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Up to date copy of Insolvency Service Technical Manual
Source: WhatDoTheyKnow
Authority: Insolvency Service
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SOURCE: WhatDoTheyKnow
SOURCE_URL: https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se
TITLE: Up to date copy of Insolvency Service Technical Manual
AUTHORITY: Insolvency Service
AUTHORITY_URL: https://www.whatdotheyknow.com/body/insolvency_service
STATUS: The request was
successful
.
REQUEST_SLUG: up_to_date_copy_of_insolvency_se
CAPTURED_AT: 2026-05-19T07:18:18+00:00
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ATTACHMENTS:
- FOI20_21_002_Megan_Lloyd_What_Do_They_Know.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/3/FOI20%2021%20002%20Megan%20Lloyd%20What%20Do%20They%20Know.pdf?cookie_passthrough=1 | application/pdf | 132447 bytes
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- 1.The_Official_Receiver.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/4/1.The%20Official%20Receiver.pdf?cookie_passthrough=1 | application/pdf | 261710 bytes
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- 2.Winding_up_orders_Initial_actions.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/5/2.Winding%20up%20orders%20Initial%20actions.pdf?cookie_passthrough=1 | application/pdf | 447909 bytes
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- 3.Bankruptcy_orders_initial_action.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/6/3.Bankruptcy%20orders%20initial%20action.pdf?cookie_passthrough=1 | application/pdf | 462824 bytes
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- 4.Publication_of_insolvency_information.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/7/4.Publication%20of%20insolvency%20information.pdf?cookie_passthrough=1 | application/pdf | 307724 bytes
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- 5.The_Individual_Insolvency_Register.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/8/5.The%20Individual%20Insolvency%20Register.pdf?cookie_passthrough=1 | application/pdf | 227195 bytes
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- 6.Restrictions_on_bankrupts.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/9/6.Restrictions%20on%20bankrupts.pdf?cookie_passthrough=1 | application/pdf | 229412 bytes
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- 7.HM_Land_Registry_and_protecting_property_interests.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/10/7.HM%20Land%20Registry%20and%20protecting%20property%20interests.pdf?cookie_passthrough=1 | application/pdf | 352278 bytes
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- 11.Inspections.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/11/11.Inspections.pdf?cookie_passthrough=1 | application/pdf | 440971 bytes
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- 12.Creditor_action_against_the_insolvent_and_their_property.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/12/12.Creditor%20action%20against%20the%20insolvent%20and%20their%20property.pdf?cookie_passthrough=1 | application/pdf | 307331 bytes
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- 13.Retention_of_title.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/13/13.Retention%20of%20title.pdf?cookie_passthrough=1 | application/pdf | 249851 bytes
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- 14.Insurance.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/14/14.Insurance.pdf?cookie_passthrough=1 | application/pdf | 268981 bytes
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- 17.Interviews_and_statements.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/15/17.Interviews%20and%20statements.pdf?cookie_passthrough=1 | application/pdf | 257153 bytes
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- 19.Co_operation_non_co_operation_and_enforcement_of_duty_to_co_operate.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/16/19.Co%20operation%20non%20co%20operation%20and%20enforcement%20of%20duty%20to%20co%20operate.pdf?cookie_passthrough=1 | application/pdf | 332026 bytes
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- 25.Assets_identification_protection_and_realisation.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/17/25.Assets%20identification%20protection%20and%20realisation.pdf?cookie_passthrough=1 | application/pdf | 318170 bytes
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- 26.Money_owed_to_the_insolvent.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/18/26.Money%20owed%20to%20the%20insolvent.pdf?cookie_passthrough=1 | application/pdf | 259492 bytes
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- 27.Motor_Vehicles.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/19/27.Motor%20Vehicles.pdf?cookie_passthrough=1 | application/pdf | 404601 bytes
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- 28.Freehold_and_leasehold_property.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/20/28.Freehold%20and%20leasehold%20property.pdf?cookie_passthrough=1 | application/pdf | 606438 bytes
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- 29.Solely_owned_tenanted_property.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/21/29.Solely%20owned%20tenanted%20property.pdf?cookie_passthrough=1 | application/pdf | 544955 bytes
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- 20.Public_examinations.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/22/20.Public%20examinations.pdf?cookie_passthrough=1 | application/pdf | 277749 bytes
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- 21.Private_examinations.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/23/21.Private%20examinations.pdf?cookie_passthrough=1 | application/pdf | 236150 bytes
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- 22.Releasing_obtaining_and_formal_disclosure_of_information.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/24/22.Releasing%20obtaining%20and%20formal%20disclosure%20of%20information.pdf?cookie_passthrough=1 | application/pdf | 346338 bytes
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- 23.Proceeds_of_Crime_Act_2002_and_Terrorism_Act_2000.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/25/23.Proceeds%20of%20Crime%20Act%202002%20and%20Terrorism%20Act%202000.pdf?cookie_passthrough=1 | application/pdf | 438863 bytes
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- 24.Exempt_property_and_property_not_comprised_in_bankrupt_s_estate.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/26/24.Exempt%20property%20and%20property%20not%20comprised%20in%20bankrupt%20s%20estate.pdf?cookie_passthrough=1 | application/pdf | 363157 bytes
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- 35.Income_Payment_Agreements_and_Orders.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/27/35.Income%20Payment%20Agreements%20and%20Orders.pdf?cookie_passthrough=1 | application/pdf | 355570 bytes
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- 36.After_acquired_property.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/28/36.After%20acquired%20property.pdf?cookie_passthrough=1 | application/pdf | 273411 bytes
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- 37.Rights_of_action.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/29/37.Rights%20of%20action.pdf?cookie_passthrough=1 | application/pdf | 563484 bytes
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- 38.Financial_mis_selling.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/30/38.Financial%20mis%20selling.pdf?cookie_passthrough=1 | application/pdf | 359741 bytes
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- 39.Intellectual_property_and_other_intangible_assets.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/31/39.Intellectual%20property%20and%20other%20intangible%20assets.pdf?cookie_passthrough=1 | application/pdf | 390761 bytes
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- 30.Jointly_owned_tenanted_property.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/32/30.Jointly%20owned%20tenanted%20property.pdf?cookie_passthrough=1 | application/pdf | 581687 bytes
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- 31.Antecedent_recoveries.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/33/31.Antecedent%20recoveries.pdf?cookie_passthrough=1 | application/pdf | 363411 bytes
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- 32.Antecedent_recoveries_other_antecedent_recoveries.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/34/32.Antecedent%20recoveries%20other%20antecedent%20recoveries.pdf?cookie_passthrough=1 | application/pdf | 459337 bytes
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- 33.Monetary_assets.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/35/33.Monetary%20assets.pdf?cookie_passthrough=1 | application/pdf | 452268 bytes
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- 34.Stock_work_in_progress_plant_and_machinery_and_fixtures_and_fittings.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/36/34.Stock%20work%20in%20progress%20plant%20and%20machinery%20and%20fixtures%20and%20fittings.pdf?cookie_passthrough=1 | application/pdf | 306557 bytes
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- 42.Disclaimers.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/37/42.Disclaimers.pdf?cookie_passthrough=1 | application/pdf | 346735 bytes
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- 43.Creditors_and_liabilities.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/38/43.Creditors%20and%20liabilities.pdf?cookie_passthrough=1 | application/pdf | 488676 bytes
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- 44.Decision_procedures.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/39/44.Decision%20procedures.pdf?cookie_passthrough=1 | application/pdf | 309633 bytes
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- 45.Appointment_of_liquidators_and_trustees.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/40/45.Appointment%20of%20liquidators%20and%20trustees.pdf?cookie_passthrough=1 | application/pdf | 404784 bytes
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- 47.Discharge.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/41/47.Discharge.pdf?cookie_passthrough=1 | application/pdf | 302655 bytes
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- 48.Insolvency_accounting_and_financial_transactions.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/42/48.Insolvency%20accounting%20and%20financial%20transactions.pdf?cookie_passthrough=1 | application/pdf | 389369 bytes
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- 49.Distributions.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/43/49.Distributions.pdf?cookie_passthrough=1 | application/pdf | 403100 bytes
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- 40.Sundry_assets.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/44/40.Sundry%20assets.pdf?cookie_passthrough=1 | application/pdf | 312303 bytes
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- 56.Deceased_insolvents.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/45/56.Deceased%20insolvents.pdf?cookie_passthrough=1 | application/pdf | 286089 bytes
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- 57.Pensions.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/46/57.Pensions.pdf?cookie_passthrough=1 | application/pdf | 375005 bytes
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- 58.Employment_law_and_insolvency.pdf | https://www.whatdotheyknow.com/request/up_to_date_copy_of_insolvency_se/response/1565422/attach/47/58.Employment%20law%20and%20insolvency.pdf?cookie_passthrough=1 | application/pdf | 337049 bytes
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================================================================================
MESSAGE 1 [outgoing]
HEADER: Megan Lloyd
3 April 2020
Delivered
--------------------------------------------------------------------------------
Dear Insolvency Service,
I am writing regarding the technical manual available online here:
https://www.insolvencydirect.bis.gov.uk/...
As the information states, this may not be the most up to date guidance, and has not been updated since 2015. I would be very grateful if you are able to do the following:
- Confirm if the publicly available web version of the manual is up to date as of April 2020
- If not, provide me with a copy of the most up to date version of the manual or at least those sections which have been updated since 2015.
- Confirm when the publicly available version of the manual will be updated on the website
Yours faithfully,
Megan Lloyd
================================================================================
MESSAGE 2 [incoming]
HEADER: FOI,
Insolvency Service
8 April 2020
--------------------------------------------------------------------------------
Good afternoon
We acknowledge your Freedom of Information Act (FOIA) request received on 3rd April 2020, your request has been allocated the reference number FOI20/21-002.
FOIA gives certain rights to members of the public to access information held by public authorities. The act also encourages public authorities to proactively make information available to members of the public (except where exemptions apply) and respond to requests within 20 working days.
We will review your request and provide a response by 4th May 2020, in line with the 20 working days statutory target. If we require any clarification in any aspects of your request, we will endeavour to contact you.
Further information about FOIA can be obtained from the Information Commissioner at Wycliffe House, Water Lane, Wilmslow, Cheshire SK9 5AF (Tel: 01625 545 700)
www.ico.org.uk
.
Yours sincerely
Information Rights Officer
Information Rights Team | The Insolvency Service - Delivering economic confidence | [Insolvency Service request email] | @InsolvencyGovUK |
www.gov.uk/government/organisations/inso...
As a result of government instructions to stay at home we have changed the way we deliver our services. Our focus remains the wellbeing of our employees, you our customers and supporting the country during the Coronavirus outbreak. You can find answers to common questions and the latest information about contacting the Insolvency Service on our GOV.UK content. Thanks for your co-operation.
show quoted sections
================================================================================
MESSAGE 3 [incoming]
HEADER: Shona.Manson,
Insolvency Service
29 April 2020
--------------------------------------------------------------------------------
53 Attachments
FOI20 21 002 Megan Lloyd What Do They Know.pdf
129K
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1.The Official Receiver.pdf
255K
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2.Winding up orders Initial actions.pdf
437K
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3.Bankruptcy orders initial action.pdf
451K
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4.Publication of insolvency information.pdf
300K
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5.The Individual Insolvency Register.pdf
221K
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6.Restrictions on bankrupts.pdf
224K
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7.HM Land Registry and protecting property interests.pdf
344K
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11.Inspections.pdf
430K
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12.Creditor action against the insolvent and their property.pdf
300K
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13.Retention of title.pdf
243K
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14.Insurance.pdf
262K
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17.Interviews and statements.pdf
251K
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19.Co operation non co operation and enforcement of duty to co operate.pdf
324K
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25.Assets identification protection and realisation.pdf
310K
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26.Money owed to the insolvent.pdf
253K
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27.Motor Vehicles.pdf
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28.Freehold and leasehold property.pdf
592K
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29.Solely owned tenanted property.pdf
532K
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20.Public examinations.pdf
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21.Private examinations.pdf
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22.Releasing obtaining and formal disclosure of information.pdf
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23.Proceeds of Crime Act 2002 and Terrorism Act 2000.pdf
428K
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24.Exempt property and property not comprised in bankrupt s estate.pdf
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35.Income Payment Agreements and Orders.pdf
347K
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36.After acquired property.pdf
267K
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37.Rights of action.pdf
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38.Financial mis selling.pdf
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39.Intellectual property and other intangible assets.pdf
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30.Jointly owned tenanted property.pdf
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31.Antecedent recoveries.pdf
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32.Antecedent recoveries other antecedent recoveries.pdf
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33.Monetary assets.pdf
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34.Stock work in progress plant and machinery and fixtures and fittings.pdf
299K
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42.Disclaimers.pdf
338K
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43.Creditors and liabilities.pdf
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44.Decision procedures.pdf
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45.Appointment of liquidators and trustees.pdf
395K
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47.Discharge.pdf
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48.Insolvency accounting and financial transactions.pdf
380K
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49.Distributions.pdf
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40.Sundry assets.pdf
304K
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56.Deceased insolvents.pdf
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57.Pensions.pdf
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58.Employment law and insolvency.pdf
329K
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60.Debt relief orders.pdf
342K
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61.Third Parties Rights Against Insurers Act 2010.pdf
139K
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50.Release of Official Receiver as liquidator or trustee.pdf
214K
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51.The Official Receiver s Role in Voluntary Arrangements.pdf
219K
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52.Partnerships.pdf
398K
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54.Dissolved companies.pdf
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55.Second or subsequent bankruptcies.pdf
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16.Accounting and other records.pdf
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Dear Ms Lloyd
Please see the attached letter plus attachments. The sections were copied
on 10 March 2020 and I confirm that no changes have taken place since that
date. Section 16 was issued to official receivers on 3 April.
Kind regards
Chief Executive’s Technical Team
Chief Executive’s Office | The Insolvency Service | 16th Floor, 1
Westfield Avenue, Stratford, London, E20 1HZ |
[1][
email address
] |
[2]www.gov.uk/insolvency-service
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ATTACHMENT TEXT EXTRACTION / OCR
================================================================================
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ATTACHMENT: 1.The_Official_Receiver.pdf
TEXT_FILE: 1.The_Official_Receiver.pdf.txt
METHOD: pdf_native
OCR_USED: False
PAGES: 19
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--- PDF page 1 ---
This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 10 March 2020.
1. The Official Receiver
Powers, duties and functions of the Official Receiver including situations where those
powers are limited by law or by internal operational rules.
Annexes
Annex A - Permission and sanction application
Annex B - Response to application to seek permission
Flowchart - How to apply for sanction or permission
Chapter content
Frequently asked questions - Changes to requirements for sanction and
permission
Introduction
Status and responsibility
Powers to act and seeking permission to act
Duties and functions of the Official Receiver
Role in investigation, disqualification and prosecution
Official Receiver as liquidator
Duty and functions as interim receiver and trustee
Frequently asked questions - Changes to
requirements for sanction and
permission
--- PDF page 2 ---
What do I need to know to understand these
changes?
The Act provides a list of the acts that an official receiver, as liquidator or trustee,
can carry out when dealing with an insolvent’s affairs. This list includes almost
everything that an official receiver could need to do.
So, what has changed?
The list was divided into two sections – one part being things that the liquidator or
trustee could do only with sanction (permission) of the Secretary of State and the
other part being of things they would not need sanction to do.
The law has changed to remove the requirement to obtain sanction for all acts in the
list. Many of the activities are common and routine functions and, in the interests of
deregulation, it was decided that the control put in place by the sanction process was
excessive.
So, an official receiver can now act freely,
without the need to seek sanction?
Unfortunately, it is not quite as simple as that. There are a very small number of
activities that an official receiver might want to carry out that are not in the list. They
are elsewhere in the Act. Some of those things continue to require sanction before
they can be carried out.
What are those things?
The things that still require sanction are:
•
Dividing unsaleable property between creditors
•
Paying expenses between partnership estates, and
•
Calling on shareholders to pay for unpaid shares.
So, apart from those three minor areas, the
official receiver has full discretion to act
without seeking sanction.
Yes, that is right, and the removal of the requirement to seek sanction has afforded
the opportunity to relax other, internal, controls on the activities of the official
receiver.
--- PDF page 3 ---
In what ways have the internal controls on
the official receiver been relaxed?
There were many parts of the Technical Manual which told official receivers that they
needed permission of the Senior Official Receiver’s Office (the former Technical
Section) before carrying out certain acts. These have all been reviewed and the vast
majority of requirements to seek permission have been removed.
For which activities does the official receiver
still need the permission of the Senior Official
Receiver’s Office?
It has been decided that the requirement to seek permission will remain only in
respect of those activities where real harm might be done if they were to go
wrong. These activities are:
•
Bringing or defending legal proceedings where no suitable costs protection is in place,
•
Continuing the trading of an insolvent’s business, and
•
Further spending of more than £2,500 when the estate account is in a debit position.
The official receiver is free to carry out all the
other activities that were formerly controlled?
An official receiver is free to exercise their discretion in this way, but they must be
able to show a demonstrable benefit to the estate in acting, and all relevant facts and
decision making processes must be recorded on the relevant ISCIS Note.
Why have these internal controls been
relaxed in this way?
The idea behind these changes is to follow the legislative relaxation of control
brought by the removal of the sanction process and to recognise and enhance the
discretionary powers of official receivers.
How do I apply for sanction or permission?
Although sanction is a legislative requirement and permission is an operational
requirement, they are so similar that it made sense to combine the processes into
one easy procedure.
--- PDF page 4 ---
In summary, the procedure is to make an application to the Senior Official Receiver’s
Office telling that Team why the anticipated action is considered to be the best thing
to do. This flowchart tells you how to do this.
Introduction
1.1 History
The office of official receiver was created by the Bankruptcy Act 1883, which also
commissioned the then Board of Trade with the supervision of bankruptcy. The
objective was to impose greater official control over bankruptcy proceedings
generally, and over investigations in particular. The official receiver’s role was
extended to compulsory liquidations by the Companies Act 1890, and is today
largely set out in the Insolvency Act 1986. Originally, official receivers were a mixture
of salaried officers and fee paid local solicitors. Since the 1950s all official receivers
have been salaried, and are now appointed from The Insolvency Service (The
Service). The Insolvency Service is an executive agency within the Department of
Business, Energy and Industrial Strategy.
Status and responsibility
1.2 Status and functions
Official receivers are appointed, removed and act under the general direction of the
Secretary of State for BEIS. On appointment the official receiver becomes a statutory
office holder but is also a civil servant employed by The Service.1
The official receiver’s duties as a statutory office holder are largely set out in the
Insolvency Act 1986. They may have additional functions conferred on them by the
Secretary of State. On an operational level the official receiver complies with any
directions, instructions and guidance issued by The Insolvency Service.
The official receiver’s primary function is to administer and investigate the affairs of
companies and partnerships wound up by the court and of bankrupts. They will act
as liquidator of a company or trustee of a bankrupt’s estate if an insolvency
practitioner is not appointed and as liquidator/trustee ex officio if there is a vacancy
in that office. The official receiver remains under a duty to investigate when an
insolvency practitioner has been appointed as liquidator or trustee.
--- PDF page 5 ---
1. Sections 399 and 401(4)
1.3 Licensed Insolvency Practitioners
The Insolvency Act 1986 introduced the concept of licensed insolvency practitioners.
The official receiver does not have to be licensed to act as an insolvency
practitioner.1
1. Section 388(5)
1.4 Assistant and Deputy Official Receivers
An assistant/deputy official receiver assists or deputises for an official receiver, and
may act as liquidator or trustee. The Secretary of State appoints deputy official
receivers from The Insolvency Service.1 One official receiver may be appointed
deputy for another if it means a case will be more conveniently administered in that
way.
1. Section 401
1.5 Persons acting for the official receiver
The official receiver is not expected to carry out all of their duties personally, and at
times will authorise members of their staff to act in their place. Where the nominee is
not another official receiver or a deputy official receiver, the authorisation must be in
writing (which can include electronic form). The Secretary of State may similarly
authorise staff, for example where the official receiver is for some reason not
physically able to do so. The nominee needs the court’s prior permission to act in
any public or private examination or court application. Preferably, though not
necessarily, permission to act should be obtained in good time before any
proceedings.1
1. Rules 13.2 and15.21(1) and sections 133, 236, 290 or 366
1.6 Appointment
Official receivers may be appointed and removed from office by the Secretary of
State, who is responsible for their terms and conditions of employment.
An official receiver may not profit from their appointment, and all fees payable to
them for work done are paid to the Secretary of State.1
Each official receiver is attached to either the High Court (in London or a District
Registry) or to the County Court. Official receivers are all appointed by the Secretary
--- PDF page 6 ---
of State to the County Court and attend court regarding cases associated with the
County Court hearing centres located in the area covered by their office.
1. Section 399
1.7 Secretary of State’s general directions
The official receiver acts under the general guidance of the Secretary of State. The
Insolvency Service acts as the Secretary of State’s representative in this respect.
1.8 Advice to Official Receivers
Advice and guidance is generally available to the official receiver from:
•
The Senior Official Receiver’s Team , on specific casework issues
•
Policy Unit, on general policy and legislative matters
•
Investigation and Enforcement Directorate, on criminal and civil disqualification
cases
The official receiver, as a statutory office holder, has discretion on how to carry out
their functions and how to manage the insolvency estate.
Powers to act and seeking permission to
act
1.9 Powers to act - general
The powers of the official receiver to act as liquidator or trustee arise from the
Insolvency Act 1986.
1.10 Acts in relation to which permission to
act is required
The requirement to seek permission of the Senior Official Receiver’s Office is limited
to those areas where real harm might be caused were the matter to go ‘wrong’.
The permission of the Senior Official Receiver’s Office is therefore required before
the official receiver can carry out the following acts:
•
bringing or defending legal proceedings where there is a risk of adverse costs.
Where proceedings are conducted under a valid conditional fee agreement
which indemnifies the official receiver no permission would be required
--- PDF page 7 ---
•
continuing the trading of the insolvent’s business
•
to incur/increase a debit balance by over £2,500. Spending a credit balance is
at the discretion of the official receiver, whatever the amount
1.11 Acts in relation to which legislative
sanction is required
The following acts require the sanction of the Secretary of State before they can be
undertaken:
•
the division amongst creditors of unsalable property
•
making calls on contributories (see guidance on Sundry Assets and guidance
on Unregistered Companies)
•
payment of expenses in relation to partnership cases
1.12 Incurring or increasing a debit balance
Where the estate is in a debit position, an official receiver must seek the permission
of the Senior Official Receiver’s Office before they make a payment in excess of
£2,500. The permission of Senior Official Receiver’s Office is not required however
to make a payment from the estate of £2,500 or less, even if the estate is in a debit
position. If the estate is in a credit position, an official receiver has full discretion to
utilise the credit funds, as necessary, provided that there is a demonstrable benefit to
the estate in doing so and all relevant decisions and facts are recorded on ISCIS in
the relevant Note.
1.13 The giving of sanction to official receivers
Where the official receiver is liquidator or trustee, the Act provides that the function
of giving of legislative sanction is vested in the Secretary of State. For the purpose of
giving sanction to the official receiver, the role of the Secretary of State is carried out
by the Senior Official Receiver’s Office.
1.14 Applications for permission or legislative
sanction
Applications for permission and legislative sanction from the Senior Official
Receiver’s Office are made following the same process, which is to complete the
form attached at Annex 1 to this chapter. The form should be completed
electronically and e-mailed to the Senior Official Receiver’s Office inbox (ORS
Advice). All relevant questions in the form should be answered as fully as possible to
--- PDF page 8 ---
allow the application to be considered and dealt with as quickly as possible. Where
an act is required to be carried out urgently, and there is insufficient time to complete
the written application, staff in the Senior Official Receiver’s Office can give verbal
permission or legislative sanction in principle, but this must be followed up by a
written application, as above, at the earliest opportunity.
1.15 Response to application for permission or
legislative sanction
Assuming that Senior Official Receiver’s Office is satisfied that sanction should be
given, it will be given in writing, in the format attached to this guidance as Annex 2,
and e-mailed to the person making the application.
1.16 Consequence of failure to seek legislative
sanction
The consequence of failing to obtain legislative sanction where it is needed is that
the official receiver will not be able to recover from the estate their costs in carrying
out the action Any act carried out by the official receiver, as liquidator or trustee,
without having obtained sanction (where required) is still valid.
1.17 Application for permission or legislative
sanction not to be made retrospectively
The application for permission or legislative sanction should be made prior to the act
for which permission or legislative sanction is required and, certainly, no later than
the time at which the action is carried out – and only then in circumstances where
staff in the Senior Official Receiver’s Office cannot be contacted by telephone to
agree permission or legislative sanction ‘in principle’.
Duties and functions of the Official
Receiver
1.18 Casework
The official receiver in performing their administrative duties needs to consider the
Official Receiver’s Casework Process Standard.
--- PDF page 9 ---
In accordance with ex parte James [1874] LR 9CH 609 the official receiver is under a
duty to be fair, principled, and honourable.
1.19 Accountability
The official receiver is accountable to the court as an officer of the court and as a
statutory office holder they are responsible to the creditors, contributories or the
bankrupt for the administration of the estate.
In practice these roles rarely conflict but if in a particular case the official receiver
had a duty or interest as liquidator or trustee which ran against the interest of BEIS,
their duty as liquidator or trustee would prevail.
1.20 Judicial Review
The judicial review procedure is a means by which the courts can supervise how
ministers and Government Departments or other public bodies exercise their powers
and carry out their duties. In carrying out their administrative functions the official
receiver exercises discretion whether to act, to act in a particular way or not to act at
all. It is this discretion that may be challenged by the party affected, by way of
application for judicial review.
Where the official receiver acts as an officer of the court they are not subject to
judicial review because they act under the supervision of the court to which they are
attached, and any complainant therefore has a remedy available to them through
application to the court.
1.21 Maintaining standards
The official receiver and their staff follow the principles set out in the Civil Service
Code and should conduct themselves with honesty and integrity. They should not
misuse their official position or information acquired in the course of their official
duties to further their private interests or those of others. They should not accept
benefits of any kind from any party which might reasonably be seen to compromise
their personal judgement or integrity.
1.22 The complaints procedure
The Insolvency Service is committed to providing a professional, efficient, courteous
and helpful service to its users - whether they are creditors, insolvency practitioners,
bankrupts, directors, or anyone with whom it has dealt. The Insolvency Service
operates a complaints procedure where a user is dissatisfied with the service
--- PDF page 10 ---
provided. Any complaint against the official receiver or their staff is dealt with under
this procedure.
Full details of the complaints procedure
1.23 Supply of information
An official receiver should, where appropriate, tell the people with whom they deal
about their general rights and responsibilities, and let them know where they may
obtain further information or advice. The official receiver should not attempt to
provide legal or other advice or allow an inordinate amount of time to be spent in
assisting an individual when it is clear that advice is available elsewhere e.g. from
the local CAB.
The official receiver should ensure that any information given is accurate.
1.24 Inspection of Court file
The official receiver and their staff are entitled to inspect the court’s files on
insolvency proceedings. The court on request will forward any file, unless it is
currently in use at the court. The information required should be extracted, and
material photocopied if necessary, and the file returned to court as quickly as
practicable. No papers should be removed from the court file. Particular care should
be taken to ensure that the file is returned intact, with all of its contents in their
original order and condition.
1.25 Court Directions
The official receiver may apply to the court for directions when they are uncertain
how to proceed or wants the court’s approval for a particular course of action
1.26 Right of audience
Official receivers and deputy official receivers have a right of audience in the High
Court and the County Court in all insolvency proceedings. That includes all hearings,
whether in private or public, regardless of whether or not the official receiver is a
party to the application. The official receiver should inform the court of any relevant
information which may have a bearing on a particular application, or on a case in
general, although they will normally only attend court:-
•
on their own applications
•
where they have been made a party to, or given notice of, an application
•
at the court’s request1
1. Rule 13.1(2)
--- PDF page 11 ---
1.27 Reports to Court
Instead of filing witness statements, the official receiver, as an officer of the court,
may submit evidence to the court in the form of a report. Considerable care should
be taken over the accuracy of a report, the contents of which are treated as prima
facie evidence, and the official receiver should clearly identify any opinions
expressed.1
1. Rule 12.28
1.28 Liability for costs and expenses
Various provisions in the Act and Insolvency Rules (e.g. on public examinations)
specify that the official receiver is not to be personally liable for costs. If the official
receiver is made a party to any proceedings on the application of another, they will
not be liable for costs unless the court so directs. Any expenses, including damages
incurred by the official receiver (acting in whatever capacity) in proceedings taken
against them, are treated as expenses of the insolvency, and are chargeable to the
estate.1
1. Rule 12.47
1.29 Duty on making of winding up order
On the making of a winding-up order, the official receiver’s has a duty to investigate
the causes of the failure and identify the reasons for it. The official receiver will also
carry out the functions of liquidator if so appointed. They should also consider the
conduct of the directors, partners or others who have taken part in the management
of the company/partnership, and report any suspected unfitness to the Secretary of
State.1
1. Section 132 and Company Director Disqualification Act 1986
1.30 Duty on making of bankruptcy order
On the making of a bankruptcy order, the official receiver’ has a duty to investigate
the conduct and affairs of the bankrupt, and report as they think fit to the court. The
official receiver will also carry out the functions of the trustee if so appointed. In
cases where bankruptcy orders are made against individual partners in conjunction
with an order against the partnership, the official receiver will be appointed trustee on
the making of the order.1
1. Section 289
--- PDF page 12 ---
1.31 Duty to report to creditors
The official receiver has a duty to send to the creditors and contributories of a
company and to the creditors of a bankrupt at least one report on the insolvency
proceedings and the state of the company’s or bankrupt’s affairs. A copy of the
report must be sent to the liquidator or trustee, if this is not the official receiver.
1.32 Liquidation committee
Where the official receiver is liquidator, a liquidation committee is not required or
able to act, and its functions vest in the Secretary of State. Where the Secretary of
State is required to carry out the functions of a liquidation committee delegated
authority to exercise the committee’s functions is held by the Senior Official
Receiver’s Office.1
1. Rules 7.48 and10.66
1.33 Creditors’ committee
A general meeting of creditors may not establish a creditors’ committee when the
official receiver is trustee of the bankrupt’s estate (except in connection with an
appointment of an insolvency practitioner at that meeting). When the official receiver
is trustee, a creditors’ committee is not required or able to act and its functions are
vested in the Secretary of State.1 Where the Secretary of State is required to carry
out the functions of a creditors’ committee delegated authority to exercise the
committee’s functions is held by the Senior Official Receiver’s Office.
1. Sections 141(4), 301(2) and 302(1) and rule 17.28
Role in investigation, disqualification
and prosecution
1.34 Duty to investigate (companies)
The official receiver has a duty to investigate the affairs and causes of failure of a
company, and the conduct of the directors or others concerned in the management
of the company. The duty to investigate is imposed in the public interest, but is not
owed to any particular person or category of persons, e.g. creditors. Section 132
does not prescribe the nature of the investigation to be carried out.
--- PDF page 13 ---
The official receiver has wide-ranging statutory powers to obtain information,
material, and explanations, including the power to examine people in court.1
1. Section 132
1.35 Duty to investigate (bankruptcies)
When a bankruptcy order is made, the official receiver has a duty to investigate the
conduct and financial affairs of the bankrupt for the period leading up to their
bankruptcy, in order to establish the causes of the bankrupt’s failure. This may
involve inquiries into the bankrupt’s affairs over a number of years, but the official
receiver will concentrate mainly on the period immediately before and after the
bankrupt became insolvent.
The duty to investigate is imposed in the public interest but is not owed to any
particular person or category of persons e.g. creditors. Section 289 does not
prescribe the nature of the investigation to be carried out.
The official receiver has wide ranging statutory powers to obtain information, material
and explanations including the power to examine people in court.1
1. Section 289
1.36 Powers of inquiry
The official receiver has wide powers of inquiry. Company officers, partners and
bankrupts are obliged to attend any requisite meetings and supply information, and
they may, if it proves necessary, be publicly examined in court.
The official receiver also has the power to apply to the court for the private
examination in court, of
•
any officer of a liquidating company/partnership
•
any person holding property of the company/partnership
•
any debtor of the company/partnership
•
any person who may be capable of giving information concerning the
company/partnership1
1. Sections 399 and 401(4)
At any time after the bankruptcy order has been made, the official receiver may
apply to the court for the private examination in court, of
•
the bankrupt or the bankrupt’s spouse or former spouse or civil partner or
former civil partner
•
any person known or believed to have any property of the bankrupt
•
any debtor of the bankrupt
--- PDF page 14 ---
•
any person capable of giving information concerning the bankrupt or the
bankrupt’s affairs1
1. Section 366
1.37 Use of powers of inquiry
The official receiver should rely initially on voluntary co-operation and goodwill during
their investigation, and only invoke the court’s powers of inquiry when necessary. If
the official receiver, as liquidator or trustee, applies for an examination their costs are
payable out of the estate unless the court orders otherwise. Where the official
receiver applies in some other capacity, no costs order may be made against them.1
1. Rule 12.22
1.38 Right of audience [Practice Direction:
Directors Disqualification Proceedings]
Official receivers and deputy official receivers have rights of audience in any
proceedings to which the Insolvent Companies (Disqualification of Unfit Directors)
Proceedings Rules 1987 apply, whether the application is made by the Secretary of
State or by the official receiver at their direction, and regardless of whether the
application is made in the High Court or the County Court.1
1. Rule 13.1(2)
1.39 Practice Direction: Directors
Disqualification Proceedings
Evidence in disqualification proceedings is by statement of truth, except where the
official receiver is the applicant, in which case their evidence may be in the form of a
report (with or without supporting statements of truth/witness statements by others).
A report is treated as prima facie evidence of its contents. The official receiver can
only file a report where they are the applicant. Where the Secretary of State is the
applicant, or in a case where the company has been dissolved or where the report is
being made in an Insolvency Practitioner’s case, the evidence must be by statement
of truth.
Official Receiver as liquidator
--- PDF page 15 ---
1.40 Acting as provisional liquidator
The official receiver may be appointed as provisional liquidator at any time following
the presentation of a winding-up petition. The basic function of the official receiver in
such circumstances is to protect property and take control of the company’s affairs
pending the hearing of the winding-up petition. The official receiver is entitled to be
paid for their services as provisional liquidator at an hourly rate.
1.41 Receivership
The court has power to appoint the official receiver as receiver on behalf of
debenture holders, but this power is rarely exercised. The official receiver should
contact the Senior Official Receiver Office if such an order is made.1
1. Section 32
1.42 Acting as liquidator
When a winding-up order is made the official receiver becomes liquidator unless and
until an insolvency practitioner is appointed in their place. The exception to this is
where the court has appointed a former administrator, or supervisor under a
voluntary arrangement, as liquidator at the time of the winding up. The official
receiver retains their duty to:
•
investigate
•
report to creditors
•
report on the company officers’ conduct
The official receiver’s functions as liquidator include identifying, collecting, securing
and distributing the assets of the company.1
1. Section 140(3)
1.43 Functions as liquidator
As a liquidator of a company, the official receiver’s general functions are to secure
the assets, realise them and distribute the proceeds to the company’s creditors, and,
if there is a surplus, to the persons entitled to it (normally the contributories).
While they are liquidator, the official receiver is liable for their actions on the same
basis as an insolvency practitioner. For instance, if they wrongfully interfere with
property which does not belong to the company, by seizing or disposing of it, the
lawful owner may sue them to establish a right to return of the property or to the
proceeds of sale.1
1. Sections 143(1), 234(3) and (4)
--- PDF page 16 ---
1.44 Duty of Care
There is no strict duty on the official receiver to protect property which does not form
part of the estate. A duty of care may arise in respect of such property if the official
receiver could be considered a bailee of the property.
1.45 Liability as liquidator
When performing the duties of liquidator, the official receiver is an office holder, the
same as any insolvency practitioner, and consequently they are personally liable for
their actions. Consequently, section 212 will apply to the official receiver while acting
as liquidator, and an application may be made against them under that section.
Any creditor or contributory may apply to the court with regard to any of the powers
used by a liquidator. The court is reluctant to interfere in the liquidator’s exercise of
the powers conferred on them, and will only do so if a decision was taken in bad faith
or was so perverse that no liquidator properly advised could have taken it (Hamilton
v Official Receiver [1998] BPIR 602).
The effect of the release of a liquidator is to discharge all liabilities in respect of acts
or omissions in the administration of the estate. Any action subsequently brought
under section 212 requires the permission of the court.1
1. Sections 167(2), (5) and 174
1.46 Fees
The fees payable to the official receiver for acting as liquidator are governed by the
Insolvency Proceedings (Fees) Order 2016 and Regulation 35 of the Insolvency
Regulations 1994. The official receiver cannot use BEIS funds for administering
cases, e.g. obtaining legal advice, except by direction of the Secretary of State (in
practice, the Senior Official Receiver’s Office).
1.47 Death of an Official Receiver
If an official receiver dies in post, or otherwise ceases to hold office, or is succeeded,
any property vested in them, as office-holder, shall vest in their successor without
any conveyance, assignment or transfer.1
1. Section 400(3)
1.48 Vacancy in office (OR as liquidator (Ex
Officio))
--- PDF page 17 ---
When a practitioner vacates office as liquidator in a court winding up, the official
receiver becomes liquidator ex officio, i.e. by virtue of their office. Normally at that
stage the realisable assets will have been dealt with. Any assets becoming available
or coming to light after the dissolution of a company, are “bona vacantia” and
effectively pass to the Crown. If necessary, a company can be restored to the
register so that assets can be claimed for the benefit of creditors.1
1. Sections 136(3) and 137 and section 1029 Companies Act 2006
1.49 Partnerships Generally
The law on the winding up of insolvent partnerships is contained in the Insolvent
Partnerships Order 1994 (IPO) which adapts the provisions of the Insolvency Act
1986 to suit the special circumstances of partnership cases. Generally, a partnership
is wound up as an unregistered company as set out in Part V of the Act.
There is an important difference where a winding-up order is made against an
insolvent partnership, (as an unregistered company), and concurrent petitions are
presented against one or more of the insolvent partners. On the making of a
bankruptcy order against an individual partner, the official receiver is appointed
trustee in bankruptcy of the individual’s estate. The court may order the consolidation
of partners’ individual insolvency proceedings under section 303(2B), and/or make
an order or give directions under section 303(2C) on the administration of the
individual and partnership estates.1
There is another way of dealing with partnership property where individual partners
have been bankrupted and no petition has been presented against the partnership.
The Court may make a section 303(2A) order enabling the official receiver, as
trustee, to exercise the powers conferred by Schedule 4 to the IPO over the
partnership assets. The official receiver (or an insolvency practitioner appointed
instead of them, would effectively have access to the partnership assets without a
petition being presented against the partnership.
1. Section 303 Insolvent Partnerships Order 1994
Duty and functions as interim receiver
and trustee
1.50 Interim receiver
--- PDF page 18 ---
The official receiver may be appointed by the court as interim receiver at any time
after the presentation of a bankruptcy petition. In such cases their basic function is to
protect the debtor’s property pending the hearing of the petition.
1.51 Acting as Trustee
The official receiver becomes trustee of the bankrupt’s estate on the making of a
bankruptcy order (excepting cases in which the court appoints an insolvency
practitioner as trustee)
The official receiver will become trustee if there is a vacancy in the office of trustee.
The bankrupt’s estate vests in the official receiver immediately on them becoming
trustee, without any conveyance, assignment or transfer.1
1. Sections 293(3), 295(4), 300(2) and 306
1.52 Function as Trustee
The powers and duties of the official receiver as trustee are mainly set out in Chapter
IV of Part IX of, and Schedule 5 to, the Act. They should arrange for the sale of any
assets and distribution of the proceeds to the creditors. The official receiver as
trustee should take appropriate action to identify and recover the bankrupt’s assets.
While acting as trustee, the official receiver is liable for their actions on the same
basis as an insolvency practitioner.1
1. Section 287(4)
1.53 Duty of Care
The official receiver is under no strict duty to protect property which does not form
part of the estate e.g. third party goods. A duty of care may arise where the official
receiver could be considered a bailee of the property.
1.54 Liability of Official Receivers
As trustee, the official receiver is an office-holder, and an application may be made
against them under section 303 or 304. Section 303 permits application to be made
to the court by a bankrupt, their creditors or any other person who is dissatisfied by
any act, omission or decision of a trustee of the bankrupt’s estate. The courts are
reluctant to interfere where a trustee has exercised their powers in good faith. The
effect of a release as trustee is to discharge all liabilities in respect of acts or
omissions in the administration of the estate. Any action subsequently brought under
section 304 requires the permission of the court.1
--- PDF page 19 ---
1. Sections 303 and 304
1.55 Fees
The fees payable to the official receiver acting as trustee are governed by the
Insolvency Proceedings (Fees) Order 2016 and Regulation 35 of the Insolvency
Regulations 1994.
The official receiver cannot use BEIS funds for the benefit of an estate e.g. obtaining
legal advice, except where this has been authorised by the Secretary of State, (in
practice the Senior Official Receiver Team)
1.56 Release of Insolvency Practitioner as
Trustee
When it appears to an insolvency practitioner trustee that the administration of the
bankrupt’s estate is complete, they have a duty to summon a final meeting of
creditors. The trustee must give 28 days’ notice of their intention to vacate office to
the official receiver, together with notice of any creditors’ meeting. If there is no
resolution against the trustee’s release, it has effect from the date that notice of the
final meeting is filed at court. The official receiver then becomes trustee ex officio,
i.e. by virtue of their office.1
1. Rule 10.87
1.57 Duty as ex-officio Trustee
When the official receiver becomes trustee ex officio, they are from then on
responsible for dealing with any post-release enquiries. Although normally by that
stage any realisable assets would have already been dealt with, there may be assets
which subsequently come to light or acquire a realisable value.1
1. Section 300(1) and (2
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ATTACHMENT: 11.Inspections.pdf
TEXT_FILE: 11.Inspections.pdf.txt
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 10 March 2020.
11. Inspections
Annexes
Annex A
Chapter content
Introduction to inspections
Deciding whether to carry out an inspection
Planning the inspection
Safety of staff on inspections
Process for an inspection
Trading inspections – overview and initial actions to take
Obtaining information from the insolvent on a trading inspection
Ascertaining the position regarding the premises to be inspected
Third party involvement, including partnerships
Ongoing trading – continuation of the business
Dealing with assets on an inspection
Dealing with animals
Dealing with drugs and medicines
--- PDF page 2 ---
Dealing with employees
Accounting records
Specific types of businesses
Other matters to be dealt with during inspection
Securing and protecting premises
Duty to visitors and trespassers
Post-inspection actions
Tracing inspections - overview
Carrying out a tracing inspection
Introduction to inspections
11.1 Scope of this chapter
This chapter provides guidance on carrying out inspections and tracing inspections
both at the early stages of a case and later on during the course of the official
receiver’s investigation, for example where a director or bankrupt has failed to
cooperate in the proceedings. The former is generally called a ‘trading’ inspection,
and the latter a ‘tracing’ inspection.
11.2 Definition of an inspection
An inspection may be defined as a visit by the official receiver to one or more
premises owned or occupied by an insolvent, or at which they are or have been
trading or have their registered office. A tracing inspection may be defined as a visit
by the official receiver to an address that has been disclosed in the order, or
discovered by the official receiver, for the purpose of ascertaining the whereabouts
of the director or bankrupt, and establishing initial contact.
11.3 Purpose of inspection
--- PDF page 3 ---
The primary purpose of a trading inspection is to protect the property of the
insolvent. For a tracing inspection, there is an element of property protection but
also the aim is to secure the cooperation of the director/bankrupt.
When an official receiver becomes liquidator or provisional liquidator of a company,
they are required to take into their custody or control all property and things in action
to which the company is or appears to be entitled1.
When a bankruptcy order is made the Official Receiver becomes trustee, unless
another person is appointed by the Court. The trustee’s function is to get in, realise
and distribute the estate2 3.
1. section 144(1)
2. section 291A
3. section 305
11.4 What is property?
Property includes; money, goods, things in action, land and every description of
property wherever situated and also obligations and every description of interest,
whether present or future or vested or contingent, arising out of, or incidental to,
property1.
1. section 436
11.5 Official receiver’s statutory duty to
investigate
The official receiver has a statutory duty to investigate the affairs of insolvent
companies against which a winding-up order has been made. In a bankruptcy case,
the official receiver has a duty to investigate the conduct and affairs of each bankrupt
unless an investigation is thought to be unnecessary1 2. The inspection of property
owned or used by an insolvent may be an important part of the official receiver’s
administration and investigation of the insolvent’s affairs. It may give the official
receiver an opportunity to ensure that assets are disclosed and protected for the
benefit of the insolvent’s estate and an indication of the nature and scope of any
business conducted. It may also provide the official receiver with their first contact
with the insolvent.
1. section 132
2. section 289
--- PDF page 4 ---
Deciding whether to carry out an
inspection
11.6 Sources of information to be used in
inspection decision
An inspection is an expensive use of time and resource and as such the official
receiver should exercise care in deciding whether an inspection is necessary, based
upon the information obtained from enquiries concerning the insolvent’s affairs. Such
information may be obtained from the following sources:
a) officers of an insolvent company or the bankrupt
b) the insolvent’s accountant or solicitor
c) the petitioning creditor or their solicitor
d) other creditors
e) any insolvency practitioner consulted by, or holding an office in respect of the
insolvent
f) any other persons the official receiver believes may hold relevant information
about the insolvent
The official receiver should exercise care in their inspection decision where the only
information available concerning the assets or activities of an insolvent is that
provided by the officers of an insolvent company or the bankrupt.
11.7 Inspection not always required
The official receiver must consider whether an inspection (or more than one
inspection) is justified and only undertake one if it is considered it necessary with
regards to the facts of the case. In making the decision the official receiver must
weigh the potential advantages of carrying out an inspection against the cost and
time involved. Weighing up the time and costs involved, alongside the complexity
and cooperation of the insolvent, consideration can be given as to whether agents
can be instructed to attend instead.
The official receiver will often be able to discharge their duties without the need for
an inspection and thereby preserve resources for those cases requiring detailed
investigation.
--- PDF page 5 ---
11.8 Occasions when inspections should not be
carried out
An inspection should not usually be carried out where:
a) it is apparent that the company or bankrupt is not trading
b) an insolvency practitioner holds any office in relation to the insolvent
c) any assets or books and papers can be promptly collected by the official receiver's
agents or delivered up by the company officer or bankrupt
d) the official receiver is satisfied that all available and relevant books and papers
have been produced to them
e) the company officers/bankrupt have surrendered to the proceedings and the
official receiver has decided that the insolvency does not merit further investigation
11.9 Occasions when inspections should be
carried out
An inspection should be carried out where one or more of the following apply:
a) the company or bankrupt appears to be trading (excluding small scale sole trader
bankrupts who have no premises or employees)
b) the company or bankrupt has been trading immediately prior to the order
(excluding small scale sole trader bankrupts who have no premises or employees)
c) where no relevant information has been obtained despite exhaustive initial
enquiries and the order gives the impression that trading activity is a possibility
d) there are premises which need to be secured or silent (vacant) premises which
need to be assessed
e) there are known to be assets or third party goods which must be secured
f) essential accounting records require collection and cannot be relied on to be
delivered
g) the company officer(s) or bankrupt have failed to surrender to the proceedings
h) the official receiver believes that a full disclosure of assets may not have been
made
Where any of the circumstances outlined above are present and the official receiver
decides not to undertake an inspection, that decision should be recorded on the file
with an explanation, citing key information used in reaching the decision.
--- PDF page 6 ---
11.10 Need to exercise judgment in deciding to
carry out inspection
The situations referred to above are not exhaustive and the official receiver must
exercise professional judgement on a case by case basis as to whether an
inspection is necessary. The official receiver may from time to time encounter
insolvencies which fall within one or more of the categories where an inspection is
not necessary but find that there are valid reasons remaining for carrying out an
inspection.
Planning the inspection
11.11 Timing of inspection
Where an inspection is required to deal with a trading business and/or is essential in
order to protect or secure assets, action must be taken to carry out the inspection(s)
within 24 hours of the need becoming apparent to the official receiver. In some
cases, more urgent action may be required as appropriate. Where an inspection is
desirable in other circumstances, it should be carried out as soon as possible after
the need for it becomes apparent.
Where the official receiver undertakes an inspection, details of the principal actions
taken during that inspection must be noted and saved to the fileplan.
11.12 Location of inspection
An inspection will normally be carried out at the insolvent's trading address(es). The
official receiver may consider it necessary that a company's registered office (if the
premises belong to the company), a bankrupt's home, or other locations should be
inspected if it is believed that assets or books and papers belonging to the insolvent
or third party goods in the insolvent's custody may be found there.
An inspection of the bankrupt's home may be necessary if there are issues as to
ownership, occupation or value of the home. Before undertaking an inspection of the
bankrupt's home the official receiver should ensure that any occupants of the
property, other than the bankrupt, give their consent to the inspection.
11.13 Inspections of more than one trading
address
--- PDF page 7 ---
Where assets may be at risk and when the official receiver is aware of more than
one address where trading is continuing, the inspections should be carried out
simultaneously. This should minimise the possibility of advance warning being given
of the inspecting officer’s visit and afford greater protection to moveable assets. If the
bankrupt or company director is not present when the inspecting officer arrives, they
should attempt to contact them by telephone to arrange their immediate attendance.
11.14 Preparation before an inspection
Prior to going out on an inspection, the examiner should ensure that they are
properly prepared for all possible scenarios that may be encountered. In particular
they should:
a) confirm with the assistant official receiver whether the inspection is needed, and
which addresses should be visited
b) prepare necessary documentation (see below)
c) ensure that the assistant official receiver has full details of the addresses to be
visited, contact telephone numbers for all attending staff members, details of vehicle
they are travelling in and premises visited (where known), and an idea of the time
expected back
d) consider putting the official receiver’s agents on notice that they may be needed,
or arrange to meet them at the premises
e) ensure that they have all necessary equipment to carry out the inspection
f) consider whether any special arrangements need to be made, for example, if the
individual is known to be violent the police may need to be contacted for
guidance/assistance
g) consider the environment that they are likely to be visiting, for example if they are
visiting a farm, suitable footwear may be required
h) consider general precautions and other health and safety requirements they may
need to take (see below)
11.15 Documentary authority
A copy of the court order, or notification of a winding-up order, should be available
for the inspecting officer to produce as evidence of the official receiver’s
appointment. The inspecting officer should also have their identity card containing a
photograph available as additional evidence of identity and authority to act. Where
an identity card is not held by the inspecting officer, authority to act needs to be
obtained and signed by the assistant official receiver1 If problems are envisaged on
--- PDF page 8 ---
the inspection, an inspection authority may be taken along with a identity card to
make it clear that the inspecting officer has delegated authority from the official
receiver.
1. INAUTH
11.16 Documentary authority in High Court
cases
If an urgent inspection is required in a case where the order was made in the High
Court, it is possible that this will be prior to a copy of the court order being received.
Petitions and transfers team are responsible for sending the order on to the local
official receiver on receipt from the court. If the order has not been received, a phone
call to petitions and transfers team should be made so that they can check with the
High Court that the order has in fact been made, and so they can request an urgent
copy of the order. If the court can send this through, a copy can be emailed to the
local official receiver in time for the inspection as evidence that the official receiver
has been appointed liquidator/trustee.
11.17 Items to take on an inspection
When an inspection is undertaken, the inspecting officer may need certain items to
carry out an effective inspection depending on what is found. Consideration should
be given to taking the following items:
•
warrant card or inspection authority1 (see above)
•
business cards (if held)
•
provisional receipt book (for any cash/valuables)
•
money bags (if visiting a business where cash likely to be found)
•
2 x receipt for books and papers2
•
initial interview pack with appointment letter, or appropriate interview letter depending
on how many appointments have already been missed to deliver by hand
•
copy winding-up order or bankruptcy order
•
inspection report (a printed booklet available in all offices)
•
a printed copy of ‘your rights if your employer is insolvent’ if appropriate
•
stationery for any notices needed, or notes of conversations
•
pens
•
calculator
•
mobile telephone
•
contact numbers for the office, and all premises to be visited (where known)
•
map for addresses to be visited
•
satellite navigation system (if available)
--- PDF page 9 ---
•
boxes for any records to be collected (if applicable)
•
another member of staff for safety or assistance
•
digital camera (if applicable and possessed by the office)
•
letters addressed to “the occupier” or “the landlord” which may be left at premises to
request that they contact the office for tracing inspections
It is understood that it used to be common practice for examiners to take certain
papers from a case file on an inspection. In light of recent developments regarding
the security of personal information, this practice should no longer take place as a
matter of course. If specific information from the case file is required, the matter
should be discussed with the assistant official receiver prior to the inspection, and
their authorisation obtained. The whereabouts of information assets that are security
protected should be known at all times and their movements auditable. A record
should be made of all information removed from the office and when it is returned.
1. INAUTH
2. BPRCT
11.18 Requests for assistance from other
official receivers
If premises are located within an area covered by another official receiver’s office, a
request should usually be made to that official receiver for assistance. As much
advance notice as possible should be provided and any verbal requests for
assistance should later be confirmed in writing. Specific instructions regarding
dealing with matters of an unusual nature should be provided to avoid confusion and
to ensure synchronisation of actions by the official receivers where there are several
addresses to be inspected.
Safety of staff on inspections
11.19 Prior to inspection
Managers are responsible for the safety of their staff and consequently it is essential
that managers know the location and situation of their staff at all times while they are
working away from the office, particularly when out visiting an insolvent’s premises.
Any person undertaking an inspection who does not already have an Insolvency
Service issue mobile phone should be issued with a mobile phone for the duration of
that inspection. If an examiner uses a personal mobile phone for this purpose the
cost of reasonable telephone calls may be reclaimed.
--- PDF page 10 ---
11.20 Examiner/officer normally to be
accompanied on any inspection
It would not normally be expected that a member of staff should carry out an
inspection unaccompanied. It is a matter for the judgement of the local manager on
a case-by-case basis, whether from the information available and the particular
circumstances, the examiner/inspector might be able to carry out.
Two or more inspecting officers should carry out any potential problem inspections,
e.g. where it is believed that the director/bankrupt has threatened violence.
11.21 Precautions to take when on inspection
When attending an inspection in a vehicle it is good practice to ensure that the
vehicle is parked in such a way that an easy escape can be made if necessary, e.g.
reverse into a space, or ensure your vehicle is facing the way out if you are in a cul-
de-sac. Ensure your keys can easily be located if needed, and don’t get out of the
vehicle if you feel threatened in anyway. When on foot avoid going down badly lit or
isolated walkways alone, if you feel threatened try to head for a busy public place.
Further information on personal safety generally may be obtained from The Suzy
Lamplugh Trust web site. Lone worker training is also available, contact the People
and Capability Team for more information.
11.22 General health and safety
Staff should pay particular attention to their safety when on visits to premises that
may have been used for industrial purposes. Those previously responsible for health
and safety matters at those premises may not have fully discharged those
responsibilities. More information can be found in the Service’s Health and Safety
Policy.
11.23 Restrictions relating to crossing the
threshold
No male inspecting officer should cross the threshold on a domestic inspection if the
only current adult occupant is a female and no female inspecting officer should cross
the threshold on a domestic inspection if the only occupant is a male. Neither should
an inspecting officer make entry if the only occupant is a child. If the purpose of the
inspection is a tracing exercise, any discussion must occur at the front door, even if
invited in. If the purpose is purely to collect books and records, a request should be
made that the books/papers are brought to the front door for collection. If it is not
--- PDF page 11 ---
possible to bring the items to the door, or if the person refuses to give any
information, except in private i.e. not in the doorway, arrangements must be made
for contact by telephone or alternatively a visit with another officer as necessary. The
purpose of this is to limit any risk against an inspecting officer’s safety and to
minimise the possibility of unfounded complaints of impropriety against inspecting
officers.
11.24 Officer to report conclusion of
inspection to manager
On conclusion of the inspection, the inspecting officer should report back to the
manager that they have left the site, even if they are going to return to the office that
day.
In the event of the inspecting officer not returning/telephoning, local management
should attempt to contact the inspecting officer by mobile phone. If it is not possible
to make contact in this way, consideration should be given to attempting to phone
the address visited/person to be visited. It is a matter for local management on a
case-by-case basis as to whether the police should be contacted.
Process for an inspection
11.25 Who should carry out an inspection?
Apart from in relation to London (see below), it will be the examiner whose case
requires an inspection that is the appropriate person to carry out that inspection. In
certain circumstances it may be appropriate for a colleague to carry out the
inspection. These reasons may include a training need of an examiner.
11.26 Who should carry out an inspection? –
London
In relation to London, there is one outdoor inspector who carries out inspections
when one need is identified. The outdoor inspector should be emailed with full details
of the inspection requirement, for which there is a form available (Annex A).
Sufficient details of the case should be provided to enable the inspector to carry out
an informed inspection. If there is significant reason to believe that a case is trading
an AOR in London should be contacted, in the first instance, to discuss a case
transfer.
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11.27 When an agent can carry out an
inspection
It may be appropriate to allocate an inspection to the official receiver’s agents. This
is likely to be when there has been full cooperation by the company officer or
bankrupt, who has ceased to trade or agreed to cease to trade, and agreement can
be reached on handing over the assets and/or accounting records. It may also be
appropriate when there are known to be third party assets that the insolvent has
agreed can be secured until collection can be arranged, or when there are vacant
premises that need securing. The decision as to whether to accompany the agents
on such an inspection needs to be considered carefully on a case-by-case basis.
Consideration should be given to the travelling distance and if the benefit gained
from attendance outweighs the time/costs of attending. If there is a possibility that
full cooperation may not be gained on the inspection, the examiner should also
attend so that they can provide information to the officer or bankrupt regarding their
duty to cooperate and the consequences of failing to do so.
If an agent is instructed to carry out an inspection without the attendance of the
official receiver, clear and precise instructions must be given on what is required of
the agent. A contact phone number for the instructing examiner or assistant official
receiver should also be given (and they should be available), in case further advice
is required by the agent whilst carrying out the inspection.
11.28 Information security on inspections
Staff should take responsibility for all information that they handle (whether paper or
digital), and all information that they instruct agents to handle on their behalf, and
should take the necessary precautions to ensure its safety from unauthorised
disclosure. Staff should note there is a marked difference in the risk to the records of
a sole trader for example, compared to that of a company employing 50+ employees.
Where the risk is considered greater, agents should be used to move accounting
records to ensure safe delivery and to ascertain who is responsible for the records at
all times. Reference should be made to any recently issued security notices when
planning an inspection to ensure current information security guidance is followed.
Particular attention should be paid to instructing the agents on what to do with any
sensitive data recovered, such as wage records, customer credit card details, etc.
Such material needs to be physically conveyed in accordance with current security
protocols and the official receiver’s specific instructions.
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Trading inspections – overview and
initial actions to take
11.29 General awareness of inspecting officer
Prior to attending trading premises the Official Receiver’s local agent should be
contacted and where possible the agent should attend the trading premises with the
inspecting officer.
Once at the trading premises the inspecting officer should ensure that the company
or individual whom has been identified as such is in reality the person against whom
the insolvency order has been made and, in cases where identity is in doubt, should
proceed with discretion.
The inspecting officer should remember that there is a risk of accepting the
unsupported statement of an officer of an insolvent company or a bankrupt.
Wherever possible, documentary evidence should be requested to confirm the
statement, particularly regarding ownership of assets or details of any business
which is being carried on at the time of an inspection. The inspecting officer should
be looking out for possible undisclosed assets and ensure that the company officers
or bankrupt do not conceal, destroy or remove any of the property of the insolvent.
This is particularly important where computerised records are encountered.
11.30 What to cover initially with the insolvent
on the inspection
When the company officer or bankrupt is first encountered on an inspection, it is
likely that they will have various questions. The inspecting officer should ensure they
explain the following at an early stage:
a) that the insolvency order has been made, and provide a copy of the order
b) the official receiver’s role in the proceedings
c) the company officer or bankrupt’s duties
d) the purpose of the inspection
e) that an interview will still be needed at a later date
11.31 Personal delivery of notice
If the inspection is the first occasion that a company officer or bankrupt has been
seen, the inspecting officer should provide the appointment letter to the officer or
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bankrupt and, if appropriate, make an appointment for their attendance at the official
receiver’s office.
11.32 What will take place on a trading
inspection?
The main things to cover on an inspection are covered in detail throughout this
section of the chapter. An overview of an inspection is provided here and may be for
one or more of the following reasons:
a) to identify and deal with assets
b) to determine what the trading position is, and make a decision on the continuation
of the business
c) to determine the position regarding the premises (including insurance) and if
appropriate, secure the premises, and collect any keys
d) to dismiss any employees as at the date of the order
e) to collect any accounting records
f) to identify and protect third party assets
g) to take an inventory of the contents of the premises
Obtaining information from the
insolvent on a trading inspection
11.33 Inspection report
The inspection booklet should preferably be completed with a company officer or the
bankrupt in all cases where trading premises are found. If they are not present, the
person in charge of any business premises should be requested to provide the
information as far as it may be known. It is important that the person providing the
information signs the inspection booklet as an acknowledgement of the details
provided. This will be evidence of the assets, together with third party property,
disclosed and should help to avoid subsequent disputes. If they refuse to sign the
report, a note should be made on the report and signed by the inspecting officer.
11.34 Preparation of an additional report
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In addition to completing the inspection booklet, the inspecting officer may, in
appropriate cases, prepare an additional report to record matters not mentioned in
the inspection booklet. The report should contain details of premises visited, date,
persons seen, nature of enquiries made, results of such enquiries, and the action
taken regarding the assets, including details of any items removed from the
premises. A brief note of any telephone conversations made during the inspection
should similarly be made. The report should be signed and dated by the inspecting
officer and placed on the fileplan. The report should provide a written record of the
decisions and actions taken on the inspection.
11.35 Preliminary information and statement
of affairs
The inspecting officer may provide the preliminary information questionnaire to the
company officers or bankrupt and may exceptionally consider it appropriate for the
questionnaire to be completed during the inspection e.g. where the company officer
or bankrupt for medical reasons may find it difficult to come to the office.
11.36 Obtaining an inventory
The inspecting officer/agent should prepare an inventory of any stock, plant and
machinery, equipment, furniture, fixtures and fittings etc. belonging to the insolvent.
This should usually be prepared with the company officer(s) or bankrupt to avoid
later disputes concerning the assets comprised in the estate. The inventory should,
wherever possible, state the make, type and any serial number of large items of
plant, machinery, equipment, etc. The inventory should be signed by the company
officer/bankrupt present to avoid any later disputes. If the officer/bankrupt refuses to
sign the inventory, the inspecting officer/agent should record the refusal and sign
and date the note.
11.37 Professional preparation of inventory
A professionally prepared inventory should be obtained if the inspecting officer
cannot prepare an adequate inventory, and it is considered necessary due to the
nature of the stock or quantities involved or their value. Consideration should be
given to cost and benefit of the inventory. Reference should be made to chapter 41
regarding the employment of an agent to undertake an inventory.
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Ascertaining the position regarding the
premises to be inspected
11.38 Ownership of premises
The inspecting officer cannot insist on access to premises of which the insolvent has
no right of occupation, e.g. is neither the owner nor the tenant, or of which they are
the landlord with a right of entry only in specified circumstances.
The inspecting officer should therefore on arrival at the premises request to see a
company officer, the bankrupt or other person in charge, as appropriate. If the
premises are not owned or rented by the insolvent, then sight of documentary
evidence to support this should be requested. If the insolvent has no interest in the
premises, all the property which the insolvent owns, or is responsible for, should be
removed as a matter of urgency.
Where the insolvent has a right of occupation but the premises are business and
residential, the inspecting officer should attempt to secure the business side from the
residential, if this is possible. Information should be sought regarding other possible
administrative or trading premises, stores or sites.
11.39 Let or sub-let premises
If the insolvent has let or sub-let the premises, the inspecting officer should obtain
the name(s) and address(es) of the tenant(s) or sub-tenant(s) and ascertain as far as
possible the terms of their occupation. A copy of any written agreement should be
obtained together with details of the rent payable, any arrears and when it is next
due for payment. Tenants should be advised that the official receiver will contact
them shortly about their tenancy but that on no account should they pay rent to the
insolvent. Neither should the inspecting officer collect or accept the payment of rent,
as this could be interpreted as the official receiver affirming the right of the tenant(s)
to occupy the premises; or, if the person in occupation in fact had no right to occupy,
the acceptance of rent could create a tenancy.
Third party involvement, including
partnerships
11.40 Third party involved in business
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The inspecting officer should make enquiries regarding any third party trading from
the insolvent’s business premises. If a trading name is being used, details of the
proprietor(s) should be sought and any documentary evidence (e.g. headed
notepaper, VAT registration, insurance certificates) inspected to identify the person
behind any trading style. If the business is one conducted by an associate of the
insolvent, full details should be sought including the date when trading commenced
and of any assets transferred by the insolvent to that business.
11.41 Partnership businesses
When carrying out an inspection on a bankruptcy order, if the bankrupt states that
the business is run as a partnership, evidence of this should be requested. Evidence
may include a partnership agreement, partnership accounts, VAT registration or tax
return addressed to the partnership, invoices, business stationery, bank statements
or chequebooks. If this is the case, details of the solvent partner should be obtained
so that they may be written to for an account of the bankrupt’s share of the
partnership.
The official receiver cannot close down a partnership business unless a winding-up
order has been made against the relevant partnership, that joint bankruptcy orders
have been made against all members of that partnership, or an order has been
made by virtue of article 141. In the absence of any of these orders it is doubtful that
the official receiver is empowered to deal with the partnership. See chapter 52 for
more information.
1. Insolvent Partnerships Order 1994 article 14
11.42 Identification of third party items
The company officer(s) or bankrupt should be asked to identify all items on the
premises in which third parties have an interest. The items may be subject to;
•
hire purchase or lease agreements
•
retention of title clauses
•
on loan
•
deposited with the insolvent for repair
The company officer(s) or bankrupt should produce all relevant documentary
evidence, e.g. contracts, agreements, invoices etc. The inspecting officer/agent
should keep a record of items where documentary evidence of the name and
address, together with the nature of the third party interest, is not available for
removal.
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11.43 Separation of third party goods from
insolvent’s property
Where machinery or similar items are identified as third party property, the inspecting
officer/agent should consider attaching a label with the name and address of the
claimant. When an item of equipment is subject to a hire purchase or lease
agreement, the name of the owner may be displayed on a plate affixed to the
machine. If a large quantity of items is shown to belong to third parties, the items
should be clearly separated from the insolvent’s property and any agents
subsequently instructed should be advised accordingly. Reference should be made
to chapter 25 regarding subsequent action in relation to third party goods.
11.44 Ownership claim by bankrupt’s relatives
or friends
If a bankrupt’s relative or friend claims any property, those items should be clearly
identified in the inspection booklet. The relative or friend should be informed that
they might be required to make a statutory declaration of ownership and produce
documentary evidence in support of their claim and should be issued with letter
ATPC.
Ongoing trading – continuation of the
business
11.45 Consideration of continuing a business
Should an inspecting officer discover that a business is still trading, it will be
necessary to assess whether it is likely to be beneficial to allow it to continue trading.
Following assessment they should telephone the office to make their
recommendations prior to taking action to close a business down.
As a general principle, a business must not be carried on unless the official receiver
is satisfied that to do so will ultimately be beneficial to the general body of creditors
and the estate is indemnified against any resultant loss.
11.46 Consideration of an urgent Secretary of
State appointment
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If the insolvent is trading at the date of the order and significant value in the estate
will be lost if trading ceases, then it may be appropriate to apply for an urgent
Secretary of State appointment for an insolvency practitioner to act as
liquidator/trustee (see chapter 45). The insolvency practitioner could then give
consideration as to whether to continue the business or realise the assets prior to
closing it down. It is also possible that a bankrupt may wish to apply for an
annulment on the grounds that an IVA has been approved to avoid the business
being closed down. An insolvency practitioner would be needed to supervise the
running of the business, whilst the IVA proposals were put to the creditors.
Dealing with assets on an inspection
11.47 Seizure of assets
The inspecting officer/agent must take immediate steps to take possession of the
insolvent’s property on behalf of the official receiver1 2. Careful enquiries of the
company officers or the bankrupt (or in their absence, the person in charge) should
be made to discover all possible assets, which may require protection. In a company
employees have a duty to co-operate with the official receiver and the official
receiver may request current employees of the insolvent, or employees who have
been in its employment within the last year, to provide information3. Cash and other
easily moveable assets, e.g. jewellery and cameras, should be located and protected
at an early stage of an inspection. Items in which third parties have an interest
should be separately identified. The inspecting officer must issue provisional receipts
to the company officer, bankrupt or other party in charge at the premises, for all
moneys collected at the time of the inspection.
1. section 144(1)
2. section 287
3. section 235(3)(c)
11.48 Exempt property generally (bankruptcy
only)
The inspecting officer should seek to identify any items that may be claimed as
exempt property1 2 and record brief details of such items in the inspection booklet so
that the official receiver may consider any necessary action.
1. section 283
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2. section 308
11.49 Execution or distress levied
The inspecting officer/agent should make enquiries to establish whether an
enforcement officer or county court bailiff has taken ‘walking possession’ over all or
any part of the insolvent’s property, has levied distress or has removed goods. If
execution has not been completed at the time when notice of the insolvency is given
to the enforcement officer or bailiff, the official receiver can claim any goods seized1 2
3. If execution or distress has been levied, the inspecting officer/agent should obtain
details of the enforcement officer or bailiff concerned, the items seized and the date
of seizure. Reference should be made to chapter 12 for further information
concerning executions and distress and other forms of action against the property of
the insolvent.
1. section 184
2. section 346
3. section 347
11.50 Motor vehicles
If the insolvent is owner or lessee of any motor vehicle, it should be locked and, if
possible, parked off the road, preferably in a garage, or similar. If a vehicle is left on
a public highway, it must be taxed and insured (refer to chapter 14 regarding
insurance). In any event it should not be driven, except by the official receiver’s
agents in the course of disposal. In no circumstances should a member of the official
receiver’s staff drive a vehicle without adequate insurance cover and the express
permission of their senior officer. Such an occurrence should be a rare event, e.g.
where essential to safeguard the asset.
If the official receiver is satisfied that a bankrupt needs a vehicle for use in their
current employment, business or vocation, and it is not of excess value, they should
be permitted to retain it as exempt property.
11.51 Food and drink
European legislation provides that a person who sells or offers for human
consumption any food, which fails to comply with food safety requirements, shall be
guilty of an offence. The inspecting officer should under no circumstances consider
the sale of perishable food e.g. meat, milk, sandwiches, fruit and vegetables. The
inspecting officer should arrange for the disposal of the food with the assistance of
the local authority if necessary. Any frozen food should also be disposed of in the
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same manner, as the official receiver is unable to verify its storage history. Further
information may be found in chapter 34.
11.52 Firearms and explosives
If the inspecting officer encounters firearms or explosives during an inspection, they
should not touch or move them and should immediately contact the police for advice,
particularly if the circumstances are suspicious. The police will be able to confirm
whether a firearm is registered and whether its owner holds other registered guns.
Firearms should only be transported by the police or a licensed gun dealer, and
likewise explosives would only be moved under the supervision of the police or other
competent authority (. There are numerous regulations relating to the storage,
transportation and sale of firearms and explosives and the official receiver should
consider the early employment of a specialist agent.
Further information can be found in chapter 34
11.53 Gas bottles
Where a gas bottle containing oxy acetylene is discovered on an insolvent’s
premises (usually premises where welding has been carried out) immediate action
should be taken to establish whether the bottle is empty or contains gas. This
information is only likely to be available if the insolvent is available to provide all
relevant details. Where the official receiver is unable to verify if the bottle is empty, or
where the bottle still contains gas, immediate arrangements should be made to
contact the supplier to have the bottle removed from the premises due to the fire risk
it presents. The gas bottle should have a label fixed to it indicating the supplier.
Dealing with animals
11.54 Animals including birds and fish –
immediate action to be taken
Where the insolvent holds birds, fish or animals intended for sale, the inspecting
officer should take an inventory of them and ensure that they are securely contained.
If such creatures are not to be sold immediately, the official receiver should ensure
that they will be fed and cared for until a sale can take place. Where necessary the
official receiver may buy feeding stock and employ a manager (which may be the
bankrupt or a company officer) to maintain the creatures until sale. Consideration
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needs to be given to the practicalities and costs associated with caring for any
animals pending a sale.
11.55 Animals including birds and fish – legal
requirements
In the case of all animals, it should be remembered that there are legislative
requirements concerning the welfare of animals and that the official receiver, as a
keeper of those animals, will be responsible for ensuring that these requirements are
not compromised. In the case of farmed species (cattle, sheep, pigs, poultry and, in
some cases, horses and camelids), there are a range of disease control
requirements that may be in place concerning the way in which they are kept or their
movement, transport and method of sale. In a case where farmed livestock are
involved, the official receiver should contact the Animal and Plant Health Agency
(03000 200 301), choosing the ‘other enquiries’ option, in the first instance in order to
establish their options.
11.56 Animals including birds and fish –
disposal and realisation
If the costs associated with looking after any animals pending a sale are likely to
result in no benefit to the estate, then the animals should be dealt with immediately.
If the animals are farmed livestock then, prior to any action being taken, immediate
contact should be made with the Animal and Plant Health Agency and also the
relevant local authority animal health team. If the animals are companion animals,
then contact should be made with relevant charitable bodies or private veterinary
practices that may be able to offer some advice on possible courses of action. A
bankrupt’s pet will not usually have a realisable value but, where it is valuable, the
official receiver should sell it. Such a sale may be to a relative or friend of the
bankrupt; provided the official receiver is satisfied that they have obtained the market
value of the pet.
11.57 Dangerous or exotic animals
Most animals that are considered wild, dangerous or exotic require a licence. This
will be issued by the relevant local authority. If there are concerns regarding the
legitimacy of a wild/dangerous animal or advice is sought on any possible actions,
the local authority would be able to assist.
If any animal appears likely to be dangerous, consideration should be given to its
immediate disposal/removal with the assistance of the appropriate organisation. The
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keeper of an animal will be strictly liable for any damage caused by that animal if the
animal belongs to a dangerous species (i.e. one not usually found domesticated in
Britain) and also, in certain circumstances, for damage caused by an animal which is
not of a dangerous species1. A keeper is the person who owns or is in possession of
the animal. The official receiver will, as trustee, own the insolvent’s animals, and
could, as liquidator, be considered to be in possession of such animals.
If animals are of a species that may be considered endangered, then consideration
should be given to contacting the CITES (Convention on International Trade in
Endangered Species of Wild Fauna and Flora) Unit at the Animal and Plant Health
Agency (APHA) on 03000 200 301. To establish if an animal is an endangered
species a check may be made on the CITES database.
1. Animals Act 1971 section 2 to 5
Dealing with drugs and medicines
11.58 Drugs/medicines (including controlled
drugs) encountered on inspection - general
An inspecting officer may find drugs at a variety of premises including the premises
of doctors, dentists, pharmacists, veterinary surgeons, private clinics and residential
care homes. In addition, postal carriers, or a person collecting drugs on prescription
for another may be in possession of drugs. Such drugs may be identified in the
register that is required to be kept.
The guidance in the following paragraphs concentrates on controlled drugs, as it is to
these drugs that criminal penalties apply where they are illegally possessed or
stored. See https://www.gov.uk/guidance/controlled-drugs-licences-fees-and-returns
for more information.
There are separate restrictions on the sale of medicines not subject to control, and
guidance on this is covered in chapter 34.
11.59 Controlled drugs - where illegality
suspected
Where it appears that controlled drugs encountered on an inspection are being held
illegally, the police should be informed immediately. Under no circumstances should
the drugs be moved or otherwise handled by official receiver’s staff.
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Similarly, the encountering of certain legally controlled drugs should also be reported
to the police and guidance can be obtained from the local police Controlled Drugs
Liaison Officer
11.60 Controlled drugs – general background
Many drugs are simply illegal to possess, produce or supply1 except in very limited
circumstances.
The legislation2 provides that certain ‘banned’ drugs can be legally produced,
possessed and/or supplied in certain circumstances and by certain professionals.
There are fie categories (schedules), under the legislation, which controlled drugs
are divided into, depending on their usefulness and potential for misuse:
•
Schedule 1 provides a list of drugs for which there is considered to be no clinical
benefit and production, possession and supply of such drugs is limited a small
number of people – primarily those undertaking research in relation to the drugs. A
licence is required to hold drugs listed under schedule 1. Where the official receiver
is dealing with an insolvent with such a licence, they should immediately inform the
police so that they can take custody of the drugs
•
Schedule 2 details drugs which have agreed clinical benefits, but also are potentially
open to misuse. The possession of such drugs is, therefore, controlled by regulations
relating to storage and record keeping
•
the remaining schedules contain drugs over which there are less stringent controls.
Particularly, there are limited controls over storage and record keeping of these
drugs, so immediate action by the official receiver is likely to be limited to ensuring
the premises are secured and insured as normal
1. Misuse of Drugs Act 1971
2. Misuse of Drugs Regulations 2001
11.61 Storage of controlled drugs
The legislation1 provides that certain drugs (primarily those in schedules 1 and), are
stored securely. The official receiver is most likely to encounter such storage when
dealing with drugs in schedule 2.
The relevant regulations specify the standard to be met in some detail, but
essentially they require the cabinet in which the drugs are stored to be made of steel,
with good locks, and to be bolted to either the floor or a wall.
1. The Misuse of Drugs (Safe Custody) Regulations 1973
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11.62 Record keeping related to controlled
drugs
All persons who possess and supply controlled drugs in schedules 1 and 2 are
required to keep a register relating to the drugs, to show transactions relating to the
drugs. The register is required to be broken down by drug stored and records must
be kept chronologically. The register must be available for inspection at the premises
on which the goods are stored at all times.
The record keeping requirements for drugs in schedules 3 and 4 are limited to those
imported or exported.
The records must be kept for at least two years.
11.63 Dealing with controlled drugs
Guidance on dealing with controlled drugs is given in chapter 34. Suffice to say, it is
likely that the official receiver, as liquidator or trustee, will find it necessary to issue a
disclaimer of the drugs, served on the relevant drug control authorities.
Dealing with employees
11.64 Dismissal of employees
The effect of a winding-up or bankruptcy order is to automatically terminate
employees’ employment on that date. Therefore, unless the insolvent’s business is
to be continued, the inspecting officer should confirm the dismissal of staff. If the
business is to continue, employment will be terminated on the date of the insolvency
order, but in effect employees who continue working will have commenced a new
contract from that date forward. The inspecting officer should request all employees
to assemble (if possible with company officers or the bankrupt in attendance), advise
them of the insolvency proceedings, that the business is to cease and that they are
dismissed. The employees should be informed that guidance to an employee’s rights
when insolvent is available at https://www.gov.uk/your-rights-if-your-employer-is-
insolvent.
11.65 Employee claims
Under the insolvency provisions of the Employment Rights Act 1996, if an employer
becomes insolvent the Secretary of State may pay certain debts owing to employees
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from the National Insurance Fund. See chapter 58 for more details. The most
common of these debts are:
•
arrears of pay
•
holiday pay
•
pay in lieu of notice
11.66 Collect details of employees claims
The inspecting officer should collect names, addresses, telephone numbers and
email addresses of all employees. Employees should be informed that the official
receiver will arrange for all employees to be sent a further letter explaining their
rights under the Employment Rights Act 1996
The employees’ names and addresses may be recorded on the schedule of
employees which forms part of the preliminary information questionnaire (if
completed at the inspection) or on any written additional report produced by the
inspecting officer.
On return to the office an RP20 form is to be completed and sent by email to:
redundancypaymentsonline@insolvency.gov.uk
This requests the case is set up with RPS. RPS will then send a spreadsheet to the
OR to complete and return. When this is returned to RPS, RPS will send an
EMPLET, a copy of RP1 Factsheet and RP1 Help form to the employee.
11.67 Other matters regarding employees
On no account should any of the insolvent’s funds be paid to the employees in
respect of any outstanding wages, salary, holiday pay, expenses etc. The employees
must not be permitted to retain assets or cash in respect of such sums. PAYE and
wages records and contracts of employment should be located and taken to the
official receiver’s office.
Accounting records
11.68 Production of records
The company officer(s), bankrupt or person in charge should be requested to
produce all the trading books and records of the insolvent and other documents
relating to the estate, e.g. documents of title, cheque books, bank cards and
correspondence. If they are not at the premises being inspected, the inspecting
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officer should obtain details of their whereabouts. There are various powers of the
official receivers and the courts under the Insolvency Act 1986 which can be used to
ensure that the official receiver obtains such records1 2. Reference should also be
made to chapter 16 regarding custody of the insolvent’s records.
1. section 234(2)
2. section 311
11.69 Computerised accounting records
Where an inspecting officer encounters computerised accounting records, immediate
action should be taken to protect the data stored on computer and preserve any
other media on which data is stored (discs, flash drives etc.). It may be appropriate
to request that the company officer/bankrupt print off a copy of the accounting
records whilst the equipment is in situ. Only records dated from the last audited
accounts should be printed, and consideration should be given as to how time
consuming, and how costly the exercise will be before deciding to go ahead. For
example, if the volume of printouts is likely to be large, it may not be worth printing
every record, but consideration could be given to obtaining printouts of any
management accounts, and other significant records. Care should be taken to
supervise and ensure the information is not corrupted.
Specific types of businesses
11.70 Public houses, tied houses, free houses,
wines and spirits
If the insolvent is trading as a public house, the inspecting officer should immediately
verify whether the public house is a tied house and obtain a copy of any tenancy
agreement. If so, the brewery should be informed of the winding-up or bankruptcy
order immediately. In such circumstances it is the responsibility of the brewery to
either appoint a new manager or to close the premises.
If the public house is a free house, it is likely that the alcohol and soft drinks have
been supplied on a sale or return basis. The inspecting officer should ascertain
details of the supplier who should be notified as soon as possible.
11.71 Petrol stations
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Where the insolvent is trading as a petrol station the inspecting officer should
immediately ascertain whether the petrol station is held on a tenancy agreement. If
so, the landlord should be informed immediately of the winding-up or bankruptcy
order as it is likely to be their responsibility to either appoint a new manager or to
close the premises.
Where the petrol station is independently owned by the insolvent the official receiver
should establish as soon as possible whether the tanks in the petrol station are full or
empty. Details of the supplier should be obtained and arrangements made for the
tanks to be emptied. The official receiver should be aware that the emptying of tanks
is not sufficient to deal with the fire risk. The petrol station and tanks will still contain
fumes. Where the official receiver is unable to return a lease or deal with the
premises immediately, specialist advice should be sought as to how best to deal with
the premises to eliminate any fire risk. Initially contact, is likely to be made with the
official receiver’s agents.
The official receiver’s insurers will need to be contacted to ensure any specific
requirements are fulfilled in relation to the premises in order for insurance cover to
be effected. The local fire officer can also be contacted for guidance on securing the
tanks.
11.72 Companies who deal with Ministry of
Defence contracts
When the official receiver becomes aware that a company in liquidation has dealt
with Ministry of Defence (MoD) contracts, then it is possible that they hold classified
or secret information. If this is the case they will have been inspected and approved
by the MoD, and the location of the premises (sites) used by these companies are
referred to as “List X”. Special treatment needs to be used when dealing with these
companies to safe guard the classified or secret information, which will remain in the
possession of the MoD.
Other matters to be dealt with during
inspection
11.73 Internet sites and e-mail
The inspecting officer should ascertain whether an insolvent has a web site on the
internet to either advertise or sell products/services. The inspecting officer should
--- PDF page 29 ---
obtain details of the internet service provider (ISP), the web site address (also known
as the domain name), account numbers and any password used by the insolvent.
Details of any web site address are likely to be found on any advertising material
produced by the company/bankrupt or any letterhead paper. It is important that any
business web site is closed as soon as possible after the making of a winding-up or
bankruptcy order, particularly if products can be ordered via the web site and if the
site is receiving emails.
A registration certificate is issued by the internet service provider in respect of each
domain name registered. This certificate should verify proper registration to a named
person. The official receiver should endeavour to recover this certificate from the
insolvent’s records and if this certificate cannot be found, enquiries should be made
from the relevant internet service provided. The ownership of a domain name may
be established by reference to the web-site www.who.is (see also chapter 34).
11.74 Closing internet sites and email accounts
The official receiver should contact the ISP immediately and request that the site be
closed or, alternatively, request that a notice is placed on the web site providing
details of the date of the relevant insolvency order and the name, address and
telephone number of the official receiver. Where a company is being wound up, all of
its websites must contain a statement to that effect1. If a company does not have a
web site but has an email facility, the inspecting officer should ascertain details of
any email address(es) and arrangements should be made with the ISP to either
cancel the email address or set up some form of out of office assistant providing
details of the date of the relevant insolvency order and the name, address and
telephone number of the official receiver. The ISP can usually be identified from the
email address.
If the insolvent is a bankrupt the official receiver should take no steps to redirect the
bankrupt’s email. If the bankrupt is present and is co-operating with the inspecting
officer they may be prepared to allow the inspecting officer to view any current
business e-mails or e-mails stored on the system.
1. section 188
11.75 Insolvent in possession of retailer’s
credit account
If the inspecting officer becomes aware that the insolvent maintained a retailers’
account with a bank for the processing of credit or debit card transactions, details
should be obtained so that the bank can be notified of the winding-up or bankruptcy
order (see http://intranet/OROS/CaseMngment/Banks/BanksHome.htm for details of
--- PDF page 30 ---
the major banks concerned). In addition, the inspecting officer should take an
inventory of all chip and PIN devices as soon as practically possible and lock them
away securely. Once in possession of the devices the official receiver should contact
the relevant processing bank (usually identified on the device) and ask for their
advice as to what to do with the equipment. Under no circumstances should these
items be sold to third parties.
If a retailer still possesses the old style metal imprinting plate credit card machine,
used when processing credit and debit card vouchers, either the metal plate or if this
cannot be separated, the whole machine should also be recovered and dealt with in
the same fashion.
11.76 Document exchange (DX)
The document exchange (DX) service is a delivery of business to business mail for
professionals in the following industry sectors: legal and judiciary, financial services,
retail finance, property and construction, government, health, utilities, optical and
commercial. The Service is run by DX Network Services Ltd and operates via a
network of local collection and delivery points known as 'exchanges'. Members post
their mail into the nearest exchange and collect mail the following morning. An
exchange may have a single user or a number of different users.
An inspecting officer should ascertain whether an insolvent has a DX address and
obtain relevant details. If the insolvent has a DX address, they will hold a key to a
lockable box in their exchange. The official receiver can search to see if an insolvent
has a DX address by typing in a postcode or company/trading name onto the search
facility on the DX website https://www.dxdelivery.com/.
11.77 DX - Company
Where the insolvent is a company, the official receiver should take possession of the
key to the lockable box and ensure the box is emptied of mail. Arrangements should
be made as soon as possible for the insolvent company’s DX box to be closed and
the DX service cancelled. A request should also be made for any post to be
redirected to the official receiver via the DX system. DX will redirect post free of
charge for one month. The official receiver should telephone DX Network Services
Ltd to ascertain who the account manager is for the company in question, and then
send the request in writing to that person, enclosing a copy of the winding-up order.
11.78 DX - Bankruptcy
In a bankruptcy case arrangements should be made for the DX service to be
terminated immediately. A request should be made that any post sent to the
--- PDF page 31 ---
insolvent’s DX address should be returned to sender. The official receiver should
telephone DX Network Services Ltd to ascertain who the account manager is for the
business in question, and then send the request in writing to that person, enclosing a
copy of the bankruptcy order.
Securing and protecting premises
11.79 Existing insurance cover
Enquiry must be made in all cases to obtain details of any insurance policies in force
and, wherever possible, possession should be taken of the relevant policy
documents and any current certificates relating to those policies. Particular attention
should be paid to any special hazards to ensure that any cover takes account of
these risks. On return to the office, any policy documents recovered should
immediately be handed to the cashier to record in the valuables register and placed
in the safe.
11.80 Insurance cover required
Where insurance cover is needed on trading premises, this should be attended to
immediately on return to the office. Reference should be made to chapter 14 for
advice on how to obtain cover under the AON insurance scheme.
The official receiver should ensure that the insurance cover is cancelled when no
longer required.
11.81 Keys to trading premises
The inspecting officer should ascertain details of all the parties who hold keys to the
trading premises of the insolvent and their reasons for doing so. All the keys should
be recovered without delay. Where this is not possible, or the officer cannot be
certain all keys have been recovered, then the official receiver should consider
changing the locks at the expense of the estate. Where a third party has a legal right
of access to the premises which would be affected by changing the locks, that
person should be informed of the official receiver’s intention and arrangements made
so that their right of access is not adversely affected without their consent. The keys
to the premises received by the official receiver should be clearly labelled and
marked with the address and the name and case number to which they relate and
upon return to the office should be deposited with the cashier and placed in the safe
until required again.
--- PDF page 32 ---
11.82 Display of notice of insolvency
proceedings
Where the premises are to be left unattended, the inspecting officer should consider
placing a notice, where it may be seen from the exterior of the trading premises,
giving a contact point. Generally a notice should not be displayed where valuable
assets remain on the premises. The notice should not refer to the official receiver but
should be along the following lines:
‘CLOSED. All enquiries regarding [name of insolvent] should be made by
telephoning ................................ ext ...........................’. T
This may prove particularly useful where the official receiver needs to be contacted
by a large number of third parties regarding their property. Any notice should be
removed prior to disposal of the premises.
11.83 Locking of premises
In all cases the inspecting officer should make full use of all security locks etc at the
premises. Before doing so they should ensure that no volatile substances, e.g. Oxy
acetylene, or perishable foodstuffs are stored on the premises and that no animals
are there. Consideration should be given to replacing locks, particularly where
assets, including those owned by third parties, are left at the premises (it should be
remembered that insurance cover for loss by theft is likely to be void if entry or exit
was not by forcible means). If, for example, damaged windows might provide easy
access, the official receiver should consider replacing them or boarding up the area
at the expense of the estate. If a debit balance of over £2,500 would be incurred by
such action, approval must be sought (see chapter 1). In securing premises, regard
should be given to any duty of care to visitors to the premises or trespassers (see
below). The official receiver should also consider informing the local police of their
interest in unattended premises.
11.84 Use of alarm system
If valuable assets are left at unattended premises, the inspecting officer should, if
possible, place them out of sight and consider making use of any alarm fitted to the
premises. Where the alarm operates via a numbered keypad, consideration should
be given to altering the alarm number combination to minimise the number of people
who are aware of the combination. Where the alarm operates via keys there may be
circumstances where the alarm keys remain with an officer of the company or the
bankrupt following consultation with the official receiver. Where the alarm is to be
used the electricity supply should not be turned off. Officers of the company or the
--- PDF page 33 ---
bankrupt should provide full information as to the operation of burglar alarms and
give the name, address and telephone number of the appropriate alarm maintenance
engineer. The police should be notified where a burglar alarm is set so that they are
aware of the holder of the alarm key/combination number in case of any emergency
or fault.
11.85 Electricity, gas and water supplies
The inspecting officer should consider whether a post-insolvency order electricity
supply is required. If so, then contact will need to be made with the relevant provider
to arrange this. The supplier may require the official receiver to personally guarantee
payment of the post-insolvency order supply1 2. Where supplies are not required,
then all lights should be switched off, as should the power from the mains. Before
doing so, the inspecting officer should ensure that the supply does not affect that
used by other tenants of the building, or any refrigeration or computer equipment, or
alarm system, which should be kept, switched on. The gas supply should be turned
off at the meter, again, after ensuring that the supply to other occupants of the
premises is not affected. Similarly the water supply should be turned off at the
stopcock, provided it does not serve a hot water or heating installation, which is to be
left in operation. Where appropriate, any fires or furnaces should be extinguished. In
winter months it may be necessary to arrange for the drainage of any heating system
so as to avoid leaking or burst pipes but regard must also be had to any fire sprinkler
system installed.
1. section 233
2. section 372
Duty to visitors and trespassers
11.86 Occupiers’ liability duty to visitors and
trespassers
A duty of care is owed between an occupier of premises and their lawful visitors1,
and an occupier also owes a limited duty of care to trespassers2. The question of
who is an occupier depends upon the particular facts of each case but generally it
would be the person who is in actual occupation for the time being, or who has
possession or physical control of the premises. Accordingly, unless and until an
insolvency practitioner is appointed, the official receiver is likely to be the occupier of
the premises of the insolvent, if they have been vacated by the insolvent.
