Timeshare in Bankruptcy
1) What is timeshare?
Timeshares have been in existence since the mid 1960’s and are used by individuals as a way of obtaining a stake in a property without actually purchasing the entire property. Commonly a system whereby residential units are shared on a weekly basis, with concurrent ownership, all owners contribute to the expense and maintenance of the timeshare property, which can be undertaken either by the owners themselves or by sub-contractors employed by them. The chief benefit is that the individual (or company in some circumstances) will be able to have access to a property they would not be able to afford to buy outright, and it is likely that the timeshare owner will have purchased either a period of time within an annual timespan, or specific dates within the year, which can be used by the owner or swapped with other owners for different weeks or different resorts.
Timeshares are possibly the most popular way of holding an interest in an overseas property, and are governed by the Timeshare Act 1992 and The Timeshare, Holiday Products, Resale and Exchange Contracts Regulations 2010. The rights held by the party owning a timeshare will be set out in the form of a timeshare agreement.
2) What is the difference between timeshare and owning a property?
In general terms, a timeshare owner does not own the property outright but only for a certain number of weeks per year whereas with ownership the property belongs to the owner every day of the year, until the property is sold/the period of ownership expires.
The advantages of timeshares are that:
The cost of maintenance etc of the property is shared and it is thus a cheaper way of owning a holiday home
There is the opportunity of exchanging the timeshare of a property in one resort with one in a different part of the world, so that the owner does not have to return to the same location every year.
3) Timeshare exchanges
Exchange systems operate by allowing the owners of timeshares to “swap” their timeshare weeks or destinations with other timeshare owners. Exchange companies operate worldwide and there are numerous sites available through Internet search engines.
4) Club trustee system
In the UK, the most common legal structure for operating timeshares is the Club Trustee system. Under this the landowner/developer transfers the title to the land and buildings to an independent trustee who holds the property on trust for the timeshare owners. This provides security for the owners as the main asset of the resort is removed from the reach of creditors.
5) How are British rights protected abroad?
A European Directive was introduced to provide a ‘level playing field’ whereby the interests of all consumers would be protected. The main conditions of the Directive are:
A ten day cooling off period
Full disclosure of information to buyers
No deposit to be paid during the cooling off period.
Contracts must be in the language of the Member State in which the buyer lives
In June 2007 the European Commission announced their proposals for a new Timeshare Directive, which will further protect the rights and interest of consumers and will extend the existing directive to cover newer areas including the resale and exchange of timeshare products.
6) Local trading standards
The Local Trading Standards Authorities are responsible for enforcing the law in this country and may take action against any companies who try to circumvent the law by prosecuting them. The Office of Fair Trading (OFT) which is now closed could also take action against businesses based in the European Union that breach certain consumer protection laws and thereby harm the interests of UK consumers. The OFT site now directs consumers to the Citizen’s Advice Bureau for consumer problems and the Financial Conduct Authority for consumer credit regulation questions.
7) What information does the official receiver need?
Once the official receiver becomes aware that a bankrupt has a timeshare, he/she should contact the timeshare company to inform it of the order and ask for details of any outstanding service charges (these would need to be paid from any sale proceeds). If the bankrupt has had financial problems for some time, it is likely that a significant amount will be due in respect of service charges, which may mean that the timeshare is not worth selling.
The official receiver requires a copy of the original contract of purchase for the timeshare. The bankrupt may bring a copy to the initial interview but, if not, he/she should be asked to produce it, together with a copy of any finance agreement that may relate to the purchase. He/she should be asked to inform the official receiver of any amounts outstanding re service charges and finance. A copy of the agreement(s) should be forwarded to any agents who may be instructed to sell timeshare.
8) How does the official receiver dispose of an interest in a timeshare?
If a valuation or a sale of a timeshare property is required, The Timeshare Consumer Association provides general guidance for consumers wanting to use timeshare re-sale companies, and provides details of affiliated companies who offer re-sale services.
9) Should the official receiver sell timeshare?
