Vesting of Bankrupt’s Assets
All property and assets belonging to the bankrupt vest in the Official Assignee for the benefit of creditors, subject to certain exceptions. The bankrupt must notify the Official Assignee of property later acquired. Where a trustee in bankruptcy is appointed, the assets then vest in the trustee. Vesting takes place automatically.
The property which vests in the Official Assignee, includes all property and assets of every description. This includes lands, buildings, goods, intangible property, pensions, shares, monies and accounts. It includes rights to other person’s assets, including debts and inheritances.
The Court may, at any time after adjudication or after the granting of an order for protection, appoint a receiver or manager of the whole or part of the property of the bankrupt or arranging debtor and may direct that the receiver or manager take immediate possession of such property or any part thereof.
The Official Assignee is the assignee of each bankrupt’s estate and acts with the creditors’ assignee, if any. Except where otherwise directed by the Court, the property of every bankrupt, and the income and proceeds thereof, shall be possessed and received by the Official Assignee.
Foreign and Excluded Assets
The assets which vest in the Official Assignee include those outside the jurisdiction. It may be necessary to apply to a foreign court in aid in some cases, either under EU legislation or common law principles on to the international recognition of orders, in order to enforce the vesting of property in the Official Assignee. See the section on the Insolvency Regulation in the context of European Union bankruptcies.
The property which vests in the Official Assignee does not include the property of which the trustee was assignee and certain assets over which third parties had lien security etc. Also excluded are assets, including clothing, furniture, bedding, tools, equipment and necessaries of life for the person and dependents not exceeding in value €6,000, or such further amount as the court may allow.
Vesting and Divesting of Further Assets
Assets which have been transferred on the eve of bankruptcy in order to avoid vesting in the Official Assignee may be re-vested, so as to be available for distribution to creditors. See the separate section in this regard.
Future assets must be disclosed to the Official Assignee. Assets acquired by the bankrupt after adjudication do not automatically vest in the Official Assignees/trustees. The Official Assignee/trustee must first claim the assets.
The Official Assignee has powers to disclaim onerous assets. This may include leases. Where any asset includes land, shares or unprofitable contracts which are not readily saleable by reason of its binding the possessor to the performance of onerous obligations, the Official Assignee may with leave of court, disclaim the property. The effect is that he is no longer liable on the obligations. A person who suffers loss as a result of the disclaimer is deemed to be a creditor and may prove for damages.
Where a petition is presented, the Land Registry places an Inhibition on dealing with registered land which appears to be affected, for a three-month period. Once adjudicated, all assets of the assignee vest in the Official Assignee. The Land Registry and Registry of Deeds have procedures whereby documents vesting the assets in the Official Assignee may be registered.
A court certificate may be registered in the Land Registry and / or Registry of Deeds, which is evidence of the vesting of the bankrupt’s interest in the property in the Official Assignee. He shall cause the certificate to be registered as soon as may be as if it were a conveyance, and registration of the certificate shall have the like effect to all intents and purposes as registration of a conveyance would have had.
The title of any purchaser of any such land for valuable consideration, in good faith and without notice of the adjudication, who had duly registered the conveyance before the registration of the certificate is not invalidated by reason of the adjudication unless the certificate is registered within two months after the date of the adjudication.
Every covenant or provision for forfeiture of a lease on the bankruptcy of the lessee is void as against the Official Assignee.
The vesting is subject to the interests of third parties in the property. Special provisions apply in relation to the family home.
Monies and Securities
All money and securities received by the Official Assignee, being part of a bankrupt’s estate, shall be forthwith lodged by him in an account in the Central Bank of Ireland or a bank authorised to carry on business in the State and shall be kept there to the credit of the Official Assignee
The Official Assignee, with the leave of the Court, may from time to time invest the whole or any part of any money any interest thereon shall be paid into the appropriate bank accounts.
Every person shall, on request, deliver up to the Official Assignee all money or securities for money in such person’s possession or control which he is not by law entitled to retain as against the bankrupt or the Official Assignee.