--- PDF page 34 ---
1. Occupiers Liability Act 1957
2. Occupiers Liability Act 1984
11.87 Meaning of ‘duty of care’
An occupier owes the ‘common duty of care’ to all their visitors. This is a duty to take
such care (as is reasonable in the circumstances of the case), to see that the visitor
will be reasonably safe in using the premises for the purposes for which they are
invited or permitted by the occupier to be there.
The duty of care to trespassers arises only when the occupier is aware of a danger
or has reasonable grounds to believe that it exists, knows or has reasonable grounds
to believe that a trespasser may be, or come into the vicinity of danger and, in all the
circumstances of the case, the risk of a trespasser coming into the vicinity of the
danger is one against which the occupier may reasonably be expected to offer some
protection.
The occupier’s duty also extends to anyone who suffers injury as a result of any
danger arising due to the state of the premises or things done or omitted to be done
on the premises, even if the person suffers injury on an adjoining highway, private
road or premises. There is further imposed a liability for damage to property brought
onto the premises by a visitor, whether or not the property belongs to the visitor, but
this liability is not imposed in relation to trespassers. Therefore, a trespasser or other
uninvited entrant cannot make a claim for damage to property.
11.88 Duty to visitors and trespassers where
property leased/rented by insolvent
In addition to the above duties of care and any other duty of care, there is a liability
for defective premises, which could be relevant if the insolvent was a landlord in
respect of any premises1. This provides that a duty of care is owed by a landlord to
visitors, and possibly trespassers, where the premises are let under a tenancy which
places the landlord under an obligation to the tenant for the maintenance or repair of
the premises or where the landlord has the right to enter the premises and carry out
such repairs.
The duty arises when there has been a breach of that obligation to repair (or failure
to exercise the right of repair) which has led to the defect in the premises which
caused an injury to, or damage to the property of, the tenant or visitor or any other
person who might reasonably be expected to be affected by defects in the premises.
This duty only applies if the landlord knew or ought in the circumstances to have
known of the relevant defects. The duty cannot be excluded and the official receiver
as liquidator, or trustee may become subject to it.
--- PDF page 35 ---
1. Defective Premises Act 1972 section 4
11.89 Action to minimise risk of liability
The official receiver should take steps to minimise the danger to visitors to the
premises and to the public generally. Otherwise, they might face a claim if, being
aware of the hazards of potentially dangerous property, or of any potential danger on
the property, they took no steps to prevent injury to the unwary visitor or trespasser
(particularly a child) or damage to property in the possession of a visitor. Any
premises of the insolvent and any potentially hazardous assets, e.g. machinery,
should therefore be adequately secured against trespassers and if there are any
potential dangers on the property, visitors should be warned in advance.
11.90 Use of warning notices
With both visitors and trespassers, there is provision for the occupier to exclude their
liability, e.g. by the use of warning notices, but the warning must be sufficient to
enable a person to be reasonably safe in order to effectively exclude liability. Note
that the ability to exclude liability is limited in the case of premises which are used by
the occupier for business purposes1.
The official receiver should consider whether it would be appropriate and advisable
to erect a notice at any premises where they are aware of an actual or potential
danger or seek to warn visitors in some other way.
1. Unfair Contract Terms Act 1977 section 1 and 2
11.91 Insurance against liability under a duty
of care
Insurance is not in itself an answer to the official receiver’s possible liability in
damages but they should ensure that adequate insurance cover, particularly public
liability cover, is in force as a matter of urgency. Reference should be made to
chapter 14 for further guidance concerning insurance cover. The official receiver
should, however, also have regard to the resources they have available to reduce
the risk of liability, including the funds available in the insolvent estate.
11.92 Duty to visitors and trespassers and the
involvement of a mortgagee or other
financially interested party
--- PDF page 36 ---
If the insolvent has vacated the premises and a mortgagee is in possession, either
independently or through an agent, e.g. a receiver, it is likely that the mortgagee will
be the occupier of the premises for the purposes of this part of this chapter. In any
particular case it may be difficult to identify who is in occupation at any one time and,
if there is any residual occupation by an insolvent, e.g. if property belonging to a
bankrupt remains on the premises although the bankrupt has vacated those
premises, the official receiver could still potentially be considered the occupier and
be liable in damages to a visitor or trespasser.
Therefore, unless it is quite clear that the mortgagee is in sole possession, a clear
understanding should be reached with the mortgagee as to the steps to be taken to
secure the premises, to display warning signs and to hold the official receiver
indemnified for any liability that might arise. Any oral agreement should, wherever
possible, be confirmed in writing. It is unlikely that a mortgagee will be willing to
indemnify the official receiver for any liability other than for the cost of securing the
premises. However, the official receiver should seek to place as much responsibility
as possible on to the mortgagee as the party with the principal beneficial interest.
The official receiver should not normally insure fully charged assets.
11.93 Dealing with waste: duty of care upon
the official receiver
The official receiver is under a duty of care imposed by environmental legislation to
ensure that waste is dealt with in the correct way. It is a criminal offence to keep or
dispose of controlled waste;, i.e. waste from households, commerce or industry, in a
manner likely to cause pollution of the environment or harm to human health. In all
cases the official receiver must take prompt action to deal with the waste.
Accordingly, where an inspecting officer finds that the insolvent has created waste to
which the duty of care applies, they should obtain details of its nature and location
and inspect it (where it is safe to do so) to establish whether it poses any immediate
threat to the environment or to human health. The inspecting officer should not put
themselves in a position of danger by handling any dangerous substances and in the
first instance assistance should be sought from the Environment Agency or a local
environmental health officer. The inspecting officer may seek advice from the local
authority responsible for waste collection in a particular area as to whether a
particular waste may or will be collected by the authority as part of its normal public
waste collection.
Post-inspection actions
--- PDF page 37 ---
11.94 Action on return to the office
On return from an inspection, the inspecting officer should ensure that all
outstanding matters are dealt with and that all paperwork is placed on the fileplan. In
particular the following actions may need to be carried out:
•
any cash, valuables or policy documents handed to the cashier with the provisional
receipt book for placing in the safe
•
any keys to the premises should be clearly labelled with the full case details, and
address details, and handed to the cashier
•
if insurance is required on the premises or other assets, this should be arranged
without delay
•
any accounting records collected should be recorded on the case file by the next
working day, boxed up and labelled if not already done so (see chapter 16)
•
write up the notes of the inspection and place on the fileplan.
•
place the inspection report and other paperwork generated on the fileplan
•
ensure any computers collected are secure, either at the agents or in the office, and
if not yet collected arrange for the collection of them by an appropriate person (see
chapter 16)
•
contact any third parties either by telephone or letter regarding any further enquiries
needed (Such as owners of third party goods, employees, accountants)
11.95 Delivery of cash and valuables to cashier
All money or valuables, e.g. jewellery, cameras etc. must be handed to the cashier
on return from an inspection and a note made on the valuables register. The
provisional receipt counterfoil should be produced for any cash and in the absence of
the cashier, the official receiver or assistant official receiver should take the items
into their custody, initialing the counterfoil as a temporary discharge to the inspecting
officer in respect of the cash. The cashier must endorse the counterfoil with the date
and number of the official receipt issued in substitution of the provisional one and
must ensure that the previous counterfoil has already been dealt with in a similar
manner. The cashier should send the official receipt direct to the bankrupt or other
person from whom the money was received (not through the examiner or inspecting
officer) within three days of receipt of the money.
Tracing inspections - overview
11.96 What is a tracing inspection?
--- PDF page 38 ---
A tracing inspection may be defined as a visit by the official receiver to an address
that has been disclosed in the winding up or bankruptcy order, or discovered by the
official receiver during the course of their inquiries for the purpose of ascertaining the
whereabouts of the director or bankrupt, and establishing initial contact.
11.97 Purpose of a tracing inspection
A tracing inspection is normally carried out in cases where co-operation from a
director or bankrupt has not been achieved at the initial stages, and they have also
failed to attend one or more interview. The purpose of the inspection is to ascertain
the whereabouts of the director or bankrupt, and establish initial contact. The official
receiver must attempt to trace a director or bankrupt to gather sufficient details to
administer the case, and carry out their statutory duties.
11.98 When is a tracing inspection necessary?
– Company cases
The aim of the initial contact with the officer(s) of a company is to obtain sufficient
information to ensure that the official receiver is able to protect the estate and
minimise risks without repeating the questions in the PIQC.
Where contact with the company’s officers has not been made a tracing inspection
may be necessary to establish the above information.
It may not be necessary to undertake a tracing inspection on other non-cooperative
directors, if at least one director has co-operated, provided sufficient information, and
there are no matters of concern.
11.99 When is a tracing inspection necessary?
– Bankruptcy cases
In a bankruptcy case, a tracing inspection is most likely to be needed on an order
made on a creditor’s petition. In an adjudicator case, co-operation is likely to be
offered by the bankrupt at the outset.
11.100 Tracing inspection to establish ‘centre
of main interest’ (COMI) in cases of foreign
nationals
The adjudicator will carry out thorough investigations into nationals of European
Union Member States outside of the UK who may have moved to England or Wales
--- PDF page 39 ---
to file a bankruptcy petition and take advantage of more favourable insolvency
legislation. The EC Regulation requires main proceedings to be opened where the
debtor’s ‘Centre of Main Interests’ (‘COMI’) is situated. The adjudicator will not make
the order until satisfied the UK is the bankrupt’s COMI. Therefore it is rare that an
order will have been made against a foreign national whose COMI is outside the UK.
Where it is suspected that the debtor does not reside in the UK it may be necessary
to inspect the residential/trading address given on the petition/bankruptcy order to
ascertain whether the bankrupt is present or in control of that address. In some
instances a debtor may be using an accommodation address provided by a company
who is assisting them on becoming bankrupt in the UK.
11.101 Use of tracing agents
Consideration should be given as to whether it is more cost effective to instruct
agents to carry out a trace inspection, when taking into consideration, number of
staff required to attend, distance to travel, time out of the office, T&S claim. Timing of
the instruction of trace agents should also be considered and should usually be
instructed after the second missed appointment.
11.102 Instructing tracing agents
All new instructions for individual tracing inspections and service of documents
should be made on a rota basis and sent via email using the instruction form
template to: -
Strategic Intelligence & Risk Services (Europe) Ltd Keith.stowell@sirseurope.co.uk
or
The Surveillance Group info@thesurveillancegroup.com
The appropriate forms and documentation required for instructing these agents are
available on the Trace Agent intranet site, including a table showing the rates
charged by the different agents. Once an agent has been selected on the instruction
form should be completed, providing as much information as you have already
ascertained, then emailed to that agent using the above contact details.
The chosen agent should confirm receipt of the instruction within 24 hours, where
this has not happened confirmation of receipt should be obtained. A note should be
made on the case file detailing the instruction provided to the agent. Invoices will be
received and dealt with centrally.
11.103 Timing of tracing inspection
--- PDF page 40 ---
A tracing inspection should be carried out as soon as possible after a second missed
appointment, if all desk based avenues have been exhausted and no contact made.
When a decision is made to carry out a tracing inspection, consideration should be
given to the geographical area covered by the office and whether the distance to the
trace address(es) makes it an effective use of resource for the office to conduct the
trace inspection or whether a trace agent should be instructed instead.
11.104 Tracing inspections prior to public
examination
If the whereabouts of an individual is uncertain, a tracing inspection should always
be carried out prior to a public examination being held. This will ensure that the
official receiver can demonstrate to the court that all possible action has been taken
to trace the individual.
11.105 Location of tracing inspection
In a company case, a tracing inspection is likely to be at the address(es) of one or
more of the directors as well as the companies last trading address(es) and
registered office. It will not be necessary to visit the registered office if contact has
already been made with that address, for example, when the registered office is also
the address of the accountant or solicitor.
In bankruptcy a tracing inspection should take place in respect of the most recent
address(es) for the bankrupt disclosed in the bankruptcy order or at an address
determined by to the official receiver during the course of enquiries made.
11.106 Research to determine locations for
tracing inspection
Prior to carrying out a tracing inspection, the examiner should ensure that they have
attempted to contact the individual concerned through all available means. This is
likely to include, but should not be limited to the following sources of information:
a) an Equifax search which will give details of address history, telephone numbers,
voters roll information and outstanding judgements, including an advanced Equifax
search
b) a land registry search on all addresses available for the insolvent and/or officers to
ascertain ownership of the property
c) the petitioning creditor and/or solicitor
--- PDF page 41 ---
d) any accountant and/or solicitor traced for the insolvent
e) an IIR search and/or companies house search
f) contacting the local authority in which it is believed the bankrupt/director resides
g) ISCIS case and party searches
h) regulatory bodies
This is to ensure that all potential addresses are discovered prior to the inspection,
and to minimise the possible need for a further inspection at a later date. It will also
increase the chances of locating the insolvent or officer whilst on the inspection.
Carrying out a tracing inspection
11.107 Action to take at each address
When attending each address discovered for the insolvent or company officer, an
assessment should be made of the premises and the area, prior to getting out of the
vehicle if possible. Notes should be made on the type of property, condition, whether
it appears to be occupied (for example are there lights on or windows open), if it is
for sale details of the estate agents should be taken from the ‘for sale’ board. A note
should also be made of any vehicle parked at the address, including the vehicles
registration marks, make and model, so that a HPI/DVLA search may be conducted
on return to the office if considered necessary.
The examiner should then knock on the door of the address visited. If there is no
answer, an appointment pack or letter (as appropriate) should be posted through the
letterbox, and the neighbours visited as well (see below).
11.108 Contact with a company officer
If a company officer is found, initial enquiries must be undertaken. They should also
be served with a copy of the winding-up order, and an appointment pack by hand. It
should be ascertained whether they intend to attend the interview, and if not why not.
If they are uncooperative and state they will not be attending the interview, the
examiner should make them aware of the requirement on them to co-operate, and
the possibility that a public examination may be held The examiner might feel it
appropriate to suggest that the officer seek some independent legal advice.
11.109 Contact with a bankrupt
--- PDF page 42 ---
If a bankrupt is found, initial enquiries must be undertaken. They should be served
with a copy of the bankruptcy order, and an appointment pack by hand. Enquiries
should be made as to whether they are going to attend the interview, and if not why
not. If they are uncooperative and state they will not be attending the interview, the
examiner should make them aware of the requirement on them to co-operate, and
the possibility that a public examination may be held. The examiner might feel it
appropriate to suggest that they seek some independent legal advice.
11.110 Contact with neighbours
If there is no answer at the insolvent’s address, then the examiner should knock on
the doors of the nearest neighbours. If a neighbour answers the door, mention
should not be made of the bankruptcy/liquidation, but the warrant card should be
shown and the examiner should introduce themselves as an employee of the
Department for Business Energy and Industrial Strategy. Enquiries should be made
as to whether the bankrupt/company officer still lives at said address, and when they
are likely to return, when they last saw them. It may also be useful to obtain a
description of the officer/bankrupt if further addresses are to be visited. If they no
longer live there, the examiner should enquire as to when they left and if they have a
forwarding address, or phone number.
11.111 Action following tracing inspection
Immediately following the tracing inspection, the examiner should call the office to
confirm they have finished and if/what time they expect to return to the office.
When next in the office the examiner should write up a report of the inspection
detailing the addresses visited, what was found and who was spoken to. This should
be signed and dated with both the date of the inspection, and the date of the report
and saved to the Preliminary Investigation Papers on the fileplan.
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 10 March 2020.
12. Creditor action against the insolvent
and their property
Annexes
Annex A
Chapter content
Frequently asked questions
Creditor action against the insolvent and the insolvent's property – general overview
Powers of creditors generally to take control of a debtor's goods
Creditor taking control of goods and insolvency - general background and initial action to
take
Insolvency and the execution of a judgment by a creditor
Dealing with recovered goods
Insolvency and the taking control of goods by a creditor other than in execution of a
judgment
Creditor applying for or enforcing a charging order in relation to the insolvent's property
Liens
Attachment of earnings and attachment of debt
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Frequently asked questions
In what circumstances can a creditor take a
debtor’s goods?
There are three main routes by which a creditor can seek to take a debtor’s goods to
recover a sum of money. These are following the obtaining of a court judgment,
following the obtaining of a liability order (by organisations such as the Child Support
Agency or local authorities) or by a landlord where rent is outstanding. HMRC also
have an ability to take goods where sums are outstanding.
A landlord’s ability to take goods – Isn’t
that called distraint?
It was called distraint, the act of recovery being known as the levying of distress.
This ancient right was repealed on 6 April 2014 and replaced by a more regulated
and limited process called taking control of goods.
When can a landlord take control of goods?
A landlord may take control of goods by following a process known as Commercial
Rent Arrears Recovery (‘CRAR’). As the name suggests, the process is open only to
landlords of commercial premises and can only be used to recover rent. Additionally,
there must be a lease in place. In all other circumstances it will be necessary for the
landlord to obtain a court judgment to recover outstanding rent.
How does the obtaining of a judgment lead
to the ability to take control of goods?
A judgment can be a decision of a court that one person is liable to pay another
person a sum of money. If that person does not pay over the sum, the court can
issue a warrant, or writ of control, which allows the judgment creditor to appoint a
person to recover the sum due by following the taking control of goods process.
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Can a creditor still take a debtor’s goods
even if they have gone into liquidation or
bankruptcy?
Generally speaking, a creditor is prohibited from taking a debtor’s property once they
have gone into formal insolvency. These are however some steps that they can take
to recover property and these are explained in detail below.
What should I do if the creditor is trying to
take a debtor’s goods in circumstances
where they have no power to do so?
The creditor should be informed of the restrictions that apply once formal insolvency
commences and advised of their ability to make a claim in the insolvency. Assuming
that the action being taken does not involve assets in the insolvency, this is
ultimately a matter between the bankrupt and their creditor and, beyond informing
the parties of the legal position, the Official Receiver need not be involved.
What about an attachment of earnings
order?
An attachment of earnings order is a court order that allows a creditor to take a
portion of a debtor’s salary, direct from the employer, until a debt is repaid. Such an
order is discharged by the making of a bankruptcy order, and the Official Receiver
would normally only assist in this process, if required, to obtain an IPA.
What is a lien?
A lien is a right of a creditor to hold goods and sell them if a cost incurred in relation
to those goods has not been paid by the debtor. An example would be a garage
holding a debtor’s car against and unpaid repair bill. Liens are generally enforceable
even where formal insolvency has commenced – though not if the lien relates to the
insolvent’s papers.
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Creditor action against the insolvent and
the insolvent's property – General
overview
12.1 Introduction
This chapter provides guidance and information to assist the official receiver when
dealing with the situation of a creditor attempting to take action against the insolvent
and, in particular, the property of the insolvent.
The chapter covers the situations where such action is permitted, and provides
guidance to assist the official receiver in ensuring that the action is carried out within
the limits permitted by the legislation.
Despite the general prohibition of creditors taking action against the property of the
insolvent once insolvency proceedings have commenced (which is generally the
presentation of the petition in a winding-up and the date of the order in a
bankruptcy), certain creditors retain rights to take action against property, and others
sometimes attempt to take action where no rights exist.
12.2 Circumstances under which a creditor
may be able to take action against property
of the insolvent after commencement of
insolvency
There are certain situations where creditors may, in limited circumstances, retain a
right to take action against the property of the insolvent after the commencement of
insolvency. These circumstances are outlined here and detailed guidance is given
below:
•
in execution of a judgment
•
the enforcement of a commercial rent arrears recovery (‘crar’)
•
secured creditor enforcing security
•
creditor claiming a lien
•
attachment of earnings or attachment of debt
12.3 Legal actions against the insolvent or
property of the insolvent
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When a winding up order is made against a company, no action or proceeding can
be taken against the company without the permission of the court1. Matters are
slightly different in bankruptcy as, where bankruptcy proceedings are pending; the
court may stay any proceedings or allow them to continue on any terms that it thinks
just. When a bankruptcy order is made, the creditor can have no remedy against the
bankrupt and cannot commence any legal proceedings2.
Where proceedings are on-going at the date of the order, or are commenced after
the date of the order, the official receiver should notify the claimant and the court of
the making of the order and the statutory provisions outlined above3.
1. Section 130(2)
2. Section 285(2) and (3)
3. RRLPC
12.4 Action short of legal proceedings
being taken against the bankrupt
Occasionally, a creditor will continue to write to a bankrupt, or otherwise contact
them, requesting repayment of a debt, despite being on notice of the bankruptcy.
Assuming that the official receiver is satisfied that the debt concerned is a
bankruptcy debt (and not, for example, a non-provable debt) the creditor should be
written to reminding them of the making of the bankruptcy, informing them that they
are listed as a creditor in the proceedings and outlining the restriction on remedies1.
Ultimately, however, the responsibility for dealing with continuing contact by creditors
rests with the bankrupt, who may choose to report matters to the Police where such
contact is perceived to be harassment, or similar.
1. RRL
Powers of creditors generally to take
control of a debtor's goods
12.5 Creditor taking control of goods –
General
The ability of a creditor to seek recovery of debts through the removal and sale of
property of the debtor, whether after obtaining a court order or through common-law
or statutory rights not involving the courts, has been formalised in statute, bringing
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into force a tightly regulated process. This process is known as ‘taking control of
goods’.1, 2
This section provides an overview of the legislation and the following sections
explain how the provisions interact with the insolvency provisions.
1. Tribunals, Courts and Enforcement Act 2007, Part 3
2. Taking Control of Goods Regulations 2013
12.6 Taking control of goods – General
The process for taking control of goods applies where an enactment, writ or warrant
confers power to take control of goods and sell them to recover a sum of money1. It
also applies in respect of a ‘Commercial Rent Arrears Recovery’ (‘CRAR’). In
summary, the process is one that allows a creditor to take control of the goods of a
debtor and sell them to recover a sum of money, but also has in place protections of
the rights of the debtor. Where such a power to take control of and sell goods exists
it may only be put into force by following the procedure in the legislation.
1. Tribunals, Courts and Enforcement Act 2007 section 62
12.7 Taking control of goods – Use of
enforcement agents
One of the key features of the taking control of goods legislation is that the process
may only be carried out by certified ‘enforcement agents’, whose power to act can be
withdrawn where it is shown that they are in breach of the rules governing the
process. 1, 2
1. Tribunals, Courts and Enforcement Act 2007 sections 63 and 64
2. Tribunals, Courts and Enforcement Act 2007 schedule 12, paragraph 2
12.8 Enforcement agents
An individual may not act as an enforcement agent unless they1;
•
obtain a certificate to act from the county court
•
are exempt from the need to have such a certificate (a police constable, an officer of
Revenue and Customs, a person appointed as a court officer or staff, or when is
acting in the course of their duties as an officer of a government department), or
•
are acting in the presence and under the direction of either a person with a certificate
or an exempt person.
1. Tribunals, Courts and Enforcement Act 2007 section 63
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12.9 Execution of a judgment
It is necessary for a judgment creditor, following the obtaining of a writ of control or
warrant of control, to follow the taking control of goods process set by the legislation.
12.10 High Court writs of control and
County Court warrants of control
Where a creditor has obtained a judgment for a debt of more than £600 and the
debtor has not satisfied the judgment, the creditor may apply to the High Court for a
writ of control to take control of goods.
If the debt is more than £5,000 the creditor is obliged to apply to the High Court.
For a debt between £600 and £5,000, the creditor has the choice of issuing a
warrant in the County Court or in the High Court. The enforcement of an agreement
under the Consumer Credit Act 1974 may however only be enforced in the County
Court. Where the debt is below £600, the creditor is obliged to apply to the County
Court1.
1. High Courts and County Courts Jurisdiction Order 1991 article 8
12.11 Time limits relating to writs and
warrants of control
A creditor can apply for a writ of control or a warrant of control at any time up to six
years after the date of the judgment1.
Writs and warrants last for 12 months but can be renewed if application is made
before the expiry of the original writ/warrant2.
1. Civil Procedure Rules 1998 part 83.2
2. Civil Procedure Rules 1998 part 83.3
12.12 Stay of execution
The court has the power to stay the execution of a writ or warrant for such time and
on such terms as it thinks fit 1, 2.
1. Tribunals, Courts and Enforcement Act 2007 section 70
2. County Courts Act 1984 section 88
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12.13 Appointment of an enforcement
officer to execute a High Court writ
England and Wales is divided into districts for the purpose of the execution of High
Court writs, and at least one enforcement officer (HCEO) is assigned to each district.
An enforcement officer who is appointed to the district to which the writ relates will be
appointed to execute the writ of control. HCEOs also have discretion to accept writs
for anywhere in England and Wales, but may decline to accept a writ if it is for an
area to which they are not assigned. Judgment creditors are able to request that a
particular HCEO acts in execution of a writ, otherwise writs are allocated for
execution on a rota basis1.
An HCEO is not a court employee and will therefore have to qualify as an
enforcement agent in order to act in relation to writs of control.
Further information regarding HCEOs can be found on the High Court Enforcement
Officer’s Association website.
1. Courts Act 2003 schedule 7
12.14 The execution of a warrant of control
– County Court bailiff
A warrant of control is dealt with by a County Court bailiff, who is a salaried court
employee and, as such, is considered to be a qualified enforcement agent for the
purposes of the legislation, giving them the ability to take control of goods.
The warrant gives the bailiff the power to take control of goods, and they are obliged
to deal with the warrant as soon as possible. The bailiff is liable for damages to the
creditor if they, by reason of neglect, connivance or omission, lose the opportunity of
executing the warrant1.
1. County Courts Act 1984 section 124
12.15 Private (certified) bailiffs
Private bailiffs are either self-employed or employed by commercial firms. They often
carry out enforcement for:
•
the local authority, for council tax arrears;
•
magistrates’ courts, to collect fines and penalties;
•
the child support agency, to collect unpaid child maintenance;
•
landlords, to collect rent under a CRAR; or
•
HMRC to collect unpaid income tax or VAT.
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Private bailiffs generally need to be certified by a County Court to carry out
enforcement activity of this sort. Similarly, they are required to qualify as
enforcement agents to carry out the taking control of goods procedure.
12.16 Taking control of goods by
magistrates’ court
Where there is a default in paying a sum adjudged to be paid by a conviction or
order of a magistrates’ court, the court may issue a warrant of control allowing the
taking control of goods process to be instigated1. Generally, such warrants are
enforced by private bailiffs but may be enforced by a magistrates’ court bailiff.
1. Magistrates’ Courts Act 1980 section 76
12.17 Commercial Rent Arrears Recovery
(‘CRAR’)
The process by which a landlord of commercial premises can seek to recover rent
arrears is by following the ‘taking control of goods’ process. The process, when used
by a landlord to recover arrears in this way, is known as Commercial Rent Arrears
Recovery (‘CRAR’) 1.
A CRAR can only be used in relation to a property that is wholly commercial2. There
must be a lease and the recovery can be only for ‘pure’ rent, due and payable,
including interest and tax on interest but not to include, for example, council tax,
service charges or utilities charged under the lease, or uncertain amounts3, 4. In this
context, ‘landlord’ can generally be taken to mean the person, in relation to a lease,
entitled to the immediate reversion in the property comprised in the lease, or a
mortgagee in possession5.
A CRAR can only be carried out by an enforcement agent appointed by the landlord.
Otherwise, it will be necessary for the landlord to obtain a judgment before
instigating the taking control of goods process.
1. Tribunals, Courts and Enforcement Act 2007 section 72
2. Tribunals, Courts and Enforcement Act 2007 section 75
3. Tribunals, Courts and Enforcement Act 2007 sections 76 to 77
4. Taking Control of Goods Regulation 2013 regulation 52
5. Tribunals, Courts and Enforcement Act 2007 section 73
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12.18 CRAR against sub-tenant
Where a landlord has the right to use CRAR against the immediate tenant, the right
exists to instead serve a notice on any sub-tenant requiring that sub-tenant to pay
rent due directly enforcement agent under the CRAR, instead of paying it to their
own landlord in the usual way. This arrangement will continue until the sub-tenant
ceases to be liable for rent or the arrears are paid off.
For as long as the notice has effect, the superior landlord has the right to recover
from the sub-tenant the amount due by the use of a CRAR1.
1. Tribunals, Courts and Enforcement Act 2007 section 81
12.19 Taking control of goods by HMRC
HMRC have the power to instigate the taking control of goods process without a prior
court order1.
Officials of that department are considered to be enforcement agents for the
purposes of the legislation, meaning that a private bailiff need not be appointed to
carry out the process, but may be so appointed.
1. Finance Act 2008 section 127
12.20 Taking control of goods by the Child
Support Agency
The Child Support Agency can, after obtaining a liability order (which is an order
given by a Magistrates’ Court that the debt be repaid), use the power to take control
of goods, engaging an enforcement agent, to the extent that the liability order
remains unpaid1. Generally, such warrants are enforced by private bailiffs.
1. Child Support Act 1991 section 35
12.21 Taking control of goods by local
authorities
A local authority can, after obtaining a liability order (which is an order given by a
Magistrates’ Court that the debt be repaid), use the power to take control of goods,
engaging an enforcement agent, to the extent that the liability order remains unpaid1.
Generally, such warrants are enforced by private bailiffs.
1. Local Government Finance Act 1988 section 62A
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Creditor taking control of goods and
insolvency - General background and
initial action to take
12.22 Taking control of goods and
insolvency – General
There are provisions in the Act which allow a creditor with the right to take control of
goods, including a landlord under a CRAR, to achieve limited priority over other
creditors of the insolvent. Further details are given below to assist in establishing
whether the creditor has applied the rules correctly.
12.23 Initial action by the official receiver –
Establish if goods taken control of
The official receiver should at an early stage in the insolvency establish from the
directors, bankrupt or other relevant third party (for example employees or
professional advisors) whether any of the insolvent’s property has been taken control
of.
12.24 Can the controlled goods be claimed
for the estate?
The official receiver needs to consider whether goods taken by a creditor in respect
of the execution of a judgment or a CRAR may be claimed for the benefit of the
bankrupt’s estate. The official receiver should consider, in particular, whether the
CRAR process or execution (as the case may be) has been followed correctly. In
this, the official receiver may consider the information above, but is entitled to
assume that the process has been correctly followed unless information to the
contrary is made available.
The official receiver should also consider when the goods were taken, whether the
sale of the goods has been completed and whether (in company cases) the goods
were subject to a charge.
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12.25 Obtain details of the goods taken
control of
Once the official receiver has established that goods have been taken control of,
steps should be taken to ascertain from the insolvent or other third party, the
following information:
•
the date that goods were taken control of
•
that name and address of the creditor
•
the name and address of the enforcement agent who dealt with the process;
•
the amount of the debt
•
details of the goods taken control of and, if removed, the location of those goods, and
•
a copy of the notice of taking control of goods issued by the enforcement agent
•
whether the goods have been sold and, if so, the date of the sale
12.26 Inform interested parties of the
making of the order – County court
In respect of County Court warrants of control, written notification of the making of an
insolvency order and the appointment of the official receiver1 should immediately be
sent or given to the relevant county court district.
A judgment creditor may obtain warrants in more than county to recover the
judgment debt. The official receiver should serve notice on the county court district in
each county in which the insolvent is believed to have held or occupied property or
traded.
1. NORD1
12.27 Inform interested parties of the
making of the order – High Court
Enforcement Officer
Any High Court Enforcement Officer (HCEO) can execute a writ of control in any
county. If the official receiver is not aware of which HCEO has been appointed, it will
not be possible to issue the standard letter of notification1.
A directory of HCEOs can be found on the High Court Enforcement Officer’s
Association website.
In the event that the official receiver has information that a writ of control has been
issued in relation to a debt, but is unaware of which HCEO has been appointed they
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may send the standard letter2 to the creditor asking them to provide details of the
HCEO appointed. The standard letter of notification can then be issued to the HCEO.
The notice should be issued electronically, where possible, but if it is issued by post
it should be sent by recorded delivery3, 4.
1. NTSH
2. HCELCT
3. Rule 1.47
4. Rule 12.57(2)
12.28 Inform interested parties of the
making of the order – Private bailiff acting
as enforcement agent
The official receiver should serve notice of the insolvency on any private bailiff acting
as an enforcement agent appointed by a creditor to take control of goods.
12.29 Notice to enforcement agent where
sale is imminent
Where property of the insolvent is about to be sold by the enforcement agent
charged with taking control of the goods, the official receiver must take urgent action
to ensure that the agent is aware of the insolvency order. If necessary, this may
mean that the official receiver has to serve notice by hand.
Once notice has been served, the official receiver may allow the sale to proceed
providing the guidance at paragraph 12.48 is followed.
Service of the notice upon an agent of the enforcement agent or on an auctioneer
instructed by the officer will not be sufficient notice to stop the sale1, 2.
1. Hellyer v Sheriff of Yorkshire [1975] Ch 16
2. Re Bishop ex parte Langley [1879] 13 ChD 110 CA
12.30 Official receiver to move goods under
threat of control
It may be prudent for the official receiver to remove to storage goods at the
insolvent’s premises that are under threat of control, subject to cost/benefit
considerations.
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12.31 Official receiver has no duty to
inform creditor of intention to move goods
It is not necessary for the official receiver to give a creditor with a right to take control
of goods any notice of an intention to remove or dispose of the insolvent’s goods.
Notice should however be given where the creditor has requested to be kept
informed, or the official receiver intends to dispose of the goods in situ.
12.32 Goods taken control of by HMRC
Subject to the restrictions outlined above, HMRC has the right to take control of a
bankrupt’s goods at any time1 (even after the making of the order).
1. Section 347(8) and (9)
12.33 Goods taken control of by HMRC after
bankruptcy order
HMRC have agreed with The Service that where they have taken control of goods
after the date of the bankruptcy order, the goods or the related proceeds of sale, will
be passed to the official receiver upon notification of the bankruptcy order and
receipt of a request for the goods or proceeds of sale.
HMRC have also agreed that they will not exercise their right to take control of goods
after they become aware of the bankruptcy order unless other creditors entitled to
take control of goods have, to the detriment of HMRC, taken control of goods or if
the debtor continues to trade.
12.34 Charged goods taken control of
(companies only)
Where there is a fixed charge over a company’s assets which have been taken
control of by another creditor, the official receiver should inform the chargeholder of
the action taken against the goods and take no further action in the matter (provided
there is no doubt as to the validity of the charge).
12.35 Receiver/administrative receiver
appointed
Where a receiver or administrative receiver has been appointed, the question of
taking control of goods should be left to the administrative receiver to resolve,
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provided the charge under which the appointment is made covers the
controlled/threatened goods.
Insolvency and the execution of a
judgment by a creditor
12.36 Overview and definition of terms
A creditor’s right to take control of goods to enforce a judgment (commonly known as
execution) will be affected by the making of an insolvency order and the
effectiveness of the execution will depend on a number of factors which are
considered below.
The terms ‘execution’ and ‘taking control of goods’ should be taken to mean the
same as each other in respect of the enforcement of a judgment1. For the sake of
simplicity and with the aim of reducing any confusion the term execution is used in
this section of the guidance.
1. Tribunals, Courts and Enforcement Act 2007 section 62
12.37 Goods taken control of on behalf of
judgment creditor prior to commencement
of insolvency
Where the execution has been completed prior to the commencement of insolvency
proceedings (the date of the presentation of the petition in a liquidation; the date of
the order in a bankruptcy), the creditor will be entitled to retain the benefit of the
execution1, 2.
This includes any payments, including instalment payments, made to the creditor
under a controlled goods agreement3.
1. Section 183(1) and (2)
2. Section 346(1) and (5)
3. Re Samuels [1935] Ch 341
12.38 Enforcement agent to hold sale
proceeds for 14 days
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If a judgment debt is greater than £500 in relation to a company or £1,000 in relation
to an individual, an enforcement agent must hold the proceeds from the sale of
controlled goods for a period of 14 days from the date of sale, pending the
presentation of any petition for winding-up or bankruptcy1, 2, 3. If the judgment debt is
less than the amounts outlined above, but the addition of allowable expenses results
in the amount outstanding exceeding this amount, the officer charged with the
execution must also hold the sale proceeds for 14 days4.
1. Section 184(3) and (4)
2. Section 346(3) and (4)
3. Insolvency Proceedings (Monetary Limits) (Amendment) Order 2004
4. Re Brubb ex parte Simms (1877) 5 Ch D 375
12.39 Enforcement agent to hold sale
proceeds if receives notice of petition
If the enforcement agent charged with the execution receives notice of an insolvency
petition (or, in the case of a company, notice of a voluntary winding-up) within the 14
days in which they are required to hold the proceeds, then they must hold any funds
for the liquidator or trustee if an order is subsequently made1, 2, 3.
1. Section 184(4)
2. Section 346(3)
3. Marley Tile Co Ltd v Burrows [1978] QB 241
12.40 Definition of the completion of the
process
The legislation provides that the taking control of goods process is completed by
seizure and sale, or by the making of a charging order1, 2.
It has, however, been held that the process is not complete if monies are still in the
hands of the enforcement agent. If therefore, the enforcement agent charged with
the execution still holds the proceeds of sale or goods on receipt of the notice of the
insolvency, they must pass the funds or goods to the liquidator or trustee3, 4, 5.
1. Section 183(2)
2. Section 346(5)
3. Section 184(2)
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4. Section 346(2)
5. Bramley Ltd v Leigh [1950] 2 KB 548
12.41 Funds held by officer when notice of
order received
If the enforcement agent charged with the execution is holding funds when they
receive notice that a winding-up order or bankruptcy order has been made, the funds
will be payable to the liquidator or trustee, after the deduction of the costs of
execution1, 2.
1. Section 184(4)
2. Section 346(3)
12.42 Funds paid over to creditor after
receipt of notice
The enforcement agent may be sued by the liquidator or trustee if proceeds are paid
to the judgment creditor despite the officer charged with the execution having
received notice1. The officer may, in turn, sue the judgment creditor2.
1. Notley v Buck [1828] 108 ER 1003
2. Re Husband [1875] LR 19 Eq 438
12.43 Execution after notice of proposed
voluntary liquidation
Where a voluntary liquidation precedes a winding-up order, the creditor will not be
able to retain the proceeds if they had notice of the proposed voluntary liquidation
before the completion of the execution1, 2.
1. Section 183
2. Re Caribbean Products (Yam Importers) Ltd [1966] Ch 331
12.44 Execution after the commencement
of winding up
Any execution carried out after the commencement of a winding up (being the
presentation of the petition) is void against the liquidator1. Any goods or proceeds of
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sale held by the enforcement agent or court bailiff should be passed to the liquidator.
Additionally, any proceeds passed to the creditor should be recovered.
1. Section 128(1)
12.45 Execution after commencement of
bankruptcy
After the making of a bankruptcy order, no person who is a creditor of the bankrupt in
respect of a debt provable in the bankruptcy shall have any remedy against the
property of the bankrupt in respect of that debt1.
Any goods or proceeds of sale held by the enforcement agent should be passed to
the trustee. Additionally, any proceeds passed to the creditor should be recovered.
1. Section 285(3)
12.46 Recovery of execution in partnership
cases
If a winding-up order is made against a partnership, the official receiver should seek
to recover any monies in accordance with the following guidance, bearing in mind
that any execution after the commencement of the winding up (including one
instigated by the official receiver as trustee of the partners’ estates) will be void.
Where there are bankruptcy orders against the partners, but no winding-up order
against the partnership, and there is an execution against the partnership, the official
receiver will have to propose the argument that the judgment creditor is a creditor of
the partners (the partnership having no legal rights or liabilities of its own) in order to
seek to recover property.
12.47 Execution for non-provable debt –
official receiver as trustee (bankruptcy
only)
Where the creditor’s debt is non-provable in the bankruptcy, the creditor may
continue proceedings after a bankruptcy order with the permission of the court1. The
creditor is, however, restricted to taking action against property acquired by the
bankrupt after the date of the bankruptcy order, which property has not been claimed
by the trustee at the time the writ or warrant of control was delivered to the
enforcement agent.
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It is important therefore that, for property not removed from the bankrupt’s premises,
there is an accurate inventory of property belonging to the estate or, for after-
acquired property, a copy retained of the notice claiming the property. It is often
better that the property is removed to storage where possible.
1. Section 285(1) and (2)
Dealing with recovered goods
12.48 Dealing with goods recovered from
enforcement agent
Where the official receiver has recovered goods in the possession of an enforcement
agent, the goods should be realised as appropriate.
It ought not to be necessary to verify if there is any third party property in the goods
recovered, as it is not possible for an enforcement agent to take control of third party
property1.
As an alternative to taking delivery of the goods, the official receiver may agree to
the sale being conducted by the enforcement agent, if this will result in a better
return to the estate. In this regard, the official receiver should consider the removal,
sale and storage charges of each option, and the possibility that a better return may
be obtained if, where the enforcement agent only holds a portion of the insolvent’s
goods, the sale of the whole of the assets would be more advantageous.
1. Tribunals, Courts and Enforcement Act 2007 schedule 12 paragraph 10
12.49 Dealing with seized goods where
annulment, rescission, etc. is possible
If there is a possibility of the insolvency order being rescinded, appealed, stayed or
annulled, the enforcement agent should not be instructed to undertake a sale of the
goods.
Where there is likely to be a delay before the hearing, the official receiver may
proceed with the sale with the agreement of the judgment creditor and
directors/bankrupt. If such agreement cannot be obtained and the official receiver is
concerned at storage charges, or similar, they should apply to court for directions1, 2.
1. Rule 13.4
2. Section 303(2)
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12.50 Costs of execution
Where funds are to be remitted to the official receiver by the enforcement agent less
costs, details of those costs should be requested1. If the official receiver considers
the declared costs to be excessive, an explanation should be requested in respect of
any disputed item.
If the agent refuses, or is unable to do so and also refuses to adjust their costs, the
official receiver may require, in writing that the bill of costs be subject to detailed
assessment.
1. Rule 12.42
Insolvency and the taking control of
goods by a creditor other than in
execution of a judgment
12.51 Scope of this section of the guidance
This section of the guidance provides guidance on the interaction between a
creditor’s right to take control of goods other than in execution of a judgment and the
insolvency legislation.
12.52 Continuing use of the term ‘distress’
in the insolvency legislation
Whilst the term ‘distress’ was updated in the general legislation in April 2014 and is
now known as ‘taking control of goods’, the term distress continues to be used in the
insolvency legislation1, 2, 3. Distress, for the purpose of the insolvency legislation is
defined as including ‘use of the [taking control of goods process] and references to
levying distress, seizing goods and related expressions shall be construed
accordingly’4.
1. Section 128
2. Section 176
3. Section 347
4. Section 436
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12.53 Power of creditor to take control of
goods other than in execution of a
judgment – Qualifying creditors
An enforcement agent acting on behalf of a landlord may take control of goods under
a CRAR in certain circumstances.
The HMRC have a general power to take control of goods and the Child Support
Agency and local authorities may also do so, appointing a private bailiff as
enforcement agent, after obtaining a liability order.
Such creditors will be known as ‘qualifying creditors’ for the purposes of this part.
12.54 Ability of a qualifying creditor to take
control of goods in insolvency
In a company case, a creditor has effectively no ability to take control of goods after
the presentation of the winding-up petition.
In bankruptcy, subject to the restrictions in terms of time-limits outlined below, the
enforcement agent on behalf of qualifying creditor may take control of goods at any
time (even after the making of the order), but not after discharge in respect of a debt
incurred before the date of the bankruptcy and, in the case of a landlord, only for rent
due for the six-months prior to the beginning of the bankruptcy1.
1. Section 347(1) and (5)
12.55 Amount in relation to which landlord
can validly take control of goods
(bankruptcy only)
A landlord’s right to take control of goods post-bankruptcy is limited to rent for the six
months prior to the bankruptcy order. The legislation provides that, when calculating
the amount of rent in relation to which the landlord may validly take control of goods,
rent should be considered as accruing from day to day and should be apportionable
in respect of time accordingly. If rent is payable in arrears, it should be apportioned
using a figure for the daily rent multiplied by the number of days for which rent is
outstanding up to the date of the bankruptcy order1.
Where rent is payable in advance, and is due for payment prior to the date of the
bankruptcy order, it should not be apportioned even if part of the rent is for a period
after the date of the order2.
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1. Apportionment Act 1870 section 2
2. Re Ellis v Rowbotham [1900] 1 QB 740
12.56 Goods taken control of more than
three months before the order
If an enforcement agent has taken control of goods more than three months before
the insolvency order, the qualifying creditor is entitled to retain any goods or monies
that that may still be held at the date of the order, unless, in a company case, the
goods were taken control of after the presentation of the winding-up petition1, 2, 3, 4.
1. Section 128(1)
2. Section 176(2) and (3)
3. Section 347(3) and (4)
4. Re Bellaglade [1977] All ER 319
12.57 Goods taken control of after the
presentation of a winding-up petition
Any taking control of goods process by an enforcement agent carried out, or being
carried out after the commencement of a winding up (being the date of the
presentation of the petition) is void against the liquidator, except with the permission
of the court. It is extremely unlikely that any court would allow a landlord to gain
advantage over other unsecured creditors in this way1.
Any goods or proceeds of sale held by the enforcement agent should be passed to
the liquidator. Additionally, any proceeds passed to the landlord should be
recovered.
1. Section 128(1)
12.58 Goods taken control of under a CRAR
after presentation of bankruptcy petition
or making of bankruptcy application
Where goods have been taken control of by a landlord under a CRAR after the
presentation of a bankruptcy petition or application and an order is subsequently
made on that petition, any surplus over and above the six months rent that is allowed
to be recovered should be held to the order of the trustee1. This is subject also to
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provisions regarding the taking control of goods within three months of the order (see
below).
1. Section 347(1) and (2)
12.59 Goods taken control of within three
months of order
Where a qualifying creditor has taken control of goods within three months of the
making of the winding-up order or bankruptcy order, the goods or proceeds of sale
are charged for the benefit of the preferential creditors to the extent that any assets
comprised in the insolvent’s estate are insufficient to meet the preferential creditors’
claims1, 2. Where there are other assets in the case which would pay in full
preferential creditors, then the creditor is entitled to retain the goods or proceeds of
sale.
In a company case this is subject to the general rule that the taking control of goods
process is void after the presentation of the petition (see above).
1. Section 176(2)
2. Section 347(3)
12.60 Goods taken control of after
bankruptcy order
An enforcement agent acting on behalf of a qualifying creditor may take control of
goods (subject to the restrictions outlined above) at any time and even against
property comprised in the bankrupt’s estate and property vested in the trustee. The
only exceptions to this are where an application for an interim order in relation to an
IVA is pending, in which case permission of the court is required1, 2.
1. Section 347(1), (8) and (9)
2. R v Camberwell Green Justices, ex parte Gravesande [1973] RA297
12.61 Goods taken control of after
premises disclaimed (bankruptcy only)
An enforcement agent acting on behalf of a qualifying creditor may take control of
goods, in the terms outlined above, even if the official receiver has issued a
disclaimer of the premises in which the goods are located, assuming the bankrupt is
still in control of the premises1.
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1. Biggs v Sowry (1841) 151 ER 1234
12.62 Value of goods at risk exceeds value
of debt in relation to which creditor may
take control of goods (bankruptcy only)
If, an enforcement agent acting on behalf of a qualifying creditor has issued notice of
an intention to take control of goods and the difference between the value of the
bankrupt’s property at risk and the sum owed to the creditor for which they can take
control of goods is sufficient to provide a reasonable sum for the estate, the official
receiver should, where possible consider one of the following actions to avoid the
costs of the taking control of goods process:
•
giving an undertaking to pay the rent/debt; or, if not possible,
•
paying the rent/debt from available funds; or, if not possible,
•
incurring a debit balance to pay the rent/debt.
12.63 Giving an undertaking to pay the
rent/debt to avoid control of goods being
carried out (bankruptcy only)
Where it is necessary to give a guarantee to pay the outstanding rent/debt in relation
to which the qualifying creditor intends to take control of goods, such guarantee
should be in the form of Annex A.
Before giving such an undertaking, the official receiver must ensure that the goods
will realise more than sufficient to cover the amount due.
A copy of the undertaking must be placed in the file-plan and also passed to any
insolvency practitioner who may subsequently be appointed.
12.64 Paying the rent/debt to avoid control
of goods being carried out (bankruptcy
only)
Where, in circumstances that it is prudent to avoid goods being taken control of and
the creditor will not accept the official receiver’s undertaking to pay the rent/debt, the
official receiver must take immediate steps to protect the estate by paying the
rent/debt from available funds.
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12.65 Paying the rent/debt to avoid control
of goods being carried out – Incurring a
debit balance (bankruptcy only)
Where, in circumstances that it is necessary to pay the rent/debt to avoid control
being taken of the bankrupt’s goods, the official receiver may create a debit balance
to pay the sum for which the landlord/creditor could take control of goods.
The record on the case file of the decision to create a debit balance must explain the
following:
•
the reason why other creditors will materially suffer if the goods are taken control of;
•
the realisable value of the assets involved;
•
the likely balance which will be available to the estate after deducting the costs
associated with the sale;
•
the amount of debit balance required; and
•
that the official receiver is satisfied that the assets are not subject to liens or other
third party claims.
In summary, for the incurring of the debit balance to be agreed the benefit to the
estate must be substantial.
If the payment required is over £2,500, the guidance in chapter 1 regarding the
requirement to obtain the permission of the Senior Official Receiver’s Office should
be followed before committing to any expenditure. Such application for permission
should cover details of the matters outlined in the bullet points above.
12.66 Undertaking to pay the rent –
Separate account to be kept
The official receiver’s undertaking to pay rent/debt at Annex A includes confirmation
that a separate account will kept of the proceeds of sale of the goods and that the
costs of the taking control of goods will be part of the debt over which there is a
charge to the enforcement agent.
12.67 Where insolvent is sub-tenant
The landlord has the right to take control of goods of a sub-tenant to recover
outstanding rent. Where the debtor is the tenant, the rights and restrictions of/on the
landlord to act in this way where an insolvency order has been made apply equally
where the insolvent was a sub-tenant.
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Creditor applying for or enforcing a
charging order in relation to the
insolvent's property
12.68 Making of a charging order
The legislation allows a judgment creditor to obtain a charge over property of the
judgment debtor1. The procedure is that the court will consider the application for a
charging order, taking into account the financial position of the debtor and will
discretionally make an interim charging order (formerly known as a charging order
nisi). This is a paper exercise by the court.
Assuming the interim charging order is made, the court will set a date for a hearing
to make the charging order final. This will generally be a few weeks after the making
of the interim charging order. The court will consider the circumstances of the debtor
and whether any other party (other creditors, for example) will be unduly prejudiced
by the making of the order. If satisfied, the court will make the charging order final.
1. Charging Orders Act 1979 section 1
12.69 Charging order made final before
commencement of insolvency
Provided a charge was made final (‘absolute’) prior to the commencement of the
liquidation (presentation of petition) or bankruptcy (making of the order), a creditor
would normally be entitled to retain the benefit of the charge1, 2, 3. This is subject to the
charge being valid and not being a preference.
1. Nationwide Building Society v Wright [2010] Ch 318
2. Section 183(3) (a)
3. Section 346(5) (a)
12.70 Charge generally not to be made final
after commencement of insolvency
It has been held that the liquidation or ‘incipient’ liquidation (which would generally
be taken to mean the presentation of a petition) of a company would be sufficient
grounds for the court not to make a charging order and, where an interim charging
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order has already been made, to discharge that order1. This principle would apply
equally in bankruptcy.
It has also been held that, in considering an application for a final charging order in
circumstances where it is aware of the insolvency proceedings, the correct course of
action for the court would be to adjourn the application pending the outcome of the
petition, following which it is likely that the application will be stayed indefinitely2, 3. In
this, it should be noted that the applicant is under a positive obligation to bring the
existence of other creditors to the attention of the court4.
1. Re Roberts Petroleum Ltd v Bernard Kenny Ltd (in liquidation) [1983] 2 AC 192
2. Nationwide Building Society v Wright [2010] Ch 318
3. Section 285(3)
4. Practice Direction Part 73 paragraph 1.2(5)
12.71 Charging order may be made after
commencement of insolvency in limited
circumstances
It has been held that, in exceptional circumstances, a creditor may obtain the benefit
of a final charging order made after the commencement of insolvency. An example
of these exceptional circumstances would be where the court and the applicant were
unaware of the insolvency proceedings1.
It is vitally important therefore that, where the official receiver becomes aware of an
interim order made in favour of a creditor, they make the court aware of the
insolvency.
1. Tagore Investments SA v Official Receiver
12.72 Notifying court of insolvency order
where charging order application made
Where the official receiver, as liquidator or trustee is aware that an interim charging
order has been made, they should notify the court of the insolvency proceedings.
When notifying the court of the insolvency proceedings, the official receiver should
exercise care not to be deemed to have entered into the legal proceedings. When
dealing with a liquidation the official receiver may, when informing the court of the
insolvency proceedings, refer to the decision outlined Re Roberts Petroleum Ltd v
Bernard Kenny Ltd (in liquidation) [1983] 1 All ER 564 HL. For bankruptcy cases, the
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official receiver may refer to section 285(3) of the Act and the decision in Nationwide
Building Society v Wright [2009] BPIR 1047.
If the official receiver follows this advice, it is not likely that they will be considered to
have entered into the proceedings.
12.73 Charging order by a solicitor
Prior to the making of an insolvency order, a solicitor can make an application for a
charging order under the common law or statute1 over a debtor’s property.
A solicitor will also have the right to a charge over property in the hands of the
liquidator or trustee where the solicitor’s work led to the property coming into the
estate, even if they did not apply for a charge prior to the insolvency order. The
charge may be for an amount relating to their costs in obtaining the property either
before or after the order2. The official receiver should therefore treat costs incurred
by a solicitor in recovering property as a first charge upon the property and pay the
costs irrespective of whether or not a charge was obtained prior to the insolvency
order. If the official receiver, as liquidator or trustee, considers the costs to be
unreasonable, they may request detailed assessment of the costs.
1. Solicitors Act 1974 section 73
2. Re Meter Cabs Ltd [1911] 2 Ch 557
12.74 Charging orders by post-bankruptcy
creditors
A post-bankruptcy creditor should not be able to obtain a charging order against
property once it has vested in the trustee as the legislation provides that a charging
order may only be obtained against the debtor’s beneficial interest, which will have
vested in the trustee, and therefore no longer be the debtor’s1, 2.
Steps taken by the official receiver, as trustee to protect the property at the Land
Registry should be sufficient to bring the bankruptcy to the notice of post-bankruptcy
creditors.
1. Section 306
2. Charging Orders Act 1979 section 2
12.75 Insolvent’s property repossessed by
mortgagee
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Where the insolvent’s property has been repossessed by the chargeholder but has
not yet been sold, the mortgagee should be put on notice of the official receiver’s
interest in any surplus sale proceeds, using the standard letter1.
When the chargeholder obtains possession the official receiver should cancel any
insurance obtained on the property. The official receiver should inform the charge-
holder that the insurance has been cancelled.
1. MP3
12.76 Sale of insolvent’s property by
chargeholder
Where the property has been taken into possession and sold, the official receiver
should obtain a copy of the completion statement from the chargeholder and should
claim the insolvent’s share of any surplus following sale.
A chargeholder in possession has a duty to take reasonable care to ensure that the
price at which the property is sold is the best price which could be achieved1, 2, 3.
1. Skipton Building Society v Bratley [2000] 3 WLR 1031
2. Barclays Bank plc v Kingston [2006] EWHC 533 QB
3. Alpstream AG v PK Airfinance Sarl [2015] EWCA Civ 1318
12.77 Halting chargeholder’s sale of
property
It is possible for the official receiver, as liquidator or trustee, to apply to court to stop
the sale of a property by a chargeholder, but this should not be considered unless
there is compelling evidence that the sale is being conducted significantly under
market value.
In this, it should be noted that there is an accepted view that a sale of a property in
possession will achieve a lower sum than a sale of the same property through
‘normal’ channels, and the bar to be cleared to challenge an apparently under-value
sale by a chargeholder is high1.
1. Meah v GE Money Home Finance Ltd [2013] EWHC 20 (Ch)
12.78 Request by chargeholder for official
receiver to convey property
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If the official receiver, as liquidator or trustee, is requested by a secured creditor (or a
receiver appointed by a secured creditor) to transfer or convey a property,
remuneration should be charged on a time and rate basis and solicitors should be
instructed to act in the sale. The official receiver should ensure that the chargeholder
gives a written indemnity (and, if possible, a cash deposit) to cover all the expenses
in connection with the transaction.
Liens
12.79 General
A lien is a right to retain possession of another’s property, where that possession
already lawfully exists, pending the discharge of indebtedness. An equitable lien,
however, does not require possession to be valid.
A lien sometimes arises where a service has been performed but not paid for. An
example of this is a garage retaining possession of a car until a repair bill is paid, or
a solicitor retaining papers pending the settlement of fees. A lien differs from a
pledge as the property is delivered to the creditor not for the purpose of security for a
debt but rather in relation to the carrying out of a service.
12.80 Liens – Right of creditor
A lien generally entitles the creditor to retain possession of the property, but, unlike a
charge not to deal with it (to sell it, for example). Certain liens do, however, give the
holder of the lien these rights (see below).
The existence of a power to sell does not convert the lien into a charge as such a
charge would require registration1.
1. Hamlet International Plc [1998] 2 BCLC 164
12.81 Treatment of a creditor with a lien
Assuming that the official receiver is satisfied that a lien is valid, a creditor with a
right to a lien should be treated effectively as a secured creditor in the insolvency,
unless the lien is over books and papers of the insolvent (and are not documents of
title), as such a lien is unenforceable.
12.82 Lien over books and papers
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A lien over books, papers or other documents of the insolvent is unenforceable to the
extent that it would stop the official receiver, liquidator or trustee having access to
them. This is to ensure that the public interest of creditors is accorded priority over
private security rights.
A lien over documents of title (share certificates, property deeds, leases, etc.) is
however enforceable against the official receiver, liquidator or trustee1, 2.
1. Section 246(2) and (3)
2. Section 349(1) and (2)
12.83 Liens and liquidation
As a company subject to liquidation proceedings remains the legal owner of its
property, a creditor may claim a lien, where such a right exists, over any property
passed to them, including any passed to them after the commencement of winding-
up (generally, the date of the presentation of the petition) but not normally after the
winding-up order1, 2.
The official receiver should therefore ensure that property of the company is not
passed to a creditor of the company where that creditor might be able to claim a lien.
1. Brereton v Nicholls [1993] BCLC 593
2. Re Wiltshire Iron Co, ex parte Pearson (1867-1868) LR 3 Ch App 443
12.84 Liens and bankruptcy
In bankruptcy, a lien is exercisable only on property passed to the creditor before the
estate vests in the trustee.
If after-acquired property comes into the possession of a creditor before the trustee
is able to lay claim to it, the creditor will not have a lien over that property, as the
trustee’s title to the property relates back to the date when it was acquired by, or
devolved upon, the bankrupt1. The lien will, however, be valid if the creditor was
unaware of the bankruptcy at the time that the property came into their possession2.
1. Section 307(2)
2. Section 307(4)
12.85 Legal liens
A legal lien exists through common law and not through contract. A legal lien differs
from a mortgage in that it cannot be assigned without the express permission of the
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owner of the goods and it can exist from, and only for only as long as, the time that
the property is in the rightful possession of the holder of the lien1.
The debt must have accrued and not be accruing in order for the lien to be valid2.
A legal lien may be either general or particular.
1. Langley Beldon & Gaunt Ltd v Morley [1964] 11 WLUK 8
2. Crawshay v Homfray (1820) 4 B & Ald 50
12.86 General liens
A general lien (sometimes referred to as a retaining lien) occurs where there is a
right to retain possession of any property of the debtor until all debts due to that
person have been paid. General liens are not favoured in law as they give special
privilege against other creditors1.
1. Rushforth v Hadfield (1805) 6 East 519
12.87 Particular lien
A particular lien occurs where there is a right to retain possession of a particular item
of the debtor’s property until the debt in relation to that property is paid1. Where the
debt is repaid, the property may not be retained pending the payment of any general
sums due to the creditor2.
1. Hammond v Barclay (1802) 2 East 227
2. Jones v Tarleton (1842) 9 M&W 675
12.88 Statutory lien
A statutory lien is one created by statute, rather than by contract or the common law.
An example is the lien that a seller has in respect of goods unpaid for1. Statute can
also nullify a common law lien, such as ending a lien over books and papers.
1. Sale of Goods Act 1979 part V
12.89 Contractual lien
It is possible for a lien to arise under contract. In that case, the effect and extent of
the lien will be governed by the terms of the contract1.
A pledge or pawn can be a type of contractual lien2.
1. Walker v Birch (1795) 6 Term Rep 258
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2. Official Assignee of Madras v Mercantile Bank of India [1935] AC 53 PC
12.90 Equitable lien
An equitable lien differs from a legal lien in that possession of the property is not
necessary for the lien to be valid1, 2.
1. Re Bond Worth Ltd [1980] Ch 228
2. Re Welsh Irish Ferries Ltd [1986] Ch 471
12.91 Skilled worker’s lien
The right of a skilled worker to claim a legal lien will normally be given by an express
contract term. In the absence of such a contract term, the right to claim a lien may
only arise from custom and usage, where the right to claim a lien is so universally
agreed within a trade (warehousing being an example), that everyone could be
expected to know of it or easily find out1.
Such a lien is the one that is perhaps most likely to be encountered by the official
receiver, in terms of a garage claiming a lien over the bankrupt’s vehicle where there
are outstanding repair costs.
1. Re Plaice v Allcock (1866) 4 FF 1074
12.92 Vendor’s lien
A vendor’s lien is one that is founded on the principle of equity (fairness) that a
person who has obtained property under contract will not be able to retain it without
payment. In this case, the property will be in the hands of the purchaser, but subject
to a lien in favour of the seller1. Such a lien can apply to land2.
1. Mackreth v Symmons (1808) 15 Ves 329
2. Hearle v Botelers (1604) Cary 25
12.93 Solicitor’s lien
A solicitor may have a general lien, including over money in the client account, but
not in relation to an insolvent’s books and papers or might have a particular lien,
including over costs awarded to a client following litigation. The right to a lien arises
at a time when the solicitor was first retained by the insolvent and the lien forms part
of the contract (either written or implied) entered into between the solicitor and the
insolvent1.
1. Re Capital Fire Insurance Association [1883] LR 24 ChD 408
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12.94 Banker’s lien
A bank may claim a general lien on property deposited with it by a debtor. This would
include a cheque received by the bank from the insolvent, whose account is
overdrawn, even if not received until after the order1. In the normal course of events,
this situation is unlikely to arise as cheques for the insolvent intercepted by the
official receiver will be paid into the Insolvency Services Account (ISA).
A lien may not apply where the property was deposited with a bank for a specific
purpose (such as safekeeping). This may apply to property in a safe-deposit box, for
example.
1. Re Keever (a bankrupt) ex parte the trustee of the property of the bankrupt v Midland Bank Ltd [1966] 3 All ER 631
12.95 Creditor’s power to deal with
property subject to lien
A person with a lien has no automatic right to sell the goods. A contractual power of
sale may have been given or it may be given in statute. Following sale of an
insolvent’s goods, the holder of a lien should pass any surplus proceeds to the
liquidator or trustee, or may claim in the proceedings where there is a shortfall.
Attachment of earnings and attachment
of debt
12.96 Attachment of earnings
On the application of a judgment creditor, the court can make an attachment of
earnings order under which the debtor’s employer is required to deduct specified
amounts from the debtor’s earnings and pay them into court. These sums will be
used to discharge the judgment creditor’s debt1.
1. Attachment of Earnings Act 1971 section 3
12.97 Attachment of earnings order and
bankruptcy
On the making of a bankruptcy order, a creditor who has a provable debt is not
entitled to retain the benefit of an attachment of earnings1 unless it was completed
and the sums paid before the commencement of the bankruptcy2. The creditor will be
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entitled to any monies paid into court between the petition date and the date of the
bankruptcy order unless they had received notice of the presentation of the petition3.
The court may discharge the attachment of earnings order on the making of a
bankruptcy order4. It is anticipated that the order would be discharged on notification
to the court of the making of the order.
1. Section 285(1)
2. Section 346(1)
3. Re Green (a bankrupt) ex parte the Official Receiver v Cutting [1979] 1 WLR 1211
4. Attachments of Earnings Act 1971 section 9
12.98 Official Receiver’s role in the
discharge of an attachment of earnings
The official receiver should normally only become involved in the discharge of an
attachment of earnings order where such is necessary for the purposes of enabling
the bankrupt to comply with an IPO/IPA. Similarly, any application that post-
bankruptcy payments to the creditor are reclaimed for the benefit of the bankruptcy
estate should only be made in connection with an IPO/IPA, since the monies
represent post-bankruptcy income. Otherwise, the bankrupt should seek their own
legal advice as to whether an application to discharge the attachment or earnings
order or reclaim post-bankruptcy monies taken by the creditor should be made.
12.99 Third party debt orders (attachment
of debt)
A third party debt order is where a judgment creditor is able to clam, for their benefit,
money which is due to the debtor from a third party, often the debtor’s bank or
building society. Such an order was formerly known as a garnishee order and the
process is known as the attachment of a debt1.
The process is that the court will make an interim third party debt order on a without-
notice application by the creditor. At a later hearing, the court will make a final third
party debt order unless any interested parties make representations to the court as
to why the order should not be made. The judgment creditor will then be able to
claim the money.
1. Civil Procedure Rules 1998 part 72
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12.100 Third party debt orders
(attachment of debt)
Any attachment of debt which is not complete (that is, where the money has not
been paid over to the creditor) prior to the commencement of the winding-up or
bankruptcy will be void against the liquidator or trustee1, 2, 3.
1. Section 183
2. Section 346
3. JGD Construction Ltd v Mills [2013] EWHC 572 (Ch)
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ATTACHMENT: 13.Retention_of_title.pdf
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 10 March 2020.
13. Retention of title
Dealing with an insolvent's goods that are subject to a retention of title clause,
including verifying the validity of the clause
Annexes
Annex A - Retention of title questionnaire
Chapter content
Introduction and key information
Types of retention of title clauses
Enquiries to be made by the Official Receiver
Matters to be considered in assessing the validity claim
Additional matters to be considered for ‘all sums’ clauses and multipurpose clauses
Retention of title or charge?
Introduction and key information
13.1 Introduction
A retention of title clause, also referred to as a ‘reservation of title’ or ‘Romalpa
clause, is a form of security used by a supplier of goods as protection against the
possibility of the buyer’s default or insolvency 1. The clause generally provides that
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ownership of the goods does not pass until the goods are paid for, though that will
depend on the terms of the contract.
1. Alumininium Industrie Vaassen v Romalpa Aluminium [1976] 2 All ER 552
13.2 The legal background
Ownership of goods passes between the supplier and the purchaser when the
parties to the contract intend it to 1, and, in determining the timing of the transfer of
ownership, regard should be given to the terms of the contract, the conduct of the
parties and the circumstances of the case 2.
Further, in a contract for the sale of specific goods (or where goods are subsequently
appropriated to the contract), the supplier can reserve the right of disposal until
certain conditions are met 3.
1. section 17(1) of the Sale of Goods Act 1979
2. section 17(2) of the Sale of Goods Act 1979
3. section 19(1) of the Sale of Goods Act 1979
13.3 Effect of a retention of title clause in
relation to an insolvency
A supplier’s claim under a retention of title clause to any unused goods will be valid
against any subsequently appointed liquidator or trustee, provided the clause has
been incorporated into the contract. Where the goods subject to a clause have been
sold to a third party, good title may be given to the third party, either by operation of
law 1 or where a licence or agency to sub-sell has been granted by the supplier.
1. section 25(1) of the Sale of Goods Act 1979
13.4 Official receiver to consider validity of a
supplier’s claim to goods under a retention of
title clause
In view of the official receiver’s duty to protect and to realise the assets of the
insolvent for the benefit of creditors, it is important that they are completely satisfied
on all aspects of a retention of title claim before deciding that the clause is valid and
allowing the supplier to remove goods or have the proceeds of their sale. A summary
of the principal matters to be considered in deciding the validity of a claim is given
below at paragraph 13.20.
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13.5 Sale pending or goods sold when claim
discovered
Where the official receiver has seized goods as the property of the insolvent and
subsequently becomes aware of a possible claim, he should not sell the goods
before deciding upon the validity of the claim. The official receiver must be
completely satisfied that the claim is invalid before disposal of the goods takes place.
If the official receiver were to sell goods subject to a clause, he could be liable in
damages to the supplier. The statutory protection 1, 2, 3 would not be available to the
official receiver if the goods were sold. If the official receiver accepts the claim, the
goods should be returned to the supplier as quickly as possible, but he must pay any
costs incurred by the official receiver in relation to the seizure. Where the official
receiver becomes aware of a clause after the goods have been sold, he should,
once satisfied that the claim is valid, pass the net proceeds of sale to the supplier
which will be the total amount to which the supplier is entitled in these
circumstances.
1. section 234(3)
2. section 234(4)
3. section 304(3)
13.6 Consequences of wrongly dealing with
goods subject to a valid clause
Where the official receiver wrongly deals with goods subject to a valid clause, the
remedy will be a claim for damages for wrongful interference with the goods. The
claim will usually be for the market value of the goods, that is normally the amount of
the unpaid invoices. Liability will arise if there is a refusal to return the goods or a
disposal of the goods after the right to sell has been terminated, which will be the
date of the insolvency order unless the contract provided for an earlier date.
Providing any loss or damage resulting from the official receiver’s seizure or disposal
of the goods is not caused by their own negligence, the supplier’s claim cannot
exceed the invoice value of the goods.
13.7 Protection of property subject to claim
The official receiver should ensure that property subject to a claim is protected.
When considering insurance of the goods, the official receiver should remember that
the risk passes with the ownership of the goods unless there is a contrary agreement
between the parties.
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Types of retention of title clauses
13.8 Wording of a basic clause
The wording of the clause in a contract will vary considerably. The simplest type of
clause has the sole intention of retaining ownership over the goods supplied under a
contract of sale until payment is made for those goods. It could be worded: “Title in
the goods shall not pass to the customer until they have been paid for in full”. Such a
clause cannot be construed as creating a charge and therefore does not require
registration as a charge under either the Companies Acts or the Bills of Sale
legislation.
13.9 All sums or current account clause
An “all sums” clause or “current account” clause is where the supplier seeks to retain
ownership of the goods delivered to the insolvent until all debts have been paid and
any other obligations have been met by the insolvent. This type of clause might be
considered to be a charge and the Official Receiver should consider the guidance at
paragraph when dealing with such a clause.
13.10 Tracing, prolonged or proceeds of sale
clause
A “tracing”, “prolonged” or “proceeds of sale” clause is one where the supplier seeks
to retain ownership of the goods delivered until the full purchase price for those
goods has been paid. If the insolvent sells the goods, the supplier may acquire
ownership of the proceeds of sale or debts owed by the sub-buyer(s), but this
depends upon the existence of a fiduciary relationship or a validly registered charge
(see paragraph 13.41).
13.11 Aggregation or enlarged clause
An “aggregation” or “enlarged” clause, is one where the supplier seeks to retain
ownership of the goods delivered until the full purchase price has been paid by the
insolvent, but if the goods are manufactured into some other property, with or without
the addition of other goods, the supplier could acquire the ownership of the resulting
property or a proportionate part of it equal to the contribution made to the
manufacturing process by the original goods. This will occur where there is a
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fiduciary relationship (see paragraph 13.41) or the contract expressly provides for
the ownership of the finished goods to vest in the supplier. In the latter case a charge
is likely to have been created, which in the case of a company purchaser would
require registration under the Companies Acts to be effective, and in the case of an
individual may be void (see paragraphs 13.47 to 13.48).
13.12 Combined clauses
It is possible for a supplier to combine several types of clause, and if the official
receiver decides that one part of the clause is invalid, the supplier may still be
entitled to recover goods under another element of the clause. For example, the
clause may refer to retention of title of goods supplied and may also seek the power
to trace the sale proceeds of goods. The tracing element of the clause may fail due
to non-registration of the clause as a charge or bill of sale or because it is void in the
case of an individual as a charge over future acquired chattels, but the supplier may
still be able to recover goods with the insolvent at the date of the insolvency order.
Enquiries to be made by the Official
Receiver
13.13 Considering whether goods are subject
to a valid retention of title clause
In any insolvency in which goods have been or may be recovered, the official
receiver should make enquiries to ensure that the goods are not subject to a clause.
In addition to seeking information from the director(s) or bankrupt, the official
receiver should where possible examine the contractual documentation (for example,
sales invoices) relating to the goods. If the official receiver’s enquiries do not reveal
the existence of any retention of title clause, and they have no reason to suspect that
one might exist, they can assume that the goods are the insolvent’s property.
13.14 Ask the supplier to substantiate claim
If a supplier contacts the official receiver to claim goods on the insolvent’s premises,
the official receiver should ask them to substantiate their claim unless already in
possession of information that confirms the validity of the claim.
13.15 Resolving a supplier’s claim generally
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Where the official receiver is put on notice of a claim to goods or moneys under their
control, he should try to resolve the matter as quickly as possible. If the supplier can
clearly establish their rights to the goods, failure to hand them over might lead the
official receiver to incur a liability under the Torts (Interference with Goods) Act 1977.
13.16 Use of questionnaire
The official receiver may obtain the information required by requesting the supplier to
complete and return the questionnaire in Annex A to this chapter. The questionnaire
is intended to assist the official receiver and so can be amended to obtain the
information appropriate for the insolvency concerned. It may be considered desirable
to give the supplier a fixed time in which to respond, especially where goods remain
on the insolvent’s premises or are in storage, to obtain a prompt response. Whilst
this may put pressure upon the supplier to respond it should not be assumed that no
response means the supplier has no claim.
13.17 Information from the directors or
bankrupt
At an early stage in the proceedings the official receiver should seek the views of the
director(s) or the bankrupt as to whether any supplier has a valid claim to goods or
monies under the official receiver’s control. In addition their comments should be
sought on when the supplier informed the insolvent of the clause, whether the
director(s) or bankrupt accepted the clause and details of the date of supply of the
goods relating to the claim. The official receiver may also wish to seek the
assistance of the director(s) or bankrupt in identifying the goods which are subject to
the claim.
13.18 Insolvent’s records
Whenever possible the official receiver should identify any documentation relating to
the supplier from amongst the insolvent’s records. It may be that an examination of
the main documents will allow the official receiver to dismiss the supplier’s claim
without the need for detailed correspondence with the supplier, perhaps on the basis
that the clause has not been incorporated into the contract. Apart from the
accounting records, a supplier’s catalogue or price list and any correspondence
between the insolvent and the supplier may provide useful information.
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Matters to be considered in assessing the
validity claim
13.19 Considering a claim from a supplier
The following guidance is to assist the Official Receiver in assessing the validity of a
retention of title clause. In applying the guidance, the Official Receiver should, of
course, consider the value of the goods claimed and limit or increase the
considerations accordingly. In some cases, where the goods are of a significant
value, it might be appropriate to seek legal advice.
13.20 Specific matters to be considered when
assessing validity of a claim
The official receiver needs to be satisfied on each of the following before accepting a
claim from a supplier:
•
that the wording of the clause extends to cover the goods or monies being claimed
•
that the clause has been incorporated into the contract
•
where the supplier is claiming goods, that they can conclusively be identified as
having been provided by the supplier claiming them. Where proceeds of sale are
claimed then the monies must represent the proceeds of sale of the items which
incorporated the goods from the supplier or the proceeds of sale of the goods
themselves
•
where the clause attempts to claim goods supplied or the proceeds of their sale, but
is not an ‘all sums’ clause, that the goods supplied relate to an unpaid invoice; and
•
where the clause is an ‘all sums’ or multi-purpose clause, whether or not the
arrangements create a registerable charge and, if so, that it has been registered with
the Registrar of Companies or under the Bills of Sale legislation, for companies and
individuals respectively
13.21 Extent of the clause
The official receiver should carefully consider the wording of the clause. They should
be satisfied that the terms of the clause mean that the supplier retains legal title to
the goods or that he is entitled to claim the proceeds of sale of goods sold prior to
the insolvency. If the clause goes beyond permitting the supplier to recover
unused/unsold goods supplied then a charge is likely to have been created.
13.22 Incorporation of clause
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Under the general law of contract the offer made by one party has to be accepted by
the other before there is a valid contract. Therefore the official receiver should
ensure that the clause was notified to the insolvent prior to the supplier accepting the
insolvent’s offer. The clause may be valid despite being introduced after the contract
was made if the insolvent agreed to it being part of the contract and if there was
further consideration by the insolvent in respect of the agreement to amend the
contract terms. The clause will be effectively incorporated into the contract if:-
•
it is in contractual documentation signed by the insolvent; or
•
it is contained in an unsigned document which, prior to entering into the contract the
insolvent knew contained contract terms even though he was not aware of their
effect; or
•
it was in a document the terms of which the supplier had done all that was
reasonably necessary to draw to the attention of the insolvent prior to entering into
the contract. It is not necessary for the insolvent to have actual knowledge that the
document contained the contractual terms for a clause to be effective and since
retention of title clauses are common, such a clause need not have been specifically
drawn to the attention of the insolvent.
13.23 Method of informing the buyer of the
clause
Ideally the terms of business should have been sent to the insolvent prior to entering
into any contract (or made clear in any conversation during which the contract was
entered into) as well as appearing on all documents. However, this will very rarely be
the case and the method used by the supplier to inform the insolvent of their terms of
business will vary. The terms may have been notified by the supplier before trading
began or in the acknowledgement of the order, quotation, catalogue or price list.
Usually the offer to enter into a contract will be an order by the insolvent and the
contract will be entered into on the despatch of the acknowledgement of order or
despatch of the goods themselves by the supplier.
13.24 Conflict of the terms of the businesses
If the supplier purported to accept the insolvent’s offer (based upon the insolvent’s
terms of business) but the supplier’s terms of business conflict with those of the
insolvent, then there will not have been an unconditional acceptance of the
insolvent’s offer but instead the supplier will have made a counter offer. If the
insolvent then proceeded with the transaction he should be treated as having
accepted the supplier’s terms of business and the clause will be part of the contract
1. Any changes to the contract terms may be made in writing or orally regardless of
the method used to enter into the contract.
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1. Butler Machine Tool Co v Ex-Cell-O Corp (England) Limited [1979] 1 All ER 965
13.25 Contract made verbally
The official receiver should try to establish whether there was any mention of the
supplier’s terms of business during the conversation. A short statement should be
taken from the person who ordered the goods on behalf of the insolvent if the official
receiver considers that it may be difficult to resolve the matter with the supplier
based upon the evidence of the relevant person. If there was no mention of the
clause during the conversation in which the contract was made and there was no
subsequent agreement of both parties that the clause should be part of the contract’s
terms, with additional consideration being provided by the insolvent, the supplier’s
claim should be rejected. However, where there have been regular transactions
between the insolvent and the supplier, the official receiver should apply the terms of
business of previous contracts to the contract which is subject to the claim of the
supplier where it is shown that the parties intended these to apply (but see also (d)).
13.26 Clause on the invoice only
If the clause is contained in the terms of business on the supplier’s invoice and was
not previously agreed by the insolvent and the supplier, the clause should be
rejected by the official receiver. This is because the contract was made prior to the
invoice being sent to the insolvent. However, the official receiver should ensure that
the invoice was not delivered to the insolvent prior to the delivery or collection of the
goods (ie prior to the supplier’s acceptance of the insolvent’s offer) as in this case
the clause will have been incorporated into the contract. The clause might also be
valid if there was an agreement between the parties after the contract had been
entered into, but only if the insolvent provided new consideration for the introduction
of the clause as a term of the contract. Where there have been regular transactions
between the insolvent and the supplier, the official receiver should apply the terms of
business of the preceding contract to the contract which is subject to the claim of the
supplier, provided the parties intended that the same terms of business were to
apply. Therefore the official receiver should accept a claim on this basis if the clause
was notified to the insolvent on an invoice relating to the preceding contract, even
though the clause may not have been validly incorporated into the contract to which
the invoice relates.
13.27 Alteration of terms of business
The official receiver should make enquiries to see whether either the insolvent or the
supplier have changed their terms of business during the period when the contracts
were made for the goods. If they have, the official receiver should ascertain the
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details of the changes, the date(s) of those changes and the manner in which the
other party was informed of the changes. The official receiver should then ensure
that the new terms of business regarding retention of title have been incorporated
into the contracts for the goods being claimed.
13.28 Identification of goods - generally
The goods being claimed must be identified as those supplied by the supplier
claiming them. The best method of identification is where the goods have serial
numbers referred to on the unpaid invoices, or if the goods are marked with the
name of the supplier. Where the goods cannot be identified in such a way, the official
receiver should make enquiries to ascertain whether the insolvent obtained the same
goods from other suppliers. If so, they need to be satisfied that the goods being
claimed are the actual goods supplied by the supplier claiming them. The insolvent’s
records and papers may be useful in seeing whether the insolvent has dealt with
more than one supplier for similar goods in the past and the assistance of the
company director(s) or bankrupt should also be sought where necessary.
13.29 Allowing supplier access to inspect the
goods for identification purposes
The supplier should be allowed access to the insolvent’s premises to inspect the
goods held with a view to identifying those which he considers are subject to their
claim. The supplier should not of course be allowed to remove any goods until the
official receiver is satisfied that the claim is valid. An inventory of the goods held by
the insolvent should be made by the official receiver and where possible this should
include serial numbers or identifiable markings of those goods thought to be subject
to a clause. If the official receiver disposes of goods and the supplier raises
objections, perhaps by legal action, there will then be detailed information available
to defend the allegations.
13.30 Clause relating to goods used in
manufacturing process
Raw materials sold subject to a clause cease to be caught by it once the goods have
lost their identity if the clause was drafted only to retain ownership in the goods until
payment was made for them 1 but not where the clause seeks to retain ownership of
the finished product 2 It may be possible for the supplier to retain title to the goods
supplied even if they have been used in a manufacturing process, provided the
goods are still identifiable, in their original form and easily removable 2. Where a
clause seeks to retain title to goods which have lost their identity, the supplier’s claim
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is likely to be invalid unless the clause has been registered as a charge under the
Companies Act 2006 for a company or under the Bills of Sale Act 1878, for an
individual.
1. Borden (UK) Limited v Scottish Timber products Limited [1979] 3 All ER 961)
2. Re Peachdart Limited ([1983] 3 All ER 204)
3. Hendy Lennox (Industrial Engines) Limited v Grahame Puttick Limited [1984] 2 All ER 152
13.31 Retaining ownership once goods
manufactured
The supplier may have become the owner of a new product manufactured by the
insolvent where it incorporates the supplier’s goods, provided the supplier and the
insolvent agreed to this as part of the contract terms. However where the insolvent
would have been entitled to the goods on the payment of the outstanding amount of
the invoice, a charge is likely to have been created.
13.32 Sale by supplier of manufactured goods
Where the supplier is entitled to the manufactured goods, he will have a duty to take
reasonable care to obtain a proper price for the goods on disposal. The official
receiver should, when the goods are handed over to the supplier, request that any
surplus made on the sale is passed to the liquidator or trustee.
13.33 Goods fixed to land
Where the goods being claimed have been fixed to land, the goods become fixtures
and are deemed to be part of the land. (Generally a fixture must have an actual
connection with the property, not just be brought into contact with it, but should not
be part of the original building). The rights in goods will normally be lost when they
are fixed to land.
13.34 Identification of goods which are
movable and estimated by weight, number or
measure
Where goods which are moveable and are estimated by weight, number or measure
(also known as ‘fungible’ goods) (for example grain) are mixed with those of the
insolvent (or other suppliers), the supplier may have stipulated in the contract that
the mixed goods will be held by the parties as tenants in common. Whether or not
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such a term appears in the contract, the official receiver should permit the supplier to
remove the proportion of the goods which he supplied that are amongst the mixed
goods provided:-
a) the supplier’s goods have been mixed with identical goods and so have not lost
their identity; and
b) that the official receiver is satisfied on the validity of all other aspects of the claim.
It will also be necessary to take account of any goods that had previously been
removed from the bulk in order to calculate the supplier’s share.
13.35 Goods or sale proceeds claimed relate to
an unpaid invoice
Except where there is an ‘all sums’ clause, the official receiver should ensure that
the goods or sale proceeds subject to the claim relate to an invoice for which full
payment has not been made, otherwise the claim should be rejected. This is a
matter for the supplier to prove. Where there has been regular business between the
insolvent and the supplier, payments on account may have been made. The official
receiver should usually apply the monies paid by the insolvent to discharge the
invoices in date order starting with the earliest invoice. However, if the monies were
clearly allocated to a particular invoice, then it is those goods that were paid for.
13.36 Partly paid invoices
Where a claim relates to a partly paid invoice, the manner in which the official
receiver should proceed depends upon the terms of the contract. Where title has
passed the supplier will only be able to prove in the insolvency for the price of the
goods. Where there has been a part payment for goods the official receiver should
ensure that the contract provides for the supplier to retain title to the goods until the
supplier received payment in full for those goods. Where title has not passed to the
insolvent and the supplier seeks to recover the goods, he should give credit for any
part payment, but he may be able to off-set any sums so paid against amounts
otherwise owed to them by the insolvent.
13.37 Where the supplier has commenced
legal proceedings in respect of the debt
Where the contract for the purchase of specific goods provides that title in the goods
does not pass until payment is made, the official receiver should treat the goods as
the property of the supplier if payment has not been made (assuming the claim is
valid in all other respects). This will be the case even if the supplier has claimed,
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sued or obtained judgment for the sum owed prior to the insolvency order. However,
where the contract provides that the insolvent has failed to pay the debt and the
supplier has a choice of terminating the contract and recovering the goods or
seeking to recover the debt, the commencing of an action for the debt will have
passed title in the goods to the insolvent, unless there was an agreement to the
contrary. Conversely, where the supplier decided to recover the goods in such
circumstances, he will have been precluded from taking legal action.
13.38 Rejecting claims generally
Whenever a supplier’s claim to goods or the proceeds of their sale is rejected, the
official receiver should ensure that the supplier is recorded as an unsecured creditor
of the insolvent.
Additional matters to be considered for
‘all sums’ clauses and multipurpose
clauses
13.39 ‘All sums’ clause
An ‘all sums’ clause is sometimes referred to as an ‘all monies’ clause or a ‘current
account’ clause. In such a clause the supplier will stipulate that the title to the goods
supplied under any contract with the insolvent will not pass until all sums due under
any contracts have been paid. Where the official receiver is satisfied that such a
clause exists, he will not need to ensure that the goods being claimed relate to an
unpaid invoice as the supplier may have a valid claim to any goods which he
supplied which are still with the insolvent at the date of the liquidation or bankruptcy
1. The supplier will not have a claim to goods which were contracted for on a date
prior to there being a nil balance or a balance in favour of the supplier on the
insolvent’s account. The reason for this is that the title of those goods will have
passed to the insolvent at the time that no monies were due to the supplier. An ‘all
sums’ clause does not always constitute the creation of a charge 2 but once such a
clause attempts to recover the proceeds of sub-sales then it will do and so should be
registered 3.
1. Aluminium Industrie Vaassen BV v Romalpa Aluminium Limited [1976] 2 All ER 552 and Armour and another v Thyssen Edelstahlwerke AG [1990] 3 All ER 481
2. Clough Mill Limited v Martin [1985] 1 WLR 111
3. Compaq Computer Limited v Abercorn Group Limited [1991] BCC 484
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13.40 Right to trace proceeds of sale
Where a supplier tries to claim the proceeds of sale of goods which were received by
the insolvent and mixed with the insolvent’s money prior to the insolvency, then the
supplier needs to show that he had a fiduciary relationship with the insolvent (or that
the proceeds of the sale were subject to a charge on book debts that has been
registered).
13.41 Fiduciary relationship
A fiduciary relationship is one where the insolvent holds the goods and any proceeds
of sale for the benefit of the supplier and must account to the supplier for any sale
proceeds. A fiduciary relationship will not arise in a contract for sale unless there is
specific agreement between the parties creating one. It is necessary to look closely
at the relationship that existed between the parties and not merely the labels
attached to the relationship in the contractual documentation. It may be that the
actions of the parties are inconsistent with a fiduciary relationship so that it should be
inferred that the relationship has not been established. An example of this is the
giving of a fixed period of credit. If there was a fiduciary relationship, it is likely that
there will not be a charge created 1. Generally, where the contract allows the
insolvent to treat either the goods supplied under it, the products incorporating goods
supplied, or the proceeds of sale of either of these as their own, it is unlikely that a
fiduciary relationship will exist. If there is no fiduciary relationship, a clause seeking
to claim the proceeds of sale may create a charge which would be void 2 if not
registered in accordance with the Companies Act for a company 3, 4, 5, 6 or the Bills of
Sale Act 1878, for an individual. Alternatively it may be avoided by the trustee as a
general assignment of book debts 7.
1. Re: Andrabell Limited [1984] 3 All ER 407
2. Companies Act 2006 section 859H
3. Companies Act 2006 section 859A
4. E Pfeiffer Weinkellerei- Weineinkauf GmbH & Co v Arbuthnot Factors Limited [1987] 3 BCC 608
5. Tatung (UK) Limited v Galex Telesure Limited and others [1989] 5 BCC 325
6. re Weldtech Equipment Limited [1991] BCC 16
7. section 344
13.42 Conditions to be satisfied in respect of
an ‘all monies’ clause
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In addition to the considerations outlined elsewhere in the chapter, the official
receiver should satisfy themselves that, in respect of an ‘all monies’ clause, all of the
following terms were part of the contract before agreeing to pass the sale proceeds
of the goods to the supplier:-
•
that the passing of the title to the goods was postponed until all the indebtedness to
the supplier was discharged rather than on the full payment being made for a
particular consignment
•
that the insolvent was selling the goods on behalf of the supplier eg as agent or
bailee. If the insolvent had to refer to the supplier prior to disposal of the goods, the
insolvent will be a bailee of the supplier since a bailee cannot normally resell without
the consent of the bailor. If the contract does not prevent the resale of the goods
then there will not normally be a fiduciary relationship
•
that the supplier indicated to the insolvent that the goods were to be stored in a
manner which manifested the supplier’s ownership of the goods
•
that there was an express acknowledgement in the contract of a fiduciary relationship
and provision that the supplier should obtain the benefit of monies paid to the
insolvent on the sub-sale of the goods
•
that there was an obligation on the insolvent to keep the sale proceeds of the goods
in a separate account. Where the proceeds of sale were paid into a separate bank
account prior to the winding up or bankruptcy order, the supplier will have a claim to
the funds and if there was a fiduciary relationship between the insolvent and the
supplier, the supplier will have a right to trace any proceeds of sale that have been
mixed with the insolvent’s funds. However, he will have no such right where the
insolvent’s bank account is overdrawn, as the monies are no longer identifiable
•
that no credit period has been incorporated into the contract. If a credit period was
specified it can be inferred that within that period the insolvent was free to use the
sale proceeds, which defeats the supplier’s claim to those proceeds (even where the
monies were placed in a separate account)
Retention of title or charge?
13.43 Deciding whether the clause is a charge
A charge may be expressly created by a company or individual but it is more usual
for the granting of a charge to be implied from the terms of the contract to supply
goods.
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13.44 Examples of circumstances which create
a charge
Examples of the circumstances where a charge will be created in favour of the
supplier are where the clause:-
•
attempts to retain ‘equitable and beneficial ownership’ of goods for the supplier 1.
This should be interpreted as a charge securing a debt, since the term ‘equitable
ownership’ means the insolvent as the legal owner holds the goods for the supplier
in a trust-like fashion until payment is made for them
•
seeks to retain title to goods supplied once they have lost their identity in the
manufacturing process of the insolvent
•
seeks to claim the proceeds of sale of the goods or the proceeds of sale/debts owed
by sub-purchasers unless a fiduciary relationship exists. A claim to the proceeds of
sale where no fiduciary relationship exists will be invalid against a liquidator or
trustee unless registered as a charge or bill of sale 2. Furthermore, in the case of an
individual, it may well be void to the extent that it purports to cover after acquired
chattels
1. Re: Bond Worth Limited ([1979] 3 All ER 919
2. section 344
13.45 Where a charge has been created
In the case of a company, a charge should have been registered under in line with
the provisions of the Companies Act, otherwise it is void against the liquidator. In the
case of an individual the charge, to the extent that it covers future acquired chattels,
is likely to be void 1. If the Bill is not void it will require registration under the Bills of
Sale legislation to be effective against a trustee in bankruptcy.
