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Proceeds of Crime Act 2002

Bankruptcy in England & Wales

Section 417: Modifications of the 1986 Act

559.The purpose of Part 9 is to explain what happens when the same property is subject both to criminal confiscation legislation and to insolvency legislation. The Part is United Kingdom-wide and much of it is based on earlier legislation. Sections 417-419 deal with the interaction of the insolvency legislation of England and Wales with the confiscation legislation of England and Wales, Scotland and Northern Ireland (“the 1986 Act” means the Insolvency Act 1986 in this context). This is necessary because both the criminal confiscation legislation and the insolvency legislation throughout the United Kingdom affect property in other jurisdictions.

560.The basic rule expressed by section 417 is that, if at the time a person is adjudged bankrupt under the 1986 Act a restraint order has previously been made or a receiver or administrator has previously been appointed in respect of any of his property, that property is excluded from his estate for the purpose of the bankruptcy. So any of that property first goes to satisfy the confiscation order, rather than being dispersed to creditors. The legislation is designed to prevent defendants from attempting to use the insolvency legislation to defeat the purpose of the confiscation legislation.

561.Schedule 11 makes some related consequential amendments to the Insolvency Act 1986. They deal with the problem that property can only be included in a bankrupt’s estate at the time the bankruptcy order is made. If restraint or receivership action is underway when the bankruptcy order is made, any unconfiscated property cannot be given to the creditors at a later date. The amendments provide that property not required for confiscation can subsequently be included in the bankrupt’s estate. See also the note on Schedule 11, paragraph 16, amendments to the Insolvency Act 1986.

Section 418: Restriction of powers

562.This section, on the other hand, explains the circumstances under which the bankruptcy legislation takes priority. If a person is adjudged bankrupt before a restraint order is made or a receiver or administrator is appointed, no property that is for the time being comprised in the bankrupt’s estate may then be placed under restraint or subject to realisation under the confiscation legislation. However, once the creditors have been satisfied, any remaining property may be used to satisfy the confiscation order.

563.Further to the problem described under the previous section and dealt with in Schedule 11, paragraph 16, subsections (3)(d) and (e) prevent the confiscation court from exercising its powers in relation to property left over after a confiscation order has been satisfied. This will ensure that, where a bankruptcy order has been made, any surplus sums will go into the bankrupt’s estate for distribution to creditors, rather than being distributed by the Crown Court to the defendant and others under the confiscation legislation.

Section 419: Tainted gifts

564.This section deals with the procedure under the insolvency legislation for voiding a gift made by a bankrupt to a third party, so that it can be used to pay creditors. This procedure is similar to the procedure for recovering tainted gifts in the confiscation legislation. Where a person holds a gift, it is possible for the confiscation legislation and the insolvency legislation both to lay claim to the same property simultaneously. The section explains what happens when this situation arises.

565.The approach to gifts adopted by section 419 is similar to the overall approach in Part 9 of the Act, which was described in the notes on sections 417 and 418 above. Section 419 makes it clear that where restraint or receivership action has been taken against property in the hands of the gift recipient, then the power to void the gift under the insolvency legislation cannot be exercised for as long as that action is underway.

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