Chose in Action / Contract
The bankrupt’s right to take legal action is an asset; a chose in action, which may be asserted by court proceedings. Where a contract constitutes a receivable, it vests in the Official Assignee. Claims, other than purely personal claims, such as claims for personal injury, libel unfair dismissals, and other personal claims do not vest.
The bankrupt’s right to take legal action that is personal in nature remain with him. A distinction may be made between the personal and non-personal parts of a particular claim.
Where the contract constitutes an asset, the Official Assignee may perform it, subject to compliance with its terms and conditions. If the identity of the bankrupt is essential to the due performance of the contract, this may not be possible. Generally, contracts for personal service may not be performed by another party.
Effect on Contracts
Bankruptcy may terminate existing contractual rights. This will depend on the terms of the contract. Clauses in leases of land or goods and hire-purchase agreements that provide that the agreement may be terminated in the event of bankruptcy are void against the Assignee. The Official Assignee acquires the rights of the bankrupt, subject to the obligation to pay the rent/hire charges.
Bankruptcy may constitute a breach of contract, entitling the other party to the contract to terminate it. Bankruptcy may constitute frustration being a supervening cause, making performance impossible.
The Official Assignee may apply to the court to disclaim onerous obligations, including in particular leases. See the separate section on disclaiming.
On entry into a contract for the sale of land / real property, the beneficial ownership passes at the date of the contract, albeit subject to revesting, if the purchase monies are not paid in full. In such cases, the buyer is entitled to complete the purchase. He is not a mere creditor, as to his deposit. The court may order completion, subject to payment of the purchase price.
Where the bankrupt has contracted the dispose of an asset, the Official Assignee may be bound by it, provided that the price is paid. In the case of assets other than land / real property, the courts will not generally compel the performance of a contract and will award damages only. In such cases, the buyer would be an unsecured creditor for the damages, so that the property may thereby vest in the Official Assignee.
Shares, stock and another securities vest in the Official Assignee. Where any part of the property of a bankrupt, or of an arranging debtor under a vesting arrangement, consists of stocks or shares, the Official Assignee may exercise the right to transfer them to the same extent as the bankrupt could have exercised it but for the adjudication or vesting arrangement.
However, unless he is registered as owner; the Official Assignee is not in the position to exercise the relevant rights. The Official Assignee can compel the bankrupt to exercise his votes and to hold the shares generally for the benefit of the assignee.
There are special provisions in relation to copyright. The Official Assignee may grant copyright licenses with the bankrupt’s or the court’s consent. He must ensure that any third-party holder of rights in the intellectual property is paid any royalty or profit share which the bankrupt person would have been liable to pay.
Where a bankrupt is the subject of an insurance policy payable to a third party, the benefit of the policy vests on the third-party rather than the bankrupt or the Official Assignee.
Co-ownership and Third Party Rights
The interest of the bankrupt in jointly held or co-owned property vests in the Official Assignee. In accordance with the general law, only that part of the asset to which the bankrupt is beneficially entitled, vests in the Official Assignee. The co-owner may contest the extent of the bankrupt’s beneficial ownership.
There are procedures available in which the court may determine the extent of the respective beneficial interests in the assets concerned. See the sections on resulting trusts, and how they may impact on and determine the beneficial ownership of property, bank accounts, and other assets.
Where assets vest in the Official Assignee, they are subject to any third-party rights in them. The third party cannot be adversely affected by the vesting in the Official Assignee. Where assets are held in joint names or as a tenant in common, the bankrupt’s share vests in the Official Assignee. The share of the remaining co-owner(s) remains intact.
Where third parties have rights and interests in the assets concerned, for example, a mortgagee’s right in the property or a hirer’s right in leased goods, the Official Assignee acquires the bankrupt’s rights, subject to these rights. Such parties may and usually will assert their proprietary or security rights against the property, given the insolvency of the bankrupt.
Third parties may acquire title by possession against the Official Assignee. The Statute of Limitations may defeat the Official Assignee’s right to the asset.