1. Bills of Sale Act (1878) Amendment Act 1882 Section 5
13.46 Registration of clause which is a charge
(companies only)
In the case of a company; if a charge has been created by the clause, particulars
and the charge instrument must be delivered to the Registrar of Companies within 21
days of creation (although the court may allow registration out of time) if the clause is
to be valid against the liquidator 1, 2. Where the official receiver encounters a
registered clause he should check the timing of the registration and consider its
priority with any other charges, before accepting the supplier’s claim.
1. Companies Act 2006 section 859A
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2. Companies Act 2006 section 859F
13.47 Registration of clause which is a bill of
sale (individuals only)
A bill of sale will be created where an individual transfers personal chattels to
another but retains possession of those chattels. A bill of sale should be registered
under the Bills of Sale Act 1878 and the Bills of Sale Act (1878) Amendment Act
1882. It should be noted that a bill of sale over future acquired chattels may be void..
Where the official receiver encounters a registered bill of sale, he should check its
validity by ensuring that the bill of sale:-
a) is in the format of the Schedule to the Bills of Sale Act (1878) Amendment Act
1882, where it is a security bill under Section 9 of that Act (ie. personal chattels were
transferred to the supplier to secure the bankrupt’s indebtedness);
b) was registered within seven days of creation (or such longer period as the court
may have allowed); and
c) has been re-registered every five years. Where the official receiver does
encounter a validly registered clause he should also consider its priority with any
other charges before accepting the supplier’s claim.
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ATTACHMENT: 14.Insurance.pdf
TEXT_FILE: 14.Insurance.pdf.txt
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 10 March 2020.
14. Insurance
Insuring an insolvent's property, including guidance on the process for obtaining
insurance cover from the contracted agent
Annexes
Insurance Guidance - Please see Aon guidance on the process for obtaining insurance.
Annex A – Aon Code of Practice for unoccupied buildings
Annex B – Aon Restructuring Facility Guide
Chapter content
Frequently asked questions
Introduction
Deciding whether to insure
Cover to be obtained
Stay of proceedings, annulments and post-bankruptcy IVAs
Insurance cover already in place by insolvent
Aon Insurance cover
Making a claim under the Aon scheme
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Frequently asked questions
Why does the Official Receiver need insurance
cover?
In order to prevent the possibility that an asset may be lost through theft or
destruction at a loss to the estate, the official receiver must ensure that all assets
which cannot be realised or disposed of immediately are adequately insured. The
official receiver will also need cover for public liability in certain circumstances.
What do I need to insure?
The insurance must cover:
•
the value of the assets to the estate
•
where there are premises involved, the risk of any injury to a third party (known as
public liability) as this could result in a damages claim being brought against the
official receiver as liquidator/trustee
What do I need to consider before arranging
insurance?
You should consider the cost of obtaining insurance against the value of the assets.
In addition, you will need to consider whether insurance is needed to cover the risk
of any liabilities arising from negligence on their part or as an owner or occupier of
premises.
If the cost of any insurance is likely to exceed the net benefit to the estate, the official
receiver must disclaim their interest in the relevant assets as soon as possible.
Who do we arrange insurance cover with?
The Insolvency Service uses the Insolvency Open Cover Insurance facility operated
by Aon Insurance.
All insurance required by the official receiver, apart from in exceptional
circumstances, should be taken through Aon. Insurance and should only be taken
from another provider when Aon cannot provide the cover, or the insolvent’s existing
cover is to be continued.
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What if the insolvent has existing insurance
cover?
Where the insolvent has any type of insurance cover in force at the date of the
winding-up or bankruptcy order, the official receiver should make appropriate
enquiries and not assume that this insurance will continue.
What is the Aon automatic 30 day period for
small non trading cases?
Where the case is a small non-trading case Aon offer a 30 days period in which to
notify them of an insurance requirement. The cover will date back to the date of the
insolvency order.
Where assets requiring insurance come to light more than 30 days after the date of
the official receiver’s appointment, these can be insured by Aon but the cover will
only be effective from the date Aon is notified of the assets.
What if the case is large or has unusual risks?
Where the official receiver requires insurance for larger cases and the criteria for a
smaller case are not met you should contact Aon by telephone to arrange suitable
cover.
When should I cancel insurance?
The official receiver’s automatic insurance cover must be cancelled where:
•
in relation to a property, a charging order is obtained by the official receiver
•
a property is repossessed under the terms of a mortgage charge or an LPA receiver
is appointed
•
a disclaimer is issued
•
the order is rescinded or annulled
•
an insolvency practitioner is appointed
•
the official receiver’s interest in the asset, as liquidator or trustee has otherwise
ended
Why is it important to cancel insurance?
It is important that insurance is cancelled when it is no longer required to minimise
premiums. Insurance should be cancelled within 5 working days of it being deemed
no longer required.
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Please note that insurance is never automatically cancelled with Aon at any time.
Cover will only cease when Aon have been directed to cancel the insurance by the
Official Receiver.
Do I cancel insurance when a case is handed
over to an IP?
Yes. Where a case is handed over to an insolvency practitioner the details of all
insurance cover put in place by the official receiver should be included in the trustee
or liquidator’s record book. The insolvency practitioner should also be given details
of any premium paid. Any cover in place with Aon should be cancelled shortly after
handing over the estate, usually after 5 working days have elapsed, to allow the
insolvency practitioner to arrange any replacement insurance.
How do I insure overseas?
Aon can provide insurance for properties overseas, although it will be off-scheme,
meaning that it not administered in the same manner as more common insurance,
such as buildings insurance.
What is the code of practice for insuring
unoccupied premises?
Aon has issued a Code of Practice for insuring unoccupied buildings, available in the
process guidance referred to above. This code should be followed whenever an
insured building is unoccupied. The requirements are somewhat exacting and might
be considered onerous in certain circumstances – in which case a disclaimer of the
property might be more appropriate.
What do I do if I need to make an insurance
claim?
If it is necessary to make a claim the official receiver should deal directly with Aon.
Introduction
14.1 General
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This chapter deals with the obtaining or maintaining of the insurance cover required
protecting assets held in insolvent estates. Guidance on dealing with insurance that
is, of itself, an asset (such as life cover), can be found in chapter 33.
14.2 Necessity for insurance cover
Where the official receiver is provisional liquidator, liquidator, interim receiver, or
trustee, they have a duty to protect the assets of the insolvent. Where the assets
cannot be disposed of or realised quickly, the official receiver will have to consider
whether insurance against loss or destruction of an asset or any risk of damage to a
third party or their property is necessary, and take into account how much this will
cost against the potential value of the asset.
14.3 Official receiver’s duty of care not
discharged by the obtaining of insurance
When the official receiver becomes responsible for the insolvent’s property (which
includes unoccupied premises or other assets, e.g. motor vehicles), their duty of care
is not discharged merely by insuring the property. Insurance only provides an
indemnity against monetary liability.
14.4 Action to be taken to deal with duty of
care
Where necessary, the official receiver should attempt to limit the risks of injury to
third parties as soon as possible, for example by either improving the security of the
premises or by arranging for the removal of the assets. The Aon “Code of Practice
on Unoccupied Premises” (see Annex A) should be followed in all cases where
insurance cover is taken with them and provides good advice on how to deal with
any unoccupied buildings. Chapter 11 also provides guidance in this area.
14.5 Process to obtain insurance
The Insolvency Service has a contract with Aon Insurance to provide insurance for
risks associated with insolvent estates and, unless the insolvent already has suitable
insurance in place, cover should be obtained only from Aon, where necessary.
14.6 Using an insurer other than Aon
The official receiver should only use another insurer where they are continuing cover
with the insolvent’s existing insurer or where Aon are unable to provide the
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necessary cover. This is only likely in exceptional circumstances and before seeking
cover from an alternative source, the official receiver should consider the cost of the
premium in relation to the value of the asset they are trying to protect.
14.7 Expense of insurance cover
Any insurance premium charged in respect of an insolvent’s property is an expense
charged to the estate account.
14.8 Meeting insurance premiums
The official receiver must meet premiums in all cases. A debit balance may be
incurred or increased to pay any necessary insurance premium without specific
authority unless the premium is estimated to be over £2,500, in which case the
authority of the Senior Official Receiver’s office should be sought (see chapter 1). In
all cases the incurring of insurance premiums should be managed carefully and
ideally not incurred where there is unlikely to be a commensurate benefit to the
estate, as outlined above.
14.9 Cancel insurance when no longer
required
Whilst property should be insured to protect assets and prevent loss through events
such as fire and water damage, theft or public injury, the official receiver and LTADT
should ensure insolvents’ estates are regularly reviewed, to check whether insurance
premiums incurred for estate assets are still sufficient or required and promptly
cancel the insurance where no longer required.
Deciding whether to insure
14.10 Factors to consider when deciding
necessity for cover
The decision on whether or not to insure will depend on the facts of the case and is
at the official receiver’s discretion. Whilst it is generally better to insure than not
insure, the official receiver should examine carefully the circumstances of each case,
taking into consideration the potential value of the asset concerned, the likelihood of
public liability and the existence and validity of insurance already taken out by the
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insolvent. The following questions should be considered when making the decision
on whether or not insurance is necessary.
a) Does the property comprise part of the insolvent’s estate (or is it in fact property
belonging to a third party)? The official receiver should not insure the following at the
expense of the estate, other than in exceptional circumstances:
•
third party property
•
fully charged property
•
some leasehold property
b) Is insurance already in place? - Where the insolvent has insurance cover in place
the official receiver should follow the guidance in paragraph 14.35 of this chapter.
c) What is the potential loss to the estate and/or personal liability likely to be incurred
where the official receiver does not take out insurance? Where the official receiver
becomes liquidator or trustee there may be a potential liability if they fail to insure
property which is subsequently lost or damaged, the insurance of which would have
been reasonably expected to be effected by any prudent liquidator or trustee.
Against that, the costs of insurance should be weighed against the potential loss to
the estate if an asset is lost which may not have any material value.
14.11 Disclaim if costs relating to property
(including insurance) outweigh benefits
If the cost of insurance and other obligations (such as security, environmental hazard
precautions and in particular, the insurance requirements around unoccupied
premises) are likely to exceed the net benefit to the estate, the official receiver
should ensure that any premises or relevant assets are disclaimed as a matter of
urgency as soon as it is possible to do so (see chapter 42 - Disclaimers). The
insurance cover must not be extended beyond the date of disclaimer, and the official
receiver should take active steps to cancel insurance where an asset has been
disposed of or disclaimed.
14.12 Official receiver’s liability as an occupier
of land or premises
In addition to the insurance of property, the official receiver will need to consider
whether insurance is required to cover any liabilities arising from potential negligence
on their part or as the occupier of premises.
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14.13 Obtaining cover where value of property
uncertain
There will be times when, especially in respect of mortgaged land and buildings, the
official receiver will be unable to establish whether the asset has any realisable value
to the estate of the company or the bankrupt. In suitable cases if uncertain, the
official receiver should effect cover, such as public liability insurance, which should
be obtained pending further enquiries and discussions with the mortgagee or
chargee who might be expected to have the priority interest in insuring the property.
14.14 Third party goods
The official receiver when acting as liquidator or trustee does not have a statutory
duty under the Act to protect third party property. The official receiver should not
normally incur expenditure on insuring third party property except to protect
themselves from any public liability.
See chapter 25 for guidance on dealing with third party property.
14.15 Decision to insure third-party goods
Where the official receiver has to insure third party goods or wishes to obtain
insurance cover against potential claims that they have failed to exercise adequate
care as an involuntary and/or gratuitous bailee of third party goods, such insurance
may be obtained under the Aon Open Cover facility, but it must be made clear to
Aon the exact ownership of the goods. Where the insurance may result in a high
premium or will require a payment of more than £2,500, the guidance in chapter 1
regarding the requirement to obtain the permission of the Senior Official Receiver
should be followed before committing to any expenditure.
14.16 Property subject to a charge
Where an insolvent’s property is subject to charge(s) and it is unlikely that there will
be any benefit from the property for the unsecured creditors, it will usually be
appropriate for the mortgagee to arrange insurance although consideration should
be given to public liability insurance where the official receiver is not indemnified by
the mortgagee. The official receiver should notify the mortgagee of the making of the
winding-up order or bankruptcy order, as soon as possible, and inform the
mortgagee that they do not intend to arrange insurance of the property; it will then be
for the mortgagee to insure its interest (if it has not already done so).
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If the charged property may produce a surplus for the benefit of the estate, the
official receiver should contact the mortgagee to confirm that the property is
adequately insured and that the official receiver’s interest is noted. Where a
mortgagee is in possession of the premises it will normally be responsible for any
public liability insurance. However, if the official receiver considers that there is any
residual occupation by the insolvent, or if they are concerned about particular risks
inherent in the property, they should ensure that public liability insurance is effected.
The official receiver should not normally insure fully charged assets. Where the
official receiver considers it is necessary to effect insurance cover, this cover should
be effected on a short term basis pending disclaimer of the asset or the other
interested persons agreeing to be responsible for the insurance.
14.17 Leasehold property
Where the insolvent has leasehold property, the official receiver should examine the
lease document to determine whether it is a condition of the lease that the insolvent
should insure the property, or whether this is the responsibility of the landlord. Where
the insolvent is required to insure the property the official receiver will need to decide
whether the lease has any value to justify insuring the property.
Where leasehold property is of no value to the estate and the lease contains
covenants to insure, the official receiver as liquidator or trustee should disclaim the
lease, but they should also inform any person affected by the lack of insurance of
their liability to arrange/continue insurance cover.
14.18 Receiver or administrative receiver in
office
If a receiver or administrative receiver is in office when the winding-up order is made,
the official receiver should only insure any assets which come under their control,
that is those assets not covered by the fixed or floating charge(s). The official
receiver should also effect cover for third party liability.
14.19 Case handed over to an insolvency
practitioner
Where a case is handed over to an insolvency practitioner, the details of all
insurance cover effected by the official receiver should be included in the trustee or
liquidator’s record book1. Any cover effected should be cancelled shortly after
handing over the estate, usually after five working days have elapsed, to allow the
insolvency practitioner to arrange any replacement insurance. The official receiver
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will have to pay any premium in respect of insurance effected by themselves and any
resultant debit balance transferred to the insolvency practitioner.
1. IPROH
Cover to be obtained
14.20 Recommended minimum insurance
requirements
The following paragraphs outline the recommended minimum insurance
requirements available under the Aon Insolvency Open Cover Insurance Facility (see
below) and it is recommended that this level of cover is also the minimum
requirement if the official receiver decides to continue the insolvent’s existing
insurance.
Each case must be looked at on its merits and where there are unusual risks e.g.
petrol stations and building sites or particularly valuable assets e.g. artwork or
precious stones, advice should be sought from the insolvent’s existing insurers or
Aon as to how those risks should be covered.
14.21 Sum to be insured
Where insurance is effected it is important that the sum insured is adequate to cover
the potential losses. Any underinsurance will reduce the amount that will be paid in
any claim in proportion to the amount by which the asset/risk is underinsured.
Buildings and other physical assets should be insured on a “reinstatement” basis.
This means insuring a building for the cost of rebuilding or repair, or the replacement
or repair of any other asset as new (without deduction for wear and tear).
14.22 Under-insurance and insurance
averaging clauses
When considering insurance and the cost of insurance official receivers should be
aware that it is standard practice in the insurance industry to apply an averaging
clause where the risk to an asset has not been insured to its full re-instatement
value, leaving the asset under-insured. This means that insurers are entitled to
reduce any claim payments by scaling the payment downwards, in direct proportion
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to the under-insurance. The insurer is entitled to make this reduction as the policy
holder has paid a lesser premium on the item where it is under insured.
An example of how insurance averaging clauses work is as follows:
•
a property is insured for a rebuild value of £175,000, but the true cost at the date of
the claim for the rebuild value is £200,000
•
the property becomes flood damaged and a claim is submitted for £20,000
•
as the property is only insured for a rebuild value of £175,000 the effect of the
averaging principle is that the £20,000 claim is scaled down by the insurer to a
payout of £17,500
In the same way, if the liquidator or trustee insures only their beneficial or equitable
interest in a property, rather than the total value of the property, insurance averaging
will reduce the value of any claim, relevant to the amount insured.
An example to show the effect of insurance averaging where the liquidator/trustee
has insured only their beneficial or equitable interest is as follows:
•
the liquidator/trustee insures their beneficial interest of £20,000 equity in a property
valued at £200,000. As a result of averaging being applied, an insurance payout
might only recover as little as £2,000
This illustrates that an insurance policy, which allows the liquidator/trustee to insure
only the beneficial interest in a property, needs to exclude any averaging clause, to
prevent a substantial reduction in the amount of any claim paid out.
14.23 Insurance cover provided by Aon and
averaging clauses
Aon has confirmed that there is no averaging clause on the household policies it
supplies. Inflation cover up to 125% is also included to prevent the property being
under-insured.
Averaging does apply where Aon is instructed to insure a property where there is
commercial use, e.g. a block of flats or a buy-to-let property where there is more
than one separate rentable space. Aon automatically allows a 15% “buffer” or margin
to account for cases of underinsurance, before applying its averaging clause. This is
to allow for the fact that it can be difficult to accurately assess the exact amount
required to adequately insure a property in the event of its needing to be
substantially repaired or rebuilt at some unknown point in the future.
14.24 Public Liability Insurance
Public liability insurance is cover for claims resulting from accidental damage caused
to a third party by property in the official receiver’s custody or control. An example of
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this would be a tile falling from the roof of a building owned by the insolvent and
injuring a passer by. This cover should be obtained whenever insuring any buildings
belonging to the insolvent except the residential home of a bankrupt. The Aon
buildings cover for residential properties includes public liability insurance.
14.25 Motor vehicles
Motor vehicle insurance is a statutory requirement1 that extends to any vehicle using
the public highway. Aon provides a Certificate of Motor Insurance to each official
receiver’s office on an annual basis. This provides blanket comprehensive coverage
in respect of any motor vehicle in the official receivers’ custody or control or that of
any company or firm of which the official receiver is the office holder. The insurance
covers any authorised licensed driver using the vehicle for the business of the
insured. This insurance is only activated when the official receiver has advised Aon
of the details of the vehicle and the need for the insurance.
The official receiver should send to Aon details (make, model and registration
number, along with an indication whether it is being used) of any vehicles to be
insured within seven days of their appointment as office holder. This will allow Aon
to fulfil the legal requirement to advise the insurer who can, in turn, update the Motor
Insurance Database.
1. Road Traffic Act 1988 section 143
14.26 Employers’ liability
Employers’ liability insurance is a legal requirement if you have employees including
part-time casual staff1. Aon provides blanket coverage for all cases where there are
employees and provides every office with a Certificate of Employer Liability on an
annual basis.
This insurance will primarily only be required in relation to trading appointments.
1. Employers’ Liability (compulsory Insurance) Act 1969
14.27 FCA publication requirement for
Employers’ Liability Policies
The Financial Conduct Authority (FCA) Regulations requires all insurers to publish all
current Employers’ Liability Policies on a website in a searchable format. This is to
assist in identifying relevant insurers where claimants who have suffered injury or
disease in the workplace wish to claim against the insurance held by their employer
or former employer.
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All insurers are required to publish this information either on their own website or to
become a member of a tracing office, such as the Employers Liability Tracing Office
(ELTO).
The information is stored by ELTO on a central database called the Employers’
Liability Database (ELD). This will be available on the ELTO website for claimants to
trace Employers’ Liability Policies for both current and historical employers.
In order to uniquely identify each employer, the Employers’ Reference Number
(ERN) (more commonly referred to as the Employer PAYE reference number) will be
used as to assist claimants in tracing Employers’ Liability insurance details.
14.28 Information required by Aon where
employers’ liability insurance is required
On all appointments under the Aon Open Cover Scheme where Employers’ Liability
insurance is required, Aon requires the following information to be provided:
a) ERN/Employer PAYE Number (including any known changes)
b) Full names of all the policyholder’s subsidiary companies
c) Notice of all changes to the ERN/PAYE reference during the official receiver’s
appointment whilst Employers’ Liability insurance is required under Aon’ Open Cover
Scheme.
14.29 Terrorism
Cover for acts of terrorism is subject to strict rules, must be specifically requested
and cannot be backdated.
Where the location or type of assets suggest a particular risk, e.g. a city centre
department store, or the insolvent had such cover under a policy that had recently
lapsed, the official receiver should ask Aon the terms (if any) under which full cover
against acts of terrorism might be granted. If the additional premium is significant
(i.e. £2,500 more than standard cover) the cover should only be extended with the
agreement of major creditors.
Payment of the premium for any cover against acts of terrorism must be made within
21 days of the cover being arranged.
14.30 Assets held at official receivers’ offices
On the rare occasions that it is considered necessary to store an insolvent’s assets
at the official receiver’s office, adequate insurance cover must be obtained. This will
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be available on a case by case basis with Aon provided that they are specifically
informed of the risk. Adequate security of the asset(s) must also be arranged. The
official receiver may consider storage of a computer at their premises when access
to the insolvent’s records on a computer is required. The asset(s) should be stored at
the official receiver’s office for the minimum period possible and Aon must
immediately be advised of any changes in circumstances and when cover is no
longer required.
14.31 Goods in transit or in control of agents
The official receiver should generally rely upon (and hence will need to have details
of) the insurance cover of agents where they are removing an insolvent’s assets. If
the official receiver is concerned as to the availability/adequacy of insurance
arrangements to cover the transporting of an insolvent’s assets, they should discuss
the matter with the agents. Aon can provide insurance cover for goods in transit if
required.
With regard to assets being held by the official receiver’s agent(s), depending on the
terms of the agents’ contract with the official receiver, these will normally be covered
under the agents’ insurance cover. Aon has confirmed that, where the official
receiver’s contract with their agent shows the official receiver maintains the
requirement to insure the assets, there should be no issue in paying out in the event
of a claim under the Aon Insolvency Open Cover Facility.
Stay of proceedings, annulments and
post-bankruptcy IVAs
14.32 Stay of proceedings
Where insurance has been effected prior to a stay of proceedings, it should be left in
force. The official receiver should exercise care in effecting insurance during the
period when a stay is in force. During the period the stay remains in force, it would
appear there is no power/duty for the official receiver to insure the insolvent’s
property. If the official receiver is aware that there is no cover in force, or existing
cover will expire during the period that the stay is in force, it would be wise for them
to notify the directors/bankrupt that the property is uninsured, so that this can be
addressed.
Alternatively, the official receiver should agree with the directors/bankrupt the terms
of the insurance or the official receiver may seek directions from the court1. The
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official receiver may also seek the directions of the court concerning the insurance
and protection of assets where the insurance will expire whilst a stay is in place or
the court has granted a general “stay of advert” requiring the official receiver to do
nothing to further publicise the insolvency order.
1. Rule 13.4
14.33 Annulments
When a bankruptcy order is annulled, the official receiver should arrange to cancel
the insurance cover from the date of the annulment and inform the bankrupt of the
position. Enquiries should be made of the insurance company in advance of any
hearing to establish the amount owed and the exact date that insurance cover will
expire. Premiums paid or cancellation charges incurred should be recovered as part
of the official receiver’s costs and expenses claimed at the annulment hearing. The
official receiver should also arrange to return any keys to the former bankrupt as
soon as possible, in order to avoid any liability for the loss of the former bankrupt’s
property.
In annulment cases the cost of insurance up to the date of the hearing should be
requested from Aon and included in the costs of the annulment.
14.34 Individual voluntary arrangements-
cancelling insurance
Where an individual voluntary arrangement (IVA) is entered into following the making
of a bankruptcy order, any asset(s) included within the IVA cease to be assets
comprised in the insolvency estate. As a result the official receiver should ensure
that insurance provision relating to those assets is cancelled, as soon as practically
possible after the IVA is agreed. No further premiums should be incurred in relation
to these assets after the approval of the IVA.
Any assets remaining under the control of the official receiver but not included in the
IVA should continue to be insured as necessary pending the annulment of the
bankruptcy order or other court order as to their disposal.
Insurance cover already in place by
insolvent
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14.35 Action required where existing cover in
place
Where the insolvent has any type of insurance cover in force at the date of the
winding-up or bankruptcy order, the official receiver should not assume that this
insurance will continue. The official receiver should:
•
obtain details of the insurance companies concerned
•
obtain the policy number(s)
•
establish the position regarding the payment of the premium(s)
•
establish the expiry date(s) of such cover
•
check that the cover arranged by the insolvent is adequate, taking into account the
guidance elsewhere in this chapter
•
check whether the insurance is affected or even invalidated by the event of
insolvency
In addition, and to support the enquiries outlined above, the official receiver should
ensure that all policy documents are recovered as soon as possible.
14.36 Continuance of cover
The official receiver should exercise discretion as to whether to effect new short term
insurance under the Aon Insolvency Open Cover Facility or to continue to allow the
existing cover. Where the official receiver is satisfied that adequate cover is provided
under the existing policy, they should contact the insolvent’s insurers without delay to
inform them of their interest in the relevant policies.
Written confirmation of the cover still required should be sent to the insurance
company and the relevant current policies should be sent for endorsement of the
official receiver’s interest in them. Where an insurance policy is endorsed in the
official receiver’s favour, to avoid the risk of liability being repudiated on the grounds
of, for example, inadequate disclosure in the original proposal, the official receiver
should seek to obtain an endorsement in the form outlined in the following
paragraph.
14.37 Endorsement to be used where official
receiver continues the insolvent’s insurance
This insurance so far as the interest of the Official Receiver as (provisional
liquidator/liquidator/interim receiver/trustee) is concerned shall not be prejudiced by
any act, omission or neglect on the part of the insured in completing the original
proposal forms, or by any alteration, whereby the risk of destruction or damage has
increased after the date of the (appointment of a provisional liquidator/interim
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receiver/winding up order/bankruptcy order) in relation to the insured’s property
without the knowledge of the Official Receiver as (provisional
liquidator/liquidator/interim receiver/trustee) provided that the Official Receiver as
(provisional liquidator/liquidator/interim receiver/trustee) shall, immediately on
becoming aware of any such matter as is mentioned above, give notice in writing to
the Insurance Company and on demand may pay such additional premium as the
Insurance Company may require.
14.38 Cancellation of existing cover
If the official receiver considers it is preferable to terminate cover previously effected
by the insolvent, they should notify the insurance company in writing at the earliest
opportunity that cover is no longer required so that a refund of the premium can be
obtained. Policy number(s) should be quoted whenever they are available.
If there are outstanding claims or the possibility of a claim on the existing insurance it
may be prudent to leave the policy in force until these are resolved.
Aon Insurance cover
14.39 Details of the Aon Insolvency Open
Cover Insurance facility
The Insolvency Service uses the Insolvency Open Cover Insurance facility operated
by Aon Limited. This scheme provides official receivers with automatic insurance
cover when dealing with insolvents’ estates. The scheme is designed to
automatically cover most insurance risks anywhere within the United Kingdom.
When in doubt as to whether a risk is insured contact should be made with the Aon
client services manager.
This section of the Technical Manual gives an overview of the scheme; detailed
guidance is available on the intranet.
14.40 Risks outside the scope of the Open
Cover facility
There are some classes of insurance risk which remain outside the scope of the
automatic facility due to the nature of the risk or the infrequent need for cover. Where
insurance cover is required on risks not covered by the automatic facility, this must
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be placed separately by Aon in the open insurance market and all relevant
underwriting information must be immediately supplied to Aon.
“Off Scheme” insurance is also required for property held overseas.
14.41 Notifying Aon within agreed timescales
of the insurance requirement
The official receiver must inform Aon if insurance is required as soon as possible
after their appointment. Where automatic cover for a smaller non-trading case is
required, the scheme allows a period of 30 days in which a notification can be made.
This period of 30 days is used for administrative convenience and the official
receiver should not delay notifying Aon just because this period is available. Where
certain trades and activities are concerned, notification to insurers is required within
14 days.
14.42 Where there is doubt if automatic cover
is available
If there are any doubts as to whether or not automatic cover is available, the official
receiver should contact Aon as soon as possible. Aon staff will be able to advise
what cover may be required when they are told the trade of the business over which
the official receiver has been appointed.
14.43 Small non-trading cases
For all cases with no special insurance risks (small non-trading cases) cover may be
obtained through the standard process included in the intranet guidance.
Insurance should be effected as soon as the official receiver becomes aware of an
asset requiring insurance cover. Cover will be provided from the date of the official
receiver’s appointment on the appropriate cases, as long as notification is provided
within 30 days of the official receiver’s appointment.
14.44 Assets identified 30 days or more after
the official receiver’s appointment
Where assets requiring insurance come to light more than 30 days after the date of
the official receiver’s appointment, these can be insured by Aon but the cover will
only be effective from the date Aon is notified of the assets.
--- PDF page 19 ---
14.45 Cancellation of automatic insurance
cover
Insurance cover (and the liability to pay the premiums) continues until the official
receiver instructs Aon that the cover is no longer required. Aon never automatically
cancels insurance and only invoices for insurance premiums once the cover has
been cancelled.
The official receiver’s automatic insurance cover must be cancelled where:
•
the asset is disposed of
•
in relation to a property, a charge is obtained by the official receiver
•
a property is repossessed under the terms of a mortgage charge or an LPA receiver
is appointed
•
a disclaimer is issued
•
the order is rescinded or annulled
•
an insolvency practitioner is appointed
•
the official receiver’s interest in the asset, as liquidator or trustee has otherwise
ended
The insurance should be cancelled within five working days of the insurance being
deemed unnecessary. The date of cancellation should be the date that the insurance
became unnecessary (the date of the annulment, for example) and not the date of
notification. It is important the correct date is used to ensure that the estate is not
charged for periods when the insurance was no longer required.
In any case, the need for continued insurance must be regularly reviewed, and the
insurance cancelled within five working days once it has been decided it is no longer
required.
The cancellation of insurance should be noted on the case file in an appropriate
place.
14.46 Classes of risk outside of the automatic
insurance cover
The Aon Insolvency Open Cover scheme is designed to automatically cover most
insurance risks. However, there are other classes of insurance risk which remain
outside the scope of the automatic facility due to the nature of the risk or the
infrequent need for cover. These risks, when insurance cover is required, must be
placed separately by Aon in the open insurance market, and all relevant underwriting
information must be immediately supplied so that Aon may approach underwriters.
Details of trades and activities which are excluded are included in the intranet
guidance
--- PDF page 20 ---
14.47 Cases where insurance cover required
exceeds small non-trading case criteria
For larger cases the official receiver will need to contact Aon by telephone to obtain
suitable insurance cover. The cover needed may require Aon to place the insurance
separately in the open insurance market and all relevant information should be
supplied to Aon by the official receiver. Some examples provided by Aon of
businesses where insurance will need to be obtained separately on the open market
include art dealers, jewellers’ shops, racehorses and fish farms. The amount of the
insurance premium should be agreed between Aon and the official receiver.
Once agreement has been reached with Aon the official receiver should complete
the appropriate “Aon Data Gathering Form” and return it to Aon. The relevant form
will be emailed by Aon following discussion with the official receiver as to the
unusual insurance required. Aon staff can give assistance in the completion of the
questionnaire and may also arrange a site visit to confirm the insurance is adequate
or give advice on security.
14.48 Insurance for solely owned tenanted
properties
Where insurance is either not in place on a tenanted property or that insurance is
inadequate (e.g. landlord’s insurance including public liability and building
insurance), this needs to be dealt with immediately. Providing the property is in use
for residential purposes and is within the designated limits, most cases can be
covered following the standard process. Where a case does not fall into these
criteria it will be necessary to contact Aon to agree individual insurance cover,
generally this will be where a property is rented out to a business for commercial
purposes.
14.49 Process for requesting insurance for
overseas properties
The Aon Insolvency Open Cover facility insurance scheme does not cover overseas
properties, although Aon can provide insurance for properties overseas “off scheme”.
Aon is able to place official receivers’ requests for insurance on an ‘open market’
basis with the scheme insurers, and this applies when dealing with cases where the
asset is property outside of the UK (overseas). The fundamental differences between
open market placements and the standard Aon scheme arrangements are:
a) Cover is not automatic.
--- PDF page 21 ---
b) Premiums are payable upon invoice.
With regard to (b) this can be particularly important where there is an overseas
business, as taxes may be payable in the overseas territory for which an insurer is
liable with immediate effect from the date of cover commencing. Failure to make the
immediate payment of the premium when invoiced may result in cancellation of the
cover by the relevant insurer.
14.50 Payment of premiums
Aon invoices for insurance premiums only when the relevant insurance cover has
been cancelled (this should be within five working days of it no longer being
required). Aon will invoice the originating official receiver who should forward all
authorised invoices to EAS for payment.
Making a claim under the Aon scheme
14.51 Notification of claims
It is a condition of insurance policies that claims or potential claims are notified as
soon as practicable. Therefore the official receiver should telephone Aon with
preliminary details as soon as possible after the loss has occurred and immediately if
circumstances warrant, e.g. loss of life or major property damage. In an emergency,
outside office hours Aon personnel can be contacted at home (see the Aon Facility
Guide available on the intranet).
14.52 Notification to other third parties and
minimising further losses
Where the claim relates to theft, malicious damage, riot or other criminal activity the
official receiver should also inform the police. In all cases steps should be taken to
minimise any potential further losses and an estimate for replacement or repair
obtained.
14.53 Appointment of a loss adjuster and
attendance on site
When Aon are notified of a claim they will appoint a loss adjuster, if required, who
may visit the site of the claim to ensure the official receiver’s best interests are
--- PDF page 22 ---
protected. In straightforward claims Aon aims to settle the claim within 20 working
days.
14.54 Public liability and motor vehicle claims
In respect of public liability claims and those relating to motor vehicles the official
receiver should make no admission of liability and all third party correspondence in
relation to the claim must be forwarded to Aon unanswered, who will undertake to
ensure that the relevant insurer takes control of the conduct of the claim and will deal
directly with third parties or their representatives. Any writ or summons in connection
with the claim should be forwarded to Aon immediately.
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ATTACHMENT: 16.Accounting_and_other_records.pdf
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--- PDF page 1 ---
This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers was issued on 3 April 2020.
16. Accounting and other records
•
Chapter content
Frequently asked questions
The insolvent’s records, the legislative framework and the official receiver’s powers
duties
Securing, collecting and listing the insolvent’s records
Storage, preservation and inspection of records
Cloud-based accounting software
The investigation decision and preserving records
Using records in evidence
Retention or destruction of records
Destruction of records held by an insolvency practitioner
Official receiver’s case files
The following abbreviations are used in this
guidance:
FCU – Forensic Computing Unit
Frequently asked questions
What are records?
Records are books, papers or electronic / digital files kept by a company, partnership
or individual to explain their financial transactions and detailing their assets and
liabilities.
--- PDF page 2 ---
For a business they can include correspondence, notes of meetings, marketing
materials and legal documents, for example leases, contracts of sale and charges.
Records may also be held by individuals who do not carry on a business, for
example bank statements, vehicle registration documents, loan agreements, share
certificates or statements, credit card statements etc.
Why is it important for the official receiver to
collect or secure the insolvent’s records?
The records help the official receiver:
•
identify and realise assets, for example book debts;
•
identify undisclosed assets;
•
identify creditors and provide contact details;
•
identify undisclosed creditors which may lead to assets hidden by the company,
partners or bankrupt;
•
support claims for antecedent recoveries, for example transactions at
undervalue or preferences, and directors’ loan accounts; and
•
establish the cause of failure which may lead to a criminal referral, a
disqualification report or a bankruptcy restrictions report.
Accounting records, in any format, should not be relied upon alone, without
reference to other indicators as to the financial health of the company, partnership or
bankrupt.
Do all records have to be collected?
The official receiver may decide in a limited number of cases not to collect or secure
the records, for example where it is clear at an early stage what the cause of failure
is and there is no prospect of further asset enquiries or further investigation. In the
vast majority of cases the official receiver will be expected to collect or secure the
records.
How to collect the records?
Depending on the individual circumstances of each case the records may be
collected:
•
on inspection;
•
from other office holders;
•
by arrangement, from the trading premises or property of a third party;
•
at interview or otherwise by personal delivery from the
director/partner/bankrupt/third party;
--- PDF page 3 ---
•
by post or courier;
•
by the official receiver’s agents; or
•
by retaining an online (cloud-based) accounting service.
Do I have to take extra care when collecting or
securing computer records?
Yes, you must not attempt to access digital media or online (cloud-based) accounts
to inspect the records or confirm any of the information provided by the director,
partner or bankrupt, for example passwords, details of the software used and the
period the data covers.
How do I deal with computer records?
You should not attempt to access the computer or other media containing the
records. The media should be packed up correctly and sent to the FCU to extract the
data. FCU can store computers or other media with the external contractor, if
required. The official receiver should not send computers or other media to the
external contractor for storage. More information on the role of FCU can be found in
the Enforcement and Investigation Guide.
How do I deal with an online accounting
system (cloud-based storage)
Details of the system used and access codes should be obtained and contact made
with the provider to ensure ongoing provision of services. the FCU should be
consulted before the account is accessed.
Is there a glossary of computer terms?
A comprehensive glossary of computer terms can be found in the Enforcement and
Investigation Guide (paragraph 322.2).
Does the official receiver have to issue a
receipt?
In all cases the official receiver must issue a receipt (form BPRCT) on collecting
physical records or digital media.
--- PDF page 4 ---
Can an accountant or other person enforce a
lien over the records?
An accountant, solicitor or other person may claim a lien over the records of a
company, partnership or bankrupt for fees owed but the lien is unenforceable against
the official receiver, liquidator or trustee. Where an accountant or other person
claims a lien a request should be made to deliver the records to the official receiver.
When should I consider sending the paper
records to the external contractor?
Records should be sent to storage with the external contractor where the case has
been referred for further investigation, where the records may be required to
complete the administration of the case and where the records cannot be destroyed
locally.
What should I check before authorising
destruction of records?
You should always check the case management system to see if there are any
ongoing cases connected to the individual partnership or company, particularly
investigation cases.
If you do find a connected case (for example you have the bankruptcy of a director
while the company liquidation is being dealt with by another office), you should
always contact the official receiver, investigator or IP to confirm they do not need you
to retain the records.
When can I destroy records?
If collected, records may be destroyed immediately the administration is complete
and the case is marked no further investigation, for example in a non-trading or small
trader bankruptcy application. Form BPDC should be completed and scanned into
the case management system. Where the bankrupt has been trading, or in company
and partnership cases, then HMRC should be asked if they wish to inspect the
records before destruction. After 12 months the records may be destroyed, if
appropriate, without reference to HMRC.
How do I destroy paper records locally?
--- PDF page 5 ---
Local destruction of paper/hardcopy records is achieved by placing them in the
confidential waste bins provided. Records should not be sent to the external
contactor solely for destruction.
How do I destroy computer records?
When the administration of the case and any investigation has been completed FCU
should be instructed to destroy the equipment under their control within the agency’s
guidelines, unless they belong to a third party (see paragraph 16.62).
Do I have to enter a review date on records
sent to storage?
Yes, all records sent to storage must have a review date. There are three review
dates, short (3 years), medium (6 years) and exemption. The Retention Period Guide
shows the length of time records marked “exemption” should be kept before being
reviewed.
Can all records held in storage be destroyed?
No, where there is the possibility of a rescission, annulment or stay the records
should not be destroyed. There are a number of other possible reasons why the
official receiver may need to retain records. Further details are set out in paragraph
16.68.
When can I destroy records held in storage?
The records should be destroyed when the review date becomes due unless the
administration of the case is not complete. If the records are to remain in storage a
new review date must be entered into the external contractor’s data base and the
case management system.
When can I destroy records in further
investigation cases?
This depends upon the type of enforcement proceedings being taken, for example
prosecution, disqualification or bankruptcy restriction taken. Further details are set
out in paragraphs 16.41 to 16.52.
What will happen to the official receiver’s
paper files?
--- PDF page 6 ---
The paper files currently held by the official receiver, either in storage or in the office,
should have a review date. When the review date is reached they should either be
destroyed, if no longer required, or a new review date entered.
What happens to files and records of historical
interest?
Some files and records may be kept for a long period if they are of “public interest”.
Such files may additionally be offered to the National Archives.
The insolvent’s records, the legislative
framework and the official receiver’s
powers duties
16. Accounting and other records
This chapter provides guidance on the official receivers’ duty to deal with the books
and records of insolvents. The chapter sets out procedures to be applied in securing,
taking custody of, preserving and destroying the records in all formats.
The insolvent’s records: the legislative framework and official receiver’s powers and
duties
16.1 Introduction
For the purpose of this chapter the term “records” includes all books of account,
papers and other documents which set-out the financial and business life of the
insolvent.
“Records” include books of account, papers, computer records and other electronic /
digital records including those held in the “cloud” (online).1 They can also include
correspondence, notes of meetings (especially in companies and partnerships),
marketing materials and legal documents, for example leases, contracts of sale and
charges. Formal financial statements may be produced by accountants or financial
advisors but still form part of the “records” of an individual, partnership or company
(but see paragraph 16.18).
1. Section 436
--- PDF page 7 ---
16.2 Requirement to keep accounting records
A company or limited liability partnership (LLP) is required to keep sufficient
accounting records to show and explain the transactions and to disclose at any time,
with reasonable accuracy, the financial position of the company or LLP1.
An individual must maintain sufficient records to enable tax returns to be completed
and submitted to HMRC2.
The accounting records must be kept for:
•
three years from date of creation for a private company or LLP3, or
•
six years from date of creation for a public limited company3.
•
the fifth anniversary of 31st January following the year of assessment or six
years from the end of an accounting period where the individual carried on a
trade or profession alone or in partnership2, or
•
the first anniversary of 31st January following the year of assessment for a
private individual3.
1. Companies Act 2006, section 386, (and as applied and amended by regulation 6 of The Limited Liability Partnerships (Accounts and Audit) (Application of Companies
Act 2006) Regulations 2008)
2. Taxes Management Act 1970, section 12B
3. Companies Act 2006, section 388(4), (and as applied and amended by regulation 6 of The Limited Liability Partnerships (Accounts and Audit) (Application of
Companies Act 2006) Regulations 2008).
16.3 The official receiver’s duty as liquidator
or trustee
The official receiver as liquidator or trustee is required to get in, realise and distribute
the insolvent’s estate1. The official receiver will need to refer to the insolvent’s
records in order to discharge this duty. The records help the official receiver to
identify the insolvent’s assets and liabilities, establish the cause of failure and identify
any potential recoveries, for example preferences, transactions at undervalue or
directors’ loan accounts. The official receiver can be held to be negligent and liable
for damages for failing to act on information in the insolvent’s records, for example
for not giving notice of the proceedings to creditors named in the records2.
1. Sections 144 and 305(2)
2. Pulsford v Devenish [1903] 2 Ch.625
16.4 The official receiver’s duty to investigate
--- PDF page 8 ---
The official receiver has a statutory duty to investigate the affairs of a failed company
(or LLP), and where the official receiver thinks necessary, the affairs of a bankrupt1.
The examination of the insolvent’s records will usually be an important part of any
investigation.
1. Section 132 and 289; Limited Liability Partnerships Regulations 2001, regulation 5
16.5 Requirement to deliver records to the
official receiver
Directors and bankrupts have a duty to co-operate with the official receiver and
provide such information as the official receiver may reasonably require1. They are
required to deliver up accounting records in their control2. The official receiver also
has powers to ask the court to assist with the delivery or seizure of records from any
person with records under their control3. These provisions apply to Limited Liability
Partnerships and partnerships4.
1. Sections 235 and 291
2. Sections 312
3. Sections 234, 236, 365 and 366
4. Limited Liability Partnerships Regulations 2001, regulation 5; Insolvent Partnerships Order 1994
16.6 Failure to keep or deliver accounting
records
An officer of the company, past or present, or a bankrupt is guilty of a criminal
offence if they do not adequately account for a substantial loss of property, fail to
deliver records as requested by the official receiver or falsify any accounting
records1.
1. Sections 208, 209,354 and 355
16.7 Records subject to a lien
The official receiver may be informed that the records are subject to a lien by a third
party. A lien may be understood, in its simplest form, as the legal right to retain
possession until a claim has been met.
16.8 Effect of a lien
--- PDF page 9 ---
A lien or other right to retain possession of any records is unenforceable to the
extent that the official receiver, liquidator or trustee would be denied possession of
the records1. A lien may be validly claimed against records which evidence
ownership of property, for example the title deeds to a freehold property or records in
connection with a registered charge. The official receiver should follow the guidance
in Destruction of records before destroying any records subject to a valid lien.
1. Sections 246 and 349
16.9 The official receiver’s use of compulsory
powers in company investigations
Where a case is allocated for investigation within IES the official receiver remains the
office-holder and responsible for the collection and retention of the records.
Compulsory powers in a disqualification investigation should only be used in
exceptional circumstances. It would usually be appropriate where the company’s
bank or solicitors is willing to provide the information but only subject to a court
order. The IES investigator will inform the official receiver, and communication will be
maintained, where the IES investigator, in consultation with the IES deputy official
receiver and, if appropriate, Enforcement Technical, determine it is appropriate to
use those compulsory powers in connection with disqualification proceedings.
16.10 The Criminal Procedure and
Investigation Act 1996
The Criminal Procedure and Investigation Act 1996 together with its Code of Practice
regulates the recording, retention and disclosure of unused material in criminal
prosecutions. A failure to comply with the requirements of the Criminal Procedure
and Investigation Act 1996 can lead to prosecutions being stayed for abuse of
process or other grounds.
To comply with the requirements of the Criminal Procedure and Investigation Act
1996 the official receiver should be able to evidence when accounting records and a
company’s statutory records were collected or delivered, from/by whom, in what
form, details of the records collected and where they are stored. Every official
receiver’s office must have a Disclosure Liaison Officer (DLO) who will be the official
receiver or a deputy official receiver.
Further information on disclosure in disqualification, bankruptcy restrictions and
prosecutions cases can be found in Enforcement and Investigation Guide.
--- PDF page 10 ---
Securing, collecting and listing an
insolvent’s records
16.11 Introduction
On the making of a winding-up or bankruptcy order the official receiver should
contact the director, partner or bankrupt as soon as possible to complete the ICON,
usually by telephone. The official receiver should use this opportunity to establish the
nature and whereabouts of the records and to make arrangements for their custody
or collection, as appropriate. Where the company uses an online cloud-based
provider for their records the official receiver should obtain full details of the service
provider, account name, login details, password and payment details. The official
receiver should NOT access the cloud account but may need to make contact with
the service provider to ensure the service is maintained, see paragraph 16.38.
16.12 The decision to collect the records
In the vast majority of liquidation cases and bankruptcy cases where the debtor has
carried on a business the official receiver should take custody of the accounting
records. In making a decision that the records are not required the official receiver
should consider whether the records may be required to:
•
assist in the realisation of assets, for example book debts;
•
identify creditors;
•
support claims for antecedent recoveries, for example preferences; and
•
investigate the cause of failure which may lead to identifying assets, a
statement of facts, a disqualification report or a bankruptcy restrictions report.
Where the official receiver decides not to collect the insolvent’s records, for example
in a clear no further enquiry bankruptcy application or non-trading case, this must be
clearly recorded, with the reason for the decision, on the electronic case file.
16.13 Collecting the records
The official receiver, as a result of any initial contact with the directors, partners or
bankrupt, should have established the whereabouts and volume of the records.
There may have been no contact with a director, partner or bankrupt where a
decision to carry out an inspection is made. The official receiver may recover the
records:
•
on inspection;
•
from other office holders;
•
by arrangement, from the trading premises or property of a third party;
--- PDF page 11 ---
•
at interview or otherwise by personal delivery from the
director/partner/bankrupt/third party;
•
by post or courier;
•
by the official receiver’s agents; or
•
by retaining an online (cloud-based) accounting service.
Once the quantity and location of the records is known, the most appropriate method
of collection should be decided.
16.14 Issuing a receipt for records
A separate receipt (form BPRCT) must be issued on each occasion records are
recovered or delivered to the office. The receipt will enable the official receiver to
establish an audit trail of which records were received, when they were received and
from whom they were recovered. Further detail on receipting records can be found in
paragraphs 16.23 to 16.25.
16.15 Advice on boxing-up voluminous paper
records
Where the records are of a particularly high volume and in no obvious logical order
the official receiver should consider putting the records into boxes according to age,
for example "sales day book, sales invoices, cash book for 2016-17”.
Where professionally prepared accounts exist and the records underlying those
accounts have been bundled by the auditors they should be left in that format and
the descriptions used by the auditors adopted for recording purposes. Where such
bundling has not occurred, the records could simply be listed as "accounting records
for the year ending..." as it is rare for the accuracy of such accounts to be
questioned.
16.16 Collection of records held by an
investigating authority
In rare cases the records may be held by a third party for the purposes of an ongoing
investigation, for example by the Serious Fraud Office or the police. The records
should not be collected but left with the investigating authority. The official receiver
should obtain a list of the records held by the investigating authority. If required,
arrangements should be made for the records to be inspected.
16.17 Records held by other office holders
--- PDF page 12 ---
Where there were previous insolvency proceeding, for example a voluntary
liquidation, the records may be held by the previous office holder. The office holder is
required to deliver up the records1, although an administrative receiver may be
permitted to retain custody of records required for the purpose of the
receivership2.The official receiver should make arrangements with the office holder to
collect the records and issue a receipt.
In some cases it may be appropriate to simply have the records destroyed through
an existing storage contractor, for example where an administrator has ended the
administration through a winding-up procedure and it is clear there are no
outstanding matters to deal with or likelihood of further investigation. The official
receiver should follow the guidance in Retention or destruction of records
1.Sections 143(2), 305(2) and Engel v South Metropolitan Brewing Co (1892) 1 Ch. 422
2. Gomba Holdings Limited v Minories Finance Limited (1989) All ER 261 Vol.1
16.18 Accountants’ and solicitors’ files
(including working papers)
When seeking information from an accountant or solicitor it should be noted that their
files and working papers remain their property and do not form part of the records of
a company, partnership or bankrupt1. Where an accountant, solicitor or other third-
party hands over their files or working papers these papers should be stored
separately. The official receiver should ensure the prompt return of files or working
papers as soon as enquiries have been completed.
1. Re Chantry Martin & Co. v Martin (1953) 2 ALLER 691
16.19 Accountants’ or solicitors’ client files
Where a winding-up or bankruptcy order is made against a firm of accountants or
solicitors, the clients’ papers do not form part of the records of the partnership or the
bankrupt. The papers should be returned to the clients as soon as possible. Under
no circumstances should they be destroyed. Where the clients cannot be traced the
matter should be initially referred to the relevant accountancy body or The Law
Society.
16.20 Collecting or securing records held on
computers or digital media
--- PDF page 13 ---
The official receiver, when collecting computerised records (including media such as
external hard drives, discs, etc.) should obtain the following information from the
director, partner or bankrupt:
•
details of the software package(s) used and/or installed on the system,
including which version;
•
details of all passwords used by key users;
•
the period the data relates to;
•
whether any of the hardware is damaged; and
•
whether any third parties have accessed the media and why.
The official receiver must not access the media to inspect the records or to confirm
any of the information provided by the director, partner or bankrupt, for example
passwords or a list of creditors.
If the computers or media can be removed each media item should be placed into an
approved evidence bag and tagged on site, ideally in the presence of the director,
partner or, bankrupt and include details of the unique tag reference number when
completing the form BPRCT.
Similarly, where computers or digital media are delivered to the office, bag and tag
each media item, ideally in presence of company officer, partner, bankrupt or third
party, and include the unique tag reference when completing the BPRCT.
Further information on dealing with computerised records is contained in paragraph
16.28.
16.21 Inspection of site based computerised
records
The official receiver may be required to inspect the computer system on site because
it cannot be moved. The official receiver should establish who owns the system and
obtain the information about the system (see paragraph 16.20). The official receiver
should not turn the system off or on or attempt to access the data. The official
receiver should arrange for FCU to visit the site and extract the data as a matter of
urgency. FCU should be accompanied on their visit by a member of the official
receiver’s staff.
16.22 Securing records stored in cloud-based
(on-line) system
Increasingly the records of the insolvent will be held under the control of a third party
as they are stored online in a cloud facility. In this context, the cloud refers to storage
devices that are never physically accessed by users. Rather the software and data is
--- PDF page 14 ---
stored on servers held by the service provider, in a secured area, accessible by the
user and protected by a user name and password. Cloud-based software can be
used from any device with an internet connection.
Where records stored in the cloud are identified early contact with the provider is
essential to ensure the records are preserved.
The provider is no longer able to ask the official receiver to pay any arrears relating
to pre-order fees1 but providers will likely charge ongoing rates and the official
receiver may have to personally guarantee this. Costs incurred to preserve the
records in the cloud are an expense of the bankruptcy estate in the same way as
paying for external storage. The cost is included in the general administration fee,
therefore the costs whether paid by invoice or using the office GPC should be
charged to VOTE (see chapter 48).
Once the full account details have been established these should be passed to FCU
by email including a completed “Request for Service” form. FCU can then access the
data on their stand-alone machines. The equipment used by the FCU is separate
and is protected by anti-virus software and is encrypted. Do not attempt to login to
the account from your own workstation, unless you have been provided with a ‘safe’
account to work on from FCU.
Further information on cloud-based accounting systems is contained in paragraphs
16.37 to 16.40
1. Section 233
16.23 Content of the receipt (BPRCT)
In some cases, it may not be necessary for the receipt to list the records in detail. A
record of the number of boxes or other containers delivered or, if there are only a few
items, the number of books, envelopes of vouchers, etc. may be sufficient. Discretion
should be used given the circumstances of each individual case. The fundamental
requirement of recording which records were received, when they were received and
from whom they were recovered remains.
16.24 Further investigation cases and the
SRHO
In further investigation cases where a schedule of books, papers and records
(SRHO) handed over to the official receiver has not been completed the official
receiver should seek to obtain one. Where the official receiver does not consider this
necessary, for example for the investigation of post bankruptcy order credit offences,
or the director, partner or bankrupt refuses to complete the SRHO the official
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receiver should refer to the relevant chapters of the Enforcement and Investigation
Guide.
16.25 Further investigation checklist
In further investigation cases the official receiver should make the following checks
to ensure compliance with any future disclosure requirements:
•
the details of the records received are properly entered into the case
management system;
•
the SRHO, or relevant page of the PIQ, has been properly completed and the
list includes first and last entries;
•
a separate receipt has been issued for each delivery of records;
•
for each receipt there is an identifiable SRHO, or relevant page of the PIQ;
•
the records have been physically checked to ensure they correspond
accurately with the SRHO or PIQ; and
•
whether any records received after the first interview have been listed on a
SRHO and correctly entered into the case management system.
Storage, preservation and inspection of
records
16.26 Introduction
The procedure for storing and accessing computerised records where the official
receiver has recovered physical hardware or digital media is explained in paragraphs
16.28 to 16.33. More information on cloud-based accounting systems is provided at
paragraphs 16.37 to 16.40. All other records of the company, partnership or bankrupt
retrieved by the official receiver should be listed, boxed and stored securely on site
in the official receiver's office, or with the agency’s external storage contractors, as
appropriate. If kept in the office the storage boxes must be labelled in such a way
that their contents may be found and retrieved without difficulty. The location of the
records should be recorded in the case management system and a copy of form
SRHO placed in every box to help subsequent identification. If any of the records are
moved to a new box this must also be recorded, together with the date on which it
occurred.
16.27 Use of external storage contractors
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The Service has a national contract for the external storage of records. Details of the
contract and use of the facility can be found on the intranet. Computers / media and
records for cases marked as “further investigations” should not routinely be sent to
the storage contractor (see paragraphs 16.29 and 16.30).
16.28 Dealing with computerised records
Computerised records may be kept on a desk top computer, lap top computer, on
various forms of electronic media, for example DVDs, CDs, external hard drives,
network attached storage devices, memory sticks etc.
To prevent any corruption of the data or allegation of tampering, on no account
should the official receiver’s staff attempt to access the original records or use
passwords provided by the insolvent to access the original data.
Where the official receiver wishes to retrieve the information stored, either to
administer the estate or for further investigation, e-mail the FCU attaching a
“Request for Service” form. The FCU works to the Association of Chief Police
Officers (APCO) guidelines on digital evidence, which is a standard understood and
generally used in British courts.
The procedure for requesting service from FCU is available on the intranet.
16.29 Storing the original computer and/or
media
The original computer/media will be returned to the official receiver by FCU, re-
bagged and re-tagged. In all cases the original computer/ media should be stored in
the sealed evidential bags which should not be unsealed unless specific instructions
to do so are given by IES or lawyers. The official receiver should not use the external
contractor to store items returned by FCU and instead should store them securely on
site unless the volume means they can only be stored off-site.
16.30 Storage for further investigation cases
Where the case has been marked "further Investigation" the records must be held in
“secure storage”. “Secure storage”, in this instance, means that the records are
stored within the official receiver's office in a recorded location and in boxes marked
“Not to be destroyed”. Where records have to be held by the storage contractor
arrangements must be made to ensure they are placed in a secure area and safe
from destruction.
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16.31 Inspection of records – investigation
proceedings
In investigation cases there may be times when records held by the official receiver,
either in the office or in storage may need to be inspected by an investigation officer,
prosecution solicitor or defence solicitor. Where an investigation officer wishes to
inspect the records at the external storage contractor’s premises the investigation
officer should be sent form IOAUTH and a copy should be sent to the storage
contractor. In all other instances the official receiver should follow the guidance in
paragraph 16.33 in response to a request to inspect books and papers.
Digital media should not be made available for inspection without first consulting
FCU.
16.32 Inspection of records held by a third
party – further investigation
In some investigation cases the records may be held by a third party, for example an
insolvency practitioner. The official receiver should contact the third party to
determine the volume of records involved, for example the number of boxes and
should arrange to visit the premises to enable a detailed examination of the records
to be undertaken. The official receiver should, if possible, list or obtain a list from the
third party, the records held and ensure they are recorded on the case management
system before a further report is submitted.
16.33 Inspection of records – non-
investigation proceedings
An officer of the company, partner, bankrupt, other government department, or other
third party, may wish to review the records held by the official receiver. On receiving
such a request, the official receiver must confirm that they are entitled to inspect the
records by following the guidance in Obtaining, releasing and formal disclosure of
information. On being satisfied the person is entitled to inspect the records the
official receiver should make suitable arrangements for the records to be inspected
in the office. If applicable the records should be retrieved from the storage
contractor. Where the box or boxes contain the records of other insolvents, care
should be taken to ensure only those records belonging to the relevant company,
partnership or bankrupt are available for inspection.
Digital media should not be made available for inspection without first consulting
FCU.
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16.34 Appointment of an insolvency
practitioner as liquidator or trustee - records
held in office
Where an insolvency practitioner is appointed the official receiver should arrange for
the collection of, or transfer of, responsibility for the records. If the insolvency
practitioner refuses to collect physical records the official receiver should send the
records by post or courier.
Where an invoice is issued to the official receiver by courier it should be sent to
Estate Accounts and Scanning (EAS) with the payment charged against the estate.
The official receiver should not store records in the office following handover of the
case to an insolvency practitioner unless they are required for prosecution,
disqualification or bankruptcy restriction purposes.
16.35 Appointment of an insolvency
practitioner as liquidator or trustee - records
held in storage
The official receiver should inform the insolvency practitioner immediately that the
records are held in storage or in the cloud and arrange for the costs to be met
directly by the insolvency practitioner. Where an agreement regarding the records
cannot be reached the official receiver should arrange for the storage contractor to
deliver the records to the insolvency practitioner’s office, or give fair warning to the
insolvency practitioner that payment for cloud access / storage will cease.
The costs of delivery should be charged to the estate and the case management
system should be updated when the records have been delivered.
16.36 Records held or delivered to an
insolvency practitioner
When handing over or delivering records to an insolvency practitioner the official
receiver should ask for the records to be stored in the same format they were
handed over. Where an insolvency practitioner re-boxes the records they should be
asked to make a file note explaining when and why this occurred.
Cloud-based accounting software
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16.37 Introduction
In 2019 HMRC rolled out its Making Tax Digital initiative driving a need to move
away from paper towards digitally formatted records and accounts. With the decline
in desk-top based computer applications which store all information locally on
hardware it is inevitable that more businesses will move to business accounting
software applications where the information is stored on a remote server operated by
the provider.
In a cloud based system the user has no control of the software or the database,
including an ability to independently back-up data. The user pays for the software
and storage by monthly or annual subscription.
Due to the changing nature of cloud storage, the sheer volume of cloud providers (all
with their own protocols) and technological advances in this field, this guidance
includes a series of points to consider rather than a set of hard and fast rules to
follow. Currently the main providers of Cloud based accounting systems are:-
FreeAgent; Sage Business, QuickBooks, Xero; Zoho
16.38 Securing records held in the cloud
Access to the information will depend on maintaining payments for the service. The
provider is no longer able to ask the official receiver to pay any arrears relating to
pre-order fees1 but providers will likely charge ongoing rates and the official receiver
may have to personally guarantee this. Costs incurred to preserve the records in the
cloud are an expense of the bankruptcy estate in the same way as paying for
external storage. The cost is included in the general administration fee, therefore the
costs whether paid by invoice or using the office GPC should be charged to VOTE
(see chapter 48). Further information on securing access and the records can be
found in paragraph 16.39
1. Section 233
The official receiver should follow the same procedure when collecting any form of
computerised / digital records and obtain the following information from the director,
partner or bankrupt:
•
details of the service provider;
•
account name;
•
details of all log-in details and passwords used by key users;
•
the period the data relates to;
•
details of payment for the service and when the next payment is due.
•
if access to the service is restricted to registered devices and details of those
devices.
--- PDF page 20 ---
Once the full account details have been established these should be passed to the
FCU by email including a completed “Request for Service” form. FCU can then
access the data on their stand-alone machines. The equipment used by the FCU is
separate and is protected by anti-virus software and is encrypted. Do not attempt to
login to the account from your own workstation, unless you have been provided with
a ‘safe’ account to work on from FCU.
16.39 Accessing the records
Online accounting solutions are not designed to enable the user to produce back-ups
that can be restored to produce a true duplicate of the accounts. This means the
FCU can’t produce a copy of the accounts that can be removed and restored again
at a later date in the same way they can with more traditional computerised
accounting records held on local systems.
In all cases, consult with FCU on the most secure and practical method of data
retrieval before doing anything. Please note, this is an evolving area of technology
and so consultation with FCU is important to maximise the data collected and to
maintain clear audit trails. Also be aware that FCU may not have the technology for
certain activities we may need them to undertake.
In broad terms it is possible to produce a set of reports designed to capture all the
accounting information in sufficient detail to enable any future questions about the
finances of the business to be answered after access to the service has lapsed.
Where possible FCU will log on and produce a forensic copy that can be worked on
by an investigator. The safest way is for FCU to set up a separate distinct ‘read only’
folder which can be accessed by the investigator. None of the data can then be
changed.
With some service providers, ‘read only’ access reduces the content that can be
looked at. Each service provider has its own protocols and specific ways of working.
Therefore, in some cases the best option is to download all reports and migrate all
data (or as much as possible) into Excel and save these documents in Wisdom.
However, cloud accountancy packages have been designed to only access the parts
that you want on an ongoing basis, as the information is live and changeable. Some
service providers, therefore, have no facility to download the data in this way.
A workaround may be to limit access to the online records, download as many
reports/spreadsheets as possible, within a short time frame and not access the
account again, to reduce risk of changing live data. Record the dates the account
has been accessed, log all data downloaded and then save everything in the case
management system as a record to preserve an audit trail.
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Remember it is not just financial or accountancy packages that can be stored on the
cloud. Correspondence, email, word documents, spreadsheets, etc can be stored.
Many of the records of a company, partnership or bankrupt records are likely in the
future to held in the cloud.
16.40 Lapsed subscriptions
In some cases the company or bankrupt may have ceased trading some time prior to
the insolvency. In these instances, any subscription for the service may have lapsed,
although the requirement to preserve records (see paragraph 16.2) applies to cloud-
based records.
Where the company, partnership or bankrupt paid an annual subscription, then there
is a good chance of accessing the account, as there could be some time left, but
monthly subscriptions may well be in arrears and the subscription have lapsed.
If the subscription has expired and the director, partner or bankrupt has not taken
any steps to downloaded or preserve the data, then the service provider should be
contacted at the earliest opportunity to discuss reviving or continuing access. It is
unlikely that a cloud service provider will wipe the data on the spot, as there is
always the possibility that someone will pay for it later. They will keep the data for a
specified period, but this is unknown and is likely to vary with each service provider.
The appropriate and proportionate length and cost of continuing services should be
decided on a case by case basis, depending on what is actually stored on the cloud,
what other records are available, whether the case is likely to be marked for further
investigation.
The investigation decision and
preserving records
16.41 Introduction
Where the official receiver decides the case should be marked further investigation
the records of the company, partnership or bankrupt should be preserved and not
destroyed. Where the investigation results in a criminal referral, disqualification or
bankruptcy restrictions report it is essential the official receiver, in liaison with the IES
investigator, maintains the integrity of the records. The provisions of the Criminal
Procedure and Investigation Act 1996 must be followed.
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16.42 Paper records must not be annotated or
digital records altered
Paper records of a company, partnership or bankrupt should not be amended,
annotated or ruled off after the last entry by the official receiver, agency staff,
directors, partners, the bankrupt, accountants preparing statements of affairs or
other third party. The integrity of computerised / digital records must be maintained,
and no additions or alterations should be made. On no account should the official
receiver attempt to access the original computer or media recovered from the
company, partnership or bankrupt, nor use any passwords to turn on the original
computers or access cloud-based systems to view the records.
16.43 Computer records – internal security
In order to prevent fraud by employees the computer system may incorporate
security procedures to prevent unauthorised alterations. These restrictions are
unlikely to apply to a director, partner or bankrupt who usually have the authority and
ability to make such alterations. The official receiver should find out what security
protections are in place and if applicable obtain any security codes or passwords
from the director(s), partner(s) or bankrupt.
16.44 Preserving records until the
investigation is complete
The official receiver must not destroy, or consent to the destruction of, any records
until:
•
all prosecution, disqualification or bankruptcy restriction proceedings have been
disposed of (including appeals); or
•
the case has been written off for further investigation purposes.
It is essential that case records are marked with this inhibition and, if applicable, the
external storage contractors have been told the records are to be retained until
further notice. Payments for cloud storage should be maintained by the official
receiver (see paragraph 16.22).
16.45 Recording preservation times
The official receiver should ensure that entries are made in the case management
system to ensure that records are preserved for the appropriate period. The official
receiver should review these dates periodically to ensure they are still appropriate.
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16.46 Record preservation times for
prosecution cases
The Criminal Procedure and Investigation 1996 Code of Practice makes specific
provision for the preservation of records, including computers and media, and other
documents connected with a criminal investigation and prosecution. The criteria
likely to apply to cases reported by the official receiver are:
•
all material must be retained until a decision is taken whether to institute
proceedings against a person or persons for an offence;
•
if a criminal investigation results in proceedings being instituted, all material
must be retained at least until the accused is acquitted or convicted or the
prosecutor decides not to proceed with the case; or
•
where the accused is convicted, all material which may be relevant must be
retained at least until either;
a) six months from the date of conviction,
b) the release of the accused from custody, if a custodial sentence is imposed
and the accused is sent to prison (i.e. the sentence is not suspended), or
c) the period of suspension is expired, if a custodial sentence is imposed but is
suspended,
whichever is the longer i.e. the material must always be preserved for at least six
months after conviction.
Since it is unlikely that the official receiver will be notified of dates of release from
custody it should be assumed for preservation purposes that custody will last for the
whole length of the sentence imposed.
16.47 Record preservation times in appeal
cases
Where there is an appeal against conviction, or it is likely to be considered by the
Criminal Cases Review Commission the records should be preserved until:
•
the appeal is determined: or
•
the Commission decides not to refer the case to the Court of Appeal: or
•
the Court of Appeal determines the appeal resulting from a reference by the
Commission.
16.48 Disqualification cases
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There is no legislative requirement relating to the preservation of a company’s
records following a disqualification undertaking or the making of a disqualification
order. Unused material available at the time of any hearing cannot be used as
evidence in any subsequent appeal and should be destroyed in accordance with
Retention or destruction of records.
The official receiver, in consultation with the IES investigator, should consider the
following matters when deciding to preserve records:
•
the records should be preserved for a minimum of at least four weeks from the
date on which the judgment or order of the court is sealed, the time within which
an appeal is permitted;
•
whether a disqualified director is likely to apply for leave to appeal out of time
(this would extend the four week period mentioned above);
•
where an undertaking has been given the defendant is free at any stage to
make an application to vary the disqualification undertaking1
•
the records may be relevant to an application made for leave to act as a
director2; and
•
the records may be relevant to an application for disqualification made by the
Office of Fair Trading (OFT) or other specified regulator3.
1. Company Directors Disqualification Act 1986, section 8A
2. Company Directors Disqualification Act 1986, section 17
3. Company Directors Disqualification Act 1986, section 9C
16.49 Bankruptcy restriction
The official receiver should consider the following matters when deciding to preserve
records:
•
is the bankrupt likely to apply for a bankruptcy restrictions undertaking to be
annulled or its length amended;
•
is the bankrupt subject to a bankruptcy restrictions order likely to apply to the
court for leave to appeal against the order; and
•
is the bankrupt likely to make an application to court for leave to act as a
company director1.
1. Company Directors Disqualification Act 1986, section 17
16.50 Suggested time limits for preserving
records
After taking into consideration the matters referred to in paragraph 16.48
(disqualification) or 16.49 (bankruptcy restrictions), consideration should be given to
--- PDF page 25 ---
preserving the accounting records for at least six months after the making of the
order or the provision of an undertaking. In a high profile or contentious case, or if
there is information to suggest that an application for leave to appeal, or leave to act
as a director will be made, the official receiver may consider it preferable to retain the
records for a longer period, such as 12 months. The length of time records should be
kept should be made by the official receiver after considering the circumstances of
each case.
16.51 Disqualification cases – insolvency
practitioner appointed liquidator
On the completion of the disqualification proceedings the official receiver should
confirm whether the liquidator is still in office or the company has been dissolved.
Where the liquidator is no longer in office or the company has been dissolved the
official receiver should destroy the records.
16.52 Insolvency practitioner still in office as
liquidator or trustee
Where the disqualification or bankruptcy restriction proceedings have been
completed and an insolvency practitioner is still in office as liquidator or trustee, the
official receiver has an obligation to return the records to the insolvency practitioner.
There is no obligation on the insolvency practitioner to accept the records. If the
insolvency practitioner does not respond to the official receiver's invitation to collect
the records the official receiver should give fair warning that the official receiver's
enquiries are concluded and, having no further need for the records, will arrange for
their destruction. If no response is received the records should be destroyed. The
costs of destruction form part of the official receiver's administration fee.
Using records in evidence
16.53 The use of records in civil proceedings
The records of a business or public authority may be used in civil proceedings
without further proof together with a certificate signed by the official receiver
confirming the document(s) form part of the books and/or papers of the company,
partnership or bankrupt. A copy of the document is admissible, even where it is a
--- PDF page 26 ---
copy of a copy. The image or print out of records kept on a computer or other digital
medium may be introduced as evidence in civil proceedings.
16.54 The use of records in criminal
proceedings
The level of proof in criminal proceedings is higher than in civil proceedings. The
official receiver, or a member of their staff, may introduce physical records as
evidence as an exhibit to their witness statement. The official receiver should ensure
that the records have been correctly listed to establish the records belong to the
company, partnership or bankrupt. An image or print out of records kept on a
computer or other digital medium may be introduced as evidence where:
•
the receipt of the computers or other medium has been made; and
•
FCU have provided a witness statement
Where required the FCU will provide a member of staff to produce a witness
statement and to attend court. The witness statement will explain when the computer
or other media were received, what the FCU did to obtain an image or print out of the
digital records.
Retention or destruction of records
16.55 Introduction
The official receiver should be aware that the records, either all or in part, of a
company, partnership or bankrupt must be preserved where
•
the case is marked for investigation;
•
they are required for disqualification, disqualification or bankruptcy restrictions
proceedings;
•
HM Revenue and Customs (HMRC) have requested they be preserved (see
paragraph 16.57),
•
there is the possibility of a stay of proceedings, rescission or annulment of the
order,
•
a rescission stay or annulment is likely (see paragraph 16.67), or
•
any of the exemptions mentioned in paragraph 16.68 apply.
Guidance on the action to take where records cannot be destroyed can be found at
paragraph 16.65.
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16.56 Records may be destroyed, sold or
otherwise disposed of
The official receiver whilst acting as liquidator or trustee may destroy, sell or
otherwise dispose of the insolvent’s records1 unless they are subject to a lien.
1. Insolvency Regulations 1994, regulations 16 and 30
16.57 Notification to HMRC
Where the official receiver wishes to destroy the records and the winding-up order or
bankruptcy order is less than a year old the official receiver should notify HMRC that
the records will be destroyed, unless the company has been dissolved.
Form BPOGD.VAT should be sent to insolvency.helpdesk@hmrc.gov.uk or
HMRC, ICHU, BP5102, Dunstanburgh House, Benton Park View, Newcastle upon
Tyne, NE98 1ZZ and form BPOGD.Tax to HM Inspector of Taxes The official
receiver should insert a date three months from the date of the form after which the
records will be destroyed if no objection has been received. HMRC can ask for the
records to be retained by returning Part B of the form within the three months. If both
forms are not returned within three months the records may be destroyed without
further reference to HMRC. Where at least one of the forms is returned the official
receiver should retain the papers for six years, or whatever shorter period is
requested for insolvencies involving a large quantity of records). The official receiver
should record the decision in the electronic case file together with a scanned copy of
the completed form BPOGD.VAT or BPOGD.Tax as appropriate.
16.58 Obtaining confirmation in cases of
urgency
Where the official receiver wishes to destroy records immediately, for example to
avoid taking possession of a large quantity of books and papers, the official receiver
should:
•
telephone the sections of HMRC dealing with VAT and income tax and obtain
an appropriate e-mail address
•
ask for form BPOGD to be returned by the due date with confirmation that the
records may be destroyed; and
•
send the appropriate BPOGD form (suitably amended) with an urgent return
date, for example within 7 days.
Where HMRC do not reply within the time specified the official receiver should follow
up the request by phone and e-mail.
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16.59 HMRC and a large quantity of records
HMRC’s response to form BPOGD may result in the need to retain a large quantity
of records. The official receiver should invite the relevant section(s) of HMRC to
make an early inspection of the records to try and identify those whose retention is
essential. After the inspection the official receiver may be able, with the agreement of
HMRC, to destroy those records which are not required.
16.60 The procedure for destroying records
In every case form BPDC (Books and Papers – matters to be considered before
destruction) should be completed, signed by the official receiver, passed to the
officer responsible for the storage and destruction of books and papers and scanned
into the electronic case file. The case management system should always be
checked to confirm that there are no connected cases being dealt with by another
office or with EIS for further investigation. If there is a connected case always contact
the official receiver, investigator or IP to confirm your records are not required and
may be destroyed. See paragraph 16.68 for records which should not be destroyed.
16.61 How to destroy records locally
The decision to destroy records locally should be recorded as a general note in the
electronic case file. The paper and hard copy records should be placed in the
confidential waste bins provided in each office. Computers and other digital media
should not be destroyed locally. Records should not be sent to external storage
solely to be destroyed.
16.62 Destruction or storage of computers and
other media by FCU
The official receiver should ensure that the computer, IT equipment or other media
containing the records is owned by the company, partnership or bankrupt. When
completing the Request for Service form the official receiver should only ask for the
equipment to be returned if it is owned by a third party or to be returned. In all other
cases the computer, IT equipment or other media will be destroyed or, if necessary,
hard drives will be removed from computers/servers and will be securely stored
offsite for a minimum of 10 years by the FCU. The official receiver should inform
FCU, following the guidelines if the hard drives should be kept for longer than 10
years.
--- PDF page 29 ---
FCU will ensure the destruction of the computer equipment complies with the Data
Protection Act 2018 and the Waste Electrical and Electronic Equipment Directive
(known as the WEEE directive).
16.63 Records should not generally be
returned to a director, partner or bankrupt
Where the official receiver is liquidator or trustee they should not dispose of the
records by returning them to the director(s), partner(s) or bankrupt unless:
•
a winding-up order has been stayed or rescinded
•
a bankruptcy order has been rescinded or annulled
•
the records are personal to the director, partner or bankrupt
•
the computer, IT equipment or media contains data which is personal, for
example family photographs, to the director, partner, bankrupt or third party.
A request by the liquidator or trustee to return records to a director, partner or
bankrupt should generally be refused unless one of the above exceptions applies.
16.64 When the records, computer or other
media may be returned to a director, partner
or bankrupt
Where the director, partner or bankrupt identifies papers as personal and they are
not relevant to the administration of the estate they may be returned. The official
receiver must obtain a receipt for the papers from them. Where the records are kept
on a computer or other IT equipment owned by a director, partner or bankrupt they
may be returned when the equipment is returned. The official receiver must obtain a
receipt from the director, partner or bankrupt when the equipment is returned. The
computer or other IT equipment should only be returned when the administration and
any investigation have been completed.
16.65 Records cannot be destroyed
Where the records cannot be destroyed immediately the official receiver should
record a review date in accordance with the Records Management Strategy
Retention Periods Guide. There are three review periods, three years, six years and
exemption. The records of a company, partnership or bankrupt are classified as
“exemption” where the period of retention is to be decided on a case by case basis,
but generally not longer than 6 years. Once the review date has been recorded the
records should be sent to external storage.
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16.66 Monthly audit of review dates
The official receiver should conduct a monthly audit of review dates. Where the
review date is reached the records should be destroyed, where appropriate, by the
external contractor. If the records should be preserved the review date should be
updated and the new date recorded on ISCIS.
16.67 Rescission, annulment or stay
Where a rescission, annulment or stay of any insolvency proceedings is likely
records should not be disposed of under the normal procedures. Where a rescission
or stay of proceedings is ordered in a winding up the records should be disposed of
as directed by the court. If the court makes no such direction the records should be
returned to the company. Where a bankruptcy order is rescinded, or annulled, any
records held by the official receiver should be returned to the bankrupt.
Where a prosecution has been proceeded with and there is a rescission, annulment
or stay guidance should be sought from the Defendant Liaison and Proceedings
Team.
16.68 Records which should not be destroyed
There are a number of other possible reasons why the official receiver may need to
retain records. These include:
•
asset realisation;
•
public or private examination;
•
company pension scheme;
•
investigation by an other body or government department/agency;
•
discharge application;
•
civil proceedings;
•
requests by third parties;
•
embarrassment to the Service;
•
a current Freedom of Information request;
•
employers liability insurance policies and requests from former employees;
•
insolvent insurance companies and insurance broker;
•
administrative receivership; and
•
historical interest.
16.69 Asset realisation
Where assets remain unrealised, for example book debts and antecedent
recoveries, care should be taken to preserve all those records which will be helpful in
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their collection. After the assets have been realised or written off any relevant papers
should be retained to enable any enquiries or complaints to be dealt with.
16.70 Public or private examinations
Where the official receiver intends to hold a public or private examination (see
chapter 20 and 21) any records likely to be used during the hearing should be
preserved. Where the proceedings are adjourned and likely to be revived the official
receiver should preserve those records necessary for the revived hearing.
16.71 Employer’s pension scheme
Where the insolvent has run or contributed to a pension scheme for its employees
the official receiver should separate, at an early stage, the relevant papers, including
wage records, policies, trust deeds, and scheme rules. The official receiver must
consult the other parties concerned to determine which records, if any, will be
needed in connection with the pension fund. Once the records required for the
administration of the pension fund have been identified, the official receiver should
preserve them until they are no longer required. If the records required to administer
the pension fund cannot be identified, the relevant records separated by the official
receiver, should be retained for two years after the company’s dissolution and then
destroyed.
16.72 Investigation by other agency or
government department
The official receiver should retain all records subject to investigations or reviews by
another body, for example the Police or Trading Standards, or other government
department or agency, such as the Serious Fraud Office. The records should be kept
until the review, investigation or criminal proceedings have been completed.
16.73 Discharge application
Where the bankrupt’s discharge has been suspended the official receiver should
consider whether an application for discharge will be made in the future. Where an
application is anticipated the official receiver should preserve those records likely to
be referred to at any hearing. The nature of the records to be preserved will depend
upon the reasons for the initial suspension. The records should not be maintained for
a period longer than the official receiver’s file (see paragraph 16.86).
16.74 Civil proceedings
--- PDF page 32 ---
Where civil proceedings have been taken, or may be started, against the official
receiver or against the company, partnership or bankrupt, the claimant must be
asked, in writing, whether they wish any records to be retained. For example, a
member of the public lodges a claim for negligence or a former employee lodges a
claim in respect of an industrial injury or disease. The official receiver should always
try to ascertain the precise records required. Where this is possible the official
receiver may destroy the records that are not required for the proceedings. The
official receiver, before destroying any records must be reasonably certain the
records will not be needed in the proceedings.
Where the company, partnership or bankrupt has, or had, employees and public
liability insurance the official receiver must enter the full details of the insurance
company or companies together with scanned copies of the insurance documents on
the case management system to avoid the possible loss of this information.
16.75 Requests to preserve records from third
parties
Where a third party asks for records to be preserved and provides a good reason the
records should not be destroyed without further reference to that person. If the
records are voluminous and the third party:
•
does not have a statutory right to require the records to be preserved;
•
they are not required for criminal, disqualification or bankruptcy restriction
proceedings; or
•
there are no matters in which the official receiver or BEIS generally have a
direct interest;
the third party should be asked to pay the storage charges. If the third party is unable
or unwilling to pay the storage charges the official receiver should give fair warning
that the records will be destroyed.
16.76 Destruction would embarrass the
Service
The official receiver should consider whether destruction of the records would lead to
embarrassment for the Service for example where action is being taken against the
official receiver.
16.77 Employers liability insurance policies
Since 1 October 2008, an employer is no longer obliged to keep out of date
insurance certificates. It is considered prudent for the official receiver to retain
--- PDF page 33 ---
details of employers’ liability certificates to protect against delayed claims in the
future. For example, claims arising from exposure to asbestos. Any employers’
liability insurance certificates which are recovered should be scanned and saved into
the folder Official Receiver Operations – sub folder – Employer Liability Insurance to
ensure the certificates are kept for the required 40 years and not destroyed with the
case file under our standard timescales. Once scanned and saved original
employers’ liability insurance certificates may be destroyed.
16.78 Requests for insurance details from
former employees
The official receiver may be contacted by a former employee of a company trying to
trace the insolvent employers’ insurance details. Where the official receiver is unable
to provide these details, because no policy document was handed over or the details
were not recorded on the office file the official receiver should refer the employee to
the The Employers' Liability Tracing Office (ELTO) (http://www.elto.org.uk/)
16.79 Insolvent insurance companies and
insurance brokers
Where an insurance company or insurance broker becomes insolvent the records
may be of historic interest. The official receiver should not destroy the records
without agreement of the History Committee of the Chartered Insurance Institute
(customer.serv@cii.co.uk) who may wish to arrange for the preservation of some or
all of the records.
16.80 Administrative receivership
Where an administrative receiver is in office and the company is being wound up the
administrative receiver should be asked, in writing, whether they require records to
be retained. The official receiver should retain those records requiring the
administrative receiver to notify the official receiver when the records are no longer
required.
16.81 Historical interest
The official receiver should consider whether the insolvency is of any historical
interest, either nationally or locally, and the records ought to be preserved.
Alternatively, the official receiver may have received interest in the insolvency or
records from a local museum, the Public Record Office, the British Archives
Association or the Royal Commission on Historical Manuscripts or other body.
--- PDF page 34 ---
Where the official receiver believes the insolvency or records are of historical
interest, they should refer the case to the Information Management Team. If
appropriate, arrangements will be for the relevant body to have the records on a
permanent loan basis.
Destruction of records held by an
insolvency practitioner
16.82 Introduction
Where an insolvency practitioner has been appointed the insolvent’s records
(including papers required for the administration of the estate) may, after completion
of the administration of the case, with the permission of the official receiver be
destroyed by the insolvency practitioner1.
Where a liquidator or trustee vacates office and the administration of the case is not
complete the records of the company, partnership or bankrupt must be handed to the
new liquidator or trustee, which may be another insolvency practitioner.
1. Insolvency Regulations 1994, regulations 16 and 30
16.83 Destruction of the records by the
insolvency practitioner
Where the insolvency practitioner’s administration of the case is complete the official
receiver should consider whether to:
•
grant permission for the records to be destroyed in situ or
•
return the records to the official receiver.
Before granting permission to destroy the official receiver should consider whether
HMRC should be advised (see paragraph 16.57). Where, having regard to the
guidance in Retention or destruction of records the official receiver is satisfied the
records are not required the insolvency practitioner should be asked to complete and
return form BPDC. Once the form BPDC has been completed and returned the
official receiver should review it and where authority to destroy is given form BPIPD
should be sent to the insolvency practitioner.
16.84 Official receiver retrieves records from
the insolvency practitioner
--- PDF page 35 ---
Where the official receiver requires the records for the future administration of the
estate he should arrange for their collection from the insolvency practitioner.
Official receiver’s case files
16.85 Introduction
With the introduction of electronic case management and filing the requirement for
any form of paper case file for insolvency cases is largely a thing of the past. There
remains a number of exceptions where the official receiver’s paper documents
should be kept.
16.86 Arrangements for remaining paper files
The Insolvency Service still has a number of paper files in its offices or at external
storage. Where appropriate the official receiver should ensure that those paper files
are destroyed in accordance with the Retention Periods Guide. Case files are usually
destroyed six years from when the case is closed.
The official receiver should conduct a regular audit of review dates. Where the
review date is reached the case file should be destroyed, where appropriate, by the
external contractor. If the records need to be preserved the review date should be
updated and the new date recorded on the case management system.
16.87 Official receiver’s electronic case files
Each office creates and maintains its own electronic case file. Paper documents are
scanned into the electronic case file, either locally or by the Agency’s scanning
centre. The original paper documents should then be destroyed. The electronic case
files are destroyed in accordance with the Retention policy for information and
personal data relating to insolvency casework
16.88 Retention of “public interest” case files
and records
A small number of cases which meet a public interest criteria should be retained for
a longer period or, in some instances, permanent preservation. These cases will be
usually, but not exclusively, dealt with by the Service’s Public Interest Unit.
Cases are defined as public interest cases if they meet one of the following criteria:
--- PDF page 36 ---
•
the case is a long-established company - for instance one incorporated 100
years ago;
•
if the case has been referred to in an Agency Annual Report;
•
if the case concerns a famous/infamous individual or has received prolonged
media interest;
•
where some, or all, of the accounting records have been identified as of
historical interest, and arrangements have been made for their permanent
retention;
•
if the case sets a precedent;
•
if the case involves a novel or unusual occupation;
•
the case may be the subject of future research because of the nature of the
business; and/or
•
it is thought to be of national or local significance for any other reason.
16.89 Preserving paper documents in “public
interest” cases
In cases which meet the “public interest” criteria the official receiver should consider
preserving the paper documents, such as the questionnaire booklet(s), narrative
statements, creditor petition statement of affairs, etc, after they have been scanned
into the electronic case file.
The official receiver should annotate those cases which are considered to meet the
public interestcriteria on the case management system, and notify the Information
Management Team. The Agency Records Officer will obtain the individual files and
associated papers, and ask the National Archives what interest, if any, they have in
the case file and records. Where the National Archives have no interest in the case
the Agency Records Officer may offer the case file and records to other archives,
including local authority record offices. If there is no interest in preserving a potential
public interest case the case papers may be destroyed in accordance with the local
destruction policy. Any other records may be destroyed in accordance with the
Retention Periods Guide.
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--- PDF page 1 ---
This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 10 March 2020.
17. Interviews and statements
Interviewing bankrupts and directors, including taking statements to record
information obtained.
Chapter content
Introduction
Interviewing the insolvent
Conduct of the interview
Matters specific to company cases
Matters specific to partnership cases
The Preliminary Information Questionnaire
Narrative statements
Accounting books and records
Provision of copies of statements and PIQ
Introduction
17.1 Introduction
In the course of the discharge of their duties to protect assets and determine
liabilities and the reasons for the insolvency the official receiver will often need to
--- PDF page 2 ---
interview company officers and bankrupts. This chapter provides guidance to the
official receiver as to how and when such interviews should be conducted.
Guidance on conducting an investigation interview can be found in the Enforcement
Investigation Guide on the intranet.
17.2 Duty to investigate insolvent’s affairs
The official receiver has a duty to investigate the reason for the insolvency1, 2. There
are no exceptions to this duty in a compulsory liquidation. In a bankruptcy the official
receiver may be released from the duty to investigate if they decide that an
investigation is unnecessary. In some bankruptcy adjudicator cases, for example, a
review of the bankrupt’s application may be sufficient to conclude that further
investigation is unnecessary.
1. Section 132
2. Section 298
17.3 Protection of assets
In addition to the duty to investigate the insolvent’s affairs, the official receiver, as
liquidator or trustee, has a duty to protect and realise the property of the insolvent,
including assessing whether and Income Payments Agreement (IPA) might be
appropriate in bankruptcy cases.
Interviewing the insolvent
17.4 Purpose of the interview
Company officers and bankrupts are generally required to provide the information
needed by the official receiver by the completion of the preliminary information
questionnaire (PIQ) or the bankruptcy application. In the majority of cases it is likely
to be necessary for the official receiver to ask additional questions after this
information has been received and this will be by way of an interview.
17.5 Nature of the interview
Additional questioning is carried out during an interview which may take different
forms depending on the type and complexity of the case and the amount of
additional information required. In the vast majority of company and creditor petition
--- PDF page 3 ---
bankruptcy cases it will be appropriate to interview face-to-face, but the nature of the
interview should be appropriate to the circumstances of the case. In most bankruptcy
application cases the interview will be by telephone.
17.6 Aim of the interview
The aim of the interview is to allow the official receiver to obtain sufficient information
to progress the administration of the case, determine the reason for the insolvency
and make a decision as to whether further investigation is necessary. Information
provided in the PIQ and the bankrupt’s application should generally be taken to be
correct without further questioning unless the official receiver has reason to believe it
may be incomplete or inaccurate. Questions already answered in the PIQ and the
bankrupt’s application should not be asked again merely as an interesting exercise,
or just to re-check information already given.
17.7 Circumstances where it will generally be
necessary to interview in a bankruptcy case
Unless it is clear from a review of initial information (in the bankruptcy application, for
example) that an interview is not necessary, a case should be approached with an
initial view that an interview would be appropriate. Matters where an interview will be
necessary include:
•
possible IPA/IPO
•
asset queries where there is insufficient information in the application to deal
appropriately with the asset, e.g. motor vehicle to exempt, interest in property to be
realised etc.
•
clarification of the pattern of indebtedness, e.g. where a bankrupt has numerous
credit card/loan creditors, the official receiver may decide that it would be appropriate
to interview the bankrupt in order to clarify the period over which credit was incurred
and what it was used to purchase
•
where the bankrupt traded up until the bankruptcy order or ceased to trade shortly
before the order
•
in bankruptcy application cases, any case where the completion of a Preliminary
Information Questionnaire (PIQB) is deemed necessary will, by definition, be likely to
require an interview
•
where assets have been disposed of within the relevant period leading up to the
bankruptcy order
•
where the bankrupt has previously been made bankrupt
•
where there are indications of potential misconduct in the application.
--- PDF page 4 ---
17.8 Timing of interview
Interviews should be held as soon as possible after the insolvency order is made.
The official receiver must contact the company officer or bankrupt within two days of
being notified of the order and should arrange an interview date when contact is
made. During this initial contact the official receiver will also establish whether there
are any urgent matters that they need to be aware of and take action in respect of
before the interview is held.
17.9 Postponing the interview
If an interviewee seeks an alternative appointment for a genuine reason the official
receiver should accede to this request, provided the proposed delay is reasonable.
Where illness is given as the reason for non-attendance and either the illness is a
medical condition that will prevent attendance for an extended period of time or it is
suspected that this is an excuse to avoid attendance the official receiver should
request a medical certificate. In such cases consideration should be given to carrying
out a telephone interview instead of requiring the interviewee to attend in person
upon the official receiver.
17.10 Interviewee unable to attend the office
Where the director or bankrupt is unable to attend upon the official receiver for
reasons of ill health, or another valid reason, the official receiver may, at their
discretion, consider asking them to return the completed Preliminary Information
Questionnaire and then conduct the interview by telephone or visit the interviewee’s
home to conduct the interview. Where the interviewer is to attend at the bankrupt’s
home for interview the safety guidance for staff contained in chapter 11 should be
followed.
