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Make provision about the rights of third parties against insurers of liabilities |
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to third parties in the case where the insured is insolvent, and in certain other |
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Be it enacted by the Queen’s most Excellent Majesty, by and with the advice and |
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consent of the Lords Spiritual and Temporal, and Commons, in this present |
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Parliament assembled, and by the authority of the same, as follows:— |
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Transfer of rights to third parties |
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1 | Rights against insurer of insolvent person etc |
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(1) | This section applies if— |
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(a) | a relevant person incurs a liability against which that person is insured |
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under a contract of insurance, or |
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(b) | a person who is subject to such a liability becomes a relevant person. |
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(2) | The rights of the relevant person under the contract against the insurer in |
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respect of the liability are transferred to and vest in the person to whom the |
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liability is or was incurred (the “third party”). |
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(3) | The third party may bring proceedings to enforce the rights against the insurer |
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without having established the relevant person’s liability; but the third party |
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may not enforce those rights without having established that liability. |
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(4) | For the purposes of this Act, a liability is established only if its existence and |
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amount are established; and, for that purpose, “establish” means establish— |
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(a) | by virtue of a declaration under section 2 or a declarator under section |
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(b) | by a judgment or decree, |
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(c) | by an award in arbitral proceedings or by an arbitration, or |
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(d) | by an enforceable agreement. |
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(a) | references to an “insured” are to a person who incurs or who is subject |
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to a liability to a third party against which that person is insured under |
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(b) | references to a “relevant person” are to a person within sections 4 to 7; |
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(c) | references to a “third party” are to be construed in accordance with |
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(d) | references to “transferred rights” are to rights under a contract of |
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insurance which are transferred under this section. |
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2 | Establishing liability in England and Wales and Northern Ireland |
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(1) | This section applies where a person (P)— |
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(a) | claims to have rights under a contract of insurance by virtue of a |
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transfer under section 1, but |
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(b) | has not yet established the insured’s liability which is insured under |
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(2) | P may bring proceedings against the insurer for either or both of the |
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(a) | a declaration as to the insured’s liability to P; |
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(b) | a declaration as to the insurer’s potential liability to P. |
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(3) | In such proceedings P is entitled, subject to any defence on which the insurer |
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may rely, to a declaration under subsection (2)(a) or (b) on proof of the |
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insured’s liability to P or (as the case may be) the insurer’s potential liability to |
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(4) | Where proceedings are brought under subsection (2)(a) the insurer may rely on |
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any defence on which the insured could rely if those proceedings were |
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proceedings brought against the insured in respect of the insured’s liability to |
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(5) | Subsection (4) is subject to section 12(1). |
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(6) | Where the court makes a declaration under this section, the effect of which is |
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that the insurer is liable to P, the court may give the appropriate judgment |
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(7) | Where a person applying for a declaration under subsection (2)(b) is entitled or |
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required, by virtue of the contract of insurance, to do so in arbitral proceedings, |
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that person may also apply in the same proceedings for a declaration under |
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(8) | In the application of this section to arbitral proceedings, subsection (6) is to be |
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read as if “tribunal” were substituted for “court” and “make the appropriate |
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award” for “give the appropriate judgment”. |
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(9) | When bringing proceedings under subsection (2)(a), P may also make the |
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insured a defendant to those proceedings. |
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(10) | If (but only if) the insured is a defendant to proceedings under this section |
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(whether by virtue of subsection (9) or otherwise), a declaration under |
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subsection (2) binds the insured as well as the insurer. |
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(11) | In this section, references to the insurer’s potential liability to P are references |
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to the insurer’s liability in respect of the insured’s liability to P, if established. |
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3 | Establishing liability in Scotland |
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(1) | This section applies where a person (P)— |
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(a) | claims to have rights under a contract of insurance by virtue of a |
