being assigned except in the cases mentioned in section 91 (3) of the Housing Act 1985.

The definition of bankrupt's estate is also subject to the provisions of other statutes which exclude property from the bankrupt's estate. One example of a statute excluding property is one relating to pension schemes as defined by the Welfare Reform and Pensions Act 1999. Such pensions are excluded from the bankrupt's estate if the bankrupt has been made bankrupt pursuant to a bankruptcy petition presented on or after 31 May 2000. The trustee and the bankrupt can agree to exclude pension rights from the bankrupt's estate where they would otherwise vest in the estate. Such agreement is pursuant to the Occupational and Personal Pension Schemes (Bankruptcy) Regulations 2002.

Another example of a statute excluding property from the bankrupt's estate is the Proceeds of Crime Act 2002. Under section 417 property subject to an order under that Act is automatically excluded from the bankrupt's estate.

Property of the bankrupt is also subject to the rights of secured creditors unless that creditors rights have been waived or abandoned. A particular way in which such creditor's rights can have been waived or abandoned is pursuant to section 269 (1) (a) of the Insolvency Act 1986. That provides that a creditor with security can petition for bankruptcy in respect of the secured debt if such a person states that in the event of a bankruptcy order being made that person is willing to give up that person's security for the benefit of all the bankrupt's creditors.

Michael J. Booth QC