Disclaimers (September 2024)
Disclaimers
September 2024
Introduction
1. What is a disclaimer?
A disclaimer is a formal notice on a prescribed form issued by a liquidator or trustee in respect of ’onerous’ property. It has the effect of removing from the liquidator or trustee all responsibility for the property disclaimed and discharges all personal liability in respect of it.
When acting as liquidator or trustee the official receiver should disclaim onerous property as soon as possible unless there is doubt as to whether there is any equity or realisable value. For example, it may be possible to disclaim in a company case where there is a commercial property, although it will be necessary to ascertain that a lease is of no value before issuing a disclaimer. In practice, most disclaimers issued in bankruptcies are in respect of domestic tenancies, but a disclaimer may be used against a variety of onerous property that cannot be disposed of by any other means.
A disclaimer can be issued at any time in the proceedings once the official receiver is liquidator or trustee by giving proper notice to the court.
2. What does ’onerous property’ mean?
Careful regard must be made to the definition of onerous property. The Insolvency Act 1986 defines onerous property as:
- any unprofitable contract and
- any property, forming part of the estate, which is unsaleable, or not readily saleable or which may give rise to a liability to pay money or perform any other onerous act.
Details must be obtained, either at interview or on inspection, of any property which may warrant a disclaimer. In general this will involve obtaining details of:
- all interest in land or buildings (with the names of all persons resident or having the right to occupy, including minors)
- all outstanding contracts
- all shareholdings
- any other legal agreement or other property which may potentially give rise to a liability
Details must also be obtained of all tenancies and leases in which the insolvent has had an interest.
For more detailed guidance on this and more complex matters such as the disclaimer of freehold property, fixtures and tenant rights etc. see Technical Manual (TM) Chapter 34 – Disclaimer.
3. Who can issue a disclaimer?
The official receiver can issue a disclaimer only when he or she is liquidator or trustee of the estate and will only tend to do so where he or she is likely to remain so, i.e. there is no likelihood of an Insolvency Practitioner (IP) being appointed. Where an IP is appointed, all relevant documents regarding possible disclaimers should be provided in the handover papers and the IP’s attention drawn to them (see also paragraph xii Notice to elect).
Where the official receiver is liquidator or trustee the power to disclaim is extended to any assistant official receiver appointed as a deputy official receiver to that official receiver. It is likely that an assistant official receiver in a standard official receiver’s office will have been appointed as a deputy but, where there is doubt, reference should be made to the relevant certificate of appointment provided by the Secretary of State.
4. Notice of Disclaimer
The notice of disclaimer form NODIS, LOIS (DO73) – ‘Notice of disclaimer’ should be prepared regarding the property in question, including a description of the property detailed enough to leave no doubt as to the identity of the property to be disclaimed, including, where appropriate, the nature of interest. For an example of the wording required to fully describe the property, see TM Chapter 34, paragraphs 34.48 & 34.49.
Part 1 of the form must be signed by an official receiver (or deputy) and the whole form (with a copy) must be sent to court under cover of form DMRCT1, LOIS (DO73) – ‘Disclaimer, Letter to Court (1)’. The court will seal and date the form NODIS in Part 2 and return one copy to the official receiver, retaining the copy for the court file.
5. To whom should the notice of disclaimer be sent?
For the disclaimer to become effective, any person, including the bankrupt, having an interest in the property must be notified that the property has been disclaimed. There is no need to serve notice on the company in a winding up, since the official receiver (as liquidator and the company’s representative) would effectively be serving him or herself.
Make sufficient photocopies of the sealed form NODIS for each interested party to be sent a copy. Enter the details of the interested party to whom the form NODIS copy is to be sent, in Part 3 of the form. Notice is served by sending each person a sealed copy of the notice of disclaimer, under cover of form DISENC, LOIS (DO73) – ‘Disclaimer – Letter serving’ within 7 days of the form being returned by the court. Interested parties will include the bankrupt, other tenants, the landlord and guarantors etc.
6. What if the disclaimer relates to a dwelling-house?
When the disclaimer relates to a dwelling house, all persons who have, or may have a right to occupy must be sent a copy of the notice. The bankrupt should be asked to identify in writing all occupants and persons with a legal right to occupy. This includes any spouse, partner, civil partner, estranged spouse, estranged civil partner and any other occupants over the age of 18. Notice to minors, children under the age of 18, is effected by serving notice on the minor’s parent or guardian. It is not necessary to list minors on the form.