The official receiver should also note that The Timeshare Consumer Association suggests that in any one year, 50% of UK timeshare owners want to sell their timeshare interest, but only 2% of owners achieve actual re-sales. Those who do manage to sell are often unable to achieve anything but a low re-sale price, especially where the sale is enforced, and certain weeks in the year or types of timeshare are very difficult if not impossible to sell timeshare, such as canal boat timeshares or holiday club membership.
As a guide, the Timeshare Consumer Association suggests that any sale of the timeshare interest will at best achieve 15% of the price originally paid if the timeshare was purchased from a resort developer or marketing company. If the timeshare interest was purchased from an owner or through a re-seller, there should only be a modest loss on sale.
Any steps to sell a timeshare should only be taken on instructions received from the examiner.
10) What if the timeshare is not worth selling?
Where the official receiver is aware that a timeshare is not going to realise sufficient to result in a net benefit to the estate, the most appropriate course of action would be to disclaim the timeshare as onerous property.
For details of the procedure to disclaim see Case Help Manual part: Disclaimers.
11) What if the company in liquidation is a timeshare company?
In the event that the official receiver discovers that a company in liquidation is a timeshare company the likelihood is that it will be a case suitable for an Insolvency Practitioner. In such circumstances, it may be an idea to seek an early Secretary of State appointment to deal with any transactions in progress although this will be a matter for the examiner to decide.
12) Property owned outside of England and Wales
Ownership of property abroad, as opposed to a timeshare, has become more common with the most popular choice of location for purchasing a property abroad being Spain, closely followed by France.
Where the official receiver has sufficient evidence to suggest that the bankrupt/company has an interest in land or property outside of England and Wales, in the first instance he/she should seek to obtain the appointment of an insolvency practitioner as trustee/liquidator to deal with the insolvent’s interest in the property. If this is not possible, then the official receiver should obtain as much information as possible regarding the property/land from the bankrupt or company director, and seek to appoint a solicitor to establish the exact nature of the interest, register the official receiver’s interest or conduct a sale of that interest
For detailed guidance on how to deal with the ownership of non English/Welsh property see Technical Manual paragraphs 31.3.52 to 31.3.55.
Where can I find out more?
The Timeshare Act 1992 (amended Timeshare Regulations 1997)
European Directive 94/47/EC
Chapter 31.3 Part 7 – Property owned outside England and Wales
Chapter 34 – Disclaimers
Case Help Manual
LOIS references are shown in brackets e.g. (DO73)
1. Receive papers indicating that there is a timeshare.
2. Check file to ascertain whether copies of the contract of purchase and any related finance agreement have been produced at interview and whether details of outstanding finance and service charges have been given. If not, send a reminder to the bankrupt after 7 days if he/she has failed to deliver them up or provide the details.
3. Send notice of the bankruptcy order (NORD1) to the timeshare company, asking to be provided with details of any outstanding service charges.
4. Where the timeshare was purchased under a finance agreement, send notice to the finance company of the order (NHP) and ask to be informed of the amount outstanding.
5. Once replies have been received, pass to examiner with all other relevant papers for a decision regarding course of action to be taken.
6. In a meetings case, where an Insolvency Practitioner is appointed at the meeting, make sure that all of the papers on the file relating to the timeshare are included in the handover papers. Ensure that the timeshare has been included in the assets on the report to creditors.
7. If the case is a “no meeting” case, or an Insolvency Practitioner is not appointed at the meeting and the examiner issues instructions to sell the property, contact a timeshare resale company to obtain information on any value of the timeshare.
8. Refer any replies from the timeshare company and the finance company to the examiner for further instructions to either sell or disclaim the timeshare.
9. If the timeshare is to be sold await the receipt of the sale proceeds and note the file and LOIS accordingly (CA08/CA15).
10. If instructed by the examiner and the official receiver is trustee, disclaim the timeshare, following the procedure outlined in the Case Help Manual part: Disclaimers. Note LOIS accordingly (CA08/CA15).
Last modified: June 20, 2018