HC Deb 15 December 1976 vol 922 cc1693-702

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Stoddart.]

11.41 p.m.

Mr. Peter Hordern (Horsham and Crawley)

I wish to bring to the attention of the House the case of my constituent Mr. B. T. Allen and the Official Receiver.

Mr. Allen has been living through a nightmare experience. He bought a house in good faith, he sold his own house, he raised a mortgage on his new house, and he moved in, but before the completion document had been signed on the property a receiving order was made by the seller of the house on his own petition and the Official Receiver was appointed. I wish to trace the actions of the Official Receiver from that point because they demonstrate an extraordinary indifference to the fate of an individual who was in no way to blame for the circumstances in which he found himself.

The fact is that the Official Receiver knew all the facts of the case and yet decided himself to impose an interest penalty amounting to £2,400 on Mr. Allen because of the time which elapsed before the contract was completed, for which Mr. Allen could not conceivably been held responsible.

I believe that the work of Official Receivers is frequently misunderstood and that they are often able to perform rescue operations to the benefit of all concerned. In this case, however, it is clear that the Official Receiver has not acted with the fairness to all concerned which one has the right to expect.

I am sorry that the Minister in his letter to me of 18th November took the view that neither he nor his deputy could intervene, because it means that there is no power effectively to overrule the Official Receiver's decision. But what I have to say, if it does nothing to help Mr. Allen, will, I hope, provide a salutary warning to anybody who becomes involved with the Official Receiver in future. I find it incredible that an innocent member of the public should suffer so much damage, which would not have been caused if the Official Receiver had warned him that he might have to pay interest on any delay which might occur, even though he was in no way responsible.

This is not a hard luck story. It is the story of a man being dunned for money by the Official Receiver for a delay for which that man was not responsible and which the Official Receiver could have avoided.

I turn to the evidence. Mr. Fowlie, who sold the house to Mr. Allen and later declared himself bankrupt, concealed from his solicitor the fact that the house was already mortgaged to the hilt. The completion date was agreed for 30th January. Mr. Allen moved in as he had already sold his own house and obtained a mortgage on the new one. Unfortunately, the sale was not completed due to technical difficulties experienced by the solicitors acting for both parties.

On 17th February the receiving order was made against Mr. Fowlie, the seller, on his own petition. Technically, therefore, the house was the property of the creditors, to the despair of Mr. Allen, who naturally wished to stay there.

In his letter to me, the Minister said that in an endeavour to be of assistance the Official Receiver approached the Midland Bank, one of the principal creditors, asking it to complete the sale. If the Official Receiver really wished to be of assistance—and I accept that he did—he should have told Mr. Allen that there was another creditor involved whose consent was necessary if completion was to take place. He did not do so. The Official Receiver therefore plainly was culpable in not informing my constituent not only that he had no power to bring about early completion but that a penal rate of interest might be levied on him for a period of time which neither he nor Mr. Allen could determine.

It might be claimed that the Official Receiver's duty was solely to the creditors and that it is not part of his function to consider the plight of Mr. Allen, who bought his house in good faith. But I do not think that such behaviour is tolerable in a public official. I do not think that the Official Receiver foresaw the penalties that lay ahead of Mr. Allen. Nevertheless he should have done so, and he should have informed Mr. Allen, particularly since Mr. Allen constantly pressed him for information about the possible extent of the liability.

It could be argued that it was the duty of Mr. Allen's solicitor to warn him of the possible consequences. Not only did he do so, but in a letter to Mr. Fowlie's solicitors of 16th March he made clear that Mr. Allen was not willing to pay interest if the matter had to drift on indefinitely. The matter did drift on indefinitely. Mr. Allen's solicitor wrote to the Official Receiver's solicitors, Messrs. Carpenter and Oldham, in April but received no reply until 13th May. He did not receive the complete answer until 15th July. He sent a draft conveyance on 8th July but did not receive it back from the Official Receiver's solicitors until 11th October.

Mr. Allen's case does not rest with solicitor's delays. Even if the solicitor had acted with extraordinary speed, the contract would not have been completed until the creditors had agreed that it should be signed. Hon. Members should note my constituent's position. If he signed a release so that the contract could be completed, he stood to gain nothing at all. If this contract was delayed for any reason, he stood to gain something from any interest that might be paid. The contract was delayed and interest was charged. Furthermore, there was no limit to the time involved. To suggest, as the Minister did, that interest on the purchase price could properly be demanded by the vendor as one of the standard conditions of sale when Mr. Allen was able, willing and anxious to complete is the most specious argument that I have heard for a long time.