17.11 Telephone interviews
Telephone interviews should usually be conducted via a land telephone line and the
interviewee should be encouraged to provide a landline number. Where a mobile
telephone number is the only telephone the interviewee has access to the interview
may be conducted via the mobile telephone.
The interview record form (TCIR) form must be used to record information obtained
during a telephone interview.
--- PDF page 5 ---
17.12 Failure to attend interview without
excuse
Where, without reasonable excuse, a person fails or refuses to attend an interview
without first contacting the official receiver then the official receiver must;
•
attempt immediately to contact the interviewee and arrange a further appointment
•
send a letter to the interviewee making a second appointment for interview and
setting out the possible consequences of continued non co-operation with the official
receiver
•
take such further action as appropriate to confirm the whereabouts of and contact the
interviewee in order to enforce attendance. The official receiver should consider
whether attendance at the home address of the interviewee may be appropriate
•
in the event of continued failure or refusal to co-operate, take appropriate
enforcement action such as outlined in chapter 19
17.13 Stay of proceedings in bankruptcy
Where there is a stay of proceedings in a bankruptcy the requirement of the bankrupt
to provide information to and attend upon the official receiver will depend on the
terms of the court order. If the court orders all proceedings should be stayed
generally the bankrupt will be released from their obligation to co-operate with and
attend upon the official receiver and such an order should generally be resisted by
the official receiver. Such an order should generally be resisted by the official
receiver – see chapter 8.
A stay of advertisement in a winding up or bankruptcy does not affect the company
officer’s or bankrupt’s obligation to supply information to the official receiver and
attend for interview if required to do so.
17.14 Interviewee in prison
Where the interviewee is in prison the normal interview letter should not be sent, but
the official receiver should write to the governor of the prison in order to make
arrangements for the interview to be carried out by telephone or by the official
receiver’s attendance at the prison, depending on the complexity and circumstances
of the case. If the governor is unable to guarantee the safety of the interviewer a
case note should be made to that effect and any contact should be by telephone or
letter. For reasons of safety an interview at a prison should in any case only be
conducted with at least two members of the official receiver’s staff present and the
official receiver should consider whether the information could be obtained in some
other way.
--- PDF page 6 ---
Where an interviewee is believed to be in prison but their location is unknown the
official receiver should contact;
HM Prison Service
Prisoner Location Service
PO Box 2152
Birmingham
B15 1SD
Enquiries can be e-mailed to prisoner.location.service@noms.gov.uk and should
contain the full name of the person subject to the enquiry, any other names by which
they may have been known, date of birth and reason for enquiry.
Conduct of the interview
17.15 Punctuality
When an interview is being conducted by telephone the interviewee must be
telephoned within five minutes of the agreed interview time. For a face to face
interview all interviewees who arrive on time must be seen no later than five minutes
after the fixed appointment time. If, in exceptional circumstances, this cannot be
done the interviewee must be given an explanation why and told how long they will
have to wait or be offered an alternative appointment.
17.16 Privacy of interview
Face to face interviews should be held in a separate room to avoid any interruptions
which may disturb the interviewer and interviewee and to afford privacy to the
interviewee. The interviewee is likely to be more relaxed and open to answering
questions where the interview is conducted in a private room.
17.17 Setting the scene
The interviewer should begin the interview by explaining to the interviewee the form
that the interview will take and approximately how long it will last. The interviewer
should draw the attention of the interviewee to the appropriate GOV.UK information
(Guide to Liquidation, Guide to Bankruptcy) at the beginning of the interview.
--- PDF page 7 ---
17.18 Identification of interviewer
At the beginning of any interview, face to face or telephone, the interviewer must
introduce themselves to the interviewee. Any other member of staff present (e.g. for
training purposes) must also be identified to the interviewee.
17.19 Conduct of Examiner during interviews
The interviewee must be treated with courtesy at all times. The interview must not be
carried out in a way that would leave the official receiver open to criticism for
oppressive conduct, e.g. excessive length of interview without breaks, the
interviewer raising their voice. The interviewee should not be coerced into signing a
statement or any other document with which they disagree. Where information
provided by the interviewee indicates the possibility of misconduct the interviewee
should be given the opportunity to provide explanations and/or a defence for their
actions. These should be included in any statement taken by the official receiver.
17.20 Breaks and refreshments
Breaks should be offered at regular intervals where an interview lasts for more than
two hours and, where possible, water should be offered at the beginning and during
the interview.
17.21 Third party attending interview
An interviewee may bring a third party such as a solicitor, accountant or friend to an
interview and the official receiver should not generally object to their presence. The
presence of a third party who is also a potential interviewee in the case, for example
another company officer in a compulsory liquidation or another partner in a
partnership, should not be allowed.
The official receiver should not object to the presence of a third party who is
unconnected to the case but should, if it becomes necessary, inform the third party
that they will be asked to leave if they interfere unduly during the course of the
interview.
The presence of anyone other than the interviewee and the interviewer should be
recorded (name and status of the third party) in the narrative statement or interview
notes.
Any charge for the attendance of the third party (with the exception of an interpreter
translator) is a matter between the third party and the interviewee and is not payable
out of the insolvent estate.
--- PDF page 8 ---
17.22 Interpreters
If an interviewee cannot understand or speak English an interpreter must be used
during the interview. Similar considerations will apply where the interviewee has an
aural, verbal or visual disability and requires assistance to interpret information given
and received at interview.
The interpreter must be asked to translate the questions asked and answers given
without changing the meaning. The interviewee may bring a friend or family member
to interpret for them and in this case it must be made clear that the interpreter must
not answer the questions for the interviewee. A short statement should be taken from
the interpreter confirming that they have properly translated the questions asked by
the interviewer and the answers given by the interviewee accurately and that the
answers given are those provided by the interviewee.
An independent interpreter can be arranged through the Insolvency Service’s
translation contractor, K-International, contact details can be found in chapter 41,
along with other guidance relating to the employment of interpreters and translators.
17.23 Interviewee unable to read
If the interviewee is unable to read, the official receiver should ensure that the
interviewee is given the opportunity to ask questions and that the insolvency
processes are fully explained as they should not be presumed to understand the
written guides.
See also the guidance below regarding the taking of a statement from an interviewee
who is unable to read.
17.24 Interviewee refuses to answer question,
sign statement or is abusive
If the interviewee declines to sign any questionnaire, schedule or statement until they
have taken further advice, or if the interviewee is unsure, or seems worried or
confused, then the official receiver should agree and record the need for the return of
the signed document(s) within a specified timescale. A copy should be kept of any
documents taken away.
If the interviewee refuses to answer questions put to them by the official receiver,
their duty to co-operate with the official receiver and the potential consequences of
non co-operation should be drawn to the interviewee’s attention. Where the
interviewee still refuses to answer a note should be made by the official receiver that
--- PDF page 9 ---
details the questions asked and, if a reason has been given, why the interviewee
refuses to answer.
Where the interviewee refuses to sign the additional questions form or any narrative
statement taken a similar note should be made by the official receiver to record the
refusal and the reason why the interviewee will not sign if a reason has been given.
Where an interviewee is abusive the official receiver should make a note of the
interviewee’s conduct, including as far as possible a full record of what was actually
said. If an interviewee continues with threatening or abusive behaviour the official
receiver may terminate the interview and should make a note of the reason why the
interview was terminated.
Notes of abusive conduct or blatant refusal to co-operate will be of use if some form
of action is subsequently taken against the interviewee.
Matters specific to company cases
17.25 Selecting the appropriate interviewee
In a compulsory liquidation the official receiver must select the most appropriate
person to interview in the first instance. There may be one or more company
directors as well as a company secretary. In addition, there may be other persons
who were involved in the running of the company who have not been formally
appointed as a company officer.
If the interviewee is unable to attend upon the official receiver for an extended period
of time due to reasons of ill health or another valid reason the official receiver may
consider interviewing another company officer in the meantime.
17.26 Importance of establishing roles and
responsibilities of company officers
It is important for the official receiver to establish the respective roles and
responsibilities of all those involved in the running of the company and whether such
roles and responsibilities were allocated and recorded in the company’s records (e.g.
service agreement, board meeting minutes) or by custom. Where there are matters
of possible misconduct for further investigation, such as trading with knowledge of
insolvency or to the detriment of crown creditors, it is essential to determine which
company officer was responsible for the relevant actions taken or not taken. The
official receiver should seek to avoid the possibility of a company officer claiming at a
--- PDF page 10 ---
later date to have been unaware of or not responsible for actions which they are
alleged to have carried out that form the basis of an allegation of misconduct.
17.27 Interviewing a person who is not a
company officer
Where there is information to suggest that a person who is not a formally appointed
company officer was acting as a director of the company (a de-facto director), or to
have been wholly controlling the company by giving instructions to the directors on
which they acted (a shadow director) the official receiver must determine; the extent
of that person’s involvement, roles and responsibilities in the company, the reasons
why they were so involved and why they were not formally appointed as a company
director. It may be necessary to do this by way of an interview with the person so
concerned.
17.28 Obtaining information of company loans
It is also important to establish the amount, dates and circumstances of monies put
into the company and taken out of the company by the company officers. Where the
company’s records are available during the interview the official receiver may ask the
interviewee to show where such transactions are evidenced in the records.
Matters specific to partnership cases
17.29 Partnerships – Winding up order against
partnership and bankruptcy orders against
partners
In partnership cases where a winding-up order is made against the partnership and
bankruptcy orders are made against the partners a preliminary information
questionnaire (PIQP) should be completed by the principal partner in respect of the
joint estate. If there is likely to be any dispute between the partners it may be
necessary for two or more partners to complete separate forms. In addition form
PIQB should be completed by each individual partner in relation to their own estate.
If there is a corporate partner against which a separate winding-up order has been
made, one or more versions of form PIQC should be completed in respect of its
affairs by separately interviewing one or more of the corporate partner’s officers.
--- PDF page 11 ---
Separate narratives should also be taken if the responsibilities of each partner are
not clear, even if these are largely duplications.
17.30 Winding-up order against partnership
only
Where there is a winding-up order against the partnership only and no bankruptcy
orders against the partners, form PIQP should be completed by the principal partner,
or if there is likely to be any dispute by each partner separately. Separate narratives
should be taken from each partner.
The Preliminary Information
Questionnaire
17.31 Preliminary Information Questionnaire
In all company cases and bankruptcy creditor petition cases a PIQ must be sent to
the interviewee for completion prior to the interview. The interviewee should bring the
completed PIQ when they attend for interview. If the PIQ is not completed or is only
partially completed the interviewee should be invited to complete it before the
interview begins. At the beginning of the interview the interviewee should be asked if
they completed the PIQ by themselves, or if any assistance was received from
anyone else. This information should be recorded by the official receiver on the
additional questions form. Where the questionnaire has been completed by a third
party the details of who completed it and an explanation of the circumstances and
reasons for this must be recorded.
In cases where the bankruptcy order has been made on an application to the
Adjudicator it would not normally be necessary for the bankrupt to be required to
complete a PIQ, but such can be requested if deemed worthwhile.
17.32 Interviewee unable to complete the PIQ
If the interviewee is unable to complete the PIQ (e.g. due to illiteracy, blindness or
other disability) the questions in the PIQ should be read out to the interviewee
exactly as they are written and the interviewee’s answers recorded fully and
accurately in the interviewee’s own words. The purpose of reading out the questions
in the PIQ exactly as printed is so that the interviewee cannot claim at a later date
--- PDF page 12 ---
that they thought they were answering a different question which could throw doubt
on the accuracy of the information given.
17.33 Amendments and additions to the PIQ
No amendments should be made to the PIQ after it has been signed and dated by
the interviewee. The official receiver must not alter, delete or add to any answer in
the PIQ. At the beginning of the interview the official receiver should check that all
alterations in the PIQ have been initialed and dated by the interviewee and that the
interviewee has signed and dated the PIQ in the appropriate places. The official
receiver should also draw the interviewee’s attention to the Perjury Act 1911 section
5 at the beginning of the PIQ and check that the interviewee has completed and
signed the declaration that this has been drawn to their attention.
17.34 Going through the PIQ with the
interviewee
The official receiver should go through the completed PIQ with the interviewee.
Where the interviewee has not answered a question, or the information given is
incomplete or needs to be expanded upon, the official receiver should question the
interviewee accordingly and record the information given on the additional questions
form1. The official receiver should not ask every question in the PIQ again just to
verify information already given but should seek further information where the
answer given in the PIQ is incomplete, inadequate or contradicts information given
elsewhere in the PIQ or already known by the official receiver.
1. PREADD
17.35 Recording apparently inaccurate or
inconsistent responses
If an interviewee insists on giving an apparently inaccurate or inappropriate response
to a question in the PIQ, even after the official receiver has drawn their attention to
the discrepancy in the information provided, what is said by the interviewee must be
recorded. The fact that the discrepancy has been drawn to the interviewee’s
attention must be recorded with an entry along the lines of:
“It has been pointed out to me that….However I maintain….”.
Matters of apparent inaccuracy or inadequacy of information provided in the PIQ and
additional questions form may also/alternatively be covered in more detail in a
narrative statement taken.
--- PDF page 13 ---
17.36 PIQ question not understood by
interviewee
If the interviewee does not understand the meaning of a question in the PIQC the
official receiver should try to rephrase the question in such a way that the
interviewee can understand and answer the question. Where the interviewee still
cannot understand or answer the question this should be recorded in the additional
questions form.
17.37 Obtaining interviewee’s confirmation of
additional information given
When all additional information required to complete the PIQ has been obtained and
recorded, the interviewee should be asked to read through the additional questions
form, initial and date all alterations made and sign and date at the bottom of each
page and at the end of the form. The interviewer should also sign the bottom of each
page and at the end of the form as a witness.
Narrative statements
17.38 Cases where a narrative statement
should be taken
In some cases, particularly company cases and creditor petition cases, it will be
appropriate to take a narrative statement in order to obtain a concise chronological
account of matters such as the formation and trading history of the business and to
explain the reasons for the insolvency. It might be necessary to take a statement in
the following cases, for example:
•
where the history of how the debts were incurred is complex
•
where there are asset transactions that are complex and require further investigation
and explanation
•
where the bankrupt has run a business
•
where there are matters that indicate possible areas of misconduct
17.39 Taking a narrative statement
--- PDF page 14 ---
The narrative sheet form1 should be used at the start of the narrative statement and
the interviewee should be asked to read through and sign and date each page of the
statement and any alterations made. Once signed and dated no alterations should
be made to the statement.
The interviewee’s attention should be drawn to the Perjury Act 1911 section 5 before
the narrative statement is taken.
Where a narrative is lengthy and/or deals with complex matters it may be worthwhile
to use sub-headings to divide it, e.g. disposal of asset detail, places of business,
trading history, why business ceased to trade, etc.
1. PRENAR
17.40 Narrative statements from different
company officers
The official receiver may take a narrative statement from most or all of the company
officers in order to verify information given and establish the roles and responsibility
of each company officer. Such statements may just cover certain matters, or may be
full statements as appropriate. Even where the content of the statements are the
same or similar it is important to have separate statements taken independently from
each interviewee and it is not appropriate for the official receiver to show an
interviewee another company officer’s statement.
17.41 Statement taken from a third party
Where a statement is taken from a third party the heading of the statement should
read “Statement made in pursuance of section 132/289 [as appropriate] of the
Insolvency Act 1986” etc. A Perjury Act warning is not appropriate.
17.42 Contents of narrative statement
A narrative statement may be used to amplify one or more points from the PIQ, or
particularly where the case is complex and/or there are matters of possible further
investigation, it may be used to give a concise chronological history of the company
and the dates and facts that explain the reason for the insolvency.
17.43 Matters that might be covered in a
narrative statement - companies
In a company case the narrative statement may cover, amongst other matters;
--- PDF page 15 ---
•
details of the formation of the company, dealing with any predecessor business or
businesses
•
the respective roles and responsibilities of all the company officers and how that
responsibility was identified
•
how the business operated and how trading was financed, including loans from and
to company officers
•
details of any transactions with associated companies and an explanation of why
such transactions occurred and where they can be evidenced in the company’s
records
•
details of any accounts prepared and what company records were kept and by whom
they were maintained
•
when and why losses were sustained and what steps were taken and by whom in
order to mitigate losses sustained, how continued trading was financed and
monitored
•
why the business failed (if it failed) and when and why the business ceased to trade
•
any matters of apparent misconduct
•
any other reasons for the insolvency
17.44 Matters that might be covered in a
narrative statement - bankruptcy
In a bankruptcy case the narrative statement may cover, amongst other matters;
•
details of the formation of the business, dealing with any predecessor business
•
how the business operated and how trading was financed
•
details of any accounts prepared and what books and records were kept, and by
whom they were maintained
•
why the business failed (if it failed) and when and why the business ceased to trade
•
where assets have been disposed of in the relevant period before the bankruptcy
order, when they were disposed of, to whom, for what consideration and why the
bankrupt entered into the transaction
•
explanations for any large losses incurred
•
how the debts were incurred and where the debts relate to consumer credit obtained,
what the credit obtained was spent on
•
where the bankrupt did not run a business, brief details of their employment history
•
when the bankrupt realised that they were insolvent, and the reasons for the
insolvency
17.45 Statement taken in manuscript form
If the statement is taken down in manuscript form the interviewee should initial and
date all alterations and each page should be signed and dated on the day on which
--- PDF page 16 ---
the statement is taken. A manuscript statement may be particularly useful where
there is a prospect (e.g. previous history of non co-operation) that the interviewee
will not sign and return any statement subsequently sent to them.
17.46 Statement taken directly onto an
electronic document
Where a statement is taken directly onto an electronic document, the print out should
be signed and dated with any alterations also being initialed and dated. Where any
versions of the typed narrative are printed off and amended by the interviewee they
should be retained by the official receiver.
17.47 Statement prepared at a later date from
notes taken at interview
If the narrative is drafted after the interview using notes made during the interview
the interviewee should be asked to initial and date each alteration and sign each
page of the notes. The notes must be preserved so that if the interviewee later fails
to sign the typed statement or disputes its contents there will be evidence as to what
was said during the original interview. The interviewee should be told that they will
be asked to sign, date and return a typed statement that will be sent to them by post
within seven working days.
The typed statement must not include any information which is not contained in the
notes and while there may be a desire to tidy up the grammar, syntax, etc., it is
crucial that the essence is not changed and no attempt is made to give more or less
emphasis or prominence to facts than is reflected in the notes or to insert something
by way of clarification. A copy of the notes must be available to the interviewee when
they are asked to sign the typed statement. Any matters which might/should have
been dealt with in the interview but not reflected in the notes can only be dealt with
by way of a further statement.
17.48 Signature and witnessing of statement
At the conclusion of the interview the interviewee should read through the statement,
initial and date any amendments made during the course of the interview or asked
for during the read through and then sign and date the bottom of each page and at
the end of the statement. The interviewer should also sign and date the foot of each
page. Once signed and dated and the interview completed no answer given and
recorded should be added to, deleted or altered. Such amendments should be
--- PDF page 17 ---
regarded as additional information (even if they constitute a deletion) and recorded in
the form of an additional narrative statement taken at that time or at a later date.
17.49 Interviewee unable to read statement
If the interviewee is unable to read the statement it must be read to the interviewee
by a third party. On the last page of the statement the person who read it out must
endorse it as follows:
“On (date) I (name) (occupation) of (address) read out this statement to (name of
interviewee) who signed it in my presence.” The endorsement must be signed and
dated by the person who made the endorsement. Where the interviewee is unable to
sign the statement, the person who reads out the statement to the interviewee
should refer to this in their endorsement indicating why it was not possible for the
interviewee to sign the statement.
Accounting books and records
17.50 Accounting books and records –
recording whereabouts
Where the official receiver has not taken possession of the company’s records by the
time the interview is conducted and if the interviewee does not bring the records with
them to the interview the official receiver must ascertain their current whereabouts
from the interviewee The details should be recorded in the additional questions form
or narrative statement. The official receiver must make it clear to the interviewee that
the records must be delivered up to the official receiver and must be preserved until
the official receiver is able to take possession of them. Where the company’s records
are held by someone other than the interviewee the official receiver must contact the
person holding the records in order to arrange their collection or delivery as a matter
of priority.
17.51 Accounting books and records –
recording details
Where accounting records are delivered up at an interview a receipt must always be
issued1. The schedule of records handed over in the proceedings at the back of the
PIQ should be completed in every case where there is a possibility of further
investigation. The Accounting records schedule2 may be completed during the
--- PDF page 18 ---
interview if there is sufficient time to do so and it is desirable to do so if there are
matters of apparent misconduct for further investigation.
Details of the allocation of responsibility for the drawing up and maintenance of the
company’s records should be established in every case and recorded in the
additional questions form, narrative statement or accounting records schedule.
For more information on the procedure for dealing with company records, see
chapter 16.
1. BPRCT
2. ARS
Provision of copies of statements and
PIQ
17.52 Provision of copy of statements and PIQ
to interviewee
One copy of the completed PIQ and any additional statements taken should be
provided free of charge to the interviewee on request. If the interviewee requires
further copies they should be encouraged to make them from the copy provided, but
if this is not possible the official receiver can provide further copies at a charge of 15
pence per A4 or A5 sheet and 30 pence per A3 sheet. Any monies received in
respect of this should be allocated to the general account, and not the estate
account.
17.53 Provision of copy of statements and PIQ
to liquidator/trustee
The Rules1 require the official receiver, on handing over the estate to an insolvency
practitioner, to supply to that person such information as they reasonably require as
liquidator or trustee for the effective discharge of their duties.
In every case where an insolvency practitioner is appointed as liquidator or trustee
the official receiver must consider, based on the facts of the case, whether or not the
information in the PIQ and any narrative statement taken is reasonably required by
the liquidator or trustee. The official receiver should also bear in mind that as the
insolvency practitioner could, in any event, obtain the relevant information from the
--- PDF page 19 ---
company officer or bankrupt through other means at their disposal, it would be an
unusual case in which the PIQ and initial statements obtained at the early stages of
a case contain information that is not reasonably required by the insolvency
practitioner. These documents also contain information which could lead the
insolvency practitioner to consider whether a claim lies against a third party.
1. Rule 10.75
17.54 Informing company officer or bankrupt
that statement/PIQ will be passed to
liquidator/trustee
The company officer or bankrupt is informed in the PIQ that it will be disclosed to any
liquidator or trustee subsequently appointed. The following paragraph appears below
the interviewee’s signature box:
“If an insolvency practitioner is appointed as liquidator/trustee of your estate in place
of the official receiver, the liquidator/trustee will have separate powers to require you
to provide information. However, a copy of this completed questionnaire will be given
to any such practitioner and this should reduce considerably their need to contact
you again for information.”
A similar paragraph should be added to any narrative statement taken.
17.55 Copies of PIQ and statements can be
provided to liquidator trustee if guidance
followed
Copies of PIQs and statements should therefore be supplied to insolvency
practitioners on handover, provided that the matter has been duly considered, a note
to that effect is made on the case file and the above paragraph has been included in
any statement taken. If it has not the interviewee should be informed prior to
handover that a copy of the statement will be provided to the insolvency practitioner.
The official receiver must avoid possible criticism (perhaps at a later date) that
proper consideration has not been given as to whether or not material should have
been passed to the insolvency practitioner.
Where statements are obtained after a handover has taken place the same
consideration should be given to them and the interviewee notified that they will be
handed over to an insolvency practitioner, either as part of the statement or
separately. If considered appropriate copies should be supplied to the insolvency
practitioner and this should be recorded as a note on the case file. If a statement
--- PDF page 20 ---
contains information relating solely to further investigation matters it might not
contain information of use to an insolvency practitioner in carrying out their duties.
However, if the further investigation relates to the whereabouts or non disclosure of
an asset it would be likely to contain such information.
17.56 Disclosure of PIQ or statements to other
parties
If a party purporting to represent the insolvent (other than a properly appointed
liquidator/trustee) requests a copy of the PIQ or statements given they should be
instructed to obtain them from the interviewee.
Where a request is made for the disclosure of statements by another investigation
authority, e.g. the police or HM Revenue and Customs, the official receiver may
release copies of the statements given, provided that the official receiver is satisfied
that the statements are required by the investigating authority requesting them for
the purpose of investigating crime. Such disclosure may be made without a court
order and without notice to the person who provided the statement1.
See also chapter 22 generally regarding disclosure.
1. R v Brady 2005 1 Cr App. R.5
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 10 March 2020.
19. Co-operation, non co-operation and
enforcement of duty to co-operate
Annexes
Annex A - Draft order enforcing cooperation
Annex B - Draft application to commit for contempt
Chapter content
Introduction
Persons required to co-operate in liquidation
Duty of co-operation -Partnerships
Duty of co-operation in bankruptcy
Contempt of court
Public and private examinations
Enforcement and court orders
Power of arrest and enforcement of warrants
Action after execution of the warrant
Leaving the jurisdiction
--- PDF page 2 ---
Re-direction of mail
Prosecution and disqualification and non-cooperation
Bankruptcy restriction orders and non-cooperation
Introduction
19.1 The general problem of non co-operation
Non co-operation by company officers, partners and bankrupts can be a problem for
official receivers. Examples of non co-operation may include failure or refusal to
attend for interview, failure or refusal to deliver up records or assets and failure or
refusal to provide information and documents such as accounts, a Preliminary
Information Questionnaire or other documents required by the official receiver.
19.2 Initial steps to secure co-operation
The official receiver should take all reasonable steps to secure the co-operation of
the company officer, partner or bankrupt. Initially, the official receiver should send a
formal written warning to the person concerned advising them of the legal position as
regards co-operation with the official receiver and take such further action as
necessary to warn the non-cooperative party of their responsibilities and the
consequences of non co-operation.
Where after such a warning there is continued non co-operation, the official receiver
must consider what formal action is necessary. The various methods of enforcing co-
operation are detailed in later in this chapter.
19.3 Recording information on the case file
Details of the non co-operation must be recorded as part of the case assessment,
with details of action already taken and proposed further action to be taken to
enforce co-operation, being noted on case file in the appropriate place.
Where non co-operation takes place or continues after the completion of the initial
case assessment, this should be recorded on the Compliance tab notes together
with details of any enforcement action taken.
--- PDF page 3 ---
19.4 Non surrender of company officers,
partners or bankrupts
There may be occasions when a company officer, partner or the bankrupt fail to
attend for interview when directed to do so, or when it has been agreed that they
should attend. In such cases the official receiver must in general take action to
ensure the attendance and co-operation of officers, partners or bankrupts, while
allowing for the possibility of error or unavoidable absence.
The official receiver must:
•
attempt immediately to contact the officer, partner or bankrupt and arrange a further
appointment
•
if the officer, partner or bankrupt cannot be contacted, or a second appointment is
missed, send a formal written warning to the person(s) concerned advising them of
the legal position as regards co-operation with the official receiver. If needs be, a
third attempt must be made to arrange an appointment
•
take such further action, as appropriate, including an inspection or hand delivery of
an appointment letter, to contact the officer, partner or bankrupt to warn them of their
responsibilities and the consequences of their failure to attend. Any contact made
under such circumstances can be demonstrated to the court at public examination to
show that the respondent is aware of the proceedings
Such action may include public examination (see chapter 20), application for a court
order, the issue of a warrant or suspension of the bankrupt’s discharge (see chapter
47).
19.5 Illness
Where illness is given as a reason to postpone or cancel interviews on more than
one occasion, a medical certificate should be requested. If the
postponement/cancellation can be justified in the short term, other methods of
obtaining the information should be considered, such as a home visit, telephone
interview or use of questionnaires sent via the post or email.
19.6 When enforcement procedures are
appropriate
The official receiver should ensure that any enforcement action taken is justified by
the substance of the matters at issue, for example in respect of assets unaccounted
for. Action taken should be proportionate to the seriousness of the consequences of
the non co-operation.
--- PDF page 4 ---
The intention in any enforcement procedures should be to obtain a positive, rather
than simply a "tidy" conclusion to a case. A basic principle of the enforcement
procedures which involve an application to the court is that any such application will
be taken to a logical conclusion, potentially including committal proceedings for
contempt where an order of the court is ignored.
19.7 Action taken by official receiver must be
reasonable
If enforcement action is taken by the official receiver, they should remember that the
obligation to co-operate with them is subject to two qualifications:
•
that the requirement which has not been complied with was reasonably required by
the official receiver, and
•
that the person concerned had no reasonable excuse for failing to comply
The official receiver must therefore ensure that their request for action by, or
information from, the person concerned was reasonable in all the circumstances.
They should also seek a reason for the non co-operation and, if a reason is given,
consider its validity before deciding how to proceed1,2.
1. Section 235(2)
2. Section 291
Persons required to co-operate in
liquidation
19.8 Duty of co-operation in a liquidation
Where a winding-up order has been made, each of the persons mentioned below
has a statutory duty to give to the official receiver such information as they may
reasonably require concerning the company and its promotion, formation, business,
dealings, affairs or property and to attend any meetings as the official receiver may
reasonably require1;
•
past and present officers of the company
•
those who have taken part in the formation of the company at any time within one
year before the date on which the company entered liquidation
--- PDF page 5 ---
•
those who are in the employment of the company, or have been in its employment
(including employment under a contract for services) within that year, and are in the
official receiver’s opinion capable of giving information which they require
•
those who are, or have within that year been, officers of, or in the employment
(including employment under a contract for services) of another company which is,
or within that year was, an officer of the company in question, and
•
any person who has acted as liquidator, administrator or administrative receiver of
the company
An officer of a company may also be required to submit a statement of affairs, and/or
other accounts2.
1. Section 235(3)
2. Section 131
19.9 Consequences of a failure to co-operate-
companies
A failure to co-operate by a company officer constitutes a criminal offence for which
they may be prosecuted but does not immediately place them in contempt of court.
Such conduct may also be taken into account in disqualification proceedings.
If a person fails to comply with an obligation imposed by the official receiver under
the Act without reasonable excuse, they are liable to a fine and, for continued
contravention, a daily default fine1.
If a person, without reasonable excuse, fails to submit a statement of affairs, they are
liable to a fine, and, for continued contravention, a daily default fine.2
Only in exceptional circumstances would a company officer be prosecuted solely
upon the grounds of their failure to comply with their duties under the Act3 (see
paragraph
19.86). The official receiver will normally seek other means of enforcement as
described elsewhere in this chapter, and consider a prosecution only after such other
action has proved unsuccessful.
Failure to co-operate with the official receiver is also a matter which may be included
in a disqualification report, but again it is only in exceptional cases that a report
should be submitted if this is the sole matter of unfitness.
1. Section 235(5)
2. Section 131(7)
3. Schedule 10
--- PDF page 6 ---
19.10 Enforcement action - company officers
In company cases the official receiver should be aware that the Court may only
consider an application for the public examination where the official receiver intends
to question that officer before the court. If the official receiver simply wishes to
enforce co-operation, and does not intend to question them before the court, then
subject to the paragraph below they should apply to the court for an order specifying
the action to be done or the information to be provided (see paragraph 19.35) 1.
Company officers may be deterred from non co-operation by the knowledge that the
court will either summon them to appear before it for examination or order them to
comply. In some cases a letter drawing the officer’s attention in detail to the possible
consequences of their failure to co-operate may be sufficient to encourage co-
operation.
1. (Re Wallace Smith Trust Co Ltd [1992] BCC 707)
19.11 Other persons required to co-operate -
liquidation
It is usual for the official receiver to approach third parties such as accountants or
solicitors to obtain information about the company in liquidation. Generally such
information will be provided although there may often be delays in its production.
If there are unreasonable delays in the provision of information the official receiver
may apply to the court for the private examination of the party concerned.1 A letter
should first be sent drawing the person’s attention to their obligations under the Act
and the procedures and possible consequences of a private examination. If the court
considers that the examination was made necessary because information was
unjustifiably withheld by the respondent, they can be ordered to pay the costs of the
examination2. Often the prospect of a private examination is enough to encourage
the production of the information requested.2
1. Section 236
2. Rule 12.22(1)
19.12 Delivery of property and books to
liquidator
The official receiver, as liquidator1, may require a person forthwith to pay, deliver,
convey, surrender or transfer to the official receiver property, books, papers or
records in their possession or control, to which the company appears entitled.2
--- PDF page 7 ---
Any person on whom such a requirement is imposed by the liquidator shall, without
avoidable delay, comply with it.3
Where a lien or charge is claimed see chapter 12. Liens are also dealt with in
chapter 16 as is the treatment of accountants’ working files. Where legal professional
privilege (LPP) is claimed see chapter 22, which also provides guidance on
disclosure.
1. Section 234(2)
2. Rule 7.78(1)
3. Rule 7.78(2)
19.13 Duty to co-operate in provisional
liquidations
The relevant provisions of the Act 1 2 3 [Sections 234, 235 and 236] as referred to
above also apply where a provisional liquidator is appointed.
During a provisional liquidation, the official receiver may require the submission of a
statement of affairs4.
The functions and the powers of a provisional liquidator may be defined and limited
by the court appointing them5.
1. Section 234
2. Section 235
3. Section 236
4. Section 131(1)
5. Section 135(4)(5)
Duty of co-operation -partnerships
19.14 Background and legislation
The Insolvent Partnerships Order 1994 (IPO94) applies the Insolvency Act 1986 to
the winding up of partnerships subject to various modifications. These modifications
depend on the mode of winding up of the partnership. See chapter 52 for more
information.
--- PDF page 8 ---
Where a partnership is wound up as an unregistered company, the partners have a
duty to co-operate under the provisions of the Act [section 235]. The consequences
of a failure to comply are described above in the section on liquidations. Where
bankruptcy orders are also made against the partners the relevant bankruptcy
provisions of the Act also apply [sections 291]. The consequences of a failure to
comply with these provisions are described in more detail below in the section on
bankruptcy.
19.15 Consequences of a failure to co-operate -
partnerships
Where the partnership was wound up as an unregistered company, the partners will
be subject to the same consequences as the directors of a company as described in
paragraph 19.7.
Where bankruptcy orders were also made against the partners or if the individual
partners are made bankrupt and the partnership is not wound up as an unregistered
company, the partners will be subject to the same consequences as other bankrupts
as described in paragraph 19.19.
Where a partnership has been wound up as an unregistered company, the partners
may be subject to disqualification proceedings. Failure to co-operate with the official
receiver is a matter which may be included in any disqualification report prepared1.
1. The Insolvent Partnerships Order 1994 Schedule 8
Duty of co-operation in bankruptcy
19.16 Duties to official receiver
A bankrupt has a duty to co-operate with the official receiver as follows;
The bankrupt shall give the official receiver such inventory of their estate and such
other information, and shall attend on the official receiver at such times, as the
official receiver may reasonably require1;
•
for a purpose of protection of the bankrupt’s estate and investigation of their affairs,
or
•
in connection with the making of a bankruptcy restrictions order
1. Section 291(4)(a) & (b)
--- PDF page 9 ---
19.17 Duties to trustee
A bankrupt has a duty to cooperate with the trustee as follows;
The bankrupt shall1
•
give to the trustee such information as to their affairs
•
shall attend on the trustee at such times, and
•
do all such other things as the trustee may reasonably require for the purposes of
carrying out their functions
The bankrupt is required to give notice to the trustee, if any property is acquired by
or devolves upon them, or of any increase in their income, during the period of their
bankruptcy2.
The bankrupt is also required to deliver up to the trustee possession of any property,
books, papers or other records of which they have possession or control and of
which the trustee is required to take possession3.
It has been held that where the bankrupt applies unreasonable conditions to the
supply of information (such as agreeing to cooperate only at particular times of the
day, or by certain methods of communication), or does not take reasonable steps to
overcome problems in the provision of information, this is not cooperation for the
purposes of the relevant provisions4.
1. Section 333(1)
2. Section 333(2)
3. Section 312(1)
4. Keely v Bell [2016] EWHC 308 (Ch)
19.18 Requirement for statement of affairs and
accounts
Where a bankruptcy order has been made otherwise than on a bankruptcy
application, the official receiver may at any time before the discharge of the bankrupt
require the bankrupt to submit to the official receiver a statement of affairs1.
The bankrupt must, at the request of the official receiver, deliver to the official
receiver accounts relating to the bankrupt’s affairs of such nature, as at such date
and for such period as the official receiver may specify.2
A bankrupt who carries on a business must, when required by the trustee, deliver to
the trustee information about the business, showing the total of goods bought and
sold and services supplied and the profit or loss arising from the business; and fuller
details including accounts of the business3.
--- PDF page 10 ---
The Guide to Bankruptcy details the bankrupt’s duties which are also reproduced in
form NTB2 which are both sent to the bankrupt with the letter setting their first
appointment.
1. Section 288,
2. Rules 10.60 to 10.61
3. Rule 10.125(5)
19.19 Consequences of a failure to co-operate -
bankruptcy
A bankrupt who, without reasonable excuse, fails to comply with their legal
responsibilities does not commit a criminal offence but is immediately placed in
contempt of court for which they may be punished accordingly. It will, however, be
only in exceptional circumstances that an application will be made for a warrant for
the arrest of a bankrupt solely upon the grounds of their failure to comply with their
duties. The official receiver will normally seek other means of enforcement for
example public examination and consider an application for a warrant for arrest only
after other action has proved unsuccessful.
19.20 Enforcement in bankruptcy cases - the
bankrupt
In bankruptcy cases, the holding of a public examination (see chapter 20) may prove
the most effective course for enforcing any duty of co-operation. This course should
always be considered as a means of enforcing attendance upon the official receiver
and/or to obtain the submission of a statement of affairs or the delivery of property or
records. An uncooperative bankrupt may be deterred from non co-operation by the
knowledge that they will otherwise be required to submit to an examination in court.
Alternative action may include seeking court orders, seeking to suspend the
bankrupt’s discharge.
19.21 Other persons required to co-operate -
bankruptcy
It is usual for the official receiver to approach third parties such as accountants or
solicitors to obtain information about the bankrupt. Generally this information will be
provided although there are often delays in its production.
--- PDF page 11 ---
If there are unreasonable delays in the provision of information the official receiver
may apply to the court for the private examination1 of the party concerned. A letter
should be sent first drawing the person’s attention to the provisions of the Act
[section 366] and the procedures at a private examination, including the possibility of
the court making an order for the respondent to pay the costs of the examination.
Often, the prospect of a private examination will be enough to encourage the party
concerned to provide the information2.
Where a lien or charge is claimed reference should be made to chapter 12. Liens are
also dealt with in chapter 10 as is the treatment of accountants’ working files.
1. Section 366
2. Rule 12.22(1)
19.22 Claim of legal professional privilege
Reference should be made to chapter 22. The official receiver should also ensure
that consideration is given to the impact of the decision in Shlosberg [2016] EWCA
Civ 1138 in terms of how privileged information may be used – though this does not
affect the duty to provide the information.
19.23 Obligation to surrender control to
trustee
Any banker or agent of the bankrupt or any other person who holds any property of,
or for, the bankrupt, shall pay or deliver to the trustee all property in their possession
or under their control which forms part of the bankrupt’s estate and which they are
not by law entitled to retain as against the bankrupt or trustee1.
If a person without reasonable excuse fails to comply with any obligation imposed
under these provisions, they are guilty of a contempt of court and liable to be
punished accordingly2.
1. Section 312(3)
2. Section 312(4)
19.24 Duty of co-operation - interim
receivership
Where an interim receiver has been appointed, the debtor shall give them such
inventory of their property and other information, and shall attend such meetings as
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the interim receiver may reasonably require for the purpose of carrying out their
functions1.
An interim receiver may also make application to the court for a private examination2.
1. Section 286(5)
2. Sections 366 and 368
19.25 Duty of co-operation - deceased
insolvents
The Administration of the Insolvent Estates of Deceased Persons Order 1986
extends and modifies the provisions of the Insolvency Act 1986 to the administration
in bankruptcy of insolvency estates of deceased persons. Where an insolvency
administration order has been made against a deceased insolvent the personal
representative (for the definition of a personal representative see chapter 56) has
similar duties with regard to co-operating with the official receiver as would a
bankrupt. The personal representative should notify the official receiver of any assets
which may be claimed by the trustee, provide the official receiver with an inventory of
the estate, attend such meetings and provide information as the official receiver may
reasonably require1,2.
1. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II para 17
2. Section 291
19.26 Consequences of a failure to co-operate -
deceased insolvents
If the personal representative does not comply with their obligations to co-operate
with the official receiver, they are guilty of a contempt of court and liable to be
punished accordingly1,2.
The official receiver or trustee may apply for the private examination of the personal
representative. Other parties may also be privately examined3.
1. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II paras 17 & 30
2. Section 291
3. Section 366
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Contempt of court
19.27 Background and description
The term "contempt of court" is of ancient origin having been used in England
certainly since the thirteenth century and probably earlier. At common law, contempt
is an act or omission calculated to interfere with the due administration of justice.
A person guilty of contempt is described as a contemnor.
19.28 Types of contempt
Contempt may be civil or criminal. The criminal standard of proof i.e. beyond
reasonable doubt, applies to both1. A typical civil contempt might be conduct
involving a breach, or assisting a breach, of a court order. Criminal contempt
includes assaulting a judge or anyone else in court.
Failure to co-operate in the course of a public examination despite attendance at it
may also constitute contempt2. Refusal to acknowledge the validity of a bankruptcy
order is not considered grounds to overcome being held in contempt3.
1. Dean v Dean [1987] 1 FLR 517 CA
2. Official Receiver v Cummings-John [2000] BPIR 320
3. Re The Official Receiver V Brown [2017] EWHC 2728 CH
19.29 Penalties for contempt
The court’s power to punish for contempt of court may be exercised by an order for
committal to prison or by other means including a fine1.
Superior courts, e.g. the High Court can imprison for a fixed period of up to two
years. The county and magistrates’ courts can imprison for up to one month.
1. Contempt of Court Act 1981
19.30 Application for committal
A formal application for committal for contempt should be made in writing and
supported by an affidavit which clearly sets out the extent to which an earlier order of
the court has not been complied with.
The application must state exactly what the alleged contemnor has done or omitted
to do which constitutes a contempt of court with sufficient detail to enable them to
meet the charge. The necessary information must be given in the notice itself. If
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lengthy particulars are required it is permissible to include them in a schedule or
addendum to the notice, provided that they form part of the notice itself. It is not
permissible to refer in the notice to a witness statement or other separate document
for particulars which ought to be in the notice1.
In addition, notice of an application to commit to prison for contempt must
simultaneously be served personally on the respondent (see Annex B). All
applications for committal for contempt should be made direct to a judge and will be
heard in open court, unless the court orders otherwise2 (see also chapter 10).
Generally speaking, legal representation should be sought in relation to an
application for committal and a request for representation can be sent to the Senior
Official Receiver’s office for consideration.
1. Chiltern District Council v. Keane [1985] 1 W.L.R. 619, & Harmsworth v. Harmsworth [1987] 1 W.L.R. 1676
2. Practice Direction Insolvency Proceedings [2014] BCC 502 Paragraph 3.3 & Civil Procedure Rules 1998 Part 81
19.31 Contempt of court occurring at court
Where a contempt occurs at court (sometimes called in the face of the court), the
judge involved will generally deal with it. The High Court has jurisdiction to make an
order of committal for contempt in the face of the court by its own motion, as does a
judge of the county court. A district judge only has the power to make a committal
order where it is specifically provided for under an enactment.1,2,3
1. Civil Procedure Rules 1998 Part 81, Rule 81.15
2. CPR98 sch 1 RSC order 52 and practice direction RSC 52, CPR 98 sch 2 CCR order 29
3. Simmonds (as trustee in bankruptcy of AJ Pearce) v Pearce (an bankrupt) [2017] WLR(D) 803
19.32 Purging the contempt
When a person is in contempt of court, they may cease to be so by apologising to
the court, or “purging the contempt”, respectively.
Public and private examinations
19.33 Use of public and private examinations
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Both public and private examinations can be used as a method of enforcing co-
operation. The practices and procedures relating to public and private examinations
are covered fully in chapters 20 and 21.
19.34 Deciding upon public or private
examinations
The official receiver can either apply for a public or private examination of an officer
of a company in liquidation or a bankrupt. Public examination has advantages for the
official receiver over private examination. The court has discretion whether or not to
order a private examination, whereas it has no discretion but to make an order for
the public examination on the application of the official receiver.
If the official receiver is making an application for a private examination in their
capacity as liquidator or trustee, they may be made personally liable for the costs of
the examination1.
1. Rule 12.22(5)
Enforcement and court orders
19.35 General assistance from the courts
The official receiver can apply to court for directions1 relating to any matter arising
from insolvency proceedings. Where a person fails, without reasonable excuse, to
co-operate with the official receiver or to comply with what is legally required of them,
the official receiver may apply to the court for directions or for such order as may be
necessary to enforce the co-operation or compliance. Failure to comply with an order
of the court is contempt of court and could result in imprisonment. An application for
directions can be made verbally at the hearing of a public or private examination.
Alternatively an application may be made to the court.
1. Rule 13.3
19.36 Orders to enforce compliance in a
liquidation
The court may, on application by the official receiver or liquidator, make such orders
as it thinks necessary for the enforcement of obligations falling on any person 1, 2.
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If the official receiver wishes to enforce the co-operation of a company officer (or any
other person having a duty to cooperate), but does not intend to question them
before the court or under its supervision, they should not apply for the public
examination of the person but should instead apply to the court for an order requiring
that the action be done or information provided [rule 12.52]3, 4 .
The official receiver can request that such an order have a penal clause inserted. If a
company officer fails to comply with the order, the official receiver can make an
application to court that the director be committed for contempt.
The court can order that all costs of and incidental to an application for an order
enforcing cooperation shall be borne by the person against whom the order is made.
1. Section 143(2)
2. Section 235
3. Rule 12.52
4. Re Wallace Smith Trust Co Ltd [1992] BCC 707
19.37 Bankruptcy under general control of
court
An undischarged bankrupt or a bankrupt whose estate is still being administered has
an obligation to do whatever the court directs them to do for the purposes of their
bankruptcy or the administration of the estate. The official receiver or trustee can
apply at any time for a direction under this section.1
1. Section 363(2) & (3)
19.38 When application may be made
An application for a court order may be made at any time to enforce;
•
the provision of information to, and attendance upon, the official receiver1
•
the submission of a statement of affairs and related information2; and
•
the delivery of any property, books, papers or records to which the company or
bankrupt appears to be entitled3
Similar orders can be obtained against a trustee of a bankrupt’s estate or a liquidator
of a company who fails in their duty to provide access to any of their relevant records
to the official receiver. The official receiver should, however, always refer the matter
to Insolvency Practitioner Regulation Section before seeking any such order4.
In a winding up, the court’s powers to enforce delivery of company property can be
exercised by the official receiver as liquidator or provisional liquidator on their own
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authority, but they should always apply to the court for an appropriate order unless
urgency or some other circumstance make action under their own authority
essential5.
1. Section 235(2) and Rule 12.52(1)(c), Sections 291(4) and 363(3)
2. Section 131(1) and Rule 12.52(1)(a), Sections 288(1) and 363(3)
3. Sections 234(2), 237(1) and 367(1)
4. Section 143(2) and Rule 12.52(1)(b), Section 305(3) and Rule 10.93
5. Section 234 and Rule 7.78
19.39 Written applications
An application for a court order should made using Form GENAPP available on
ISCIS. This form might be suitably amended for all types of application1.
1. Rule 12.52
19.40 Notice of application
The court can hear the application without notice being served on any other party. If
the court wishes to hear the application with notice, the application should be served
on the respondent at least 14 days before the date of the hearing.
The Rules provide that the provisions of the Civil Procedure Rules 1998 (CPR) Part
6 and the accompanying practice directions, apply as regards any matter relating to
the service of court documents in insolvency proceedings. CPR rules 6.3(1) and
6.20(1) provide for the various methods of service which may be used for service of
applications and other court documents. These include personal service, service by
first class post or document exchange (DX) and service by fax or other electronic
means. See chapter 10 for further information on the various methods of service
available to the official receiver and how they should be effected.
Unless the court otherwise directs, the hearing of an application must be in open
court1, 2.
1. Rules 12.7 to 12.12
2. Rules schedule 4
19.41 Form of order
The form of order which will be made by the court in response to an application will
be similar to that given in Annex A. The order includes a penal notice which states
that the respondent may be held in contempt of court if they do not obey the order.
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The official receiver should ensure that the penal notice endorsed on the order is
applicable to all the requirements of the order, so as to prevent the respondent
avoiding committal by complying with only part of the order. It should be clear that
any breach of the order may result in the person’s committal. A penal notice should
also be endorsed on an order adjourning a public or private examination if committal
for contempt of court is to be pursued upon failure to comply with any requirement
imposed in the adjournment order. In such cases the adjournment order should also
be served personally as specified below.
19.42 Service of order
None of the Act, the Rules or the CPR requires court orders to be served personally.
Where, however, an individual fails to comply with an order of the court, a warrant for
committal can only be issued if the order in question was served upon the individual
personally, despite the fact that they may have been present in court when the order
was made.
Where an order is obtained the official receiver must make arrangements for
personal service of the order, either by a member of their own staff or by a process
server. The order must be served in accordance with the Insolvency Rules 2016,
Part 6 of the Civil Procedure Rules 1998 and all accompanying practice directions.
See chapter 10 for further information on personal service1.
1. Schedule 4 Para 1 and Civil Procedure Rules 1998 Parts 6, 40 & 81.
19.43 Date of service of order
The Civil Procedure Rules 1998 provide a table1 showing deemed dates of service
by first class post, by delivering a document to or leaving it at the place of service,
through a document exchange, by fax or by other electronic method and by personal
service.
There is no restriction upon when a document may be served. It may be served at
any time of the day or night, on a Sunday, on Christmas Day or on any other Bank
Holiday. When the document is served after 4.30 pm or on a non-business day it is
to be treated as served on the next business day. "Business day" means any day
except Saturday, Sunday or a bank holiday; and "bank holiday" includes Christmas
Day and Good Friday. Where the official receiver serves a court document a
‘certificate of service’ must be completed and filed at court within 21 days of service
having occurred. The most current court service form N215 should be used for the
certificate of service. A template ‘CERTSERV’ is available on ISCIS.
For further information relating to service generally, see chapter 10.
1. Civil Procedure Rules 1998 Rule 6.26
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19.44 Service by an alternative method
Where an order cannot be served personally (e.g. because the person evades
service), the official receiver can seek an order for service by an alternative method
or at an alternative place, in accordance with rule 6.15 of the Civil Procedure Rules
1998. Where the court makes an order permitting alternative service, it will specify
the method of service and the date of deemed service1.
1. Schedule 4 Para 1
19.45 Compliance with order
A respondent to an order for attendance should be free to attend upon the official
receiver at any time they choose within the limits of the order. If they attend within
the limits of the order but without an appointment, every effort should be made to
examine them at that time; even a short examination will be better than none. If a
further appointment is necessary this should be confirmed by a letter.
19.46 Failure to comply with court order
A person who fails to comply with a court order may be in contempt of court. If that
person attends court on any subsequent occasion, e.g. for an adjourned public
examination, and the court is satisfied there is no reasonable excuse for the failure to
comply, the matter can be referred immediately to a judge sitting in open court to
consider committing them to prison for contempt. It should be noted that any
application to commit for contempt of court may only be dealt with by a judge and not
by a registrar/district judge and must, unless otherwise ordered, be heard in open
court. Alternatively, the official receiver may formally apply to the court for the
committal to prison of that person1.
1. Practice Direction Insolvency Proceedings [2018] BCC 502 Part 3
19.47 Action after non-compliance
The period specified in the court order is intended to be not only the time within
which the respondent must co-operate but also the period within which the official
receiver cannot begin proceedings for committal. Counsel has expressed the view
that the effect of the order is to give the official receiver the right, but not the
obligation, to apply for a committal order immediately after the relevant period
expires. Nevertheless, further action should normally be taken immediately failure to
comply is apparent.
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19.48 Costs of application where the
respondent is a bankrupt
There are no provisions that would enable the official receiver to recover the costs
incurred in making an application for a court order to enforce compliance where the
respondent is a bankrupt. The costs in such cases should be debited to the estate
concerned.
19.49 Costs of application where respondent is
not a bankrupt
Where the respondent is not the bankrupt the official receiver should request the
court to order that the costs of and incidental to the application be paid by the
respondent1, including where the respondent is the trustee or liquidator of the
insolvent estate (other than the official receiver)2. The official receiver should then
attempt to recover these costs, including swearing fees and the fees and expenses
of any process server employed, from the respondent. The official receiver should
not seek anything in the nature of punitive costs from the examinee. Any failure by a
company officer to pay the costs should be taken into account if the official receiver
submits a disqualification report and/or a prosecution report and failure by an
insolvency practitioner to pay the costs should be notified to Insolvency Practitioners
Section.
1. Rule 12.52(3)
2. Rule 10.93 (2)
Power of arrest and enforcement of
warrants
19.50 Power of arrest
Where possible the powers of arrest provided by sections 134, 236, 364 and 366
should be employed in preference to the provisions of sections 288, 290, 291, 312,
333 or 363, which deal with the consequences of contempt of court and which are
intended to be used on a contingency basis. This is because applications for arrest
warrants under sections 134, 236, 364 and 366 may be heard by a district judge or
registrar after the private or public examination, whilst application under the general
powers relating to contempt of court require a lengthier procedure involving an
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application to court, personal service on the alleged contemnor, and a hearing before
a judge.
The provisions relating to the enforcement of orders of the court and warrants for the
arrest of a person or for the seizure of property, or search of premises are contained
in the rules1.
1. Part 12 Chapter 9
19.51 Warrant for non-attendance at public
examination
Where a company officer (or person other person with a similar duty to cooperate),
partner or bankrupt fails to attend for their public examination this is a contempt of
court, but also gives rise to a separate power to issue an arrest warrant1 at that
hearing providing the proper procedures detailed in chapter 20 as regards service
and certification of service have been strictly complied with. A registrar or district
judge may issue such a warrant immediately on the examinee’s failure to attend,
without referring the matter to a judge, and the official receiver should draw the
court’s attention to its power to issue a warrant.
No formal application or report by the official receiver may be necessary. If the court
requires any additional information this may be provided verbally by the official
receiver on their undertaking to file in court a report setting out such information as
soon as possible. Where it is anticipated that the examinee is unlikely to attend and
that the court may issue a warrant at the hearing, a draft warrant2 should be taken to
court (in the High Court this will be dealt with by the registrar, in order that it may be
passed forthwith to the relevant officer of the court for execution).
1. Section 134(2)(a) or 364(2)(e)
2. ISCIS Form PEWA
19.52 Seizure of property or records
The court can also order the seizure of any property or records in the possession of
the examinee and the official receiver should in appropriate cases consider
requesting the court to make such an order1 where they urgently require the property
or records. In such cases the court should be asked to order that the property or
records concerned be delivered to the official receiver or otherwise dealt with in
accordance with the official receiver’s wishes.
If the court does not exercise its discretion to issue a warrant immediately, a formal
written application with a supporting report has to be made. The application may be
made without notice and heard by a registrar or district judge. Unless the court
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otherwise directs, the hearing of an application must be in open court2. The official
receiver may provide a report setting out the circumstances in which the application
is made rather than a witness statement3.
1. Section 134(2)(b) or 364(1)(b) & Rule 12.12
2. Rule 12.2
3. Rule 12.29(2)
19.53 Content of a warrant for non-attendance
at public examination
Warrants issued under section 134(2) or section 364 (including those issued for non-
attendance at a public examination) are issued under general powers of arrest and
They will not make reference to a specific maximum period of imprisonment as
required in cases of contempt of court (see earlier guidance).
Warrants issued under rule 12.54 allow for delivery of the arrested person directly to
the court. Form PEWA is available on ISCIS document production and can be
adapted as appropriate.
19.54 Warrant for non-attendance at private
examination
Warrants issued under section 236 or section 366 (inquiry into the dealings etc. of
the company or bankrupt) are similarly dealt with, and are both on Form PEWA with
no reference to a maximum period of imprisonment1.
1. Rule 12.55
19.55 Warrant for contempt of court
An application1 to court for an arrest warrant for contempt of court, which will
normally be for non-compliance with an earlier order of the court, should be
supported by a witness statement setting out fully the facts of the matter2. In addition,
formal notice of the application to commit, in the current required format, must be
given simultaneously to the person concerned. The notice should be served
personally on the individual concerned, although where this is not possible (e.g. due
to deliberate avoidance) an order for service by an alternative method can be sought
under the Civil Procedure Rules 1998 rule 6.153. Where the warrant is issued for
contempt of court, the provisions of the Contempt of Court Act 1981 apply, and the
maximum period of imprisonment, which may be up to two years, must be specified
on the warrant. Applications for warrants should where possible be made under the
--- PDF page 23 ---
general powers of arrest provisions rather than those for contempt of court. Any
application to commit for contempt of court may only be dealt with by a judge, and
not by a registrar/district judge, and must be heard in open court3.
1. ISCIS Form GENAPP,
2. Rule 1.35
3. Schedule 4 Para 1
19.56 Execution of warrant
When a warrant has been issued it should in the first instance be left with the
relevant officer of the court for execution, but in case of difficulty or urgency, the
warrant may be placed by the court in the hands of the Police within the jurisdiction
of the court for execution. County court warrants will not be executed by the
Metropolitan Police. The latter will, however, make all necessary inquiries leading up
to the arrest of the person concerned. The actual arrest must made by a local
constable or court officer. Where the person subject to the warrant is known to be
within the jurisdiction of some other county court, the warrant may be transferred to
that court for execution1.
1. Rule 12.53
19.57 Description of person/assets subject to
warrant
Upon the issue of a warrant by the court, the High Court tipstaff or in a county court
the district judge or a bailiff, should contact the official receiver to obtain particulars
of the person or property subject to the warrant, although local practice may vary. If
the official receiver is not contacted promptly they should take steps to ensure that
the tipstaff or bailiff has the necessary information to enable the warrant to be
executed.
The information1 given to the arresting officer concerning the subject of a warrant
should, where possible, include the full name and the last known address (or
addresses) of the person, their age, height and any distinctive physical features. If
the official receiver has the national insurance number of the individual, this should
also be provided. The official receiver must ensure that information provided in this
respect is accurate, so as to avoid any possibility of wrongful arrest or seizure of
property which is not subject to the court order. Accordingly, they should not rely
entirely on information provided by third parties. Where there are no assets in the
estate the official receiver may incur a debit balance to meet the reasonable and
necessary expenses of executing the warrant.
--- PDF page 24 ---
1. Description/contemnor form
19.58 Surrender to proceedings
Where a person against whom a warrant has been issued surrenders to the official
receiver without the warrant being executed, the official receiver must ensure that
application is made immediately for the warrant to be suspended or discharged. This
may include a staff member accompanying the person to court to make the
application, or could require the official receiver to file a report at the court or by the
delivery of a letter to court. Without exception, the official receiver should not leave
the matter to be dealt with by the person subject to the warrant, and should take
whatever steps necessary to ensure that the warrant is suspended or discharged.
The person may be interviewed before they leave for the court, but the official
receiver must ensure that the person leaves with sufficient time to attend the court
and have their application to suspend/discharge the warrant dealt with on that same
day.
19.59 Discharge of a warrant
Rule 12.51 provides that an arrest warrant issued by the High Court may be
discharged in any county court having insolvency jurisdiction where the arrested
person has been brought before the county court and given a satisfactory
undertaking to the court to comply with the obligations that apply to that person
under the Act or the Rules.
19.60 Duration of warrant
An arrest warrant does not expire and a person may be arrested on a warrant which
was issued over a year previously. A warrant which has been executed or
suspended cannot be reactivated. Should such need arise formal application must
be made for the issue of another warrant although restoration of a public or private
examination is the more likely procedure.
Action after execution of the warrant
19.61 Person to be delivered directly to court
by arresting officer
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Although generally the question of warrants issued for non-attendance at a public
examination is not considered incompatible with the provisions of the Human Rights
Act 1998, some courts have expressed concern regarding ‘open ended’ warrants
where the subject could be detained in prison for an indefinite period. To avoid these
difficulties the warrants on form PEWA prepared by the official receiver should ask
that the subject be delivered immediately to the court rather than to a prison once
they have been arrested.
Rule 12.54 addresses the concerns of the courts in relation to human rights and the
rule provides for delivery of the arrested person directly to the court. Once the
director/bankrupt is delivered to the court, the public examination will be re-instated
and the director/bankrupt will either give undertakings to the court to co-operate and
provide information or will surrender to the public examination and give the
information under oath. The individual will then be released and the warrant
discharged. If the individual refuses to give the required undertaking or answer
questions on oath, the District Judge has the power to make an immediate referral to
a Judge for committal for contempt.
19.62 Committal to prison possible if
appropriate
The guidance above does not prevent the official receiver from ever applying for a
warrant requiring committal to prison if deemed appropriate. In such cases, the
official receiver must immediately ensure the court is notified of the arrest and apply
for orders appointing a time and place to proceed with the examination, (with leave
to dispense with notice and for the production from prison of the person concerned at
the very earliest opportunity). When a person has been arrested and delivered to
prison, the terms of the arrest warrant have been fulfilled. If the court cannot arrange
for the restored public examination to be heard within 48 hours, the person should be
produced to the court in private for consideration of their being released against
suitable undertakings. The court may require that the arrested person be interviewed
before being released from prison. In such circumstances, because of the time
required to arrange and conduct an interview in prison it may be necessary for the
arrested person to remain in custody for more than 48 hours.
19.63 Interview in prison
If it is necessary to interview an examinee who is in prison, the official receiver
should contact the prison to make arrangements, which should then be confirmed by
letter addressed to the prison governor. The letter should be delivered by hand if the
interview is to take place urgently. If a member of the official receiver’s staff attends
rather than the official receiver themself (as will usually be the case) a written
--- PDF page 26 ---
authority from the official receiver to their member of staff to carry out the interview
should be produced to prison staff (see also chapter 17).
19.64 Application for release from prison-
discharge of warrant
If a person who has been arrested applies for release from custody it will be
necessary to consider whether the application should be opposed or whether the
court should at least be asked to require a bond to be given to ensure their future
attendance.
Where appropriate, the official receiver should consider applying to restore any
public or private examination to an early fixed date. Once the examinee appears for
public or private examination the warrant must be discharged, (whether or not the
examination is fully effective or closed) because the purpose of the warrant i.e. the
arrest of the respondent has been fulfilled. If the examination has to be adjourned
because of the individual’s failure to give undertakings to the satisfaction of the court,
the official receiver should, in court, make clear to the examinee the implications of
their conduct. A new arrest warrant may be issued and consequently the court
record will show that the possible consequence of continued default had been fully
drawn to the individual’s attention. The official receiver should then seek the
directions1 of the court on the matter.
1. Rule 13.3
19.65 Production of a person already in prison
In the case of a person who is in custody other than as a result of a warrant issued in
the insolvency proceedings, an application for the production of that person at any
public or private examination must be made by letter addressed to Prison Service,
Population Management Section, 6th Floor, Cleland House, Page Street, London
SW1P 4LN (telephone 020 7217 6657/6582) setting out the facts and grounds for
the application and the time, date and place at which the person is to be produced.
Any order of the court for public or private examination to be served on the person
concerned must be sent to the prison governor with a covering letter requesting that
they arrange service. As much notice as possible of the hearing should be given.
The expense of bringing the examinee to the court must be charged against the
estate. Care should be exercised in bringing reluctant prisoners before the court
since the costs may be prohibitive and the outcome unsatisfactory. Non co-operation
by a bankrupt prisoner can be dealt with by an application to suspend their
discharge. A prisoner with a category "A" security rating will not be produced as such
prisoners are considered a maximum security risk. Instead the official receiver
--- PDF page 27 ---
should request the prison governor to mark the inmate’s file that notification should
be given to the official receiver if it is intended to release that prisoner or if their
security rating is downgraded to "B".
19.66 Warrant for Seizure of property
The official receiver may apply to the court for a warrant to seize any property
comprised in the bankrupt’s estate, or any books, papers or records relating to the
bankrupt’s estate or affairs which are, in the possession or under the control of the
bankrupt or any other person who is required to deliver the property, books, papers
or records to the official receiver1.
Any person executing a warrant under this section may break open any premises
where the bankrupt, or material to be seized under the warrant, is or is believed to be
and may also break open any receptacle of the bankrupt which contains or is
believed to contain anything that may be seized2.
A warrant issued by the court shall be addressed to any officers of the High Court or
county court as the warrant specifies or to any constable. Warrants issued under
section 365(1) are addressed to the tipstaff and their assistants in the High Court
and in the county court to the district judge and the bailiffs3.
1. Section 365(1)
2. Rule 12.53(1)
3. Rule 12.53(2)
19.67 Warrant for search of premises
The court may also issue a warrant for the search of premises not belonging to the
bankrupt if it is satisfied that any property comprised in the bankrupt’s estate or any
books papers or records relating to the bankrupt’s estate are concealed in those
premises1.
The search may be carried out by a police officer or a prescribed officer of the court.
In the High Court the prescribed officers are the tipstaff and their assistants of the
court. In the county court the prescribed officers are the district judge and the
bailiffs2.
A warrant issued under section 365(3) shall authorise any person executing it to
seize any property of the bankrupt found as a result of the execution of the warrant3.
Any property seized under a warrant issued under section 365(2) or (3) shall be –
a) lodged with, or otherwise dealt with as instructed by, whoever is specified in the
warrant as authorised to receive it, or
--- PDF page 28 ---
b) kept by the officer seizing it pending the receipt of written orders from the court as
to its disposal, as may be directed by the warrant4
1. Section 365(3)
2. Section 365(3) and Rule 12.53(2)
3. Rules 7.25(1) and 12.56(2)
4. Form WARS
19.68 Application for seizure or search
warrant
Where it is necessary for the official receiver to make formal written application for a
warrant to search for and/or recover property belonging to a bankrupt, the
application, is made without notice and must be supported by a report from the
official receiver or deputy/assistant official receiver dealing with the case. To enable
the court to fully consider the matter, the application should, if possible, clearly
specify all property, books, papers, records and premises which are subject to the
application and the supporting witness statement should set out fully the
circumstances in which the application is made. Any warrant issued by the court
should direct the person executing it on how to deal with any property seized (see
above) and the official receiver should request the court to order that the property be
delivered to them or otherwise dealt with in accordance with their instructions1.
Reference should also be made to chapter 10.
1. Rule 12.56
Leaving the jurisdiction
19.69 Leaving the jurisdiction to avoid
cooperation
Generally, where a company officer, partner or bankrupt wishes to leave the
jurisdiction, there is no legal requirement for them to seek leave of the court to do so.
Where it is known, or there are reasonable grounds to believe, that such a person
intends to leave the jurisdiction with a view to avoiding a public or private
examination, and/or, in the case of a bankrupt, preventing or delaying the realisation
of assets or the general administration of the case, the official receiver can apply to
--- PDF page 29 ---
the court for an order that the person concerned should surrender their passport or
for a warrant of arrest and seizure of any books, papers, or records in the
possession of that person1.
Where a hearing has been fixed in the High Court and is pending, e.g. a public or
private examination, the High Court has the power under the Senior Courts Act 1981
section 37(1) to restrain the examinee from leaving the its jurisdiction. In such
circumstances, or where an examinee having been abroad has returned to the
jurisdiction, the official receiver should consider making an application without notice
to the court for such a restraining order2.
Additionally, the court may issue an injunction to prevent a bankrupt from leaving the
jurisdiction3.
1. Section 134(2) or 236(4)(5) or 364(2) or 366(3)
2. Re a Company no.003318 of 1987 (1987) 3 BCC 564
3. Morris v Murjani [1996] 2 All ER 384
19.70 Absconding contributory
In very rare circumstances the official receiver as liquidator of a company may have
to make a call for an amount due from a contributory whom it is believed may be
seeking to avoid payment by absconding or concealing property. In those
circumstances application can be made for the arrest of the contributory1.
This can also apply where a winding-up order is made against a partnership, but no
bankruptcy orders have been made against the partners. In these circumstances a
contribution to the partnership’s deficiency may be sought from the partners, who are
deemed to be contributories. Unless the contrary intention appears, a member of a
partnership against whom a bankruptcy order has been made by virtue of IPO94
article 8 shall not be treated as a contributory2.
1. Section 158
2. IPO94 sch 4, IPO94 art 8, IPO94 art 7 and Section 226
Re-direction of mail
19.71 Re-direction of bankrupt’s mail
Where appropriate, and particularly in cases of total failure to surrender to the
proceedings, the official receiver or trustee may consider applying to the court for an
--- PDF page 30 ---
order re-directing post addressed to the bankrupt at their last known residential
and/or business address(es) and any other address at which they are known (but not
merely suspected) to be receiving post.
It is difficult to obtain orders under section 371 due to the implications of the Human
Rights Act 1998 schedule 1 article 8. Re-directing a bankrupt's mail constitutes a
contravention of HRA98 schedule 1 article 8 (respect for private and family life, home
and correspondence). This contravention may be justified under article 8(2) as it is in
accordance with the law and with the legitimate aim of protecting the rights of
creditors, depending on the individual circumstances of the case.
However, interference with confidential correspondence between the bankrupt and
their legal advisors is not justified under article 8(2), as it is not a proportionate
measure to adopt1. See also paragraph 19.81.
Consequently it is advisable that before such an application is made there are
genuine grounds for believing that assets would be discovered or realised as a result
of a redirection of post and that the provision is used in exceptional cases and not as
a routine measure.
1. Foxley v United Kingdom [2000] BPIR 1009
19.72 Nature and form of application
The application for a re-direction order must be made without notice to the bankrupt
or any other person, unless the court directs otherwise1 and can be made to the High
Court or the County Court2. It is usual for the application to be made without notice
as it is arguable that giving notice might lead to the bankrupt taking steps to
reorganise their affairs during the time it takes for the order to be obtained which will
operate to the detriment of the official receiver and the bankruptcy estate. The official
receiver should make any application for a re-direction order without notice to the
bankrupt or any other person unless the court directs otherwise.
The court has held that applications to court for a re-direction order ought to be
supported by details of the bankrupt's non co-operation3. Any application for a re-
direction order should include a report prepared by the official receiver in accordance
with rule 10.166(3). The report enables the official receiver to explain in some detail
to the court why the re-direction order is being sought. The form can be expanded to
contain any further information that may assist the court in making an order.
1. Rule 10.166
2. Section 373
3. Singh v Official Receiver [1997] BPIR 530
--- PDF page 31 ---
19.73 Court can apply conditions to order
The court may impose such conditions as it sees fit on the operation of the order. For
example, the court may direct that the mail should be re-directed to and opened by a
specified third party (such as a solicitor), and also direct how the costs of this will be
paid.
19.74 Bankrupt’s ability to view the official
receiver’s report
If the bankrupt later seeks a review or rescission of the re-direction order made by
the court, the report can be disclosed to them and will provide the bankrupt with an
opportunity to see the case made against them in seeking the order.
19.75 Service of the order
A copy of the court re-direction order and notice should be sent to the postal
operator for the postcode area concerned.
The re-direction order by the court must specify the persons on whom it is to be
served. A copy of the re-direction order need not be served on the bankrupt unless
the court directs otherwise.
19.76 Period of order
A re-direction order will allow the bankrupt’s post to be re-directed for a period not
exceeding three months. A decision must be made in sufficient time before an order
is due to expire as to whether or not application should be made for any further
order. The official receiver must not open or retain any mail re-directed in error by
the postal operator after the expiry of the order1.
1. Section 371(2)
19.77 Action where insolvency practitioner
subsequently appointed
Where an insolvency practitioner is subsequently appointed, details of the re-
direction order must be noted in the report to the trustee contained in the record
book. As the order will provide for re-direction to the official receiver, it is better that
the bankrupt’s mail should continue to be so re-directed until the order expires. If
practical difficulties are encountered, an application can be made for the order to be
varied so that the post may be re-directed to the trustee.
--- PDF page 32 ---
Mail received under the re-direction order following the appointment of a trustee
should only be forwarded to the trustee where it relates to the possible realisation of
assets. Items addressed to someone other than the bankrupt, or which might be
covered by legal professional privilege, or that is of a personal nature to the bankrupt
should not be forwarded to the trustee. The trustee should be asked to inform the
official receiver if a further order is obtained so that the official receiver can ensure
any letter they send to the bankrupt may be endorsed as above. If the official
receiver obtains a re-direction order after the trustee’s appointment, they should
notify the trustee in writing of the order.
19.78 Only post of bankrupt to be re-directed
Care must be taken to ensure that addresses can be positively linked to the bankrupt
and are not confused with a third party with the same or a similar name. Where a
number of family members with similar names reside at the same address, great
care should be taken to provide as much detail as possible to the postal operator to
ensure that the correct mail is re-directed. In cases where there are two individuals
with very similar names consideration should instead be given to pursuing other
courses of action to enforce co-operation.
19.79 Action after re-direction order obtained
Only mail that directly relates to the bankrupt's financial position or estate should be
scanned and retained.
Post that is addressed to someone other than the bankrupt, or post which might be
covered by legal professional privilege (for example letters with a solicitor's details on
the envelope), or post that is of a personal nature to the bankrupt (for example letters
from a hospital) should not be opened. If such correspondence is opened in error, it
must not be scanned. All correspondence which meets the above criteria should
immediately be passed to the bankrupt, or forwarded to the correct addressee.
19.80 Inform Royal Mail urgently if errors
made in redirection
The official receiver must notify the postal operator immediately in the event of any
errors made in the redirection process, in particular the post of a third party being
redirected. Any post incorrectly delivered to the official receiver must be sent
immediately to the correct addressee with an endorsement that the letter should be
delivered as addressed or, alternatively, sent to the postal operator with a reminder
as to the terms of the court order. Under no circumstances should post addressed to
anyone other than the bankrupt be opened or photocopied by the official receiver.
--- PDF page 33 ---
Where the official receiver continually receives mail intended for a third party, despite
informing the postal operator, the official receiver should consider requesting the
postal operator to cease the re-direction.
19.81 Confidential correspondence with legal
advisors
It has been held by the European Court of Human Rights that a re-direction order
under the insolvency legislation does not in itself breach the human rights legislation
provided its terms are strictly observed and it is not used in a disproportionate
manner [Foxley v United Kingdom [2000] BPIR 1009]. Interference with confidential
correspondence between the bankrupt and their legal advisors cannot be justified as
it is not a proportionate measure to adopt. If a letter is clearly from a solicitor or the
Legal Aid Agency, it should not be opened and should be promptly forwarded to the
bankrupt. Where post is opened which is subsequently found to contain privileged
correspondence with a legal advisor, it should be resealed and immediately passed
to the bankrupt without being scanned by the official receiver.
19.82 Personal correspondence
Where it is clear that an item is of a personal nature it should be forwarded to the
bankrupt without delay and without being copied. A bankrupt should not be required
to attend the office in order to collect their mail, although they can do so if they wish.
19.83 Post from official receiver to be marked
so as to avoid redirection
Where the official receiver writes to a bankrupt after a redirection order has taken
effect, all letters sent by the official receiver to the bankrupt must be endorsed "To be
delivered as addressed if possible. Not to be re-directed by the postal operator", to
avoid mail simply being returned to the office under the redirection notice.
19.84 Costs of re-direction order
Mail re-directed under an order of the court is not exempt from charges made under
Postal Regulations. The case administration fee does not include the cost of
obtaining the re-direction order which must be separately charged against the estate.
19.85 Re-direction in a liquidation
--- PDF page 34 ---
It should be noted that the post of a company in liquidation is re-directed as a matter
of course and that no application to court is required, though care should be taken to
ensure only post concerning the company in liquidation is opened, following the
principles outlined above in relation to bankruptcy cases.
Prosecution and disqualification and
non-cooperation
19.86 Prosecution for failure to co-operate
under s235
As discussed in Parts 4 and 5 enforcement of a duty to co-operate may generally
best be achieved by holding a public or private examination or by obtaining a specific
order of the court for compliance with a particular duty.
A company officer or partner where the partnership has been wound up as an
unregistered company (but not a bankrupt) may be prosecuted under section 235(5)
for failing to comply, without reasonable excuse, with any obligation imposed by
section 235. A prosecution will normally be undertaken only in conjunction with
proceedings for other offences. In exceptional circumstances, where there has been
a serious or persistent breach of duty by some responsible person or other
procedures are impracticable the prosecution of a company officer under section
235(5) may be considered appropriate. Where this is so the official receiver will need
to note the position as to "reasonable requirement" and "reasonable excuse" and
consider the technical requirements of section 235.
19.87 Prosecution for failure to submit a
statement of affairs
A company officer, (but not, as noted above, a bankrupt) may be prosecuted for
failure, without reasonable excuse, to submit a required statement of affairs, the
penalty for which is a fine, and for continued contravention, a daily default fine1.
Where exceptionally the official receiver believes that a prosecution would be
desirable they should consider submitting a report. Such a failure may also be
considered for disqualification purposes.
1. Section 131(7)
--- PDF page 35 ---
19.88 Disqualification
Where the official receiver considers that the conduct of an uncooperative director or
partner (where the partnership has been wound up as an unlimited company)
amounts to evidence of unfitness1, this should be taken into account when they
report on the conduct of the director/partner
A report where the only matter of misconduct is non co-operation should only be
considered in exceptional cases.
Where non co-operation is alleged as the sole matter of unfitness in a disqualification
report there must be significant and demonstrable detriment to the estate resulting
from the non co-operation e.g. significant assets that cannot be realised. It is not
enough that the official receiver's duties have been made more difficult to discharge
by the lack of co-operation from the director/partner. The official receiver must also
have taken all the measures available to them to enforce co-operation and to obtain
the information required from other sources before relying on non co-operation as a
sole allegation.
1. Company Directors Disqualification Act 1986 section 6 & schedule 1 paragraph 10(g) & Insolvent Partnerships Order 1994 article 16 & schedule 8
Bankruptcy restriction orders and non-
cooperation
19.89 Bankruptcy restrictions orders generally
Bankruptcy restrictions orders (BROs) are a means of protecting the public from
dishonest, reckless or culpable bankrupts. A BRO effectively extends the imposition
of bankruptcy1 on individuals for the period specified in the order of between 2 - 15
years.
The court will grant a BRO if it thinks it is appropriate to do so having regard to the
conduct of the bankrupt (whether before or after the making of the BRO). Schedule
4A lists the kinds of behaviour on the part of the bankrupt that the court will take into
account. This list is not exhaustive and the official receiver can consider the inclusion
of any further conduct of the bankrupt that they consider should be taken into
consideration by the court in deciding whether a BRO should be made.
1. Section 281A
19.90 Non co-operation as a ground for a BRO
--- PDF page 36 ---
Schedule 4A paragraph 2(2)(m) of the Enterprise Act 2002 specifically states that the
failure of a bankrupt to co-operate with the official receiver or trustee is a matter
which the court will take into consideration when deciding whether a BRO is
appropriate. This allegation should only be included in a BRO report by the official
receiver where there has been deliberate non co-operation, and not where the
official receiver has not been able to contact the bankrupt or the bankrupt has not
been traced.
In deciding whether to include this area of misconduct in a BRO application it is not
enough that the official receiver has been inconvenienced by the bankrupt's non co-
operation but there must also have been some loss to creditors as a consequence of
their failure to co-operate.
Detailed guidance on this can be found in the EIG.
19.91 Official Receiver must use all powers to
enforce co-operation before considering BRO
for non-cooperation
The official receiver must use all their powers as detailed in this chapter to enforce
co-operation before a BRO report is considered alleging non co-operation.
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ATTACHMENT: 2.Winding_up_orders_Initial_actions.pdf
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 10 March 2020.
2. Winding-up orders - Initial actions
Actions to take in the initial stages of a company winding-up, including letters to be
sent and enquiries to be undertaken
Annexes
Annex A – Companies Act 1985 dealing with confidentiality orders
Annex B – List of useful addresses
Annex C – Authorised and regulated businesses
Flowchart 1 – How to issue a gazette on the making of a winding-up order
Chapter content
Role of the Official Receiver
Initial action - The winding up order
Initial action - Companies House
Notices to be issued and actions to be taken immediately
Initial action - Company officers
Case administration
Common notices to be issued and actions to be taken
Less common notices to be issued and actions to be taken
Role of the Official Receiver
2.1 Duty to investigate
--- PDF page 2 ---
When a winding-up order has been made by the court the official receiver has a
statutory duty to investigate: * the cause of failure, if the company has failed, and *
the promotion, formation, business, dealings and affairs of the company generally 1.
The duty to investigate applies in all cases including those where an insolvency
practitioner is appointed liquidator by the court immediately on the making of the
winding up order.
1. Section 132
2.2 Report to court
In fulfilling their duty to investigate the affairs of the company the official receiver may
make a report to the court if they think fit 1.
1. Section 132
2.3 The official receiver appointed liquidator
The official receiver is appointed liquidator on the making of the winding-up order
unless the court orders otherwise 1. See later guidance for the cases where the court
may appoint a liquidator other than the official receiver. The official receiver will
remain liquidator until someone else is appointed. They become liquidator during any
subsequent vacancy.
1. Sections 136 (2) and 140
2.4 The official receiver’s functions as
liquidator
One of the functions of the official receiver is to protect the company’s assets and,
where appropriate, to take into custody or under their control all property, etc. to
which the company is or appears to be entitled. The official receiver’s functions
include realising and distributing the company’s assets to its creditors and, if there is
a surplus, to the persons entitled to it 1.
1. Section 143 (1)
2.5 The realisation of assets at the initial stage
There is no reason why the official receiver should not use their powers as liquidator
to realise those assets which are easy to realise or those that may be rendered
valueless by the date of the first meeting, such as perishable stock, bulky items
which are expensive to store or small value bank balances held in accounts that
incur charges. Even where the early realisation of an asset(s) might prejudice the
--- PDF page 3 ---
appointment of an insolvency practitioner the official receiver should act in the best
interests of creditors and seek realisation. Further information on the realisation of
specific assets can be found in the relevant guidance on assets.
2.6 The Casework Process Standard and the
realisation of assets
The official receiver should, in accordance with the Casework Process Standard take
steps to contact the director(s) or relevant third parties to decide whether immediate
action is required to collect, secure and protect (obtaining insurance where
appropriate) the assets of the company. The official receiver should decide to
complete an inspection where required. Where an inspection is required see the
relevant guidance.
2.7 The completion of company contracts by
the official receiver
A company, against whom a winding-up order is made, may have a number of
contracts which have not yet been completed. The official receiver should consider
whether they need to complete any contracts as liquidator or, in certain
circumstances, issue a disclaimer. Before deciding to complete any contracts the
official receiver may decide it would be beneficial to seek the views of the major
creditors. Further advice on dealing with work in progress is contained in chapter 35.
See chapter 43 for further details of the matters to be considered by the official
receiver before issuing a disclaimer.
2.8 Appointment of liquidator
The official receiver should obtain information about the company’s assets and
liabilities at an early stage. Unless the court has already appointed a liquidator, they
can then make a decision to seek nominations from the company’s creditors for the
purpose of appointing a liquidator, if appropriate 1.
1. Sections 136 (4) and 140
2.9 Confidentiality
The official receiver must not disclose information about a company or its officers to
any person who does not have a legitimate reason to have the details of the case.
For further guidance on disclosure see chapter 22.
--- PDF page 4 ---
2.10 The court appoints an insolvency
practitioner as liquidator
A winding-up order may be made immediately the appointment of an administrator
ceases to have effect. Also a winding-up order may be made against a company with
a supervisor appointed under a voluntary arrangement. In these instances the court
on making the winding-up order may appoint the former administrator or supervisor
as liquidator of the company 1.
1. Sections 140 (1) and 140 (2)
2.11 The liquidator’s duty to the official
receiver
The liquidator has a duty to co-operate with the official receiver to enable them to
carry out their functions and should be a useful source of information about the
company, especially in the initial stages. The liquidator must produce or allow the
inspection of the company’s books, papers and other records. This may involve
visiting the liquidator’s offices 1. If the liquidator fails to co-operate the official receiver
may apply to the court for an order to enforce compliance 2.
1. Section 143 (2)
2. Rule 12.52
2.12 The official receiver’s duties where there
is a court appointed liquidator
The official receiver’s statutory duty to investigate the affairs of the company
remains 1. Where the official receiver in the course of their investigations discovers
undisclosed assets, which may include rights of action, they should inform the
liquidator and provide copies of any relevant documents (see chapter 22 and chapter
45 for further details) 2. The official receiver is required give notice of and gazette the
winding-up order and provide information to creditors and contributories 3.
1. Section 132
2. Rule 7.60(7)
3. Rules 7.22 and 7.48
--- PDF page 5 ---
2.13 Court appointed liquidator – Decision to
seek nominations
Where a liquidator is appointed by the court on the making of the winding-up order
the official receiver is not required to decide whether or not to seek nominations to
be replaced in office as liquidator of the company within 12 weeks of the date of the
winding-up order 1
1. Section 136(4)
2.14 Insolvency practitioners
The company may have dealings with other companies or individuals subject to
insolvency procedures and where there is involvement of insolvency practitioners.
Initial action - The winding up order
2.15 Notice of a winding-up order
The court is required to give notice to the official receiver of the making of a winding-
up order forthwith 1. The notice must have the title “Notice to Official Receiver of
Winding-up Order and must contain the identification details for the proceedings, the
company’s registered office, the date of presentation of the petition, the date of the
winding up order and the name and address of the petitioner or their solicitor. The
court should then deliver two sealed copies of the order upon the official receiver.2
1. Rule 7.21
2. Rule 7.22(1)
2.16 Obtaining sealed copies of the winding-up
order
Where the court does not send two sealed copies of the winding-up order the official
receiver should draw this deficiency to the court’s attention and ask for two sealed
copies. Winding up orders in made in the High Court are delivered to the Petitions
and Transfers team electronically and where an order is not received the Petitions
and Transfers team will retrieve a copy from the CE file maintained by the Court.
--- PDF page 6 ---
2.17 Checking the winding-up order
The official receiver should check the winding-up order to ensure the details on it are
correct and complete. They should inspect the public file held on the company by the
registrar of companies to establish that the company is correctly named in the order,
has not been dissolved, or is in the process of being dissolved, that its registered
office is correct, the company’s registration number is shown, a court has not
previously made an order against the same company and that it contains the
information prescribed by Rule 7.20. If any of the above apply the official receiver
should inform the petitioning creditor’s solicitors. Where the error was made by the
court the order may be changed using the slip rule (see following paragraph). The
official receiver must ensure the correct company name and other details are
correctly and carefully entered onto the appropriate ISCIS screens.
2.18 Correcting winding-up orders – The slip
rule
The Civil Procedure Rules allow the court, at any time, to correct an accidental slip
or omission in a judgment or order. A party may apply for correction without notice 1.
The court has the general power to rectify matters where there has been an error of
civil procedure 2. Where it is clear that the court has made an error when drafting the
winding-up order when compared to the details on the petition, e.g. an incorrect
spelling of company name, or the company’s registration number has not been
included in the order the official receiver should contact the court and ask for the
order to be corrected and an amended version issued.
1. The Civil Procedure Rules 1998 rule 40.12
2. The Civil Procedure Rules 1998 rule 3.10
2.19 Action to be taken where the company’s
name is incorrect on the order
The official receiver should carefully check the name of the company as it appears
on the winding-up order against the company’s name as per the certificate of
incorporation. If there is any discrepancy the petitioning creditor’s solicitor must be
contacted to rectify the position. “Ltd” for “Limited” is an acceptable abbreviation as is
“Co” for “Company” and “&” for “and” 1. Where there is no doubt that the company in
question is the correct one (e.g. if there is an insignificant typographical error), the
official receiver should proceed in the normal way. Where the name of the company
on the winding-up order is amended the official receiver must ensure the name of the
company on all the relevant ISCIS screens is also amended.
--- PDF page 7 ---
1. The Company and Business Names (Miscellaneous Provisions) Regulations 2009
2.20 Where the petitioning creditor’s solicitors
fail to take any action
Where the petitioning creditor’s solicitor fails to rectify the position the official receiver
should consider making an application to the court for the rectification of the order 1.
Where the error is typographical and the correct details appear in the petition the
official receiver may make an application for rectification using the “slip rule” 2.
1. Rule 12.59
2. The Civil Procedure Rules 1998 rule 40.12
2.21 Special arrangements in the High Court
Where the winding-up order was made in the High Court and there is an error in the
name of the company the Court Manager, upon the official receiver’s application, is
authorised to make any necessary amendments to ensure that the winding-up order
is drawn up correctly. If there is any doubt, e.g. where the Court Manager thinks
there might be another company in existence which could be confused with the
company being wound up, the Court Manager will refer the matter to the Registrar.
2.22 A change in the company name before the
winding-up order is made
A company may change its name or exchange its name with another company
shortly before the hearing of the winding-up petition. Where this happens and the
winding-up order is made in the wrong name, the official receiver should check the
company number on the petition to make sure that the order has been made against
the correct company. They should confirm that the change of name has been
completed and registered with the registrar of companies. See Annex A of chapter
40 as to what action to take if the name change was unauthorised.
2.23 Where the company has correctly
changed its name
If the official receiver is satisfied that the company has correctly changed its name
they should notify the court and the petitioning creditor’s solicitors of their inability to
proceed under the winding-up order. The petitioner should be asked to take steps to
ensure the winding-up order is amended to include the correct company name. The
--- PDF page 8 ---
official receiver should monitor the progress of their request and if, after a
reasonable time (say 7 days), no such steps have been taken, they should make an
application for directions of the court 1. For further information on making an
application for directions see chapter 10.
1. Rule 13.3
2.24 Dissolution and the winding-up order
On receiving notice of the winding-up order the official receiver should check the
company’s public file at Companies House to see whether the company has been, or
is in the process of being dissolved. If the company has already been dissolved the
official receiver should follow the advice in paragraph 2.33.
If the company is in the process of being dissolved the official receiver should lodge
an objection to the dissolution with the registrar of companies. A letter of objection
should be sent by email to enquiries@companieshouse.gov.uk and marked for the
attention of the Dissolution Section. The objection should include a copy of the
winding-up order, winding-up petition or Secretary of State’s order appointing the
official receiver. The objection should include the statement that “the official receiver
has only just commenced their duties as liquidator and the company will continue to
be in “operation” until its winding-up is complete”. The official receiver may include
any other relevant matters, for example where the company is still trading. See
chapter 54 for further details and chapter 54 Annex 5 for a suggested letter of
objection.
If it is more than six weeks since the notice for compulsory strike-off was Gazetted
(GAZ1) (check the company’s record at Companies House for this date), the official
receiver should telephone the Companies House dissolution team on 0303 123 4500
and ask them to put a two week hold on any dissolution action whilst the objection is
dealt with.
2.25 Restoring the company to the register
If a company has been dissolved prior to the presentation of the petition it is normal
practice for the petitioning creditor to seek an order for the restoration of the
company to the register together with the winding-up order. This is referred to as a
“double-barrelled” order. Paragraph 2.33 provides guidance in those cases where
the petitioning creditor does not obtain a “double-barrelled” order. Chapter 54
provides general advice on dealing with dissolved companies.
2.26 Incorrect registered office
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Where the registered office address of the company is incorrect the official receiver
should proceed with the winding up of the company as if the correct address had
appeared in the petition. If any director or member of the company claims that the
company was unaware of the petition because it was served at the wrong registered
office they should be made aware of the provisions of rule 12.59 so that an
opportunity is given for an early application to court for the rescission of the order.
The official receiver should read the separate relevant guidance where they become
aware an application for a stay of proceedings or a rescission has been, or is likely to
be, made.
2.27 More than one order made against same
company
The official receiver may find that a winding-up order has been made against the
same company either in the same, or a different, court. Once the initial winding-up
order has been made, irrespective of the date of the petition, the leave of court is
required before a valid second order can be made 1. After confirming that leave of
the court has not been obtained the official receiver should ask the petitioning
creditor of the second winding-up order to apply to the court for a rescission of the
order, which must generally be made within 5 working days of the order, or a stay of
proceedings 2. The application to court should request that the petition costs be an
expense in the previous winding up.
1. Section 130 (2)
2. Section 147 (1) and Rule 12.59
2.28 Where the petitioning creditor does not
make an application
If the petitioner is unwilling to do make an application to rescind the order or stay the
proceedings, the official receiver should make the application for a stay. The
application should be supported by a report asking for an order for the payment of
their costs, including the administration fee. It is anticipated that the costs will be paid
by the petitioner. Where the court does not make such an order any debit balance
will have to be written off.
