There is a well-known shortage of housing in this country and there is a lot of new build housing being pushed in all parts of the country. Much of the building is being built by the big builders who often share the risk of a big development.
However, they often have one thing in common. Inevitably on a new development new roads and new drainage systems have to be built as part of the development and the aim is the roads should be adopted by the highways authority and the drains by the correct authority, usually, but not always, the local water authority.
New developments come with all sorts of restrictions, either payment for local services are due under what is known as a Section 106 agreement or alternatively if the local authority has implemented the scheme, payments are made under a scheme known as Community Infrastructure Levy. Either way it means developers have to contribute to local services. On purchasing a new property it is imperative to ensure that these payments have been made by the developer and if due to be paid in the near future it is important that these cannot be passed onto the future purchaser of any house on the estate.
Now that is not the time bomb.
When an estate is being developed the developers are supposed to enter into a Section 38 Agreement with the local highways authority. If it is intended the roads are to become public highways to build the road up to an adoptable standard and to pay for a bond (ie financial guarantee) so that if the developer goes into liquidation then the bond is sufficient to cover the cost to the highway authority to make the roads up to an adoptable standard and eventually adopting the same.
However, there is a greater tendency for the builders to indicate whilst they are selling the new houses that they are negotiating the terms of the agreement. Frequently no mention is ever made for the financial bond to guarantee the money for the highways authority to complete the works.
So a competent solicitor should at this point ask for retention from the purchase price to cover this and any possible future cost. However, most of the big builders refuse point blank to even countenance such retention. Likewise a competent solicitor should at that point ask the Mortgage Company if the position is acceptable. Such mortgage companies usual response is to place the opinion squarely back on the solicitor’s opinion.
Any solicitor at that point is usually under pressure from the client purchasing the new property. The clients have usually put down a cash deposit of at least £1000 and often much higher with a 28 day window to exchange so that the clients are desperate to go ahead otherwise they could lose a substantial amount of money.
Often in the transfer of the house the developers insert a covenant i.e. A promise which they say purchasers can rely on. It says the developers covenant is to make the roads and sewers up to an adoptable standard. They do not always covenant that the developers will get the roads and sewers adopted, so people buy a new house expecting that in due course the roads and sewers are adopted. When the development is finished the Developers go off site and the new house owner assumes the road has been finished.
However, it is becoming increasingly common that when that house owner comes to sell, the road hasn’t been adopted. Of course over the first five to ten years little maintenance of the road is required and it never occurs to the house owner until they come to sell that there may be a problem.
What can then happen? Well if an original owner, they can go back to the developer and ask them to comply with their covenant, but the developers may well have done so when the road was made up to adoptable standard so that may be not the way forward. So in purchasing a new property buyers should be aware of this potential risk.
So what happens now? Well everyone in the road is facing the same problem and in those circumstances if the road is just left it will deteriorate, so some roads form private residents associations for the maintenance of the road, but unlike developments where it was always intended that any road is to remain private, membership of the resident’s association is not compulsory and there will nearly always be one awkward person who says that he hasn’t got to pay and therefore won’t. This puts a greater burden on the rest of the residents.
In theory, the highways authority could make up the road and ask the frontagers to pay for it. The cost effectively is secured as a local land charge on the property, which would have to be paid off when the property is sold. However, this could be many years away and cash strapped councils are not, unless absolutely necessary, going to put the money up front. The writer has never come across a council do this. The highways authorities don’t have enough money to maintain adopted roads as it is.
The problem could be solved in the terms of the planning agreement and documentation if it was a condition of the development that no house could be sold or occupied until all the agreements and supporting bonds are in place, but the writer has never seen this either as there is always pressure on getting the estate finished.
As years go by, roads age and deteriorate to the detriment of the house owners.
The time bomb is ticking.
As a general rule a bankruptcy petition should be presented to the appropriate court closest to the debtor’s home or place of business. In the event that the debtor is subject to an individual voluntary arrangement the petition should be presented in the court which has conduct of the individual voluntary arrangement.
Prior to April 2011 the High Court had jurisdiction over all bankruptcy cases within the London Insolvency District. With effect from 6 April 2011 jurisdiction over lower value bankruptcy matters (£50,000) was transferred to the Central London County Court.
