Restrictions in favour of a trustee in bankruptcy - Updated Land Registry guidance

• United Kingdom

• Restructuring and insolvency

07-09-2021

The Land Registry have issued an updated “Practice Guide 34: personal insolvency”.  In summary, a new paragraph 5.2.1 has been inserted, which provides that a trustee in bankruptcy cannot apply for a Form J restriction to be registered where a Form J restriction is already noted on the title in favour of the Official Receiver.

The detail and the solution

The Official Receiver (OR) automatically becomes the trustee in bankruptcy of an individual upon the making of the order, where the bankrupt has an interest in jointly owned property, they will (should) immediately apply for a Form J Restriction on the title to protect the bankruptcy estate’s interest in the property.

If an Insolvency Practitioner (IP) is subsequently appointed as trustee in bankruptcy, sometimes they will also apply for a Form J Restriction on the title.  This is so that it has their name, and more particularly address, on the title, so they are served with notice should someone try to deal with the property.

The HM Land Registry (HMLR) has announced a change to the Personal Insolvency Practice guide to the effect that they will now reject applications by a successor trustee in bankruptcy for a further Form J restriction if the title register already contains a Form J restriction in favour of the OR. 

They say this is because the entry of such a further restriction is not considered “necessary or desirable” for one of the purposes listed in section 42(1)(a) of the Land Registration Act 2002 for which a restriction may be entered.

HMLR have suggested (at paragraph 5.2.1 of the Practice Guide) that what the successor trustee could do is either:

• ask the Official Receiver:
  • to apply in form RX4 to withdraw the existing Form J restriction (no fee is payable) so that the successor trustee may then apply in form RX1 (with the prescribed fee and evidence of appointment) for a new Form J restriction, or

• to provide the successor trustee with a completed form RX4 for the successor trustee to submit together with their application for a new Form J restriction, or

• apply in form AP1 (with the prescribed fee and evidence of their appointment) for alteration of the register to bring the restriction entry up to date by substituting the successor trustee’s name and address details for those of the Official Receiver

While the first two options to ask the OR to assist appear sensible, they may raise some issues of priority, particularly if an adverse entry has been registered on the title after the OR’s restriction.  If that is the case then we would not recommend either of those two options, as the bankruptcy estate may lose its priority, which is likely to result in a loss to the value of the interest in the property.

How this affects you and how Eversheds Sutherland can help

The impact of this change on practitioners is that it may raise some issues of priority for a bankruptcy estate.  Further, if a Trustee in Bankruptcy  cannot register their own details, this raises the risk that they may not be served with notice if someone tries to deal with the property.  As such we would recommend an application to amend the entry from the OR into the name of the successor trustee is made and we can assist you with these types of application.

This update to the Practice Guide does not affect the position where there are already two From J restrictions registered, one in the name of the OR and the other in the name of the IP trustee in bankruptcy.