2.29 Correct title to be used on notices and
correspondence
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Once the official receiver is satisfied that the details of the company on the winding-
up order are correct they should ensure that all notices, letters, etc. issued clearly
state that the company is in liquidation. Letters should begin RE [name of company]
Limited (IN LIQUIDATION) 1. Where the official receiver is liquidator of a company
which is also in administrative receivership any correspondence should state that the
company is in administrative receivership. 2
1. Section 188 (1)
2. Section 39 (1)
Initial action - Companies House
2.30 Filing a copy of the sealed winding-up
order
The court must deliver two sealed copies of the winding-up order to the official
receiver. The official receiver is required to send a copy of the sealed order to the
registrar of companies for filing on the company register 1. The copy of the sealed
winding-up order should be accompanied by the ISCIS form NOTCH. Before sending
the winding-up order to Companies House it is important to check that it contains the
company’s registration number and that the company name is correct. When
sending the order it must be accompanied by the ISCIS form NOTCH with the
company’s registration number correctly entered.
1. Section 130(1)
2.31 Filing a copy of the winding-up order
without its registered number
Where the official receiver returns the order to the court for the addition of the
registration number a copy of the order may be sent to the registrar of companies
with the NOTCH form. The company’s registration number may be handwritten on
the order and must be entered on the NOTCH form. The official receiver should
ensure that the photocopy of the order and the NOTCH form contain the correct
address and registration number of the company against which the winding-up order
was made.
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2.32 Winding-up order and order to restore
the company to the register
A winding-up order may be made which contains an order for the company to be
restored to the register (see paragraph 2.25). In these cases the official receiver
must file a copy of the sealed order with the registrar of companies. Once a sealed
copy of the winding-up order has been filed with the registrar the company will be
deemed to have continued in existence as if its name had not been struck off the
register 1.
1. The Companies Act 2006 section 1032 (1)
2.33 Where a company has been dissolved
before the winding-up order
If the official receiver becomes aware that a company was dissolved before the
winding-up order was made, they should take no further action to protect or deal with
assets and should not interview the directors or take steps to complete the normal
formalities of the liquidation. The official receiver should ensure that the company
has been dissolved, rather than merely “struck off”. The official receiver should
immediately contact the petitioner’s solicitors notifying them that the company has
been dissolved, giving the date of dissolution and stating that there is no action that
the official receiver can take or proposes to take until the company has been
restored to the register. The initial contact with the petitioner’s solicitors should be by
telephone followed by confirmation of the telephone conversation in writing. See
paragraph 2.24 for action to take where the company is in the process of
dissolution, Additionally, chapter 54 provides further advice on the options available
to the official receiver where a company has been dissolved, either before or after
the making of a winding-up order.
2.34 Ensuring the NOTCH form is completed
correctly
The official receiver should ensure that the ISCIS form NOTCH is properly
completed in particular ensuring the company registration number is the same as
that which appears on the winding-up order.
2.35 The Service’s arrangement with
Companies House to rectify errors
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The Insolvency Service has an arrangement with Companies House to rectify any
mistakes. The official receiver should exercise proper care and attention in the
submission of documents for filing as these arrangements are intended to correct an
occasional mistake. The official receiver can make use of this arrangement in the
circumstances listed in paragraphs 2.36 – 2.41, Companies House can be contacted
by email at enquiries@companieshouse.gov.uk or by phone on 0303 123500. Where
a company in liquidation is in the process of being dissolved the guidance in chapter
54 should be followed.
2.36 Companies House files the document on
the wrong company file
The official receiver may have correctly completed all the filing documents and
Companies House has filed the document on the wrong company file. In this
instance Companies House have agreed to remove the document and place it on the
correct company file without the need of a court order. Where the document was
filed in error because of a mistake by the official receiver an order of court will,
generally, be required to move the document to the correct company file.
2.37 NOTCH form not completed correctly
Where the name and number of the company on ISCIS form NOTCH does not
match and it is clear from the winding-up order that a clerical error has been made
Companies House will remove both documents on request. Both documents will be
returned to the official receiver who will then be responsible for resubmitting them
correctly. In most cases the official receiver will enter the correct company
registration number on the ISCIS form NOTCH.
2.38 Other discrepancies between the
company name and number
There may be a mismatch between the company name and the company registration
number that is not due to clerical error, for example, where the company’s name is
changed after the winding-up petition has been presented to the court, and the name
has not corrected before the making of the order. The official receiver should rectify
any discrepancies before filing the winding-up order and ISCIS form NOTCH at
Companies House.
2.39 Dissolution and delays in filing the
winding-up order
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Where the official receiver is unable to file the winding-up order, neither Companies
House or its users will be aware that the company is in liquidation. As a result the
company is susceptible to being struck off the Register of Companies and dissolved
under section 1000 of the Companies Act 2006. Where this action is in process the
official receiver should send Companies House a letter of objection to the dissolution
by email to enquiries@companieshouse.gov.uk. Any action to dissolve the company
will be evident by checking the information on the company’s file at Companies
House.
2.40 Confirmation that the winding-up order
has been correctly filed
At an appropriate time in the conduct of the case, perhaps at the stage when the
ISCIS conduct assessment tab is completed, the official receiver should check the
Companies House file to ensure that the liquidation is recorded. If not, action should
be taken to rectify the situation by the re-submission of the ISCIS form NOTCH and
the winding-up order.
Notices to be issued and actions to be
taken immediately
2.41 Introduction
The following paragraphs cover the actions the official should take together with
what notices should be issued either immediately, or within 24 hours, upon receiving
notification of a winding-up order.
2.42 Notice to the official receiver of a
winding-up order
The court is required to give notice forthwith to the official receiver on the making of
a winding-up order 1.
1. Rule 7.21
2.43 High Court and District Registries
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The above courts provide the Petitions and Transfers Team with a list showing the
result of the hearings of winding-up petitions. Where a winding-up order is made the
Secretary of State appoints the appropriate official receiver as official receiver for the
insolvency proceedings 1. The Petitions and Transfers Team notify the local official
receiver of the order and enclose a copy of the official receiver’s appointment by the
Secretary of State.
1. Section 399 (6)(a)
2.44 Other County Courts
Official receivers should monitor the progress of petitions in their local courts. By
following the progress of each petition it can be ensured that timely notice of the
making of a winding-up order is received.
2.45 Receipt of a notice of a winding-up order
Notice of a winding-up order from either the Petitions and Transfers Team or the
local court provides sufficient authority for the official receiver to proceed until they
receive copies of the actual winding-up order. The notice allows the official receiver
to carry out their statutory functions such as advertising and Gazetting the order (see
paragraph 2.64).
2.46 Correct title to be used on notices and
correspondence
Once the official receiver is satisfied that the details of the company on the winding-
up order are correct they should use the correct title on all notices and
correspondence.
2.47 Contacting the petitioning creditor’s
solicitors
On receiving notice of the winding-up order the petitioning creditor’s solicitors should
be asked, initially by telephone, whether there are any matters, other than those
referred to in the petition, to which the official receiver’s attention should be drawn.
The standard letter (PSOL) should be sent out to the petitioner’s solicitors as part of
the initial notices.
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2.48 Petitioning creditor’s solicitors: copy of
the petition, etc
The solicitors should also be asked to provide, without charge, a spare copy of the
petition (except in High Court cases where the petition can be obtained through the
CE file) and supporting affidavits or witness statements. They should also be asked
to confirm whether the petitioner is registered for VAT. Further details on the
provision of information by HM Revenue and Customs can be found in chapter 22.
2.49 Petitioning creditor’s solicitors:
information about the company
The petitioning creditor’s solicitors may be able to provide information on:
•
whether the company is continuing to trade
•
the company’s solicitors or accountants
•
the names of the company’s officers or any staff such as managers with whom
they or their client’s dealt
•
if contact with the company officers has been made
•
whether they have had other contact with the company recently
•
how any recent contact was made
•
the trading address, the petitioner may have supplied goods to this address if a
trade creditor
•
any possible assets
•
any bank accounts
•
any other known creditors
•
the trading activities of the company
•
any previous insolvency proceedings such as voluntary liquidation
2.50 Petitioning creditor’s solicitors: further
information
If the petitioning creditor’s solicitors only provide limited details about the company,
they may be able to provide details for a contact for their client who could provide
additional information.
2.51 Companies House searches
The official receiver should, in the first instance, carry out a search of the information
available at no cost from Companies House in order to establish details of the
company and its officers. A search should be conducted to obtain details of the
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current company officers, copies of the annual returns and most recent accounts and
where held details of persons of significant control. Older annual returns may also
contain directors’’ dates of birth. Copies of the most recent accounts and, if relevant,
Annual Returns should be downloaded and copies saved to the case fileplan.
2.52 Equifax Optima searches
The Optima report [found within the “Commercial Report” section] should only be run
when the required information cannot be obtained free of charge from Companies
House. ORS is only budgeted to run such reports in around 10% of new cases.
2.53 Equifax advanced searches
The Advanced Searching tool within Equifax can be used to help trace company
officers, in conjunction with other intelligence tools, for example other directorships of
the company officers can be obtained via the simple Director search facility in both
Companies House and Equifax. In addition in a limited number of cases the URA
(Usual Residential Address) search tool can also be used. Under no circumstances
should a full investigation report be run against a company officer unless they are
also bankrupt.
2.54 Initial enquiries – Generally
The official receiver should attempt to contact those persons having knowledge of
the company’s affairs, usually, but not exclusively, the officers of the company. If
possible this contact should be made within 24 hours of the office receiving
notification of the order, if not it must be made within 48 hours.
2.55 Initial enquiries – Information to be
obtained
The purpose of the official receiver’s initial enquiries is to:
•
establish whether there is any continued trading activity and the nature of the
assets
•
to preserve the estate, which includes ensuring that assets are adequately
insured, disposing of perishable or other goods likely to fall in value and
protecting the estate from possible third party claims where the public could be
at risk
•
to decide at an early a stage as possible whether investigation work is needed
•
to locate, safeguard and collect books and records relating to the company’s
affairs
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2.56 Inspection
In the initial period after the making of a winding-up order the official receiver should
decide whether an inspection is required. Chapter 11 details the circumstances in
which an inspection should be carried out and contains further information relating to
inspections generally.
2.57 A trading company
Where the official receiver’s enquiries establish the company is continuing to trade
immediate action should be taken. The official receiver will need to decide whether
the business of the company should be continued. In most cases the official receiver
will cause the company to cease trading and notify the employees that a winding-up
order has been made and what its effects are. Further information on the effects of a
winding-up order is contained in chapters 58 and 11.
2.58 Re-direction of the company’s post
The official receiver should instruct Royal Mail to re-direct the mail addressed to the
company to themsleves. Initially the re-direction should be for a three month period.
A separate request must be made for every address (e.g. both the registered office
and any trading addresses) together with a separate one for any trading name at
each address unless they are multiple occupancy addresses (see paragraph 2.62).
2.59 Re-direction – Consent of administrative
receivers and liquidators
Where an administrative receiver or liquidator is in office the official receiver should
ask whether they have any objections to an order re-directing the company’s post.
The official receiver should not proceed unless the administrative receiver or
liquidator agrees to the re-direction. If the administrative receiver or liquidator
subsequently agrees to the re-direction and the official receiver’s enquiries are still in
their early stages an application to re-direct the post should be made.
2.60 Application for postal re-direction
The Royal Mail’s re-direction form or ISCIS word template form REDLPO (Company
version) should be sent directly to The Royal Mail Redirection Centre, Trent House,
Media Way, Stoke on Trent, ST1 5ST. Royal Mail will invoice the Insolvency Service
directly and redirection cost is covered by the Administration Fee.
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2.61 Postal redirection - TNT
TNT is now delivering post in Manchester, Liverpool and some areas of London.
TNT cannot re-direct post but if they are notified by the official receiver that there is a
re-direction in place with Royal Mail they will divert all post for that address into the
Royal Mail delivery system. This is known as an “extraction service”. TNT deliver and
the extraction service is available for addresses in the following postcodes;
•
London: E, EC, W, WC, and SW prefix
•
Harrow: HA and NW prefix
•
Manchester: M prefix
•
Liverpool: L prefix
When an application is made for the extraction service, TNT will remove the address
from their service area and divert all post for that address to Royal Mail who will
deliver in accordance with the re-direction. There is no charge for the extraction
service. In areas in which TNT deliver post a re-direction from Royal Mail should be
requested using the ISCIS word template REDLPO(Company version). Once the
REDLPO has been sent out the ISCIS word template TNTES (TNT Extraction
Service Letter) should be completed requesting the extraction service on the same
address and e-mailed to tntpostdelivers@tntpost.co.uk. TNT will arrange the
extraction within 15 days of the request.
2.62 Application for postal re-direction –
Multiple occupancy premises
Due to operational problems and cost Royal Mail operate a policy of not re-directing
post from multiple occupancy premises or addresses which share the same delivery
point for a number of companies, for example, an accountancy firm or solicitor’s
office. If the official receiver is in any doubt about whether the premises are multi-
occupancy they should check with the Royal Mail Redirection Centre, telephone
03457-777888.
2.63 Royal Mail re-direction service
Where a re-direction of a company’s post is not possible due to multiple occupancy
Royal Mail offer an alternative ‘diversion’ service. This operates in a similar way to
re-direction but currently has no restriction on diverting mail from multiple occupancy
premises. This service currently costs £1,140 for 3 months and £3,300 per year.
Details of this diversion service can be obtained from Royal Mail. Due to the cost this
service should only be used in exceptional circumstances.
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2.64 Publishing the order in the London
Gazette
On the making of a winding-up order the official receiver is required to publish notice
of the order in the “London Gazette” (more commonly referred to as the Gazette).
The official receiver should have checked the order against the ISCIS file name to
ensure that it is correct. Publication in the Gazette is carried out automatically after
the ISCIS Gazette screens have been completed (see chapter 5). If the order of the
court is varied or a mistake has been made it is the responsibility of the official
receiver to ensure the varied order or retraction is published in the Gazette (see
chapter 5) and that all the relevant ISCIS screens are updated.
2.65 Advertising the order more generally
The official receiver may (in addition to publication in the London Gazette) advertise
the order in such manner as they think fit. The official receiver does not have to
further advertise the order if they do not believe it is necessary. See chapter 5 for
guidance on exercising this discretion. 1. Further general information on procedures
for advertising the order in the Gazette and/or more widely are contained in chapter
5.
1. Rule 7.22(4) and 7.21(5)
2.66 Stay of advertisement or stay of
proceedings
Where an application for a stay of advertisement or stay of proceedings is granted,
reference should be made to chapter 5 and chapter 8 as to the extent of action to be
taken by the Official Receiver.
2.67 Service of the winding-up order
The court should deliver two sealed copies of the winding-up order to the official
receiver. On receipt of the orders the official receiver must serve a sealed copy of
the order on the company by first class post. The order can be served at the
company’s registered office (if any) or at its principal place of business.
2.68 Notice to the local court - High Court and
District Registry cases
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The company may be a party to legal proceedings that the official receiver is
unaware of. They should consider sending a form NORD1 to the local county court
where the winding-up order is made in the High Court or one of the District registries.
The notice should be sent within 24 hours of the making of the order by first class
post, DX, fax and/or e-mail.
2.69 Notice to the court and other parties -
Legal proceedings pending
Where, at the date of the winding-up order, the company is known to be a party to
legal proceedings other than the winding-up proceedings, the official receiver should
notify the court(s) and other parties as a matter of urgency (case numbers or other
court references should quoted, if known) using the form NORD1, amended as
appropriate (see following paragraph). The notice should be sent to the court(s) by
recorded delivery within 24 hours of the making of the order, or a faster method such
as fax, e-mail or DX, if a more urgent delivery is required.
2.70 Contents of the notice to court - Legal
proceedings pending
The notice should draw the attention of the court to the provisions of section 130(2)
of the Insolvency Act 1986. This section states that where a winding - up order has
been made no action or proceeding shall be proceeded with against the company, or
its property, except by leave of the court and subject to such terms as the court may
impose. On receiving notice the court may dismiss, stay or adjourn such
proceedings. The court should be made aware of the legal effects of the winding-up
order, particularly with regard to any assets which form part of the estate. The official
receiver is responsible for dealing with, or protecting, these assets pending the
possible appointment of another liquidator.
2.71 Immediate notice of the winding-up order
The official receiver should give immediate notice of the winding-up order to any
relevant Insolvency Practitioner, trade supplier and charge-holder (see following
paragraphs). The notice should be initially made by telephone and followed up by
first class mail or any alternative which is either faster, or more cost effective, for
example by fax, e-mail or DX. The notice should include any references where
available. If the notice cannot be given within 24 hours of the making of the order it
should be made as soon as possible thereafter.
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2.72 Notice to an appointed/previously
appointed insolvency practitioner
The official receiver should give notice of the winding-up order to any voluntary
liquidator (ISCIS word template form NTVL), administrator (ISCIS word template
form ADMLTR), administrative receiver (ISCIS word template form ADMREC) or
supervisor of any company voluntary arrangement (ISCIS word template form
LSUPAD).
2.73 Notice to trade suppliers
The official receiver should send notice (form NORD1) to any potential supplier of
goods to the company in order to stop delivery.
2.74 Notice to charge-holders
The official receiver should send notice (ISCIS word template form NLC) to any
holder of a fixed or floating charge over the company’s property.
2.75 Notices to be issued within 24 hours, or
shortly after, of the order
After making the initial telephone enquiries the official receiver may be able to send
notice of the winding-up order to a limited number of people, such as the company’s
accountants and solicitors, local courts, etc. Once additional information has been
obtained, for example after interviewing the director(s) or from third parties, the
official receiver should be in a position to send out further notices of the order. The
type of companies, people and organisations that common and less common notices
should be sent to are found later in this guidance.
2.76 VAT number
When the VAT number is known it should be entered into ISCIS. When a VAT
number is entered onto a case on ISCIS it will be automatically uploaded onto
various documents, including the report to creditors and the IP report on handover
(IPROH). It is important to ensure that any VAT number entered onto ISCIS is the
correct one for the insolvent. The VAT number should only be entered onto ISCIS
where it has come from a reliable/trustworthy source, which would include the
petition, the insolvent, the insolvent’s accountant, HMRC or where it has been
extracted directly from the insolvent’s books and papers. When there is any doubt as
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to the validity of the VAT number, for example where the number has been supplied
by a third party such as a creditor, it can be checked
Initial action - Company officers
2.77 Bankruptcy searches
When the official receiver has found the names of officers of the company, they
should search the case management system to see whether they have previously
been made bankrupt and/or subject to a bankruptcy restriction order or bankruptcy
restriction undertaking, thereby preventing them from taking part in the management
of a company’s affairs 1. restriction orders and bankruptcy restriction undertakings
are recorded and can be searched on the Electronic Individual Insolvency Register.
1. The Company Directors Disqualification Act 1986 section 11
2.78 Disqualification searches
The official receiver should also make a search of the register of disqualified
directors to see whether any of the company directors are subject to a
disqualification order or disqualification undertaking. The registrar of companies is
responsible for maintaining the register of disqualified directors, which details of all
disqualification orders and undertakings made in England and Wales currently in
force. Disqualification orders made in Scotland and Northern Ireland are also
registered with the registrar of companies. The register of disqualified directors also
records details of those directors who have obtained permission from the court to
continue to act as directors following an application made under section 17 of the
Company Directors Disqualification Act 1986.
2.79 Director’s service addresses
The Companies Act 2006 allows the director(s) and company secretary, if any, to
provide the registrar of companies with a service address and a residential address
(which may be the same address). The service address will appear on the public
record and the residential address will be held on a private register only available to
predetermined organisations. This will include specified public bodies for carrying out
their public functions (including the official receiver), credit reference agencies for
vetting applications for credit associated work and to meet obligations regarding
money laundering regulations.
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2.80 Credit reference agencies and
Confidentiality Orders
Credit Reference Agencies will not be able to obtain the usual residential address of
any director who is the beneficiary of a valid Confidentiality Order which was in force
at 30 September 2009 1. A Confidentiality Order would have been obtained under
legislation enacted prior to the Companies Act 2006 and subsequently repealed. It is
expected that over time the number of valid Confidentiality Orders will diminish,
however Annex A provides additional information on Confidentiality Orders if
required.
1. The Companies (Particulars of Usual Residential Address) Confidentiality Orders) Regulations 2002
2.81 Credit reference agencies and service
addresses
If a director is at serious risk of violence or intimidation, or is employed by a relevant
organisation, for example, the director may apply to the registrar of companies
(acting on behalf of the Secretary of State) under section 243(4) Companies Act
2006 for their usual residential address not to be disclosed to Credit Reference
Agencies 1. The relevant organisations are the Government Communications
Headquarters, the Secret Intelligence Service, the Security Service or a police
force 2. If these circumstances apply the director’s residential address would still be
available to the official receiver.
1. The Companies (Disclosure of Address) Regulations 2009 Regulation 5
2. The Companies (Disclosure of Address) Regulations 2009 Regulation 1
2.82 Publication of residential addresses by
the registrar of companies
If the service address is found to be ineffective the registrar of companies has the
power to ban the use of that address and to place the residential address of the
director concerned on the public register.
2.83 Company officer in prison
The official receiver may discover that a company officer who is required to attend
for interview is in prison, but their location is unknown. The official receiver should
contact HM Prison Service, Prisoner Location Service, by e-mail. The e-mail should
contain the full name of the person subject to the enquiry, any other names by which
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they may have been known, date of birth and reason for the enquiry. The e-mail
address is prisoner.location.service@noms.gov.uk. If the official receiver needs to
follow up the e-mail by letter, the address can be found in Annex B. Further
information and guidance on interviewing a person in prison can be found in chapter
17.
2.84 Telephone contact with a company officer
in prison
It should be noted that the possession and use of mobile phones by prisoners is a
criminal offence 1. The Law Society has issued guidance to solicitors which points
out that it may be a criminal offence for a person to contact a prisoner on a mobile
phone. Under no circumstances should a prisoner be contacted within a prison by
telephoning, emailing or texting a mobile phone. Where a prisoner telephones from
within a prison and it is established that they are using a mobile phone the caller
should be informed that they are committing an offence and that any such calls will
not be accepted. The call should then be terminated.
1. The Prison Act 1952 section 40D (as amended by Crime and Security Act 2010 s45)
2.85 Initial telephone contact with company
officers
Once the official receiver has obtained the names and addresses of the company
officers they should in the first instance contact the company director(s). It may be
necessary to contact the company secretary, if appointed, at a later date. The
telephone numbers of the company officers may sometimes be obtained from the
internet, from documents filed at Companies House; or from third parties such as
accountants, solicitors, insolvency practitioners. The director(s) should be
telephoned, where possible, within 24 hours of receiving written notification of the
order.
2.86 Objectives of the initial telephone contact
The aim of the initial contact with the company officer(s) is to obtain sufficient
information to determine whether the company is continuing to trade and to ensure
the official receiver is able to protect the estate and minimise any risks. The initial
contact should not repeat the questions in the PIQC. The initial contact may help
future co-operation with the company officer. Where the official receiver has not
arranged collection of the company’s accounting and financial records the company
officer should be asked to arrange their delivery. The initial enquiries should be
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completed on form IEC. After completing these enquiries the official receiver should
send an appointment letter (ISCIS form NTCO) to those company officers who are
required to attend upon the official receiver for interview.
2.87 Accounting records
The official receiver should identify the whereabouts of the company’s accounting
and statutory records promptly either from a company officer or other sources such
as accountants, solicitors etc. The official receiver should then arrange for their
collection or delivery within 10 working days of the order.
2.88 No initial telephone contact with the
company officers
If immediate telephone contact is not possible, a letter, (ISCIS form NTCO), should
be sent within two working days of the official receiver receiving notification of the
winding-up order to the director(s) of the company requiring that they attend upon
the official receiver for interview. The official receiver should make further attempts to
make telephone contact with the company officer(s) by calling at different times of
the day.
2.89 Company officers – First appointment
letter
The appointment letter (ISCIS form NTCO) should include the preliminary
information questionnaire (PIQC), an extract of section 216 of the Insolvency Act
1986, an ethnic monitoring form and a map showing the location of the official
receiver’s office, parking facilities and the nearest public transport. The appointment
letter informs the director that our guide for directors is available on our website If the
director requests a hard copy of the leaflet this can be provided.
2.90 Company officers – “In-aid” interviews
In some cases the official receiver may need to interview a company officer who
resides outside their area. Where the case is not suitable to be transferred to the
other office it may be necessary for the local official receiver to conduct the interview
and obtain any necessary information. This is referred to as an “in-aid” interview.
2.91 Company officers – No interview to be
fixed
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A letter (ISCIS form NTCO) should be sent to the company officer(s) not immediately
required to attend for interview. The letter will make them aware of their duty to co-
operate with the official receiver. The letter asks the company officer to contact the
official receiver if there are any matters they wish to draw to the official receiver’s
attention or if they are in possession of any company assets, accounting records or
other documents.
2.92 Non co-operation by company officers
If a company officer does not co-operate, for example they do not attend for
interview, the official receiver should consider making an application to the court for
a public examination of the person concerned 1. Further information on public
examinations can be found in chapter 20. Other methods of enforcing co-operation
can be found in chapter 19.
1. Section 133(1)
2.93 Further information on dealing with
company officers
Chapter 15 provides further information on the aims and conduct of the official
receiver’s enquiries including guidance on conducting preliminary enquiries and
advice on interviews. Further information on the conduct of interviews and taking
statements is found in chapter 17.
Case administration
2.94 Electronic case files
The official receiver is required to keep a case file in respect of each liquidation. The
electronic file for each case is maintained on Wisdom and is divided into 7 parts. The
papers are filed in each section as follows:
•
Part 1 Preliminary investigation papers
•
Part 2 Court documents
•
Part 3 Statutory notices
•
Part 4 Correspondence
•
Part 5 Meetings, RTCs, notices
•
Part 6 Case Assets
•
Part 7 Closing, IP Handover
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Also see the filing code of practice
2.95 Trade classifications
The official receiver should establish the nature of the company’s business to enable
the trade classification to be entered on ISCIS. The information is used to collate
statistics on compulsory liquidations nationally.
2.96 Statement of affairs
The official receiver must decide whether to require the preparation of a statement of
affairs for the company 1. A statement of affairs would not normally be required
before the first interview with the company officer(s). More generally the information
supplied in form PIQC relating to assets and liabilities will be sufficient for the official
receiver’s enquiries. If the company has been subject to earlier insolvency
proceedings a statement of affairs may have been prepared in relation to those
proceedings. See chapter 18 for further information on statement of affairs.
1. Section 131
2.97 Completion of ISCIS Conduct Assessment
tab
It is expected that 80% of the ISCIS conduct assessment tabs will be submitted
within 56 daysfor self signed cases and 80% of cases not self signed will be
submitted within 90 days for the winding up order. For further information on
completing the ISCIS conduct assessment tab see chapter 15.
2.98 Report to creditors and contributories
The official receiver shall, at least once after the making of the winding-up order
issue a report to creditors (RTC) 1. The RTC will be prepared from information from
the company’s officers and various third parties, such as crown departments,
solicitors, accountants, trade creditors, etc. It is expected that 90% (2018/2019
target) of reports to creditors and contributories (RTCs) will be submitted within 15
calendar days of an attended interview or the case being marked as non-compliant.
Further information relating to the report to creditors can be found in chapter 46.
1. Rule 7.48
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2.99 Provision of information to creditors in
other EU states
When a winding-up order is made the court and/or the official receiver is under a
duty to inform known creditors who have their habitual residences, domiciles or
registered offices in other EU member states by individual notice of the
circumstances and rules under which they may lodge claims 1. The notice must
comply with rules regarding the language requirements of the notice 2. The official
receiver should send the ISCIS word template form NORD1EU.coy to all the
creditors identified as being resident in other EU member states at the initial notices
stage.
1. The EC Regulation on Insolvency Proceedings 2000 Article 40
2. The EC Regulation on Insolvency Proceedings 2000 Article 42
Common notices to be issued and actions
to be taken
2.100 Solicitors/Accountants – notice and
collection of records
The company’s solicitors and accountants should be sent the form NORD2 which
asks, amongst other things, for details of all books, documents, papers, etc. in their
possession relating to the company’s affairs. Arrangements should be made for the
delivery or collection of any accounting records, statutory books or other papers
within 10 working days of the order. The official receiver should issue a receipt to the
solicitors or accountants. See chapter 16 for further information.
2.101 Solicitors/Accountants - Lien
unenforceable re records
If the solicitors or accountants attempt to claim a lien on the company’s records, it is
unenforceable and reference should be made to chapter 12 and chapter 16. For
information and advice on steps to take in the event of an un-cooperative solicitor or
accountant, please see chapter 19 and chapter 22.
2.102 Banks – Initial notice
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The official receiver should notify the company’s bank as soon as practically possible
(and certainly within five working days of the winding-up order) and should do so as
soon as they obtain the bank’s full address and account numbers. If the bank is
informed promptly this may prevent any unauthorised withdrawal of funds by the
directors. The official receiver should send the notice BANK3 to the company’s
bankers. The letter provides a number of options for the official receiver to complete
when dealing with company account(s).
2.103 Banks – Telephone enquiry
Banks will not normally provide any information concerning the company’s account
over the telephone. The bank may not even confirm that an account is held without
being contacted by letter. In cases of urgency, a bank may provide information after
receiving a faxed notification of the order. In some cases the bank may be willing to
accept a scanned copy of the order sent by email.
2.104 Banks – Charge over the company’s
property
It is important that the official receiver establishes early contact with the bank where
the bank holds a charge over the company’s property. The official receiver should
establish, as soon as practicable, whether the bank intents to appoint a receiver. The
official receiver should also read paragraph 2.116 as the bank may have a charge on
the company’s book debts.
2.105 Banks – Dealing with credit balances
Where the bank holds a credit balance (after taking in account any right of set-off)
the official receiver should take a practical approach. The cost of the effort made
should not be more than the amount realised. If the credit balance (or the sum of
balances with one bank) is £50 or less, the ISCIS notice BANK3 should be sent
asking for the balance to be paid to the official receiver. The notice should be
followed up by a telephone call and no more than one further follow-up letter. Where
the credit balance exceeds £50, the official receiver should use their discretion as to
the effort required from their staff to collect the monies. chapter 33 provides further
information on the realisation of cash at bank.
2.106 Fixed charges
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The official receiver should write to any creditor holding a fixed charge, including a
mortgagee informing them of the winding up order and seeking the following
information:
•
the amount outstanding
•
the property covered by the charge or mortgage
•
details of any other security held
•
details of any insurance covering the charged property
•
details of any company bank account of which the charge-holder or mortgagee
is aware
The official receiver should follow up on the receipt of this information. This may help
the official receiver protect the company’s interest in the charged asset. After
confirmation that the charged or mortgaged asset belongs to the company early
enquiries into its value should be made.
2.107 Fixed and floating charges – Possession
proceedings
Where any action under a fixed and/or floating charge, for example possession
proceedings, is pending when a winding-up order is made, the official receiver
should inform the solicitors for the charge-holder or mortgagee of the order. The
charge-holder or mortgagee can then consider making an application to the court for
leave to proceed with the action 1.
1. Section 130 (2)
2.108 Employees
Where the company has employees the official receiver will generally terminate
employment with effect from the date of the order. The official receiver should notify
Redundancy Payments Services (RPS) of the insolvency using the RP20 template.
On receipt, RPS will set up the OR case on their system which will generate a
unique reference number and email the official receiver a spreadsheet for
completion. The official receiver should complete with details of all employees who
may have a claim for wages, holiday pay or payment in lieu of notice. RPS will then
send out the EMPLET (employer letter) to all employees and provide copies to the
official receiver which should then be uploaded to the file plan. Additional information
can be found in chapter 11.
2.109 Pension schemes
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A company or partnership against whom a winding-up order is made may operate an
occupational pension scheme for the benefit of employees. The official receiver has
a statutory duty to send notice of an “insolvency event” to The Pension Protection
Fund (see paragraph 2.111), The Pensions Regulator (see paragraph 2.112) and the
pension scheme trustees and/or managers (see paragraph 2.113) 1. The notice is
referred to as a “section 120 notice”. Chapter 57 provides further advice on pension
schemes.
1. The Pensions Act 2004 section 120
2.110 What is an ‘insolvency event’?
An ‘insolvency event’ with regard to companies and partnerships are defined in
sections 121(3) and (4) of the Pensions Act 2004. The ‘insolvency events’ which the
official receiver is required to provide notification to the relevant bodies in addition to
the making of a winding-up order are as follows;
•
the submission by a nominee of a report stating that meetings should be called
to consider proposals for a voluntary arrangement (in relation to a company,
partnership or individual)
•
the making of equivalent orders in relation to certain types of entity (relevant
bodies) which have their own insolvency regime. The relevant bodies as
scheduled in Regulation 5(2) of the Pension Protection Fund (Entry Rules)
Regulations 2005, are:
•
a credit union
•
a limited liability partnership
•
a building society
•
a person who has permission to act under Part IV of the Financial Services and
Markets Act 2000
•
the society of Lloyds and Lloyds members
•
a friendly society
•
a society which is registered as an industrial and provident society
The appointment of a provisional liquidator is not an insolvency event and notification
will only be required if a winding-up order is eventually made. The change of an
office-holder in the same procedure, such as the handing over of a case to an
insolvency practitioner, does not need to be notified.
2.111 The Pension Protection Fund
The official receiver is required to give notice to The Pension Protection Fund within
14 days of the ‘insolvency event’, or, after this time limit, within 14 days of becoming
aware of the pension scheme. The address of The Pension Protection Fund is
Renaissance, 12 Dingwall Road, Croydon, Surrey, CR0 2NA. Their telephone
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number is 0345 600 2541. Their e-mail address is information@ppf.gov.uk. Please
see The Pension Protection Fund for further details.
2.112 The Pensions Regulator
The official receiver should send notice to The Pensions Regulator at the same time
to The Pensions Regulator, whose address is Napier House, Trafalgar Place,
Brighton, BN1 4DW. Their telephone number is 0345 600 0707 Their e-mail address
is customersupport@tpr.gov.uk. Please see The Pensions Regulator for further
details.
2.113 The pension scheme trustees or
managers
The official receiver should also send notice to the pension scheme trustees or
managers. This information should be supplied by the company officers,
accountants, solicitors or be found in the company’s records.
2.114 Third parties holding company property
The official receiver should send notice to any person holding or thought to be
holding any property of the company (including assignees of book debts or any other
assets) to prevent assets being disposed of. If the assets are believed to be in
jeopardy, they should be promptly collected. Where the company has assets that
have been pledged or pawned reference should be made to chapter 25.
2.115 Insurers
Where the company has any current insurance cover the official receiver should
write to each insurance company and/or insurance brokers asking them to provide
details of the existing insurance cover, quoting, when known, policy numbers.
Further information can be found in chapter 14.
2.116 Book debts - Unsecured
Where a company has book debts, which are not subject to a charge at the date of a
winding-up order, the official receiver should instruct their agent “the contractor” to
realise the book debts on their behalf. As the chance of recovering a book debt
diminishes with time the contractor should be instructed as soon as possible even
where an insolvency practitioner is likely to be appointed liquidator at the first
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meetings of creditors and contributories. Chapter 26 provides detailed guidance on
book debts.
2.117 Book debts - Secured
Where any book debts of the company are subject to a fixed charge the official
receiver should make early contact with the charge-holder. The official receiver
should establish who will protect and collect the book debts. In the event that the
charge-holder refuses to collect the book debts the official receiver will instruct the
contractor to collect them in line with paragraph 26.52. Where there is an assignment
of book debts or a factoring agreement, reference should be made to chapter 26
generally.
2.118 Book debts – Phoenix company
The official receiver should be aware that in some cases a phoenix company may be
trading. In these instances they should instruct the contractor to collect the book
debts to prevent the trade debtors making payment to the “live” company. Where the
book debts are secured the official receiver should draw the attention of the charge-
holder to the existence of the phoenix company.
2.119 Landlord
The landlord of any premises occupied or rented by the company should be issued
with the form NTL. The landlord may be a creditor, and the premises may contain
company assets or records. Arrangements should be made for the collection of any
books of account, statutory company records and other company papers at company
premises within 10 days of the making of the order. See also chapter 16 for more
information on obtaining custody of accounting records. Where the landlord has
taken back possession or shows any intention of levying distress, the official receiver
should consult chapter 12.
2.120 Dealing with leasehold property
In the first instance the official receiver should obtain sufficient information from the
landlord and the company officers to enable them to decide whether the lease is of
any value to the estate. The official receiver may then decide to disclaim their
interest in the lease or may require a further valuation prior to its sale. Further
guidance on dealing with leasehold property can be found in chapter 28.
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2.121 HM Revenue & Customs – Tax and
National Insurance
The Insolvency Claims Handling Unit of the HM Revenue & Customs (HMRC) deal
with claims in insolvency proceedings in respect of tax and National Insurance. The
official receiver should ensure that the company’s case name and registered office is
entered onto ISCIS as quickly and accurately as possible. This information is
automatically extracted from ISCIS and sent to the Insolvency Claims Handling Unit
at Longbenton. A paper copy of this information is not necessary. Further information
on direct taxation is provided in chapter 59.
2.122 HM Revenue & Customs – VAT
In the majority of cases dealt with by the Insolvency Service the company will be
registered for VAT. In these cases the official receiver should complete HMRC form
VAT 769 (notification of insolvency – see below) as soon as possible after the
making of the winding-up order. In completing the form the official receiver should
indicate whether deregistration is appropriate. Where possible the VAT number
should be provided, although this should not stop the official receiver completing the
form where it is not known. If the VAT number is not provided HMRC will attempt to
locate the case through its internal searches. HMRC would prefer the VAT 769 to be
sent electronically to reduce the number of forms going astray. Further information
on VAT is provided in chapter 59.
2.123 VAT 769 form
The VAT769 form should be completed and sent to
insolvencyhelpdesk@hmrc.gov.uk. No other notification of the order is required. If
the official receiver cannot send the form by e-mail it should sent by post to HMRC,
VAT Operations Insolvency, 3rd Floor NW, Queens Dock, Liverpool, L74 4AA.
2.124 Contact with Crown Departments
The Insolvency Service has a dedicated intranet page dealing with contact with
Crown Departments. This page includes the partnership agreement with HMRC
amongst other matters.
2.125 Loan creditors
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The official receiver should send ISCIS word template form NLC.coy.Loan to all loan
creditors. The early receipt of this information may assist the official receiver’s
enquiries into the affairs of the company.
2.126 Third party owners – Items on lease,
hire, hire-purchase, etc.
The official receiver should send notice to the owners of any goods or property held
by the company on hire, hire-purchase (form NHP.Coy), lease, on loan, for safety
custody, for repair or otherwise, including suppliers of stock/goods where retention of
title is claimed. The official receiver should follow the guidance in chapter 34 when
dealing with third party goods.
2.127 Credit card companies
The official receiver should send a notice to all credit/charge card companies where
the company held an account. It is also important to give immediate notice where the
company operated a facility for acceptance of payment by credit/charge card for its
goods or services. The official receiver should try to obtain the account numbers
from the company officers or the company’s records before sending the notice.
Generally credit or charge card companies will be unable to trace an account without
the account number(s). Any such notice is likely to be returned requesting the
account number.
2.128 Business rates – Local authority
The official receiver should send a notice to the local authorities where the company
is responsible for the payment of business rates. In some cases where the company
occupies a number of premises this may involve several different local authorities.
The notice should quote the address(es) of the premises together with the reference
number(s) if known. Where the company no longer occupies the premises the local
authority should be informed as it may be the case that no further business rates
may be incurred. If the company owns or leases the premises there may still be a
liability for business rates even if the property is unoccupied.
2.129 Premises licensed to sell alcohol – Local
authority
The official receiver should inform the relevant local authority as soon as possible of
the insolvency of a premises licence holder. Details of the dedicated email address
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and telephone number for licensing notifications can be located on the web site of
the relevant local authority.
Less common notices to be issued and
actions to be taken
2.130 Farmers – Department of Environment,
Food and Rural Affairs
Where the company is or has been concerned in farming or similar operations it may
have been in receipt of a grant or subsidy from the Department of Environment,
Food and Rural Affairs (defra). The official receiver should contact defra to confirm
the current position and whether any monies are due. Any grants and subsidies paid
or payable to the company are dealt with by the Rural Payments Agency at one of
their regional offices. The relevant regional office can be identified through the Rural
Payments Agency. The official receiver could also use the defra helpline number
03000 200 301. Any initial contact should be followed by the official receiver
providing written notification of the winding-up order. Where the official receiver is
aware of the relevant reference number this should be included in the notice.
2.131 Milk producers – Milk co-operatives
Where a winding-up order is made against a dairy farmer the official receiver should
identify the company’s customers. With the demise of the Milk Marque scheme the
company may have a sole supply agreement with one of the diary farmers’ co-
operatives or a commercial milk wholesaler. The most commonly used organisations
are Arla Foods UK Ltd, and Muller UK & Ireland Group LLP. The official receiver
should notify the company’s customer(s) of the winding-up order as there may be
monies due and on-going contractual obligations with regard to current milk stocks.
Some additional information is contained in chapter 34.
2.132 Plant Breeders’ Rights – General
A breeder of any species of plant may apply for Plant Breeders’ Rights which enable
them to charge royalties for protected varieties. The rights cover agricultural,
horticultural and ornamental plants. A Plant Breeders’ Right is a form of intellectual
property and may have a value. Please see Plant Breeders’ Rights and chapter 39
for further information.
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2.133 Plant Breeders’ Rights - Asset in the
proceedings
Where a winding-up order is made against a company or partnership which has
Plant Breeders’ Rights the official receiver should send notice to the British Society
of Plant Breeders Limited, see Annex B for their address. The company or
partnership may be entitled to unpaid royalties in respect of the use of the protected
species. The registered right, and the species it covers, may have a resale value and
be an asset in the proceedings.
2.134 Plant Breeders Rights – A liability in the
proceedings
The official receiver should be aware that in cases involving agricultural merchants,
corn merchants, farmers licenced to deal in plant varieties (for example, seed
potatoes), horticulturalists, etc. there may be a liability for royalties under the Plant
Varieties and Seeds Act 1964. Where a winding-up order is made against such a
company or partnership the official receiver should send notice to the British Society
of Plant Breeders Limited, see Annex B for their address. Unpaid royalties at the
date of the winding-up order will be a debt provable in the winding-up. See chapter
34 for the conditions necessary to sell any seed in stock. If the stock is sold as seed
the royalties due will be an expense of the liquidation.
2.135 Solicitors – Law Society
Where a winding-up order is made against a firm of solicitors the official receiver
should notify the Solicitors Regulation Authority, address as per Annex B.
2.136 Holders of vehicle operators or public
service operators licences
Where the company holds a vehicle operator’s licence and/or public service
operating licence the official receiver should send notice to the appropriate local
traffic area office. The official receiver must also return any licences (see chapter
27). For details of the nearest local traffic area office, contact the Driver and Vehicle
Standards Agency (DVSA) on 0300 123 9000.
2.137 MOT testing centre
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Where the company is authorised to conduct MOT tests, all accountable documents,
including MOT test certificates and documents recording the results of tests
conducted within the preceding 18 months, should be returned to the local traffic
enforcement office. Details of the nearest local traffic enforcement office can be
obtained from the Driver and Vehicle Standards Agency (DVSA)
2.138 Dentists, doctors and pharmacists –
Clinical commissioning groups (CCGs)
CCGs replaced primary care trusts (PCTs) on April 1 2013. Where a winding-up
order is made in relation to the practice of a dentist, doctor or pharmacist in England
notice should be sent to the CCG for the area. Where the official receiver is not
prepared to carry on the business, notice of their intention to discontinue the trading
must also be given to the relevant CCG in England.
In Wales seven Health Boards are responsible for planning and delivering NHS
health services in their geographical areas and should be given notice of Winding-up
proceedings and any discontinuance of trading.
2.139 Dentists and doctors – Private practice
Where a winding-up is made in relation to a dentist or doctor in private practice it is
not necessary to inform the Clinical commissioning group. Where a dental practice is
being wound up the official receiver should notify any health plan company from
which the company receives payments.
2.140 NHS dentists
For every piece of work done by a dentist through NHS practice, they will charge a
fee. That fee will be met partly by the patient and partly by the Dental Services
Division of the NHS. An NHS client will pay up to a maximum of 80% of the fee
charges, depending on their circumstances. In addition, the dentist will be entitled to
claim other reimbursements, depending on the level of their NHS work - for example,
a certain proportion of the business rates paid by the practice or a proportion of the
costs of practice improvements. Each month the dentist will raise the equivalent of
an invoice for the Dental Services Division, who will pay, via a BACS transfer,
monthly in arrears.
2.141 NHS dentists – Collection of monies due
When a winding-up order is made against a company trading as a dentist there may
be money due to the company from the Dental Services Division. The official
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receiver should, in addition to notifying the Clinical Commissioning Group (see
paragraph 2.137), notify the Dental Services Division of the NHS. The notice should
state the name of the company, the date of the winding-up order and ask for details
of the amount outstanding as at that date. The official receiver should ask that any
monies due be held to the order of the liquidator. The address for the Dental
Services Division is shown in Annex B.
2.142 Care or nursing homes
Where the official receiver is dealing with the liquidation of a care or nursing home,
they should contact the local health authority and also the Care Quality
Commission where the home is in England or the Care and Social Services
Inspectorate Wales (CSSIW) where the home is in Wales.
2.143 Building & Civil Engineering (B & CE)
benefit schemes
If the company traded in the building industry, it may have been a member of a
B&CE benefit scheme. These schemes provide holiday pay and retirement benefits
for a company’s employees. B&CE have requested that they be informed of a
winding-up order when the official receiver is dealing with a winding-up order against
a company with a B & CE benefit scheme. The address of B & CE is shown in Annex
B.
2.144 Controlled Waste
A winding-up order may be made against a company which is holding, or has held,
controlled waste. Whilst the company should hold a waste management permit this
may not always be the case. In these circumstances the official receiver should give
notice to the relevant waste regulation authority (which is usually the local authority)
and the Environment Agency.
2.145 Unpaid deposits – Deposit Indemnity
Schemes
In a number of industries schemes are in place to guarantee the deposits paid by a
company’s customers. For example, The Glass and Glazing Federation operates a
Deposit Indemnity Scheme to which double glazing contractors may belong. The
official receiver should confirm from the company officers whether such a scheme is
in operation. They should obtain details of the scheme together with a schedule of
the names and addresses of any of the company’s customers who may have a claim
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under the scheme. This schedule should be provided to the operators of the scheme
as quickly as possible.
2.146 Bookmakers – Gambling Commission
To act as a bookmaker a company must hold an operating licence. In addition the
company may obtain personal licences for its individual representatives. The
Gambling Commission issue and regulate these licences and should be notified of
the making of a winding-up order as they lapse in the event of insolvency. The
official receiver should send notice to the Gambling Commission. The address is
shown in Annex B.
2.147 Bookmakers – Betting premises licence
Where a company trades as a bookmaker from premises it needs to hold a betting
premises licence. A betting premises licence is issued by the local council. A betting
premises licence lapses in the event of insolvency. The official receiver should obtain
the appropriate licences held by the insolvent. The official receiver should notify
the local council of the winding-up order as it may be possible to recover a proportion
of the licence fee from the local council upon surrender of the licence.
2.148 On-course bookmakers
In order to operate at a racetrack bookmakers are likely to hold a specific type of
premises licence, known as a betting premises (track) licence. Such bookmakers are
known as on-course bookmakers. In dealing with this type of bookmaker, the official
receiver should notify the office of the racetrack(s) to which the licence(s) apply of
the making of the winding-up order.
2.149 Bookmakers – HM Revenue and
Customs
The official receiver should inform HM Revenue and Customs when a winding-up
order is made against a bookmaker. The notice should be addressed to: HM
Revenue & Customs, Greenock Accounting Centre (GAC), Custom House, Custom
House Quay, Greenock PA15 1EQ.
2.150 Investment businesses – Regulatory
bodies
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The official receiver should send notice to the relevant regulatory body where the
company is required, by statute, to be licensed to carry on an investment business.
For a list of such business see Annex C.
2.151 Building societies – Financial Services
Compensation Scheme
Where a building society is subject to winding up proceedings, the Financial Services
Compensation Scheme, address shown in Annex B is entitled to receive all notices,
etc. required to be sent to creditors, whether or not the Scheme is a creditor of the
society at the date of the winding-up order.
2.152 Friendly societies, building societies and
the Financial Services Authority
Where a winding-up order is made against a friendly society, building society or an
industrial or provident society the official receiver shall send notice to The Financial
Services Authority (FSA), address shown in Annex B. This notification should be
sent to the Mutual Societies Registration Section of the FSA in place of the Registrar
of Companies (see paragraph 2.30). See paragraph 2.151 for details of other notices
to be sent in respect of building societies.
2.153 Company authorised under the Banking
Act 1987
Where a winding-up order is made against a company or partnership under the
provisions of the Banking Act 1987 the official receiver should send notice to the
Financial Services Authority, see Annex B for the address, and the Financial
Services Compensation Scheme, address also shown in Annex B. The official
receiver, whilst under no statutory obligation, should send to both bodies, notice of
the order. This is because the Financial Services Authority receives notice of the
presentation of the petition and the official receiver must send notice of the first
meeting of creditors to both bodies so for the purposes of continuity notification of
the order should also be sent.
2.154 Consumer credit licence and the
Financial Conduct Authority
Where a winding-up order is made against a company or partnership which holds
authorisation under the Consumer Credit Act 1974 to carry out regulated activity the
--- PDF page 42 ---
official receiver should give notice to the Financial Conduct Authority, see Annex
B for the address.
2.155 Intellectual property - Patents
Where a winding-up order is made against a company or partnership that appears to
have an interest in a patent the official receiver should send notice to the Intellectual
Property Office, address shown in Annex B. For more information on intellectual
property in general see chapter 39.
2.156 Intellectual property - Designs
Where a winding-up order is made against a company or partnership that appears to
have an interest in a patent the official receiver should send notice to the Designs
Registry at the Intellectual Property Office, address shown in Annex B.
2.157 Intellectual property – Trade Marks
Where a winding-up order is made against a company or partnership that appears to
have an interest in a patent the official receiver should send notice to the Trade mark
Registry at the Intellectual Property Office, address shown in Annex B.
2.158 Explosives and firearms
The storage of explosives in quantities of over two tonnes requires a licence from the
Health and Safety Executive. Some explosives in quantities up to two tonnes require
an explosives certificate, such as, blasting explosives or black powder. The
explosives certificate or licence is provided by the local police force. The storage of
explosives not requiring an explosives certificate in quantities of less than two tonnes
is licenced by the local authority (usually the trading standards department), except
for metropolitan counties where the licensing is carried out by the fire and rescue
service. The Health and Safety Executive can provide further information on
licensing requirements. A firearm or shotgun certificate is provided by the local police
force. See chapter 34 for further information on explosives and firearms.
2.159 Explosives – Factory and storage
Where a winding-up order is made against a company that operates a factory for the
manufacture of explosives or occupies a licenced magazine, i.e. storage facility, the
official receiver must send notice of the order to the Explosives Inspectorate at the
Health and Safety Executive, address shown in Annex B. Alternatively, for queries
about licensing the official receiver can e-mail the Explosives Inspectorate at:
--- PDF page 43 ---
explosives.licensing@hse.gov.uk. For queries about the classification or
transportation of explosives they can e-mail the Explosives Inspectorate at:
cad.explosives@hse.gov.uk.
2.160 Explosives and firearms – Police
inspection
Where the official receiver discovers either explosives or firearms in their enquiries
the local police force should be notified. The explosives or firearms should not be
touched or moved until after an inspection by the police. The police will confirm that
the explosives and/or firearms have been correctly licenced and will provide advise
on their safe removal. The Health and Safety Executive has a national contact list of
police explosives liaison officers.
2.161 Premises licensed to sell alcohol – Local
authority
The official receiver should inform the relevant local authority as soon as possible of
the insolvency of a premises licence holder. Details of the dedicated email address
and telephone number for licensing notifications can be located on the web site of
the relevant local authority.
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ATTACHMENT: 20.Public_examinations.pdf
TEXT_FILE: 20.Public_examinations.pdf.txt
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 10 March 2020.
20. Public examinations
Calling and holding a public examination in court of a bankrupt or director under the
insolvency legislation
Chapter content
Public examinations generally
Application for examination
Requests
Service and notice of order
Co-operation before the public examination
Examinee unfit to be examined
Procedure at hearing
Adjournments
Shorthand writers and the record of the examination
Public examinations generally
20.1 Uses of examination
The two principal uses for a public examination are as a means to enforce co-
operation (bankruptcy only) and as an aid to the official receiver’s enquiries.
Section 59 and Schedule 3 of the Youth Justice and Criminal Evidence Act 1999
gives statutory effect to the decision of the European Court of Human Rights in the
case of Saunders v UK1997 BCC 872 and restricts the use that may be made in
criminal prosecutions of evidence obtained under compulsory powers including that
obtained in a public examination to;
--- PDF page 2 ---
a) where the defendant themself introduces the answers that they have given; and
b) where the defendant is being prosecuted for a failure to answer a question or
disclose a material fact or is being prosecuted for giving an untruthful answer
Guidance concerning when a public examination should be used is given in link to
new guidance chapter 19 - Co-operation, non co-operation and enforcement of the
duty to co-operate.
A public examination should not be regarded as an automatic alternative to obtaining
initial information by way of interview. The official receiver should also make proper
use of their powers to requisition accounts and further information where this is likely
to provide the details necessary for the purpose of their enquiries. The official
receiver should remind potential examinees of their duty to co-operate where such
non-compliance is the reason for the public examination.
Specifically in relation to companies, following the decision in Re Wallace Smith
Trust Co Ltd 1992 BCC 707 where a winding-up order has been made, the public
examination should not be used solely as a means to obtain orders enforcing
compliance which ought instead to be considered under Rule 12.52. An application
for public examination should only be made where there is a genuine intention to
question that person.
When considering whether to apply for the public examination of an officer or for an
order under Rule 12.52 official receivers will be aware of the tolerance of their local
courts and should use their own judgment to establish the correct method for
enforcing co-operation in the circumstances of each case.
Where it is considered that a public examination is appropriate, the fact that its cost
may result in a debit balance on the estate account should not prevent its being held.
20.2 Warning letter
Before fixing a public examination at least two attempts must have been made to
arrange, and advise the officer or bankrupt of the need to attend for interview.
When an examination is being considered because of non co-operation the official
receiver should write to the potential examinee advising them of the possibility of a
public examination and that notice of the examination may be given by public
advertisement1.
Where the examination is to be fixed to enforce attendance, if the examinee has
previously received written warning of the possibility of public examination, in letters
fixing appointments, it is not necessary to send an additional warning letter.
1. Rules 7.103(3) and 10.100(3)
--- PDF page 3 ---
Application for examination
20.3 Persons who may be examined –
companies
Where a company is being wound up by the court, the official receiver may apply to
the court for the public examination1 of any person who –
a) is or has been an officer of the company (i.e. a director, secretary, manager or in
certain circumstances the auditor except where they have been appointed for a
limited purpose); or
b) has acted as liquidator or administrator of the company or as receiver or manager;
or
c) not being a person falling within a) or b) above, is or has been concerned, or has
taken part, in the promotion, formation or management of the company2
The word director is defined in section 250 of the Companies Act 2006 (CA 2006) as
including ‘any person occupying the position of director, by whatever name called’. It
is strongly arguable that this definition includes a de facto director, although the
definition is silent as to whether formal appointment as a director is actually
necessary. Given this uncertainty an application in the case of a de facto director
should be made under section 133(1) (a) and (c) of the Insolvency Act 1986.
An application in respect of a shadow director or other person who has taken part in
the promotion, formation or management of the company should be made under
s133(1)(c).
The court has the power to order a person outside the jurisdiction to attend for
examination3.
1. Section 133(1)
2. Companies Act 2006 sections 250, 1121 (2), 1173 (1) and Schedule 8
3. Re Seagull Manufacturing Co Ltd [1993] CH 345, [1993] BCC 241 and Dar Al Atkan Real Estate Development Co v Ali-Refrai [2014] EWCA civ 715, [2015] 1 WLR 135
20.4 Persons who may be examined –
partnerships
Where a winding-up order has been made against a partnership as an unregistered
company, the official receiver may apply to the court for the public examination of:
--- PDF page 4 ---
a) any person who is or has been an officer of the partnership; or
b) has acted as liquidator or administrator of the partnership or as receiver or
manager; or
c) not being a person falling within paragraph (a) or (b), is or has been concerned, or
has taken part, in the formation of the partnership1
Where orders have been made against the members of an insolvent partnership on
a joint bankruptcy petition, without a winding up order being made against the
partnership, the official receiver may apply to the court for the public examination of
those members2.
1. Insolvent Partnership Order 1994 schedule 3 part II para 8; schedule 4 part II para 11; schedule 5 para 2; schedule 6 para 4
2. Insolvent Partnership Order 1994 schedule 7 para 9
20.5 Partnerships - variation in procedure
The provisions relating to public examination are modified where a partnership is
concerned as follows:-
a) where insolvency orders have been made against the members of an insolvent
partnership, whether or not a winding-up order has been made against the
partnership, application may be made to the court that the public examination of a
member of the partnership may be combined with the public examination of any
other person. This enables all the public examinations of the partners to be held
together
b) where insolvency orders have been made against the members of an insolvent
partnership, and no winding-up order was made against the partnership, at their
public examination a member may be examined as to the affairs and dealings of the
partnership in addition to their own affairs and dealings1
1. Insolvent Partnership Order 1994 schedule 4 para 11 schedule 7, para 9; schedule 7, para 9
20.6 Persons who may be examined -
bankruptcy
Where a bankruptcy order has been made, the official receiver may apply to the
court for the public examination of the bankrupt at any time prior to discharge,
although the hearing of the public examination may occur post discharge
20.7 Time of examination
A public examination can be held at any time before:
--- PDF page 5 ---
a) the company’s dissolution1
b) where a winding up order has been made against a partnership as an
unregistered company, before the winding up is complete2
An application for the public examination of a bankrupt must be made prior to the
bankrupt’s discharge although the hearing itself may be held at any time. It should be
noted however that the official receiver will not be able to seek the suspension of the
bankrupt’s automatic discharge if the hearing is held after discharge3.
1. Section 133 (1)
2. Insolvent Partnership Order 1994 schedule 3 part II para 8, schedule 4 part II para 11; schedule 5 para 2, sch 6 para 4 IPO 1994]
3. Section 279(3)
20.8 Contents of application
An application to fix a date for a public examination hearing need not contain a
lengthy justification for the proposed examination, but the application should always
contain a statement of the basic ground for the application (e.g. failure to co-operate,
need for further information, etc.)1.
In a winding up the application should state whether the proposed examinee falls
within section 133(1)(a), (b) or (c). Where they fall within section 133(1)(a) it will
suffice to state that they were recorded on the registrar of companies’ file as a
director or secretary. In the case of a person falling within section 133 (1)(b), brief
details should be stated of the grounds for supporting that they fall within that
paragraph. Where application is made under section 133(1)(c) see paragraph 20.9
below.
The court has no discretion but must make an order for public examination on
application by the official receiver subject to compliance with the requirements of the
rules 7.98 and 7.102 but can generally revisit any order made, in accordance with
Rule 12.59 and section 375, so the examinee can have the matter reviewed by the
court2.
1. ISCIS form PEAO
2. Jeeves v Official Receiver [2003] EWCA civ 1246, [2003] BCC 912
20.9 Application under section 133(1)(c) -
shadow directors etc
Where an application to fix a date for a public examination hearing relates to a
person falling within section 133(1)(c), the official receiver must lodge in court with
--- PDF page 6 ---
their application a report indicating the grounds on which the person is alleged to fall
within that paragraph 1. This may involve a claim that the person concerned was a
shadow director2. The report should also indicate whether in the official receiver’s
opinion service of the order could be effected at a known address3, which should be
effected in accordance with the provisions of Part 6 of the Civil Procedure Rules
19984.
Form PEAO5 may be edited to remove the sentence which refers to the examinee
being recorded at Companies House as a director, and appropriate text inserted
detailing why the official receiver believes the examinee falls within section 133(1)(c).
Alternatively, a short report to court may be prepared.
Where service in accordance with Rule 7.98(1)(b) seems uncertain, the court may
direct that the order be served by some other means other than, or in addition to,
service at a known address6.
Any order issued by the court in relation to a person alleged to fall within section
133(1)(c) can be rescinded by the court if it is satisfied that they do not in fact fall
within that paragraph of the subsection7.
1. Rule 7.98(1)(a)
2. Companies Act 2006 section 251
3. Rule 7.98 (1)(b)
4. Insolvency (England and Wales) Rules 2016 Schedule 4, para 1
5. ISCIS form PEAO
6. Rule 7.98(2)
7. Rule 7.102(3)
20.10 Address for service
In winding up, partnership or bankruptcy the proposed method of, and address(es)
for, service of the court’s order for the examination, and the reason for the use of
each address, should also be stated in the application.
Where an insolvent has previously attended for interview, the address given at that
interview should be used. Where a considerable period of time has elapsed between
the interview and the fixing of the public examination, the proposed examinee’s
continued occupation of that address should be verified by making enquiries or by
inspection. Otherwise the address for service used will usually be that given on
bankruptcy order or for a company director the Companies House file. Where a
winding-up order is made against a partnership as an unregistered company without
--- PDF page 7 ---
bankruptcy orders being made against the members of the partnership, the official
receiver will have to rely on their own enquiries to establish the partners’ addresses.
To ensure, as far as is possible that the address used is correct, further enquiries as
listed below may be necessary, although some of the following enquiries may have
been carried out in the initial stages of the cases:-
a) inspection of any known addresses
b) Equifax search
c) petitioning creditor’s solicitors
d) insolvent’s own solicitors or accountants
e) judgment search or electoral roll search
f) local HMRC offices
Service should be effected at any alternative addresses discovered during the
course of the enquiries set out above.
Where a bankrupt, or a bankrupt member of a partnership is to be examined the
official receiver should search the court file to ensure that all known addresses are
included, as the statutory demand or petition may have been served at additional
addresses not shown on the bankruptcy order.
The official receiver should also state that they are not aware of any other
address(es) for the examinee. All this information will assist the court in the issue of
a warrant for arrest should the examinee fail to attend their examination and
therefore care must be exercised that the information provided is accurate1.
For further information regarding service of the order see paragraph 20.18.
1. Sections 134(2) or 364(1) and Rule 12.54
20.11 Address unknown
Where the examinee’s current address is unknown it may be possible to effect
service through their solicitor or accountant, although, their willingness to accept
service on behalf of the examinee should be ascertained before making an
application to the court for a public examination.
If the official receiver has no known address or other known route as to how to
contact the potential examinee there is usually no benefit in fixing a public
examination as the court is unlikely to issue warrants or orders in such
circumstances, but see the following paragraph in respect of the suspension of
discharge from bankruptcy. If there is a potential to contact the examinee through
--- PDF page 8 ---
some route other than normal service (i.e. third parties) an application for an order
for substituted service should be considered.
In bankruptcy cases, application to the court to suspend the bankrupt’s discharge
should be used as an alternative to fixing a public examination where the bankrupt’s
current whereabouts are unknown. There is a difference in approach in the High
Court in London, in that a public examination is held even in non trace cases, and
application to suspend the bankrupt’s discharge made at the public examination
rather than a separate application being made under section 279. There is nothing
preventing a distinct application under s279(3), in any court, if it is appropriate in the
circumstances.
An application under s279(3) will usually be appropriate if there is any risk that the
bankrupt will be discharged before the public examination comes before the court .
Although there is a precedent case for an interim order1 (Jacobs v Official Receiver
– see chapter 22), last minute applications under section 279(3) are rarely well
received by the court.
Requests
20.12 Power to request an examination
A public examination may be requested by creditors whose claims comprise at least
one-half the total value of known claims, (which includes the claims of secured
creditors without regard to the value of their security)1. The request must be in the
prescribed form. It must also be accompanied by a list of the creditors supporting the
request, the amounts of their claims in the insolvency proceedings and written
confirmation from the supporting creditors that they do in fact support the request,
unless the request is made by a single creditor whose claim is alone sufficient to
enable them validly to make it2.
In a winding up, a public examination may alternatively be requested by three-
quarters in value of the company’s contributories, and the legislation imposes similar
requirements as to the form and content of a contributory’s request as apply where a
request is made by creditors3.
Where a winding-up order has been made against a partnership, a public
examination may be requested by one half in value of the partnership’s creditors.
Where bankruptcy orders have been made against the members of an insolvent
partnership on a joint bankruptcy petition without a winding-up order being made
against the partnership, a public examination may be requested by one half in value
of the creditors of the member to be examined4.
--- PDF page 9 ---
The person(s) requesting a public examination is described as the requisitionist.
Unless the court orders otherwise, the official receiver is obliged to make an
application to the court for a public examination if requested to do so in accordance
with the Insolvency Rules5.
1. Section 133(2)(a) or s290(2)
2. Rules 7.99(1) and 7.101 (1) or 10.101(1)
3. Section 133(2)(b) and Rule 7.100(1)
4. Insolvent Partnership order schedule 3 part II para 8, schedule 4 part II para 11, schedule 5 para 2, schedule 6 para 4 and schedule 7 para 9
5. Section 133(2) and section 290(2)
20.13 Reasons for examination
The requisitionist must give reasons as to why the public examination should be held
and in a winding up must specify the name of the proposed examinee and their
relationship with the company. The official receiver should seek to obtain from the
requisitionist details of the areas on which they wish the proposed examinee to be
questioned1.
1. Rules 7.99(2) or 10.101(1)(c)
20.14 Effect of section 133(1)(c) -
requisitioned examination
Where the proposed examinee is a person falling within section 133(1)(c) the official
receiver is still required to submit a report to justify their reasons for the examination.
If the official receiver is of the opinion that there are no grounds on which the person
falls within the provisions of section 133(1)(c), the official receiver should seek relief
from holding a requested public examination.
20.15 Application for relief
The official receiver may apply to the court for relief from holding a requested public
examination if they consider the request to be unreasonable, e.g. where they have
sufficient information for the purpose of their enquiries and the requisitionist has not
given them adequate grounds for holding an examination. The application may be
made without notice to any other party, and if an order for relief is made on an
application without notice the official receiver is required to give notice of it to the
requisitionist1.
--- PDF page 10 ---
The test in rules 7.101 (4) and 10.101 (6) is a subjective one based on the opinion of
the individual official receiver as to whether the request is an unreasonable one in
the circumstances. In addition, the official receiver should seek relief where the
application relates to a person within section 133(1)(c) and the official receiver is of
the opinion that there are no grounds on which the person falls within that section2.
If an insolvency practitioner has been appointed as liquidator or trustee, their views
as to the usefulness of the requested public examination should be sought although
this should not be the overriding factor when deciding whether to apply for relief. The
liquidator or trustee can apply for a private examination, without involving the official
receiver, if they require further information.
1. ISCIS document PEAR
2. Rules 7.101(4) or 10.101(6)
20.16 Time within which requisitioned
examination to be held
If the official receiver does not propose to apply to the court for relief from holding an
examination, they must within 28 days of receiving the request apply to the court for
a hearing date for the examination to be fixed. If they do apply for relief but their
application is refused they must apply as soon as reasonably practicable after the
conclusion of the hearing of their application for a date for the public examination to
be fixed1.
1. Rules 7.101 or 10.101
20.17 Deposit and costs
The official receiver must obtain a deposit from the requisitionist to cover the costs of
the examination. The deposit should not only cover the cost of sending out notices,
and giving notice by publication in the Gazette and advertisement where it is
proposed to do so, but also any court fees and the estimated costs of the shorthand
writer (including their attendance). It is difficult to estimate how long any examination
will last, but, unless there are unusual circumstances, it should be assumed that it
will last for no longer than an hour and the potential costs should be calculated on
that basis for the purpose of the deposit. The official receiver’s estimated time costs
for preparing for and taking part in the examination are not to be included1.
If the official receiver’s costs increase, a request for an increase in the funds
provided as the deposit may be made.
It will be a matter for the court at the conclusion of the examination to order whether
the expenses of the examination are to be paid out of the estate rather than from the
--- PDF page 11 ---
deposit. The official receiver should in this context inform the court as to the financial
position of the estate and indicate whether in their opinion the public examination
has produced information not already obtained by other means or has otherwise
been a useful exercise2.
If the public examination does not take place, there will be no order of the court
requiring the official receiver to deduct funds from the deposit and any monies
provided by the requisitionist as deposit should be returned.
1. Rules 7.101 or 10.101
2. Rules 7.107 or 10.105
Service and notice of order
20.18 Service of order
The order appointing a hearing for a public examination should be served on the
examinee as soon as is reasonably practicable after the order is made1. Ordinary
first class post is the usual method of service, although the Civil Procedure Rules
provide for various other methods of service including personal service, document
exchange, leaving the document at a specified place and fax or other means of
electronic communication. Service should be effective at least 14 days before the
hearing2. The order contains a ‘penal clause’ warning the subject of the order that a
failure to attend the hearing may result in imprisonment and is accompanied by a
letter which explains that the individual is liable to be arrested if they fail to attend the
examination3.
Certain courts may require that the examinee be served additionally by recorded
delivery post before considering issuing a warrant, but this is not essential unless the
court so requires. Personal service may also be used in addition to first class post if
the proposed examinee was known to be about to leave an address to attempt to
avoid service, or if court practice dictates the use of such a method. If personal
service is not to be effected in a case where the official receiver is likely to request a
warrant for arrest, the official receiver must be able to satisfy the court that all
reasonable steps have been taken to contact the director/bankrupt and that they are
aware of the proceedings. Service should be effected at all known addresses4.
If the official receiver is aware that the examinee no longer lives at an address and
does not know any other, they should draw these facts to the court’s attention and
may seek an order for substituted service on another party. If a solicitor has agreed
to accept service on behalf of an examinee where the latter’s address is unknown to
--- PDF page 12 ---
the official receiver but is known to the solicitor it is probable that the court will accept
such service as adequate. The court may order substituted service on a solicitor
even if the solicitor is unwilling to accept service.
1. Rule 7.102
2. Rule 7.103
3. ISCIS documents PEAO & PE
4. Schedule 4 paragraph 1 and Civil Procedure Rules 1986 Rule 6.3
20.19 Effective date of service
Service by first class post will be effected, unless the contrary is shown, on the
second business day after the date of posting, which date is presumed to be the
post-mark on the envelope containing the order. “Business day” means any day
except Saturday, Sunday or a bank holiday; and “bank holiday” includes Christmas
Day and Good Friday1.
1. Schedule 4 paragraph 1 and Civil Procedure Rules 1998 rules 6.2 and 6.26
20.20 Verification of service
A certificate of service [N215] should be prepared by the person who effects service,
and be filed in court (this is required to be done within 21 days of service having
been effected). Where service has been by post the certificate of service should be
completed by the person responsible for the outgoing post. It is important that the
certificate is completed in its entirety including the statement of truth. This will assist
the court in the issue of a warrant for arrest if the examinee fails to attend.
The certificate of service must state the details set out below1: -
Method of service
Details to be certified
Personal service
Date of personal service
First class post, DX or other service
which provides for delivery on the next
business day
Date of posting, or leaving with,
delivering to or collection by the relevant
service provider
Delivery of document to or leaving at a
permitted place
Date when document delivered or left at
the permitted place
--- PDF page 13 ---
Method of service
Details to be certified
Fax
Date of completion of the transmission
Other electronic means
Date of sending the email or electronic
transmission
Alternative method or place permitted
by the court
As required by the court
1. Civil Procedure Rules 6.17
20.21 Service out of the jurisdiction
The court may order a person living outside its jurisdiction to appear before it at a
public examination, irrespective of their nationality1. The court may specify the time
and manner in which service should be effected and may require such proof of
service as it thinks fit2.
1. Re Seagull Manufacturing Co Ltd [1991] 3 WLR 307
2. Insolvency Rules 2016 Schedule 4 paragraph 1
20.22 Discovery of an additional address
Where an additional address is discovered after service of the order the official
receiver should ensure that the examinee is immediately served with the order at the
new address and should file a further report to court stating the details of the service.
It will not be sufficient for the official receiver to inform the court at the hearing, of the
further address that has been served, if it is proposed to seek a warrant for the arrest
of the examinee. If the examinee fails to attend and it was not possible to serve the
new address at least 7 days prior to the hearing then the official receiver should seek
an adjournment, so that service may be put in order.
20.23 Check of proper service
Where it is anticipated that the examinee is unlikely to attend the hearing and a
warrant will be sought, at least 7 days before the hearing the official receiver should
ensure that all known addresses have been served and that service is in order. If a
defect in service is discovered, which cannot be remedied to provide adequate
service, and the examinee does not attend the examination, then the hearing should
normally be adjourned so that proper service can be effected.
--- PDF page 14 ---
20.24 Proposed examinee in custody
In the case of an examinee who is in prison custody an application for production
must be made by the official receiver by letter addressed to the Governor of the
prison where the interviewee is being held. The official receiver should also confirm
that the costs of production will be met from the insolvent’s estate. The order for
public examination to be served on the examinee must be sent to the prison
governor with a covering letter requesting that they arrange service on the examinee.
Prison inmates are allocated different security ratings and a prisoner who is graded
with a security rating “A” will not be produced for a public examination as that person
is considered to be a maximum security risk. In such cases the prison governor
should be requested to have the inmate’s file clearly marked that notification should
be given to the official receiver if it is intended to release that person or if their
security rating is downgraded to “B”.
The expenses of bringing an examinee in custody to the court must be charged to
the estate.
20.25 Notice to others
The official receiver must also give at least 14 days’ notice of the hearing to:
a) any liquidator or trustee nominated or appointed
b) any special manager; and
c) unless the court orders otherwise, to all the creditors (and, in a winding up,
contributories) known to the official receiver1
1. Rule 7.103 (2) or 10.100 (3) and ISCIS document PEN
20.26 Relief from giving notice to creditors
The official receiver can seek a direction of the court to relieve them from the
obligation to send notice to all creditors (and contributories)1. It is usual to seek such
a direction where the public examination is being held exclusively to enforce co-
operation or where the number of notices to be sent exceeds 50. If the official
receiver thinks that notice to certain creditors (e.g. those with the largest claims)
would be useful in the context of the examination, the official receiver may, as part of
the same application, seek a direction to send notice to those creditors only2.
1. Rule 7.103 (2) or 10.100
2. Rule 13.3
--- PDF page 15 ---
20.27 Publication of the examination
The official receiver may publish notice of the public examination in the Gazette and
if necessary advertise it in any other manner, as they think fit. A notice of a public
examination may not be advertised without also being gazetted. The notice must
appear at least 14 days before the date fixed for the hearing. In a winding up, where
the court’s order relates to a person falling within section 133(1)(c), unless the court
otherwise directs, the notice may not appear before at least 5 business days have
elapsed since the examinee was served with the order1.
1. Rule 7.103 or 10.100
20.28 Consideration of whether to publish
Whether or not notice of an examination is published in the Gazette is a matter of
discretion for the official receiver and they will wish to consider whether in the
particular circumstances of any case such a publishing would produce a benefit in
relation to their inquiries and the usefulness of the examination. Any advertisement
of an examination should be placed in such place as is likely to be seen by the
greatest number of interested persons.
The potential publication or advertisement of the public examination, which would
include the examinee’s name, may be used to persuade a potential examinee to
attend and the possibility of such an occurrence should be included in any warning
letters sent.
Co-operation before the public
examination
20.29 Subsequent surrender to proceedings
Where a public examination has been fixed because of non-surrender to the
proceedings and the examinee subsequently surrenders and co-operates with the
official receiver to an extent which makes a public examination unnecessary, the
official receiver should apply to the court for a rescission of the order fixing the
examination. The application should refer to the original order, briefly to the
examinee’s subsequent conduct and state that in the circumstances a public
examination would serve no useful purpose1.
--- PDF page 16 ---
If the examinee surrenders only a short time before the date of the hearing,
consideration should be given to holding the examination as arranged, particularly
where notice has been given to creditors or other parties or the examination has
been advertised and there is no time to inform these parties that the examination will
not now be held.
If a public examination has been held and adjourned but subsequent co-operation by
the examinee makes the adjourned examination unnecessary, the court should be
asked to declare the examination concluded.
1. Section 375(1) and Rule 12.59
Examinee unfit to be examined
20.30 Unfit person - alternative location
The official receiver should not normally fix a public examination hearing for a person
who suffers from any illness, disability, or mental disorder which they know would
make it difficult for the examinee to attend or take part in the hearing. Where a public
examination has been fixed, and the court takes the view that the examinee is unfit
to undergo or attend it, the court may either stay the order fixing the examination or
direct how and where the examination should be conducted. If the official receiver is
aware that the examinee is likely to be unable to attend court they should in their
application for the holding of the public examination ask that the court order the
examination to take place at a convenient location, e.g. the examinee’s home. The
official receiver should speak to the district judge or registrar in advance of making
the application to seek their views1.
As an alternative, the court may, under Rule 12.24 appoint another person to act in
place of the incapacitated person
1. Rules 7.104 (1) and 10.102 (1)
20.31 Applicants
An application to the court concerning a stay in, or a different venue for, holding a
public examination will normally be made by :-
a) a person appointed by a court in the United Kingdom or elsewhere to manage the
affairs of or to represent the examinee, or
b) a relative or friend of the examinee whom the court considers to be a proper
person to make the application, or
--- PDF page 17 ---
c) by the official receiver
Only exceptionally should the official receiver himself make such an application.
Where the applicant is other than the official receiver and the proposed examinee is
not a patient within the meaning of the Mental Health Act 1983, the application must
be accompanied by a witness statement of a registered medical practitioner as to the
examinee’s mental and physical condition1.
1. Rules 7.104 and 10.102
20.32 Notice, deposit and expenses
The applicant must give the official receiver and any liquidator or trustee at least 5
business days’ notice of the application1. Before any order is made, the applicant
must provide the official receiver with a deposit to cover any additional expenses
caused (e.g. by the need to use a venue other than the court). The official receiver
will need to fix this sum, which should be notified by letter to the applicant2. The order
subsequently made may nevertheless provide for the payment of expenses out of
the estate. If the official receiver makes the application it may be without notice to
any other party and supported by evidence in the form of a report to the court rather
than a witness statement. Any expenses incurred in holding an examination where
the application is made by the official receiver are deemed an expense of the official
receiver and are paid as part of the expenses under Rule 7.108 (4) or 10.149.
1. Rules 7.104 and 10.102
2. ISCIS document PECOE
Procedure at hearing
20.33 Requirement to answer questions
The examinee will be examined on oath and must answer all the questions that the
court may put, or allow to be put, to them. Refusal to answer will be a contempt of
court and punishable accordingly1.
There is no strict requirement, statutory or otherwise for disclosure of material or of
the questions to be asked prior to a public examination. It is possible that an
application to disclose material could be made under the Civil Procedure Rules
(CPR) as the overriding objective of the CPR is to enable the court to deal with a
case justly, including so far as is practicable ensuring that the parties are on an
equal footing. The provisions of the CPR apply to insolvency proceedings to the
--- PDF page 18 ---
extent that they are consistent with the Insolvency Rules, and as the overriding
objective is consistent with the Rules, there may be scope to argue for prior
disclosure in the interests of equality and fairness2.
1. Rules 7.105 and 10.103
2. Rule 12.1
20.34 Criminal Proceedings
If criminal proceedings have been instituted against the examinee, the court may
adjourn the examination where it considers that to continue may prejudice a fair trial
of the criminal proceedings1.
1. Rules 7.105 and 10.103
20.35 Self incrimination
The principle has been affirmed in a series of modern cases with reference to both
individual and corporate insolvency, that under English law the long-established
privilege against self-incrimination is not an absolute right, but is one which is
capable of being removed in specific situations if Parliament so intends. In the case
of the Insolvency Act 1986, among other legislative enactments, the courts have
concluded that Parliament did so intend, and in consequence it is not open to an
examinee undergoing public examination to invoke the plea of self-incrimination as a
ground for refusing to answer a question properly put in the course of the insolvency
proceedings1.
1. Re Jeffrey S Levitt Ltd [1992] 2 WLR 975; [1992] BCLC 250; [1992] BCC137; Re London United Investments Ltd [1992] All ER 842; [1992] BCLC 285; [1992] BCC 202,
CA; Bishopsgate Investment Management Ltd v Maxwell; Cooper v Maxwell [1992] BCC 214; [1992] 2 All ER 856, CA.
20.36 Concurrent examinations
In a winding up or partnership cases where two or more persons are to be examined,
they may be examined together. All examinees should in these circumstances take
the oath at the beginning of the examination. The official receiver should then
question the examinee, after asking the other or others to listen carefully to the
answers given by the first. Other examinees may subsequently be questioned.
Examinees already questioned may then be re-examined in the light of answers
given by others.
20.37 Representation of examinee
--- PDF page 19 ---
The examinee may at their own expense, employ a solicitor, with or without counsel,
who may question them, as the court allows, to enable them to explain or qualify any
answers they give, and who may make representations on their behalf1.
1. Rules 7.105 and 10.103
20.38 Persons who may put questions
The following, in addition to the official receiver, may question the examinee and,
with the approval of the court, appear by solicitor or counsel, or may in writing
authorise another person to question the examinee on their behalf:
a) the liquidator or trustee
b) any special manager
c) any creditor who has tendered a proof
d) in a winding up, a contributory1
1. Section 133(4) and 290(4)
20.39 Official receiver to take lead
As an officer of the court the official receiver is answerable to the court; and as a
statutory office holder in individual cases they have responsibilities to the creditors,
shareholders or the bankrupt for the administration of the estate. It is therefore the
duty of the official receiver to see that the examination does not degenerate into a
mere formality. For these reasons and because of the knowledge of the examinee’s
involvement in the insolvency which the official receiver will acquire from their
inquiries it will be their duty to take the lead in the public examination, whether or not
they are the liquidator or trustee.
20.40 Requisitioned examinations
Where a public examination is held as a result of a requisition, the official receiver
should still take the lead, although they should limit their questions to matters they
consider relevant, which may nevertheless include points raised by the
requisitionists.
20.41 Matters to be dealt with
After a few questions identifying the examinee with the proceedings, reference to
their activities which have no direct bearing on the insolvency proceedings should be
very brief. Generally, it is advisable to deal with events in chronological order so that
--- PDF page 20 ---
the facts appear in perspective. It will be easier to clarify disputed points and the
evidence may clearly refute an examinee’s continued denial of early insolvency or
knowledge of it. In this connection dates of legal proceedings, long outstanding
debts, continued borrowings, staving-off of creditors, etc., may be material.
The official receiver should ensure that if the examination is being held for a
particular purpose the relevant points are fully explored and dealt with to their
satisfaction.
20.42 Manner of questioning
Few examinees are able, or likely, to answer precisely and succinctly. It is important
that the public examination should not be unnecessarily long (one reason is the cost)
and questions should mainly be so framed that the examinee can clearly and
correctly answer yes or no. Leading questions, i.e. questions framed in such a
manner as to suggest to the examinee the answers required or expected of them,
should be avoided. Where the examinee has been interviewed in the proceedings it
will be proper for the official receiver’s questions to be framed to keep the
examinee’s answers very short. There will be occasions, however, when, subject to
the court’s direction, the examinee should be allowed or required to give an
explanation. Where the examinee has not previously surrendered to or fully co-
operated in the proceedings it is more likely that such explanations will be required.
20.43 Questions by others
If a practitioner, acting as liquidator or trustee attends or is represented at the
hearing, the official receiver should ensure, so far as possible, that they leave to the
practitioner such questions as that person may properly wish to put (e.g. about
assets), so as to avoid duplication and perhaps a reduction in the effectiveness of
the practitioner’s questions. Where there is a special manager the official receiver
may wish them to put questions directly to the examinee. The official receiver should
normally deal with matters arising from transactions with individual creditors, even if
they are present or represented and have intimated that they may wish to ask
questions.
The official receiver should grant every facility and assistance to creditors and
contributories or their representatives who want to take part in the examination, as
their personal knowledge of the examinee and their business and dealings may
occasionally enable them to elicit valuable information. Wherever possible, the
official receiver should offer to pose questions on their behalf, to avoid creditors
using the public examination to verbally attack the examinee. If a questioner insists,
that they should be allowed to ask their questions, if they make a statement instead
of putting questions (as persons inexperienced in such matters may do), the official
--- PDF page 21 ---
receiver may, with the permission of the court, intervene to give such questions an
interrogative form and to ensure that the examinee returns a clear answer. When
any third parties have finished their questioning, the official receiver may find it
advisable to put some further questions to clarify particular points or to obtain dates
or other omitted details.
20.44 Undertakings or court orders regarding
compliance
Where an examination is being held to enforce surrender to the proceedings or co-
operation generally it may be sufficient to obtain undertakings from an examinee as
regards future co-operation, the submission of a statement of affairs, etc. In county
court cases where the examinee is present, such undertakings should be recorded
on form PEGUTC and the court asked to direct that the examinee sign the form
before leaving court. It may be more satisfactory, depending on the circumstances of
the case, if the court makes specific orders in relation to those matters.
In company cases, care should be taken to avoid conflict with the judgment in the
case of Wallace Smith Trust Co Ltd1.
1. [1992] BCC 707
20.45 Documents produced
Should it be essential, because of possible civil or criminal proceedings, any
important document which is put to the examinee on their public examination may be
handed to the registrar or district judge to be marked as an exhibit to the notes of the
examination and returned to the official receiver for safe custody. If the document is
produced by a third party it should be similarly marked and the official receiver
should ask the court to require the producer either to hand over the marked
document to the official receiver or to give an undertaking to the court to lend or
produce it to the official receiver on request. Where an examinee is asked to agree
with figures or other information contained in accounts or other documents, it is
preferable to let the examinee have sight of copies of the relevant documents, so as
to avoid vague or deliberately evasive answers.
20.46 Press
Press reporters may be present at a public examination. Where a member of the
press contacts the official receiver, only such information as is publicly available
should be given.
--- PDF page 22 ---
In Friederich v Herald and Weekly Times (1990) 8 ACLC 109, the Full Court of the
Supreme Court of Victoria held that only in the most exceptional circumstances
should a public examination be made subject to reporting restrictions. The object of
the procedure was to give a public airing of the affairs of the company concerned in
order to expose suspected frauds or concealment of material facts and it was
desirable that a public examination should be given as much publicity as it deserved.
This decision is persuasive but not binding in the United Kingdom. Nevertheless, the
same principles would appear to apply.
20.47 Interpreters
Where an examinee is unable either to speak or to understand English the official
receiver should employ an interpreter to attend at the public examination to translate
the questions and answers.
20.48 Costs of examination
There are no provisions that would enable the official receiver to recover the costs of
a public examination from the examinee and accordingly these costs should be paid
from the estate. An exception is where the public examination was requisitioned by
creditors (or, additionally in a winding up, contributories), in which case the court
may order that they pay for the examination. There is also no provision for the
examinee to be reimbursed any expenses incurred in attending a public examination
and any claim for such expenses should be rejected.
20.49 Examination as continuing leverage
Where an examinee has given undertakings to the court the official receiver should
normally in such circumstances ask for the examination to be adjourned so that its
potential reinstatement remains as leverage against the examinee should they
subsequently fail to fulfil their obligations. The official receiver may feel that they
have sufficient information from their other inquiries to enable them to carry out a full
examination at the first hearing without having to adjourn the public examination.
Adjournments
20.50 Options for adjournment
The court can adjourn the public examination either to a fixed date or generally. The
former may apply, for example, where service is incorrect, further enquiries are
--- PDF page 23 ---
needed, or an order is obtained for compliance by the examinee to co-operate in a
specific manner e.g. submission of a statement of affairs. Once the examinee has
provided such information or complied with an order, the official receiver should
briefly report the facts to the court and request that the public examination be
concluded. If there are several matters in one order then the official receiver should
clearly delay their report until each has been complied with to their satisfaction. The
examinee should be informed of the official receiver’s request to conclude the public
examination. A general adjournment will be appropriate where the examinee does
not give adequate answers to questions put or it is intended to hold interviews with
the examinee to obtain further information1.
1. Rule 7.106 and 10.104
20.51 Criminal proceedings
Where criminal proceedings have been instituted against the examinee, the court
may adjourn the hearing where it is of the opinion that continuing the hearing may
prejudice a fair trial1.
1. Rule 7.105 and 10.103
20.52 Reinstatement of adjourned
examination
Where the examination has been adjourned generally the official receiver or the
examinee may apply to the court to fix a venue for the resumption of the examination
and for directions about the notice to be given to those entitled to take part1. Where
the examinee applies for the resumption of the examination, the court may make it a
condition that they pay for the notices to be given and that they give a deposit to the
official receiver for that purpose2. The official receiver should write to the examinee
regarding the deposit required in these circumstances3.
1. ISCIS form PERES
2. Rule 7.106 and 10.104
3. ISCIS form PECOE
20.53 Suspension of automatic discharge on
adjournment - bankruptcy only
Where a public examination in bankruptcy is adjourned for any reason the official
receiver may make a verbal application to suspend the operation of any automatic
discharge period applicable1.
--- PDF page 24 ---
The default position is that the official receiver should ask for the suspension to apply
until such time as the official receiver is of the opinion that the bankrupt has complied
with their obligations under section(s) 288 and/or 291 of the Insolvency Act 1986 as
evidenced by a report filed by the official receiver. However recent court decisions
have determined that such a clause may be considered penal as it leaves too much
discretion to the Official Receiver or trustee. The level of seriousness of the non-
cooperation should therefore be taken into consideration and a fixed term of
suspension or the fulfillment of one specified condition (which can be revisited if the
default continues) be considered where appropriate2.
Form PEN3 which is sent to the bankrupt with the public examination order makes
reference to the possible suspension of the bankrupt’s discharge. If the bankrupt
later complies with their obligations, the official receiver should make an application
to have the suspension lifted, filing a brief report, with draft order, at Court referring
to the order suspending the bankrupt’s discharge and confirming that the official
receiver became satisfied that the bankrupt had complied with their obligations as
from a specific date given in the report.
Further guidance concerning the discharge of the suspension order is given in
guidance ‘22 - Discharge from Bankruptcy’
1. Section 279(3) and Rule 10.104
2. Mawer v Bland [2013] EWHC 3122; Wier v Hilsdon [2017] EWHC 983 ; Harris v Official Receiver [2016] EWHC 343
3. ISCIS form PEN
20.54 Failure to attend
If, without having a reasonable excuse, an examinee fails to attend their public
examination, a warrant for the examinee’s arrest may be issued. This is also a
contempt of court for which the court may also issue a warrant for the examinee’s
arrest1, 2. The extended process of committal is explored in a recent case; Official
Receiver v Clive Washington Brown, where there were extensive issues raised by
the bankrupt over their failure to co-operate3.
Full details as regards the issue of warrants and the enforcement of warrants
(however issued) are given in guidance on Cooperation and non-cooperation.
1. Sections 134(2)(a), 364(2)(e) and Rule12.54
2. ISCIS form PEWA
3. Official Receiver v Clive Washington Brown [2017 EWHC 2762]
--- PDF page 25 ---
Shorthand writers and the record of the
examination
20.55 Transcripts
Most courts now record public examinations for later transcription. Paragraphs 20.58
and 20.59 apply whatever the means of producing the written record of the
examination.
20.56 Appointment
A shorthand writer can either be appointed directly by the court or on the application
of the official receiver. Where the official receiver applies they must name the person
they propose for appointment1.
1. Rule 12.65
20.57 Remuneration
Shorthand writers’ remuneration is determined by the court1. Where the appointment
is made on the application of the official receiver in order that a written record may
be taken of an examinee’s evidence the cost of the written record is deemed an
expense of the official receiver in the proceedings and the shorthand writer’s
remuneration is paid, and ranks highly, as part of the expenses under the Insolvency
Rules2. Where a shorthand writer is appointed directly by the court the remuneration
is payable as part of the expenses but has a lower priority. The official receiver
should ensure that a shorthand writer is always paid promptly, even if this means
incurring a debit balance. The rates of remuneration for shorthand writers are agreed
between the Shorthand Writers’ Association and the Treasury, and increases are
often backdated. Such increases should be paid by the official receiver in
accordance with instructions issued.
