11. Before we decide if we should investigate a complaint in more detail, we look at whether there are signs the organisation concerned has got something wrong. We do this by comparing what should have happened with what did happen. If what happened fell far short of what should have happened, we call this a failing. When we see indications of a failing, we next look at whether that failing had a negative impact on the person in question. If we think it did, we will go on to consider what, if anything, the organisation has done to try to put things right.
12. If we think the failings had an impact that has not been put right, we will usually investigate in more detail.
13. Having done this, we think that the IS has investigated the lines of enquiry that Mr L sent to it. We also saw no indication that Mr L’s objection to automatic discharge of the bankruptcy should have led to the IS applying to court for a suspension. This means we have decided not to take further action on his concerns.
Lines of Enquiry
14. Mr L wrote to the OR on several occasions alleging that B: • had several vehicles which could be sold for the benefit of his creditors or which he had transferred into the name of his partner to avoid this happening • had an income from self-employment which could be used to repay creditors • had earned a beneficial interest (share) in his (potentially ex) partner’s property as he had lived there for many years and contributed to significant property renovations as well as paying rent and bills.
15. The IS explained to Mr L that the OR had investigated the vehicles, income, and property and not found sufficient evidence of these assets to pursue them.
16. Technical Guidance for Official Receivers sets out how insolvency staff including ORs should deal with the administration of bankruptcy cases. We are particularly concerned with the following chapters: • 25 – Assets – identification, protection and realisation • 27 – Motor Vehicles • 28 – Freehold and Leasehold Property • 35 – Income Payments Orders and Agreements • 47 - Discharge
17. Sections 25.5 and 25.8 explains that one of the functions of the OR is to identify and realise assets on the making of a bankruptcy order. An asset could include bank accounts, valuables, vehicles, or property. Realising an asset is the process of turning it into money, such as by selling it. 25.6 says that ‘a bankrupt has a duty to deliver up to the trustee possession of any property, books, papers or other records of which he has possession or control and has a general duty to cooperate with the trustee’. This chapter also includes guidance on property also claimed by third parties. We can therefore see that Mr L had correctly understood the OR’s role and B’s obligations.
18. Sections 27.10-27.11 explain that the registered keeper of a motor vehicle is not necessarily the owner of the vehicle, but the identity of the registered keeper and the identity of the owner are usually the same. The OR should make enquiries of the bankrupt and/or DVLA and/or other parties to establish the owner.
19. The IS told Mr L that it had enquired into the registration history of the vehicles he had told the OR about. B had been the registered keeper of two vehicles until shortly before the bankruptcy. It was making enquiries about whether fair prices were paid for those vehicles. Two of the vehicles had not been registered to B since 2011 and 2018 respectively, and one had never been registered to him. It said it would be difficult for the OR to establish that B had a current interest in those three vehicles.
20. We have seen evidence that the OR made the enquiries it mentioned about the sale of the first two vehicles. We note that selling the vehicles prior to the bankruptcy is not automatically an offence, even if the vehicles were sold to a connected party. We are satisfied that the OR dealt with the vehicles in line with the relevant guidance.
21. Chapter 25 of the guidance explains how the OR should deal with a bankrupt’s income.
22. Mr L told the OR that B appeared to be working and detailed their comings and goings, including an estimate of how much he thought they would be earning. He suggested B was working ‘cash in hand’ and not declaring this income to the OR. The OR, he said, could substantiate this by covert surveillance.
23. Chapter 35.1 explains that a bankrupt should pay their surplus income (that is income that is not required for daily living expenses) to the trustee of their bankruptcy and 35.2 explains how the surplus income should be established. The IS told Mr L that this process had been followed in B’s case and it had decided there was no surplus income at that time. It said the evidence B had higher earnings was circumstantial. It added that if B was working cash in hand, it was unlikely that covert surveillance would meet a cost/benefit calculation.
24. Chapter 48.7 explains the fees charged in insolvency proceedings, such as B’s bankruptcy. This includes the OR’s general fee. 48.8 explains that this fee explicitly excludes the appointment of an agent for the purpose of or in connection with the realisation of assets. In other words, if the OR instructed an agent to carry out covert surveillance, the cost of this instruction would be taken out of any monies before payments are made to creditors.
25. Insolvency fees are paid out of assets before creditors receive any payments. We think it follows that surveillance, whether successful or not, would be potentially quite costly to bankruptcy creditors including Mr L. It could, in fact, mean that creditors receive a lower return if assets are eventually recovered. The cost would also be borne by the IS unless and until sufficient funds are recovered to cover the cost, and the IS has a duty to protect the public purse. We think that the IS’s comment about covert surveillance is therefore reasonable.
26. We have also seen other evidence that suggests the IS considered B’s income and expenditure. Taking all this into account, we did not see any indication there was anything wrong with the way the OR dealt with B’s income.