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transfer under section 1, but |
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(b) | has not yet established the insured’s liability which is insured under |
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(2) | P may bring proceedings against the insurer for either or both of the |
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(a) | a declarator as to the insured’s liability to P; |
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(b) | a declarator as to the insurer’s potential liability to P. |
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(3) | Where proceedings are brought under subsection (2)(a) the insurer may rely on |
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any defence on which the insured could rely if those proceedings were |
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proceedings brought against the insured in respect of the insured’s liability to |
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(4) | Subsection (3) is subject to section 12(1). |
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(5) | Where the court grants a declarator under this section, the effect of which is |
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that the insurer is liable to P, the court may grant the appropriate decree |
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(6) | Where a person applying for a declarator under subsection (2)(b) is entitled or |
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required, by virtue of the contract of insurance, to do so in an arbitration, that |
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person may also apply in the same arbitration for a declarator under subsection |
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(7) | In the application of this section to an arbitration, subsection (5) is to be read as |
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if “tribunal” were substituted for “court” and “make the appropriate award” |
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for “grant the appropriate decree”. |
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(8) | When bringing proceedings under subsection (2)(a), P may also make the |
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insured a defender to those proceedings. |
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(9) | If (but only if) the insured is a defender to proceedings under this section |
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(whether by virtue of subsection (8) or otherwise), a declarator under |
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subsection (2) binds the insured as well as the insurer. |
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(10) | In this section, the reference to the insurer’s potential liability to P is a reference |
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to the insurer’s liability in respect of the insured’s liability to P, if established. |
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(1) | An individual is a relevant person if any of the following is in force in respect |
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of that individual in England and Wales— |
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(a) | a deed of arrangement registered in accordance with the Deeds of |
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(b) | an administration order made under Part 6 of the County Courts Act |
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(c) | an enforcement restriction order made under Part 6A of that Act, |
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(d) | subject to subsection (4), a debt relief order made under Part 7A of the |
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(e) | a voluntary arrangement approved in accordance with Part 8 of that |
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(f) | a bankruptcy order made under Part 9 of that Act. |
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(2) | An individual is a relevant person if any of the following is in force in respect |
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of that individual (or, in the case of paragraph (a) or (b), that individual’s |
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(a) | an award of sequestration made under section 5 of the Bankruptcy |
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(b) | a protected trust deed within the meaning of that Act, or |
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(c) | a composition approved in accordance with Schedule 4 to that Act. |
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(3) | An individual is a relevant person if any of the following is in force in respect |
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of that individual in Northern Ireland— |
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(a) | an administration order made under Part 6 of the Judgments |
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Enforcement (Northern Ireland) Order 1981 (S.I. 1981/226 (N.I. 6)), |
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(b) | a deed of arrangement registered in accordance with Chapter 1 of Part |
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8 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. |
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(c) | a voluntary arrangement approved under Chapter 2 of Part 8 of that |
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(d) | a bankruptcy order made under Part 9 of that Order. |
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(4) | If an individual is a relevant person by virtue of subsection (1)(d), that person |
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is a relevant person for the purposes of section 1(1)(b) only. |
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(5) | Where an award of sequestration made under section 5 of the Bankruptcy |
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(Scotland) Act 1985 is recalled or reduced, any rights which were transferred |
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under section 1 as a result of that award are re-transferred to and vest in the |
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person who became a relevant person as a result of the award. |
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(6) | Where an order discharging an individual from an award of sequestration |
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made under section 5 of the Bankruptcy (Scotland) Act 1985 is recalled or |
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reduced under paragraph 17 or 18 of Schedule 4 to that Act, the order is to be |
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treated for the purposes of this section as never having been made. |
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5 | Individuals who die insolvent |
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(1) | An individual who dies insolvent is a relevant person for the purposes of |
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(2) | For the purposes of this section an individual (D) is to be regarded as having |
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died insolvent if, following D’s death— |
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(a) | D’s estate falls to be administered in accordance with an order under |
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section 421 of the Insolvency Act 1986 or Article 365 of the Insolvency |