1. Rule 12.65
2. Rules 6.42, 7.108 and 10.149
20.58 Written record
To facilitate reference, the questions in the written record will be numbered
consecutively and, if the examination is adjourned, the questions put at the
adjournment will be numbered in continuation of the numbers in the notes of the
original hearing. The written record made of the examination will be read over either
--- PDF page 26 ---
to or by the examinee, authenticated by them and verified by a statement of truth at
a venue fixed by the court. Depending on local practice, the court may expect the
official receiver to write to the examinee requiring their attendance to make the
verification. The official receiver should make arrangements with the court sufficient
to ensure that they receive copies of all relevant documents for their file1.
1. Rules 7.105 and 10.103
20.59 Attendance at other court for signature
Where an examinee can more conveniently attend a court other than the court
dealing with the proceedings, for the purpose of authenticating the record of the
examination, the latter court may, on the application of the examinee or the official
receiver, make an order in aid. Where such an order is made it will be sent by that
court to the registrar or district judge of the other court, who should make
arrangements directly with the examinee (whose address should be stated) for their
attendance. The official receiver should inform the examinee in writing that
arrangements are being made for them to attend another court and that they must
await instructions from the registrar/district judge of the court which they are to
attend.
20.60 Evidence of shorthand writer
Where the record of the examination has not been read over to or by the examinee
and authenticated by them, shorthand writers should retain their original notes until
the written record has been authenticated by the examinee. In all cases in which it
appears that the examinee’s authentication to the written record cannot be obtained
(if, for instance, they have absconded or cannot be traced) the original notes must be
obtained from the shorthand writer and, with a memorandum of identification
authenticated by them, placed on the official receiver’s file in an envelope suitably
identified and marked that it is not to be destroyed separately from the office file.
The verbal evidence of the shorthand writer will not be admissible in most criminal
prosecutions following the decision in Saunders v UK and the passing of the Youth
Justice and Criminal Evidence Act 1999.
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ATTACHMENT: 21.Private_examinations.pdf
TEXT_FILE: 21.Private_examinations.pdf.txt
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 10 March 2020.
21. Private examinations
Chapter content
Parties involved in private examination
Matters to be considered when applying for a private examination
Private examination – The application
Private examination – The hearing
Enforcement
Parties involved in private examination
21.1 Introduction
In addition to the provisions allowing for the public examination of bankrupts,
company officers, and others, the Insolvency Act 1986 allows a person to be
summoned to appear before the court, produce a witness statement or to produce
various documents, by an office-holder. Such an application to court is commonly
referred to as a private examination. For the remainder of the chapter the term
private examination will be used as a shorthand to describe any application for a
person to be summoned before the court to provide information, to provide a witness
statement or to produce various documents in their possession.
21.2 Application for a private examination -
The official receiver
--- PDF page 2 ---
The official receiver, in their capacity as official receiver, may apply to the court for a
private examination in a compulsory liquidation1 or a bankruptcy2 whether or not they
are liquidator or trustee. The official receiver, as statutory office-holder, can apply to
the court for a private examination where a debt relief order has been made3, or a
company is in provisional liquidation4 or the court appoints an interim receiver5.
1. Section 236(1)
2. Section 366(1)
3. Section 251N(1)
4. Section 236(1) & 234(1)
5. Section 366(1) & 368
21.3 Who may apply for a private
examination?
The official receiver, as a statutory office-holder, can apply to the court for a private
examination. In addition the following office-holders may make an application to
court:
• a liquidator1
• a trustee in bankruptcy2
• a provisional liquidator3
• an interim receiver4
1..Section 236(2) & 234(1)
2. Section 366(1)
3. Section 236(2) & 234(1)
4. Section 366(1) & 368
21.4 The applicant
The office-holder, official receiver or any other individual eligible to apply for a
Private Examination are referred to as the “applicant”.
21.5 Interim receiver
Where the application is made by an interim receiver, any references in this chapter
to the bankrupt and their estate should be taken as referring to the debtor and their
property1.
--- PDF page 3 ---
1. Section 368
21.6 Administrative receivers and private
examinations
An administrative receiver of a company may apply to the court for a private
examination1. Where a company is in liquidation and in administrative receivership
the administrative receiver may apply to the court for a private examination to assist
asset recovery2.
1. Section 236
2. Section 236(2) & 234(1)
21.7 Who can be examined – Companies
On the application of the official receiver, or relevant office-holder, the court can
summon to appear before it
•
any officer of the company
•
any person known or suspected to have in his possession any property of the
company or supposed to be indebted to the company or
•
any person whom the court thinks capable of giving information concerning the
promotion, formation, business, dealings, affairs or property of the company1
1. Section 236(2)
21.8 Who can be examined – Bankruptcy
On the application of the official receiver, or relevant office-holder, the court can
summon to appear before it;
•
the bankrupt
•
the bankrupt’s spouse/civil partner
•
the bankrupt’s former spouse/civil partner
•
any person known or believed to have in his possession any property comprised in
the bankrupt’s estate
•
any person known or believed to be indebted to the bankrupt or
•
any person whom the court thinks capable of providing information about the
bankrupt or the bankrupt’s dealings, affairs or property1
1. Section 366(1)
--- PDF page 4 ---
21.9 Who can be examined – Debt relief
orders
On the application of the official receiver, or relevant office-holder, the court can
summon to appear before it;
•
the debtor,
•
the debtor’s spouse/civil partner,
•
the debtor’s former spouse/civil partner, or
•
any person appearing to the court to be able to give information or assistance
concerning the debtor or the debtor’s dealings, affairs or property1.
1. Section 251N(2)
21.10 Private examination – Partnership
winding up
Where a partnership has been wound up as an unregistered company the official
receiver or relevant office-holder can apply to the court for a private examination of a
person mentioned in paragraph 21.8. If individual bankruptcy orders are also made
against at least one of the partners then the official receiver or relevant office-holder
can apply to the court in the bankruptcy proceedings for the production of documents
by, or a private examination of, a person mentioned in paragraph 21.9.
21.11 Private examination – Partnership
members bankruptcy petition
If a joint bankruptcy petition by the members is presented without winding-up the
partnership as an unregistered company, the official receiver or relevant office-holder
can apply to the court for a private examination of, a person mentioned in paragraph
21.9.
21.12 Definition of property
The term "property" has a wide meaning and includes money, goods, things in
action, land and every description of property wherever situated and also obligations
and every description of interest, whether present or future or vested or contingent,
arising out of, or incidental to, property1.
1. Section 436(1)
21.13 Things in action
--- PDF page 5 ---
Mozley & Whitely’s Law dictionary states that things in action “are not immediately
available to the owner without the consent of another person, whose refusal will give
a right of action.” Examples of things in action are a debt, a right arising under a
trust, a right to overdraw a bank account etc.
21.14 The respondent
A person against whom an application for a private examination is made is known as
"the respondent"1.
1. Rule 12.17
21.15 Respondents outside the court’s
jurisdiction
Where the respondent resides outside the jurisdiction of the court in England and
Wales but lives within another part of the United Kingdom an order that the
respondent be examined in that other part may be made1. The order may be
enforced by the court in the relevant part of the United Kingdom as if it were made by
that court2.
1. Section 237(3) & 367(3)
2. Section 426(1)
21.16 Respondents outside the United
Kingdom
Where the respondent is residing outside the United Kingdom the court may make
an order that the respondent be examined in any part of the United Kingdom where
they may be, or in a place outside the United Kingdom1. It was held in Re Tucker (a
bankrupt), ex parte Tucker [1988] 2 W.L.R. 748 and Re Seagull Manufacturing Co
Ltd [1991] BCC 550 that an order for a private examination of a respondent outside
of the jurisdiction of the court may be made, but an order will only be made where
there is likely to be co-operation from the foreign court. This is generally referred to
as partial extra-territoriality.
1. Section 237(3) & 367(3)
21.17 Private examinations outside the
United Kingdom
--- PDF page 6 ---
The number of countries where it may be possible to hold a private examination
increased due to The EC Regulation on Insolvency Proceedings 2000, which covers
the European Union and The UNCITRAL Model Law on Cross-Border Insolvency
However, the holding of a private examination outside the United Kingdom is not
straightforward and will be influenced by the local legal system.
21.18 ORS.Advice’s agreement required
In order to hold a private examination outside of the United Kingdom the official
receiver will need specialist legal advice and will have to take into account the
practical consequences and costs of conducting an examination in a foreign country.
The circumstances in which a private examination outside the United Kingdom will
be held are limited and as a consequence contact should be made by email with
ORS.Advice before making such an application.
21.19 Current legal position
The judge in Re Casterbridge Properties Ltd (in liquidation) Jeeves v Official
Receiver [2002] B.C.C. 453 stated in passing that an application for a private
examination may have full extra-territoriality enabling courts to summon a
respondent residing outside the United Kingdom to appear before it and the court
cases referred to above were not binding. An application for a private examination
may be held by the court to have full extra-territoriality at sometime in the future.
Matters to be considered when applying
for a private examination
21.20 Introduction
In the majority of cases the official receiver will be able to obtain sufficient
information for the purposes of fulfilling their statutory duties, either from the
insolvent’s papers or by correspondence. In cases where a public examination is not
possible, or is inappropriate, for example to obtain enforcement orders, the official
receiver may consider applying to the court for a private examination.
21.21 Notice to the respondent
The official receiver should, generally, inform the respondent that if they do not
cooperate they will be making an application to the court for a private examination.
This may be sufficient to ensure the respondent provides the information required.
--- PDF page 7 ---
There will be certain circumstances, for example where assets are in jeopardy, when
prior notice to the respondent will not be appropriate and an immediate application
for a private examination should be made.
21.22 Application for the production of
documents
The official receiver can apply to the court for an order that the respondent, should
produce any documents in their possession or under their control relating to the
affairs of the insolvent. Such documents may include bank statements, solicitors’
files, documents of title, correspondence, etc.
1. Section 236(3), 251N(3)(b) and 366(1)
21.23 The decision to apply for the
production of documents
The court has absolute discretion in considering an application for the production of
documents. The official receiver will need to convince the court that the production of
the documents is necessary for them to fulfil their statutory duties to investigate the
affairs of the insolvent1 and/or, where applicable, to administer the insolvent estate2.
1. Section 132, 251K and 289
2. Section 167 & 305
21.24 Documents from HM Revenue and
Customs (HMRC)
The court, on the application of the official receiver1, may order HMRC to produce a
bankrupt’s returns, accounts, assessments, correspondence and other tax
documents2. These documents would otherwise be confidential and the application
can only be made where there a bankruptcy order has been made. Section 366
1. Section 369
21.25 Legal professional privilege –
Bankruptcy
The bankrupt is under a duty to deliver to the official receiver all books, papers and
other records which relate to their estate, and belong to, or are held by them,
including any which would be privileged from disclosure in any proceedings1. In
--- PDF page 8 ---
addition the trustee shall take possession of all books, papers and other records
which relate to the bankrupt’s estate and belong to, or are held by them, including
those which would be privileged from disclosure in any proceedings2. As a
consequence solicitors who have acted for the bankrupt are unable to claim that they
cannot produce documents as they are subject to legal professional privilege arising
from the solicitor/client relationship. This view is supported by the ruling in Re
Konigsburg 1989 1 WLR 1257. Some solicitors may be unwilling to provide this
information unless ordered to by the court.
1. Section 291(1)
2. Section 311(1)
21.26 Legal professional privilege –
Companies
Where a winding-up order has been made the liquidator, rather than the directors,
will be in control of the company. The liquidator on behalf of the company can
authorise the production of all documents held by the solicitors as legal professional
privilege does not apply.
21.27Witness statements
The official receiver can apply to the court for an order that the respondent produces
a witness statement verified by a statement of truth1 or where a debt relief order has
been made, a written account of their dealings with the debtor2. The bankrupt, the
bankrupt’s spouse, former spouse, civil partner or former civil partner cannot be
ordered to produce a witness statement unless they have or may have any property
which may be part of the bankrupt’s estate, are indebted to the bankrupt or can
provide information regarding the bankrupt’s dealings, affairs or property3.
1. Section 236(3), 236(3A) & 366(1)
2. Section 251N(3)(a)
3. Section 366(1)
21.28 The decision to apply for a witness
statement
The court has absolute discretion in considering an application for the provision of a
witness statement. The official receiver will need to convince the court that the
provision of the statement is necessary for them to fulfil their statutory duties to
investigate the affairs of the insolvent1 and/or, where applicable, to administer the
--- PDF page 9 ---
insolvent estate2. The official receiver should consider applying for a witness
statement in those cases where the information he requires from the respondent can
be provided in a written form without the need for a full court hearing.
1. Section 132, 251K & 289
2. Section 167 & 305
21.29 Examination in court
The official receiver can apply for an order that the respondent is brought before the
court to be examined1.
1. Section 236(2), 251N(2) & 366(1)
21.30The decision to apply for an
examination in court
The court has absolute discretion in considering an application for the respondent to
be brought before it and questioned. The official receiver will need to convince the
court that the examination of the respondent is necessary for them to fulfil their
statutory duties to investigate the affairs of the insolvent1 and/or, where applicable, to
administer the insolvent estate2. The official receiver may consider conducting an
examination in court for example, in relation to preferences, transactions at an
undervalue, book debts and income payment agreements/orders.
1. Section 132, 251K & 289
2. Section 167 & 305
21.31 Income payments
agreements/orders
Where a bankrupt has ceased paying the agreed contributions and is not
cooperating with the official receiver or trustee a private examination may be used to
obtain the required information. If the bankrupt has not been discharged then a
public examination may be more appropriate as the official receiver could make an
application to suspend their discharge. Where the bankrupt has obtained their
discharge the official receiver, or trustee, can only make an application for a private
examination. If the official receiver makes the application it must be made by the
official receiver as trustee.
--- PDF page 10 ---
21.32 Disqualification and private
examinations
The official receiver can make an application for a private examination even where
the sole purpose is to obtain information for use in disqualification proceedings1
subject to the discretion of the court to allow the use of a private examination for this
purpose. Such a use of an application for a private examination should be the
exception, e.g. where a bank or solicitor would be willing to provide the information
on the production of a court order. Where the official receiver is concerned that the
application may be construed as being solely for disqualification proceedings, or
disqualification proceedings have been issued, they should consult the Investigation
and Enforcement Services Technical Team prior to making an application.
1. Re Pantmaenog Timber Company Limited et al (2003) UKHL
Private examination – The application
21.33 The format of the application
The official receiver’s application to the court shall be in writing and must specify the
grounds on which it is being made1. The application must also specify the name of
the respondent1.
1. Rule 12.18
21.34 Official receiver’s liability for costs
The official receiver may be made personally liable for costs if they make an
application for the production of documents or a private examination as a liquidator
or trustee. To avoid this possibility the official receiver should ensure that the
reasons for the application are related to the official receiver’s statutory office, or that
of provisional liquidator or interim receiver, if acting in that capacity.
1. Rule 12.22
21.35 Purpose of the application
The official receiver’s application must specify whether the respondent is required to
do any of the following:
•
to appear before the court;
--- PDF page 11 ---
•
to clarify any matter which is in dispute in the proceedings or give additional
information in relation to any such matter (the court may direct that the information
provided must not be used for any purpose except for that of the proceedings in
which it is given);
•
to submit witness statements; particulars should be given of the matters to be
included; or,
•
to produce books, papers and other records; the relevant records should be
specified1.
The application may specify two or more of the above actions2.
1. Civil Procedure Rules 1998, Part 18
2. Rule 12.18
21.36 Notice of the application
The official receiver’s application may, and normally should, be made without notice
to any other party1.
1. Rule 12.18(2)
21.37 The contents of the application
The official receiver’s application must be made on Form PVTEXO and will include
the grounds on which the private examination is being sought, for example, to ask a
bank to produce copies of statements on a bankrupt’s bank account. The application
is open to inspection by the respondent1.
1. Rule 12.39(4)
21.38 Where the grounds for the
application are not considered confidential
If the official receiver believes there is no need for the grounds of the application to
remain confidential they should set out the full grounds for the application and
consider disclosing it voluntarily to the respondent.
21.39 Where aspects of the application are
considered confidential
Following the advice provided in the ruling in Re British & Commonwealth Holdings
plc (Nos. 1 and 2) [1992] Ch. 342 the official receiver should include in the
application a brief summary of the grounds for their application excluding any
--- PDF page 12 ---
information considered confidential. The information considered confidential should
be set out in an annex to the application together with the reasons why the official
receiver considers that this material should remain confidential. The official receiver
should request the court not to place the annex on the court file.
21.40 The court’s decision
An order for the production of documents or a private examination is a matter for the
court’s discretion. The official receiver should provide sufficient information in their
application (and any annexes) to satisfy the court that it is appropriate to make the
order. The court is unlikely to make an order where it appears to be vexatious or
oppressive (i.e. excessively harsh or burdensome) to the respondent. The court must
also balance the importance to the applicant of obtaining the information against the
degree of oppression placed on the respondent1.
1. Re British & Commonwealth Holdings plc (Nos. 1 and 2) [1992] Ch. 342
21.41 Other matters that will be considered
by the court
British & Commonwealth Holdings plc (Nos. 1 and 2) provided some guidelines to
the court in exercising its discretion. The court in making its decision should consider
the following matters:
•
the case for making an order against an officer or former officer of a company will
usually stronger than it would be against a third party. Company officers owe a
fiduciary duty to the company and are under a statutory duty to assist the insolvency
officer-holder1 (bankrupts2, and debtors who have applied for a debt relief order3,
have a similar statutory duty to the official receiver);
•
whether the respondent, by giving the information sought, risks exposing themselves
to liability involving an element of oppression;
•
whether an order for an oral examination is more oppressive than an order for the
production of documents; and
•
if the respondent is suspected of wrongdoing, especially fraud, it will be oppressive to
require them to prove the case against themselves on oath before any criminal or
disqualification proceedings are brought.
However, if criminal proceedings have started or are about to start against the
respondent the court may still make an order. To enable the court to reach a
decision in this instance the official receiver should provide a list of topics to the court
upon which they wish to question the respondent4.
1. Section 235
2. Section 291
--- PDF page 13 ---
3. Section 251J
4. Arrows Ltd (No2) [1992] B.C.C 446
21.42 Where the court makes an order
After considering the official receiver’s application if the court makes an order for a
private examination it will specify the time and date of the private examination, which
will be at least 14 days from the date of the order, and the place where it will be
held1. If the respondent is ordered to submit witness statements, it will specify what
must be covered in those witness statements and when they must be submitted to
the court2. If the order is to produce books, papers or other records, it will specify the
time and manner in which they are to be produced3.
1. Rule 12.19(2)
2. Rule 12.19(3)
3. Rule 12.19(4)
21.43 Service of the order
Any order which the court makes on the official receiver’s application must be served
on the respondent as soon as practicable1. The official receiver after service must
also complete a certificate of service.
1. Rule 12.19(5)
21.44 Shorthand writer
Where the official receiver applies for an oral examination they should also apply for
the appointment of a shorthand writer to take down the evidence.
21.45 Withdrawal of the official receiver’s
application
In certain instances the threat of an application for the production of documents or a
private examination may result in the requested information being supplied before
the application is made. Where this occurs the official receiver should inform the
court and seek permission to withdraw the application.
21.46 Rescission of the court order
--- PDF page 14 ---
In certain instances when an order for a private examination is served on the
respondent, the requested information may be supplied, for example a bank will
normally allow inspection of accounts on production of the court order. Where the
information sought is given, or the required documents are surrendered, or there is
an admission of indebtedness due to the insolvent, the official receiver should ask
the court to rescind the order1. The shorthand writer should also be informed that the
examination will not proceed.
1. Rule 12.65
Private examination – The hearing
21.47 The official receiver and the hearing
Where the official receiver is the applicant they, or the deputy official receiver, should
attend at court in person. The official receiver may be represented by a solicitor, with
or without counsel1. The official receiver should normally only employ counsel where
the assets in the estate are sufficient to cover the cost of doing so or adequate funds
are provided by a third party. Where the official receiver considers that the
exceptional circumstances of the case require the employment of counsel and there
are no or insufficient funds, these circumstances should be reported to Senior
Official Receiver’s office before a debit balance is incurred.
1. Rule 12.20
21.48 The respondent’s legal
representation
The respondent may be accompanied by a solicitor, with or without counsel. The
respondent is responsible for meeting the costs of their legal representatives1.
1. Rule 12.20
21.49 Other attendees
In addition to the official receiver and the respondent any person who was also able
to make the application and a creditor who has provided information on which the
application was based may also attend unless the applicant objects. Although the
official receiver may object to their attendance they should not do so1.
1. Rule 12.20
--- PDF page 15 ---
21.50 The applicant’s expenses
The applicant’s expenses shall be paid out of the estate account, unless the court
otherwise directs1.
1. Rule 12.22
21.51 The respondent’s travelling expenses
The respondent must be offered a reasonable sum in respect of their travelling
expenses incurred in enabling them to attend the hearing1. A debit balance may be
incurred in this instance. The respondent should be asked whether they require an
advance for this purpose well before the hearing.
1. Rule 12.22
21.52 Other expenses of the respondent
The respondent may, at the court’s discretion, be able to claim for other expenses
incurred in attending the hearing, for example, a witness fee, compensation for loss
of earnings, etc1. The Council of the Law Society has advised its members that if
they attend for a hearing in either the High Court or the County Court they should
make a claim for their conduct money and professional witness allowance under the
Rules of the Supreme Court.
1. Rule 12.22
21.53 The costs of the hearing
The court may order the respondent to pay the costs of the hearing where, in its
opinion, they have unjustifiably failed to provide the required information. The court
may order the respondent to pay the costs of an application to deliver up property in
their possession or to repay any debt1. The applicant, including in certain
circumstances the official receiver as liquidator or trustee, may be ordered by the
court to pay the costs of the application.
1. Rule 12.22
21.54 The hearing – The official receiver
The official receiver or their legal representative, as the applicant, may put such
questions to the respondent as the court may allow1. The official receiver may wish
to consider providing a list of questions to the court prior to the hearing to assist the
court in deciding which questions to allow.
--- PDF page 16 ---
1. Rule 12.20(1)
21.55 The hearing – The respondent
If the respondent is legally represented his solicitor, or counsel, may put such
questions to them as the court allows. The respondent’s solicitor or counsel may also
make representations on their behalf1. The court may order the respondent to clarify
any matter or provide additional information. The court will direct which of the
questions they are required to answer and in what form, for example by way of a
witness statement1]. If the respondent is examined on oath they may not refuse to
answer any question allowed to be put by the court on the ground of self-
incrimination3.
1. Rule 12.20(4)
2. Rule 12.20(3)
3. Section 237(4), 367(4) & Arrows Ltd (No2) [1992]
21.56 The hearing – Other attendees
Any person who, is allowed to attend the hearing, may put questions to the
respondent through the official receiver with the permission of the court1. The official
receiver should not discourage such questions which may elicit further information
from the respondent. The official receiver should, however, obtain details of the
substance of any questions before the hearing to ensure their relevance.
1. Rule 12.20(2)
21.57 Record of the hearing
The shorthand writer will take a written record of the hearing. The written record will,
either, be read over either to, or by the respondent and signed by them at a venue
fixed by the court1. Unlike the record of a public examination, there is no need for
verification by a statement of truth.
1. Rule 12.20(5)
21.58 Written record as evidence
The written record may be used as evidence against the respondent in any
proceedings under the Insolvency Act 1986 and any other Act of Parliament1. This
includes any proceedings under the Directors Disqualification Act 1986. The wide
use to which the written record can be put may influence the conditions imposed by
the court under which the hearing takes place.
--- PDF page 17 ---
1. Rule 12.20(6|)
21.59 Access to the written record and
other documents
The written record of the examination and any witness statements submitted by the
respondent in order to comply with the application will not be placed on the court file
unless the court directs otherwise1. The only persons who are entitled, without an
order of the court, to inspect the written record, copies of the questions put to the
respondent, or proposed to be put to them together with any answers are the
applicant for the examination or anyone who could have made an application2, 3. The
court may from time to time give directions as to the custody and inspection of any of
the above documents or the provision of copies or extracts from them4.
1. Rule 12.21(1)
2. Rule 12.21(2)
3. Rule 12.21(3)
4. Rule 12.21(4)
Enforcement
21.60 Enforcement powers arising from the
application
The court has additional powers to make orders covering matters which come to light
as a result of an application for the production of documents or a private
examination. In particular the court, on application by the applicant, can order the
delivery of property or the repayment of a debt1.
1. Sections 237 and 367
21.61 County court - Undertakings to
provide further information
In the County Court as an alternative to obtaining additional court orders the
respondent may agree, by way of an undertaking, to provide information, deliver up
property within a specified period, or provide another such undertaking on the
General Form of Undertaking (Form N117). The official receiver should ask the court
--- PDF page 18 ---
to make an order for the respondent to complete and sign the undertaking form
before leaving. The respondent by signing the form accepts that a failure to fulfill the
undertaking could result in them being sent to prison for contempt of court.
21.62 Respondent absconding before the
hearing
If the official receiver believes the respondent has absconded or is about to abscond
in order to avoid being examined, an application to the court may be made for a
warrant for their arrest to be issued and/or an order for the seizure of records,
property, etc. in their possession1.
1. Section 236(4), 236(5), 251N(4), 251N(5), 366(2)&(3)
21.63 Applications available where
attendance unlikely
When the official receiver becomes aware that attendance is unlikely1, an
application, without notice to any other party, should be made to the court for an
order that the respondent should surrender their passport or, in exceptional
circumstances, that a warrant of arrest be issued and/or for the seizure of records,
property, etc.2 The application should show that service of the application was
properly effected, that a reasonable sum was offered for expenses and clearly set
out the grounds for their belief that the respondent is unlikely to attend. The official
receiver should also request that any records or property seized should be delivered
to them or otherwise dealt with according to their instructions3.
1. Section 236(4) & 366(2)
2 Section 236(5) & 366(4)
3. Section 236(5) & 366(4)
21.64 Debt Relief orders – Attendance
unlikely
The official receiver may suspect that a debtor is unlikely to attend a private
examination however they do not have the powers mentioned above. A warrant for
the debtor’s arrest can only be issued if they fail to attend court for the hearing1.
1. Section 251N(4) & (5)
--- PDF page 19 ---
21.65 The Senior Courts Act 1981
Where a private examination has been fixed in the High Court, it has power to
restrain the respondent from leaving the jurisdiction. Where the official receiver has
grounds to believe that the respondent will not attend the examination, or where the
examinee has been abroad and has returned to the jurisdiction, they should consider
making an application to the court without notice to any other party for such a
restraining order1.
1. Section 251N(4) & (5)
21.66 Failure to attend for private
examination
Where the respondent fails to attend for a private examination, the court on the
application of the applicant may issue a warrant for their arrest1. In cases where a
warrant for arrest is to be issued and the petition was presented prior to 6 April 2010
the form PEWA (Warrant for failure to attend examination) should be used. The
warrant should ask that the respondent be delivered to the court rather than to
prison. In cases where the petition was presented after 6 April 2010 the County
Court Civil Form N40A should be obtained from the court and used. In this instance
the warrant specifies that the respondent be delivered to the court.
1. Sections 236(4) and (5), 251N(4) and (5), 366(2) and (3)
21.67 Arrest of the respondent
Where the respondent is arrested, a court official or a police officer should bring
them before the relevant court immediately for examination. In practice this may not
always be possible. In this instance the arrested person will be taken into prison
custody and the applicant should apply to the court for an early hearing and for the
respondent to be brought from prison at the relevant time. If the court is willing to
consider releasing the respondent prior to the hearing after receiving appropriate
undertakings they should be brought before the court earlier1. In cases where the
respondent has been arrested and the petition was presented prior to 6 April 2010
the appropriate version of form WARPD should be used. In cases where the petition
was presented after 6 April 2010 the County Court Civil Form N288 should be
obtained from the court and used.
1. Rule 12.55
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--- PDF page 1 ---
This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 10 March 2020.
22. Releasing, obtaining and formal
disclosure of information
Chapter content
Frequently asked questions - Obtaining information from third parties
Frequently asked questions - Releasing information to third parties
Introduction
Confidentiality – An introduction
Legal professional privilege (LPP)
Public interest immunity and privilege against self-incrimination
Obtaining confidential information from third parties
Release of confidential information to third parties - overview
Release of information on public interest grounds
Release of narrative, PIQ and public examination transcripts
Examples of the question of release
Access to an insolvent’s accounting records
Director or bankrupt accessing records
Third parties (including creditors) accessing records
--- PDF page 2 ---
Formal disclosure in civil proceedings
Receipt of a witness summons for the production of documents
Frequently asked questions – Obtaining
information from third parties
These FAQs are to assist official receivers in understanding the subject and should
be read in conjunction with the more detailed guidance given in the main body of the
Technical Manual chapter.
Why might I need to obtain information from
third parties?
It would be almost impossible for the official receiver to carry out their duties without
seeking and obtaining information from third parties. Many other organisations will
hold useful information about an insolvent’s affairs and the official receiver should
aim to gather that information effectively.
What problems may I encounter when
attempting to obtain information?
Most organisations will freely provide the official receiver with information regarding
the insolvent’s affairs but, occasionally, some organisations will refuse to pass over
information on the grounds of confidentiality or data protection. Sometimes, the
organisation does so thoughtfully and in consideration of the law, sometimes it is as
a ‘knee-jerk’ reaction.
What is the difference between confidentiality
and data protection? Aren’t they the same
thing?
Data protection is, in its simplest terms, a statutory protection afforded to an
individual’s personal data to limit the use that it can be put to, the extent to which it
can be shared and to set rules regarding how it should be stored and protected.
--- PDF page 3 ---
Confidentiality, on the other hand, arises from common-law and describes the
principle that where one person tells another person something and there is a
reasonable expectation that that piece of information will not be disclosed, it should
be kept confidential. It is about keeping secrets. Confidentiality, for example, would
cover information relating to a trade secret, but data protection would not.
Necessarily, data protection and confidentiality over-lap (and are often confused)
and where there has been a breach of one there is often a breach of the other.
What might be done when an organisation
refuses to provide information on the grounds
of data protection or confidentiality?
Data protection is a separate area of law and, therefore, if the refusal relates to an
individual’s personal data on the grounds of data protection, the guidance elsewhere
on the intranet should be referred to.
If the refusal is on the grounds of confidentiality, it will usually be sufficient to
persuade the person holding the information that the duty of confidentiality has
passed from the insolvent to the official receiver, as trustee or liquidator.
That said, it is often easier to have the person to whom the duty was formerly owed
(the bankrupt, for example) provide a consent to the release of the information.
Does the duty of confidentiality pass to the
official receiver in all cases?
No. Where the information relates to something personal to the bankrupt (such as
medical records), the duty of confidentiality will continue to be owed to the bankrupt.
Similarly, where a director has consulted a professional in a personal capacity as
well as in the position of director of the company, the professional may be able to
correctly withhold release of information relating to the personal affairs – though it
will sometimes be difficult to draw a distinction.
In both cases, it will almost inevitably be necessary to obtain the consent of the
individual to whom the duty of confidentiality is owed.
What about legal professional privilege? Isn’t it
possible for a solicitor to withhold information
on those grounds?
--- PDF page 4 ---
Legal professional privilege has arisen through common-law to protect
communication (and advice requests/provision) between a solicitor and their client.
Privilege is to do with the extent to which those communications are protected from
disclosure in legal proceedings and has nothing (directly) to do with confidentiality. In
particular, privilege cannot be invoked as a reason to refuse to pass information to
the official receiver.
Privileged material obtained by the official receiver, as trustee, can only be used for
a trustee function and cannot be shared with anybody not carrying out a function n
that regard – even within the organisation.
What if, despite the official receiver’s best
efforts, and following the guidance in the
Technical Manual, the person with the
information refuses to provide it?
Ultimately, if all else fails, the official receiver will need to consider enforcing co-
operation through the courts, by means of a court order or a private examination.
Frequently asked questions - Releasing
information to third parties
These FAQs are to assist official receivers in understanding the subject and should
be read in conjunction with the more detailed guidance given in the main body of the
Technical Manual chapter.
What information held by the official receiver
might other parties ask to see?
Almost any information gathered by the official receiver in discharging their duties
might be of interest to third parties – particularly those with law enforcement duties
such as the police or HMRC.
What do I need to think about when
considering releasing information?
--- PDF page 5 ---
The main considerations are the extent to which the information is confidential and/or
the extent to which it is protected by the data protection legislation. You should also
consider whether the material has attracted legal professional privilege (LPP).
So, I can refuse to provide information on
these grounds?
Much of the information held by the official receiver will be confidential or consist of
or contain an individual’s personal data, but that does not mean that there is a
blanket prohibition of that information being released.
The official receiver will need to consider the public interest in releasing the
information and, also, the law that allows the requestor to be provided with the
information.
How do I find out if the requestor has a legal
right to receive the information?
It will largely be a matter of putting the ball in their court and asking them to explain
the legal basis on which the official receiver is obliged to provide the information. In
most cases concerning law enforcement bodies there will be a specific statutory
provision allowing/requiring disclosure.
What if there is no legal right for the requestor
to receive the information?
The official receiver may still release the information if the public interest test is met.
What is the public interest test?
In essence this is where the official receiver balances the public good that will be
done in releasing the information against the harm that will be done to the
individual(s) if the information is released.
What sort of information should I obtain to
assist in this balancing exercise?
The information that should be sought, from the requestor, would include precise
details of what is being requested, the purpose for which the information is required,
--- PDF page 6 ---
the harm that would be cause were the information not released and the authority of
the person to request/use the information.
What if I am asked to release the PIQ and/or
narrative statement?
There is a strong presumption that information in the PIQ and narrative statement
will not be released to a third party, because the knowledge that such information is
provided to the official receiver on a confidential basis makes it more likely that
information will be provided freely and truthfully by the insolvent. This, obviously,
assists the official receiver in the proper performance of their duties.
That said, where there is a statutory requirement to release these documents (or
information contained therein), or a strong public interest reason, they may be
released.
For protection, the official receiver may first wish to get the consent of the person
who provided the PIQ/statement.
Introduction
22.1 Introduction and overview of the chapter
This chapter provides guidance and information to assist official receivers when
requested to provide details or papers from case files. This might be during the
formal process of disclosure in relation to civil proceedings, or might be the more
general form of disclosure where the request is made by a person with interest in the
insolvent’s affairs.
The chapter also provides advice to assist the official receiver when seeking
information regarding the insolvent’s affairs from a third party and there is a
reluctance to provide that information.
22.2 Chapter does not cover enforcement
issues
The chapter does not provide advice concerning disclosure in relation to
disqualification, bankruptcy restriction, or prosecution proceedings being brought by
the Secretary of State. Guidance in this regard can be found in the Enforcement
Investigation Guide .
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Confidentiality – an introduction
22.3 Confidentiality and disclosure – general
Organisations such as the official receiver, banks, doctors or accountants will hold
information that is confidential in nature. For example, correspondence concerning
the insolvent’s affairs or the information given in the PIQ and interview will generally
be confidential and should not be disclosed.
The law, however, operates in such a way as to compel, or allow, organisations to
disclose confidential information in certain circumstances, as follows:
•
in relation to civil proceedings (disclosure)
•
to assist an organisation to carry out a public function
•
a data protection subject access request
22.4 Data protection and confidentiality
When dealing with a matter relating to the release of an individual’s personal
information, whether as sender or recipient, the official receiver will also have to
consider the provisions of the data protection legislation.
Where an individual’s personal data has been disclosed in breach of the data
protection legislation, it is likely that a breach of confidentiality has also taken place,
and visa-versa1.
1. Murray v Express Newspapers plc [2009] Ch 481
22.5 Confidentiality – general
Confidential information is information held by a person that has a limited availability
(that is, information that is not generally publically known) and is of a specific
character (that is, not vague), whether or not expressed as confidential1, 2.
1. Robb v Green [1985] 2 QB 315
2. Re Dalrymple's Application [1957] RPC 449
22.6 Categories of confidentiality
There are four broad categories of confidential information:
•
trade secrets
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•
personal information
•
journalistic, artistic and literary confidences, and
•
government secrets
The official receiver is most likely to be concerned, as holder and requester, with the
second in the list. In cases of personal information, a duty of confidence arises
where the party subject to the duty knew or ought to have known that the other
person could reasonably expect their privacy to be protected1, 2.
1. Campbell v MGN Ltd [2004] 2 AC 457
2. Douglas v Hello! Ltd (No.3) [2003] EMLR 29
22.7 Implied and express confidentiality
Within certain relationships, such as employee and employer, doctor and patient,
married couples or solicitor and client there is an implied duty of confidence. See
also below in relation to dealings between parties.
Legal professional privilege (LPP)
22.8 Legal professional privilege
Over time a principle of law has developed that communications between a client
and their lawyer in relation to the seeking of advice or the preparation of litigation
should remain secret. This is so as not to stifle a person’s ability to seek advice
through fear that the information revealed will be used improperly, or against them. 1,
2, 3.
Legal professional privilege is confined to the legal profession, but is applied broadly
in scope within that profession to include not only barristers and solicitors, but in-
house legal advisors, intellectual property agents, licensed conveyancers, legal
executives and foreign legal advisors4.
More detailed guidance to assist in identifying whether material is privileged can be
found in the Enforcement Investigation Guide.
1. Anderson v Bank of British Columbia (1876) 2 ChD 644 CA
2. Three Rivers District Council v Governor and Company of the Bank of England [2005] 1 AC 610
3. Balabel v Air India [1988] Ch 317
4. Alfred Crompton Amusement Machines Ltd v Customs and Excise Commissioners (no 2) [1972] 2 QB 102
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22.9 Difference between privilege and
confidentiality
All privileged communications are confidential, but not all confidential
communications are privileged. Confidential information can be used in court
proceedings, although achieving its production will sometimes require a court
order. By comparison, material that is privileged may not be deployed in court
unless that privilege is waived.
22.10 Waiver of privilege
Privileged material can become non-privileged if the privilege in the material is
waived by the client. Broadly, privilege can be waived in three ways:
•
intentional of express waiver – where, for example, the document is intentionally
used in court proceedings by the party owed privilege
•
unintentional waiver – where a privileged document is sent by mistake. Where the
mistake in doing so is obvious, then privilege has not been waived and the document
should be returned immediately
•
collateral waiver – where only a section of privileged material is provided and has the
effect of waiving privilege in respect of the whole of the material document. The
principle of a collateral waiver recognises the risk of a document being used out of
context
Documents can be subject to a limited waiver where waiver is given only in respect
of a limited set of circumstances – for example in relation to particular proceedings.
Only the ‘owner’ of the right of privilege can waive the right, not the lawyer or any
other third party – including a trustee in bankruptcy. A bankrupt cannot be
compelled to waive the right to privilege1.
1. Leeds and another v Lemos [2017] EWHC 1825 (Ch)
22.11 Legal professional privilege not grounds
to refuse to supply information
The ability of a lawyer to avoid providing information on the grounds of legal
professional privilege will not apply where the official receiver is seeking information
in the pursuit of their duties as trustee of liquidator and the bankrupt is required to
deliver up all material, even that which would be privileged from disclosure1, 2, 3, 4.
1. Section 131
2. Section 235
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3. Section 288
4. Section 291
22.12 Privileged material held by a trustee in
bankruptcy
As outlined above, only the owner of a right of privilege can waive that right and the
right does not pass to a bankrupt’s trustee in bankruptcy.
A trustee in bankruptcy can deploy privileged material against a bankrupt (where the
right of privilege is owed to the bankrupt) but may not otherwise use privileged
material in a manner that would amount to a waiver of privilege, for example in BRO
proceedings or for criminal prosecution. Similarly, the privileged material may not be
disclosed to anyone not carrying out a function related to the administration of the
bankruptcy estate. 1,2
1. Avonwick Holdings Ltd and others v Shlosberg [2016] EWCA Civ 1138]
2. Re Lemos; Leeds and another (in their capacity as the joint trustees in bankruptcy of the estate of Lemos) v Lemos and others [2017] EWHC 1825 (Ch), [2017] All ER
(D) 157 (Jul)
22.13 Privileged material held by a liquidator
Where the company is the sole owner of the privilege, the liquidator may waive the
company’s privilege. Care must be taken to ensure that the privilege in any material
belongs solely to the company. It is possible that the liquidator will encounter
material to which the company and its directors enjoy joint privilege, for example
where advice is given to the directors on both the company’s position and their
personal position.
22.14 Privileged material to be stored away
from the case file
To avoid the risk of privileged material being seen by those not entitled to see it, the
material should be stored away from the case file, with a file note to the effect that
privileged matter has been stored in this way – but with no reference to the nature or
detail of the documents.
Ideally, the material should be scanned so that it can be stored electronically, with
the originals destroyed. A set of folders have been set up in Wisdom into which the
material must be placed, having been appropriately named to aid future
identification. The folders are located on Wisdom in the Official Receiver Services
area.
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They have been set up in such a way that they can be accessed by only the Official
Receiver personally and the Local Records Officer for the Senior Official Receiver’s
Office.
If the material cannot be stored electronically, it should be stored within the office in
a suitably locked cupboard, to which access is restricted.
Public interest immunity and privilege
against self-incrimination
22.15 Public interest immunity
Public interest immunity is essentially a type of confidentiality, though it also has
some bearing on litigation. It is the principle, founded on public policy and recognised
by Parliament1 that documents may be withheld or the answer to a question refused
on the grounds that release would damage the public interest2.
Public interest immunity can only be claimed by the Crown and not by the individual
to whom the relevant document relates3.
It is unlikely that such immunity will be used by or against the official receiver.
1. Crown Proceedings Act 1947 section 28(1)
2. Conway v Rimmer [1968] AC 910
3. Anthony v Anthony (1919) 35 TLR 559
22.16 Privilege against self-incrimination
The privilege against self-incrimination in civil matters is limited to the provision of
information that would open the individual to action for criminal offences and
penalties under the laws of the UK (including EU laws having effect in the UK)1
A director or bankrupt cannot rely on the privilege against self-incrimination to avoid
providing the official receiver with information regarding the company’s/their affairs2.
1. Civil Evidence Act 1968 section 14
2. Bishopsgate Investment Management Ltd v Maxwell [1993] Ch 1 CA
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Obtaining confidential information from
third parties
22.17 Third party refusal to provide
information on the grounds of confidentiality
This section provides guidance and information to assist the official receiver when is
seeking information from third parties and the provision of that information is refused
on the grounds of confidentiality.
22.18 Obtaining consent to release of
information
On questions of confidentiality, it is generally simplest to arrange for the person to
whom the duty of confidentiality is owed to provide a general or specific consent
(waiving the duty) which may then be provided by the official receiver to the person
from whom the information is sought.
This, of course, assumes that such co-operation can be obtained.
22.19 Duty of confidentiality owed to insolvent
passes to official receiver - companies
Where a professional such as a solicitor or accountant (or any other person claiming
a duty of confidentiality) has been instructed by the company the duty of
confidentiality is owed to the company (not the directors or shareholders). The official
receiver, as liquidator, can therefore authorise disclosure to them.
The position is more complicated if the professional considers they also acted for the
directors personally (rather than as officer of the company). The nature of the
information sought should assist in deciding who the client was1. Where information
is refused on these grounds it may be possible to arrange for the directors to consent
to the release of the information.
1. Buttes Gas and Oil Co v Hammer [1982] AC 888
22.20 Duty of confidentiality owed to insolvent
passes to official receiver - bankruptcy
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Where a professional such as a solicitor or accountant (or any other person claiming
a duty of confidentiality) has been instructed by the bankrupt in relation to property
matters (in the widest definition of this term1 the duty of confidentiality transfers to the
official receiver, as trustee. The official receiver can therefore waive this
confidentiality and authorise disclosure to them.
Where information is refused on these grounds it may be possible to arrange for the
bankrupt to consent to the release of the information.
Personal information, such as information of a medical nature, will remain
confidential and might only be obtained with the consent of the bankrupt or a court
order.
1. Section 436
22.21 Obtaining information from solicitors
Once the question of a duty of confidentiality has been avoided (or the director’s or
bankrupt’s consent given), the official receiver should obtain all information and
documentation relevant to the company and to the property of the bankrupt.
In particular, the solicitor should pass over documents prepared for the insolvent (for
example instructions and advice and copies of correspondence with third parties).
This is subject to any valid lien over documents of title.
The solicitor’s own papers relating to the insolvent remain the solicitor’s property.
Where dealing with solicitors see also the advice above regarding Legal Professional
Privilege.
22.22 Obtaining information from licensed
conveyancers
Once the question of a duty of confidentiality has been avoided (or the director’s or
bankrupt’s consent given), the official receiver should obtain all information and
documentation relevant to the company and to the property of the bankrupt. It is
likely that the vast majority of information/documents held by a licensed conveyancer
will relate to property matters.
The Council of Licensed Conveyancers has advised its members, when passing
over a conveyancing file, to redact ‘personal’ information from the file and to explain
what documents, and the nature of those documents, have been removed.
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22.23 Obtaining information from accountants
or auditors
Once the question of a duty of confidentiality has been avoided (or the director’s or
bankrupt’s consent given), the official receiver should obtain all information,
documentation and book and papers relevant to the company and to the property of
the bankrupt. It is likely that the vast majority of information/documents held by an
accountant or auditor will relate to non-personal matters.
22.24 Obtaining information from banks
A bank’s duty of confidentiality to its customers is not absolute and there are
circumstances in which a bank may disclose information regarding a customer’s
affairs1, 2. The circumstances most likely to arise in relation to an insolvency matter
are:
•
where the bank is compelled by law, or
•
where the bank has a public duty to disclose
Generally, a bank will be happy to provide information regarding the insolvent’s
affairs to the official receiver, but if the official receiver is dealing with a foreign bank
it is likely that the (former) account holder’s consent will be required.
Where information regarding third parties is being sought, and in the absence of the
customer’s authorisation, the official receiver should attempt to persuade the bank to
disclose by the threat of court action or public duty, as above. Otherwise, it will be
necessary to enforce co-operation.
1. Tournier v National Provincial and Union Bank of England [1924] 1 KB 461
2. Christophi v Barclays Bank plc [2000] 1 WLR 937
22.25 Obtaining information from HMRC –
general
HMRC has a strict duty to maintain the confidentiality of the information it holds
about its customers. This long established and fundamental principle, which is
supported by case-law, is viewed by HMRC as being vital in helping to ensure the
trust and voluntary compliance of its customers.
Requests for information from the official receiver to HMRC should therefore be
limited in scope and process to that allowed under the Partnership Agreement
between HMRC and The Insolvency Service.
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The standard tax disclosure authority1 should be obtained from the bankrupt in every
case.
1. Form TINDIS
22.26 Obtaining information from Live
Investigations
Whilst the provision of information obtained in the investigation of a live company is a
criminal offence, Live (company) Investigations, acting on behalf of the Secretary of
State, are allowed to pass relevant information to the official receiver for the purpose
of enabling or allowing them to discharge their functions under the insolvency
legislation1.
1. Companies Act 1985 section 447
22.27 Enforcement of a duty to provide
information
The official receiver may consider enforcing compliance when unable to persuade
the third party to provide the requested information. In many cases, the threat of
such action will suffice, but occasionally the holder of the information will only
release it on the order of the court to protect them against a claim for breach of
confidence.
In such situations, the following methods of enforcement may be considered:
•
an order of the court under a power to apply for directions, or
•
a private examination
Release of confidential information to
third parties - overview
22.28 Release of information to third parties –
general
Much of the information gathered by the official receiver during enquiries into the
affairs of the insolvent will be confidential in nature, especially in respect of
bankruptcies. Although there is no limit in the Act to which information obtained
--- PDF page 16 ---
under compulsion can be put, the PIQ and narrative statement, in particular, are
likely to contain information of which the majority is confidential.
The official receiver should also consider the guidance in this chapter concerning the
handing and disclosure of material which has attracted legal professional privilege
(LPP).
This section will be relevant to official receivers if they are releasing information
proactively (to support their own statutory functions) or reactively (when asked to do
so by some other authority).
22.29 Considerations when releasing
information (Freedom of Information Act
2000)
Any written request for information held by the official receiver from a third party will
be covered by Freedom of Information Act 2000 (FOI). It should be noted that where
the official receiver is holding the information requested solely by virtue of their
position as statutory office holder, FOI does not apply).
The official receiver is acting as a statutory office holder when provisional liquidator,
liquidator, interim receiver, trustee, and also if carrying out an investigation
(regardless of whether still liquidator or trustee).
It follows, therefore, that all files created by official receivers when acting in any of
the above capacities are excluded from the provisions of FOI and, where the request
is a valid FOI request, the official receiver will have to issue a refusal notice.
22.30 Considerations when releasing
information (data protection)
When releasing information, the official receiver should do so with care and only
after considering the effect of the data protection legislation.
Against this, the official receiver should take a practical approach so that where for
example, it is possible to obtain the consent of the person to whom the duty of
confidentiality is owed, this should be done rather than forcing the requestor of the
information down the route of court action to obtain the information.
22.31 Onward release of information obtained
from other third parties
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Where the official receiver is requested to release information or documents that
were originally obtained from other third parties, they may still take the position of
balancing the public interest, but it is likely to be more appropriate to ask the enquirer
to direct their request on the original source of the information or, at least, to provide
that person’s consent.
It should be noted that there are criminal penalties for the onward release of certain
types of information, such as that obtained from the Financial Conduct Authority1.
1. Financial Services and Markets 2000 section 352
22.32 Formal disclosure of information in
relation to legal proceedings
If the official receiver is involved in the formal process of disclosure in connection
with legal proceedings or a witness summons is received, the guidance below should
be followed, rather than the guidance in this section.
Release of information on public interest
grounds
22.33 Release of confidential information
allowed where it is in the public interest or
required by statute
The courts will allow a breach of confidence only where it is in the public interest to
do so. In each case the official receiver will be required to carry out a balancing
exercise to establish whether the public interest is better served by releasing the
information or by keeping it confidential.
22.34 Deciding whether there is a public
interest in releasing information
In deciding whether there is a public interest in releasing information, the official
receiver will need to judge what is reasonable to disclose to meet the stated purpose
in the request, also taking into account the seriousness of the reason for the request
and the effect of not complying with it. Where specific information is requested to
--- PDF page 18 ---
assist in the investigation of a criminal matter, it is likely that the public interest test
will be met.
The official receiver will, in particular, be obliged to release the information where
there is a statutory requirement to do so.
The official receiver should keep in mind that where a request for information is wide-
reaching (looking like what is known as a ‘fishing expedition’), they are not obliged to
disclose all or any of the information.
22.35 Information to be sought to assist in
balancing the public interest
Where an official receiver receives a request to release confidential information held
in a case file (which requests will generally come from regulatory authorities,
including the Police), they should obtain details, in writing (which can include e-mail),
of the following:
•
precise details of the information being requested
•
precise details of the purpose or purposes for which the information is required, how
it may be used and to who it may further be disclosed to
•
precise details of the legislative authority for the request or data protection exemption
(in respect of an individual’s personal data) the requestor is seeking to engage
•
details of the prejudice that may be caused to the stated purpose if the requestor is
not provided with the requested information
•
the requesting person’s position or authority in requesting the information
•
the response will assist the official receiver in balancing the public interest and
assessing any obligation to release the information
Release of narrative, PIQ and public
examination transcripts
22.36 Release of the narrative statement
and PIQ
The narrative statement and PIQ are obtained under compulsion1, 2 and will contain
confidential information including an individual’s personal data. There is a strong
presumption that this confidentiality should be observed, because it facilitates and
promotes the proper performance of the duties of the official receiver.
--- PDF page 19 ---
The narrative statement and PIQ, and information contained therein should only be
released where there is a strong public interest or statutory requirement to do so or
where the person giving the statement/information has given their consent, in writing,
to the general or specific release of the statement/information. In particular, it has
been held that the official receiver may release statements obtained under
compulsory powers to aid the investigations of a prosecuting authority, with or
without consent3.
See chapter 17 regarding the provision of a copy statement/PIQ to an interviewee.
1. Section 235
2. Section 291
3. R v Brady (Paul Clement) [2004] 1 WLR 3240
22.37 Release of private examination
transcript
Information obtained pursuant to a private examination is sometimes recorded in a
transcript. Unless the court orders otherwise, inspection of the transcript is limited to
the applicant for the private examination and those who would have been able to
apply for an examination1 (essentially, the office-holder).1
In this regard, the court may order release of the information if it will assist in the
winding-up of the company, or it is otherwise in the interests of justice in a particular
case, but not for any other reason2, 3.
If the official receiver is under a statutory duty to release the transcript then it should
be released3, 4, 5.
1. Rule 12.20
2. Barlow Clowes Gilt Managers Ltd [1992] Ch 208
3. re Arrows (No 4) [1994] 3 WLR 656
4. re Trachtenburg [1993] BCC 492
5. R v Director of Serious Fraud Office, ex parte Smith [1993] AC 1
Examples of the question of release
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22.38 Release of information to the Financial
Services Compensation Scheme
Where a request is received from the Financial Services Compensation Scheme
(FSCS) acting under its duty to compensate investors (http://www.fscs.org.uk/), the
official receiver must permit a person authorised by the FSCS to inspect
documentation of the insolvent for the purposes of establishing1:
•
the identity of persons to whom the FSCS may be liable to make a payment in
accordance with the compensation scheme; or
•
the amount of any payment which the FSCS may be liable to make
It may be that some of the documentation is confidential in that it relates to the
financial affairs of clients of the insolvent (rather than simply being a client list, for
example). If so, the official receiver should ensure that the FSCS provides copies of
consents supplied by the affected individuals before making available the requested
information, unless the public interest in disclosing is strong.
Consequently, the official receiver should comply with reasonable requests from
the FSCS. This would include taking of extracts and copying documents2.
1. Financial Services and Markets Act 2000 section 224
2. Financial Services and Markets Act 2000 section 224(2)
22.39 Release of information obtained in an
investigation of a live company
It is a criminal offence to disclose information obtained in the investigation of a live
company unless it is for the purpose of assisting specified bodies in carrying out
regulatory or statutory functions1.
Where the official receiver holds information originally obtained from Live
Investigations, and such information is requested by a third-party they may consider
releasing that information if they are satisfied that the requesting party is one of
these specified bodies2, but, if in doubt, it is likely to be more appropriate to forward
the request to Live Investigations so that can provide the information, as
appropriate.
1. Companies Act 1985 section 449
2. Companies Act 1985 schedule 15C
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22.40 Release of information to bodies with a
regulatory function
Occasionally the official receiver may be requested to release information to a
professional body with a regulatory function, for example the Law Society or the
Association of Chartered Certified Accountants (‘ACCA’).
Such information should only be released when the public interest test outweighs
that in maintaining the confidentiality of the information (see paragraph 22.31).
22.41 Release of information to the media
If a representative of the press (including on-line publications), radio or television
contacts the official receiver, or a member of staff, the Press Office should be
consulted before any information (confidential or not) is released.
22.42 Release of information to creditors and
contributories
Notwithstanding a creditor’s or contributory’s right to receive information regarding
the insolvent’s affairs, the official receiver may provide a creditor or contributory, or
their authorised representative, with the following information:
•
confirmation of the existence of proceedings
•
whether or not a meeting of creditors is to be held and, if so, the date of the meeting
•
the general nature and value of the assets, and
•
the amounts of the preferential and other liabilities in round figures
22.43 Release of information in relation to
third party insurance claim
It is possible for a person to sue a company or individual in insolvency as a means to
secure a payment from the insolvent’s insurers (see chapter 61).
Where the official receiver is considering releasing information in relation to such
proceedings, they should refer to the guidance in that chapter.
22.44 Release of information relating to a
person’s gender history
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The legislation provides that it is an offence, where a person has had a new gender
legally recognised, to disclose information gained in an official capacity about a
person’s application for gender recognition or about the gender history of a
successful applicant (this is known as ‘protected information’)1.
This is subject to certain exemptions and, in particular, an offence is not committed
where2:
•
the release is made by or to the official receiver (or an insolvency practitioner); and
•
the release is necessary for the official receiver to perform functions under the
insolvency legislation
The official receiver will therefore need to carry out a balancing of the competing
interests and, in particular, may need to consider the significance of the time elapsed
since the change of gender. The provisions of the DPA will also need to be
considered when considering disclosure to the third party.
1. Gender Recognition Act 2004 section 22
2. The Gender Recognition (Disclosure of Information) (England, Wales and Northern Ireland) (No. 2) Order 2005
Access to an insolvent’s accounting
records
22.45 Presumption that records will not be
made available
There is a presumption that the insolvent’s records will not be made available for
inspection unless in the following circumstances:
•
where required to do so during the process of formal disclosure in civil proceedings
•
where required to do so by the court
•
to assist a bankrupt/director in relation to the insolvency
22.46 Power to refuse access to records on
grounds of confidentiality or personal safety
Where the official receiver considers that a document forming part of the records is
confidential in nature or is of such a nature that its disclosure would be prejudicial to
the proceedings or might reasonably be expected to lead to violence against any
--- PDF page 23 ---
person, they may decline to allow it to be inspected by a person who would
otherwise be entitled to inspect it1.
Where there is such a refusal, the person wishing to inspect it may apply to court for
that refusal to be overruled2.
1. Rule 1.58(1)
2. Rule 1.58(3)
22.47 Right to copy documents
Where a person has the right under the Act or Rules to inspect the books and papers
of the insolvent, they also have the right to be provided with copies1 on payment of
the appropriate fee, which amount is specified in the relevant Rule2.
1. Rule 12.40
2. Rule 12.39(7)
22.48 Member of official receiver’s staff to be
present when records are inspected
It should generally be the case that a member of the official receiver’s staff should
remain present when the records of the insolvent are being inspected by a director,
bankrupt, creditor or contributory.
Where the records are being inspected by another Government department, or by
the appointed insolvency practitioner, it need not be necessary for a member of staff
to be present
Director or bankrupt accessing records
22.49 Allowing company officers access to
company records
Assuming that the official receiver is satisfied that a company officer requires access
to the company’s records in connection with matters relating to the insolvency
(including to assist in completing a tax return) then it should be allowed.
Where inspection is allowed, it should be limited to access to the records relating to
the period that the officer in question was in post.
--- PDF page 24 ---
Access may also be allowed, in the terms described above, to a person acting on the
specific, written, authority of the company officer.
22.50 Allowing bankrupts to access records
Assuming that the official receiver is satisfied that a bankrupt requires access to their
own records in connection with matters relating to the insolvency (including to assist
in completing a tax return) then it should be allowed.
Access may also be allowed, in the terms described above, to a person acting on the
specific, written, authority of the bankrupt.
Third parties (including creditors)
accessing records
22.51 Allowing creditors and contributories
access to the insolvent’s records
On a strict interpretation of the law the official receiver may require a creditor
(or contributory) to obtain a court order before are allowed access to the company’s
records. The official receiver as liquidator may, however, exercise a discretion to
permit inspection to non-privileged, non-confidential company records to a creditor
or contributory where that party is willing to reimburse the official receiver for any
expense or where some benefit will accrue by granting permission1.
In bankruptcy cases, there is no provision to allow the creditor to seek an order of
the court so, in deciding whether to grant permission, the official receiver should
consider the extent of the willingness of the creditor to reimburse expenses (such as
the costs of retrieving papers from storage), any benefit to the bankruptcy estate
which may accrue and whether the bankrupt has given their permission (which is
indicative but not compulsory).
1. ACLI Metals (London) Ltd (AML Holdings Inc v Auger) (1989) 5 BCC 749
22.52 Access to accounting records by
creditors or contributories in relation to
unconnected legal proceedings
--- PDF page 25 ---
The official receiver may exercise discretion in allowing creditors/contributories
access to accounting records in legal proceedings not directly connected to the
insolvency proceedings. Where access to the records is allowed, it should be on the
following terms:
•
all parties to the proceedings should be allowed equal access;
•
no costs will be incurred by the estate or by the official receiver personally;
•
no original documents will be removed; and
•
no work has to be done by the official receiver.
22.53 Court order for creditor
or contributory to access records – company
only
As referred to above, creditors or contributories may, on a strict interpretation of the
law, only access records with the permission of the court1. The court will grant
permission in cases where the request is connected to the liquidation2 or in other
appropriate cases (where, for example, the creditor needs to obtain information to
defend a claim under a guarantee.
The order of the court will not assist the creditor or contributory where the records
are not held by the company3.
1. Section 155
2. re North Brazilian Sugar Factories (1887) 37 ChD 83
3. re DPR Futures Ltd (1989) 5 BCC 603
22.54 Statutory rights of Government
departments to inspect records
Where the official receiver is satisfied that a Government department has a statutory
right to inspect the records of the insolvent, inspection should normally be allowed.
The department can be asked to set out its power to inspect the records, where
there is doubt.
If, in these circumstances, the official receiver no longer requires to retain
possession of the records, they may pass them to the other department to facilitate
their enquiries on receipt of an undertaking that:
•
the records will be returned to the official receiver on demand; and
•
the records will not be used in any proceedings without the official receiver being first
informed
--- PDF page 26 ---
Additionally, the official receiver should obtain a signed copy of the list of records
handed over to the other department.
Where the request originates from HMRC, the additional guidance in the Partnership
Agreement should be followed.
Formal disclosure in civil proceedings
22.55 Disclosure – general
Disclosure is the process by which parties to civil (court) proceedings reveal the
existence of and, where necessary, produce documentation relating to the
proceedings.
In summary, disclosure is the process by which the parties:
•
inform each other of the existence of relevant material, and
•
arrange inspection of any relevant material, or
•
claim some right or duty to withhold inspection
22.56 Disclosure generally dealt with by
appointed solicitors
Generally speaking, and apart from situations where the official receiver is not party
to the proceedings, disclosure will be overseen by the solicitor appointed by the
official receiver in the litigation and they should act following the solicitor’s advice.
This section is therefore an overview of the disclosure process.
22.57 Process for disclosure
Not less than 14 days before the first case management conference (which is a
meeting between the parties and the court to decide on how the case will managed)
each party must file and serve a report which describes briefly what relevant
documents exist, where are located and the estimated costs of standard disclosure1.
The court will then decide which of the orders relating to disclosure may be made,
having regard to the need to limit disclosure to that which is necessary to deal with
the case justly2.
1. Civil Procedure Rules Part 31 paragraph 31.5(3)
2. Civil Procedure Rules Part 31 paragraph 31.5(7)
--- PDF page 27 ---
22.58 Standard disclosure
Where the court orders standard disclosure, the official receiver will be required to
disclose only:
•
the documents on which they rely; and
•
the documents which –
o adversely affect their own case
o adversely affect another party’s case; or
o support another party’s case; and
•
the documents which they are required to disclose by a relevant practice direction
22.59 Standard disclosure process
The standard disclosure process requires that each party must, after a reasonable
search1, make and serve on every other party, a list which must identify the
documents in a convenient order and manner as concisely as possible. The list must
indicate those documents in respect of which the party claims a right or duty to
withhold inspection and what has happened to those documents no longer in the
party’s control2.
1. Civil Procedure Rules Part 31 paragraph 31.7
2. Civil Procedure Rules Part 31 paragraph 31.10
22.60 Duty of disclosure is limited to
documents in control of official receiver
The official receiver’s duty to disclose documents is limited to documents that are, or
have been, under their control1, which includes documents of which they have or had
a right to possession2.
1. Civil Procedure Rules Part 31 paragraph 31.8(1)
2. Civil Procedure Rules Part 31 paragraph 31.8(2)(b)
22.61 Categories of documents liable to
disclosure
For the purposes of the rules relating to disclosure, a ‘document’ is anything in which
information is recorded, includes electronic documents and databases1.
1. Civil Procedure Rules Part 31 paragraph 31.4
--- PDF page 28 ---
22.62 Right to inspect a disclosed document
A party to whom the existence of a document has been disclosed has the right to
inspect that document unless1:
•
the document is no longer in the control of the person who disclosed it
•
there is a right or duty to withhold inspection, or
•
that inspection would be disproportionate to the issues in the case
1. Civil Procedure Rules Part 31 paragraph 31.3
22.63 Disclosure a continuing duty
The duty to disclose continues throughout the proceedings so where any relevant
documents come to light after the initial stages should be notified to every other
party, normally as a supplemental list1.
1. Civil Procedure Rules Part 31 paragraph 31.11
22.64 Consequence of failure to disclose
documents or permit inspection
A party may not rely on any document which they fail to disclose or in respect of
which they fail to permit inspection unless the court gives permission1.
1. Civil Procedure Rules Part 31 paragraph 31.21
22.65 Privilege against disclosure
Certain documents are privileged against disclosure and/or inspection. In very simple
terms, this means that communications between a lawyer and their client that relate
to legal advice and the obtaining of legal advice are not liable to be disclosed or
inspected. This is known as legal professional privilege.
The privilege ‘belongs’ to the client (not the lawyer)1 and may only be waived by the
client2, 3.
The rules relating to legal professional privilege are complex and the official receiver
will be guided by their solicitors on this matter. There is guidance above on the
extent to which privileged documents may be disclosed outside of legal proceedings.
1. Knight v Marquess of Waterford (1836) 2 Y&C Ex 22
2. Kershaw v Whelan [1996] 2 All ER 404
3. Anderson v Bank of British Columbia (1876) 2 ChD 644
--- PDF page 29 ---
22.66 Disclosure against a person not a party
The court may order disclosure against a person who is not a party to the
proceedings1. The court may only make such an order where the documents are
likely to support or adversely affect the case of one of the parties and disclosure is
necessary to fairly dispose of justice or save costs2. The order must specify what is
to be disclosed3.
Where the official receiver is the respondent to such an order, they should comply as
fully as possible.
1. Civil Procedure Rules Part 31 paragraph 31.17
2. Civil Procedure Rules Part 31 paragraph 31.17(3)
3. Civil Procedure Rules Part 31 paragraph 31.17(4)
22.67 Disclosure and the public interest
A person may apply for an order permitting them to withhold disclosure or inspection
of a document on the ground that disclosure would damage the public interest1.
An application may also be made for public interest immunity to avoid the
disclosure/inspection of documents2.
It is extremely unlikely that the official receiver, in their role as liquidator, receiver and
manager or trustee would seek to avoid disclosure in this way, though the advice of
the Senior Official Receiver may be sought if it is considered that there is a good
reason to act in this way.
1. Civil Procedure Rules Part 31 paragraph 31.19
2. Conway v Rimmer [1968] AC 910
22.68 Disclosure and confidentiality
Merely because a document is confidential does not mean that it does not have to be
disclosed, but confidentiality may be a relevant consideration when deciding on
refusal to disclose on public interest grounds1.
1. Alfred Crompton Amusement Machines Ltd v Customs and Excise Commissioners (No 2) [1974] AC 405
22.69 Disclosure of private examination
transcript
--- PDF page 30 ---
Information obtained pursuant to a private examination is sometimes recorded in a
transcript. It has been held that such a transcript attracts legal professional privilege1.
1. re Dubai Bank Ltd v Galadari & others [1989] 5 BCC 722
22.70 Disclosure of a statement made in the
insolvency proceedings
Any statement (of affairs, for example) made in insolvency proceedings (including
one made in connection with a private examination) may be used in any legal
proceedings (whether or not under the Act) brought against the person making, or
concurring in the making of, the statement, but it may not be used in proceedings
against anyone else1, 2.
1. Section 433
2. re Norwich [1884] LR 27 ChD 515
22.71 Disclosure of documents relating to
criminal investigation
Guidance in the Enforcement Investigation Guide should be referred to where
disclosure is in relation to criminal proceedings.
Occasionally, however, the official receiver will be involved in civil disclosure where
they hold on file information relating to a criminal investigation. Care should be taken
in this regard and the official receiver should seek the guidance of Enforcement
Technical before disclosing any documents.
22.72 Disclosure where right of action
assigned to bankrupt
In cases where a right of action has been assigned to a bankrupt, the official receiver
should generally assist with disclosure, as appropriate, subject to any concerns
regarding privilege or confidentiality.
Receipt of a witness summons for the
production of documents
--- PDF page 31 ---
22.73 Summons - general
A witness summons is prepared by a party to legal proceedings and endorsed by the
court with jurisdiction over those proceedings. The purpose of a witness summons is
to compel the production of admissible evidence.
There are two basic types of witness summons:
•
a witness summons which orders someone to attend at the court and give evidence
in the proceedings; and
•
one which orders the person named in it to attend and produce documents specified
in the summons at that hearing
22.74 Summons not to be used as general
disclosure exercise
A witness summons cannot be used as a general disclosure exercise, and must
specify the particular documents required.
22.75 Receipt of a summons that does not
specify documents required
Where the official receiver receives a summons that does not specify the documents
required, they should request that the party specify the documents required. Failure
to do so may mean that the official receiver has good grounds to have the witness
summons set aside.
22.76 Setting aside a witness summons
As soon as the official receiver is served with any witness summons they should
consider whether or not an application should be made for the witness summons to
be set aside - seeking legal advice as required.
In civil proceedings the official receiver will usually be faced with a witness summons
which requires them to attend, give evidence, and to produce specified documents.
The summons may be set aside where:
•
it is oppressive, that is, it would be burdensome or harsh for the official receiver to
comply with
•
it represents a ‘fishing expedition’ - that is, the litigant is requesting information simply
in the general hope that something will turn up to assist their case
•
it fails to give adequate details of the documents required
•
the documents are privileged from production; or
--- PDF page 32 ---
•
the documents are not in the official receiver’s possession or control
22.77 Witness summons for production –
official receiver’s file
It is possible that the official receiver may receive a summons to produce the case
file during the course of civil proceedings. If so (and subject to the guidance
elsewhere in this section), they should attend court to produce the file and to explain
their position with regard to the information and documents on the file.
If the file is electronic, the official receiver should respond to the summons in the
form of a report setting out, generally, the contents of the file and the extent to which
they believe those contents may be produced.
Where the official receiver holds confidential information on the file and has any
doubt as to whether the document/information should be disclosed, they should
withhold the relevant information and draw their concerns to the court, who will
decide on disclosure.
22.78 Witness summons to produce original
documents following handover to insolvency
practitioner
When an insolvency practitioner receives a witness summons and tenders
secondary evidence (that is, the photocopies supplied to them on handover), it may
be necessary to account for the absence of the original. In this case the insolvency
practitioner will inform the court that the official receiver has the originals and, in that
situation, it may then be appropriate for the official receiver to be served with a
witness summons to produce the originals.
22.79 Witness summons for production –
accounting records
The official receiver may be required to produce the insolvent’s records on receipt of
a witness summons issued at the instance of any party to civil proceedings (including
a director or the bankrupt). It will be for the parties to the proceedings (and not for
the official receiver or a member of their staff) to give evidence in these
circumstances.
--- PDF page 33 ---
22.80 Witness summons relating to overseas
proceedings
It is possible for a court in a foreign jurisdiction to seek the assistance of the High
Court in obtaining evidence and securing the attendance of witnesses1.
1. Evidence (Proceedings in Other Jurisdictions) Act 1975
22.81 Costs in complying with a witness
summons
The party issuing the witness summons should be responsible for the reasonable
costs of the official receiver to attend court and produce the documents required.
This is particularly applicable in a civil case which has no direct bearing on the
administration of the insolvency.
It has been held1 that a summonsed witness is entitled to their costs incurred in
complying with the summons, and that was not limited to receiving conduct money
(money paid to the witness to cover expenses such as the costs of getting to/from
the trial and compensation for time spent) only. Such costs could cover the taking of
legal advice, where it is reasonable to do so.
These costs, if recovered, by the official receiver should generally be paid into the
estate account with the expenses being repaid from that account.
1. JH Shannon v Country Casuals Holdings plc Times June 16 1997
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--- PDF page 1 ---
This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 10 March 2020.
23. Proceeds of Crime Act 2002 and
Terrorism Act 2000
Annexes
FAQs - Proceeds of Crime Act 2002
Annex A - Flowchart to show the interaction of insolvency orders and criminal confiscation
Annex B - Example application to dismiss or vary a restraint/freezing or interim receiving
order - liquidation
Annex C - Example application to dismiss or vary a restraint/freezing or interim receiving
order – bankruptcy
Annex D - Flowchart to show the confiscation court process
Annex E - Example application for release of detained cash - liquidation
Annex F - Example application for release of detained cash – bankruptcy
Guidance on reporting money laundering to SOCA
Chapter Content
Introduction
The Proceeds of Crime Act 2002
Action against assets in criminal cases - restraint orders
Action against assets in criminal cases - confiscation orders
--- PDF page 2 ---
Civil recovery
Cash seizure and forfeiture
Revenue functions
Forfeiture and restraint orders under the terrorism legislation
Introduction
23.1 Introduction
This chapter deals with the Proceeds of Crime Act 2002 (PoCA02) which provides
both criminal and civil procedures for the protection and realisation of assets where it
is suspected that they are acquired with the proceeds of crime. This guidance will
assist the official receiver when dealing with the assets of a company in liquidation or
a bankrupt who is subject to one of these procedures.
See paragraphs 23.02 to 23.12 for an outline of the different types of procedures
available under PoCA02 and who may take these proceedings.
The chapter also provides guidance where the insolvent’s property is subject to a
forfeiture or restraint order under the terrorism legislation (see paragraphs 23.152 to
23.159).
The Proceeds of Crime Act 2002
23.2 The Proceeds of Crime Act 2002
The Proceeds of Crime Act 2002 (PoCA02) consolidates and strengthens the
powers for the confiscation of the financial benefit that an offender has obtained from
their criminal activity.
The Act covers a wide range of matters relevant to UK law on the powers of
investigation and recovery of proceeds of crime.
23.3 An overview of PoCA02
PoCA02 provides the following processes:
--- PDF page 3 ---
(a) Confiscation proceedings in the crown court.
•
Restraint orders – the defendant cannot use or move specified property without
agreement by the court. A restraint order effectively freezes the property to
protect it during a criminal investigation (usually followed by a confiscation
hearing) see paragraphs 23.13 to 23.52.
•
Confiscation orders – the defendant must pay an amount set by the court based
on their benefit from crime following conviction, see paragraphs 23.53 to 23.84.
(b) Civil recovery in the High Court, see paragraphs 23.85 to 23.122.
•
Freezing orders – prohibits any person to whom the order applies from dealing in
any way with specified property without agreement by the court (see paragraphs
23.104 to 23.106).
•
Interim receiving orders – appoints an interim receiver to take custody of
specified property (see paragraphs 23.107 to 23.109).
•
Civil recovery orders – appoints a trustee to realise specified property which is
believed to be the proceeds of crime, without a conviction (see paragraphs
23.115 to 23.117).
(c) Forfeiture in the magistrates’ court, see paragraphs 23.123 to 23.146.
•
Cash seizure – cash may be seized on reasonable suspicion that the cash
represents the benefit from unlawful conduct or is intended for use in unlawful
conduct (see paragraphs 23.125 to 23.128).
•
Cash forfeiture – where the court is satisfied that cash seized is recoverable or is
intended by any person for use in unlawful conduct it will be forfeited (i.e.
surrendered) to the authority who seized it (see paragraphs 23.129 to 23.130).
•
Tax assessments (Revenue function) – power by The National Crime Agency
(NCA) to raise tax assessments and to collect specific or general taxes where a
person is suspected of having income, gains or profits from the proceeds of
crime, see paragraphs 23.147 to 23.151.
23.4 Realisable property
Realisable property is any free property (property which is not subject to an order of
deprivation or forfeiture)1 held by the defendant, and any free property held by the
recipient of a tainted gift (see paragraph 23.75)2.
1. Proceeds of Crime Act 2002 section 83
2. Proceeds of Crime Act 2002 section 77
23.5 Definition of property
--- PDF page 4 ---
Property is broadly defined in PoCA02 to cover property wherever held and it
includes money, all forms of real or personal property, things in action and other
intangible or incorporeal property1. As the definition covers all property ‘wherever
situated’ this would include assets held in foreign jurisdictions, see paragraph 23.6.
1. Proceeds of Crime Act 2002 section 84
23.6 Enforcement abroad
Where realisable property is held abroad the prosecuting authority may send a
request for assistance to another country to prohibit any person from dealing with
realisable property, and/or to sell realisable property and apply the proceeds in
accordance with the law of that country1.
1. Proceeds of Crime Act 2002 section 74
23.7 Law enforcement agencies
A number of different agencies, including NCA, the Police and HM Revenue and
Customs (HMRC) have power to bring proceedings to confiscate or recover property
that has been obtained through unlawful activity (see paragraph 23.87). NCA has
responsibility for overseeing this process.
23.8 NCA
NCA uses PoCA02 to protect assets during the course of a criminal investigation and
to enforce a convicted individual to forfeit the proceeds of their crime. NCA provides
assistance to other enforcement authorities, taking on cases for civil recovery or tax
action, on a referral basis from HMRC, the Police and law enforcement authorities in
accordance with agreed criteria. NCA also has the power to carry out general tax
recovery functions in relation to a company or person if there are reasonable
grounds to suspect that income arising or gain accruing to a company or person is a
result of the company’s or person’s criminal conduct, or as a result of another’s
criminal conduct1, paragraphs 23.147 to 23.151.
1. Proceeds of Crime Act 2002 section 317
More information on the work of NCA can be found on its website, at
www.nationalcrimeagency.gov.uk. NCA absorbed the predecessor Serious
Organised Crime Agency in late 2013.
--- PDF page 5 ---
23.9 Time for asset recovery process
through Court
Asset recovery processes must be taken through court and so take time.
Confiscation cases take an average of two years, from the start of a criminal
investigation to enforcement of the confiscation order. For larger more complex
cases, like those undertaken by NCA, this can be much longer. Civil recovery and
tax cases can take several years.
23.10 The Joint Asset Recovery Database
NCA has the responsibility for maintaining a Joint Asset Recovery Database which
records all restraint, confiscation, cash seizure and civil recovery orders made
throughout the United Kingdom, together with brief details of the assets taken into
account in making such orders. Most law enforcement agencies and HM Courts and
Tribunals Service have access to it.
23.11 Contact details: NCA can be contacted
at:
Units 1 - 6 Citadel Place,
Tinworth Street,
London SE11 5EF
Tel: 0370 496 7622
23.12 Contact with enforcement authority
The official receiver should contact the relevant enforcement authority (whether
NCA, the Police, HMRC or another) in any case where they has reason to believe
that an order has been made or is about to be made under PoCA02. For example, in
cases where a criminal conviction has already been obtained against a company or
a bankrupt, in cases where an interviewee has indicated that proceedings under
PoCA02 are pending, or where the official receiver has reason to believe that this
might be the case from other information available.
Action against assets in criminal cases -
restraint orders
--- PDF page 6 ---
23.13 Scope of part
This part deals with restraint orders obtained under PoCA02. To assist in locating
information in the part, a breakdown of the part is provided as follows:
•
Restraint orders – general information (paragraphs 23.14 to 23.25)
•
Restraint order made before insolvency order (paragraphs 23.26 to 23.37)
•
Restraint order made after insolvency order (paragraphs 23.38 to 23.41)
•
Application to vary/discharge restraint order (paragraphs 23.42 to 23.47)
•
Management receivers (paragraphs 23.48 to 23.52)
23.14 Restraint orders
An application for a restraint order is made by a prosecuting authority or an
accredited financial investigator to a Crown Court1.
1. Proceeds of Crime Act 2002 section 42
The aim of a restraint order is to prevent the person specified in the order from
dealing with realisable property (see paragraph 23.4 to 23.5) during a criminal
investigation or criminal proceedings. The order prohibits the specified person from
dealing with the property held whether or not they is the suspected offender (or
defendant where criminal proceedings have been commenced). For ease the term
defendant is used in the chapter.
A restraint order has the effect of freezing property anywhere in the world that may
be liable to confiscation following a trial and subsequent conviction of a defendant
(see paragraphs 23.53 to 23.84).
23.15 Restraint orders and interaction with
confiscation orders
The restraint order protects property which may be required to be sold to satisfy any
confiscation order that may be made by the court should the suspected offender
(defendant) be found guilty. A confiscation order is an order that a convicted
defendant pay to the Crown a certain sum of money representing the defendant’s
benefits from crime. Guidance on confiscation orders is provided in (see paragraphs
23.53 to 23.84).
Generally speaking, where the prosecution is taking action against a defendant’s
property, the first order to be obtained will be a restraint order. Following the trial, if
the defendant is convicted, the court may make a confiscation order (see paragraph
23.54).
--- PDF page 7 ---
23.16 Enforcement of restraint orders
Failure to comply with a restraint order or the breach of any of its terms is contempt
of court1. It can be punished by a maximum of two years imprisonment and/or an
unlimited fine2.
1. Criminal Procedure Rules 2010 Part 59.2(6)
2. Criminal Procedure Rules 2010 Part 62
23.17 When can a restraint order be made?
A restraint order may be made:
•
At any time after a criminal investigation has been commenced, if there is reasonable
cause to believe that the defendant has benefited from their criminal conduct1.
•
Where proceeding for an offence have been started and not concluded and there is
reasonable cause to believe that the defendant has benefited from their criminal
conduct2.
•
Where certain applications relating to a confiscation order are made by a prosecutor
and not concluded, or the court believes such an application will be made, and there
is reasonable cause to believe that the defendant has benefited from their criminal
conduct3 4
1. Proceeds of Crime Act 2002 section 40(2)
2. Proceeds of Crime Act 2002 section 40(3)
3. Proceeds of Crime Act 2002 section 40(4)
4. Proceeds of Crime Act 2002 section 40(5)
23.18 Scope of restraint order – any
specified person
The legislation does not require the person restrained to be the alleged defendant
and a restraint order can be made against any specified person1. A person who has
possession of property in which the defendant has an interest; or who has an interest
in property in which the defendant has an interest; may be specified in a restraint
order, e.g. the defendant’s spouse with an interest in the family home (see
paragraph 23.35).
1. Proceeds of Crime Act 2002 section 41(2)
--- PDF page 8 ---
23.19 Defendant’s interest in property held
with third party
Under PoCA02 the defendant is said to hold any property in which they has an
interest1. This applies even where a third party may have a legitimate and even
greater interest in that property, such as where the third party is the sole legal owner
of a property but it is believed that the property may have been purchased, or part
purchased, with the proceeds of crime.
The third party interest is only taken into account following the conviction of the
defendant as part of the hearing for a confiscation order. The value of the
defendant’s interest in the third party property must then be decided by the court as
part of the confiscation proceedings (paragraphs 23.65 to 23.66).
1. Proceeds of Crime Act 2002 section 84
23.20 When does a restraint order end?
Restraint orders do not come to an end when a confiscation order (see paragraphs
23.53 to 23.84) is made, but remain in force until the confiscation order is satisfied
and/or the restraint order is discharged by the court, see paragraph 23.42 and
23.471.
1. Proceeds of Crime Act 2002 section 42(5)
23.21 Restraint order – after trial
A restraint order may be made for the first time after a confiscation order is made,
following the conviction of the defendant (see paragraphs 23.53 to 23.84). The court
can grant the order if there is a risk that assets may be dissipated whilst an appeal or
enforcement action is pending1 2 3
1. Proceeds of Crime Act 2002 section 40(4)
2. Proceeds of Crime Act 2002 section 40(5)
3. Proceeds of Crime Act 2002 section 40(6)
23.22 When should a restraint order be
made?
--- PDF page 9 ---
An application for a restraint order should only be made where there is a reasonable
risk that realisable property (see paragraph 23.4) may be dissipated1. Without a real
risk of dissipation of assets being established, there is no justification for interference
with a suspect’s human rights2.
The court needs to consider the affect personally or commercially on the defendant
or any third parties prior to making a restraint order, and must ensure that the order
is proportionate in relation to protecting the public interest.
1. R. v B [2008] EWCA Crim 1374
2. European Convention on Human Rights 1950 Protocol 1 article 1
23.23 Property exempt from restraint
order
In making a restraint order, the court will aim to strike a balance between keeping the
defendant’s assets available to satisfy a potential future confiscation order should the
defendant be convicted (see paragraphs 23.53 to 23.84, and making provision to
meet the defendant’s reasonable general living expenses, legal expenses or funds to
enable the continuation of a trade, business, profession or occupation requirements
pending any trial1 2.
1. Proceeds of Crime Act 2002 section 41(3)
2. Re: Peters (Edgar) [1988] 3 All E.R. 46
23.14 General restraint order
Where the prosecuting authority believes that a defendant has a criminal lifestyle
(see paragraph 23.64), a request may be made for a restraint order which restrains
the defendant from dealing with all of their assets. It may extend to all realisable
property transferred to the defendant after the order is made1. This is known as a
general restraint order.
1. Proceeds of Crime Act 2002 section 41(2)
23.15 Specific restraint order
Where the prosecuting authority is not alleging that the defendant has a criminal
lifestyle the court will be asked to decide whether the defendant has benefited from
their particular conduct. In such circumstances the defendant may be restrained from
dealing with specific assets which together total in value the amount that they may
--- PDF page 10 ---
have benefited from the particular criminal conduct. This is known as a specific
restraint order.
Where a specific restraint order is made, the official receiver should realise or deal
with any property not covered by the restraint order as they would in any other case.
23.26 Restraint order made before winding
up order
Where the restraint order has been made prior to the date of the winding-up order or
the date of a resolution for the company to be voluntarily wound up, then the
liquidator (or provisional liquidator) is prevented from taking any action against the
property of the company subject to that restraint order1. This is the case even where
the restraint order is made after the winding up petition has been presented to court
or a provisional liquidator has been appointed2.
Annex A shows the interaction of insolvency orders and restraint orders.
1. Proceeds of Crime Act 2002 section 426(2)
2. Proceeds of Crime Act 2002 section 426(9)
23.27 Restraint order made before
bankruptcy order
If a restraint order is in force as at the date of the making of the bankruptcy order
then any property subject to the restraint order1 does not form part of the bankruptcy
estate2. This is the case even where an interim receiver has been appointed and the
powers of the receiver will not apply to assets subject to the restraint order3 4.
Annex A shows the interaction of insolvency orders and restraint orders.
1. Proceeds of Crime Act 2002 section 41(2)
2. Proceeds of Crime Act 2002 section 417(1)
3. Insolvency Act 1986 section 286
4. Proceeds of Crime Act 2002 section 417(4)
23.28 Action to be taken when restraint
order made before insolvency order
--- PDF page 11 ---
Where a restraint order is made by the court prior to the date of the winding-up order
or bankruptcy order then the official receiver should contact the relevant prosecuting
authority and inform them of the making of the order. The official receiver should
attempt to establish the current position regarding the restraint order and the
appointment, or otherwise, of a management receiver (see paragraph 23.48). The
official receiver should also request a copy of the restraint order in order to ascertain
what assets are covered by the order.
Although the property subject to the restraint order will be excluded from the
insolvent estate (see paragraphs 23.26 to 23.27) the prosecuting authority should be
asked to note the official receiver’s interest in any property subject to the restraint
order and request that they be notified if the order is discharged. Where the order is
discharged, the property will return to the company to be dealt with by the official
receiver as liquidator, or vest in the official receiver as trustee as part of the
bankrupt’s estate1. If there is a surplus after satisfaction of any confiscation order
(see paragraph 23.30) the official receiver should request that the surplus funds be
remitted to the liquidator/trustee.
1. Insolvency Act 1986 section 306A(2)
23.29 Need to defer company dissolution
Where there is a possibility that assets subject to a restraint order will later come
back under the control of the liquidator (see paragraph 23.30 9A.30), the official
receiver should defer the dissolution of the company for 6 years.
23.30 Need to review cases where assets
covered by a restraint order
A restraint order operates to prevent dealings with restrained assets until the criminal
hearing. If the defendant is found not guilty the restraint order will be discharged. If
the defendant is found guilty it is likely that a confiscation order will be made. The
restraint order will be discharged once the confiscation order has been satisfied.
Where the restraint order is discharged, it is possible that the assets will come back
under the control of the liquidator/trustee (see paragraph 23.47). Where restrained
property is used to satisfy a confiscation order, the official receiver will be entitled to
any surplus funds from the sale of that property as liquidator/trustee (see paragraph
23.82).
The official receiver as liquidator or trustee should ensure that the case is regularly
reviewed until the conclusion of the criminal proceedings.
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23.31 Restraint order contains onerous
obligations – company
It is possible that the terms of the restraint order over a company’s assets may be
onerous to the insolvent estate. For example a restraint order over specified property
may require the official receiver, as liquidator, to preserve the asset and to ensure its
value does not diminish. The official receiver may therefore have an obligation to
insure the property at a cost to the estate. Such an obligation to insure is onerous as
it is possible that the property may be sold to satisfy any confiscation order should
the offender subsequently be found guilty by the court and that there will be no
financial benefit to the estate.
In such circumstances the official receiver should consider making an application to
the court for the terms of the restraint order to be varied (see paragraphs 23.43 to
23.44).
23.32 Restraint order against company
property where individual is under
investigation
A restraint order can be made over an individual’s personal property, shares of a
company and the assets of that company where an individual is being investigated
under PoCA02. Before a company’s assets can be considered to be part of a
defendant’s assets the court must first lift the corporate veil. Once the veil has been
lifted the company assets can subsequently be used to pay a personal confiscation
order, which will only be lifted in cases of impropriety or dishonesty. The court will
consider whether the veil of incorporation should be lifted if the defendant is found
guilty at the hearing for a confiscation order. This is covered in more detail in
paragraph 23.81.
23.33 Restraint order where fixed charge
Where company property is subject to a fixed charge, then the charge-holder’s rights
take priority over any restraint order made later. A restraint order will usually contain
a clause allowing a charge-holder to enforce their security under the terms of the
charge.
23.34 Restraint order and floating charge
Where company property is subject to a floating charge, the floating charge does not
attach to any specific property until it has crystallised (e.g. where the loan is in
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default). This has led to some uncertainty over whether the floating charge or
restraint order would take priority in such cases. It may be possible for a floating
charge-holder to apply to court for the appointment of an administrator after a
restraint order is made, as this is not specifically prohibited1 & 2.
1. Insolvency Act 1986 Schedule B1, paragraph 14 or 35
2. Ice Media International Ltd (in liquidation) v Q3 Media Ltd [2006] EWHC 1553
23.35 Jointly owned property subject to a
restraint order
Any specified person who holds assets jointly with the defendant may be specifically
restrained from dealing with those jointly owned assets. This may include a third
party not subject to the criminal investigation e.g. money held in a joint bank account.
Separate restraint orders may be made against both the defendant and the joint
owner.
Where the restraint order(s) were made prior to the bankruptcy order, the official
receiver will not be able to deal with the restrained property unless the restraint order
is lifted/varied (see paragraph 23.27). The official receiver should seek to establish
the legal and beneficial ownership of the property (see paragraph 23.36).
Where restraint order(s) were made against jointly owned property after the date of
the bankruptcy order, the official receiver should consider applying to the court to
vary/discharge the restraint order in relation to assets that vest in the official receiver
as trustee of the bankrupt’s estate (see paragraphs 23.43 to 23.44).
23.36 Restraint order against jointly owned
property – where one party is bankrupt
Where the bankrupt and another individual jointly own property subject to restraint
proceedings and the bankrupt’s beneficial interest in the property vests in the trustee
(i.e. the bankruptcy order pre-dates the restraint order, see paragraph 23.38), then
the restraint order should be consulted to see if the order clarifies the beneficial
interest division.
It is likely that the restraint order will remain in force until the criminal hearing. If the
defendant is found guilty any subsequent confiscation hearing will consider the jointly
owned property and draw conclusions as to the beneficial interest split (see
paragraph 23.78).
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23.37 Restraint order against jointly owned
property– where both parties bankrupt
Where both joint owners are bankrupt, and a restraint order was made against jointly
owned property prior to the bankruptcy orders then the official receiver as trustee of
both estates will only have an interest in the property if the restraint order is
subsequently discharged, or in any surplus should one arise after any confiscation
orders are satisfied (see paragraph 23.27).
It is possible that a subsequent confiscation order will be made against one party
only, and in this situation, the bankrupt not subject to the confiscation order will have
their restraint order lifted dependent on any decision the court may make in the
confiscation proceedings as to the beneficial interest split (see paragraph 23.78).
That bankrupt’s interest in the property will then vest in the official receiver as
trustee1 see paragraph 23.47.
1. Insolvency Act 1986 section 306A(2)
23.38 Restraint order made after the date
of the insolvency order – no action to be
taken in respect of assets restrained
Where a winding-up order or bankruptcy order is made before a restraint order, the
restraint powers of PoCA02 are not exercisable in respect of property held by the
company1, or the bankrupt2, see paragraph 23.39 below. Any property comprised in
the insolvent estate will not be available to satisfy any confiscation order however a
confiscation order may still be made, albeit the prior insolvency might affect the
enforcement of the confiscation order3 (see paragraph 23.59). In such circumstances
the official receiver should take no action to realise assets subject to the restraint
order, as to do so may be acting in contravention of the court order. For action to
take in such circumstances, see paragraph 23.40.
