Matrimonial Homes Act 1983. The trustee will there-
fore want an order for sale and Fred and his family will
want to continue in occupation. If they do, the trustee
cannot sell with vacant possession, which gives the best
price.
4 Under the Insolvency Act 1986 the order for sale, if
asked for, can be postponed for 12 months from the date
of the bankruptcy order so that Fred and his family can
find somewhere else to live. In the meantime the trustee
can, if he wishes, ask the court for a charge on the pro-
ceeds of sale, if any, of the property. If the court grants
this charge, the ownership of the property goes back to
Fred who could sell it, but if he did so the proceeds of
sale would belong to the trustee under his charge.
5 Finally, if the trustee applies for an order for sale after
12 months from the bankruptcy order, the rights of the
creditors will become paramount and he will normally
get the order, and Fred and his family will have to move
out. The court may still delay the order for sale further
if there are special circumstances, as where the property
is specially adapted for the use of the bankrupt, or a
member of his family who is disabled.
The family home: Enterprise Act 2002
amendments
Section 283A of the Enterprise Act 2002 deals with a
problem that had affected a bankrupt’s family home in
times of increasing house prices. It will be recalled that
the family home vests in the trustee in bankruptcy and
that as a rule of thumb a sale can be postponed for 12
months so that the bankrupt and his family can find
other accommodation. However, if the trustee does not
ask for an order for sale, the family home nevertheless
continues to be vested in him even after discharge of the
bankrupt.
The reason why an order for sale was not asked for
has often been the state of the market in earlier times
when house prices fell below the level of the sum bor-
rowed on them – called negative equity. However, as
house prices have risen much beyond the amount lent
on them, the trustee has asked for an order to sell the
property still vested in him and obtained for the cred-
itors a disproportionate windfall as a result of waiting for
sale beyond the normal period. However, under s 283A
the family home will have to be dealt with within three
years of the bankruptcy order or it will revest automat-
ically in the bankrupt. Also, if the trustee asks for an
order to sell the family home at any stage of the bank-
ruptcy and the court refuses the application, the family
home will also revest in the bankrupt unless the court
otherwise orders. Thus, in times of rising prices the
trustee cannot hang on indefinitely to the family home
in the hope of an ever greater windfall for the creditors.
It is a ‘use it or lose it’ approach. There is also a pro-
vision in s 313A of the Insolvency Act 1986 (inserted by
the Enterprise Act 2002) under which when the trustee
asks for an order for sale of what is called a ‘low-
value’ property then the trustee’s application will be
dismissed. These low-value arrangements are set out in
regulations.Proof of debt
1 Fred’s creditors will send details of their debts to
Fred’s trustee. These details may be unsworn claims or
may be sworn claims, which means that the creditor has
gone to a solicitor and said to him on oath that the debt
is really due.2 Both unsworn and sworn claims are called proofs of
debt. The trustee will normally accept an unsworn claim
unless he is doubtful about it and is going to challenge
it, possibly before the court. If this is so, he would prob-
ably ask the creditor to submit a sworn claim.Mutual dealings – set off
1 Any mutual dealings between Fred and any of his
creditors are important. Say Fred is owed £20 by a cus-
tomer, Sid, but Fred owes Sid £10. The trustee will ask
Sid to pay the £20 to him but Sid will be able to set off
(as it is called) the £10 Fred owes him against the £20 he
owes the trustee, and pay only £10 to Fred’s trustee.2 This way Sid gets in fact a dividend of £1 in the £1 on
the debt Fred owes him. If there was no law allowing set
off, Sid would have to pay £20 to Fred’s trustee and then
prove for his debt of £10 in Fred’s bankruptcy. If Fred’s
trustee had only sufficient assets from Fred’s business to
pay Fred’s creditors 50p in the £1, then Sid would have
had to pay £20 but would have got only £5 back. As it is
he has had the whole £10 in value.Part 2Business organisations