R BPM 39 Real Property.pdf

Module 39 – Real property

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Official Information Act 1982

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Publishing date: June 2017

New Zealand Insolvency and Trustee Service
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Private Bag 4714
Christchurch 8140
New Zealand
0508 INSOLVENCY | 0508 467 658
www.insolvency.govt.nz/cms

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Introduction
About this module
Real property is often the most valuable asset in an estate. It’s important that the Official Assignee takes
steps to identify, secure and realise any interest held for maximum value.
Real property includes land, things attached to land and rights over land. A company in liquidation or a
bankrupt can hold an interest in real property. An interest in real property is the extent of a person or
entity’s rights in or to that real property. Interests may be held as a sole or joint owner, a mortgagee or
caveat-holder.
The Certificate of Title (CT) is a good sign of whether an interest is held, but this may not tell the full
story. For example:
•  The CT may have a bankrupt listed, but that bankrupt may only have an interest in the property as
a trustee of a family trust or as an executor of a deceased estate.
•  The CT may show a bankrupt as the sole owner, but their spouse may have an interest under the
Property (Relationships) Act 1976.
•  The CT may not show a bankrupt at al , even though they have an equitable interest in the
property.
Only managers are authorised to make decisions regarding real property.
The Official Assignee’s duty in respect of real property
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When a liquidation process starts, the Liquidator has custody of and controls the company’s assets.1 The
principal duty of a Liquidator is to take possession of, protect, realise and distribute the assets (or
proceeds) of the company to its creditors.2
Similarly, after adjudication a bankrupt’s property and powers vest in the Official Assignee.3

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1 Section 248, Companies Act 1993
2 Section 253, Companies Act 1993
3 Section 101, Insolvency Act 2006
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•  Paying landlord outgoing expenses
•  Maintaining the premises in a reasonable state of repair
•  Complying with legal requirements as to smoke alarms, insulation, health and safety
•  Compensating the tenant for necessary repairs
•  Providing adequate locks and similar devices.
Other than by selling the property, the only way to escape these obligations is by termination or
disclaimer of the tenancy agreement. In this regard:
•  A fact-based analysis of the costs and benefits of retaining the tenancy is necessary
•  The Assignee must consider whether the contract can be satisfactorily continued with regard to
the primary duty to realise and distribute assets
•  A blanket policy of disclaiming every residential tenancy would not be permissible
•  The cost of any repairs can be met from the rental income
•  It is possible to disclaim the tenancy agreement whilst retaining the property.
The Assignee can engage the services of a rental property manager to ascertain whether the obligations
of a landlord are being met and the property is fit for purpose. However, before doing you should check
with the bankrupt and/or any co-owner whether they already have a property manager. If they do, you
should advise the property manager that the bankrupt’s interest in the property and tenancy
agreement has vested in the Assignee and liaise with them.
If the property is ful y vested in the Assignee and the tenancy is to continue, you can direct the tenant to
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pay the rent directly to the Assignee. The col ected rent can then be used to meet any outgoing
expenses, including to pay a mortgage to maintain the equity value in the property.
Duty to give notice to tenant before sel ing the property
If the Official Assignee agrees to sel  a property with vacant possession, you must give at least 42 days’
notice to any tenant at that property (which may be the bankrupt and their family).
Issues of concern/potential problem areas
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Authority to make decisions
Only a manager or delegated officers are authorised to make decisions about real estate. They must
have signing authority for caveats, transfers, and sale and purchase agreements. You should refer all
matters about real property to them and keep them informed.
Limiting the Official Assignee’s exposure to potential liability
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It’s important to limit the Official Assignee’s exposure to liability. This includes ensuring that:
•  the properties are adequately insured up until sale
•  equity calculations are accurate and completed before a sale and purchase agreement is signed
•  legal advice is sought about the terms and conditions in any sale and purchase agreement before
it’s signed, and
•  caveats are lodged on properties with equity, to stop them being sold without the Assignee’s
consent.
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Refinancing or sale of properties with no equity
Where there is equity in a property, the Official Assignee will have no objection to the bankrupt and
their spouse refinancing the property, provided that:
•  the Official Assignee receives the bankrupt’s share of the equity, and
•  the bankrupt has disclosed to the financier that s/he is an undischarged bankrupt.
In some instances, where there is no equity in a property, the Official Assignee may agree to sign the
Sale and Purchase Agreement, or may require the bankrupt to sign it in (under s141(2) of the Insolvency
Act 2006), although in such cases an indemnity for legal costs should be obtained first. Such decisions
are to be made by a manager and wil  depend on the circumstances.
Monitoring of estates with no initial equity
The normal process wil  be fol owed to determine whether equity exists, and to realise the equity if it
does. In cases where there is determined to be no equity the fol owing procedure should be fol owed:

