Insolvency, like death, moves registered land by transmission — by operation of law rather than by a dealing of the proprietor. Division 1 of Part XII of the Land Registration Act governs it, working with the Insolvency Act (Chapter 253).
Section 114 — two kinds of trustee
- “insolvent” — a person adjudged insolvent under the Insolvency Act.
- “official trustee” — the official trustee appointed under that Act.
- “elected trustee” — the person for the time being elected to the office of trustee of the property of the insolvent.
- “trustee” — the elected trustee where one holds office; otherwise the official trustee.
The distinction runs through the whole Division: who may deal with the land depends on which trustee is in office and what has been registered.
Section 115(1) — the trustee is entitled to be registered
Where the registered proprietor of an estate or interest is adjudged insolvent, the trustee of the insolvent is entitled to be registered as proprietor in respect of that property.
Note that this is an entitlement. The land does not simply appear on the Register in the trustee’s name; the trustee must take the steps in subsection (2).
Section 115(2) — two separate registrations
(a) On receipt of an office copy of the order of the Court adjudging the registered proprietor insolvent, the Registrar shall register the order; and
(b) on receipt of a duly certified copy of the appointment of an elected trustee — or other evidence of the appointment which the Registrar requires — he shall register the appointment.
Two distinct entries, and which of them has been made determines who may transfer the land:
- Order registered, appointment not registered → the official trustee may transfer the insolvent’s estate or interest (s 115(3)).
- Both order and appointment registered → the elected trustee may transfer it (s 115(4)).
Both are expressed to be subject to section 115(6).
Section 115(5) — the effect of a trustee’s instrument
An instrument executed for the purpose of subsection (3) or (4) by the trustee of an insolvent has the same validity and effect as it would have had if executed by the insolvent before the commencement of his insolvency.
That is the provision which makes the trustee’s sale effective. A purchaser from the trustee takes as though the insolvent had signed while still able to deal — and on registration acquires indefeasibility under section 33, subject only to the nine exceptions.
Transmission is not a controlled dealing
Section 128(1) of the Land Act 1996 defines a “controlled dealing” as a disposition of a leasehold estate but not including a transmission, and defines “transmission” as the acquisition of title consequent on the death or insolvency of the owner.
So the trustee does not need Ministerial approval to be registered. But a subsequent sale by the trustee to a buyer is a controlled dealing where the State lease has more than five years to run — void without approval, and unregistrable under section 35(4) unless rent is paid to date and the improvement conditions performed.
An insolvent estate holding a State lease still owes rent to the State and still has to meet the lease conditions. Otherwise the lease can be forfeited during the administration, and there is nothing left for the creditors.
A trustee should deal with rent and conditions early, and should note that section 122(4) of the Land Act requires forfeiture and show-cause notices to be served on everyone known to have or claim an interest.
Disclaimer, and the effect on subleases
Under section 54(6)(c), where a lease is determined by disclaimer by the trustee under the Insolvency Act, a sub-lease of that lease is determined at the same time.
So a subtenant of an insolvent head lessee is exposed: if the trustee disclaims the head lease as onerous property, the sublease goes with it. A subtenant’s protection is to be a registered interest holder — visible for notices — and to have negotiated rights to be told of, and to remedy, defaults under the head lease.
Mortgagees and secured creditors
A registered mortgage remains an encumbrance notified on the folio and binds under section 33(1)(b). Insolvency of the mortgagor does not remove it, and the mortgagee’s Part VII remedies — notice and sale, possession, distraint, ejectment, foreclosure — remain available, subject to the Insolvency Act.
A mortgagee that enters into possession of a leasehold estate should remember section 76: it becomes liable to the lessor for the rent and the covenants, to the same extent as the lessee.
Practical steps
- Trustee: obtain an office copy of the adjudication order and lodge it; lodge a certified copy of any appointment as elected trustee. Both entries matter for who may transfer.
- Trustee: search the title, identify every encumbrance, and check the Land Act position immediately — rent, conditions, notices.
- Trustee: obtain Ministerial approval before contracting to sell.
- Creditors and buyers: confirm which trustee is in office and what has been registered, before dealing.
- Subtenants: register your sublease, and watch for disclaimer.
- Anyone with an unregistered interest: lodge a caveat — and note the three-month lapse.
Sources
- Land Registration Act (Chapter 191) — ss 33, 54, 76, 114–116; Parts VII and XII
- Insolvency Act (Chapter 253)
- Land Act 1996 — ss 83, 122, 127–129
- Companies Act 1997
Before relying on anything here, read the current text of the Land Act 1996 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.