Joint Committee on Legislation debate -
Friday, 29 Mar 1985

SECTION 56.

Question proposed: "That section 56 stand part of the Bill."

Deputy Noonan (Limerick East)

Section 56 is long and very complicated. I will read the paragraph from the explanatory memorandum:

Section 56 continues the existing power of the Official Assignee to disclaim onerous property. The committee recommended that the dual system of election (see paragraph 40) and disclaimer should be discontinued and a single system of disclaimer substituted (para. 9.4.3/4.) The provisions have been brought into line as far as possible with section 290 of the Companies Act 1963, which empowers a liquidator to disclaim onerous property when a company is being wound up.

Deputy Taylor

I wanted to make an aside on section 51 more than anything else. There is some concern regarding subsection (2) which seems to be a matter affecting companies rather than a bankruptcy. I should also like to raise the question of the wisdom of putting into the middle of this Bankruptcy Bill something that seems to be company law matter. I wanted to highlight that point. For practitioners coming along looking up company law they think they have it in full only to find that there is some section dealing with something in a Bankruptcy Bill.

Chairman

Perhaps the Minister could look at that point between now and Report Stage.

Deputy Noonan (Limerick East)

Section 284 (2) of the Companies, Act 1963 applied this bankruptcy rule in the winding up of insolvent companies. Subsection (2) here applies the provisions of subsection (1) to the winding up of insolvent companies. Consequently, section 284 (2) of the Companies Act is repealed in the Schedule of the Bill.

Senator O'Leary

I looked at that for precisely the same reason that Deputy Taylor mentioned, because obviously in trying to get together a portfolio of all the laws dealing with companies you do not want suddenly to pick out a bankruptcy. That is the point being made by Deputy Taylor, which is very wise. The difficulty is when you look at the relevant section in the Companies Act what you see is a referral to the bankruptcy. Anybody who was aware that there was a bankruptcy provision would be triggered. It is a very strong argument for consolidation of the Companies Act.

Chairman

The points you made will be on the record and the Minister will bear them in mind for Report Stage. The best procedure would be for the Minister to go through section 56.

Deputy Noonan (Limerick East)

Section 56in toto implements the committee’s recommendation that the Official Assignee should retain the power of disclaiming owner’s property which the 1872 Act at present confers on the assignees. They recommended that this should be subject to certain modifications and to making bankruptcy and company law as far as practicable the same in this respect. That is the overall intent.

In subsection (1) the Official Assignee, like the liquidator in the winding up of a company, may with the leave of the court disclaim onerous property which consists of land burdened with onerous covenants, stocks and shares, unprofitable contracts or any other property which is unsaleable or is not readily saleable because of the onerous terms or payments attached to it. Such disclaimer is subject to the condition that he gives notice in writing, signed by him, at any time within 12 months after the adjudication or within such extended period as the court may allow. "After acquired property" is expressly excluded because it does not vest in the Official Assignee unless and until he claims it.

Deputy Shatter

May I ask one general question of an overall nature? It is a very complicated section. It was dealt with in a series of different sections in the draft Bill at the back of the committee's report. Can we pinpoint the reasons for any provisions not fully coinciding with the phraseology in the draft Bill? There is not a coinciding of phraseology in a number of instances and if we could have an explanation for that it may reduce the time we spend on this.

Deputy Noonan (Limerick East)

There are quite a lot of changes from the Committee's draft Bill. Section 56 is sections 52 to 57 of the draft Bill composited. The following may give the Deputy an overall view of the nature of the changes: in view of the committee's proposals that the disclaimer provisions in the Companies Act 1963 should be followed more closely, it was decided to adopt the same format in the Bankruptcy Bill as that employed in section 290 of the 1963 Act, namely, one section subdivided into a number of subsections. This is the reason for the presentational change. Accordingly, a section on the lines of section 290 is preferred to the individual sections 52 to 57 of the committee's draft Bill.

Subsections (1) and (2) correspond to subsection (1) of section 52 of the draft Bill and to section 290 (1) and (2) of the Companies Act, 1963 but there is no reference to "after acquired property" in the latter subsection. Subsection (3) corresponds to section 53 of the draft Bill. The wording however has been altered in that (a) it departs from the provisions of section 53 in that the rights, interests and liabilities of the bankrupt and his property are determined as from the date of disclaimer; (b) it departs from the provisions of section 290 (3) of the Companies Act, 1969 in so far as it includes a provision that the disclaimer discharges the Official Assignee from all personal liability in respect of the property disclaimed as from the date the property was vested in him.