1. Proceeds of Crime Act 2002 section 426
2. Proceeds of Crime Act 2002 section 418
3. R. v Shahid (Abdul) [2009] EWCA Crim 831
23.39 Property which cannot be dealt with
following the making of an insolvency
order
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The powers of POCA02 cannot be exercised, and a management receiver (see
paragraphs 23.48 to 23.52) cannot be appointed over:
•
Property held by a company1
•
Property of which the functions of liquidator are exercisable2
•
Property comprised in a bankrupt’s estate3
•
Property which may be claimed as after-acquired property in bankruptcy4
•
Property or income due to a bankruptcy estate as a condition of discharge from
bankruptcy5
•
Where a confiscation order has been made and the amount to be paid has been fully
paid, any remaining sums6
1. Proceeds of Crime Act 2002 section 426(4)
2. Proceeds of Crime Act 2002 section 426(5)
3. Proceeds of Crime Act 2002 section 418(3)(a)
4. Proceeds of Crime Act 2002 section 418(3)(b)
5. Proceeds of Crime Act 2002 section 418(3)(c)
6. Proceeds of Crime Act 2002 section 418(3)(d) and (e)
23.40 Restraint order made after the date
of the insolvency order - application to lift
or vary restraint order
Where a restraint order is made after the date of the insolvency order, in respect of
assets comprised in the insolvent estate, the official receiver is prevented from
dealing with those assets as a consequence of the terms of the restraint order. If the
official receiver were to deal with the assets it is likely they would be acting in breach
of the court order. The official receiver should therefore take no steps to realise the
assets but should obtain a copy of the restraint order in order to verify the assets
subject to restraint. The official receiver should inform the prosecuting authority that
it is their opinion that the application has been incorrectly obtained and request that
an application is made to court to have the order lifted or varied1 2. This is especially
important if the assets are onerous, as a disclaimer cannot be issued whilst the
restraint order remains in force.
1. Proceeds of Crime Act 2002 section 426
2. Proceeds of Crime Act 2002 section 418
Where the prosecuting authority is not prepared to go back to court to have the
restraint order lifted or varied, then the official receiver should consider whether they
should make such an application court1 (see paragraph 23.42 to 23.43).
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1. Proceeds of Crime Act 2002 section 42(3)(b)
23.41 Restraint order made after the date
of the insolvency order – insurance
Where a restraint order is made after the insolvency order, any assets covered by
the restraint order will still form part of the insolvency estate (see paragraph 23.38),
and so the official receiver should ensure that the assets are adequately insured and
protected pending an application to vary or discharge the restraint order (see
paragraph 23.42).
23.42 Variation and discharge of a restraint
order
A restraint order may be varied or discharged on application of the person who
applied for the order, or any person affected by the order1. A restraint order may be
varied to widen or reduce the property covered. The official receiver is considered to
be a person affected by the order (see also paragraphs 23.43 to 23.44).
1. Proceeds of Crime Act 2002 section 42(3)
23.43 Application to court to dismiss or
vary restraint order
Where it is considered appropriate for the official receiver, as liquidator or trustee, to
make an application to dismiss or vary the restraint the application should be sent, in
writing, to the court in which the restraint order was made, and must be supported by
a witness statement1. A copy of the application should be sent to the person who
applied for the restraint order (the prosecuting agency), and any person restricted
from dealing with the property by the restraint order. This should be sent at least 2
days prior to the hearing. There is no fee for making the application2.
1. Criminal Procedure Rules 2011 rule 59.3
2. Criminal Procedure Rules 2011 rule 59.3(4)
23.44 Draft application to court to amend
or discharge restraint order
There is no specific form available for an application to the court to discharge or vary
a restraint order but a suggested template for a company case is available at Annex
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B and for a bankruptcy case is available at Annex C. Any other relevant facts of the
case should also be included in the application.
23.45 Avoiding costs relating to assets
subject to restraint
The official receiver should avoid taking possession of assets subject to a restraint
order as they will not be able to realise those assets until the restraint order is varied
or discharged.
Where the official receiver has taken assets into storage prior to discovering a
restraint order against those assets, the storage costs will continue to accrue as a
cost to the estate despite the asset not being available to discharge them. The
official receiver should therefore ensure that a timely resolution is found for such
assets, by application to discharge or vary the restraint order so that they may deal
with those assets appropriately (see paragraph 23.43 to 23.44).
23.46 Consequences of dealing in property
subject to restraint order
Where a liquidator, receiver and manager or trustee of an insolvent estate deals with
property subject to a restraint order, they has a defence against being found liable
for any consequent losses or damages, so long as it can be shown that they had
reasonable grounds to believe that at the time of seizure/disposal of the assets they
was entitled to seize or dispose of the property, and did not act negligently12.
1. Proceeds of Crime Act 2002 section 432
2. Proceeds of Crime Act 2002 section 433
23.47 Effect on property of discharge of
restraint order
Where a restraint order is discharged following an application to the court or
following satisfaction of a confiscation order (see paragraphs 23.53 to 23.84), any
company property would return to the company (after meeting the remuneration and
expenses of any management receiver appointed by the court), and would fall to the
official receiver as liquidator to deal with.
Any property excluded from the bankrupt’s estate as a result of the restraint order
will vest in the trustee as part of the bankrupt’s estate (after meeting the
remuneration and expenses of any management receiver appointed by the court)1.
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1. Insolvency Act 1986 section 306A(2)
23.48 Appointment of a management
receiver
The court may appoint a management receiver to manage property to which a
restraint order applies pending the making of a confiscation order1. The management
receiver is given power in the order of appointment to carry out certain acts to
manage or otherwise deal with the property (including selling the property in some
circumstances)2.
1. Proceeds of Crime Act 2002 section 48
2. Proceeds of Crime Act 2002 section 49
A management receiver will usually be appointed where the defendant’s assets are
of a nature that require active management and the individual is either unable to
manage the assets or the court is of the view that they cannot be trusted to manage
the assets properly.
23.49 Powers of management receiver
A management receiver is an officer of the court, and so acts on the order of the
court rather than the applicant1. The powers of the management receiver are set out
by the court in the order of appointment and are usually limited to preserving the
value of the assets for any subsequently made confiscation order2. The court may
confer the power:
•
To take possession of the property;
•
To manage or otherwise deal with the property (including to sell that property, to
carry on a business or to incur capital expenditure);
•
To start, carry on or defend any legal proceedings in respect of the property;
•
To realise so much of the property as is necessary to meet the management
receiver’s remunerations and expenses.
Where a management receiver is unsure as to the power held in relation to certain
actions, they should go back to court for directions3.
1. Re Andrews [1999] 1 WLR 1236
2. Proceeds of Crime Act 2002 section 49
3. Proceeds of Crime Act 2002 section 62
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23.50 Difference between management
receiver and enforcement receiver
A management receiver (who is appointed to protect property when a restraint order
is in place), is not to be confused with an enforcement receiver. An enforcement
receiver may be appointed when a confiscation order is in force and has the power
to realise property in such manner as the court may specify for the purpose of
satisfying a confiscation order1, see paragraph 23.73.
1. Proceeds of Crime Act 2002 section 51(2)(c)
23.51 Management receiver’s costs
The costs and expenses of the management receiver are paid from the assets that
they are managing subject to the restraint order even if the defendant is
subsequently acquitted1.
1. Proceeds of Crime Act 2002 section 49(2)(d)
23.52 Management receiver – application
to vary or discharge
Any person affected by the appointment of a management receiver (which could
include the official receiver) may apply to court for the order to be varied or
discharged1.
1. Proceeds of Crime Act 2002 section 63
Action against assets in criminal cases -
confiscation orders
23.53 General
To assist in locating information, a breakdown of this part is as follows:
•
General information – paragraphs 23.54 to 23.56
•
Confiscation orders and insolvency – paragraphs 23.57 to 23.63 and paragraph
23.82
•
Valuing the benefit – paragraphs 23.64 to 23.68
•
Enforcement of order – paragraphs 23.69 to 23.74
•
Tainted gifts and antecedent recovery in insolvency – paragraphs 23.75 to 23.77
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•
Third parties – paragraphs 23.78 to 23.79
•
Victim compensation and interaction with compensation order – paragraphs 23.83 to
23.84
See Annex A for a flowchart showing the interaction of insolvency and confiscation
orders.
23.54 What is a confiscation order?
A confiscation order is an order that a convicted defendant pay a certain sum of
money (the “recoverable amount”, see paragraph 23.65) representing the
defendant’s benefits from crime to the Crown. The order does not, as may be
thought, “confiscate” or require the surrender of a particular asset or assets1 2.
The purpose of a confiscation order is to deny a person the benefit of property
derived from crime (see paragraph 23.64). The defendant can choose to pay the
order voluntarily, but if payment is not made, compulsory enforcement action can be
taken (see paragraph 23.72).
1. Proceeds of Crime Act 2002 section 6(5)
2. Proceeds of Crime Act 2002 section 7(2)
23.55 Effect of confiscation order on
restraint order and assets
A confiscation order does not impose any restriction on the assets of the defendant,
although assets required to be sold to satisfy the confiscation order may have
already been made subject to a restraint order by the time of the making of the
confiscation order (see paragraph 23.14). Any restraint order in place at the time a
confiscation order is made will not normally be discharged until the confiscation order
is satisfied (see paragraph 23.20).
23.56 Application for a confiscation order
A confiscation order may be made on the application of the prosecuting authority or,
if the court believes it appropriate to make such an order, on its own motion1. A
confiscation order cannot be made unless the person has been convicted in the
crown court, committed to the crown court for sentencing, or committed to the crown
court for consideration of a confiscation order (this would follow the person being
convicted in the magistrates’ court and the prosecutor making a request for
committal to the crown court for consideration of a confiscation order)2.
1. Proceeds of Crime Act 2002 section 6(3)
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2. Proceeds of Crime Act 2002 section 6(2)
23.57 Company – confiscation order made
pre winding-up order
The liquidator (in a voluntary or compulsory liquidation) is unable to deal with any
property over which a receiver has been appointed in connection with the
enforcement of a confiscation order (see paragraph 23.73)1.
However, where an enforcement receiver has not been appointed, then the liquidator
is free to deal with company property unhindered as long as there is no restraint
order in force (see paragraphs 23.13 to 23.52).
Where no receiver has been appointed and no restraint order is in force against a
company’s assets, the official receiver may encounter the position where a
company’s assets have been offered by the defendant, prior to the winding up order,
to help satisfy the confiscation order, and the court/prosecuting authority has
accepted that offer. In such a scenario the official receiver should write to the
prosecuting authority claiming the assets in the liquidation proceedings.
Where there is a dispute as to ownership of company assets the official receiver
should seek to clarify the position with the prosecuting authority. Where monies held
in a company bank account are held by the liquidated company on trust for the
defendant the monies will not comprise part of the liquidation estate. Additionally,
where the court has lifted a company’s corporate veil the assets will not form part of
the liquidation estate (see paragraph 23.81).
1. Proceeds of Crime Act 2002 section 426(2)
23.58 Bankruptcy – confiscation order
made pre bankruptcy order
A confiscation order made before the date of the bankruptcy order does not prevent
assets vesting in the trustee. Only the making of a restraint order (see paragraph
23.27) or the appointment of an enforcement receiver (see paragraph 23.73) prior to
the making of a bankruptcy order does.
Where an enforcement receiver has been appointed prior to the bankruptcy order the
assets subject to a receivership will not form part of the bankruptcy estate1. However,
an enforcement receiver appointed pre-bankruptcy is not allowed to use the powers
given under the act against property which is comprised in the bankruptcy estate (i.e.
assets not subject to the receivership or a restraint order) once a bankruptcy order is
in force2 3.
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1. Proceeds of Crime Act 2002 section 417(2)(b)
2. Proceeds of Crime Act 2002 section 51
3. Proceeds of Crime Act 2002 section 418
23.59 Effect of insolvency on confiscation
order – confiscation order made post
insolvency order
There is nothing in the legislation to prevent the court making a confiscation order
simply because a winding-up order or bankruptcy order has already been made in
respect of the same company or individual1.. The assets comprised in the insolvency
estate will not be available for satisfaction of any confiscation order made2 3.
1. Proceeds of Crime Act 2002 section 418
2 R v Shahid (Abdul) [2009] 2 Cr App R (s) 105
3. Proceeds of Crime Act 2002 section 426(6)
23.60 Where restraint order made
following a confiscation order
As part of the confiscation hearing, where no restraint order has been made earlier in
the proceedings, the court may make a restraint order to prevent the dissipation of
assets prior to the confiscation order being satisfied. Where the confiscation order is
made prior to the insolvency order and the restraint order is made after the
insolvency order, then the assets will fall to the official receiver as liquidator to deal
with or vest in the official receiver as trustee1. The official receiver will, however, be
unable to deal with the assets that are subject to the restraint order without a court
order, see paragraphs 23.38 to 23.40.
1. Insolvency Act 1986 section 306
Annex A shows the interaction of insolvency and confiscation orders.
23.61 Debt due under confiscation order
not provable
Any obligation arising under a confiscation order made prior to the bankruptcy order
is not a provable debt in bankruptcy proceedings1, and a bankrupt is not released
from the obligation on discharge2 3.
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1. Insolvency Rules (England and Wales) 2016 14:2
2. Insolvency Act 1986 section 281(4A)
3. Insolvency Rules (England and Wales) 2016 10:146
23.62 Action to be taken where
confiscation order is, or may be, in force
Where the official receiver is aware that a confiscation order has been made the
official receiver should contact the relevant authority (see paragraph 23.7) and
inform them of the making of the insolvency order and request a copy of the
confiscation order, any restraint order in force and attempt to establish the current
position regarding the confiscation order and the appointment, or otherwise, of an
enforcement receiver.
Where assets are not covered by a restraint order and the only order in force is a
confiscation order, then the official receiver should proceed to realise any insolvency
assets after notifying the relevant authority of their intention to do so (provided that in
the case of a company the corporate veil has not been lifted – see paragraph 23.57).
23.63 Third party assets subject to
confiscation order
As a consequence of a confiscation hearing and a confiscation order subsequently
being made by the court, the official receiver may become aware of previously
undeclared assets. An example of this would be where the court rules that the
bankrupt has a beneficial interest in a property where legal title is solely owned by
their son/daughter. Where an enforcement receiver has not been appointed nor a
restraint order made against assets prior to the insolvency order, then those assets
will form part of the estate and be capable of being dealt with by the official receiver
as part of the insolvent’s estate.
Where monies or property which have been dealt with at a confiscation hearing can
be clearly identified as the proceeds of crime (for example, money in an account
which can be directly traced as being stolen from the victim of a crime), then that
property should not be claimed for the benefit of the insolvent estate.
23.64 Criminal lifestyle
Before a confiscation order can be made, the court must first decide whether the
defendant has a criminal lifestyle. This will depend on the nature of the offences
committed by the defendant1. The committing of certain offences (e.g. money
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laundering or drug trafficking) will result automatically in the defendant being held to
have had a criminal lifestyle2.
If the court considers the defendant has a criminal lifestyle the court must then
determine whether the defendant has benefited from their general criminal conduct.
If the defendant does not have a criminal lifestyle the court must consider whether
they has benefited from their particular criminal conduct3. A person benefits from
criminal conduct if they “obtains property as a result of or in connection with the
conduct”4.
1. Proceeds of Crime Act 2002 section 75 (1) & (2)
2. Proceeds of Crime Act 2002 schedule 2
3. Proceeds of Crime Act 2002 section 6(4)
4. Proceeds of Crime Act 2002 section 76(4)
23.65 Recoverable amount
Where the court decides that the defendant has benefited from their general or
particular criminal conduct, the court must then determine the recoverable amount.
The recoverable amount is the amount specified for payment on the confiscation
order1. This will either be:
•
The full amount of what the court has found the defendant has benefited by from any
criminal conduct; or
•
The value of all the defendant’s remaining assets (included tainted gifts, see
paragraph 23.75), called the “available amount”, if that is shown to the court’s
satisfaction to be less.
1. Proceeds of Crime Act 2002 section 7
23.66 The available amount
Where the defendant proves to the court that the available amount is less than the
amount they has benefited from (see paragraph 23.64), then that becomes the
recoverable amount (see paragraph 23.65). The “available amount” is the total of all
the free property held by the defendant at the time of the order (minus the total
amount payable in pursuance of obligations which have priority) along with the total
value of all tainted gifts1. This will then become the amount payable under the
confiscation order.
As a confiscation order can be made after an insolvency order, property which is
included in the insolvent estate would be excluded when calculating the available
amount and would be unavailable in the confiscation proceedings, see paragraph
23.19.
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1. Proceeds of Crime Act 2002 section 9
23.67 Confiscation order – statement of
findings
Where the court determines an available amount as the recoverable amount, the
confiscation order must provide a statement of findings as to the matters relevant in
deciding that amount1.
1. Proceeds of Crime Act 2002 section 7(5)
23.68 Matters the court will take into
consideration
When determining the recoverable amount the court will consider matters such as
proceedings intended or started by a victim of the person’s criminal conduct1 2 (see
also paragraph 23.83) and any representations made by the defendant3 4 prior to
making the confiscation order. Having taken these matters into account, the court
will, if appropriate, make a confiscation order requiring the defendant to pay a certain
amount (which may be a nominal figure if it is shown that the available amount is nil).
1. Proceeds of Crime Act 2002 section 6(6)
2. Proceeds of Crime Act 2002 section 7(3)
3. Proceeds of Crime Act 2002 sections 6(7)
4. Proceeds of Crime Act 2002 section 10A
23.69 When payment is due under a
confiscation order
The amount to be paid under a confiscation order must be paid on the date the
confiscation order is made unless the court otherwise orders1.
If the defendant shows that time is required to pay the order the court may extend
the due date for payment up to 3 months. In exceptional circumstances the court
may extend this time for a further 6 months (see paragraph 23.72)1.
1. Proceeds of Crime Act 2002 section 11
23.70 Interest payable
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To encourage prompt payment interest is payable on the amount of the confiscation
order. If the amount is not paid by the date due the amount of interest is added to the
confiscation order and treated as if it were part of the order1. The statutory rate of
interest is payable, currently 8%2.
The court has no discretion to waive the interest payment3.
1. Proceeds of Crime Act 2002 section 12
2. Judgments Act 1838 section 17
3. Hansford v Southampton Magistrates Court [2008] EWHC 67
23.71 Voluntary satisfaction of confiscation
order
The defendant is normally given the opportunity to satisfy the confiscation order
voluntarily before any enforcement action is taken. It is in the defendant’s interest to
pay voluntarily to avoid the liability to pay interest (see paragraph 23.70), serve a
default sentence (see paragraph 23.72 9A.72) or to have the costs of a receiver
appointed over the assets (see paragraph 23.73).
23.72 Enforcement of confiscation orders
The defendant is required to make payment by the date determined in the
confiscation order. Where an enforcement receiver is not appointed by the court (see
paragraph 23.73) the order is considered to be a fine and set periods of
imprisonment are provided for in legislation for those in default12.
If the defendant serves a period of imprisonment in default of a confiscation order
this will not extinguish the confiscation order and the order will continues to have
effect for any other enforcement purposes3.
1. Proceeds of Crime Act 2002 section 35
2. Powers of Criminal Courts (Sentencing) Act 2000 section 139
3. Proceeds of Crime Act 2002 section 38(5)
23.73 Appointment of enforcement
receiver
If a confiscation order is not satisfied, the crown court may appoint a receiver, known
as an enforcement receiver, in respect of realisable property (see paragraph
23.4)1. The powers given to a receiver in the court order of appointment may be
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wide-ranging to allow for the most effective recovery of the defendant’s assets in
order to satisfy the confiscation order2. Powers given may include the power to
manage or otherwise deal with property, other specific management functions
conferred by the court, and the power to bring or defend legal proceedings. Third
parties holding an interest in realisable property may be ordered to pay the receiver
an amount in respect of the value of the beneficial interest that the defendant holds
in that property (see paragraphs 23.78 to 23.79).
1. Proceeds of Crime Act 2002 section 50
2. Proceeds of Crime Act 2002 section 51
23.74 Enforcement abroad
Where realisable property is situated abroad, the prosecutor may forward a request
for assistance to the Home Secretary, who may forward the request to the relevant
government1. Where property is then realised abroad, the amount that is realised
should be deducted from the amount due under the confiscation order.
1. Proceeds of Crime Act 2002 section 74
23.75 Tainted gift
Where the defendant has made a gift or transfer of property to another for
significantly less that its market value at the time it was transferred, this is known as
a tainted gift1.
A gift is a tainted gift if;
•
it was made within 6 years before the proceedings for the offence commenced
(where the court has determined that the defendant has had a criminal lifestyle – see
paragraph 23.64), or;
•
it consists of, or represents, property obtained by the defendant as a result of, or in
connection with, their criminal lifestyle (where the court has determined that the
defendant has had a criminal lifestyle), or;
•
the gift was made after the earliest offence was committed (where the court has
determined no criminal lifestyle is present)2.
A tainted gift is considered to be property for the purpose of making or enforcing a
restraint order (see paragraphs 23.13 to 23.52) or a confiscation order and will be
included in the recoverable amount.
1. Proceeds of Crime Act 2002 section 78(1)
2. Proceeds of Crime Act 2002 section 77
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23.76 Effect of insolvency on tainted gifts –
antecedent recovery
Where a company or a bankrupt has entered into a transaction at an under value1 2, a
preference3 4 or a transaction to defraud creditors5, which is also a tainted gift (see
paragraph 23.75), no action may be taken by the liquidator or trustee to recover the
value lost to the insolvency estate if the property in question is subject to a restraint
order (see paragraphs 23.13 to 23.52) or over which an enforcement receiver has
been appointed prior to the date of the bankruptcy order6 7 (see paragraph 23.73). If
no restraint order has been made or enforcement receiver appointed, the official
receiver as liquidator or trustee, should pursue the antecedent recovery as usual
following the relevant Operational Guidance.
Any order made to recover the loss (for example, as a transaction at undervalue) to
the insolvency estate after the discharge of a restraint order or the discharge of an
order appointing a receiver must take into account any realisation of the property
already made under PoCA028 9. The recipient of the preference or gift should not be
made to pay more than the total value of the property in question.
1. Insolvency Act 1986 sections 238
2. Insolvency Act 1986 sections 339
3. Insolvency Act 1986 sections 239
4. Insolvency Act 1986 sections 340
5. Insolvency Act 1986 section 423
6. Proceeds of Crime Act 2002 section 419(2)
7. Proceeds of Crime Act 2002 section 427(3)
8. Proceeds of Crime Act 2002 sections 419(3)
9. Proceeds of Crime Act 2002 sections 427(4)
23.77 Action to be taken in respect of a
tainted gift
In cases where the official receiver has identified an antecedent recovery and is
aware that a restraint order is in force, or an enforcement receiver has been
appointed over that asset prior to the insolvency, the official receiver should inform
the relevant enforcement authority (see paragraphs 23.2 to 23.12) or appointed
receiver of the making of the insolvency order. The official receiver should attempt to
establish the current position regarding the recovery of the tainted gift. The receiver
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or the relevant enforcement authority (as appropriate) should be asked to note the
official receiver’s interest in the matter.
Where the asset is question is not covered by a restraint order or receiver appointed
prior to the insolvency order, then the official receiver should take steps to realise
that asset.
23.78 The family home
A confiscation order is an order to pay a sum of money and may be enforced against
any property owned by the defendant, including the family home. This is the case
even if the property was obtained legally. A solely owned property held by the
defendant which is also their family home may therefore form part of the amount to
be realised under the confiscation order.
Where the property is jointly owned by the defendant’s spouse or partner, their share
may not be realised under a confiscation order unless it can be shown that their
share was a tainted gift1 (see paragraph 23.75). Where a defendant has been found
guilty and they provided all the funds to purchase the jointly owned property, the
court may consider that the spouse or partner’s share is tainted (see paragraph
23.75). Alternatively the court may accept the integrity of a joint ownership where
there has been a long term relationship and the spouse/partner has contributed in
other ways.
When considering property, the starting point for the court is to establish what the
beneficial interest is of each joint owner. The court will then give consideration as to
whether that beneficial interest is genuine or whether it is a tainted gift. The
conclusions reached will be used to calculate the defendant’s interest for the
purpose of calculating the recoverable/available amount (see paragraphs 23.65 to
23.66).
1. R v Buckman (Andrew) [1997] 1 Cr. App. R. (S.) 325
23.79 Third party rights
Third parties with an interest in assets held by the defendant have no right to be
heard at a criminal confiscation hearing. At the confiscation stage, the court is tasked
with determining the defendant’s free property in order to calculate the recoverable
amount (see paragraph 23.65) in which to make the order for a sum of money.
Any decisions made by the court in relation to third party interests at the criminal
confiscation hearing are not binding on third parties as they are not party to the
proceedings. The court has held that the appropriate time for a third party to dispute
a confiscation order was at the hearing to enforce that order1.
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The court cannot appoint a receiver to realise or manage property unless it gives
persons with an interest in that property a reasonable opportunity to make
representations2 3.
1. Re Norris [2001] 1 W.L.R. 1388
2. Proceeds of Crime Act 2002 section 49(8)
3. Proceeds of Crime Act 2002 section 51(8)
23.80 Limited Liability Partnerships
The provisions as to the confiscation, recovery, tainted gifts and winding up also
apply to limited liability partnerships capable of being wound up under the Insolvency
Act 1986 as if they were companies1.
1. Proceeds of Crime Act 2002 section 431
23.81 Lifting the corporate veil
Where a defendant has used a limited company to carry out criminal acts, the
corporate veil may be lifted by the court in certain circumstances. The court will lift
the corporate veil where the defendant has acted with impropriety and dishonesty. In
lifting the corporate veil the assets of the company will become those personally of
the defendant, this will include any specified company assets subject to a restraint
order. The value of the assets can be taken into consideration for the purpose of
calculating the amount payable under the confiscation order (see paragraphs 23.65
to 23.66).
The Court of Appeal has held that the corporate veil can be lifted where:
•
The defendant attempts to shelter behind a corporate façade or veil to hide their
crime and benefits from it.
•
Where the defendant intentionally acts in the name of the company in a criminal way
leading to the offender’s conviction.
•
Where the transaction or business structure is an attempt to disguise the true nature
of the transaction or structure so as to deceive third parties or the court1.
1. R. v Seager (Mornington Stafford) R. v Blatch (Endon Barry) [2009] EWCA Crim 1303
23.82 Surplus following satisfaction of
confiscation order
Where a restraint order has been made or enforcement receiver appointed prior to
the making of the insolvency order, then any surplus proceeds remaining after the
satisfaction of the confiscation order and related fees and expenses by the receiver,
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would fall to the official receiver as liquidator of the company to deal with, or vest as
an asset in the bankruptcy estate1.
1. Insolvency Act 1986 section 306C
23.83 Compensation and confiscation
orders
PoCA02 is designed to ensure that compensation for victims and losers takes
precedence over confiscation. The court must first make the confiscation order, then
fix the amount of the compensation without regard to the confiscation order. Where
the defendant doesn’t have enough assets to satisfy both orders, then the shortfall in
compensation to the victim/loser should be paid from the confiscated amount. If the
defendant has sufficient assets, they may end up paying the amount twice over. See
paragraphs 23.144 to 23.146 on compensation payable in civil cases.
23.84 Victim may have a provable claim
An obligation arising under a confiscation order is payable to the Crown, and is a
distinct liability to that of the liability to the victim of the crime, who may have a
provable debt in the insolvency proceedings. Where the liability to the victim is not
settled in the bankruptcy proceedings, and the liability arose as a result of fraud or
personal injury, then that liability will not be released on discharge1.
1. Insolvency Act 1986 section 281(3)
Civil recovery
23.85 Introduction
In addition to the powers given in PoCA02 to restrain and confiscate property
obtained in the course of unlawful conduct, powers are also provided to bring civil
proceedings in the High Court jurisdiction to obtain certain orders for the protection
and recovery of property, regardless of whether or not criminal proceedings are
brought or are successful1 2. The aim of civil recovery is to recover property obtained
through unlawful conduct.
1. Proceeds of Crime Act 2002 section 240
2. Proceeds of Crime Act 2002 section 243
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23.86 Civil recovery orders
A civil recovery order enables an enforcement authority (see paragraph 23.100) to
recover property which is, or represents property obtained through unlawful conduct1.
Freezing orders and interim receiving orders are applied for to protect property,
where it is considered it has been unlawfully obtained, whilst proceedings for a civil
recovery order are ongoing.
1. Proceeds of Crime Act 2002 section 240
23.87 Unlawful conduct
Unlawful conduct is conduct which is unlawful under UK criminal law or, where it
occurs in another country, if it is contrary to the criminal law of that country and
would be unlawful if it occurred here1.
1. Proceeds of Crime Act 2002 section 241
23.88 Burden of proof
The burden of proof that the property was obtained unlawfully lies with the
enforcement authority who must prove it to the court on the balance of probabilities1.
1. Proceeds of Crime Act 2002 section 241(3)
23.89 Recoverable property
Property obtained through unlawful conduct (see paragraph 23.87), is known as
recoverable property1. For a definition of property, see paragraph 23.5. Property
which represents the original property is also considered to be recoverable, so that
recovery is not thwarted by the conversion of the property into something else or by
giving a third person interest in it2.. For example, if the person who obtained a stolen
car then swapped it for a boat, the enforcement authority may choose to recover the
stolen car or the boat. The property can be followed into anyone’s hands until it is
acquired in good faith and for value (see paragraph 23.92).
1. Proceeds of Crime Act 2002 section 304
2. Proceeds of Crime Act 2002 section 305
23.90 Mixing of property
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If a person’s recoverable property is mixed with other property (whether their
property or another’s), only the portion of the mixed property which is attributable to
the recoverable property represents the property obtained through unlawful conduct1.
Recoverable property is mixed with other property if (for example) it is used;
•
to increase funds held in a bank account (see paragraph 23.113),
•
in part payment for the acquisition of an asset,
•
for the restoration or improvement of land,
•
for the discharge (in whole or in part) of a mortgage, charge or other security,
•
by a person holding a leasehold interest in the property to acquire the freehold2.
1. Proceeds of Crime Act 2002 section 306
2. Proceeds of Crime Act 2002 section 306(3)
23.91 Accruing profit
Any profits made from recoverable property are also recoverable, even if used to
obtain further property1.
1. Proceeds of Crime Act 2002 section 307
23.92 Property which is excluded from
being “recoverable”
The following property is excluded from being recoverable property:
•
Property obtained in good faith for value (see paragraph 23.93).
•
Property subject to existing civil recovery orders or forfeiture orders (see paragraph
23.94).
•
Property subject to a restraint order (see paragraph 23.95).
•
Property taken into account in confiscation proceedings (see paragraph 23.96).
•
Payments under criminal compensation (see paragraph 23.97).
•
Payments following financial services offences (see paragraph 23.98).
•
Associated property (see paragraph 23.99).
23.93 Property obtained in good faith
Where property was obtained in good faith and without knowledge of the unlawful
conduct from which it originated, for value, and without notice that it was recoverable
property it will not be recoverable property1.
1. Proceeds of Crime Act 2002 section 308(1)
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23.94 Property subject to a civil recovery
order or forfeiture order
Once property is the subject of a civil recovery order (see paragraphs 23.115) or a
forfeiture order (see paragraph 23.129) it ceases to be recoverable property1.
1. Proceeds of Crime Act 2002 section 308(2)
23.95 Property subject to a restraint order
Where a restraint order is in force (see paragraph 23.14) the property is not
recoverable1. If following criminal proceedings the restraint order is discharged the
property will again become recoverable.
1. Proceeds of Crime Act 2002 section 308(8)
23.96 Property taken into consideration in
confiscation proceedings
Where property has been taken into consideration in calculating the amount payable
under a confiscation order (see paragraph 23.54), it is not recoverable1. This
prevents double recovery of the same proceeds of crime.
1. Proceeds of Crime Act 2002 section 308(9)
23.97 Payments under criminal
compensation
Where a compensation order has been made in criminal proceedings (see
paragraph 23.84), and is paid out of recoverable property, the property will cease to
be recoverable1.. In this way victims of crime are not deprived of compensation as a
consequence even if it is paid for from the proceeds of crime.
1. Proceeds of Crime Act 2002 section 308(4) and (5)
23.98 Payments following financial
services offences
Where payments are required for restitution following offences under the Financial
Services and Markets Act 2000 the amount paid ceases to be recoverable1.
1. Proceeds of Crime Act 2002 section 308(6) and (7)
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23.99 Associated property
“Associated property” is innocently held property with some legal or physical
connection with the recoverable property. Recovery proceedings can be commenced
against the associated property if that is the only way to seize the recoverable
property (provided there is a replacement for the value of the innocent party’s share
in the property). An example of associated property is a bond held in the name of
joint parties1.
1. Proceeds of Crime Act 2002 section 245
23.100 Who can take civil recovery action?
Civil recovery proceedings can be taken by certain enforcement authorities, these
are the Director of NCA (see paragraphs 23.2 to 23.12), the Director of Public
Prosecutions, the Director of the Revenue and Customs Prosecutions and the
Director of the Serious Fraud Office.
23.101 Referrals to NCA
Law enforcement agencies or enforcement authorities can refer cases to NCA for
consideration for civil recovery or tax action (see paragraphs 23.147 to 23.151).
Cases must meet the following criteria:
•
Recoverable property has been identified and has an estimated value of at least
£10,000.
•
Recoverable property has been acquired in the last 12 years (20 years for tax).
•
Recoverable property includes property other than cash and cheques (although cash
can be recovered in addition to other property, see paragraph 23.102).
•
There is evidence proven to civil standards of criminal conduct (see paragraph
23.88).
•
For tax cases there must be reasonable suspicion that criminality has resulted in
untaxed income (see paragraphs 23.147 to 23.151).
23.102 Commencement of civil recovery
proceedings
In order for civil recovery proceedings to be commenced the person in possession of
the property must have obtained it through unlawful conduct1 2, see paragraph 23.87.
The person subject to the order may not necessarily be the person who engaged in
the unlawful conduct – simply that they have obtained property as a result of the
unlawful conduct3.
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Civil recovery proceedings cannot be taken against cash alone but must include an
element of other “property” which is the property of the same person4. Cash can be
seized under a different part of the PoCA02 legislation, see paragraphs 23.123 to
23.146.
1. Proceeds of Crime Act 2002 section 241
2. Proceeds of Crime Act 2002 section 242
3. Proceeds of Crime Act 2002 section 242(1)
4. Proceeds of Crime Act 2002 section 282(2)
23.103 Victims of theft
A person who claims to be an innocent victim of theft may apply to the court for a
declaration that certain property is not recoverable property, as the property claimed
belongs to them and was not recoverable property immediately before they were
deprived of it1.
1. Proceeds of Crime Act 2002 section 281
23.104 Freezing orders
The relevant enforcement authority (see paragraph 23.100) may make an application
for a freezing order before or after starting proceedings for a civil recovery order. The
aim of a freezing order is to prohibit any person to whose property the order applies,
from dealing in any way with that property1. An allowance can be made from the
property frozen, e.g. allowance of a certain amount from a bank account, for the
person to meet reasonable living expenses, or to carry on any trade, business,
profession or occupation2. The property subject to a freezing order does not become
the property of the applicant, it is simply frozen for later determination by the court as
to who is entitled to the property.
1. Proceeds of Crime Act 2002 section 245(A)2
2. Proceeds of Crime Act 2002 section 245C
The court may make a freezing order where it is satisfied that there is a good
arguable case that the property is recoverable or associated property (see
paragraphs 23.89 to 23.99)1.
1. Proceeds of Crime Act 2002 section 245A(5)
23.105 Freezing order – receiver
appointment
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The High Court may also appoint a receiver over any property to which the freezing
order applies for the purpose of protecting that property1 2. The receiver would have
similar powers to those given to an interim receiver, see paragraph 23.109.
1. Proceeds of Crime Act 2002 section 245E
2. Proceeds of Crime Act 2002 section 245F
23.106 Freezing orders and interim
receiving orders
A freezing order will generally be applied for prior to an interim receiving order (see
paragraph 23.107), which itself usually pre-dates a civil recovery order (see
paragraph 23.115).
A freezing order must be discharged prior to the making of an interim receiving
order1.
1. Proceeds of Crime Act 2002 section 245B(2)
23.107 Interim receiving orders
The enforcement authority may apply for an interim receiving order before or after
starting proceedings for a civil recovery order1 (see paragraph 23.115), which will
prevent the owner of the property from dealing with it and appoint an interim receiver
to detain or preserve that property1. An allowance can be made for the person to
meet reasonable living expenses, or to carry on any trade, business, profession or
occupation2. The application for an interim receiving order can be made without
notice (where, for example, notice may give opportunity for property to be put out of
reach)3.
The court may make an interim receiving order where it is satisfied that there is a
good arguable case that the property is recoverable or associated property (see
paragraphs 23.89 and 23.99)4.
1. Proceeds of Crime Act 2002 section 246
2. Proceeds of Crime Act 2002 section 252
3. Proceeds of Crime Act 2002 section 246(3)
4. Proceeds of Crime Act 2002 section 246(5)
23.108 Interim receiver appointed under
PoCA02
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An application for an interim receiving order must nominate a qualified receiver1. The
receiver’s role is to establish whether or not the property listed in the order is
recoverable or associated property (see paragraphs 23.89 and 23.99), and whether
any other property is recoverable in relation to the same unlawful conduct2.
1. Proceeds of Crime Act 2002 section 246(7)
2. Proceeds of Crime Act 2002 section 247(2)
23.109 Interim receiver’s powers
The interim receiver is an officer of the court and powers held are derived from the
order of appointment – which may be as broad or as narrow as the court considers
appropriate1 2. The order will usually include the power to seize property, to manage
property, to search premises, and to require the provision of information or surrender
of property.
Where an interim receiver inadvertently deals with property not covered by the
interim receiving order, then they are not liable to anyone for the loss or damage to
that property, unless they have been negligent3.
1. Proceeds of Crime Act 2002 section 247(1)
2. Proceeds of Crime Act 2002 schedule 6
3. Proceeds of Crime Act 2002 section 247(3)
23.110 Effect of freezing order or interim
receiving order made prior to date of
insolvency proceedings
A freezing order or interim receiving order obtained prior to an insolvency order will
not grant any proprietary rights to the person obtaining the order, nor will it prevent
assets vesting in the insolvency estate. However, both of these orders will prevent
the official receiver as liquidator or trustee from dealing with those assets1 2.
Where a freezing order or interim receiving order has been made before the date of
the winding-up or bankruptcy order the official receiver will need to liaise with the
relevant enforcement authority (and interim receiver where applicable). Where
evidence is available indicating that the assets subject to the freezing order or
interim receiving order are the proceeds of unlawful conduct the official receiver
should not make claim to the assets. It is unlikely that the official receiver would
consider claiming the assets subject to the order as the court will have been satisfied
prior to the making of a freezing or interim receiving order that there was a good
--- PDF page 39 ---
arguable case that the assets are the proceeds of unlawful conduct (see paragraphs
23.104 and 23.107).
The official receiver should ask for their interest in assets subject to the order be
noted in the event that any application for a civil recovery order is unsuccessful.
1. Proceeds of Crime Act 2002 section 252(1)
2. Proceeds of Crime Act 2002 section 245A(2)(b)
23.111 Effect of freezing order or interim
receiving order made after the date of
insolvency proceedings
It is possible for a freezing order or an interim receiving order to be obtained after an
insolvency order has been made. This will effectively prevent the official receiver as
liquidator or trustee from dealing with the assets as a consequence of the terms of
the order. If the official receiver were to deal with the assets it is likely they would be
acting in breach of the court order. The official receiver should therefore take no
steps to realise the assets but should obtain a copy of the freezing order or interim
receiving order to verify the assets subject to the order.
The official receiver should liaise with the relevant enforcement authority (and interim
receiver where applicable) carefully to determine whether there is compelling
evidence that the property represents the proceeds of unlawful conduct. Where the
enforcement authority intend to make a subsequent application for a civil recovery
order (for which they will need leave of the court, see paragraph 23.120), then the
official receiver should not object where convincing evidence is held. In the absence
of such evidence, the official receiver may consider making representations to the
court at the application for hearing where it is considered that the assets should
more appropriately be dealt with within the insolvency proceedings.
23.112 Insolvency – release of property
subject to freezing order or interim
receiving order
Where the property subject to a freezing order or interim receiving order is found to
belong to a third party (e.g. the property of a victim of theft, see paragraph 23.113
below) or the proceeds of unlawful conduct, then the official receiver, as liquidator or
trustee, should confirm in writing to the enforcement authority (and interim receiver)
that they will not be claiming the property for the benefit of the insolvent estate. It is
--- PDF page 40 ---
likely that the official receiver will have been liaising with the relevant enforcement
authority prior to reaching this decision.
The enforcement authority that obtained the freezing order or interim receiving order
will need leave of the court to continue with the civil recovery proceedings in order to
realise those assets (see paragraph 23.120), and the official receiver should confirm
to the court that they has no objection to the continuance of the proceedings.
23.113 Insolvency – freezing orders over
bank accounts
The official receiver may encounter an insolvent’s bank account which is subject to a
freezing order. It is possible that the bank account may hold monies that are mixed
from various sources. Where the proceeds of unlawful conduct held in a bank
account have become mixed with funds from another source, for example, company
income or the bankrupt’s wages, the official receiver should investigate the source of
those funds before deciding whether to attempt to have the freezing order lifted and
to claim the funds. Only the portion of the mixed money which is obtained through
unlawful conduct would be recoverable property1, see paragraphs 23.87 to 23.89.
The official receiver should obtain copies of bank statements, cheque book stubs,
etc. to identify the source of funds (see paragraph 23.90.
On receipt of the statements which show monies from a legitimate source and
money from unlawful conduct the official receiver should treat the balance of the
account, as if first debits from the account extinguish first credits from the account
unless there is evidence to contradict this2. The official receiver will therefore need to
analyse the credits and debits to the account and assume that monies withdrawn are
debits from the money first deposited.
1. Proceeds of Crime Act 2002 section 306
2. Devaynes v Noble [1816] 35 ER 767
23.114 Application to vary or discharge a
freezing order or interim receiving order
Where a freezing order or interim receiving order is in force against property held by
a company in liquidation or vesting in the official receiver as trustee of a bankruptcy
estate, and the official receiver is of the view that the assets subject to the order
should more appropriately be dealt with as part of the insolvent estate, then the
official receiver should liaise with the relevant enforcement authority (interim
receiver) with a view to having the order set aside or varied. As the court will have
formed the view that the property subject to the order has been obtained by unlawful
--- PDF page 41 ---
conduct (see paragraph 23.87), the official receiver would need to have compelling
evidence to indicate why the property should more appropriately form part if the
insolvent’s estate. It is possible that consideration may need to be given to making
an application to the High Court to vary or discharge the order 1 2 3. It is expected that
such applications will be rare.
Where an application to court to vary or set aside the order is considered appropriate
a copy of the application must be served on every party to the proceedings, and any
person affected by the court’s decision. When dealing with an interim receiving
order, the court must give the interim receiver an opportunity to be heard on the
matter4.
There is no standard wording for an application, but for a suggested format, see
Annex B for a company case or Annex C for a bankruptcy case.
The application should contain a clear and concise chronology of events, with
information such as the date of the petition and order, the date of the relevant
freezing or interim receiving order and application, details of the assets concerned,
cooperation (or lack of), any other known assets, and any known liabilities or
relevant court action against the company or bankrupt.
1. Proceeds of Crime Act 2002 section 245B
2. Proceeds of Crime Act 2002 section 251(3)
3. Practice Direction – Civil Recovery Proceedings, paragraph 7.1
4. Proceeds of Crime Act 2002 section 251(4)
23.115 Civil recovery order
A civil recovery order is the end result of civil recovery proceedings which may have
previously included a freezing order and/or interim receiving order. The High Court
will only make a civil recovery order when it is satisfied that property is recoverable1,
see paragraph 23.89. The civil recovery order provides for the appointment of a
trustee to realise the recoverable property, see paragraph 23.116.
1. Proceeds of Crime Act 2002 section 266
23.116 Enforcement of a civil recovery
order – trustee for civil recovery
A civil recovery order is enforced by the appointment of a trustee for civil recovery1,
whose duties and powers are similar to that of a trustee in bankruptcy2 3. Property
listed in the civil recovery order will vest in the trustee for civil recovery to realise and
pay over to the enforcement authority4. The trustee for civil recovery acts on behalf of
--- PDF page 42 ---
the enforcement authority who applied for the appointment and must comply with its
directions5.
1. Proceeds of Crime Act 2002 section 267(1)
2. Proceeds of Crime Act 2002 section 267(5)
3. Proceeds of Crime Act 2002 schedule 7
4. Proceeds of Crime Act 2002 section 266(2)
5. Proceeds of Crime Act 2002 section 267(4)
23.117 Payment of pension rights
Where a person has accrued monies in a pension scheme and the money has been
obtained unlawfully (whether an occupational or personal pension scheme, or
annuity1 2), then those pension rights can be considered as recoverable property.
Where the pension rights are considered to be recoverable, then the court may order
that the pension trustees or managers pay the value over to the trustee for civil
recovery following the making of a pension recovery order. The pension rights are
valued by the trustees or managers of the pension scheme3.
1. Proceeds of Crime Act 2002 section 273
2. Proceeds of Crime Act 2002 section 275(4)
3. Proceeds of Crime Act 2002 (Recovery from Pension Schemes) Regulations 2003
23.118 Civil recovery order made prior to
date of insolvency order
Where a civil recovery order is made by the court, the recovery order must vest the
recoverable property in the trustee for civil recovery1. Consequently any assets
subject to a civil recovery order will not form part of the liquidation estate or vest in
the official receiver as trustee in bankruptcy.
1. Proceeds of Crime Act 2002 section 266(2)
23.119 Action where civil recovery order is
in force
Where the official receiver is aware, or suspects, that a civil recovery order is in force
in relation to the insolvent’s property, (typically, this will be where the official receiver
has knowledge of previous enforcement proceedings in respect of the insolvent),
notification should be sent to the enforcement authority (see paragraph 23.100) of
--- PDF page 43 ---
the making of the winding-up order or bankruptcy order. The official receiver should
attempt to establish the current position regarding the recovery order and the
appointment, or otherwise, of a trustee or receiver.
The relevant enforcement authority should be asked to note the official receiver’s
interest in any property subject to the recovery order.
23.120 Effect of insolvency on action for
civil recovery order
Proceedings for a civil recovery order may not be taken or continued in respect of
property which is an asset of a company in a voluntary liquidation or a voluntary
arrangement1, or an asset in a bankruptcy2, unless the relevant court gives leave to
do so3.
PoCA02 is silent with respect to a company which has been wound up by the court
or where a provisional liquidator has been appointed, but protection to company
assets forming part of the insolvency estate is provided from civil action under the
insolvency legislation. When a winding-up order has been made, or a provisional
liquidator has been appointed, no action or proceeding shall be proceeded with
against the company or its property except by leave of the court and subject to such
terms as the court may impose4. Additional protection is provided by insolvency
legislation between the presentation of the petition and the winding-up order5.
An application for leave may be made without notice to prevent a potential
respondent from having an opportunity to put property out of reach6, though notice
must still be given, where required, to the official receiver and insolvency
practitioner7.
Where there is adequate evidence to support the fact that the asset subject to the
recovery order was obtained via unlawful conduct, the official receiver should
consider not opposing the application for leave to take action against the asset.
1. Proceeds of Crime Act 2002 section 311(3)(a)
2. Proceeds of Crime Act 2002 section 311(3)(d)
3. Proceeds of Crime Act 2002 section 311(1)
4. Insolvency Act 1986 section 130(2)
5. Insolvency Act 1986 section 126
6. Proceeds of Crime Act 2002 section 311(4)
7. Proceeds of Crime Act 2002 section 311(5)
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23.121 Effect on property of discharge of
civil recovery order
If a civil recovery order is subsequently discharged the official receiver should take
action to claim/realise the assets for the benefit of the insolvent estate.
In the case of a company, any company property will continue to belong to the
company, and the official receiver as liquidator should take the necessary steps to
protect and realise the assets upon discharge of the order.
In a bankruptcy case, any assets subject to a civil recovery order would not have
vested in the official receiver, as trustee, from the date of the bankruptcy order. The
official receiver should therefore claim the assets as after-acquired property within
the usual 42 day period 1 2
1. Insolvency Act 1986 section 307
2. Insolvency Act 1986 section 309
23.122 Civil recovery order – not provable
There is no provision under PoCA02 for the claimant in a civil recovery to prove a
civil recovery judgment as a debt in bankruptcy proceedings. A civil recovery order
vests property in the trustee for civil recovery. It does not create a personal debt1.
1. Proceeds of Crime Act 2002 section 266(2)
Cash seizure and forfeiture
23.123 Introduction
Under PoCA02, application to a magistrates’ court can be made for the seizure,
detention, and forfeiture of cash. Cash may be seized on reasonable suspicion that
the cash represents the benefit from unlawful conduct or is intended for use in
unlawful conduct (see paragraph 23.125). The cash would then be held pending
application for it to be forfeited (see paragraph 23.127 and 23.129). Where no
forfeiture order is made, an application for compensation can be made by the person
to whom the cash belongs or from whom it was seized1, although this is rarely done.
1. Proceeds of Crime Act 2002 section 302
23.124 Definition of cash
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For the purposes of the provision relating to the seizure (see paragraph 23.125) and
detention (see paragraph 23.127) of cash, cash means:
•
notes and coins in any currency,
•
postal orders,
•
cheques of any kind, including travellers’ cheques,
•
bankers’ drafts,
•
bearer bonds and bearer shares,
•
gaming vouchers,
•
fixed-value casino tokens,
•
betting receipts,
found at any place in the UK1.
1. Proceeds of Crime Act 2002 section 289(6)
23.125 Seizure of cash
A police officer, customs officer, an SFO officer or accredited financial investigator
has the power to seize cash (see paragraph 23.124) if there are reasonable grounds
for suspecting the cash is recoverable property (see paragraph 23.89) in respect of a
recovery order (see paragraphs 23.85 to 23.122). or is intended to be used in
unlawful conduct1 (see paragraph 23.87). The whole of a cash amount may be
seized if it is not practicable to separate it from the suspected cash.
The minimum of amount of cash that can be seized is £10002.
1. Proceeds of Crime Act 2002 section 294
2. Recovery of Cash in Summary Proceedings Minimum Amount Order 2006
23.126 Contact enforcement authority for
information
Where the official receiver is aware that an insolvent’s cash has been seized contact
should be made with the enforcement authority as soon as practical (see paragraph
23.125), providing a copy of the winding-up order or bankruptcy order and request:
•
That the authority notes the official receiver’s interest in the cash.
•
Information on the circumstances leading up to the seizure of cash.
•
Any explanation offered by the insolvent to the authority.
•
Details of any third party claims on the cash.
23.127 Detention of seized cash
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Cash seized may be held for a period of 48 hours (not including weekends or public
holidays). Thereafter, it may only be held with an order of court, up to a period of two
years, if the court is satisfied that there are reasonable grounds for suspecting that
the cash is recoverable property (see paragraph 23.89), and that there are
reasonable grounds for suspecting that the cash is to be used in unlawful conduct
(see paragraph 23.87), and that either;
•
continued detention is justified while the source of the monies is investigated or
consideration is given to bringing proceedings, or,
•
proceedings have started and have not been concluded1.
It has been held that to satisfy the first part of the test, the police need do no more
than demonstrate their reasonable suspicion that the cash either is derived from
unlawful conduct or that it will be used in unlawful conduct2.
1. Proceeds of Crime Act 2002 section 295
2. R (on the application of the Chief Constable of Greater Manchester) v. City of Salford Magistrates; Court and Sarwar & Sons (Knitwear Ltd) [2008] EWHC 1651
23.128 Cash to be held in interest-bearing
account
Where cash is detained in excess of 48 hours, it must be paid into an interest-
bearing account and the accrued interest added to the sum to be forfeited or
released1.
1. Proceeds of Crime Act 2002 section 296
23.129 Forfeiture of cash seized
Cash forfeiture is the term used to describe the loss of cash seized without
compensation. An application for forfeiture may be made to the magistrates’ court by
the holder of the seized cash. The court may make an order that the whole or part of
the cash is forfeited if it is satisfied that the cash or part of the cash is:
• recoverable property (in respect of a recovery order – see paragraph 23.89)1,
or
• intended by any person for use in unlawful conduct (see paragraph 23.87)2.
The cash is to be detained until these proceedings (including any appeal – which
must be made within 30 days of the order for the forfeiture of the cash) are
concluded3.
Where the official receiver considers that the cash has been obtained as a
consequence of unlawful conduct e.g. it is cash obtained through theft, then no
objection should be made to the making of a forfeiture order. The official receiver
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should ensure that all parties are aware that any funds due to be returned to the
insolvent at the conclusion of any proceedings are remitted for the benefit of the
insolvency estate (see paragraph 23.135).
1. Proceeds of Crime Act 2002 section 298(2)(a)
2. Proceeds of Crime Act 2002 section 298(2)(b)
3. Proceeds of Crime Act 2002 section 298(4)
23.130 Forfeiture of cash seized – jointly
held
Where cash is seized and it can be shown it is jointly owned, the share which the
court considers is attributable to the excepted joint owner will not be forfeited1, e.g. in
the case of a joint bank account into which drug trafficking proceeds have been paid
by one signatory and clean money, such as wages, by the other. If the drug trafficker
withdraws all the cash and it is subsequently seized, the court must distinguish
between the clean and the dirty money and return the innocent share of the cash.
1. Proceeds of Crime Act 2002 section 298(3)
23.131 Determining if cash is an insolvency
asset – company
The first action the official receiver as liquidator should take, is to determine whether
cash seized by an enforcement authority is a company asset. Unless the cash was
forfeited prior to the appointment of a provisional liquidator or winding-up order, or it
can be shown to belong to a third party it will form part of the company property.
23.132 Determining if cash is an insolvency
asset – bankruptcy
Where cash has been seized the official receiver should seek to determine whether
the cash is an asset in the bankruptcy estate. If the cash was seized but not
forfeited prior to the making of the bankruptcy order, and it does not belong to a third
party (see paragraph 23.143), then it will vest in the official receiver when they are
appointed trustee1 (see paragraph 23.135). Similarly, if the cash was seized after the
making of the bankruptcy order, but it was owned or held by the bankrupt at the date
of the bankruptcy order, then it will also be a vesting asset (see paragraph 23.136).
Evidence should be sought that the cash was held or owned by the bankrupt at the
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date of the bankruptcy, such as bank statements, a completion statement on the sale
of property or a letter from the company involved in relation to compensation paid.
Where the cash has only come into the bankrupt’s possession after the making of
the bankruptcy order (but prior to discharge), or where there is uncertainty as to
whether they held it at the date of the bankruptcy order, then the official receiver
should consider claiming it as after-acquired property within the 42 day period (see
paragraph 23.137).
1. Insolvency Act 1986 section 306
23.133 Effect of an insolvency order on the
detention of cash seized
Cash that has been seized but not forfeited (see paragraph 23.129), and which
would otherwise be an asset in an insolvency estate cannot be subject to further
detention (after the initial or extended period for detention has expired – see
paragraph 23.129) without leave of the court1 2.
Where it appears on available evidence that the cash has been obtained as the
consequence of unlawful conduct then the official receiver should not object to such
an extension being sought and obtained, but should ensure that all parties (including
the court) are aware of their interest in the monies (see paragraphs 23.135 to
23.139).
1. Proceeds of Crime Act 2002 section 311(2)
2. Insolvency Act 1986 section 130(2)
23.134 Effect of an insolvency order on
forfeited cash
Where a forfeiture order is made by the court (see paragraph 23.129) prior to the
making of an insolvency order, then the cash subject to forfeiture will not form part of
the insolvent estate and any appeal must be brought within 30 days of the forfeiture
order (see paragraph 23.129).
23.135 Action to be taken by official
receiver where cash seized
Where cash has been seized prior to, or after, the making of the winding-up order or
bankruptcy order, provided the cash was owned by the insolvent prior to the making
of the insolvency order, the official receiver should take steps to ensure that their
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interest in the cash is noted by the authority that has seized it. This is pending any
further enquires that the official receiver needs to make to establish ownership (see
paragraphs 23.131 to 23.132 and 23.138).
Unless on available evidence it is clear that the official receiver has no claim to the
cash seized as it was obtained through unlawful conduct, a letter should be sent to
the magistrates’ court requesting that a copy of the winding-up order or bankruptcy
order is placed on the court file. This is to ensure that court is aware of the official
receiver’s interest in the cash seized.
23.136 Action to be taken where cash
seized after making of bankruptcy order
and date of acquisition is unknown – or is
known to be post-bankruptcy
Where cash has been seized after the making of the bankruptcy order and the date
that the bankrupt obtained the monies is unknown, or is known to be post-
bankruptcy, the official receiver should follow guidance in paragraph 23.135, and
additionally, they should claim the monies as after-acquired property1. Claiming the
detained cash as after-acquired property will not prevent the authority holding the
cash from continuing with forfeiture proceedings, it will merely ensure that where a
forfeiture order is not subsequently made and the money is not forfeited, that the
money will vest in the bankruptcy estate rather than the bankrupt.
1. Insolvency Act 1986 section 307
23.137 Claiming detained cash as after-
acquired property
The official receiver as trustee should serve written notice on the bankrupt that the
cash is claimed as after-acquired property and notify the enforcement authority in
writing1. Other interested parties to be served should include any third party with an
interest in the money (see paragraph 23.143) and the magistrates’ court (see
paragraphs 23.138 to 23.143). This claim must be made within 42-days of the official
receiver, as trustee, becoming aware of the existence of the monies2.
It is possible that the enforcement authority may request that the official receiver
makes no contact with the bankrupt about the investigation or monies seized, if this
is the case, the official receiver may need to consider making application to the court
for an extension of the 42-day period.
1. Insolvency Act 1986 section 307
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2. Insolvency Act 1986 section 309
23.138 Official receiver to seek direction of
the court where the ownership of the cash
seized is in doubt
Where the official receiver has insufficient evidence or any doubt that the cash
belongs to the insolvent estate, (this is particularly likely where there is a third party
also claiming an interest in the detained funds) then the official receiver should
consider seeking the directions of the insolvency court1 2 on how to proceed.
Where the ownership of the monies is in dispute, the official receiver should request
that the court order made provides for the monies to be held by the enforcement
authority/court pending further enquiries (by the official receiver) to establish
ownership. A copy of the application should be sent immediately to the magistrates’
court requesting that it be placed on the file pending an outcome of the insolvency
directions hearing. This is to ensure that the magistrates’ court is aware of the
proceedings in the insolvency court and the official receiver’s interest in the funds
seized.
If the insolvency court finds that the cash is an insolvency asset, then an application
to the magistrates’ court should be made (enclosing a copy of the order made in the
insolvency court), to request release of the cash to the official receiver, see
paragraph 23.140 to 23.142.
1. Insolvency Act 1986 section 303(2)
2. Insolvency Rules (England and Wales) 2016 rule 13.4
23.139 Application to magistrates’ court
where forfeiture/further detention is
disputed
Where the official receiver as liquidator or trustee, is satisfied on available evidence
that the cash is an asset of an insolvent, an application should be made to the
magistrates’ court for the release of the cash (see paragraph 23.143). The
application should outline why forfeiture or further detention is not appropriate, and
request that the cash be remitted to the official receiver as liquidator or trustee for
the benefit of the insolvent estate1, see paragraphs 23.140 to 23.142.
1. Proceeds of Crime Act 2002 section 301
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23.140 Application to magistrates’ court –
where order specifies who to release cash
to
At the conclusion of proceedings there is nothing in PoCA02 that requires that the
enforcement authority who has seized the cash return it to any particular person.
If no further detention or forfeiture of the cash seized is made by the court, then the
cash can be returned to whom it was seized from by the enforcement authority. The
magistrates’ order may specify the person to whom it should be returned1.
Where such a specification is made in the order the enforcement authority will not be
able to depart from this order, and where the official receiver, as liquidator or trustee,
considers the cash forms part of an insolvent’s estate an application should be made
to the court for the order to be varied to specify that monies are paid for the benefit of
the insolvent estate2, see paragraphs 23.142 to 23.143. The application should be
made in advance of any intention of the enforcement authority to release the monies.
1. Proceeds of Crime Act 2002 section 297
2. Proceeds of Crime Act 2002 section 301
23.141 Application to magistrates’ court –
order does not specify who to release cash
to
Where the order of the magistrates’ court does not specify to whom the cash should
be returned an informal request for payment of the monies to the official receiver by
the enforcement authority will not be sufficient. This is because there is a risk that an
interested party may make an application to the magistrates’ court for the release of
the detained cash without the official receiver’s knowledge, resulting in a loss to the
estate. The official receiver should therefore make a prompt application to the
magistrates’ court that the funds are released for the benefit of the insolvent estate
(see paragraphs 23.142 to 23.143).
23. 142 Making application for the release
of detained cash
An application by the official receiver for the release of seized cash must be made in
writing1. An application fee will be payable2. If the fee required is over £2,500, see
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the guidance in Chapter 1 of the Operational Guidance regarding the requirement to
obtain the permission should be followed before committing to any expenditure.
The official receiver should telephone the relevant magistrates’ court to discuss the
pending application, confirm the fee payable and to ascertain if anything further is
required. A date and time should also be agreed with the court for the hearing of the
application.
A copy of the application and any evidence that will be presented to the court should
be served on the bankrupt, the enforcement authority, and any other interested
party3. Seven days notice should be given to the bankrupt4.
Example applications are provided at Annex E for a company case and Annex F for
a bankruptcy case.
1. Magistrates’ Courts (Detention and Forfeiture of Cash) Rules 2002 rule 6(1)
2. Magistrates’ Courts Fees (Amendment No 2) Order 2010, Schedule 1 paragraph 15
3. Magistrates’ Courts (Detention and Forfeiture of Cash) Rules 2002 rule 6(3)
4. Magistrates’ Courts (Detention and Forfeiture of Cash) Rules 2002 rule 6(4)
23. 143 Third parties laying claim to the
detained cash – no court application
needed
The official receiver should not object to funds being returned to third parties where
compelling evidence has been given that the cash belongs to that third party and
had, at no time, belonged to the insolvent.
Where the official receiver has previously asked the magistrates’ court to note their
interest (see paragraph 23.135), they should write to the court confirming that they
has no objection to the cash being released to the third party.
Typically, an interested third party may be the person from whom the monies were
stolen or otherwise illegally obtained.
23. 144 Compensation following the
release of detained funds
Where cash has been seized from someone, and no forfeiture order is made, then
the person from whom the cash was seized, or to whom it belongs, may apply to the
magistrates’ court for compensation1. The amount awarded would normally represent
the interest accrued on the monies in the account it has been deposited, but in
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exceptional cases, an additional amount can be awarded where the person has
suffered other loss. The award would be made against the agency responsible for
seizing the cash, and would not be made where the authority had acted honestly,
reasonably and properly. Claims for such compensation are rare.
1. Proceeds of Crime Act 2002 section 302
23.145 Compensation paid to bankrupt
Where compensation is paid to a bankrupt under PoCA021 prior to the bankruptcy
order, then it would vest in the official receiver as trustee2.
1. Proceeds of Crime Act 2002 section 302
2. Insolvency Act 1986 section 306
Where a bankrupt is awarded compensation from an enforcement authority after the
date of the bankruptcy order, for cash seized before the date of the order, the official
receiver should claim it as after-acquired property within the 42 day period1 2.
1. Insolvency Act 1986 section 307
2. Insolvency Act 1986 section 309
Generally, compensation paid under this provision would be of a financial nature,
however if compensation was paid of a personal nature (in exceptional
circumstances) relating to the pain and suffering of the bankrupt, then it is possible
that the compensation may not be claimable.
23. 146 Compensation in criminal cases
The magistrates’ court also has the power to make a compensation order against a
defendant convicted of a crime (see paragraph 23.84). However the magistrates’
court must refer the matter to the crown court if a confiscation order is also required,
see paragraph 23.831.
1 Proceeds of Crime Act 2002 section 70
Revenue functions
23. 147 Taxation referrals to NCA
PoCA02 gave powers to NCA (see paragraph 23.8) to collect specific or general
taxes where a company or person is suspected of having income, gains or profits
from the proceeds of crime1. SOCA can take over the tax collection function from
--- PDF page 54 ---
HMRC by serving notice on them specifying the company or person, and period for
which the revenue function will be carried out2. There is no need for an application to
court.
1. Proceeds of Crime Act 2002 section 317
2. Proceeds of Crime Act 2002 section 317(2)
NCA may use tax assessments as an alternative to removing property from
someone suspected of crime, where they have not been able to remove property
through confiscation (see paragraphs 23.53 to 23.84). or civil recovery (see
paragraphs 23.85 to 23.122). It allows for the taxation of income with no apparent
legitimate source.
23. 148 Types of tax SOCA may serve notice
to collect
NCA may serve notice on HMRC for the following revenue functions to be vested in
them1:
1. Proceeds of Crime Act 2002 section 323
•
Income tax.
•
Capital gains tax.
•
Corporation tax.
•
National Insurance contributions.
•
Statutory sick pay.
•
Statutory maternity, paternity, shared parental pay or adoption pay.
•
Student loans.
23. 149 Reasonable grounds for suspicion
SOCA must have reasonable grounds to suspect that taxable income, gains or
profits are the proceeds of crime. It is irrelevant whether that company or person has
been acquitted in a prosecution of the suspected conduct. It is not necessary for
NCA to identify the source of the income for a tax assessment to be raised1.
1. Proceeds of Crime Act 2002 section 319(1)
23. 150 Action to be taken where tax
assessment raised prior to making of
insolvency order
--- PDF page 55 ---
Where a tax assessment has been raised by NCA prior to an insolvency order, then
unless the company or bankrupt has already paid that assessment, it will be a
provable debt in the insolvency proceedings.
23. 151 Action to be taken where tax
assessment raised following the making of
an insolvency order
Where a tax assessment is raised by NCA after the making of an insolvency order,
then the debt will be a provable debt in the insolvency proceedings where the liability
was incurred (i.e. the taxable income was earned or capital gained) prior to the
making of the winding-up order or bankruptcy order.
In bankruptcy, if the liability was incurred after the date of the bankruptcy order the
debt is not a bankruptcy debt and the bankrupt will remain liable for its payment post
discharge from bankruptcy. However, assets vested in the trustee may not be seized
in payment of the taxation.
The official receiver should notify NCA of the insolvency order and the position
regarding the debt.
Forfeiture and restraint orders under
the terrorism legislation
23.152 Scope of this part
The legislation relating to forfeiture and restraint orders is encountered rarely and so
has not been dealt with in depth. What follows in this Part is a brief synopsis of the
legislation and its implications. If the official receiver has a complex query in relation
to this area of law they should contact Technical Section for guidance.
23.153 Terrorism Act 2000 - forfeiture
order
Where a person is convicted of a terrorism offence under the Terrorism Act 2000, the
court may order the forfeiture of any property that they have in their possession or
under their control which might be used for the purposes of terrorism1 2 3. The court
--- PDF page 56 ---
may appoint a receiver to take possession of and deal with the assets, make a
restraining order prohibiting a person from dealing with the assets or make a
charging order over the assets to secure payment to the Crown4.
Before making a forfeiture order the court must give an opportunity to be heard to
any person, other than the convicted person, who claims to be the owner or
otherwise interested in anything which can be forfeited5.
1. Terrorism Act 2000 section 23
2. Terrorism Act 2000 section 23A
3. Terrorism Act 2000 schedule 4
4. Terrorism Act 2000 schedule 4 paragraph 2(c)
5. Terrorism Act 2000 section 23B
23.154 Effect of insolvency on the
forfeiture order
The money or property subject to a terrorism forfeiture order (see paragraph 23.153)
shall not be finally disposed of for a period of six months from the making of the
forfeiture order1. If, during that time, qualifying insolvency proceedings2 3 are
commenced, the insolvency practitioner (including the official receiver)4 may claim
that money or property to deal with within the insolvency proceedings5. Qualifying
insolvency proceedings include a both voluntary and compulsory winding up of a
company, a winding up of a partnership, a bankruptcy order and the administration of
the insolvent estate of a deceased person6.
1. Terrorism Act 2000 schedule 4 paragraph 46
2. Terrorism Act 2000 schedule 4 paragraph 47
3. Terrorism Act 2000 schedule 4 paragraph 53(2)
4. Terrorism Act 2000 schedule 4 paragraph 53(1)
5. Terrorism Act 2000 schedule 4 paragraph 47
6. Terrorism Act 2000 schedule 4 paragraph 47(5)
23.155 Action to take where terrorism
forfeiture order is in force – serve notice on
court
--- PDF page 57 ---
On becoming aware of a forfeiture order made within the previous six months, the
official receiver should try to have the assets dealt with in the insolvency
proceedings. To claim assets for the insolvency proceedings, the official receiver
should serve written notice on the court in which the forfeiture order was made1. The
notice should2:
•
be served within six months of the making of the forfeiture order;
•
include details of the date of the insolvency order; and
•
include a statement to the effect that in the absence of the making of the forfeiture
order, the property would be part of the insolvent’s estate available to the creditors.
1. Terrorism Act 2000 schedule 4 paragraph 47
2. Terrorism Act 2000 schedule 4 paragraph 47(1)
23.156 Effect of service of notice on the
court
Provided that the notice served by the official receiver (see paragraph 23.154)
complies with the above, the forfeiture order and any order made in connection with
the forfeiture order (an ancillary order) will cease to have effect in relation to the
assets covered by it, which will be dealt with in the insolvency proceedings1.
The official receiver should ensure that any funds held by the court are passed to
him/her or are retained by the court to the order of the liquidator or trustee. In
addition, the official receiver should obtain details of any assets not yet realised and
of any receiver appointed in relation to the forfeiture order, so that such assets can
be protected and recovered for the insolvent’s estate.
1. Terrorism Act 2000 schedule 4 paragraph 47(3)
23.157 Expenses of the forfeiture
proceedings
Any allowable expenses of the forfeiture proceedings may be deducted from the
proceeds of sale of the property, or part of the property may not be released to the
official receiver so that such expenses are discharged1. If allowance was not made
for the expenses when the property was delivered up or the value of the property is
insufficient to cover such expenses, a claim may be made in the insolvency
proceedings. This claim would be treated as if the expenses were expenses of the
insolvency proceedings2 3.
1. Terrorism Act 2000 schedule 4 paragraph 50(1)
2. Terrorism Act 2000 schedule 4 paragraph 48
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3. Terrorism Act 2000 schedule 4 paragraph 50(2)
23.158 Secretary of State to be a postponed
creditor in the proceedings
In the event of any distribution being made to creditors, the Secretary of State
responsible for the forfeiture would be a postponed creditor for the value of the
property previously subject to the forfeiture order, the claim being payable only after
the other debts have been paid in full with interest1.
1. Terrorism Act 2000 schedule 4 paragraph 48(1)
23.159 Restraint orders in relation to
terrorism offences
The High Court has the power, in relation to terrorism offences, to make a restraint
order in relation to property where1 2 :
•
a forfeiture order has been, or is likely to be, made, or
•
where a criminal investigation has been started.
The application for a restraint order may be made without notice3.
1. Terrorism Act 2000 schedule 4 paragraph 5(1)
2. Terrorism Act 2000 schedule 4 paragraph 5(2)
3. Terrorism Act 2000 schedule 4 paragraph 5(4)
23.160 Effect of a restraint order
A restraint order prohibits a specified person to whom notice of it is given, subject to
any conditions and exceptions specified in the order, from dealing with specified
property in respect of which a forfeiture order has or could be made1.
In this context, ‘dealing with property’ includes removing the property from Great
Britain2.
1. Terrorism Act 2000 schedule 4 paragraph 5(3)
2. Terrorism Act 2000 schedule 4 paragraph 5(5)
23.161 Official receiver to seek discharge
of restraint order over insolvent’s property
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The official receiver will not be able to deal with property subject to a restraint order
(see paragraph 23.159). It will be necessary for the official receiver to apply to the
High Court for the order to be discharged1.
1. Terrorism Act 2000 schedule 4 paragraph 6(2)
23.162 Official receiver dealing with
property subject to forfeiture or restraint
If, in the absence of a correctly worded notice to the court (see paragraph 23.154)
the official receiver reasonably deals with any property which is subject to a restraint
or forfeiture order they shall not be liable for any loss caused by their action and they
will have a lien on that property for their unpaid expenses and remuneration1.
1. Terrorism Act 2000 schedule 4 paragraph 51
23.163 Recission of winding-up order or
annulment of bankruptcy order
If a bankruptcy order is annulled, any property which was previously forfeited (or its
value) will again be the subject of the forfeiture order and the official receiver should
inform the court in which the forfeiture order was made of the annulment so that any
funds or assets subject to the forfeiture order are returned to the court or to the
receiver1. There are no specific provisions relating to the return of property on the
stay of a winding-up order. Where a winding-up order is stayed (or rescinded) the
official receiver should inform the court that made the forfeiture order and the police
of the stay and that control of the company’s property will revert to the company and
its directors.
1. Terrorism Act 2000 schedule 4 paragraph 49
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 10 March 2020.
24. Exempt property and property not
comprised in bankrupt's estate
Chapter content
Frequently asked questions
Introduction
Dealing with exempt property
Motor vehicles as exempt property
Household equipment as exempt property
Tools, etc. as exempt property
Claiming items of excess value
Other property excluded from the estate
Tenancies as exempt property
Claiming a tenancy – Whether as a vesting asset or as excluded property with excess
value
Rent arrears and rent deposits
Right to buy and compensation payments
Frequently asked questions
--- PDF page 2 ---
What is exempt property?
Exempt property does not form part of the bankrupt’s estate and is therefore not
automatically available to the trustee to realise on behalf of the creditors. Property
which should be treated as exempt is defined in detail in section 283(2) of the
Insolvency Act 1986.
What items are exempt property?
Property is exempt either on the grounds that it is necessary for satisfying a basic
domestic need of the bankrupt or their family, or because it is necessary for use
personally by the bankrupt in their employment, business or vocation. This might
include household equipment, motor vehicles and/or tools of trade.
Careful considerations may need to be applied to decide whether certain items meet
the definitions in the legislation and the guidance in this chapter will assist the official
receiver in this regard.
Can exempt property ever be claimed by the
official receiver?
Yes, if the property is of too great a value for the bankrupt to retain it can be claimed
by the trustee. Once the asset is sold the trustee must provide the bankrupt with
funds from the sale proceeds to purchase a reasonable replacement. No action
should be taken by the official receiver, as trustee, to claim exempt property of
excess value until satisfied that there will be a net benefit to the estate. A
conservative view of the value of the item should be taken to provide a reasonable
margin of safety.
Is there a time limit to make claim to property?
The official receiver, as trustee, has 42 days to make a claim to property once
becoming aware of it or following appointment as trustee where prior knowledge
held.
Introduction
24.1 Definition of the bankrupt’s estate
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In order to assist in properly understanding the extent to which a bankrupt’s property
may be treated as exempt, it will be useful to set out the provisions of the Act relating
to exempt property1:
The bankrupt’s estate comprises all property2 belonging to or vested in the bankrupt
at the commencement of the bankruptcy except,
•
such tools, vehicles and other equipment as are necessary to the bankrupt for use
personally by him/her in their employment, business or vocation
•
such clothing, bedding, furniture, household equipment and provisions as are
necessary for satisfying the basic domestic needs of the bankrupt and their family
1. Section 283(1)
2. Section 436
24.2 Legislative purpose of the exemptions
relating to tools of the trade
The exception is intended to enable a bankrupt to ‘achieve his rehabilitation as a
useful and productive member of society’1 but it must be seen in the context of the
operation of bankruptcy as a means whereby a debtor is freed from their debts but at
the price of the gathering in and realisation of all their existing assets. The exception
must not be artificially constrained but care must be taken not to interpret it
excessively widely. An interpretation which would enable a bankrupt not just to earn
a living by themselves working with particular equipment but also to keep all the
equipment of his business out of the bankruptcy estate and so prevent it being
available for the creditors would be excessively wide. Such an interpretation is not
necessary to achieve the purpose of the exception and would run counter to the
overall purposes of the bankruptcy2.
1. Report of the Review Committee on Insolvency Law and Practice (1982) Cmnd 8558 (‘The Cork Report’)
2. Birdi v Price [2018] EWHC 2943 (Ch)
24.3 Deciding whether something is exempt
For an item to be treated as exempt property it must be necessary for use personally
by the bankrupt in their employment, business or vocation, or necessary to meet the
basic domestic needs of the bankrupt and their family1.
The court has held that the relevant questions around an item’s position as exempt
property are to be determined in light of the factual situation existing at the date of
the bankruptcy order. The test to be applied is a non-technical one, taking into
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account the normal use of the words ‘necessary’ and ‘personally’. The application of
the test will be highly fact-sensitive and close regard must be had to the
circumstances of the particular bankrupt and of the particular item(s). An item that is
necessary for one bankrupt to use in their employment might not be necessary to
another even though the item and employment appear similar.
1. Birdi v Price [2018] EWHC 2943 (Ch)
24.4 Is the item necessary?
The fact that a particular tool used by a bankrupt is owned by them does not
automatically or of itself make it necessary to them for use in his employment,
business, or vocation. All will depend on the particular circumstances having regard
to the chattel; the bankrupt; and the employment, business, or vocation. It will not be
a good answer to a claim invoking the exception to say that the bankrupt could
purchase a replacement chattel for himself. However, in a particular case it may be a
good answer to say that such chattels are normally provided by others to those
engaged in the particular employment, business, or vocation so that continued
possession of the chattel in question is not necessary to the bankrupt.
Property that has been transferred to a third party is unlikely to be considered
necessary even if still in use by the bankrupt, possibly preserving the ability of the
official receiver to recover the property as a transaction at an undervalue1.
It is the bankrupt’s responsibility to satisfy the official receiver that the item is
necessary, to the extent that no practical alternative exists, to meet a genuine need
and not merely as a matter of convenience or desirability.
1. Official Receiver v Lloyd [2014] 10 WLUK 558
24.5 Is the item used personally?
It is unlikely that a person could be said to be personally using a tool, book, vehicle,
or item of equipment if they were not themselves physically using that chattel. So for
example, a bankrupt whose employees are using certain items in that bankrupt's
business with no physical use of those chattels by the bankrupt can themselves be
said to be using the chattels personally. Such use may well be "use by" the bankrupt
but it cannot be "personal use by" him.
It is possible that the relevant use does not have to be exclusive in order to be
personal and in particular cases a shared use might still be personal use for these
purposes. However, use which is not exclusive is unlikely to be within the subsection
at least where the shared use is by an employee of the bankrupt1. Considerable
caution must be exercised before the official receiver can conclude that equipment
which is not used exclusively by a bankrupt is necessary for use personally by them.
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1. Toseland Building Supplies Ltd v Bishop [1993] 10 WLUK 339
25.6 Value of the item not a factor
The value of an item is not a factor in deciding whether it meets the relevant tests for
being exempt. The legislation does however allow the trustee to claim an exempt
item where it is possible for it to be replaced, at the cost of the estate, with a cheaper
alternative – the difference then being funds in the estate. This is covered in detail
below.
24.7 Exempt tenancies
The provisions relating to exempt property also includes certain residential
tenancies1. This is covered in detail below.
1. Section 283(3A)
24.8 Other exempt property
In addition to exempt property as described above, the following property is also
excluded:
(a) Property held by the bankrupt on trust for any other person, which would include
funds held on trust in an IVA for the IVA creditors1, 2. The onus of proof is on the
person asserting to establish that a trust has been created3.
(b) The right of nomination to a vacant ecclesiastical benefice is also excluded4 (an
ecclesiastical benefice is an endowed church office giving income to its holder such
as a vicar or rector).
(c) Certain items are excluded by way of non-insolvency legislation, such as a
student loan. As student loans are now excluded from the estate, any cash held by
the bankrupt directly from the balance of a student loan is also excluded5, 6.
1. Section 283(3) (a)
2. Re Coath (2000) BPIR 1009
3. Thandi v Sands [2014] EWHC 2378 (Ch)
4. Section 283(3) (b)
5. Section 283(6)
6. Education (Student Support) (no 2) Regulations 2008 regulation 94(1) (a)
24.9 Partnerships
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The exempt property provisions of the legislation do not apply to partnership
property, either whether the partnership is wound up as an unregistered company in
conjunction with petitions against insolvent members, or where bankruptcy orders
are made against the partners on their own petition1, 2.
1. Insolvent Partnerships Order 1994 articles 10 and 11; schedule 7, paragraph 7(2); article 8; schedule 4, paragraph 28
2. Official Receiver v Hollens [2007] BPIR 830
Dealing with exempt property
24.10 Identifying exempt property
When dealing with potentially exempt property, there are two matters to consider:
•
Whether the property is exempt (following the guidance above), and
•
If the property is exempt property, whether or not it is of excess value.
Before dealing with any item of property, the official receiver should be satisfied that
the item is not exempt property before taking action to claim or dispose of the
property for the benefit of the estate.
This is the case even if bankrupt has not claimed the property as exempt through
ignorance of the law. The risk in acting in this way is that the official receiver would
have no defence to a claim that the item had been wrongly seized1, 2.
The official receiver should therefore seek at an early stage to identify any property
which could be considered to be exempt from the bankrupt's estate.
1. Section 287(4)
2. Section 304(3)
24.11 Bankrupt claiming property as exempt
This chapter will refer to the bankrupt ‘claiming’ property as exempt. Strictly
speaking, property is exempt (or not) due to the provisions of the legislation and
such ‘claim’ as is made by the bankrupt is to request that the official receiver
confirms that a certain item of property is to be treated as exempt.
Such a claim might need to be supported with information and the guidance
elsewhere in this chapter sets out what information requirements the official receiver
would have, depending on the item concerned.
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24.12 Trustee’s right to reject bankrupt’s claim
to exempt property
The official receiver may reject a claim to exempt property by the bankrupt if it is
considered that none of the grounds for exemption apply. A written record should be
made of any claim made by the bankrupt to exempt property in the telephone
interview notes, narrative statement or additional questions as appropriate, even if it
is likely to be rejected.
Where the asset is straightforward to deal with, the notice rejecting the bankrupt’s
claim can be sent as soon as the official receiver becomes trustee1, 2. If there is any
doubt as to whether an asset is exempt, or whether it is of excess value, the matter
should be discussed with line management before notice is sent to the bankrupt. The
bankrupt should not be led to believe that an asset is, or is not, exempt property in
cases where an insolvency practitioner is likely to be appointed as trustee, as any
decision is for the trustee to make.
1. REPR
2. ASTCAA
24.13 Explaining matters to the bankrupt
The concept of exempt property and the trustee's ability to claim exempt property of
excess value should be explained to the bankrupt. This is also covered in the
guidance available on GOV.UK.
24.14 Keeping full records of decisions taken
A note should be made in the telephone interview notes, narrative statement or
additional questions as appropriate, of the information obtained from the bankrupt
relating to the property in question, including whether and why they considered that
the item should be treated as exempt. A record should be made in the examiner’s
instructions to insolvency case officers and on the file that the exempt provisions
have been considered and do not apply, if appropriate.
24.15 Process for confirming property as
exempt
When property is identified as exempt the standard notice should be sent to the
bankrupt in relation to all items of exempt property identified. Items may be grouped
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together, provided that an estimated value for the whole group of items is included
(e.g. household furniture, £1,000).
24.16 Rejection of a bankrupt’s claim that an
item be treated as exempt
Where the bankrupt has claimed an asset as exempt, and the official receiver, as
trustee, is rejecting that claim, notice should be sent to the bankrupt1.
1. REPR
24.17 Bankrupt disposing of exempt asset
If the bankrupt subsequently sells an asset that has been treated as exempt, then as
the item has changed character, it may no longer be needed or considered as
exempt. The official receiver should consider whether the funds from the sale of the
exempt asset are being used to purchase a new item which would also satisfy the
same exemption criteria. The bankrupt should be asked to provide evidence that
they have in fact purchased a replacement item. If the funds are not being used to
provide a replacement item, then the official receiver should consider claiming such
monies as after acquired property.
24.18 Information to creditors
All items which have been judged to be exempt property should be identified in the
report to creditors. Items which are generally exempt in every case, such as
household goods and furniture, may be listed in a note at the bottom of the report to
creditors and grouped together as such, but items that are likely to give rise to
queries, such as a motor vehicle or higher value items, should be individually listed.
All other enquiries from creditors about exempt property matters should be dealt with
as they arise.
24.19 Appointment of practitioner as trustee
If an insolvency practitioner is appointed trustee, the official receiver should provide
them with details of all items that they consider may be exempt property and have
not already been dealt with. Details of any action taken by the official receiver should
also be given in the trustee’s record book1.
1. IPROH
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Motor vehicles as exempt property
24.20 Official receiver to consider carefully the
bankrupt’s claim for a vehicle to be treated as
exempt
Vehicles should not be treated as exempt property as a matter of course and a
proper, active, decision should be taken in each case, taking into account the
relevant facts and policies and recording all relevant facts, events and decisions on
the file.
It would be expected that a vehicle be treated as exempt property to meet a
domestic need (as opposed to an employment need) only in very limited
circumstances.
24.21 Vehicle should be ‘necessary’ for the
bankrupt to be treated as exempt
As detailed above, for a vehicle to be treated as exempt property it must be
necessary for use personally by the bankrupt in their employment, business or
vocation, or necessary to meet the basic domestic needs of the bankrupt and their
family.
It is the bankrupt’s responsibility to satisfy the official receiver that this is the case,
particularly that the vehicle is necessary, to the extent that no practical alternative
exists, to meet a genuine need and not merely as a matter of convenience.
It would be expected that a vehicle be treated as exempt property to meet a
domestic need (as opposed to an employment need) only in very limited
circumstances.
24.22 Use of the vehicle personally by the
bankrupt
It is a requirement that the bankrupt satisfy the official receiver that the vehicle is
necessary personally for it to be treated as exempt. This does not mean that the
vehicle must be used exclusively by the bankrupt, but it must be necessary
personally and not just necessary to others (where, for example, a spouse of the
bankrupt needs it to get to/from work).
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In considering whether the bankrupt is personally using the vehicle, the official
receiver should consider the use to which the vehicle is put by the bankrupt and the
frequency of that use. If the bankrupt is unable to demonstrate that the vehicle is
used by them personally, or that the frequency of that use is low, the official receiver
should give them the opportunity to introduce a third party to purchase the vehicle.
24.23 Bankrupt claims they need vehicle for
work
When considering whether to treat a vehicle as exempt property under the provision
relating to use of the vehicle in the bankrupt’s employment, business or vocation, the
principal points to be considered are:
1. Whether the vehicle is, in fact, used by the bankrupt in their employment,
business or vocation and not, for example, for some, unrelated, domestic use.
2. The extent to which the bankrupt could reasonably travel to and from their
place(s) of work using alternative transport (public transport, for example),
taking into account their need to carry equipment or tools.
3. The extent to which the bankrupt’s prospects of keeping employment would
diminish without use of the vehicle.
4. If the vehicle requires repair, that it will be used to travel to work when
repaired (taking into account points a – c above).
24.24 Bankrupt claims they need vehicle for
work but is currently unemployed
It is not in the interests of the creditors of the bankrupt that the official receiver
effectively puts the bankrupt out of the job market by removing one of his tools of
employment. In circumstances where the bankrupt is unemployed or out of work, the
official receiver can treat a vehicle as exempt if the bankrupt can satisfy the official
receiver that:
1. their chances of gaining employment would diminish without the vehicle -
whether that be because employment chances would be limited without the
vehicle being available to travel to from work (though consider points (a) and
(b) above) or that the bankrupt would need use of the vehicle directly in
connection with their employment and,
2. they have a reasonable chance of obtaining employment or, in the case of a
self-employed person, of obtaining work and,
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3. if the vehicle requires repair, it will be used to travel to work and/or seek
employment when repaired (taking into account points (a) and (b), above).
24.25 Vehicle in need of repair as exempt
property
Where a vehicle requiring repair is claimed as exempt and the official receiver is
minded to treat the vehicle as exempt, the official receiver should give the bankrupt
21 days to effect the repairs and provide evidence that the repairs have been
effected. If such evidence is not supplied, the official receiver should realise the
vehicle as, clearly, a vehicle that is not working cannot be exempt property.
24.26 Bankrupt is a carer for a relative
Caring for others clearly can be a vocation and the means by which an individual
earns their living (nurses or care assistants, for example) and there seems no reason
why caring for another who is, in fact, a relative should be treated any differently in
principle. There are a considerable number of ‘informal’ and unpaid carers in the
country who would describe their vocation as that of a carer. Many may be eligible
for a Carer's Allowance, which is an allowance payable if the carer is occupied in
caring for another for at least 35 hours per week.
A bankrupt might, therefore, not be in paid employment and have no prospect of
obtaining employment as a result of having taken on the care of a disabled relative
(including a child). To decide whether a vehicle should be treated as exempt on
these grounds, it is necessary to decide if the bankrupt’s vocation is that of a carer.
24.27 Deciding if a bankrupt’s vocation is that
of a carer
In considering whether the bankrupt has a ‘vocation’ as a carer, material issues
would be the time involved in undertaking the care, the receipt of a carer’s allowance
(which are connected) and the level of care required.
The normal care reasonably expected of a parent for a child is not considered to be
a vocation in this context, but a parent caring for a disabled child would fall into the
category of having the vocation of a carer.
24.28 Vehicle may be treated as exempt if
bankrupt has the vocation of a carer
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Subject to the guidance in above, a vehicle may be treated as exempt if the official
receiver is satisfied that the bankrupt is an informal, full-time carer for a disabled
relative or friend (in other words, has the vocation of a carer) and who would use the
vehicle in connection with that role.
24.29 Bankrupt claims they need vehicle due
to their own disability and/or for domestic use
A bankrupt may inform the official receiver that they have a disability and that their
motor vehicle is necessary for mobility, or that the vehicle is necessary for domestic
use (to take children to school, for example). The official receiver should treat such
cases considerately, but where the bankrupt is unable to satisfy the official receiver
that use of the vehicle is necessary for their use personally, they should nevertheless
treat the vehicle as an asset of the estate.
24.30 Deciding if a vehicle is necessary for
domestic use – Generally
It is for the bankrupt to satisfy the official receiver that the vehicle is necessary to
meet a genuine need and not simply required as a matter of convenience.
For most journeys, a taxi service would offer an alternative to that of a private vehicle
but, set against the costs of maintaining and running a modest vehicle, the use of
such a service would be excessive if the required journey were a daily or frequent
one. On the other hand, the task of undertaking the weekly shop may well be
reasonably achieved more cheaply by taxi than by owning and running a private
vehicle.
Bankrupts who live in an urban area with reasonable public transport links are
unlikely (other than in the case of disability) to be in a position to claim that a motor
vehicle is exempt for domestic reasons alone.
24.31 Deciding if a vehicle necessary for
domestic use – Disability
Where a bankrupt’s disability prevents them from seeking employment, the bankrupt
must satisfy the official receiver that the vehicle allows them a degree of independent
living which would be impossible without the retention of a vehicle, and/or there is no
practical alternative to allow for attendance at medical appointments or other care
associated with the disability.
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24.32 Deciding if a vehicle is necessary for
domestic use – The ‘school run’
Where a bankrupt claims a vehicle as exempt property as it is needed to transport
their children to/from school, they will need to demonstrate that there is no public
transport alternative or that the distance to travel would make walking (or cycling) an
impractical alternative. It is not sufficient for a bankrupt who lives in a rural area to
claim a motor vehicle simply by virtue of distance from the school.
The bankrupt must provide a statement that there is no transport alternative (for
example, a local authority school bus service) or, if there is more than one child,
show that diverse locations makes it impossible to transport all the children to school
by public transport. In deciding matters here, it should be noted that local authorities
are required to provide free transport to school where a child under eight lives more
than two miles from their school or where a child over eight lives more than three
miles from their school.
There will be exceptions to this – for example, where a parent has made a decision
not to send their child to their catchment school the free transport provisions do not
apply.
Practical problems such as organising children to walk to school, to travel with more
than one child on public transport, or any general concerns about safety are simply
matters of convenience and in such cases the vehicle is not necessary to meet a
basic domestic need and the vehicle should be treated as an asset of the estate.
