The risk for a CHO when a client becomes bankrupt

This article was posted by DAC Beachcroft today.

I suspect that, as the government pandemic support begins to unwind, they are hedging their bets on an increase in insolvencies amongst consumers and peddling their advice to curry favour with defendant insurers and eliminate a Claimant’s financial obligation to a CHO.

This article looks at how to deal with bankrupt Claimants and the effect that their bankruptcy has on both pre and post litigated claims, where the Credit Hire Organisations (CHOs) may continue to pursue the claim. We have focused on the law surrounding bankruptcy including what types of claim remain vested in a Claimant as well as how to deal with such a claim and issues that may arise.

It is important to note that this guidance relates only to bankrupt Claimants, and not those subject to an IVA. An IVA will not have any effect on the Claimant’s ability to pursue their claim for damages.

The law of bankruptcy

  • Bankruptcy is defined as a legal process applicable to individuals and not companies, where the bankrupt’s estate is realised and distributed by a trustee.

  • An individual can be identified as being bankrupt by conducting a search on the Individual Insolvency Register (IIR). This will confirm details of any bankruptcy orders that have ended in the last 3 months, any ongoing IVA or any ongoing bankruptcy order.

  • Once an individual is declared bankrupt, their estate will vest in a trustee immediately upon their appointment taking effect (or upon becoming trustee in the case of the official receiver).

  • A bankrupt’s estate includes all property belonging to or vested in the bankrupt at the time of commencement of the bankruptcy.

  • Therefore, with the exception of personal effects, ownership of any “property” held by the Claimant at the point of bankruptcy will pass to the trustee by operation of law, without the need for any assignment.

Are credit hire and vehicle related damages ‘property’ or ‘personal’ heads of loss?

  • ‘Property’ includes legal rights against others known as ‘things in action’. It includes claims for money, goods, things in action, land and every description of property wherever situated. It is therefore considered that vehicle related losses including credit hire charges are ‘property’ heads of loss and automatically vest in the trustee upon the Claimant becoming bankrupt.

  • Certain damages belonging to the Claimant are classed as ‘personal’ heads of loss and remain with the bankrupt; they do not transfer to the trustee. These will include claims for damages by reference to pain felt in body, mind or character and without immediate reference to rights of property, for example claims for defamation or assault (see Heath v Tang [1993] 3 All ER 694).