7. Who else may be sent a notice of disclaimer?
The official receiver may also send notice to other persons or organisations if he or she thinks it advisable. For example, the official receiver may wish to notify the local authority that an interest in an unsafe or dangerous structure has been disclaimed.
8. Notification to court of notices sent
Form DMRCT2, LOIS (DO73) – ‘Disclaimer, Letter to Court (2)’ gives notice to the court of the persons to whom copies of the notice of disclaimer have been sent or given, and must be completed with the details of each person and of the nature of their interest. A copy should also be placed on the office file.
9. Tenancies (amended December 09)
Secure tenancies, assured tenancies and protected tenancies of dwelling properties do not form part of the bankrupt’s estate and do not have to be disclaimed. For more information see TM Chapter 34.14/5.
Almost all local authority and housing associations tenancies are secure or assured tenancies and do not need to be disclaimed. Form NTL(notice to landlord) does not require a copy of the tenancy agreement in these cases.
In the event of uncertainty, the official receiver should use form NTL to contact the landlord with a view to confirming the nature of the tenancy agreement and to determine whether or not it forms part of the bankruptcy estate.
10. Should the official receiver surrender a lease or tenancy agreement?
In a winding up the property does not vest in the liquidator and there is generally no personal liability in respect of any of the company’s property. In certain circumstances, it may thus be possible to negotiate the formal surrender of a lease or tenancy agreement with the landlord although such an interest would be better disclaimed. In no circumstances should the official receiver attempt to enter into an ’informal surrender’ of a lease or tenancy agreement.
In a bankruptcy the official receiver should always disclaim rather than attempt surrender of a lease or tenancy agreement because of the personal liability that may fall upon the trustee. This is true even in those cases where the landlord has indicated that he is prepared to accept possession by way of an informal surrender of the lease or tenancy agreement.
11. What if there is doubt over a claim to be an ‘interested party’?
Occasionally there may be some doubt as to whether a particular person has an interest in the property to be disclaimed. In such cases the examiner should request that form DMRLIP, LOIS (DO73) – ‘Disclaimer, letter to interested party’ be sent. The interested party then has 14 days from receipt of the notice in which to declare the nature and extent of his or her interest. Note the reply by date and if any response is received it should be passed to the examiner immediately for further instructions. The examiner should also be informed where there is no response or the notice is returned undelivered by the Post Office.
12. What is a Notice to Elect?
The official receiver may receive a ’notice to elect’ from an interested party. This requires the official receiver as liquidator or trustee to make a decision as to whether or not a property is to be disclaimed.
The notice to elect should be set out in a prescribed form according to the Insolvency Rules, and served on the official receiver, either in person, or by registered post.
If a notice in the prescribed form is received, it must be passed to the examiner immediately as it must be acted upon within 28 days. If a ‘notice’ in any other format or an ordinary letter purporting to be a notice to elect is received, seek immediate guidance from the examiner.
13. What if a notice to elect is received and the official receiver is only receiver and manager?
In a bankruptcy, where the official receiver is only receiver and manager and not trustee, he or she should inform the person serving the notice to elect of that fact using form DMRORX, LOIS (DO73) – ‘Disclaimer, OR not trustee’ and advise that the notice to elect cannot presently be dealt with. The person serving the notice should also be informed that until there is a trustee in office, no notice to elect can be served effectively. The official receiver should undertake to issue notification when a trustee assumes office, whether that be the official receiver or an IP. The server should also be informed that in either event, it will be necessary to serve a new notice to elect at that time.
14. What if a notice to elect is received and the official receiver is liquidator?
In a winding up, where the official receiver becomes liquidator on the making of the winding-up order, unlike in a bankruptcy case, no such rules apply that would delay matters and the notice to elect must be dealt with within the 28 day period.
15. What if the official receiver fails to deal with a notice to elect within the 28 day period?
Failure to deal properly with a notice to elect within the 28 day period may constitute negligence and lead to a possible liability, so it is imperative that it be dealt with immediately on receipt.
16. What happens after the disclaimer has been issued?
Normally a disclaimer will be effective from the date the notice is sealed by the court. However, the person on whom notice of disclaimer was served may be eligible to apply for a vesting order, whereby a person can apply to the court for the property to be vested in them. Such an application must be made within three months of the applicant becoming aware of the disclaimer or receiving notice of it. Any correspondence received regarding the disclaimer should be referred to the examiner immediately.