The reasons for these alterations are that the Bankruptcy Law Committee (1) wished to give statutory effect to the decision in Re Levy ex parte Walton (1881), 17CH D746, where it was held that a disclaimer of a lease by a trustee, the Official Assignee, operates as a surrender only so far as is necessary to relieve the bankrupt, his estate and trustee from liability and does not otherwise affect the rights or liabilities of third parties in relation to the property disclaimed, and (2) recommended that the section of the draft Bill should as far as possible be brought into line with the provisions of section 290 of the Companies Act, 1963 as stated in the report, at page 95.

Subsection (4) which is based on section 290 (4) of the Companies Act corresponds to subsection (2) of section 52 of the draft Bill. The wording differs in a number of minor ways. Firstly, section 52 begins by saying "the court may". Secondly, the word "may" is inserted before "impose" in line 3 of section 52 (2) while section 290 (4) of the Companies Act simply says "and impose". Thirdly, section 52 (2) in line 4 says "or makes such order". Section 290 (4) of the Companies Act line 3 says "and makes such order".

Subsection (5) corresponds to section 54 of the draft Bill. It follows, with appropriate amendments, section 290 (5) of the Companies Act, 1963, with the addition of the concluding words "and in the case of a contract . . . adopted it." They are also in section 54 (4) of the 1914 English Bankruptcy Act and section 323 (4) of the English Companies Act, 1948. The main reason for including them in this subsection is that the Bankruptcy Law Committee expressly include an analogous provision at the end of section 54.

Subsection (6) repeats, with appropriate amendments, the provisions of section 290 (6) of the Companies Act. It corresponds to section 55 of the draft Bill. Subsection (7) corresponds to section 56 of the draft Bill subject to amendments which are modelled on subsection (7) of section 290 of the Companies Act. Subsection (8) corresponds to section 290 (8) of the Companies Act, 1963. The committee make no reference in their report to the proviso referred to in section 54 (6) of the 1914 English Bankruptcy Act which corresponds to section 290 (8) of the Companies Act, 1963. Apparently, the reason for omitting it was that the committee felt that its subject matter would have to be contained in the judge's order and that it was up to the judge to make whatever order in his discretion he considered best. However, it was felt that the Bankruptcy Act should be the same as the Companies Act and accordingly that section 290 (7) and (8) should be followed in full. The necessary consequential changes such as replacing "company" by "bankrupt" and "date of adjudication" for "commencement of the winding up" have been made.

Subsection (9) corresponds to section 57 of the draft Bill. It is modelled on section 290 (9) of the Companies Act, 1963 with the replacement of the words "company" by "bankrupt" and "winding up" by "bankruptcy". There appears to be no need to provide that damages should be assessed by the court as in line 3 of section 57. If they are ascertainable the court assessment would involve unnecessary expense and if they are not the court would have to assess them in any event. So it was not necessary to include that. The changes from the provisions expressed in the draft Bill were, first of all, to bring it in line with company law and in presentational terms, to have it in one section with a series of subsections rather than to have a series of sections.

There is really no substantial difference between the content of section 56 and what is in the draft Bill between sections 52 to 57.

Chairman

It was very useful to get that outline.

Deputy Noonan (Limerick East)

There is one final matter. Section 58 of the committee's draft Bill, dealing with the registration of a disclaimer, has been omitted from the Bill as, on examination, it was considered that section 56 is adequate to deal with the registration aspect. Where property has been vested in the Official Assignee by virtue of an adjudication order, all the Registry of Titles requires is a court order under section 56. That section deals with the whole question of disclaimer. It covers every eventuality and empowers the court to make whatever order it may consider appropriate, including a vesting order. The proposed section in the draft Bill might complicate matters since under section 56 the court can give all necessary direction. Furthermore, there is no reason why a court order under the section could not be registered in the Registry of Deeds. Section 58 is a surplus provision which is already dealt with in section 56 as it stands.

Deputy Taylor

I have something to say about subsection (1).

Deputy Noonan (Limerick East)

Do you want me to read that note again?

Deputy Taylor

I am not really happy about this section. The purpose of the section is to try to strike a balance between the position of the Official Assignee, the position of the creditors and the position of the owner of the onerous property concerned. The thrust of the law at this point should be to try to strike a fair balance. I do not think the section, and this part of it in particular, does that very fairly. It tilts the balance far too much in favour of the Official Assignee. It gives him the best of both worlds. It gives him the opportunity of having his cake and eating it. It gives him all the cards in the pack. He does not have to say whether he is disclaiming the property or whether he is keeping it. He can try to sell it. He can take possession of it. He can have it. He can exclude the lessor. He can exercise any active ownership in relation thereto and at the end of all that after a very long time he may say: "Well, I have tried everything; I did my best to see if I could raise funds from it, I have been in possession of it, had the use of it, kept the other chap out and in the end I will disclaim it and put you back to square one." It is overbalanced and it has gone too far in one direction. We should reconsider and try to strike a fairer balance in the situation.