At the end of his letter, the Minister said that Mr. Allen should make representation through his solicitor to the Official Receiver's solicitors so that he might decide on the basis of their advice to what extent, if at all, this claim should be pursued. It is being pursued—at 16 per cent. The Official Receiver has been advised in this matter by his solicitors. They said that Mr. Allen had possession worth £22,000 for nine months, had not had to pay interest on his mortgage and had the balance of the purchase money in his pocket. But Mr. Allen derives no benefit from his mortgage. He has to pay the money 25 years after completion, whatever date that might be. To say that Mr. Allen should pay £2,400 in interest for a delay which was imposed upon him by these solicitors is breathtaking.

The Official Receiver has been badly advised. He should not have accepted that advice. He should have advised Mr. Allen exactly what risks he ran if he remained in the house. Then Mr. Allen could have decided whether to allow the creditors to take over the house and move out.

Even now, I feel sure that this problem can be satisfactorily resolved. I do not think it is unreasonable that Mr. Allen should have been asked to pay a nominal amount in rent, but for a public official to demand payment of 16 per cent. interest for a period for which he and his advisers are solely and entirely responsible is a most disgraceful abuse of power which needs to be exposed.

11.51 p.m.

The Under-Secretary of State for Trade (Mr. Clinton Davis)

I had my attention drawn to this case first of all by the hon. Member for Horsham and Crawley (Mr. Hordern) when he wrote to me on 4th November concerning the letter that he had received from Mr. Allen, his constituent. That letter explained that Mr. Allen considered that he had been treated harshly by the Official Receiver, for the reasons which have been eloquently deployed by the hon. Gentleman.

I am bound to say that I think the hon. Gentleman was exaggerating somewhat in the allegations he made against the Official Receiver. Indeed, he said that the Official Receiver had acted with indifference, that he had acted without fairness to Mr. Allen, and that the Official Receiver should not have accepted the advice of his own legal advisers. With respect, I think that that is a little farfetched bearing in mind the fact that the Official Receiver carries a personal responsibility—I stress the word "personal"—for his conduct.

The hon. Gentleman was also mistaken in saying that, apart from raising the matter in a parliamentary sense, his constituent was without effective remedy. The fact is that the Official Receiver in Bankruptcy is an officer of and answerable to the court. It is on the one hand his duty, when trustee, to realise and distribute the assets of bankrupt estates, and in that respect the Department of Trade cannot intervene. It is the Official Receiver alone who can decide what course he should adopt, subject to the overriding provision, set out in Section 80 of the Bankruptcy Act 1914, that, if any person is aggrieved by any act or decision of the trustee, that person may apply to the court and the court may confirm, reverse or modify the act or decision complained of and make such order on the premises as it thinks fit. Mr. Allen has made no such application to the court.

The hon. Gentleman has outlined some of the salient facts—I need not reiterate them—in so far as they lead up to the Official Receiver's entry on to the scene. He became aware of the contract which Mr. Fowlie had entered into to sell the property to Mr. Allen and that Mr. Allen had entered into possession of the property, with Mr. Fowlie's consent, before the petition in bankruptcy had been filed, as the hon. Gentleman has indicated.

At that point of time Mr. Allen was legally advised, and one would think that his solicitor would have advised him as to the consequences of entering into possession prior to completion of the contract. They are clearly set out in the national conditions of sale, to which the contract was subject. They include the payment of interest at 1 per cent. over and above the current Bank Rate.

The Official Receiver, as the hon. Gentleman has also indicated, discovered that there had been granted by Mr. Fowlie three charges on the property, so that the property was, as the hon. Gentleman put it, mortgaged to the hilt. The first charge was to the Commission for the New Towns, Crawley, which was owed, according to the statement of affairs lodged by Mr. Fowlie, a sum of £2,500. The second was to the Midland Bank, which was owed £19,683. The third charge, which was not scheduled as such in the statement of affairs, had been granted by Mr. Fowlie as part of another transaction and to provide security for the repayment of sums in excess of £15,000.

After the adjourned meeting of creditors on 16th March 1976, the Official Receiver remained the trustee. As I said in my letter to the hon. Gentleman, the Official Receiver as trustee would not normally deal with the sale of the property where there is no equity for the general body of creditors, since there would be no benefit to the estate in his doing so. Indeed, by Section 7(2) of the Bankruptcy Act 1914 the making of a receiving order does not affect the power of any secured creditor to realise or otherwise deal with his security. But the Official Receiver sometimes assists where the mortgagee's title needs to be perfected.

To avoid delay, the Official Receiver in March 1976 suggested to the second mortgagees, Midland Bank, that the bank should complete the sale as mortgagees. Unhappily it was not able to do so, because of a technical deficiency in the deed which granted its charge. No fault can be attributed to the Official Receiver in this regard.

In April 1976 the Official Receiver agreed to act on the sale in order to minimise the delay and costs, on the bank's undertaking to meet his solicitor's costs and to pay the Official Receiver £20 towards his administration costs. The Official Receiver, I again emphasise, took this course only to be of assistance, although there would be no funds becoming available from the sale of the property for the creditors of Mr. Fowlie's estate.