For further information see TM Chapter 34 part 5 – Effect of Disclaimer: Vesting Orders.
17. Can the official receiver disclaim motor vehicles?
Only in exceptional circumstances should the official receiver consider disclaiming a motor vehicle. An example may be where a motor vehicle is not roadworthy and on inaccessible private land, but even then a disclaimer may only be proceeded with on the express authority of Technical Section.
The official receiver cannot simply disclaim a motor vehicle and abandon it because it is of little or no value. If the scrap (end-of-life) value of the vehicle will provide funds for the estate, the official receiver can instruct agents to deal with it.
In practice the costs incurred usually cause a cost to the estate, so official receivers should where possible use the services of the network of Automobile Treatment Facilities (ATFs), that have been set up by the vehicle manufacturers and the recycling industry to deal with ‘end-of-life’ vehicles. ATF providers that take end-of-life vehicles will dispose of them free of charge, and in most cases collection of vehicles is also free.
For further information on dealing with motor vehicles, see Case Help Manual (CHM) part – Motor Vehicles.
18. Can the official receiver disclaim ‘after-acquired property’?
Where the official receiver claims after-acquired property under the provisions of section 307 of the Insolvency Act 1986, but subsequently discovers that the property claimed has no value or is onerous, that property can only be disclaimed with the leave of the court. For further information see CHM part: – After Acquired Property.
Where can I find out more?
Insolvency Act 1986
Sections 178 to 182 onerous property (company case)
Sections 315 to 321 onerous property (bankruptcy)
Insolvency Rules
Rules 4.187 4.194 (company case)
Rules 6.178 – 6.186 (bankruptcy)
Technical Manual
Chapter 31.2 – Motor Vehicles
Chapter 31.3, paragraph 31.3.29 – Formal surrender of leasehold property or tenancies
Chapter 31.3, paragraph 31.3.30 – Other types of ‘surrender’
Chapter 31.3, paragraph 31.3.31 – Disclaimer
Chapter 34 – Disclaimers
Case Help Manual
Motor Vehicles
Forms to be used
NODIS – Disclaimer, Notice of Disclaimer
NTL – Notice to Landlord
DMRCT1 – Disclaimer, Letter to Court (1)
DMRCT2 – Disclaimer, Letter to Court (2)
DMRLIP – Disclaimer, Letter to Interested Party
DISENC – Disclaimer, Letter serving
DMRORX – Disclaimer, OR not trustee
Click HERE to view the Flowchart for Disclaimers
Procedure
1 The examiner instructs that the issue of a disclaimer of certain property is required.
2 Obtain full details of all ‘interested parties’ including, where appropriate, the nature of their interest.
3 Is there any doubt over a claim to be an ‘interested party’? If yes, send form DMRLIP requiring the ‘interested party’ to respond within 14 days, detailing the nature and extent of their claim.
4 Has a ‘Notice to Elect’ been received, and if so, is it in the prescribed format?
5 If not in the prescribed format, but the correspondence claims to be a ‘notice to elect’, seek guidance from the examiner and act accordingly.
6 Is the official receiver only receiver and manager? If so serve form DMRORX in response as the notice to elect cannot be dealt with.
7 If the official receiver is liquidator or trustee when a notice to elect is received, the disclaimer must be dealt with within 28 days.
8 Complete part 1 of form NODIS with full details of the property and where appropriate, the nature of interest. Send with supporting papers to the official receiver (or deputy) to obtain his or her signature in Part 1.
9 Send two copies of form NODIS to court under the cover of form DMRCT1. Retain a copy of each form for the office file.
10 Diarise for the return of form NODIS, and when received, ensure that it has been sealed and dated in part 2 by the court, who will retain a copy. If there is any delay, (7 working days suggested) contact the court.
11 Make sufficient photocopies to provide one for each person to be served with a sealed copy notice of the disclaimer.
12 Complete part 3 of each copy of form NODIS by entering the name and address of the person to whom it is to be sent.
13 Send a copy of form NODIS to each person to be notified, by first class post, within 7 days of receipt from court, under cover of form DISENC.
14 Complete the notice to court, form DMRCT2, with full details (including ‘nature of interest’), of all persons to whom copies of the disclaimer have been sent or given.
15 Send one copy to court and retain a copy on the office file.
16 Enter or update details in LOIS CA08 and CA15, as appropriate.
