When a vehicle is an asset for DRO applications

The person who is the registered keeper and the main driver of a car or van is usually also the legal owner. However, this is not always the case.

There are cases where establishing ownership is not straightforward, for example where the funds to purchase the vehicle were provided by a third party, or where it was given as a gift.

These cases require the application of some of the legal principles of gifts and trusts to reach a conclusion about vehicle ownership.

Where a car, or the money to purchase it, has been provided by a third party, an adviser must ask some key questions to establish whether the debtor owns the property they have been given. If conditions have been attached, it might not be a gift at all. Instead it may have been given to the debtor on trust, for their use but without transferring ownership.

Case study – the perfect gift

The debtor received £5000 from their parents as a gift for their 30th birthday. They decided to use some of the money for a holiday and spent the remaining £3000 on a new car. This money was a gift, because it came without conditions, and the debtor decided how they would spend it.

This is known in law as a ‘perfect gift’. The debtor's parents have no legal grounds to ask for the money to be returned. The car belongs to the debtor.

Case study – not a perfect gift

The debtor had their third child last year. Their car was no longer suitable for all three children including their child seats. The debtor's sister no longer needed their 7-seater car, worth around £5000, so agreed to purchase a small car and the debtor could have the larger car for as long as they needed it.

In a case like this, the adviser must establish the intention of the parties.

The adviser could ask the debtor: 'What would happen if you sold the car – would the person who owned it originally expect the money, or could you spend it on a holiday?'

If the debtor can do what they like with the car or money, then it is a gift, and the property of the debtor.

If the friend or family member would expect the car or the value of it to be returned, then it is likely to be held by the debtor on trust. In this situation, the debtor has certain responsibilities as the bailee (such as taking reasonable care of the car) but is not the legal owner, and selling it would constitute wrongful interference with goods.[1] The car remains the property of the original owner and does not have to be declared as an asset in a DRO or bankruptcy.

Case study – contract

The debtor's situation is as stated in the case study on not perfect gifts, but instead of their sister providing use of the 7-seater car as a favour, they offer the car to the debtor in satisfaction of a smaller debt.

If the debtor has given something in return for the vehicle then this is likely to constitute a legally enforceable contract. One thing of value in return for something else is known as ‘consideration’ and makes the agreement binding. The debtor's sister cannot demand the car is returned, even if the debt that was written off is less than the value of the car.[2]

If ownership of the vehicle was transferred in satisfaction of a larger debt the adviser should determine whether this must be declared as a transaction at an undervalue in a DRO application. This could affect the outcome of the application.

Only one owner can be registered as the keeper of a vehicle. However, it could have been bought using funds provided by two people. The funds might have been given as a gift, so the legal principles of gifts could apply.

The debtor could be a beneficial owner of a proportion of the vehicle if the intention was to own the vehicle jointly.

Where land is jointly owned there is a substantial body of law to refer to for guidance about how the land, and any equity arising from it, is shared and how it will be divided if it becomes necessary to do so. The same is not true for other property, known in law as 'chattels'.

Where a vehicle is intended to be owned by two or more people, they should put their intention in writing where possible. This constitutes a fractional ownership agreement, and the DRO team at the Insolvency Service has confirmed they will accept this type of agreement as long as the facts correspond to the shares in the agreement.

Case study – no fractional agreement

The debtor purchased a car that both they and their spouse use. The debtor already owned it when they met, but their spouse is the registered keeper as they use it more. The value of the car is £2000. The debtor states the asset is owned jointly with their spouse.

This is unlikely to constitute genuine joint ownership. If the funds were provided by the debtor, the fact that their spouse uses the car does not give the spouse proprietary rights over it. It is very likely the spouse’s use of the car is dependent on the couple remaining married.

The car would be the debtor's asset. Any transfer of a share by way of a fractional ownership agreement would be a transaction at an undervalue in a DRO application.

Case study – fractional agreement

The debtor and their partner have each contributed £900 to purchase a car worth £1800 that they both use. The debtor is the registered keeper. They have evidence of a bank transfer in the sum of £900 from the partner to the debtor 4 days before the car was purchased.

This is likely to constitute a fractional ownership agreement. The debtor and their partner could formalise this agreement by putting it in writing. This would not be a transaction at an undervalue, as the written agreement would be a reflection of the existing arrangement.