The Official Receiver obtained the sanction of the Department on 3rd May 1976 to the employment of solicitors to act for him, and he instructed them on 12th May 1976. Suffice it to say that a variety of complications arose as to questions of title, precedence and amounts due to secured creditors. There was also some delay encountered by the Official Receiver's solicitors in dealing with the purchaser's solicitors, as the purchaser acknowledged subsequently, and it was not until 12th November that completion took place.

As Mr. Allen had been in occupation of the premises since 30th January 1976, without making any payment for his occupation, and because of the delay in completion of the purchase—although it is accepted that all of the delay was not of his making—on representations being made to them by the third mortgagees' solicitors the Official Receiver's solicitors wrote to Mr. Allen's solicitors in October 1976 requesting payment of interest under the conditions of the contract for purchase. I stress that these representations were made by the third mortgagee's solicitors. The Official Receiver had no alternative but to take these representations into account and pass on the request for payment. The interest claimed was calculated, under condition 7 of the national conditions of sale, at about £2,400. Mr. Allen was aggrieved at receiving this demand.

The Official Receiver could not, in the circumstances, act in any way other than as advised by his solicitors. They have recently advised him that prima facie the interest is payable, but there are possibly problems in sustaining a claim for the full period.

Mr. Hordern

It has been said that Mr. Allen had recourse open to him in that he could have gone to the courts. I accept that, but it is not something that is lightly undergone by individuals, particularly somebody under the pressure that Mr. Allen was under.

Be that as it may, the argument about the third creditor should have been in the Official Receiver's mind. He accepted that Mr. Allen had brought the house, and encouraged the Midland Bank to realise it. He knew very well that the third creditor had to sign a form of release, and he or his solicitors should have told my constituent that there was a doubt in the matter, in that the third creditor would have to sign his release, and that there was a possibility of my constituent's having to pay interest on any delay. It was that point about which I was complaining. It was wholly outside my constituent's power to deal with it.

Mr. Davis

I cannot accept that it is all that difficult to make an application to the courts when someone feels agrieved. It is done by thousands of people every judicial year. It would not have been outside the realms of possibility for Mr. Allen to have done so.

On the hon. Gentleman's second point, the Official Receiver was not there as adviser to Mr. Allen. He tried to be helpful, but Mr. Allen must have known that there were consequences of going into possession prior to completion. He must have known that it was somewhat unusual and was bound by certain conditions which are clearly laid down. I cannot understand why there was this lacuna in the advice given to Mr. Allen at this vital stage of the transaction.

The Official Receiver was bound to act in accordance with the legal advice given to him, in good faith, by his solicitors. He had to pass on the claim because he was legally bound to do so.

The possibility of sustaining the totality of the claim for the entire period raises legal arguments which I do not wish to go into because of certain circumstances which I shall come to later.

It was contended that, after the assistance of the second and third mortgagees, the claim to interest could not be formally abandoned. Mr. Allen was not entirely innocent. He must have been aware of some of the complications. He was being legally advised virtually throughout.

Following a "without prejudice" approach by the Official Receiver to Mr. Allen, Mr. Allen has offered by letter dated 7th December 1976 to pay £676.50 which he has calculated on the rent he considers he would have paid for the accommodation he has had for the period of his occupation—41 weeks at £16.50 per week. The Official Receiver has indicated that this sum has been agreed verbally by the mortgagee's solicitors and that, subject to written confirmation and following this debate, for which he was right to wait, he proposes to write to Mr. Allen indicating that he would be disposed to accept this offer if payment could be made by Mr. Allen forthwith or in a short time. I suggest that 28 days would be an appropriate period and I hope that Mr. Allen will respond expeditiously as it is in everybody's interest that the matter should be resolved as speedily as possible. Despite the serious allegations made by the hon. Member, who is properly making representations on behalf of a constituent, I believe that the Official Receiver has acted perfectly properly and has done all he can to determine the matter satisfactorily.

In agreeing to complete the sale, the Official Receiver has been burdened with a troublesome matter which will provide him with only a nominal £20—quite out of proportion to the time, expense and trouble it has caused him.

It should also be said that if Mr. Fowlie had not filed his petition in bankruptcy the same problems as were encountered by the Official Receiver and his solicitors would have been encountered by solicitors who would have acted for Mr. Fowlie. The same requirement of the purchaser to pay interest for delay in completion would undoubtedly have been raised.

Having said that, I hope that, following the letter which the Official Receiver will send to the hon. Gentleman's constituent within a day or so, the result will be a satisfactory resolution of a somewhat unpleasant matter. I hope that the hon. Gentleman will accept that that is probably the best conclusion that can be arrived at.

Question put and agreed to.

Adjourned accordingly at five minutes past Twelve o'clock.