Power re Interest of Others
Where any goods of a bankrupt are held by any person by way of pledge, pawn or other security, the Official Assignee may give notice in writing to the holder of his intention to inspect the goods and, where such notice has been given, the holder shall not be entitled to realise his security until he has given the Official Assignee a reasonable opportunity of inspecting the goods and of exercising his right of redemption if he thinks fit to do so.
Where a person claims any property which is in the possession of the bankrupt at the date of adjudication he must file with the Official Assignee a claim verified by affidavit.
The Official Assignee may give notice in writing to any person to prove his claim to property which is in the possession of the bankrupt at the date of adjudication and, unless within one month after the service of the notice that person files with the Official Assignee a claim verified by affidavit, the Official Assignee may, with the sanction of the Court, sell or dispose of the property free of any right or interest therein of that person.
Certain (few) assets are excepted from vesting in the Official Assignee. They include clothing, household furniture, bedding, tools and equipment of trade and occupation for the use of the bankruptcy, his spouse and dependents. The bankrupt may choose the items, but they may not exceed €6,000 in value unless, on an application to the court, it permits a greater amount to be excepted.
Where a bankrupt, after selecting the items constituting the excepted articles, requests the Official Assignee, in writing, not to dispose of the remainder of the above type of articles the Official Assignee shall not dispose thereof except in accordance with an order of the Court.
The Court may, on the application of the bankrupt or the Official Assignee, in relation to the remainder of such article
- postpone the removal and sale thereof;
- permit them to remain in the use of the bankrupt;
- at any time, order them to be taken by or on behalf of the Official Assignee and to be sold for the benefit of the creditors.
Where the bankrupt is a trustee of assets, he holds them as nominee for the beneficiary. The trust assets do not vest in the Official Assignee. The bare legal title does not vest. The bankrupt may be disqualified from undertaking the office of trustee and may be obliged to transfer it to another trustee or nominee.
Where the bankrupt has a beneficial interest in assets under a trust, then this interest will vest in the Official Assignee. Equitable rights and interests in property may be defeated by a person who acquires the legal title without notice of the equities for the full value. Because the Official Assignee does not acquire the assets for value, he takes them subject to any such equitable rights that may exist in them.
Gratuitous trusts created by a bankrupt within a certain period before bankruptcy will be set aside automatically. Earlier trusts made with the intent or for the purpose of avoiding creditors may be set aside as fraudulent conveyances. See the chapters in relation to fraudulent conveyances and pre-bankruptcy dispositions.
Where a spouse (or another) has made contributions towards the acquisition of property, that spouse (or that other) may acquire an equitable right to the property. Similarly, where the bankrupt has agreed to grant security and monies have been advanced, an equitable mortgage arises, notwithstanding that the legal mortgage may not yet be entered or registered at the date of adjudication.
After adjudication, creditors cannot enforce remedies against the bankrupt person. The principle is that the bankrupt’s entire assets are available to be shared proportionately amongst unsecured creditors.
On adjudication as a bankrupt, there is a moratorium on enforcement against the bankrupt’s assets. Proceedings may not be commenced in relation to debts, without leave of court. The claim by the creditors is made in the bankruptcy proceedings
Where a prospective defendant is bankrupt, the leave of court is required to any claim as a creditor. Leave is the consent of the court. It may be granted on such terms as is required.
The Official Assignee can apply to have existing legal proceedings stayed / suspended. This follows from the general moratorium on enforcement against the bankrupt. Actions by the creditors to establish their rights are generally permitted to proceed.
The Official Assignee may continue, bring or defend legal proceedings relating to the bankrupt’s assets. He may seek directions from the court, where issues of doubt or difficulty arise. The Official Assignee is entitled to an indemnity out of the bankrupt’s assets in respect of costs and expenses incurred by him in good faith.
Secured Goods and those Subject of Execution
A claim against secured assets does not require leave. The right of a mortgagee is a right against the secured asset. It does not involve a personal remedy against the bankrupt as such. Therefore, such proceedings may proceed. Secured creditors retain their rights to enforce any remedies under their security. See the separate chapter in that regard.
