RIGHTS OF OCCUPATION ETC. OF BANKRUPT'S SPOUSE (Hansard, 18 July 1985)

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

Mr. Deputy Speaker
With this it will be convenient to discuss Government new clause 14—Rights of occupatiom of bankrupt—Government new clause 15—Payments in respect of premises occupied by bankrupt—and Government amendments Nos. 137, 138, 149, 161 and 247.

§ Mr. Fletcher
This group of amendments is the Government's response to representations made both in another place and in Committee in relation to the recommendations of the review committee on the treatment of residential property occupied by a bankrupt's family. The review committee drew attention in particular to the position of a bankrupt's spouse who had no legal interest in the home. The review committee recommended that greater regard be had to the interests of the bankrupt's family, who were often innocent victims of the bankruptcy. The committee also recommended that a trustee in bankruptcy should not be able to dispose of a bankrupt's interest in a relevant property without an order of the court.
The amendments that were tabled in another place on this subject were unacceptable to the Government, because, in giving too much weight to the interests of the family, they tilted the balance too far away from those of the bankrupt's creditors. We remain convinced that the interests of creditors must remain a high priority.
As the House is aware, we have consulted on the subject but, as I indicated in Committee, the consultation produced no consensus of opinion as to the path to be followed, although several useful comments were received, which we have taken into account in framing our proposals. It may assist the House if I explain briefly the effect of the principal amendments. First, however, I should like to stress a point made by the review committee in paragraph 1119 of its report. It is a point not dealt with specifically in the amendments, because it is a question not of legalities but of good practice. The review committee said: Trustees have usually acted with humanity both in the manner and in the timing of any sale of the family home … arrangements can often be made for the likely value to the creditors to be provided without a sale". In very many cases the matter is settled by negotiation without disturbing the family and without involving the court, and there is absolutely no reason why that should not continue to be the case.
Turning to the amendments, new clause 13 sets out the principal proposals. Section 1 of the Matrimonial Homes Act 1983 confers on a spouse without any beneficial estate or interest in a matrimonial home rights of occupation as against the other spouse. At present where the spouse with a beneficial estate becomes bankrupt the spouse without any such interest loses his or her rights of occupation as against the trustee in bankruptcy. Subsection (1) of the new clause reverses that position and the spouse who has no beneficial interest in the property is therefore placed in a similar position to a spouse with a beneficial interest. The position in the case of a spouse with such an interest is dealt with in subsection (2) of the clause and remains basically the same as now. That is to say, that the trustee 547 needs to obtain an order of the court under section 30 of the Law of Property Act 1925 before being able to sell the property concerned.
Subsection (3) of the clause allows the court to make whatever order it considers just and reasonable on an application by the trustee under either subsection (1) or subsection (2). The criteria to which the court is to have regard are based on those contained in section 1(3) of the Matrimonial Homes Act 1983. The matters mentioned in subsection (3) of the clause strike, we think, the balance sought by the review committee and have the advantage of being based on existing matrimonial legislation, with the necessary addition of the interests of the bankrupt's creditors.
Subsection (4) of the clause provides that, unless there are exceptional circumstances, on any application by the trustee once the period of one year from the date of the vesting of the bankrupt's property has expired, the interests of the bankrupt's creditors are to be paramount. The combined effect of subsections (3) and (4) is that the court is to regard the period of one year as the maximum breathing space to be allowed to the members of the family under normal circumstances, to enable them to adjust to their changed circumstances and either to seek alternative accommodation or arrange the buying out of the bankrupt's interest. The court may, of course, allow only a shorter period, or no period at all, if circumstances warrant it. However, we expect the combined effect of the amendments and the practice of negotiation normally adopted by trustees to result in most cases in a period of grace for the bankrupt's family of the type sought by the review committee.
New clause 14 applies to a limited extent the principles of new clause 13 in the case of a bankrupt who has actual custody of children. This is to cover the situation where the bankrupt has no spouse with occupational rights or, because of a divorce, no spouse at all, but nevertheless has children to bring up. In such a case the needs of the bankrupt's children will be taken into account by the court but not the needs of the bankrupt.
New clause 15 preserves the present position where a bankrupt is able, for whatever reason, to continue to occupy premises comprised in his estate and makes mortgage payments or pays other outgoings in relation to the property. If such payments give rise to the post-bankruptcy acquisition by the bankrupt of an interest in the property, such interest vests automatically in his trustee as after-acquired property under section 38 of the Bankruptcy Act 1914.
This package of amendments goes a long way towards meeting the objectives of the review committee in respect of what is termed the family home. At the same time it achieves an equitable balance between the rights and interests of the creditors and those of the bankrupt's family.

§ Mr. Gould
A measure of the difficulties that we face is the fact that we are now confronted with new clauses which, to do justice to them, merit some hours of debate. The importance and difficulty of the subject is so great that we ought not to allow these provisions to be passed without substantive debate.
We are also in the difficulty that the consultation process, through which the Government quite rightly 548 went, ended so recently that hon. Members are little the wiser. The Government may have been privy to the representations and to the consequences of the consultations, but we were not. It would have been useful if we could have seen the representations in published form. We have seen a list of those who made representations, but we have very little idea of what they said or of the balance of opinion on many of the issues. We are therefore compelled to exercise our judgment on the basis of very little information.
It has been apparent from the outset that the obvious interests of the bankrupt's family, who will often be completely innocent parties, remaining in the family home have to be reconciled with the equally compelling interests of a different nature of the creditors who, if they cannot lay their hands on the primary asset, might find themselves in difficulties.
The effect of these provisions means that the whole question has been handed over to the courts. I am sure that the Under-Secretary of State recognises that this is very much the pattern that has been adopted over matrimonial property disputes, where the maximum amount of discretion has been given to the courts. In that sense, the Under-Secretary of State is right to have pursued that course. It reflects fairly accurately the recommendations of the review committee. On that ground, too. it is more acceptable.
It is clear that the structure of the arrangement allows discretion to the court, but that after a period of grace of one year there is a presumption that the creditors' interests will then prevail. I am not sure that that is necessarily as liberal as one would have liked. I enter that caveat without wishing to press it further.
Secondly, the review committee referred not just to children but to ailing, elderly and dependent relatives, yet the provisions make no reference to that point.
There is probably an obvious answer to a drafting point which puzzles me. New clause 14(3)(c) refers to a person who married the bankrupt immediately before the commencement of the bankruptcy". I am not quite sure about the significance of the word "immediately."