Section 102 of the Insolvency Act (Chapter 253) is the personal counterpart of section 319 of the Companies Act.
Section 102(1) — what may be disclaimed
(a) land burdened with onerous covenants; or
(b) unmarketable shares in companies; or
(c) unprofitable contracts; or
(d) any other property that is unsaleable or not readily saleable because it binds the possessor (i) to the performance of an onerous act, or (ii) to the payment of a sum of money,
the trustee may, by writing under his hand, disclaim the property.
(2) He may do so notwithstanding that he has endeavoured to sell the property, or has taken possession of it or exercised any act of ownership.
The categories are narrower than section 319(2) of the Companies Act in one respect and wider in another. There is no express category for a litigation right with no reasonable prospect of success or that cannot be funded. But unmarketable shares are named expressly here.
“By writing under his hand” is the formality: a signed written disclaimer, not merely a decision not to deal with the asset.
Section 102(3) and (4) — the effect of a disclaimer
(a) a contract is deemed to be determined from the date of the order of adjudication;
(b) a lease is deemed to have been surrendered on the date of the disclaimer;
(c) shares in a company are deemed to be forfeited and to have reverted to the company on and from the date of the disclaimer;
(d) any other disclaimed property reverts to the person entitled on the determination of the estate or interest of the insolvent;
(4) and in that case, whether or not any person entitled is in existence, no estate or interest in the property remains in the insolvent.
A contract is determined from the adjudication — retrospectively. A lease is surrendered only from the date of the disclaimer, so rent accruing in between remains a liability of the estate. That is why section 102(8), below, matters so much for leased premises.
Subsection (4) is decisive: the insolvent retains nothing, even if there is no one to take the property. Disclaimed property does not come back on discharge.
Sections 102(5) and (6) — the remedies of those affected
(5) A person interested in any disclaimed property may apply to the Court, which may (a) order possession to be delivered up to the applicant, or (b) make such other order as to possession as is just.
(6) A person injured by this section — other than a company whose shares are forfeited — shall be deemed to be a creditor of the insolvent to the extent of the injury, and may prove it as a debt under the insolvency.
So a landlord whose lease is disclaimed may seek possession under subsection (5) and prove for the loss under subsection (6). The exclusion of the company in subsection (6) reflects that a company whose unmarketable shares revert has lost nothing of value.
Sections 102(7) and (8) — forcing an election, and leases
The trustee is not entitled to disclaim where (a) a written application has been made to him by a person interested requiring him to decide whether he will disclaim, and (b) for not less than 28 days after receipt — or such further time as the Court allows — the trustee has declined or neglected to give notice whether or not he disclaims.
The period is 28 days, shorter than the one month minimum a person interested must give a liquidator under section 320 of the Companies Act. A landlord, franchisor or counterparty who wants certainty should serve the notice rather than wait.
Where at the date of adjudication the insolvent is the lessee of any premises, the trustee may, instead of disclaiming immediately, elect to retain the premises for a period (a) not exceeding three months and (b) ending not later than the expiration of the lease — and at the end of that period may disclaim the lease.
That is a practical accommodation. A trustee who needs the premises to sell stock, to run the business under section 99, or simply to store the estate may keep them for up to three months without losing the right to disclaim, and without a section 102(7) notice cutting the option short.
Sections 103 and 104 — transferable property and things in action
103. Where the property includes stock, shares in ships, shares or any other property transferable in the books of any company, office or person, the right to transfer is vested absolutely in the trustee, to the same extent as it would have been in the insolvent.
104. Where the property includes things in action, proceedings for their recovery shall be instituted in the trustee’s official title, and for that purpose any such thing in action (a) is assignable in law and (b) shall be deemed to have been duly assigned to the trustee in his official capacity.
Section 103 overrides the ordinary restrictions on transferring registered holdings — including a company’s power to refuse registration under section 65(4) of the Companies Act — and section 104 removes any argument that a bare cause of action could not be assigned to the trustee.
Section 105 — redemption, mortgages and sales
Where the insolvent transferred, assured, delivered, deposited or pledged deeds, writings, goods or chattels subject to a condition for redemption or redelivery on payment at a future day that had not arrived when the petition was presented, the trustee (a) may make payment or tender according to the condition before the redemption date arrives, as fully as the insolvent could have done; and (b) on doing so is entitled (i) to have and receive the property and (ii) to recover it from the person to whom it was pledged, or any other person in whose possession it is who has notice of the condition.
Where a debt due to or by an insolvent is charged on land by way of equitable mortgage, the Court may — on the application of the trustee or the equitable mortgagee, and on notice to all parties interested — make an order for the sale of the land.
With the leave of the Court, a mortgagee may bid at the sale of any mortgaged property.
A mortgagee bidding at the sale of the property over which it holds security is in an obvious conflict: it sets the reserve in substance, and it benefits from a low price. Requiring the Court’s leave puts the conflict before a judge.
The equivalent tension in a receivership is handled differently: a receiver owes a statutory duty under section 269 of the Companies Act to obtain the best price reasonably obtainable, and cannot contract out of it.
Sources
- Insolvency Act (Chapter 253) — ss 99, 102–105, 110
- Companies Act 1997 — ss 65, 269, 319, 320
Before relying on anything here, read the current text of the Companies Act 1997 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.