Where a creditor is also a debtor of the bankrupt, he may and must set off sums owing. Such a creditor is therefore in a privileged position.
Completed execution remains unaffected by bankruptcy, subject to certain rules. Judgment mortgages must be registered for three months. Execution by the county registrar or sheriff is completed within 21 days after the receipt of money from the debtor or sale. The sheriff must retain the money for that period. If he becomes aware of bankruptcy, the monies must be delivered to the Official Assignee. There is priority in respect of costs incurred.
A bankrupt shall forthwith notify the Official Assignee in writing of any change in his name or address which occurs during his bankruptcy. A change in the name of a bankrupt is deemed to occur if the bankrupt in fact assumes the use of a different name or an additional name.
A bankrupt shall, whenever required by the Official Assignee to do so, forthwith notify the Official Assignee in writing of the nature of any profession, vocation, business or employment in which he is engaged.
A bankrupt who fails to comply with any of the provisions of this section shall be guilty of an offence. Once a person is declared bankrupt, many restrictions, including the following apply;
A bankrupt is guilty of a criminal offence if he does any of the above and certain other things, which breach bankruptcy law.
A person who has been adjudicated bankruptcy is subject to certain restrictions; so-called disabilities. An undischarged bankrupt may not act as a company director. He may not take part directly or indirectly in the management of a company, unless the court, on application permits
Bankruptcy is a basis for disqualification from various offices established by statute. This includes membership of the board of directors of most state companies. Bankruptcy disqualifies persons from acting in certain financial services roles, acting as an auctioneer, and certain license holders. An undischarged bankrupt may be restricted from being a solicitor.
An undischarged bankrupt person may not obtain credit for an amount in excess of €635 without disclosing his status as such. A bankrupt person may not engage in business under a registered name other than his own.
References and Sources
Burke & Comyn Personal Insolvency Law 2014
Bracken Practioner’s Personal Insolvency Handbook 2013
Law Society (Wright) Insolvency Law 2009
Sanfey & Holohan Bankruptcy Law & Practice2nd Ed 2010
Farry, Holohan Consolidated Bankruptcy & Personal Insolvency Legislation2013
Forde & Simms Bankruptcy Law 2nd Ed 2009
Insolvency Law and Practice (Report of the review committee chaired by Sir Kenneth Cork CBE, 1982, Cmnd 8558) (the Cork report)
V Finch, Corporate Insolvency Law: Perspectives and Principles 3rd Ed 2017
A Keay and P Walton, Insolvency law: corporate and personal (4rd Ed, 2017)
Marsh Bankruptcy Insolvency and the Law 2016
WW McBryde, Bankruptcy 2nd Ed, 1995
Butterworths Insolvency Law Handbook 14th Ed 2012
Core Statutes on Insolvency Law and Corporate Rescue (annual editions)
Bankruptcy Act 1988
Personal Insolvency Act 2012
Personal Insolvency (Amendment) Act 2015
Bankruptcy (Amendment) Act 2015
Bankruptcy Act 1988 (Commencement) Order 1988, S.I. No. 348 of 1988
Bankruptcy Act, 1988 (Alteration of Monetary Limits) Order 2001, S.I. No. 595 of 2001
Bankruptcy Act 1988 (Official Assignee Accounts and Related Matters) Regulations 2013, S.I. No. 464 of 2013
Bankruptcy (Amendment) Act 2015 (Commencement) Order2016, S.I. No. 34 of 2016
Rules of the Superior Courts (Bankruptcy) 2013, S.I. No. 461 of 2013
Rules of the Superior Courts (Bankruptcy) 2016, S.I. No. 232 of 2016
Rules of the Superior Courts (Bankruptcy) 2012, S.I. No. 120 of 2012
Bankruptcy (Amendment) Act 2015 (Commencement) (No. 2) Order 2016, S.I. No. 253 of 2016