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(Northern Ireland) Order 1989 (S.I. 1989/2405 (N. I. 19)), |
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(b) | an award of sequestration is made under section 5 of the Bankruptcy |
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(Scotland) Act 1985 in respect of D’s estate and the award is not recalled |
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(c) | a judicial factor is appointed under section 11A of the Judicial Factors |
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(Scotland) Act 1889 in respect of D’s estate and the judicial factor |
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certifies that the estate is absolutely insolvent within the meaning of the |
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Bankruptcy (Scotland) Act 1985. |
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(3) | Where a transfer of rights under section 1 takes place as a result of an insured |
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person being a relevant person by virtue of this section, references in this Act |
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to an insured are, where the context so requires, to be read as references to the |
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(1) | A body corporate or an unincorporated body is a relevant person if— |
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(a) | a compromise or arrangement between the body and its creditors (or a |
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class of them) is in force, having been sanctioned in accordance with |
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section 899 of the Companies Act 2006, or |
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(b) | the body has been dissolved under section 1000, 1001 or 1003 of that |
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Act, and the body has not been— |
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(i) | restored to the register by virtue of section 1025 of that Act, or |
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(ii) | ordered to be restored to the register by virtue of section 1031 of |
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(2) | A body corporate or an unincorporated body is a relevant person if, in England |
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(a) | a voluntary arrangement approved in accordance with Part 1 of the |
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Insolvency Act 1986 is in force in respect of it, |
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(b) | an administration order made under Part 2 of that Act is in force in |
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(c) | there is a person appointed in accordance with Part 3 of that Act who is |
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acting as receiver or manager of the body’s property (or there would be |
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such a person so acting but for a temporary vacancy), |
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(d) | the body is, or is being, wound up voluntarily in accordance with |
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Chapter 2 of Part 4 of that Act, |
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(e) | there is a person appointed under section 135 of that Act who is acting |
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as provisional liquidator in respect of the body (or there would be such |
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a person so acting but for a temporary vacancy), or |
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(f) | the body is, or is being, wound up by the court following the making of |
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a winding-up order under Chapter 6 of Part 4 of that Act or Part 5 of |
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(3) | A body corporate or an unincorporated body is a relevant person if, in |
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(a) | an award of sequestration has been made under section 6 of the |
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Bankruptcy (Scotland) Act 1985 in respect of the body’s estate, and the |
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body has not been discharged under that Act, |
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(b) | the body has been dissolved and an award of sequestration has been |
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made under that section in respect of its estate, |
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(c) | a protected trust deed within the meaning of the Bankruptcy (Scotland) |
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Act 1985 is in force in respect of the body’s estate, or |
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(d) | a composition approved in accordance with Schedule 4 to that Act is in |
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force in respect of the body. |
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(4) | A body corporate or an unincorporated body is a relevant person if, in |
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(a) | a voluntary arrangement approved in accordance with Part 2 of the |
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Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N. I. 19)) is |
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in force in respect of the body, |
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(b) | an administration order made under Part 3 of that Order is in force in |
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(c) | there is a person appointed in accordance with Part 4 of that Order who |
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is acting as receiver or manager of the body’s property (or there would |
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be such a person so acting but for a temporary vacancy), |
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(d) | the body is, or is being, wound up voluntarily in accordance with |
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Chapter 2 of Part 5 of that Order, |
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(e) | there is a person appointed under Article 115 of that Order who is |
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acting as provisional liquidator in respect of the body (or there would |
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be such a person so acting but for a temporary vacancy), or |
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(f) | the body is, or is being, wound up by the court following the making of |
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a winding-up order under Chapter 6 of Part 5 of that Order or Part 6 of |
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(5) | A body within subsection (1)(a) is not a relevant person in relation to a liability |
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that is transferred to another body by the order sanctioning the compromise or |
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(6) | Where a body is a relevant person by virtue of subsection (1)(a), section 1 has |
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effect to transfer rights only to a person on whom the compromise or |
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(7) | Where an award of sequestration made under section 6 of the Bankruptcy |
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(Scotland) Act 1985 is recalled or reduced, any rights which were transferred |
