Insolvency Administration Orders and Jointly Owned Property

It is common between spouses or partners to own land together. If they are beneficial joint tenants and one of the owners passes away, the rule of survivorship means that from the moment of death, the other joint owner is left as the sole owner of the property. The property automatically passes and does not form part of the deceased’s estate.

This means that the asset which was previously available to the deceased’s creditors is no longer available to them. This can be a bitter pill for creditors to swallow as it unfairly prejudices their right to be paid what they are owed and can have a direct impact on how much they are owed i.e. if they are paid less than 100p to the £1.

Prior to January 2001, whilst a creditor could petition for an Insolvency Administration Order pursuant to section 421 of the Insolvency Act 1986, there was no mechanism of clawing back the jointly owned property into the estate.

Section 421A of the Insolvency Act 1986 was introduced and states that :

‘(1) This section applies where

(a) an insolvency administration order has been made in respect of the insolvent estate of a deceased person,

(b) the petition for the order was presented after the commencement of this section and within the period of five years beginning with the day on which he died, and

(c) immediately before his death he was beneficially entitled to an interest in any property as joint tenant.’

This means that where an IAO has been applied for under s.421, provided that the petition is presented within 5 years of the date of death and before death, they were entitled to an interest as a joint tenant, the creditor now has some recourse. Subsection 2 states that the court can make an order under this section requiring the surviving joint owner to pay the trustee in bankruptcy an amount not exceeding the value lost to the estate. Subsection 9 defines this as ‘the amount which, if paid to the trustee, would in the court’s opinion restore the position to what it would have been if the deceased had been made bankrupt immediately before his death’.

In making the order, the court has discretion as to whether they make the order however they have to consider the interests of the deceased’s creditors and the survivor. However unless the interests of the survivor are exceptional, the interests of the creditor will outweigh them.

Written by : Frances Boxall (Associate Solicitor)

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