Bankruptcy proceedings must be commenced in the High Court if:
the petition is presented by a Government department and the petition is based upon an unsatisfied execution or it is indicated in the statutory demand their intention to petition in the High Court; or
the debtor against whom the petition is presented has resided or carried on business within the London insolvency district for the greater part of the 6 months immediately preceding the presentation of the petition or for a greater part of those 6 months than any other insolvency district; or
the debtor is no longer resident in England or Wales but was resident or carried on business in England and Wales within the 6 months immediately preceding the presentation of the petition and the debtor either carried on business or resided in the London insolvency district for a longer period in those 6 months than in any other insolvency district; or
the debtor is not resident in England or Wales and has not carried on business in England and Wales within the 6 months immediately preceding the presentation of the petition; or
the petitioning creditor is unable to ascertain the residence or place of business of the debtor.
The High Court Registrars were concerned that the use of the C-File system in court for petitions in the multiple bankruptcy list was not operating satisfactorily, accordingly the Chief Bankruptcy Registrar has issued guidance to be followed for petitions in the multiple bankruptcy list. Bankruptcy hearings in the multiple lists should be dealt with in line with Practice Direction 51O – The Electronic Working Pilot Scheme.
Practice Direction 51O came into operation on 16 November 2015, initially for two years. As a result Chief Bankruptcy Registrar Stephen Baister sent out a note entitled “Electronic filing in the Bankruptcy and Companies Court (Rolls Building) to give guidance to practitioners to the Practice Direction. However from 1 November 2016 bankruptcy hearings and multiple lists in the Bankruptcy and Companies Court (Rolls Building) should now be dealt with in line with Practice Direction 51O and the new guidance referred to above which took effect on 1 November 2016.
Anyone presenting a petition pursuant to Practice Direction 51O will need to follow the guidance summarised below.
First Hearing
Three working days before the first hearing of any bankruptcy petition, the petitioning creditor should lodge a bundle containing the statutory demand and evidence of service, the petition and evidence of service (including any order for substituted service and any extension order served).
The petitioning creditor will also need to provide the Registrar at the hearing with an attendance sheet incorporating the certificate of continuing debt. The list of supporting creditors and opposing creditors along with any relevant documents will also need to be provided at the hearing. The court will retain the bundle for any adjourned hearing until the petition is either dismissed or a Bankruptcy Order is made.
Subsequent Hearings
It will not be necessary to file a further bundle if the papers were in order at the first hearing, additional papers may be filed to complete the bundle.
Anyone issuing a bankruptcy petition in the High Court to which Practice Direction 51O applies should follow the guidance to ensure that the petition can be dealt with expeditiously.
Mayo Wynne Baxter have experience of issuing petitions in the High Court for both bankruptcy and winding up of companies and can offer a fixed fee service. Should you wish to discuss the above please do not hesitate to contact either Darren Stone or William Backhouse at Mayo Wynne Baxter on 01273 775533.
In the normal course of events when a company becomes insolvent it will be placed into an insolvency regime where the office holder will look to realise its assets and make a distribution to creditors, usually the highest bidder wins.
In relation to a Housing Association they will normally own property which if sold to the highest bidder would mean a sale to a party outside of the housing association sector, thereby reducing the availability of social housing. To date there has only been one reported case of an English Housing Association entering into an insolvency procedure. As a result it was apparent that greater powers needed to be given to the regulator.
When the Homes and Communities Agency (the current regulator) came into being they commissioned a report to look into their powers when it came to dealing with the insolvency of a large scale provider of Social Housing. The conclusion was that powers at their disposal were not sufficient. In particular the 28 day moratorium period, provided for by the Housing and Regeneration Act 2008, preventing disposals of land did not provide sufficient time to allow a deal to be agreed with the secured creditors to allow a transfer of the housing stock to an alternative provider.
The Housing and Planning Act 2016, which became law on 12 May 2016 provides for a new special administration regime for private registered providers of social housing (“Housing Associations”) in England. When in force in its entirety there are likely to be changes to who leads the insolvency procedure as well as to the possible returns to creditors.
The Act introduces the ability for the Secretary of State (or the regulator with the approval of the Secretary of State) to intervene by applying within a 28 day period for a new housing administration order (HAO) before any other insolvency processes can commence.