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under section 1 as a result of that award are re-transferred to and vest in the |
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person who became a relevant person as a result of the award. |
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(8) | Where an order discharging a body from an award of sequestration made |
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under section 6 of the Bankruptcy (Scotland) Act 1985 is recalled or reduced |
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under paragraph 17 or 18 of Schedule 4 to that Act, the order is to be treated for |
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the purposes of this section as never having been made. |
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(a) | a reference to a person appointed in accordance with Part 3 of the |
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Insolvency Act 1986 includes a reference to a person appointed under |
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section 101 of the Law of Property Act 1925; |
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(b) | a reference to a receiver or manager of a body’s property includes a |
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reference to a receiver or manager of part only of the property and to a |
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receiver only of the income arising from the property or from part of it; |
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(c) | for the purposes of subsection (3) “body corporate or unincorporated |
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body” includes any entity, other than a trust, the estate of which may |
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be sequestrated under section 6 of the Bankruptcy (Scotland) Act 1985; |
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(d) | a reference to a person appointed in accordance with Part 4 of the |
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Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N. I. 19)) |
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includes a reference to a person appointed under section 19 of the |
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(1) | A trustee of a Scottish trust is, in respect of a liability of that trustee that falls to |
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be met out of the trust estate, a relevant person if— |
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(a) | an award of sequestration has been made under section 6 of the |
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Bankruptcy (Scotland) Act 1985 in respect of the trust estate, and the |
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trust has not been discharged under that Act, |
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(b) | a protected trust deed within the meaning of that Act is in force in |
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respect of the trust estate, or |
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(c) | a composition approved in accordance with Schedule 4 to that Act is in |
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force in respect of the trust estate. |
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(2) | Where an award of sequestration made under section 6 of the Bankruptcy |
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(Scotland) Act 1985 is recalled or reduced any rights which were transferred |
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under section 1 as a result of that award are re-transferred to and vest in the |
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person who became a relevant person as a result of the award. |
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(3) | Where an order discharging an individual, body or trust from an award of |
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sequestration made under section 6 of the Bankruptcy (Scotland) Act 1985 is |
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recalled or reduced under paragraph 17 or 18 of Schedule 4 to that Act, the |
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order is to be treated for the purposes of this section as never having been |
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(4) | In this section “Scottish trust” means a trust the estate of which may be |
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sequestrated under section 6 of the Bankruptcy (Scotland) Act 1985. |
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Transferred rights: supplemental |
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8 | Limit on rights transferred |
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Where the liability of an insured to a third party is less than the liability of the |
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insurer to the insured (ignoring the effect of section 1), no rights are transferred |
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under that section in respect of the difference. |
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9 | Conditions affecting transferred rights |
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(1) | This section applies where transferred rights are subject to a condition |
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(whether under the contract of insurance from which the transferred rights are |
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derived or otherwise) that the insured has to fulfil. |
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(2) | Anything done by the third party which, if done by the insured, would have |
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amounted to or contributed to fulfilment of the condition is to be treated as if |
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(3) | The transferred rights are not subject to a condition requiring the insured to |
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provide information or assistance to the insurer if that condition cannot be |
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fulfilled because the insured is— |
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(a) | an individual who has died, or |
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(b) | a body corporate that has been dissolved. |
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(4) | A condition requiring the insured to provide information or assistance to the |
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insurer does not include a condition requiring the insured to notify the insurer |
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of the existence of a claim under the contract of insurance. |
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(5) | The transferred rights are not subject to a condition requiring the prior |
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discharge by the insured of the insured’s liability to the third party. |
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(6) | In the case of a contract of marine insurance, subsection (5) applies only to the |
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extent that the liability of the insured is a liability in respect of death or |
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“contract of marine insurance” has the meaning given by section 1 of the |
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Marine Insurance Act 1906; |
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