Proceedings / Effects of Registration

Can judicial decisions opening insolvency proceedings be registered in the Land registry in accordance with your legislation?

If affirmative, what effects do these registrations produce?

Foreign judicial decisions opening insolvency proceedings:

In England and Wales, Rule 171 of the Land Registration Rules 2003 enables foreign judicial decisions opening insolvency proceedings (within the meaning of Regulation 2015/848) to be registered at Her Majesty’s Land Registry where title to the affected land is registered. (Rule 171 will soon be updated to refer to the recast EC Regulation 2015/848.) The registrar may require appropriate evidence, for example a copy of the judicial decision, to support the application for registration. (If title to the affected land is unregistered, it may be possible to register the proceedings as a “pending action” in the Land Charges Register (see Appendix) against the name of the person affected by the proceedings.)

The judgment opening insolvency proceedings is noted in the title register, but the notice entry does not carry any guarantee of validity. No further register entry is made to restrict the owner’s powers to dispose of the land, but the notice of the proceedings will act as a warning to third parties, who would need to make their own enquiries as to the effect of those proceedings. In practice the notice in the register is likely to make it difficult to sell or otherwise dispose of the property, as an intending buyer would be unwilling to proceed if the property is an asset that will be needed to satisfy creditors’ claims. If an insolvency practitioner is appointed then the registered owner’s power to dispose of the property usually ceases in any event.

Insolvency proceedings (against an individual/natural person) – the national law:
Under the law of England and Wales, where an individual/natural person applies (through the Insolvency Service) for their own bankruptcy, or a creditor applies (through the courts) to make them bankrupt, or where a bankruptcy order is made against an individual, the Insolvency Service or the courts (as appropriate) must notify HM Land Registry of the proceedings. The Insolvency Service currently sends electronic notifications via a direct link to HM Land Registry; the courts send information by email.

The registrar then records the details of the proceedings or the order in a register called the “Land Charges Register” (see Appendix) against the name of the individual (regardless of whether any property owned by that person is registered or unregistered). The registrar must then try to identify any registered property owned by the person concerned. Where it appears that a registered property is owned by a person affected by bankruptcy proceedings or a bankruptcy order, the registrar must make an entry in the title register of the property concerned. The type of entry depends on whether proceedings have commenced, or whether a bankruptcy order has been made, and whether the affected person is a sole owner of the property or a joint owner.

Where a sole owner of property is made bankrupt, the legal title to their property passes automatically to their trustee in bankruptcy; the trustee may apply to be registered as the owner instead. In the case of a sole owner, a notice entry is made where bankruptcy proceedings have commenced; this bankruptcy notice entry acts as a warning to third parties that any subsequent applications to register a transfer, charge or lease will be subject to the bankruptcy notice, unless it is clear that the interest of the transferee, chargee or lessee has priority over the bankruptcy proceedings. The bankruptcy notice remains in the register unless cancelled by the registrar, or until a bankruptcy restriction is registered, or the trustee in bankruptcy (or a purchaser from the trustee) is registered. Where a bankruptcy order is made against a sole owner, a restriction entry is made in the ownership register (suitably modified depending on whether the order is made by the adjudicator or the court) which refers to the order and the reference number of the proceedings. The effect of a bankruptcy restriction is that no disposition (other than registration of the trustee in bankruptcy) can be registered until the restriction is cancelled; the restriction may also prevent the entry of notices to protect certain third party interests. The restriction will not prejudice dealings in respect of interests or charges that have priority over the bankrupt’s estate (so a chargee under a charge that was registered before the bankruptcy restriction and any bankruptcy notice could still exercise their power of sale).

Where a joint owner is made bankrupt, the legal title remains with them and their co-owner(s) and the trustee in bankruptcy can only apply for a “restriction” entry to be made, which will show details of the bankruptcy order made; the bankrupt can still join in a sale, mortgage or lease of the property but their trustee should also execute the instrument in order to give a receipt for the bankrupt owner’s share of the sale proceeds.

Other points:

a) Where a corporate body goes into administration or liquidation then the administration order and the appointment of the administrator, or the appointment of a liquidator, are first recorded in the Companies Register maintained by the Registrar of Companies, but they can be noted in the title register of the corporation’s property. If the corporation is dissolved and ceases to exist, this may also be noted in the title register (as well as the Companies Register).

b) Bankruptcy (of an individual) and liquidation (of a company) will affect the owner’s ability to dispose of their property. Bankruptcy proceedings (for an individual) and administration or liquidation proceedings (for a company) mean  that certain transactions (for example, gifts, transactions at an undervalue, or transactions intended to defraud creditors) entered into by the individual or company after proceedings commence could be set aside by the trustee in bankruptcy, administrator or liquidator in order to protect the claims of creditors.

c) If a court makes a “freezing order” in civil or criminal proceedings which prohibits the disposal of the property of a natural person or a corporate body, the order may be protected in the title register of the affected property by a restriction entry. The entry is made in the ownership section of the register because it affects the registered owner’s powers of disposal. (The application to the court for the freezing order may also be protected by a restriction). The prosecutor or the person having the benefit of the freezing order would normally apply to do this. The register entry made in respect of the freezing order means that no disposal of the property may be registered without a further order of the court.

Appendix

The Land Charges Register is a register of certain categories of third party interests affecting unregistered land. The register is maintained by the Chief Land Registrar in HM Land Registry (“the registrar”). The categories of interest that may be protected are set out in the Land Charges Act 1972 and Land Charges Rules 1974, as amended. Registration is effected against the name of the affected landowner, not against the land itself; the register is therefore a name based register, not a property or title based register. Individual insolvency details must be notified by the Insolvency Service or the courts to the registrar, and recorded in the Land Charges register, regardless of whether or not the debtor or bankrupt owns any property in England & Wales. The registrar must then, as soon as practicable, make an entry about the bankruptcy proceedings or a bankruptcy order in the title register of any property or (registered) charge which appears to be affected. The comparison of a name-based land charges register and a property-based based title register is not an easy process; many people share the same name and there is no standard unique identifier, such as a citizen registration number or individual identity card, for citizens in the UK (the so-called “John Smith problem”). In the house-buying process in England & Wales, the buyer’s conveyancer will make a search of the bankruptcy sections of the Land Charges Register against the name of the buyer (and also the seller where the land is unregistered) to check that there are no adverse entries. The search may reveal a number of “false positives” because of the problem with name similarities.