Deputy Noonan (Limerick East)

The subsection is really a restatement of the 1872 Act.

Deputy Taylor

It may be but——

Deputy Noonan (Limerick East)

It is not changing the present position, only in so far as we are bringing some aspects into line with the Companies Act.

Deputy Taylor

Maybe we should change the present position. That is the whole point.

Deputy Noonan (Limerick East)

The Official Assignee should retain the power of disclaiming onerous property which the 1872 Act confers on him.

Deputy Taylor

I am satisfied that he should retain that power. Nobody is saying that he should not. It just depends on how far you facilitate him and surround him with all the benefits and none of the liabilities or responsibilities. It is that aspect of it that concerns me. I agree that it would be a very essential facet of a bankruptcy that there should be a power on an Official Assignee to disclaim onerous property. Certainly that is a must, but this goes too far. What I would put forward, for example, as a suggestion for debate if nothing else might be this, from the time the Official Assignee becomes aware of the existence of this property, he may know that at the date of adjudication or he may not find out about it for some while afterwards, but from the date that he does find out about it he would then have one month to investigate, check, have it valued and so on, and then decide whether he is going to keep this property or whether he is going to disclaim it. He should not be at liberty to hang on for up to 12 months to try to sell it, take possession of it, exercise any act of ownership on it as this subsection says and at the end of the day possibly disclaim it.

The right to disclaim a piece of valuable property is a valuable right. That is something that nobody else under any other context has except a liquidator of a company. If an ordinary individual finds himself in possession of onerous property he is stuck with it. There is nothing he can be about it, he has it wrapped around his neck. The Official Assignee is given the right to disclaim it. Fair enough, that is quite right, but that should not go along with the fact that he can mess about with it at his leisure. If he wants to avail himself of that very valuable right he has to make his mind up about it, and make his mind up fairly smartly because the rights of other people, mainly the person who owns the property and who has the benefit of those covenants are affected by what he does. The onus should be on him and not as is suggested under subsection (5) on the owner of the property to serve a 28-day notice and continue from there. When the Official Assignee becomes aware of it, let him make his inquiries and within a month decide what he wants to do about this — yes or no. Is he keeping this or is he not? Then at least other people will know where they stand.

Deputy Noonan (Limerick East)

First of all, the present situation is that the Official Assignee has the power to divest himself of onerous property and this quite obviously is in the interest of the creditor. What is being done in this subsection is re-enacting that but in a more restrictive way because he has an open-ended right at the moment and there is a 12 month period for disclaiming being introduced here. The subsection referred to by Deputy Taylor — subsection (5) — states he shall not be entitled to disclaim where an application in writing has been made to him and he does not comply with it within a period of 28 days. It is an attempt to move in the direction suggested by Deputy Taylor in the present situation. You have the 12 months in which the Official Assignee can disclain, but meanwhile if he is asked to decide whether or not he is disclaiming he has 28 days to notify his intentions. You cannot simply say that everything most be sorted out in a month. Obviously some bankruptcies are very complex and there simply would not be enough time in one month.

Deputy Taylor

It is just a very net point that has to be sorted out within the month. That is, is he keeping this property or is he letting it go? Obviously the whole of the bankruptcy will take longer than a month. If the property is held on a 35-year lease and the rent is £9,000 a year, he will consult with a valuer as to whether or not it is worth keeping. He should be in a position and be obligated to make up his mind on that within a reasonable period and not have the situation drift on. The position is that many lessors are small people. They are not all big people and they may not all know the intricacies that the Official Assignee who dealt with nothing else would know. Is it unreasonable to expect him to say within a month or two: "Very well, I now know that this probably formed part of the bankrupt's estate and I have to make my mind up on this now. Is it worth my while keeping this or am I going to disclaim it?" Surely that would not be too unreasonable. One has to take into account the position of the owner of the property, otherwise he is left dangling at the end of a string and he does not know what is going on.