•  send the no equity letter to co-owner giving them an opportunity to purchase the property, if they
are unwilling or unable to purchase the property or cover the Official Assignee’s costs for the
property to be transferred into their name;
•  S122 template letter wil  be sent giving notice that the value/equity wil  be reassessed every 12
months during the term of the bankruptcy.
•  The estate wil  be put into ‘monitoring’ and a task wil  be created to reassess the equity in the
property 12 months from the anniversary of adjudication.
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•  The bankrupt should be questioned about the insurance on the property and evidence of insurance
will be sighted and confirmed.  If no insurance is in place, the Official Assignee wil  not insure
properties with no/low equity.
•  If a caveat has already been lodged on the property it will not be removed. If a caveat is not
currently on the property, then one should be added.
•  12 months before discharge the case officer will initially get an online valuation to get an indication
of the likely value of the property, and to enable them to do another equity calculation.
•  If equity is likely to exist, then a curb side or full registered valuation will be undertaken.
•  If sufficient equity is then confirmed, the case officer will take steps to realise the equity and reopen
the estate and change the asset status to “in progress”.
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•  If there is insufficient equity change the asset status to ‘dealt with’ and the estate can be closed.
Vacant possession
It’s generally in the best interests of both the bankrupt (including their family) and the Official Assignee
if the bankrupt remains in possession until the sale of the property. This ensures that the property
remains occupied, and the mortgage can stil  be met. There should be a clear understanding that if
mortgage payments are being made by a partner or third party, they will not be reimbursed for
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payments made during this time - unless otherwise agreed with the Official Assignee.
Agreement must also be reached in providing vacant possession to any purchaser. Reasonable time to
vacate (at least 42 days’ notice) is required under the Residential Tenancies Act. If the bankrupt and
other occupants are not agreeable, s152(2) of the Insolvency Act 2006 allows the Official Assignee to
apply to the District Court for an order that the bankrupt and any of his or her relatives vacate the
premises. Time must be al owed for this.
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Legal representation
In most instances, the Official Assignee should instruct his or her own solicitor to act in the sale of the
property, rather than relying on the solicitor acting for the purchaser or non-bankrupt party(s).
In straightforward and arms-length sales, it may be appropriate for one solicitor to act for both the
bankrupt estate and the non-bankrupt vendor.
Always discuss the issue of legal representation with a manager.
Mortgages in arrears
The mortgagee is only entitled to receive rent if they are a mortgagee in possession, or have appointed
a Receiver of Rents. Until such time, the rent should be paid direct to the Official Assignee, and retained
by him for the benefit of the general pool of creditors. This should be done even if the mortgage is not
being paid and may result in a mortgagee sale.
Insurance
As soon as an Insolvency Officer becomes aware of the existence of real property, and regardless of the
value of the bankrupt’s share of the property, the fol owing steps should be taken:
1.  Find out if the bankrupt has current insurance for the property. If so, sight the evidence and
record it on the online file.
2.  Find out whether the mortgagee has current insurance for the property:
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o  obtain details of the insurance policy, and
o  advise the insurance company of the Official Assignee’s interest due to the
bankruptcy/liquidation.
3. If the property is vacant or becomes vacant while the OA is dealing with it and it is insured by the OA,
then the insurer must be advised of the vacancy.

Only where the value of the bankrupt’s share of the property is s 9(2)(k) or more, must the Insolvency
Officer ensure that insurance is in place. If insurance is not already in place, insure the property for the
“Indemnity Value” according to Section 3.3 of ITS’s Insurance Procedure.

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If a registered valuer is completing a market sale valuation on the property, they should be instructed to
also include an indemnity insurance value as part of the valuation. In the absence of this, or until a
valuation is received, the next best way of obtaining the closest figure is to input the value of the
improvements from a Terranet “Property Summary Report”.
Transmission of interest in land to the Official Assignee
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If the Official Assignee fails to register a transmission, and the bankrupt continues in possession of the
interest in the land until his or her discharge (whether or not a s122 IA notice has been given), the
Official Assignee:
•  prejudices any claim they might thereafter make in respect of the property, and
•  can’t make the claim without the consent of the High Court.
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From outside
•  Chemical odours coming from the building, rubbish. The odours can be sweet, bitter, cat urine
ammonia or solvent smells.
•  Expensive security cameras and surveillance equipment
•  Access denied to landlords, neighbours, and other visitors
•  Rubbish such as multiple packages of lye, Heet, Coleman fuel, peroxide, pseudo-ephedrine or
coffee filters. They can be stored in a bathroom, closet or kitchen.

From inside
1.  Clan labs may be hidden behind false walls or other building alterations. Unusual alterations
should be regarded as suspicious, such as: exhaust fans mounted where they have no logical
use; and unexplainably small rooms.
2.  Fire detectors removed or taped off.
3.  Symptoms of short-term exposure include chemical irritation to skin, eyes, nose and mouth,
dizziness, shortness of breath.
4.  Yellow discolouration on walls, drains, sinks and showers due to presence of iodine.
5.  Blue discoloration on valves of propane tanks and fire extinguishers.

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Additional notes
•  For properties with outstanding Body Corporate (BC) levies, we should take into account the outstanding
levies when completing equity calculation for a property. The levies that are due to BC that have not been
proved in the bankruptcy should be included in the equity calculation as BC wil  want the sum paid from
the purchase price.

•  Charging orders are not ‘mortgages or charges’ as defined in section 3 of the Insolvency Act 2006.

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Appendix 1
Common Clan Lab Equipment, Material and Chemicals

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Alcohol
Cold tablets
Benzene
Paint thinner
Freon
Starting Fluid
Camp stove fuel
“Heet”
Anhydrous ammonia
White Gas
Iodine
Phenyl acetone
Diet aids
Drano
Lye (Red Devil Lye)
Epsom salts
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Battery acid
Wooden matches
Ephedrine
Ether
Jugs
Strainer
Coffee filters
Paper towels
Hot plate
Funnel
Propane tanks
Blender
Bottles
Aluminium foil
Cheese cloth
Tape and clamps
Gas can

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