Upon hearing an application for a housing administration order, the court may make the order or an interim order, dismiss the application, adjourn the hearing or treat the application as a winding-up petition. The court may only make a housing administration order if it is satisfied that the Housing Association is unable, or likely to be unable, to pay its debts, or that it would be just and equitable to wind up the Housing Association in the public interest. Finally the court has no power to make a housing administration order in relation to a Housing Association which is in administration under Schedule B1 to the Insolvency Act 1986 or has gone into liquidation.
The effect of the HAO is that the the Housing Administrator has the same objectives as would apply in a normal administration process (“the Normal Objectives”), namely (a) rescue the registered provider as a going concern, (b) achieve a better result for the unsecured creditors of the registered provider as a whole than would be likely in a liquidation of the registered provider, or (c) realise property in order make a distribution to one or more secured or preferential creditors. Each of the above must be considered in order and unless the objective it is not reasonably practical to achieve the subsequent objective cannot be considered.
In addition to the Normal Objectives the new regime introduces ‘Objective 2’. The Normal Objectives retain priority but the new Objective 2 looks to keep social housing within the regulated sector, so that the housing stock remains owned by a Housing Association.
As suggested at the start of the article a sale to the highest bidder could well result in a sale to a bidder outside of the regulated sector, the Housing Administrator therefore has to work towards the Normal Objectives and the new Objective 2. To do this they have the following powers:
They are not required to hold creditors’ meetings, and it follows that there is no requirement therefore that the Housing Administrator’s proposals are subject to creditor approval;
Where a section 106 agreement contains a mortgagee exclusion clause, this is automatically extended to cover a disposal by a housing administrator.
As set out above, the new regime does not prohibit the use of the current insolvency processes available to creditors and housing associations. The social housing regulator and ultimately the Secretary of State will have 28 days to intervene by applying for a Housing Administration Order before such other insolvency processes can commence.
As with any Administrator the Housing Administrator must not only act in the best interests of creditors they will also have to, so far as possible, keep the social housing in the regulated housing sector. It will be a difficult balancing exercise to justify acceptance of a lower offer within the sector against higher offers from outside. Where the difference is small creditors are unlikely to take issue, however where the difference is significant they may not be so ready to accept the decision with disputes ultimately going to Court. There is also the question as to how lenders will react to the new regime when it comes to making a lending decision.
The High Court has recently confirmed that the hearing of a bankruptcy petition is not the correct venue to raise a challenge to liability.
Under the Council Tax (Administration and Enforcement) Regulations 1992 where an individual has failed to pay council tax for a property for which they are liable despite demands for payment being made, the local authority is able to apply to the magistrates’ court for a Liability Order.
A Liability Order is a court order which can then be used by the local authority to take further action against the debtor to which it applies. This action can include applying for an attachment to earnings order so that their employer is required to deduct a regular amount from a debtor’s wages toward the unpaid debt. In cases where the debtor is in receipt of benefits they can obtain a deduction from benefits. Where the Debtor owns a property a charging order may be obtained or an Enforcement Office can be instructed to take control of the debtor’s goods. It also can also form the basis of a debt upon which a bankruptcy order can be based if the debt owed is above the insolvency threshold of £5,000.
In Okon v London Borough of Lewisham EWHC 864 (Ch) the High Court considered whether a court hearing a bankruptcy petition based upon a council tax liability order had jurisdiction to consider the merits of that liability order in determining whether to make the bankruptcy order.
The High Court held that a liability order under the Local Government Finance Act 1992 in respect of domestic council tax cannot be the subject of substantive dispute at the hearing of a bankruptcy petition: the only appropriate route for a debtor faced with a bankruptcy petition based on a council tax liability order is to appeal that liability order to the relevant valuation tribunal. Consequently, on hearing a bankruptcy petition based on a liability order, the court cannot investigate the merits of the liability order or set it aside but it can adjourn the hearing of a bankruptcy petition to allow such appeal to be made, or, if the bankruptcy order has been made, in an appropriate case, rescind the bankruptcy order.
When faced with insolvency proceedings it is vital to get early advice so that as many options are kept open for you. Being made bankrupt can be a costly experience if you apply to annul the order. A bankruptcy order results in your assets automatically vesting in your Trustee in Bankruptcy and you losing control over those assets.
Mayo Wynne Baxter have specialists who can give advice on all matters arising from insolvency of individuals or companies, should you wish to discuss any issues arising from the above please contact Darren Stone, Head of Insolvency at Mayo Wynne Baxter.