New clause 12 - Vesting: the family home

Enterprise Bill – in a Public Bill Committee am 10:00 am ar 16 Mai 2002.

Danfonwch hysbysiad imi am ddadleuon fel hyn

'The following shall be inserted into the Insolvency Act 1986 after section 306—

''306A Vesting: The Family Home

Notwithstanding section 306(2), the 'family home' shall vest in the trustee for a period of three years commencing with the date of the bankruptcy order and thereafter, if it has not previously been disposed of by the trustee, the interest that the bankrupt had prior to the commencement of the bankruptcy shall revert to the bankrupt.''.'.—[Mr. Borrow.]

Brought up, and read the First time.

Photo of David Borrow David Borrow Llafur, South Ribble

I beg to move, That the clause be read a Second time.

The new clause raises an issue that has come to the fore during the past few years. It relates to the rise in the equity market and to the many individuals made bankrupt during the recession at the end of the 1980s and in the early 1990s. A bankrupt's interest in the family home, like any other asset, is part of the estate and is available to creditors. It remains so regardless of the bankrupt's discharge, usually after three years, and regardless of whether there is equity in the property.

Some people who were made bankrupt many years ago have continued to pay the mortgage on their property and have continued to live in the family home. Because there was no equity in the home, the trustee did not sell it in order to realise the assets and thereby pay the creditors. Now, many years later, those people are finding that although the bankruptcy has been discharged, their family homes are being sold from under them in order to realise the equity that has accrued as a result of rising house prices and of paying the mortgage over the intervening years. The question is whether that is a fair way to deal with such cases.

A number of organisations involved in insolvency and bankruptcy have made representations. I shall cite three. The Insolvency Practices Council states:

''There is clear evidence that there are too many variations on how the Matrimonial Home is dealt with by IPs''— insolvency practitioners—

''in the case of the bankruptcy of the sole or a joint owner of the property. It is accepted there are many different circumstances affecting the value of the equity and the potential value to the bankruptcy estate. When should a decision be taken on realisation? At present some of the variations do not seem to be soundly based.''

The Bankruptcy Advisory Service wrote:

''We continue to hear from people who were bankrupt some years ago and who have not taken steps to secure their home from any action by their Official Receiver/Trustee in Bankruptcy. Now years later, they find that the property has increased in value and their regular mortgage repayments have reduced the borrowing, putting substantial equity in the property for the Official Receiver/Trustee to claim.

We are now seeing an increasing number of cases where the matrimonial home was in negative equity at the date of bankruptcy (particularly where Bankruptcy Orders were made in the late 80s/early 90s) and in which there is now substantial equity.''

R3, the association of business-recovery professionals, stated:

''There is another issue in relation to matrimonial homes which is not dealt with in the paper but which we think the present consultation provides a useful opportunity to consider. This is the concern, which has been identified by the Insolvency Practices Council, about variations in practice between trustees in bankruptcy in how they deal with the matrimonial home, and a perceived unfairness in selling the home many years after the bankrupt's discharge.''

Individual bankrupts can deal with the issue if they arrange to vest the equity in the property in their spouse. However, that has not happened in many cases. The new clause would ensure a consistent approach by trustees in bankruptcy. Under it, they would need to take action during the three years that followed bankruptcy. Therefore, if an individual came out of bankruptcy and was discharged, the trustee in bankruptcy could not return many years later when equity had accrued in the property to claim it.

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

I thank my hon. Friend for tabling the new clause. I am grateful for his views on the subject, and for those of Opposition Members on it on earlier occasions. The matter warrants further consideration, as it can lead to a certain rough justice in practice and is not entirely compatible with ''A Fresh Start''. The responses to the White Paper and recent contact with interested parties show that there are continuing concerns, and my hon. Friend cited several such cases. Indeed, hon. Members have received related correspondence.

I welcome my hon. Friend's suggestion of a sunset provision after which, if the trustee has not exercised his or her rights, the interest reverts to the bankrupt. Any solution ought to provide flexibility to deal with a wide variety of different situations. In some instances, a trustee will be able to deal with the matter promptly, but in others he or she will not. A time limit by which the trustee must act, as suggested by my hon. Friend, seems entirely sensible. That act by the trustee might be, for example, a sale of the bankrupt's interest, or an application to the court for an order for sale, perhaps when the bankrupt seeks to delay the process. It might be an application for a charging order, or an

agreement between the trustee and the bankrupt, which would crystallise the value of the bankrupt's interests when the trustee was unable to sell at that time.

There are problems with the drafting of the new clause, so I ask my hon. Friend to withdraw the motion. However, I am happy to give him an undertaking that we shall consider it further and hope to table a Government amendment on Report in response to his concerns.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

There are concerns on the subject, so I am pleased to hear that the Government will look into it further. I want to consider it more generally.

In fairness to the banks or building societies, they do not normally simply forget about their security. There is normally a long period before which loans or mortgages for houses are filled in. That is normally related to the fact that children are involved. Until the children reach an age at which they are no longer reliant on the parents, banks are understandably reluctant to force families out of their homes. We should support that.

Although I understand the point made by the hon. Member for South Ribble (Mr. Borrow), it is important to consider the overall reasons why it is often wise and beneficial to society as a whole that there is a decent delay before the banks can enforce the security.

Photo of David Borrow David Borrow Llafur, South Ribble

I recognise that the new clause may not be perfectly drafted. In view of the supportive comments of my hon. Friend the Under-Secretary, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.