27. Mr L was understandably most concerned with the property, which was the most valuable asset and was put on the market for a significant sum during these events. B’s (ex) partner had legal title to the property. Mr L went into significant detail about significant improvements he understood B had carried out and funded on the property. He reported what B had historically told him about intentionally keeping the property in his then partner’s name, the implication being it would be protected from his creditors. He also shared an email from his solicitor which reported what B had said during court proceeding between them, which said that B was in a relationship with their partner for 10 years. Mr L said B had either earned a beneficial interest during that time, or their now ex-partner owed them a significant sum for the work done, and this should be recovered. He also felt that the onus should be on the ex-partner to prove B did not have an interest in the property.
28. Chapter 28.4 states that beneficial interest in a property generally mirrors legal interest, but it is possible for a person to have a beneficial interest in a property without having legal title. 28.92 says that ‘unless there is an express declaration of trust providing otherwise (see paragraph 28.102) the presumption is that beneficial interest will follow legal title’. 28.102 states ‘an express declaration of trust clearly sets out the parties’ intentions’.
29. In the absence of an express declaration of trust, a beneficial interest can still be established. 28.104-28.106 deal with other types of beneficial interest, of which 28.105 ‘constructive trust’ applies here. In this case, their must have been a common intention between the legal owner and the claimant that the claimant would have an interest in the property. There must have also been a ‘material alteration’ in the claimant’s position – that is, it is not enough to live there, they must have contributed in some material way. The burden, it said, will be on the claimant to prove the claim.
30. In line with the guidance, the OR’s starting position was that B had no beneficial interest in the property. The OR said that case law Mr L had mentioned in his letters concerned beneficial interest under ‘constructive trust’. In this case, it said, there must be a common intention that a person has a beneficial interest. In other words, both B and their partner must have intended for him to earn a beneficial interest.
31. The IS said that funding capital improvements and ‘living as man and wife’ are a consideration but not sufficient for the purpose of showing a beneficial interest has arisen. It said the OR was, nonetheless, carrying out enquiries. It added that that it was for the OR to prove B had a beneficial interest in the property in a way that would withstand a very likely challenge from the legal owner.
32. We have seen the enquiries which the OR carried out and the consideration it made abut the property. It appears to have acted in line with chapter 28 of the guidance.
33. It is understandable that Mr L was frustrated the OR did not appear to be doing anything to recover the assets he felt he had identified, especially as – to date – he has not received any payments from the bankruptcy. We do not doubt what Mr L told the OR about what he saw and heard, and it may be that B is deliberately avoiding repayment. Unfortunately, the OR needs sufficiently robust evidence to say that this is the case, and it has to bear in mind any costs that will accrue to the bankruptcy in pursing that evidence.
34. The OR’s actions in relation to B’s representations – which include actions we have seen but Mr L was not entitled to see - appear to be in line with the relevant guidance. We have therefore decided not to take any action on this aspect of his concerns, however we hope he is reassured that his concerns were taken seriously.
Bankruptcy discharge
35. After a bankruptcy order is made, the bankrupt is automatically discharged from bankruptcy after one year unless the trustee (in this case the OR) applied to court to suspend the discharge, or if they were subject to a criminal bankruptcy order (which does not apply in this case). While a person is bankrupt there are certain requirements on them which end with discharge, however they still need to cooperate with the OR to realise any bankruptcy assets until this is complete. This may take several years.
36. In February 2024, Mr L asked the OR to confirm that they would not discharge B from bankruptcy due to the ongoing enquiries into the case. The OR explained that B had cooperated with them and would therefore be automatically discharged. They added that they could still make enquiries into B’s affairs and realise assets. In its complaint response, the IS repeated this information in more detail, adding that – were it to find B had done anything wrong – it still had powers to deal with that, for example via criminal proceedings.
37. Chapter 47.11 of the guidance states ‘where a bankrupt has failed or is failing to comply with the obligations imposed on them by the Act or Rules, particularly where there are any circumstances of non-attendance, obstruction, misinformation, failure to provide required information, delay or other serious misbehaviour on the part of the bankrupt, the official receiver or trustee should consider applying to the court for the running of the automatic discharge period to be suspended, thus extending the date of discharge beyond the normal period, pending the bankrupt’s full co-operation’.
38. Mr L was alleging non-cooperation in the form of misinformation. As we have already noted, the OR did not think there was sufficient evidence that what B told them was untrue. We saw no indication of any other type of non-cooperation on B’s part. The final decision about whether to suspend automatic discharge from bankruptcy lies with the court. The OR, therefore, needs to support any application to court with evidence of non-cooperation, and it did not consider it had this. This means we have seen no indication the OR should have applied for the discharge to be suspended and we have decided not to carry out a detailed investigation of these concerns.
39. We understand that Mr L is convinced that B was misinforming the OR, and he hoped this meant his discharge from bankruptcy would be suspended. He is clearly in an incredibly frustrating position with B. The IS told us that an Insolvency Practitioner has recently been appointed to deal with the bankruptcy. We hope that the continuing investigations result in payment of at least some of the debt owed to Mr L.