We have not yet clarified what his rental position will be. He may not even find out for a long time that his lessee is bankrupt at all and even when he does usually what happens is they go fluttering around trying to find out what is going to happen? It takes quite a degree of expertise and research before he even reaches the point when he can send the 28-day notice. Many months and substantial losses can be involved as a result of which this property no doubt is lying idle in the meantime. The Official Assignee is under no pressure; why should he be? Unless the 28-day notice is served he has up to a year to endeavour to sell, to take possession or exercise any act of ownership in relation to it. In actual fact he does not have to bother applying his mind to this crucial problem, and it is an important matter, until he is compelled to do so. It would be right and proper that within a month or two months, on an important substantial issue like this, involving perhaps a substantial sum of money, he should of necessity make up his mind about it. How long does he need, after all, to decide whether or not it is worth keeping?

Deputy Shatter

Possibly I do not understand the section; it is very involved and complicated. I will take section 56 (1) with 56 (5) and perhaps if I am wrong I can be corrected on this. We will presume there is an adjudication of bankruptcy tomorrow morning and I am the landlord of the property, the lease of which has now fallen into the lap of the Official Assignee. I do not want the Official Assignee to mess around, I want to know what is the position of my property. Am I not right in saying that I could, on the day the Official Assignee is appointed, write him a letter pursuant to subsection (5) requiring him to make a decision within 28 days as to whether or not he should disclaim? That would prevent the Official Assignee going into some sort of mental limbo in which he has twelve months to operate. If because of some odd circumstances relating to the property it could be regarded as unreasonable that he wait the full 28 days I would apply for some sort of compensation under section (9). It is unlikely you would get it if you had only 28 days. If I went to sleep on my rights and did not write my letter until five or six months after the bankruptcy adjudication, could I not do two things — use subsection (5) to bring the matter to a conclusion and use subsection (9) to look for compensation? Having argued this earlier in another section I want to tease out how this section is designed to work and then deal with one or two of the problems. Would that not be correct? In fact, and again correct me if I am wrong, as the law stands this matter can go on endlessly in some ways. Here you have the mechanism of a 28-day letter and any landlord or owner of property who finds himself with a tenant who is adjudicated bankrupt has that mechanism to bring this whole thing to a head, one way or the other.

Deputy Noonan (Limerick East)

That is right and further if you were a person who went to sleep on your rights completely the disclaimer will have to operate after 12 months anyway. Then you would still have rights under subsection (9). Any person damaged by the operation of the disclaimer under this section could be deemed to be a creditor of the bankrupt to the amount of the damages and may accordingly prove the amount as a debt in the bankruptcy. It is certainly an attempt to maintain the existing right of the Official Assignee to disclaim onerous property but in a more restricted way than the law operates at present. It is a movement towards the position advocated by Deputy Taylor. I wish to make a few general remarks about the whole section.

Chairman

I will interrupt here. We are coming to the end of the day and the atmosphere is fairly heavy here. It you are going to come in with general remarks on the section it might be better to leave it until the next day when we can take it all together rather than comment on it now. Is this agreeable to the committee or would you rather to ahead?

Deputy Shatter

The heat in here is overpowering.

Chairman

I think we should take it freshly the next day bearing the points in mind which Deputy Shatter has made. We might have the official record then as well.

Deputy Noonan (Limerick East)

I wonder would it be of benefit to the committee if I circulated to the members the note I read out showing where it differs from the draft Bill in the committee report? Do you think it would help?

Deputy Shatter

It might be of help to absent members.

Chairman

We are not going to make much more progress in the next ten minutes. We will conclude today's business. We have gone through a lot of business today. We said we would try to do 40 sections and we have actually got through almost 30 sections. I am informed that the official record up to now is with the printers so we should have it over the coming couple of days or weeks. I am informed that the best date to reconvene would be for a one hour session as heretofore on Wednesday, 24 April. At that meeting we can decide, it is a bit too far in advance now to decide, when we will have our next full day meeting or half day meeting.

Deputy Shatter

On what date will the next meeting he held?

Chairman

On Wednesday, 24 April at 3 o'clock.

Deputy Shatter

I will not be in this country for the week 24 April to 1 May.

Deputy Taylor

Neither will I, Chairman, I will be in Strasbourg.

Chairman

In that case leave it with me and I can liaise with the clerk and the various members about the next meeting.

Deputy Noonan (Limerick East)

I would like if members would consider Friday, 3 May for a long session. That date is certainly free in my diary.

Senator O'Leary

Would we give some consideration to not having an hour long session at all and just concentrating on, for example, 3 May?

Deputy Taylor

The Labour Party Conference starts that evening.

Chairman

Could we meet on the morning of 3 May until lunchtime? We will have a half day session. Thank you all very much. Agreed.

The committee adjourned at 4 p.m. until 9.30 a.m. on Friday, 3 May 1985.