24.33 Consequence of bankrupt’s inability to
satisfy the official receiver that vehicle is
necessary
If the use of a vehicle does not meet the test for necessity the vehicle is vested in the
bankruptcy estate and the official receiver may realise the vehicle. This includes
giving the bankrupt the option to have a third party make an offer for the vehicle.
24.34 Official receiver should consider offers
from third parties where vehicle not to be
treated as exempt
Where the official receiver has taken the decision that a vehicle claimed as exempt
by the bankrupt is not to be treated as such, they should enquire of the bankrupt
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whether any third party introduced by them wishes to make an offer for the official
receiver’s interest in the vehicle to avoid the seizure and sale of the vehicle.
Where an acceptable offer is made agents will need to be instructed to undertake the
sale.
24.35 Exempt vehicles of excess value
As outlined elsewhere in this chapter, where an exempt vehicle appears to have a
significant value, it is open to the official receiver to claim it for the estate if they
consider the realisable value of the vehicle exceeds the cost of a reasonable
replacement.
24.36 Vehicle should have a net value to the
estate to be worth claiming
The official receiver should not take any steps to claim an exempt vehicle unless
reasonably satisfied that there will be a net benefit to the estate in doing so, after
taking into account any costs of sale and of a replacement vehicle.
When valuing the vehicle, the official receiver should take into account the value of
any personalised registration mark attached to the vehicle and any outstanding
(accrued) tax and insurance on the vehicle.
24.37 Nature of bankrupt’s employment
relevant when deciding excess value
The nature of the bankrupt’s occupation should be considered when deciding if a
vehicle has excess value. Where, for example, the bankrupt is a self-employed
chauffeur (for example, of a wedding car) or where they are required to travel many
miles in their job, a vehicle of a higher value may be allowed to be retained.
Equally, the sum of money provided to the bankrupt to allow them to buy a
replacement vehicle may be higher in these circumstances.
24.38 Provision of a suitable replacement
vehicle – Amount allowed
Where the official receiver takes a vehicle of excess value, they will be required to
provide a replacement vehicle. The official receiver has limited discretion as to the
amount allowed for the bankrupt to buy a vehicle sufficient for their needs.
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For consistency between official receivers’ offices the amount to be available should
be in the region of £1,000 unless a suitable replacement cannot be purchased for
that amount. Generally, this figure should be adhered to except in exceptional
circumstances - for example, due to the nature of the bankrupt’s employment or the
size of their family.
24.39 Provision of a replacement vehicle –
Practicalities
It will be up to the bankrupt to find a vehicle suitable for their needs within the budget
set by the official receiver. The official receiver will not directly provide the vehicle.
Depending on the circumstances of the case, the payment to purchase the
replacement vehicle may be made to the bankrupt or directly to the vendor. Whilst
the most secure way to deal with matters is by payment directly to the vendor, it is
recognised that the bankrupt may get a better ‘deal’ if they are able to make a
purchase from a private seller or through an auction – for which they may need the
monies in advance of the sale.
24.40 Official receiver to check that bankrupt
purchases car
If the monies required to purchase a replacement vehicle are provided to the
bankrupt directly, the official receiver should request evidence of the purchase of a
vehicle to be provided to them within one month of handing over the monies. If no
such evidence is produced, the bankrupt should be requested to repay the monies,
which will then be held pending them locating a car; the monies can then be paid
directly to the vendor.
24.41 Official receiver should consider offers
from third parties where vehicle has excess
value
Where the official receiver is considering claiming an exempt vehicle of excess
value, they may accept an offer from a third party equal to the net value of the car to
the estate (that is, less the cost of a suitable replacement, but not the costs of sale)
to avoid the seizure, sale and replacement of the vehicle.
When valuing the vehicle, the official receiver should take into account the value of
any personalised registration mark attached to the vehicle.
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Where the vehicle is exempt but of excess value and a third-party has offered to
make a payment to allow the bankrupt to retain the vehicle, the official receiver need
not instruct agents. This is because it is the right to remove and sell the vehicle that
is being realised, rather than the vehicle itself (it not vesting in the estate unless/until
claimed).
24.42 Vehicles with outstanding finance
cannot be exempt property
It has been was held that where an item is held on hire purchase terms, it is the hire
purchase agreement that is the property and not the item to which the agreement
relates. In reaching this judgment the court considered the wording of section 283 of
the Insolvency Act 1986 and concluded that a hire purchase agreement is not
capable of being a tool of their trade1. The trustee can therefore agree to the sale of
a car on finance with the surplus proceeds being payable to the estate – even if the
vehicle would have been exempt property were it not subject to the finance
agreement.
1. Mikki v Duncan [2016] EWCA Civ 1312
24.43 Otherwise exempt vehicle as insurance
write-off
If a vehicle that otherwise would have been exempt has been written off by an
insurance company (whether through an accident or theft) prior to bankruptcy, it will
not be possible to treat the insurance payout as exempt property in lieu of the vehicle
as the benefit under an insurance policy cannot be exempt property following the
provisions of the Act.
The insurance company should be instructed to remit the insurance monies to the
official receiver.
24.44 A motor-home as exempt property
If a bankrupt is living in a motor-home or campervan at the date of bankruptcy and
this is their only place of residence, it is likely that they will be able to claim that the
vehicle is necessary for their domestic use and it will, therefore, be appropriate to
treat it as exempt, if it is not of excess value.
Likewise, a vehicle used by a bankrupt as temporary accommodation whilst working
away from home may also be considered to be exempt.
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Household equipment as exempt
property
24.45 Items necessary for satisfying a basic
domestic need
The legislation provides that ‘such clothing, bedding, furniture, household equipment
and provisions’ are exempt from a bankruptcy estate on the grounds that they are
necessary for satisfying the basic domestic needs of the bankrupt and their family1.
As outlined above, a motor vehicle may now be claimed in exceptional
circumstances for the domestic needs of the bankrupt and their family as well as for
their employment, business or vocation.
It is rare for household items to be claimed and sold by the official receiver as they
generally have little second hand value. In cases where the official receiver is aware
that the bankrupt’s home contains items of a high resale value, such as antiques,
these should be claimed for the estate.
1. Section 283(2) (a)
24.46 ‘Household equipment’ and electrical
goods
It is not considered that items such as stereo equipment, a television, a DVD player
and computer are necessary to satisfy the basic domestic needs of the bankrupt and
their family. Although such items will not therefore be considered exempt property
under the heading of household equipment, the usual considerations concerning
their likely realisable value and the prospective benefit to the estate should be
considered before agents are instructed to deal with them. Depending on the nature
of the bankrupt’s work, such items might, however, be exempt as necessary to their
employment, business or vocation e.g. a computer.
24.47 Claim to treat a computer as exempt
property – data protection considerations
Where the official receiver is considering treating a computer as exempt property, it
will be necessary to take into account the provisions of the data protection legislation
and the possible need to retrieve the computer to meet investigatory duties when
deciding how to respond.
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By virtue of the vesting of the estate, the official receiver becomes data controller of
any third-party data collected by the bankrupt and, in that position, has a duty to
ensure that the data is protected and used appropriately.
If the data collected by the bankrupt was collected in the course of conducting their
business, and they give a written undertaking to the official receiver that it will only
be used in connection with that business, then it will be possible to treat the
computer and the data contained thereon as exempt property.
Where the bankrupt has collected third-party data and it is no longer being stored for
the original purpose of its collection, it will not be appropriate to treat the computer as
exempt property and it must be recovered in line with local office procedure.
Data kept by the bankrupt for the purpose of their personal, family or household
affairs are exempt from the principles of data protection legislation.
Tools, etc. as exempt property
24.48 Items necessary for use in employment
The legislation provides that ‘such tools, books, vehicles and other items of
equipment’ are exempt from bankruptcy on the grounds that they are necessary to
the bankrupt for use personally in their employment, business or vocation. This is
most likely to be hand tools such as that used by a builder or plumber. Books that
are necessary would not include, for example, books held by a bookshop as stock,
or books of account, which contain financial information required by the official
receiver.
24.49 Where business is one of hire
Where the business is solely one of hire, such as car hire, then it is unlikely that the
items for hire will be used ‘personally’ by the bankrupt and so would not be
considered exempt property. It may be appropriate to allow a certain number of
vehicles provided they can either be used personally (e.g. a chauffer service), or
where the benefit to the estate would be greater than that of realising the vehicles.
The court has previously offered a view that the exemption does not apply to
“valuable or extensive plant, however necessary it may be to the conduct of the
debtor’s business”1.
1. Pennell v Elgin [1926] SC9
24.50 ‘Other items of equipment’
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The phrase ‘other items of equipment’ in the relevant provision1 does not include
stock or the insolvent’s trading premises. The fact that stock and trading premises
form part of the estate may mean that the bankrupt cannot continue in business, in
which case, tools, books, vehicles and other items of equipment which would have
been exempt property had the bankrupt continued trading, will instead fall to be dealt
with as part of the estate1.
1. Section 283(2) (a)
24.51 Official receiver’s discretion in
exempting items needed for a second or not
for profit trade/profession
When deciding whether to accept a claim that items are necessary with regard to a
bankrupt’s ’employment, business or vocation’, it may be that the ‘business or
vocation’ is not the only source of income, or indeed may not generate an income at
all (for example, a carer, see above).
If that is the case, then only assets that are necessary and are not of excess value
should be permitted. There should be no discretion to allow the retention of excess
value items, as this will not allow a greater return to the estate as no further income
will be generated. If a bankrupt is running several businesses and makes a claim to
several different assets as exempt, the official receiver should use discretion when
deciding whether to allow only assets from the business that generates an income as
exempt. Whether a business makes a profit is not the only factor in deciding whether
an asset is exempt, but exempt items of excess value should not be permitted to be
retained when the business is not profitable.
24.52 Bankrupt currently unemployed
An item may be exempt even though the bankrupt is not in employment at the date
of the bankruptcy order if, without the asset, the prospect of them obtaining
employment would be substantially reduced. The court has held that the exemption
does not cease to apply because a bankrupt is unable to use the tools for a time due
to ill health1.
The definition of "employment, business or vocation" has been widened to include
debtors who are informal, full-time, carers of a disabled friend or relative who would
use the vehicle in connection with that role. See preceding paragraph for more
details.
1. Wood v Lowe and others [2015] All ER (D) 133 (Sep)
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Claiming items of excess value
24.53 Trustee’s right to claim exempt property
of excess value
The official receiver may claim exempt property for the bankrupt’s estate if it appears
that the realisable value of the whole or any part of the property exceeds the cost of
a reasonable replacement for that property1, 2 and the costs of protecting and
realising it.
1. Section 308
2. Section 308A
24.54 Valuation of asset
The bankrupt will have provided a valuation of the assets in the bankruptcy
application, the questionnaire or at interview. If there is any doubt as to the accuracy,
the examiner should obtain a telephone valuation from the official receiver's agents
to act as a rough guide. The agents should also be asked to provide an estimate of
their charges for selling such an item.
Where the items are of a specialist nature, or are otherwise difficult to describe,
consideration should be given to incurring the cost of an agent's formal valuation. It
should be considered likely that there will be a net gain to the estate after payment of
agent's costs, insurances, and the costs of providing a replacement (if necessary).
24.55 Insurance of items with an excess value
If an exempt asset is considered to be of excess value and a net gain to the estate is
considered likely, the official receiver should take steps to insure assets where it is
appropriate to do so. It is more likely however to be appropriate for the official
receiver to deal with the asset to avoid the expense of obtaining insurance cover.
Where the official receiver insures the property it should be cancelled when no
longer required.
24.56 Consideration of ability to make IPA/IPO
payments
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Where exempt property that could arguably be considered of excess value is allowed
for the purposes of the bankrupt to continue to trade by keeping the assets, the
official receiver should be looking to obtain an income payments agreement/income
payments order (IPA/IPO). Such course of action makes the exemption of the assets
justifiable to creditors.
24.57 Need for a net benefit to the estate
In all cases the official receiver should not normally take any steps to claim exempt
property unless there is going to be a net benefit to the estate after taking into
account any costs of sale and of a replacement item/vehicle. This means that the
official receiver should take a conservative view of the value of the property so as to
provide a reasonable margin of safety, after payment of agents’ costs and the cost of
a suitable replacement. Official receivers are expected to rely on advice from their
agents as to whether such a net benefit can be achieved and may incur a debit
balance on the estate to obtain such advice. Where a number of items, such as
some pieces of antique furniture, would together achieve a net figure, the official
receiver can consider them as a group.
24.58 Challenge by bankrupt
The bankrupt should be made aware that it is possible to challenge the official
receiver's decision by making application to the court1.
1. Section 303
24.59 42-day period to make claim to property
The official receiver in his capacity as trustee must make a claim1 against the
property in question by notice in writing2 within 42 days of becoming aware of the
property3. Note that the time limit, set by the Act, can be extended on application to
the court4.
The court may refuse to permit the claim to be made after the expiry of the 42-day
period5 and an administrative oversight is unlikely to be considered by the court to be
a good reason for extending the period.
1. ASTCAA
2. Section 308(1)
3. Section 309
4. Section 376
5. Solomons v Williams [2001] BPIR 112
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24.60 Property vesting in trustee once claimed
Once the official receiver has claimed the exempt property in writing the property will
vest in the trustee as part of the bankrupt’s estate from the date the bankrupt
receives the notice. The trustee’s title to the property has relation back to the
commencement of the bankruptcy i.e. the date of the bankruptcy order1. The trustee
cannot then disclaim property claimed for the estate without the leave of the court2.
1. Section 308(2)
2. Section 315(4)
24.61 Replacement property
Where the official receiver, as trustee, claims for the estate an item which is exempt
property of excess value, funds comprised in the estate must be applied to purchase
by, or on behalf of the bankrupt, a reasonable replacement. This duty on the trustee
has priority over any duty on the trustee to distribute the estate1. A purchase of
replacement property can be made either before, or after the realisation of the
property by the trustee2. The official receiver is under no obligation to apply funds to
the purchase of the replacement property until there are funds in the estate to do so3.
1. Section 308(3)
2. Rule 10.106(1)
3. Rule 10.106(2)
24.62 Money provided in lieu of sale
If a third party offers the official receiver the difference between the value of the
property and the value of the replacement, the official receiver can accept that offer,
enabling the bankrupt to retain possession of the property that would otherwise vest
in the official receiver as trustee1. The official receiver as trustee, may accept a third
party’s proposal if satisfied that it is a reasonable one, and that the estate will benefit
to the extent of the value of the property in question less the cost of a reasonable
replacement2. The expenses of sale, which would otherwise be incurred, should also
be taken into account in assessing any such offer.
1. Rule 10.107
2. Rule 10.107(2)
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24.63 Appointment of an insolvency
practitioner as trustee where there are items
of excess value
Where an insolvency practitioner is to be appointed as trustee, the official receiver
should hand over the estate as soon as possible when there are exempt items of
excess value, due to the time limits on claiming property. Any delay by the official
receiver may result in them becoming liable to recompense the estate for any loss
due to the dissipation of the assets in the interim period1. The insolvency
practitioner’s attention should specifically be drawn to the property which the official
receiver considers may be claimed and the trustee’s record book2 should include
details of any action taken by the official receiver in respect of that property.
The handover of the estate should take place so as to leave the trustee ample time
to make the claim to the property. If necessary, the trustee may be given advance
information about the property prior to the formal handover of the estate. To avoid
property being lost for the benefit of the estate, the official receiver should serve the
notice upon the bankrupt so that the property is claimed for the estate and proceed
to hand over the estate to the insolvency practitioner trustee without delay. Any
action taken by the official receiver in relation to the property should be included in
the trustee’s record book2.
1. Section 304
2. IPROH
Other property excluded from the estate
24.64 Overview of other excluded property
In addition to items mentioned in the Insolvency Act 1986 that are exempt property1,
under the ‘common law of bankruptcy’, property which is peculiarly personal to the
bankrupt is also excluded from the bankrupt’s estate and does not vest in the
trustee. This section provides an explanation of such property.
1. section 282(2), (3), (3A) and (6)
24.65 Rights of action as personal property
Certain rights of action are personal to the bankrupt. This is covered in detail in
chapter 37.
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24.66 Personal correspondence
It has been ruled that personal correspondence, whatever the subject matter, does
not form part of the bankrupt’s estate within the definitions of the Insolvency Act
19861. It was further ruled that, while some of the correspondence may relate to
affairs relevant to the administration of the bankrupt’s estate that does not bring it
within the definition of estate. The judgment equated a bankrupt’s personal
correspondence to a right of action for damages for libel as being peculiarly personal
to him/her and their life as a human being.
It is also possible that the removal and sale of a bankrupt’s personal correspondence
may contravene the Convention for the Protection of Human Rights and
Fundamental Freedoms (1953) article 8 which provides a right to respect for one’s
“private and family life, his home and his correspondence.” This was considered in
the case referred to above, but did not form part of the judgment. This aspect has
not, otherwise, been considered in a court.
1. Haig v Aitken (2000) BPIR 462
24.67 Child Support Agency (CSA) payments
Assessments made under the provisions of the Child Support Act 1991 are made
and enforced by the Secretary of State for the Department of Works and Pensions.
Where a bankrupt is owed arrears of payments for child maintenance, the right to
take action against the parent owing the child maintenance rests with the Secretary
of State, and not with the parent/bankrupt who is owed the money, or the official
receiver as trustee. Consequently, any arrears under an assessment are not vested
in the bankruptcy estate.
Where a bankrupt receives arrears of child maintenance prior to discharge or whilst
currently subject to an IPA/IPO, they do not automatically vest in the trustee, but they
should be treated as part of the bankrupt’s income and should be included in any
calculation for an IPA/IPO. The CSA payments are additional income to the parent to
meet the maintenance costs of any child/children (including food and shelter), the
costs of which will be included in the bankrupt’s household expenses. It is possible to
claim the lump sum as a ‘single payment’ IPA/IPO but consideration needs to be
given to the reasonable domestic needs of the bankrupt and their family.
24.68 Tax credits
Where a bankrupt receives arrears of tax credits for a period prior to or post the date
of the bankruptcy order, the tax credits are only available to the trustee once they are
paid to the bankrupt and therefore notwithstanding the fact that the payments may
relate to a period prior to the bankruptcy order the funds do not automatically vest in
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the trustee. The tax credits should be treated as part of the bankrupt’s income and
be included in any calculation for an IPA/IPO. Any lump sum received can also be
claimed through an IPA/IPO when received by the bankrupt. It is possible to claim
the lump sum as a ‘single payment’ IPA/IPO but consideration needs to be given to
the reasonable domestic needs of the bankrupt and his family. This applies equally
to Child Tax credits and, other tax credits.
24.69 Redundancy payments
An individual’s entitlement to receive redundancy and associated compensation
arises on the termination of their contract of employment by reason of redundancy.
The redundancy payment represents compensation for loss of a job.
Where the employment has ended prior to the date of the bankruptcy order, but the
bankrupt is awaiting receipt of the monies, then this is an asset which vests in the
official receiver as trustee. If a bankrupt has received notice of redundancy, but not
yet had employment terminated at the date of the bankruptcy order, then the right to
receive a redundancy payment has not arisen.
Any redundancy monies paid after the bankruptcy order has been made but before
the date of discharge does not vest in the official receiver as trustee but may be
claimed as after acquired property. The trustee must make a claim to after acquired
property within 42 days of becoming aware of that property1, 2. The official receiver
must satisfied that the amount claimed as after acquired property does not include
any amount payable in respect of wages received whilst an individual works out a
notice period, holiday pay or arrears of wages. Amounts received in respect of such
payments should be included in any assessment for an income payments
agreement/order.
1. Section 307
2. Section 309(1) (a)
Tenancies as exempt property
24.70 Introduction
This section deals with residential property that is rented by a bankrupt as their
family home and is excluded from their estate1.
The chapter also provides information on certain tenancy agreements that are not
exempt but that are unlikely to be of any realisable value. In the normal course of
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events, when a bankrupt is living in rented accommodation, they will usually do so
under an assured shorthold tenancy. This type of tenancy will hold no value and will
not form part of the bankrupt’s estate.
1. Section 283(3A)
24.71 Legislative provisions relating to the
exclusion of tenancies
The Act provides that certain tenancies are excluded from the bankrupt’s
estate1. The detail is in the legislation but, in summary, most of the commonly
encountered residential tenancies are covered and are therefore excluded.
The excluded tenancies include the four main types of residential tenancies used by
private and local authority landlords. Any of these tenancies can be either a fixed
term tenancy (for an agreed set period), or a periodic tenancy (for an indefinite rolling
period e.g. monthly or weekly):
• The protected tenancy
• The assured tenancy
• The assured shorthold tenancy
• The secure tenancy
1 Section 283(3A)
24.72 Differences between a lease and a
tenancy
A tenancy is a type of lease, generally granted for a short fixed term and the
obligations to repair and maintain generally remain with the landlord. The main
difference between the usual type of lease encountered by the official receiver and a
tenancy is that a lease is usually for a longer fixed period and the obligations to
repair and maintain generally pass to the lessee. They both involve granting a period
of property rights ownership, i.e. the tenant or lessee has an interest in the land and
exclusive possession of the property for the specific period.
In addition to the obligation to pay rent, a lease may have been purchased by the
payment of a one-off premium; this will not be the case with a typical tenancy
agreement. Unless specified, a lease will often allow the lessee to assign the lease
(sell on the lease), whereas a tenancy will not be capable of assignment by the
tenant.
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24.73 Types of tenancy agreements used by
local authorities
Local authorities most commonly use secure tenancies. Housing associations,
housing action trusts, and registered providers of social housing most commonly use
assured shorthold tenancies.
24.74 Common Law tenancies
Common law tenancies fall outside the scope of the Housing Acts 1985, 1988 and
1996. Such tenancies will be rarely encountered by the official receiver. In the case
of a common law residential tenancy, the tenant's rights and obligations are mainly
dependent on the terms agreed between the parties (written into the agreement) and
therefore they are contractual or "non-statutory contractual tenancies" as opposed to
those being regulated by statute.
Common law tenancies do not afford tenants the same protection regarding security
of tenure and statutory continuation as assured tenancies do (including assured
shorthold tenancies).
Any residential tenancy which is excluded from being an assured tenancy by the
Housing Act 1988 is a common law tenancy.
24.75 Protected tenancy - Also known as a
Rent Act tenancy
A protected tenancy is a tenancy agreement that is governed by the Rent Act 1977.
This was the standard type of tenancy entered into prior to 15 January 1989. The
protected tenancy was very favourable to tenants. The tenant has considerable
security of tenure (it is very hard to evict them) and the level of rent paid is
regulated1. The Housing Act 1988 discontinued protected tenancies, but existing
protected tenancies continue to be legislated by the 1977 Act.
A protected tenancy is excluded from the bankrupt’s estate.
1. Rent Act 1977 section 1
24.76 The assured tenancy
Assured tenancies were introduced by the Housing Act 1988, and apply where a
property was let to an individual as their home after 15 January 1989 but before 28
February 19971. These agreements give the tenant security of tenure, but the rent
chargeable under these tenancies is permitted to be a market rent. Since 28
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February 1997, notice must be given at the start of the tenancy to create an assured
tenancy, or it defaults to an assured shorthold tenancy. It is difficult to evict a tenant
with an assured tenancy, but it can be done on certain grounds as laid down in the
legislation, e.g. if a tenant falls behind in rent payments for more than 2 months the
landlord can apply to the court for a possession order.
An assured tenancy is excluded from the bankrupt’s estate.
1. Housing Act 1988 section 1
24.77 Assured tenancy - Shared ownership
lease
Even though the leases granted under shared ownership scheme are long leases it
has been held1 that they fall within the definition of an assured tenancy.
Where a shared ownership property has equity, the value of this equity will be lost to
the bankrupt’s estate unless it is claimed by the official receiver as trustee. Full
guidance on property held by a bankrupt under a shared ownership leases is
provided in chapter 28.
1. Richardson v Midland Heart Ltd [2008] L&TR 31
24.78 Exclusion of tenancies at high rents –
Tenancy created on/after 1 April 1990
A tenancy entered into on or after 1 April 1990 (otherwise than in pursuance of a
contract made before 1 April 1990) where the rent is greater than £100,000 cannot
be an assured tenancy1.
The rent payable does not usually include amounts payable for council tax, services,
management, repairs or insurance2.
1. Housing Act 1988 schedule 1 paragraph 2(1)
2. Housing Act 1988 schedule 1 paragraph 2(2)
24.79 Exclusion of tenancies at high rateable
values – Tenancy created before 1 April 1990
A tenancy entered into before 1 April 1990 (or on or after that date in pursuance of a
contract made before that date), where the dwelling house had a rateable value on
31 March 1990 of in excess of £1,500 in Greater London and £750 elsewhere cannot
be an assured tenancy1.
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In the unlikely event the official receiver encounters a lease where this exclusion
may apply, a historic rateable valuation of the property as at 31 March 1990 can be
obtained by contacting the Valuation Office Agency.
1. Housing Act 1988 schedule 1 paragraph 2A
24.80 Exclusions of tenancies at low rents
The following tenancies cannot be assured tenancies;
• a tenancy under which for the time being no rent is payable1.
• a tenancy which is entered into on or after 1 April 1990 (otherwise than, in
pursuance of a contract made before 1 April 1990) and under which the rent
payable for the time being is payable at a rate of £1,000 or less a year, if the
dwelling house is in Greater London, and £250 or less a year, if it is
elsewhere2.
1. Housing Act 1988 schedule 1 paragraph 3
2. Housing Act 1988 schedule 1 paragraph 3A
24.81 Exclusion of tenancies at a low rateable
value
The following tenancies cannot be assured tenancies:
A tenancy -
• which was entered into before 1 April 1990 or, where the dwelling house had
a rateable value of 31 March 1990, on or after 1 April 1990 in pursuance of a
contract made before that date, and
• under which the rent for the time being payable is less that two-thirds of the
rateable value of the dwelling house on 31 March 19901.
In the unlikely event the official receiver encounters a lease where this exclusion
may apply, a historic rateable valuation of the property as at 31 March 1990 can be
obtained by contacting the Valuation Office Agency.
1. Housing Act 1988 schedule 1 paragraph 3B
24.82 Other exclusions
The following also cannot be assured tenancies1;
•
business tenancies
•
protected and secure tenancies
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•
a tenancy under which the dwelling house has a licence for the supply of alcohol
•
agricultural tenancies where land exceeds two acres and tenancies of agricultural
holdings
•
lettings to students
•
holiday lettings
•
resident landlords
•
crown tenancies
•
tenancies where the landlord is a local authority, certain tenancies granted by the
Homes and Communities Agency, the Welsh Ministers, an urban development
corporation, a mayoral development corporation, a development corporation, London
Fire and Emergency Planning Authority
•
fully mutual housing association. This is a housing association where the rules
restrict membership to people who are tenants of the association and prevent the
granting/assigning of the tenancies to those who are not members. Fully mutual
housing associations often have the word ‘cooperative’ in their title
•
accommodation for asylum-seekers, persons with temporary protection,
•
Family intervention tenancies unless the landlord notifies a tenant that it to be
regarded as an assured tenancy.
1. Housing Act 1988 schedule 1 paragraphs 4 to 12
24.83 Assured shorthold tenancy
This is the standard type of residential tenancy for both private landlords and
housing associations and was introduced by the Housing Act 1988. The Housing Act
1996 amended this act so that all new tenancies entered into since 28 February
1997 are automatically assured shorthold tenancies, unless the agreement has
specified it to be an assured tenancy.
There are certain exclusions to this1 but these mainly relate to when notice is served,
the continuation of previous secure or assured tenancies, council tenancies, and
assured agricultural occupancies.
If a bankrupt is the tenant of a residential tenancy agreement that was entered into
verbally since 28 February 1997, it is by default an assured shorthold tenancy.
An assured shorthold tenancy in the name of a bankrupt as tenant is excluded from
the bankrupt’s estate.
1. Housing Act 1988 section 2A
24.84 Secure tenancy
Secure tenancies are agreements created by public bodies such as local authorities
under the Housing Act 1985. Housing associations and housing co-operatives used
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these agreements until 15 January 1989, but many now use assured and assured
shorthold tenancies1. When a tenancy is granted to a new council tenant, it may
initially be on an introductory basis, later becoming a secure tenancy if there are no
problems with the tenant.
A secure tenancy in the name of the bankrupt is excluded from the bankrupt’s estate.
1. Housing Act 1985 sections 79 and 80
24.85 Introductory tenancy (also known as
starter/probationary tenancy)
Introductory tenancies were introduced by the Housing Act 19961 and are available
only to local authorities or a housing action trust. Introductory tenancies usually last
for 12 months and provide the landlord with the facility to give tenants a trial period,
and if there are any problems with the tenant, possession can easily be gained by
court order. These tenancies are also known as a starter/probationary tenancy.
The tenancy will remain an introductory one until the expiry of the introductory
period, although it may be extended by a further six months2. Following satisfactory
conduct by the tenant, on expiry of the introductory tenancy it will automatically
mature into a secure tenancy.
1. Housing Act 1996 section 125
2. Housing Act 1996 section 125A
24.86 Introductory tenancies – Not excluded
from bankrupt’s estate
Introductory tenancies in the name of the bankrupt are not included in the tenancies
excluded from the bankrupt’s estate. It is therefore likely that such tenancies vest in
the official receiver as trustee of the bankrupt’s estate, though are likely not to have
any value.
24.87 Demoted tenancy
Demoted tenancies were introduced in June 2004 by the Anti-Social Behaviour Act
20031 and enable a local authority or housing trust to deal more effectively with anti-
social behaviour. Under such a tenancy it is much easier for a landlord to evict a
tenant than one who has a full secure tenancy. Landlords are entitled to apply to
court for an order demoting an otherwise secure or assured tenancy; and then,
during this demoted period (usually one year), the landlord may seek possession of
the property by following the appropriate statutory procedure where the tenant
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continues to breach certain conditions. Where no possession order is sought within
the period of demotion, the tenancy reverts back to the original tenancy.
•
Where an assured tenancy has been demoted the landlord may obtain an order for
possession within the first six months provided they follow the proper procedure2.
•
Where a secure tenancy has been demoted, at the end of the demotion period, the
previously secure tenant will become a tenant on an assured tenancy instead of the
previous more favourable secure tenancy terms. The tenant will lose rights during
the period of demotion including the right to buy.
Demoted tenancies in the name of the bankrupt are not included in the tenancies
excluded from the bankrupt’s estate. It is therefore likely that such tenancies vest in
the official receiver as trustee of the bankrupt’s estate.
1. Housing Act 1988 section 20B
2. Housing Act 1988 section 21
24.88 Non-secure tenancy
Although not a true legal classification; the phrase ‘non-secure tenancy’ is often used
to refer to a tenancy which would otherwise be secure, (i.e. the landlord and tenant
conditions are satisfied), but which falls within one of the statutory exceptions1. Such
tenancies mean a landlord can gain possession with relative ease as no statutory
grounds for repossession are required. Examples of a non-secure tenancy include
when a local authority provides temporary housing to a homeless person or an
asylum seeker2. A landlord may gain possession of a non-secure tenancy with
relative ease by serving a notice to quit and gaining an order for possession. They
are not required to prove any statutory grounds for possession.
Non secure tenancies in the bankrupt’s name are not included in the tenancies
excluded from the bankrupt’s estate. It is therefore likely that such tenancies vest in
the official receiver as trustee of the bankrupt’s estate.
1. Housing Act 1985 schedule 1
2. Housing Act 1985 schedule 1 paragraphs 4 and 4A
24.89 Family intervention tenancies
Family intervention tenancies came into force on 1 January 20091 and are a form of
residential tenancy without security of tenure. Their creation aims to help local
councils and housing associations to work with families who have been involved in
antisocial behavior. These tenancies normally last between six months and one year.
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Family intervention tenancies are not secure or assured tenancies as they are
excluded from being so by the legislation2, 3. The tenancy can be converted into
secure/assured tenancy on the relevant notice by the landlord to the tenant.
Family intervention tenancies in the name of the bankrupt are not included in the
tenancies excluded from the bankrupt’s estate. It is therefore likely that such
tenancies vest in the official receiver as trustee of the bankrupt’s estate.
1. Housing Regeneration Act 2008 section 297
2. Housing Act 1985 schedule 1
3. Housing Act 1988 schedule 2
24.90 Statutory periodic tenancy
A statutory periodic tenancy is a tenancy that is created when any of the main four
types of tenancies referred to above come to an end1. A periodic tenancy is created
by agreement; a statutory one is created automatically. The tenancy will generally
continue on the same terms as the former tenancy, and for the period of which the
rent is normally payable2. For example, if an assured shorthold tenancy comes to an
end on 30 May, and the rent was normally payable monthly, if the tenant is allowed
to continue living in the property without a new tenancy agreement, it will
automatically become a statutory periodic assured shorthold tenancy automatically
renewing on 30 June and monthly thereafter3.
1. Housing Act 1988 section 5
2. Housing Act 1988 section 5(3)
3. Church Commissioners for England v Meya [2006] EWCA Civ 821
24.91 Informal tenancy
A residential tenancy can be created by the conduct of the parties, there does not
need to be a written agreement for it to be legally binding. Once a person is given
possession of land or property, usually evidenced by possession of the keys, and the
owner accepts rent payments, a tenancy comes into existence legally. By default
such tenancies are assured shorthold tenancies.
24.92 Occupation of property under licence
A licence is not a type of tenancy agreement but is a contractual right to occupy
space for a period of time. A licence does not give the tenant any legal interest in the
land; it is simply the permission to occupy the land for an agreed term and will
usually come about when there is no right to exclusive possession. When someone
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lets a room in their house out to a lodger, this is under licence rather than a tenancy.
The main difference between a tenancy and a licence is that, as a tenancy gives the
tenant an interest in the land that interest is binding on any subsequent purchaser of
the property. With a licence, if the landlord sells the property, then the tenant no
longer has any right to occupy, as their agreement was with the landlord, and not
attached to the land1. Licence agreements do not generally vest in the official
receiver as trustee as they are personal rights granted by the licensor to the
bankrupt, and are not binding on any mortgagee or purchaser.
The general rule as to whether an arrangement is a lease or a licence is whether the
occupier has a right of exclusive occupation, that is, whether he or she can keep
other people (including the landlord) out of defined premises.
1. Ashburn Anstalt v WJ Arnold & Co [1988] 2 WLR 706
24.93 Occupation of property under licence –
Family member
If the parties do not intend to enter into legal relations at all, no tenancy can be
created. The circumstances which negate any intention to create a tenancy include a
family arrangement or an act of friendship or generosity. It has been held that a
father allowing his son to occupy his house on payment of the father's building
society loan is a licence and not a tenancy agreement1.
1. Errington v Errington and Woods [1952] 1 KB 290
24.94 Business tenancy
Business tenancies in the name of a bankrupt are not excluded from the bankrupt’s
estate and will vest in the official receiver as trustee of the bankrupt’s estate.
A business tenancy is where the property comprised in the tenancy is or includes
premises for the purposes of a business. ‘A business includes a trade, profession or
employment and includes any activity carried on by a body of persons, whether
corporate or unincorporated’. The tenancy does not need to be in the name of a
business to be a business tenancy; the important factor is the purpose that the
property is let for1.
The Landlord and Tenant Act 1954 Part II governs business tenancies. Business
tenants generally have some rights to acquire a new tenancy on the expiration of a
current tenancy agreement2. This may result in that tenancy having a value to the
estate. Tenancies that are not exempt should be treated like leases, and reference
should be made to chapter 28.
1. Landlord and Tenant Act 1954 sections 23(1) and (2)
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2. Landlord and Tenant Act 1954 23(1), 24 and 25
24.95 Continuation tenancies following
expiration of a lease
A continuation tenancy occurs when a tenant remains in occupation after the
expiration of a long tenancy at low rent under the Landlord and Tenant Act 1954 (a
lease) 1. Following case law, continuation tenancies are considered to be property,
and are deemed to fall into the estate. In a court of appeal case, the tenancy in
question was a forty year lease under the Landlord and Tenant Act 1954 which had
expired the year prior to the bankruptcy. The judge on appeal decided that the
bankrupt had rights of occupation rather than rights under the former contractual
lease, which came from legislation, therefore the tenant became entitled to
protection under the Rent Acts rather than to a new tenancy2. Continuation tenancies
under this Act will vest in the trustee and should be treated like leases, reference
should be made to chapter 28.
1. Landlord and Tenant Act 1954 sections 1, 2 and 3
2. Rothschild v Bell [1999] BPIR 300
Claiming a tenancy – Whether as a
vesting asset or as excluded property
with excess value
24.96 Claiming an excluded tenancy – value of
bankrupt’s interest
Before claiming the bankrupt’s interest in an excluded tenancy, consideration should
be given to the value of the interest to be claimed. Where the bankrupt’s interest in
the tenancy is less that £1,000 it should be considered to have no value to the
bankrupt’s estate and therefore should not be claimed. Where the value is greater
that £1,000 consideration should be given to claiming the bankrupt’s interest in the
tenancy for the benefit of the estate.
24.97 How does the trustee claim an excluded
tenancy?
--- PDF page 36 ---
To claim a tenancy to vest in the trustee as part of the bankrupt’s estate the official
receiver should serve written notice1 on the bankrupt with a request for
acknowledgement. The notice is normally served by both recorded delivery and
ordinary 1st class post but it may be served by electronic means if the bankrupt has
consented to electronic communication and provided an electronic address for
delivery. If the official receiver is in any doubt about whether the electronic address
provided is still being used by the bankrupt, service by post should also be used.
1. ASTCAA
24.98 Claiming a tenancy – Time limits
The official receiver in their capacity as trustee must make the claim against the
property in question by notice in writing within 42 days of becoming aware of the
property or, where the official receiver is trustee, within 42 days of becoming trustee
if already aware of the existence of the property prior to becoming trustee1. Note that
the time limit, set by the Act, can be extended on application to the court2.
1. Section 309(1)
2. Section 376
24.99 Action to take following issue of notice
claiming the assured tenancy
Once the notice claiming the tenancy has been served on the bankrupt, the assured
tenancy (solely owned) or the bankrupt’s interest in the tenancy (jointly owned) vests
in the trustee as part of the bankruptcy estate, and the trustee’s title to the property
has relation back to the date of the bankruptcy order1. Once the property has vested,
the official receiver should take such action as is necessary to protect and realise the
property including, where appropriate, the issue of letters to third parties such as the
mortgage company. Where appropriate, the official receiver should seek to insure
the property.
Essentially, once the assured tenancy forms part of the estate, the official receiver
should deal with it as they would with any other family home forming part of the
estate. From this point in the process, there are no special procedures for dealing
with the asset, and the information and guidance given chapter 28 should be
followed.
1. Section 308A
--- PDF page 37 ---
24.100 Disclaimer of assured tenancy claimed
by trustee
Where the trustee claims an assured tenancy that is subsequently considered to be
onerous, they will not be able to disclaim the property without permission of the
court1.
The application for permission to disclaim may be made without notice to any other
party, and must be accompanied by a report giving details of the property, setting out
the reasons why the property, having been claimed for the estate, is now to be
considered for disclaimer and specifying the persons (if any) who have been
informed of the trustee’s intention to make the application. If the report states any
person has consented to the disclaimer then the consent must be annexed to the
report2. It is presumed that the consent of the housing association, which may be
obtained in advance of the hearing, will be persuasive to the court
For further information on disclaimers generally see chapter 42.
1. Section 315(4)
2. Rule 19.8
24.101 Vesting of certain local authority and
housing trust tenancies
Some types of tenancy have been introduced since the Housing Act 1988 that are
not currently excluded from a bankrupt’s estate. Such tenancies are granted by a
local authority or a housing action trust and include an introductory tenancy, a
demoted tenancy, a non secure tenancy and family intervention tenancies. These
tenancies will vest in the official receiver as trustee of the bankrupt’s estate but are
unlikely to be of any realisable value.
24.102 Vesting tenancies
When the official receiver encounters a tenancy granted by either a local authority,
housing association, registered provider of social housing or housing action trust,
and it is not excluded from the bankrupt’s estate, then it will form part of the
bankrupt’s estate and will vest in the official receiver as trustee.
As these tenancies are not excluded, are likely to have no value and may place
obligations on the official receiver as trustee (e.g. to pay rent) they should be
disclaimed. See chapter 42 for guidance on issuing a disclaimer.
--- PDF page 38 ---
Rent arrears and rent deposits
24.103 Rent arrears generally
On the making of a bankruptcy order rent arrears are a bankruptcy debt insofar as
the money owed is a debt to which the bankrupt is subject at the commencement of
the bankruptcy1, irrespective of whether the tenancy is an excluded tenancy. The
landlord is a creditor in the proceedings with a provable debt for the amount owing
up until the date of the bankruptcy order. Furthermore, the landlord has no remedy
against the property or person in respect of that debt except with leave of the court
or by a landlord’s specific right2.
Where a tenancy agreement does not form part of the estate, the bankruptcy does
not affect the running of the tenancy, and the bankrupt has an ongoing obligation to
pay future rents under the agreement. The arrears of rent and any service charges
that exist at the date of the bankruptcy order are a provable debt and so are not
payable by the bankrupt.
1. Section 382
2. Section 285
24.104 Rent arrears – Landlord’s right to
possession
Even though the rent arrears are a provable debt in bankruptcy there are instances
when a bankrupt may wish to pay these arrears to avoid eviction from the property
by the landlord. It is not possible for a landlord to gain possession of a property
against the tenant’s will without an order of the court. The courts have decided that a
landlord still has the right to apply for an order of possession against a bankrupt
tenant with rent arrears, and such an order can be sought before or after the making
of a bankruptcy order, but no order can be made for the payment of the rent arrears1,
2. The judge found that seeking a possession order was not seeking to enforce a
remedy against the property of the bankrupt, but operated so as to determine the
tenant’s interest in the property. The landlord’s ability to seek a possession order is
not affected by, or connected to, the bankrupt’s discharge, although as the bankrupt
will be released from the rent arrears on discharge, the landlord will not be able to
apply for a possession order after the bankrupt has been discharged.
1. Harlow DC v Hall [2006] BPIR 712
2. Places for People Homes Ltd v Sharples [2011] EWCA Civ 813
--- PDF page 39 ---
24.105 Rent arrears – Suspended possession
orders
Should a bankrupt wish to avoid enforcement of a possession order, they must fulfil
the conditions of the suspended order and pay the instalments ordered by the court.
If a bankrupt wishes to make such payments to avoid losing their home, the official
receiver should not object. When assessing the bankrupt’s income and expenditure
for IPA/IPO purposes, the official receiver should allow a sum ordered by court
towards the repayment of rent arrears as a reasonable expense.
24.106 Rent arrears – Voluntary payments
prior to possession order
Where a bankrupt has reached a voluntary agreement with the landlord to pay rent
arrears following the landlord threatening to take possession proceedings, then the
official receiver, as trustee, should not intervene in those payments. If the official
receiver considers the payments to be excessive, and if they are likely to
compromise the bankrupt’s ability to make a payment under an IPA/IPO, the official
receiver should ask the bankrupt to vary the agreement with the landlord.
24.107 Rent deposits
Where a bankrupt is living in rented accommodation, it is likely that they will have
paid a security deposit. This is most likely being held by the landlord or agent. Where
the tenancy agreement has been entered into after 6 April 2007, the deposit must be
held in a separate Tenancy Deposit Scheme if it is an assured shorthold tenancy
agreement1. For information on this scheme see The Deposit Protection Service
website. Alternatively, from 6 April 2007, a landlord may retain a deposit, but must
take out an insurance policy to provide security to the tenant in respect of that
deposit.
1. Housing Act 2004 section 213
24.108 Rent deposits – When claimable by
trustee
A trustee should not attempt to claim a rental deposit whilst the bankrupt is still
residing in the property as it may cause the bankrupt undue hardship to find funds to
replace the deposit. If the landlord or agent holding the deposit is a creditor in the
proceedings, they may claim a lien. If the holder is not a creditor, then they have no
right to the monies and the monies should be recovered without difficulty at the end
--- PDF page 40 ---
of the tenancy if appropriate. The official receiver should not claim the monies where
this will prevent the bankrupt from obtain further accommodation. It is likely a further
deposit will be needed if a further tenancy is to be taken on, and the monies should
only be claimed in exceptional circumstances, for example if a bankrupt is moving
back to reside with their parents and does not require the deposit.
Where a trustee has been appointed in a bankruptcy, any landlord or agent who
holds any property to the account of, or for, the bankrupt has to pay or deliver to the
trustee all the property in their possession or under their control which forms part of
the bankrupt's estate and which they are not by law entitled to retain as against the
bankrupt or trustee1.
1. Section 312(3)
Right to buy and compensation
payments
24.109 What is “right to buy”?
A “right to buy” is a right acquired by a secure (public sector) tenant after satisfying a
residency qualification to purchase the freehold or acquire a lease to the dwelling
house at a discounted price1. The tenant or one of the joint tenants must have been
resident in the public sector accommodation for at least 5 years. Prior to 18 January
2005, this period was 2 years2. There are certain exceptions that preclude a tenant
from exercising a “right to buy”, for instance, following an order suspending the right
because of anti-social behaviour, if the landlord is a charity, if the tenant is an
undischarged bankrupt or if the property is let in connection with employment3.
1. Housing Act 1985 section 118
2. Housing Act 1985 section 119
3. Housing Act 1985 sections 118(2) and 120; schedule 5
24.110 Right to buy – Joint tenancy
Where the secure tenancy is a joint tenancy then, whether or not each of the joint
tenants occupies the dwelling house as their only or principal home, the right to buy
belongs jointly to all of the tenants or to such one or more of them as may be agreed
between them. Any such agreement is only valid if the person or at least one of the
persons to whom the right to buy is to belong occupies the dwelling house as their
only or principal home1.
--- PDF page 41 ---
1. Housing Act 1985 section 121(2)
24.111 Right to buy – Housing association
tenants
A housing association or housing co-operative tenant with a tenancy that began after
15 January 1989 will have an assured tenancy rather than a secured tenancy
agreement. These types of agreement do not contain a right to buy option. Only
housing association tenancies entered prior to this date will be secured tenancies
with a right to buy option.
24.112 Right to buy cannot be exercised in
bankruptcy
The right to buy cannot be exercised if the person, or one of the persons, to whom
the right to buy belongs has a bankruptcy petition pending against them, or is an
undischarged bankrupt1.
1. Housing Act 1985 section 129(2) (a)
24.113 Right to buy does not vest in trustee
The right to buy cannot be exercised by the trustee in bankruptcy, as the right is
personal to the bankrupt (and/or any joint tenant), so does not vest in the trustee.
The trustee would not be able to fulfil the residency qualification, which is also
personal to the bankrupt. Moreover, a secure tenancy, with limited exception is
excluded from the estate by virtue of the Insolvency Act 1986.
24.114 Right to buy – right exercised prior to
bankruptcy
If the bankrupt has already exercised a right to buy a public sector property prior to
the bankruptcy order being made, then the bankrupt’s beneficial interest in that
property (if jointly owned), or the freehold or leasehold (if solely owned) will vest in
the trustee on their appointment.
24.115 Right to buy – right exercised following
bankruptcy
--- PDF page 42 ---
If the bankrupt exercises a right to buy whilst undischarged from bankruptcy, then it
might give rise to an asset, which could be claimed as after acquired property. Any
claim to an after acquired asset needs to be made within 42 days of becoming aware
of that asset1.
1. Section 309(1)
24.116 Right to buy discount
The discount available to secure tenants exercising their right to buy is linked to the
number of years they have been resident. For a house this is calculated as a
minimum of 35% plus 1% for every complete year exceeding the 5 year qualifying
period, up to a maximum of 60%. In the case of a flat this is calculated as a minimum
of 50% plus 2% for every complete year exceeding the 5 year qualification period, up
to a maximum of 70%1.
The courts have decided that a right to buy discount could be intended by the parties
involved to be treated as a contribution to the purchase of the property by the person
entitled to the discount, giving rise to a beneficial interest. The courts also decided
that this is not an absolute principle but a matter for the courts to decide on the
circumstances of the case. Where the transaction was found to be a sham, for
example involving veiled operations such as the bankrupt entering into the
transaction to disguise the sole beneficial owner, then the presumption could be
displaced2.
1. Housing Act 1985 section 129(2) (b)
2. Mumford v Ashe [2001] BPIR 1
24.117 Home loss payment
If a property in which a bankrupt resides is to be demolished they may be entitled to
a home loss payment. In order to qualify for the receipt of a home loss payment the
individual must, in the 12 months prior to displacement, have been in occupation of
the property as their only or main residence1. As the home loss payment relates to
the bankrupt’s occupation of the property the right to receive the payment is not
capable of vesting in the official receiver as trustee as it is personal to the bankrupt.
Once the funds have been received and changed character (for example, having
been used to purchase an asset such as a car), the asset may be claimed by the
official receiver, as trustee, as after acquired property. It would be for the bankrupt to
make representation to the official receiver as to why the monies should be retained
and not used for the benefit of the bankruptcy estate.
1. Land Compensation Act 1973 section 29
--- PDF page 43 ---
24.118 Disturbance payment
It is possible that a bankrupt may be paid a ‘disturbance’ payment as well as a home
loss payment. If a “disturbance” payment is made, this will be to reimburse actual
costs associated with the move such as removal costs, and the bankrupt should be
allowed to retain such payments. If the actual costs are less than the payment
received by the bankrupt, then the trustee may claim the balance as after acquired
property.
If an “enhanced disturbance” payment is made, this will be towards potential costs
such as re-decorating the new property, and this may be claimed by the trustee as
after acquired property but where the bankrupt can show that this is needed for
actual necessary costs, no claim should be made.
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 10 March 2020.
25. Assets - identification, protection
and realisation
Annexes
Annex A – Statutory declaration to be used where pawn-receipt has been lost
Annex B – Statement to be used where pawn-receipt has been lost (loan under
£75)
Chapter content
Identification of assets
The protection and collection of assets - general
Dealing with third party property
Disposal of unclaimed third party property
Pawned Assets
Receivers
Finance agreements
Assets held by third parties
Distress or ‘taking control of goods’
Partnerships
Assets outside England and Wales
List X
The realisation of assets
--- PDF page 2 ---
Identification of assets
25.1 Introduction
One of the functions of the official receiver, following a winding-up or bankruptcy
order, is to identify all the potential assets of the insolvent to maximise the return to
creditors after the payment of the fees, costs and other expenses of the bankruptcy
or liquidation. This chapter provides general guidance on the identification,
protection, collection and disposal of the assets of a bankrupt or company. It also
provides advice on identifying and dealing with property belonging to third parties.
More detailed guidance is provided regarding specific assets in the chapters
contained in chapters 26 to 40.
25.2 Companies – identifying the assets
On the making of the winding-up order the functions of the official receiver, as
liquidator; include securing and realising the assets of the company1. The official
receiver should use the information obtained from their initial enquiries, Preliminary
Information Questionnaire (PIQC), the company director(s), the company’s financial
records and third parties e.g. creditors to identify its assets.
1. Section 143 (1)
25.3 Liquidator’s function to realise the
company’s assets
The liquidator’s functions include securing the assets, realising them and distributing
the proceeds to the creditors1. The liquidator (including the official receiver where
appropriate) should realise the company’s assets for the best possible price to
maximise the distribution to creditors after the payment of the fees, costs and
expenses of the liquidation. A failure to fulfil this duty may result in the court ordering
the liquidator to pay compensation for the benefit of the estate2.
1. Section 143 (1)
2. Section 212 (3)
25.4 A company officer’s duty to co-operate
with the official receiver
--- PDF page 3 ---
Company officers have a duty to co-operate with the official receiver and to provide
such information regarding the company’s property (amongst other things) as may
be reasonably required1. The court has the power to order a company officer to
deliver up any property, books, papers or records of the company to the official
receiver, administrator, administrative receiver, liquidator or provisional liquidator2.
1. Section 235 (2)
2. Section 234 (2)
25.5 Bankruptcy – Identifying the assets
On the making of the bankruptcy order the official receiver, as trustee, should use
the information available from the initial contact form (ICON), the bankruptcy
application, the bankrupt’s financial records, an inspection (if conducted), Preliminary
Information Questionnaire (PIQB) (if completed), interviewing the bankrupt and
information from third parties to identify those assets which comprise the estate and
will be available to the trustee.
25.6 A bankrupt’s duty to co-operate
A bankrupt has a duty to deliver up to the trustee possession of any property, books,
papers or other records of which he has possession or control1 and has a general
duty to cooperate with the trustee2.
1. Section 312 (1)
2. Section 333 (1)
25.7 Ownership
The official receiver should take reasonable measures to ensure that any property in
the possession of the company, bankrupt or a third party is owned by the company,
or is owned by the bankrupt, and is included in the bankruptcy estate. The official
receiver has a statutory duty to protect all property held by the company or bankrupt
for example by insuring it until such time has they establish ownership by a third
party1.
1. Sections 144 (1) and 305 (2)
25.8 Trustee’s duty to realise the assets for
the benefit of creditors
--- PDF page 4 ---
The bankrupt’s assets vest in the trustee on appointment1. The trustee has a duty to
realise the bankrupt’s assets for the best possible price to maximise the value of the
estate for the benefit of the creditors after payment of the fees, costs and expenses
of the proceedings. A failure to fulfil this duty may result in the court ordering the
trustee to pay compensation for the benefit of the estate2.
1 Section 306 (1)
2 Section 304 (1)
25.9 Failure to co-operate
If a company officer or bankrupt fails to co-operate with the official receiver, an
application may be made to the court for an order to examine them in court or for
property to be delivered up. Further details can be obtained from chapter 19.
25.10 Information held by third parties
A third party may have information about the company or bankrupt which may assist
the official receiver in identifying potential assets. If a third party is believed to have
information about the insolvent or the insolvent’s business, affairs, dealings or
property, the official receiver should seek to obtain such information at an early
stage. If the third party does not co-operate the official receiver may make an
application to the court for a private examination of the person in question1, for
further information see chapter 21. The court upon the application of the official
receiver may order delivery up of property of the company or bankrupt, payment of
monies due or the re-examination of third parties2.
1. Section 236 or 366
2. Section 237 or 367
25.11 Information held by third parties -
Companies
In liquidation in addition to company officers certain other persons associated with
the company, for example, those in its employment, have a duty to give information
to the official receiver. Failure to do so may result in a fine for non-compliance1. In
addition the official receiver may apply for the private examination of the third party2.
1. Section 235 (3) & (5)
2. Section 236 (2)
--- PDF page 5 ---
25.12 Inspection
In a number of insolvencies the official receiver should carry out an inspection (see
chapter 11) of the premises of the company or bankrupt. An inspection allows the
official receiver to clearly identify and secure any assets. An inspection may result in
the official receiver identifying assets that have not been previously disclosed. Where
an inspection is undertaken an inventory should be taken and the official receiver
should follow the advice in chapter 11 to identify third party property during the
inspection. In certain cases an agent may be employed to carry out the inspection
and/or inventory.
The protection and collection of assets -
General
25.13 Introduction
The official receiver after identifying the assets belonging to the company or
bankrupt will need to take the necessary measures to collect and/or protect them.
This may involve, amongst other things, obtaining insurance, removing goods from
the premises of the company or bankrupt and dealing with assets held by third
parties.
25.14 Insurance
The official receiver should, at an early stage, ensure that adequate insurance is in
place to cover the property belonging to the company or forming part of the
bankrupt's estate, and, where appropriate, obtain public and employer's liability. This
may be achieved by having their interest noted on an existing policy or by arranging
new policies (see chapter 14).
25.15 Removal of assets
Where the official receiver considers it practicable and commercially worthwhile to do
so, agents should be employed without delay to collect and store assets pending
their disposal. The official receiver should obtain adequate insurance cover and take
all reasonable steps to remove assets from unattended premises as soon as
possible. Where incurring removal costs will have a substantial adverse effect on the
net monies realised the official receiver should consider instructing their agent to sell
the items of stock, machinery, etc. from the premises.
--- PDF page 6 ---
25.16 Selling assets from the premises of a
company or bankrupt
In order to maximise the sale price of assets the official receiver may wish to sell
them from leased or rented premises of a company or bankrupt. However care is
needed as rent may become payable in full to the landlord as part of the expenses of
the liquidation or bankruptcy as a result of a sale at the premises1. The official
receiver should fully consider the likely costs when deciding whether to sell the
assets from the company’s or bankrupt’s premises.
1. ABC Coupler and Engineering Co Limited (No.3) [1970] 1 All ER 650
25.17 Selling assets from premises where
no rent becomes payable
The official receiver may remain in occupation of leased/rented premises for the
mutual benefit of the landlord and themselves in order to sell the assets of a
company or bankrupt. In this instance any rent accruing will not be an expense of the
liquidation or bankruptcy unless the official receiver has agreed to pay rent to the
landlord, although it will be a provable debt. The landlord will not be able to distrain
on the assets where a winding-up order has been made1. The landlord can still
distrain on the assets for unpaid rent due prior to a bankruptcy order2. In a
bankruptcy the official receiver should consider the potential risk to the assets from
distraint. If in any doubt, and where possible, the assets should be removed from the
premises without delay.
1. Section 128
2. Section 347
25.18 Selling assets from premises where
rent becomes payable
Where the official receiver occupies the premises to sell the assets for the best price
and there is no benefit for the landlord the official receiver is said to be retaining the
premises “for the convenience of the” liquidation or bankruptcy. If this is the case it is
likely that rent will be payable in full to the landlord as part of the expenses of the
liquidation or bankruptcy. Rent only becomes due when the official receiver occupies
the premises “for the convenience of the” liquidation or bankruptcy. Valuing the
assets, leaving them on the premises or taking no steps to surrender the interest of
the company or bankrupt in the premises do not constitute occupying the premises
“for the convenience of the” liquidation or bankruptcy1. A landlord may be able to
--- PDF page 7 ---
lodge a claim in the proceedings, see chapter 43 for further details. The official
receiver should ensure that rent and rates are paid promptly as both the landlord and
the local authority may distrain on the assets for unpaid rent and rates accruing after
the relevant date, i.e. when the official receiver occupied the premises “for the
convenience of the” liquidation or bankruptcy.
1. ABC Coupler and Engineering Co Limited (No.3) [1970] 1 All ER 650
25.19 Occupation of premises – Continuing
services
The official receiver when occupying premises for the sale of assets should decide
whether they require gas, electricity, water and/or telecommunication services to
continue.
25.20 Assets secured by charges
Assets owned by a company or a bankrupt, may be subject to a mortgage, charge,
lien, debenture or other type of security. The various types of security are explained
in chapter 43. The official receiver has an obligation to take such assets into their
custody and control when liquidator of an insolvent company1.
1. Insolvency Act 1986 section 144
25.21 Initial contact with the charge-holder
The official receiver should inform the charge-holder of the bankruptcy order or
winding-up order and establish their intentions with regard to the assets covered by
their security. Where the official receiver cannot immediately contact the charge-
holder to inform them of the proceedings they should consider obtaining insurance
cover regarding the secured assets (see paragraph 25.31). Where the official
receiver has informed the charge-holder of the liquidation or bankruptcy they may be
justified in taking minimum steps to protect the secured assets if there is no prospect
of there being a surplus for the unsecured creditors.
Dealing with third party property
25.22 Seizure and/or sale of third party
property
--- PDF page 8 ---
If the official receiver believes that third party property belongs to the company, or
belongs to the bankrupt and comprises part of their estate, and takes possession or
sells the property they have some protection if that belief is reasonable1. The official
receiver will not be able to rely on this protection where they have had notice of a
claim by a third party unless there are reasonable grounds for rejecting the claim. If
the official receiver, acting as liquidator or trustee, is held to have acted negligently,
for example, by selling the property after receiving notification from a third party, they
may be personally liable for any loss or damage resulting from the seizure or sale of
the property2.
1. Sections 234 (3) & (4) and 304 (3)
2. Sections 234 (3) & (4) and 304 (1)
25.23 Costs incurred from the seizure
and/or sale of third party property
Where the official receiver acts in good faith any costs incurred in the seizure and
sale of property subsequently claimed by a third party can be claimed by them as a
lien on the property or sale proceeds1.
1. Sections 234 (3) & (4) and 304 (3)
25.24 Property secured by a third party
In a number of instances the official receiver will encounter property owned by the
company or owned by the bankrupt and comprising part of their estate subject to a
legal claim by a third party, for example assets covered by a charge, such as a
mortgage, assets covered by a finance agreement, such as hire purchase, or assets
claimed under distress, under an execution or pursuant to a lien. Further guidance
for these scenarios is covered later in this chapter.
25.25 Retention of title
A third party may claim goods under a retention of title clause. A retention of title
clause is a form of security used by a supplier of goods to protect against a buyer’s
failure to pay or insolvency. The official receiver should ensure that the supplier is
entitled to claim retention of title (see chapter 13 for what needs to be done to
establish the claim and how they should be dealt with). The official receiver should
ensure that claims by parties connected to or associated with the company or
bankrupt are valid1. The official receiver should seek to avoid claims for damages by
wrongfully taking actual or constructive possession of property to which the company
or bankrupt has no title.
--- PDF page 9 ---
1. Sections 249 or 435
25.26 Statutory declaration (bankruptcy
cases only)
The official receiver may ask a third party to complete a statutory declaration, Form
ATCP, as evidence of their ownership of property. The declaration should be tested
by careful scrutiny of the supporting documentation where the third party is
associated with the bankrupt1. If the official receiver is satisfied that a claim by a third
party should be rejected the claimant should be asked to withdraw their claim within
seven days. If the third party fails to withdraw the claim they should be told the
official receiver may apply to the court for a private examination2 at which they will
ask for an order by the court that the disputed property form part of the bankrupt’s
estate3. The official receiver if successful will then make an application for costs to be
awarded against the third party4.
1 Section 435
2. Section 366 (1)
3. Section 367 (1)
4. Rule 12.22
25.27 Notice to the third party owners of
property
Where the names and addresses of third party owners of property are known the
official receiver should send them Form NTPG. Where the official receiver intends to
obtain insurance on third party property Form NTPG should be amended
accordingly.
25.28 Third party property – official
receiver’s duty of care
Once the official receiver becomes aware that property belongs to, or is likely to
belong, to a third party the statutory duty to protect may, in certain circumstances, be
replaced by a common law duty of care in negligence, i.e. a duty to take reasonable
care of the property until such time as it is claimed by the owner.
25.29 Insurance and third party property
--- PDF page 10 ---
The official receiver would not normally arrange insurance for third party property.
Where the official receiver does not intend to obtain any insurance Form NTPG
should be issued to third party owners of property informing them that insurance will
not be obtained and the goods may be sold if not collected within 90 days, see
paragraph 25.39 for further details.
25.30 When insurance on third party goods
should be obtained
In those cases where there is a risk of public liability the official receiver should
obtain public liability insurance. This includes those buildings where there is unlikely
to be any surplus sale proceeds. The official receiver may wish to obtain insurance
cover where the third party goods are valuable, where they are unable to contact the
owner of the property or to obtain cover against any claim that they failed to exercise
adequate care as a bailee.
25.31 How to obtain insurance
Where the premium is likely to be high the official receiver should discuss the matter
with ORS Advice in advance. Further guidance on obtaining insurance is contained
in chapter 14. The official receiver in obtaining insurance as trustee becomes or may
become an involuntary bailee (see paragraph 25.37).
25.32 Bailment and third party property
The official receiver as trustee does not have a duty to protect property that is not
part of the estate. A duty of care may arise if the official receiver becomes, either
voluntarily or involuntarily, a bailee of third party property. Bailment is the delivery of
goods by one person to another for some purpose, under a contract, express or
implied that after the purpose has been fulfilled, they shall be returned to the bailor,
or otherwise dealt with according to their directions, or kept until reclaimed. A bailee
is under a common law duty to take reasonable care of third party goods and not to
sell or destroy them.
25.33 Companies in liquidation and
bailment
A company in possession of third party property is a bailee. The liquidator has no
duty to protect third party property however the company may become liable for
damages under common law for failing to fulfill its duty to the third party. The official
receiver in protecting the estate against potential claims for damages should take no
--- PDF page 11 ---
steps that would put them personally in the position of a bailee. When the liquidator
insures third party goods (see paragraph 25.31) they do not personally become
bailee.
25.34 Bankruptcy and bailment
A bankrupt in possession of third party property is a bailee. The official receiver, as
trustee, has no duty to protect third party property and should, in general, take no
action which would put them in the position of being an involuntary or voluntary
bailee. In certain circumstances the official receiver may become a voluntary (see
paragraph 25.38) or involuntary bailee (see paragraph 25.37).
25.35 Collection of property by third
parties
Wherever possible, owners should be requested to collect their property from the
former trading address or from other premises of the company or bankrupt without
delay. The official receiver should arrange insurance cover where appropriate (see
paragraph 25.31).
25.36 Bankruptcy and unclaimed third
party property
There are a number of occasions where the official receiver will take possession of
third party property, see paragraphs 25.38 and 25.39 for details. Where the official
receiver does not become bailee of unclaimed goods they may be left for the
landlord or mortgagee of the premises to deal with. In some cases unclaimed goods
will be left with the bankrupt.
25.37 The official receiver as involuntary
bailee
The official receiver becomes an involuntary bailee when, to protect assets, they
secure premises which are leasehold or where the mortgagee does not intend to
realise their security. The official receiver may become bailee as a result of third
party goods being removed from the premises along with other assets. The duty of
care of an involuntary bailee is low. The official receiver must not wrongfully dispose
of the property or take any positive steps to damage or destroy it. Whilst the official
receiver does not have to protect the third party property they can be held to be
--- PDF page 12 ---
negligent in certain instances. The official receiver should take into account the
circumstances of each case when considering their obligations.
25.38 The official receiver as voluntary
bailee
The official receiver may become a voluntary bailee when they accept responsibility
for protecting and dealing with third party property. This may occur, for example,
when dealing with valuable property, livestock or animals, or by removing (or
instructing agents to remove), third party property to store pending its return to its
owners. The official receiver may wish to remove third party property where the
property is exceptionally valuable, where there are risks attached to leaving it in the
premises, where the official receiver wishes to vacate the premises to reduce their
potential liability to visitors and trespassers or if the company or bankrupt has a lien
on the property for sums due from the third party, for example, for repairs or storage
costs.
25.39 The official receiver’s duties as
voluntary bailee
The official receiver as bailee is under a common law duty to take reasonable care of
third party goods and generally not to sell or destroy them. The official receiver may
sell third party property where certain conditions are fulfilled (see paragraphs 25.42
and 25.44).
Where the company or the official receiver is the bailee of goods they may have the
right to sell those goods in certain circumstances1.
1. Torts (Interference with Goods) Act 1977 section 12 and Schedule 1, Parts I and II
25.40 The official receiver’s costs as
voluntary bailee
The official receiver may wish to consider charging the owners of the property
concerned for the costs incurred in this activity and/or for insuring the property where
the company or bankrupt does not have an interest in it. The official receiver or their
agents should, where possible, inform third parties that their property is to be moved.
25.41 What can the official receiver charge?
--- PDF page 13 ---
Where the official receiver, as liquidator, interim receiver or trustee, performs a task
for which there is no fee applicable1, such as protecting third party goods, they can
charge remuneration at the time and rate fee together with their agent’s costs and
any other incidental expenses.
1. Insolvency Regulations 1994, regulation 35 and Schedule 2, Tables 2 and 3
Disposal of unclaimed third party
property
25.42 Selling unclaimed third party
property
The official receiver should give proper notice of their intention to sell the goods to
the owner (the bailor), giving them a set time within which to collect their goods. If
they do not collect them within this time, the official receiver will be entitled to sell the
goods and account to the bailor for the net sale proceeds. The amount paid will be
after deductions are made, for example for any sum owed to the insolvent for any
repair etc. to the goods, and the agent’s costs of disposal. The official receiver may
be able to recover their costs and, in some instances, remuneration from the owner,
see paragraph 25.41.
25.43 Unclaimed third party property
where the owner cannot be traced
After making reasonable efforts to find the owners of third party property (i.e. asking
the director(s) or bankrupt, searching the accounting records, internet searches, etc.)
the official receiver may be left with some unclaimed property. The official receiver
should consider advertising in an appropriate trade journal or newspaper for claims
to be submitted by a specific date. The official receiver needs to balance the costs of
advertising against the likely sale proceeds.
25.44 The sale of unclaimed third party
property
Where the official receiver decides to sell unclaimed property, either after or without
advertising, the net sale proceeds should be paid into a suspense account. If a
person comes forward within six years of the sale1 and the official receiver accepts
--- PDF page 14 ---
their claim to ownership the net funds resulting from the sale of the asset should be
paid to them. Legal advice has been obtained that if the sale proceeds remain
unclaimed at the end of the six year period ownership passes to the bailee (either
the company or the official receiver as trustee) and the monies may be paid into the
estate account and, used to pay/defray the costs of the insolvency, distributed to
creditors, etc. in the usual way.
If a claim is received from the former owner after the expiry of the six year period and
exceptional circumstances existed which prevented a claim being made during that
time (e.g. absence from the country), ORS Advice should be consulted as to whether
it may be appropriate to make a payment to the former owner.
1. Limitation Act 1980 section 2
Pawned Assets
25.45 Goods of bankrupt held by a
pawnbroker - General
A pawn-broking business is, in essence, a system whereby monies are lent against
the value of goods surrendered by the borrower (the pawnor). This is known as a
pledge, for which a receipt, which is known as a pawn receipt, must be given1.
If the loan (and pre-agreed interest) is not repaid within the period agreed (which
must be a minimum of six months2 the lender (the pawnee) gains the right to sell the
goods and apply the funds to the repayment of the loan. The redemption period can
be extended by agreement. If the goods are sold and there are surplus funds after
repayment of the loan and interest, the funds are returned to the pawnor.
1. Consumer Credit Act 1974 section 114
2. Consumer Credit Act 1974 section 116(1)
25.46 Goods of bankrupt held by a
pawnbroker – Dealing with the goods –
Pawnbroker to be instructed to sell
The basic principle for the official receiver, as trustee, when dealing with goods of a
bankrupt held by a pawnbroker is to establish the value of the goods (using agents
where necessary), the amount of any loan (including interest) in relation to the goods
and the pawnbroker’s likely costs of sale. If the value of the goods exceeds the
--- PDF page 15 ---
amount of the loan and interest and the costs of sale, the official receiver should ask
the pawnbroker to sell the goods and remit the surplus funds to the bankruptcy
estate.
In most cases it will be possible to deal with this on an informal basis, but there are
legislative provisions to assist the official receiver when dealing with an obstructive
pawnbroker (see paragraph 25.49).
25.47 Goods of bankrupt held by a
pawnbroker – dealing with the goods –
where pawnbroker will not sell
If the pawnbroker will not sell the goods, an official receiver may make a payment
from the estate account to redeem the pledge so that the goods may be dealt with by
their agents if there is a demonstrable benefit to the estate in doing so.
If the payment required is over £2,500, the guidance in chapter 1, regarding the
requirement to obtain the permission of the Senior Official Receiver, should be
followed before committing to any expenditure.
It is an offence for a pawnbroker to refuse to allow a pawnor to redeem a pledge1.
1. Consumer Credit Act 1974 section 119
25.48 Net realisable value of goods less
than amount of outstanding debt
Where the net realisable value of the goods is less than the amount of the
outstanding debt, the official receiver should inform the pawnbroker that they do not
wish to redeem the pledge. The pawnbroker will then sell the goods to discharge
some of the debt.
25.49 Goods of bankrupt held by a
pawnbroker – Legislative provisions to
assist the official receiver
The official receiver may, after giving notice of their intention to do so1, inspect any of
the bankrupt’s goods which are held by any person by way of pledge or pawn.
Where such a notice is issued, the person on whom the notice is served is not
entitled, without leave of court, to realise their security unless they have given the
--- PDF page 16 ---
official receiver, as trustee, reasonable opportunity to inspect the goods and redeem
the pledge2.
It is anticipated that the official receiver would use these powers only where the
pawnbroker is being obstructive (see paragraph 25.46).
A trustee in bankruptcy has similar powers to those available to the official receiver3.
1. PAWNI
2. Insolvency Act 1986 section 285(5)
3. Insolvency Act 1986 section 311(5)
25.50 Loss of pawn receipt
Where the bankrupt has goods in pawn but has lost the pawn receipt, it will still be
possible for the official receiver, as trustee, to sell the goods. This is achieved by
tendering the pawnee with a statutory declaration (see Annex A) or, where the
amount of the loan was under £75 and the pawnee agrees, a statement in writing
(see Annex B)1,2 .
Before undertaking this, the official receiver should establish if the pawnbroker is
prepared to allow the official receiver to deal with the goods without the production of
the statutory declaration or, as the case may be, the statement.
1. Consumer Credit Act 1974 section 118
2. The Consumer Credit (Loss of Pawn-Receipt) Regulations 1983
25.51 Time period of pawn agreement
expires during bankruptcy
If the time period of the pawn agreement (see paragraph 25.45) expires during the
period of bankruptcy, the pawnbroker may sell the goods after giving the pawnor a
minimum of 14 days notice of their intention to sell. Such notice is not required where
the loan was less than £751, 2.
On receipt of such a notice, the official receiver will need to decide promptly whether
they wish to redeem the pledge prior to sale, taking into account the guidance in
paragraph. Where necessary, the official receiver may, prevent the sale by service
the appropriate notice under the Act (see paragraph 25.49).
1. Consumer Credit (Realisation of Pawn) Regulations 1983 regulation 2
2. Consumer Credit Act 1974 section 121
--- PDF page 17 ---
25.52 Notice to pawnor of sale of goods
Where the pawnbroker sells goods they hold under a pledge, they have to give
notice, within 20 days of the sale, to the pawnor of the sale. The notice should give
details of the proceeds and expenses. The price obtained at the sale, or the
expenses of the sale, may be challenged as appropriate1, 2, 3.
1. Consumer Credit Act 1974 section 121(2)
2. Consumer Credit Act 1974 section 121(6) and (7)
3. Consumer Credit (Realisation of Pawn) Regulations 1983 regulation 5 and schedule 2
Receivers
25.53 Administrative receivers, receivers
and Law of Property Act receivers
The charge-holder may have the power to appoint an administrative receiver, a
receiver and/or a Law of Property Act receiver to realise their security. Where the
charge-holder has appointed, or appoints, a receiver the official receiver should write
to that person requesting amongst other things, copies of the documents appointing
them and an estimate of anticipated realisations. A template letter, is available, to
send to an administrative receiver is available (ADMREC). The official receiver
should check the documents received to ensure the appointment is valid. See
chapter 12 for further information on the appointment of a receiver or administrative
receiver.
25.54 Charge-holders and receivers to
account for any surplus monies
The official receiver when writing to the charge-holder, or, where applicable, the
administrative receiver, receiver or Law of Property Act receiver should ask for any
surplus proceeds to be paid to them. If asked the official receiver should not provide
an indemnity in respect of the receiver’s actions and remuneration.
25.55 Charge-holder takes no action to
realise secured assets
--- PDF page 18 ---
The charge-holder may inform the official receiver that no action will be taken to
realise their security. The official receiver would have to consider each case
separately, taking into account the value of the asset, the amount secured on the
asset and the costs of realisation. The official receiver may consider it appropriate to
make an application to the Secretary of State for the appointment of a liquidator or
trustee (see chapter 45). In this instance the official receiver should inform the
charge-holder in advance of the application. The official receiver may also consider
disclaiming their interest in the asset concerned (see chapter 42).
Finance agreements
25.56 Assets subject to agreement with
finance company
The company or bankrupt may be in possession of assets belonging to a third party
that are subject to a formal agreement. Such agreements include rental agreements,
conditional sale agreements, hire purchase agreements, etc. A summary of the
different types of agreement in relation to motor vehicles can be found in chapter 27.
These agreements can apply to assets other than motor vehicles. The rights of the
company or bankrupt to use the asset and, possibly, to acquire ownership on the
fulfilment of any specified conditions, become exercisable by a liquidator or pass to a
trustee in bankruptcy unless excluded by an express term of the agreement.
25.57 Dealing with assets subject to a
rental agreement
In the majority of cases the official receiver will not adopt a rental agreement and the
owner of the property will be invited to collect it as soon as possible. In a small
number of cases the official receiver may need to negotiate a temporary extension to
the agreement in order to protect the realisable value of other assets, for example,
flowers.
25.58 Dealing with assets subject to hire
purchase, etc.
In agreements, such as hire purchase, conditional sale, etc., whereby ownership of
the asset passes to the bankrupt or company after the fulfilment of a number of
conditions, there may be sufficient equity in the property to provide a benefit for the
--- PDF page 19 ---
estate after meeting the official receiver’s sale costs. Once the official receiver has
confirmed the amount needed to settle the agreement and is confident that there will
be a surplus on sale, the hiring owner should be informed that the official receiver as
liquidator or trustee will be taking possession of the property and arranging for its
sale. The official receiver should arrange adequate insurance on the property as
necessary. Where there is doubt as to whether the property can be sold for a sum
sufficient to pay the settlement figure under the agreement and the costs of sale, the
hiring owner should be given notice of the order and asked to hold the surplus, if
any, arising from any future sale to the order of the official receiver. Where there is
insufficient equity the official receiver as trustee or liquidator, should inform the hiring
owner that they do not wish to adopt the agreement.
Assets held by third parties
25.59 General
A company or bankrupt may leave assets with a third party for a number of reasons,
safe-keeping, storage, repair etc. The official receiver should contact the third party
at an early stage and ask for the asset to be surrendered to their control.
25.60 Liens
A lien is a right to retain possession of another’s property pending the discharge of a
debt. A lien may arise where a service has been performed but the bill has not been
paid, for example retention of a motor cycle until the repair invoice is paid. A creditor
with a right to a lien should be treated as a secured creditor in the insolvency unless
the lien is over the books, records and papers of the company or bankrupt (see
following paragraphs). Where a creditor claims a lien, reference should be made to
chapter 12. The official receiver should always check that a creditor has a right to
claim a lien over the property held when considering the validity of the lien.
25.61 Recovering assets from a third party
Where a third party does not deliver to the official receiver assets belonging to the
company or bankrupt on request the official receiver has various powers available to
enforce cooperation. For example the official receiver may apply to the court for a
private examination of the third party, at which an order that the assets are delivered
to the official receiver may be made1. Chapter 21 provides guidance on when a
private examination would be appropriate. In some cases the official receiver may be
able to recover the costs of the private examination.
--- PDF page 20 ---
1. Sections 236 and 366
25.62 Additional enforcement powers -
Companies
Where the official receiver is liquidator or provisional liquidator an application to court
may be made to require any person to pay, deliver, convey, surrender or transfer the
property, books, papers or records of the company to the official receiver1.
1. Section 234(2)
25.63 Additional enforcement powers -
Bankruptcies
A banker, agent or other person holding assets on account of or for the bankrupt is
required to pay or deliver up to the trustee all property in their possession which
belongs to the bankrupt’s estate, subject to any legal right to retain the property. If
the person defaults in this obligation the official receiver as trustee should inform
them that they may be in contempt of court and subject to such penalties as the
court may impose if they continue being un-cooperative without reasonable excuse1.
The court also has the power, in certain circumstances, to issue a warrant for the
seizure of property. Such a warrant allows the person executing the warrant to break
open any premises necessary for its execution. The official receiver may make an
application to court for a warrant that allows a constable or officer of the court to
search premises for any concealed assets or books, papers or records of a
bankrupt2.
1. Section 312 (3) & (4)
2. Section 365
Distress or ‘taking control of goods’
25.64 Distress
The right of recovery known as distraint replaced by a more regulated and limited
process called taking control of goods in April 2014. The term distress was updated
within the general legislation in 2014 and is now known as ‘taking control of
goods’. At an early stage, the official receiver should establish from the directors,
bankrupt (or in the absence of these, any employees) whether a qualifying creditor
--- PDF page 21 ---
has taken control of goods owned by the bankrupt or company. Chapter 12 provides
more detail and guidance.
25.65 Execution
Execution is a creditor’s right to take control of goods to enforce a judgment. The
official receiver should, at an early stage, establish from the directors, bankrupt (or in
the absence of these, any employees) whether a valid execution has been levied
against any of the company’s or bankrupt’s property. Chapter 12 provides more
detail and guidance on execution.
Partnerships
25.66 Partnership Estate
There are occasions when bankruptcy orders are made against all the members of a
partnership and no winding-up order is made against the partnership. The assets of
the partnership are effectively held in trust in favour of the partnership creditors and
are unavailable to the trustee in bankruptcy. In some of these cases there will be
significant partnership assets to be dealt with.
25.67 Partnership Assets
Partnership assets such as motor vehicles, tools of the trade, etc. unlike in individual
bankruptcy, are not exempt from the proceedings. The official receiver should take
all assets into account when considering whether to make an application to
consolidate the estates (see following paragraph).
25.68 Dealing with partnership assets
Where all the partners have been declared bankrupt, the partnership has not been
wound-up and there are partnerships assets the official receiver should make an
application to court for the consolidation of the estates1. The application must request
that the official receiver, or any subsequently appointed trustee of the consolidated
proceedings, be able to deal with the assets of the former partnership2. This will
allow the official receiver as trustee to administer the partnership estate and wind up
its affairs as if the individual members had presented a joint bankruptcy petition3. For
more information on consolidation see chapter 52.
1. Section 303 (2A)
--- PDF page 22 ---
2. Section 303 (2C)
3. The Insolvent Partnership 1994 article 11 and schedule 7
25.69 Where there is a solvent partner(s)
In some instances a bankruptcy order will be made against a partner(s) leaving a
solvent partner or partners who have a duty to dissolve the partnership, deal with the
partnership assets and account to the official receiver for the share of the
bankrupt(s). Chapter 52 provides full details of how to deal with cases which involve
a solvent partner.
Assets outside England and Wales
25.70 Assets outside England and Wales –
Court orders
The official receiver may enforce court orders in the courts of other countries of the
United Kingdom and a number of other countries1. Further details can be found in
chapter 62
1. Section 426
25.71 Problems dealing with assets outside
the United Kingdom
The official receiver may encounter problems in dealing with assets abroad, as their
appointment may not be recognised there. There may also be local creditors with a
claim on an asset under local laws. Company officers and a bankrupt have a duty to
co-operate with the official receiver in the realisation of overseas assets. If a
company officer or bankrupt fails to co-operate, the official receiver should remind
them of the relevant enforcement procedures outlined in chapter 19.
List X
25.72 List X
A List X site is a commercial site (i.e. not publicly owned) in the United Kingdom
which is approved to hold government information, currently marked
--- PDF page 23 ---
CONFIDENTIAL, SECRET and TOP SECRET. There are number of businesses in
the United Kingdom carrying out work on behalf of government departments on List
X sites. Should a winding-up or bankruptcy order be made against one of them it is
essential, in the interests of national security, that all assets, books, papers and
records with the appropriate protective marking under the HMG Security Policy
Framework are protected and not moved without the relevant official clearance. If
such a site is encountered the official receiver should identify the relevant items and
immediately contact the security advice centre of the The Defence Equipment and
Support Principal Security Advisor (DE&S PSyA) team. The DE&S PsyA team is
responsible for providing relevant defence contractors with up to date security and
business continuity policy and guidance.
The contact details are
Email: despsya-securityadvicecentre@mod.gov.uk
Telephone: 030 679 34378
Further information is available in chapter 59 of the archived guidance.
The realisation of assets
25.73 Maximising realisations and
cancelling insurance
The official receiver should aim to maximise the amount of money realised to ensure
that, as far as possible, the debit balance is cleared and funds become available for
distribution to creditors. This may involve the disposal of a valuable asset for the best
possible price. It may also involve the sale of a larger number of less valuable
assets. Where the sale does not increase the debit balance the official receiver
should ensure, wherever possible, that all available assets are realised. Once the
assets have been sold, or otherwise disposed of, the official receiver should cancel
any insurance – see chapter 14.
25.74 Realisation of assets – General
The official receiver should sell any assets that are likely to perish or diminish in
value, for example seasonal goods such as Christmas stock, even where a trustee
or liquidator other than themselves is likely to be appointed. An asset should also be
sold where its net value would materially reduce due to related storage charges.
Where agents are used they should be asked to account to the official receiver for
the net sale proceeds.
--- PDF page 24 ---
25.75 Employment of agents
The official receiver should usually use bonded agents/auctioneers to sell the assets
of a bankrupt or company, (see chapter 41). The official receiver should employ
agents to collect and store assets pending their sale where they consider it practical
and commercially worthwhile to do so. The official receiver’s usual agents may
provide a verbal indication of the value of the assets free of charge. Any instructions
given to agents verbally should be followed up in writing to prevent a
misunderstanding arising and the agent should account to the official receiver for the
net sale proceeds.
25.83 Assets of a specialist nature
Some assets may be of a specialist nature. In this instance, the official receiver may
require a more formal valuation and/or professional advice on the best way of
realisation. The official receiver may decide that their usual agents cannot provide
sufficient information and that they need more specialist advice from another agent.
It is likely in these circumstances that a charge will be made.
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 11 March 2020.
26. Money owed to the insolvent
Collection of monies owed to an insolvent, including the process for engaging
contracted agents to undertake the recovery
Annexes
Flowchart – How to deal with book debts
Clarke Willmott (book debt contractor) information
Chapter content
Frequently asked questions
Introduction
Application of set-off
Recovery of money owed to the insolvent – Use of the contractor
Instruction of contractor and action to take
Arrangements with the debtor for repayment
Tracing of debtors
Bad debts and insolvent debtors
Legal proceedings to recover debt
Completion of collection and fees
Directors’ loan accounts
Factoring agreements
Sale or assignment of book debts
Book debts subject to a fixed or floating charge
Unpaid share capital
--- PDF page 2 ---
Frequently asked questions
These FAQs are to assist official receivers in understanding the subject and should
be read in conjunction with the more detailed guidance given in the main body of the
Technical Manual chapter.
What is a book debt?
A book debt is the term used for sums of money owed to the insolvent at the date of
the insolvency order. These debts are usually for goods or services supplied or for
work carried out, but might also be personal loans. The official receiver is entitled to
claim the amount owed for the benefit of the estate.
What is the book debt contract?
The Insolvency Service uses an agent to work on behalf of the official receiver to
collect book debts, the contractor.
What does this mean for me?
Using the contractor means that the official receiver has no need to contact book
debtors at the initial notices stage and no letters requesting payment should be sent
to book debtors
What is the insolvent says debts are
irrecoverable?
All book debts should be forwarded to the contractor for collection regardless of the
age of the debts or whether the book debts have been described as irrecoverable by
the insolvent.
Can I bank cheques received from book
debtors?
If cheques are received prior to the instruction of the contractor these may be
banked as normal and the usual fees charged. Any instruction to the contractor must
not include the debts already paid to the official receiver.
--- PDF page 3 ---
What if there are existing debt collectors at the
date of the insolvency order?
Where a book debt collector has been appointed by the insolvent prior to the date of
the insolvency order the official receiver has the discretion to retain their services or
to instruct the contractor. Where the contractor is to be instructed the official receiver
should instruct the existing debt collectors to forward all payments already collected
and any supporting documentation held in respect of book debts still to be realised to
the official receiver (not to the contractor).
How do I instruct the contractor to collect
book debts?
Initial instruction is done by sending letter IMB to The contractor via the on-line portal
known as ‘Debt View’.
What information does the contractor need to
recover book debts?
Successful debt recovery is dependent on the official receiver supplying The
contractor with as much information as possible as early as possible. The IMB letter
lists information required.
When should the contractor be instructed?
As the chance of collecting book debts reduces considerably with time, The
contractor should be notified of the details of any book debts as soon as they
become available. This will normally be after receipt of the statement of affairs or
when the Preliminary Information Questionnaire (PIQ) has been completed
Who do I need to notify the insolvent of the
contractor’s appointment?
It is important that the insolvent is notified of The contractor’s involvement as they
may need to co-operate in the collection of the debts if they have additional
information that may be of assistance (form BDTLTB).
--- PDF page 4 ---
What if the case is transferred to another office
or court?
Inform the contractor of any transfer. Court transfer derails can be passed on via the
‘instruct us’ tab on debt view.
What if the book debtor wishes to make
payments in instalments?
The contractor will use their discretion as to whether to accept the proposals.
What if the debt can’t be collected?
The contractor will decide if it is not possible to recover debts and will notify the
official receiver. The official receiver will note this as an unrecoverable debt and write
it off as a bad debt. ISCIS should be updated to record this decision.
What if the book debtor is subject to
insolvency proceedings?
Contact should be made with the insolvency practitioner to register the official
receiver’s interest and to enquire as to the likelihood of any dividend being paid. The
contractor will deal with this.
Should the official receiver ever take legal
action to recover book debts?
If the contractor believes there is a good chance of recovering book debts, but
requires funding to commence legal action, all details must be passed to the owning
office, who will consider whether to instigate legal proceedings.
Is a loan to a director a book debt?
Essentially yes. Sums due from partners of directors under any loan accounts may
also be treated as book debts – referred to as directors’ loan accounts.
What if the book debts are subject to a fixed
charge?
--- PDF page 5 ---
Where there is a valid fixed charge over the book debts and there is no prospect of
any funds becoming available for the estate once the charge-holder has been paid,
the official receiver would not usually be expected to realise the book debts on behalf
of the charge-holder. The charge-holder may appoint a receiver to realise the book
debts or take direct action to collect them but if they are not prepared to do so, then
they cannot assume that the official receiver will collect them. The action to be taken
should be agreed in writing between the official receiver and the chargeholder.
What if the book debts are subject to a floating
charge?
Where a receiver has not been appointed under a floating charge it falls to the official
receiver when liquidator of the company to realise the book debts covered by the
floating charge. The charge-holder must be informed that there will be additional
costs involved in the form of the contractor’s fee together with the official receiver’s
usual Secretary of State fee and VAT that the charge-holder will be liable for. The
preferential creditors will also be paid out of the proceeds before the charge-holder.
The charge-holder should be asked for confirmation that they wishes the official
receiver to proceed in these circumstances or whether they will appoint a receiver.
Where the official receiver is to collect they should instruct the contractor to collect
the debts in the usual way, informing the contractor of the floating charge on
instruction.
What is factoring?
Factoring is where invoices are sold to a factoring company for below their value.
The seller gets the cash quickly and the factoring company will then own the debt
and the right to collect it. The factoring company makes a profit by paying less cash
than the face value of the invoice. These types of agreements are valid
notwithstanding the making of an insolvency order. Only if the factoring company
was prepared to re-assign the debts back to the original owner, could the official
receiver instruct the contractor to realise them.
Introduction
26.1 General
This chapter provides details of how the official receiver should deal with money
owed to a company in liquidation or to a bankrupt. Most likely this will be monies
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owed in the course of the insolvent’s business (also known as book debts or trade
debts), but might include personal loans or money owed by a director in respect of
an overdrawn directors’ loan account.
Application of set-off
26.2 Right of set-off – generally
The right to set off debts due from the insolvent against book debts applies where
before the commencement of the insolvency proceedings there have been mutual
dealings between the insolvent and a creditor of the insolvent proving or claiming to
prove for a debt in the liquidation 1, 2
See chapter 43 for further advice on the right of set-off.
1. rule 14.25(1)
2. section 323
26.3 Right of set-off – calculating the sum due
When applying the right of set-off, an account shall be taken of what is due from
each party to the other in respect of the mutual dealings and the sums due from one
party shall be set off against the sums due from the other 1, 2 . Where a balance is
owed to the creditor then only that balance is provable in the insolvency and where a
balance is owed to the insolvent then that must be paid to the liquidator or trustee as
part of the assets 3, 4, 5 .
1. rule 4.90(2)
2. section 323(2)
3. rule 14.25(3)
4. rule 14.25(4)
5. section 323(4)
Recovery of money owed to the insolvent
– use of the contractor
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26.4 Contract for recovery of money owed to
the insolvent
The Insolvency Service has a contract for the services of an agent to work on behalf
of the official receiver to collect money due to companies or partnerships against
which a winding-up order has been made, or due to individuals (including members
of a partnership) subject to a bankruptcy order.
Information on the service provided by the contractor and full guidance on using their
Debt View website (through which instructions are made and managed) is available
on the contractor’s intranet page.
26.5 Contractor to accept all instructions
The contractor undertakes to accept all instructions received from the official receiver
for the collection of money due to the insolvent (hereafter known as book debts)
regardless of the age of the debts or whether they have been described as
irrecoverable by the company director, bankrupt or partner.
26.6 Debt collection agreement is exclusive
The debt collection agreement is exclusive and means that the contractor is the only
party that the official receiver can instruct to undertake book debt collections. Where
instructed by the official receiver, the contractor must undertake to collect, or attempt
to collect, those debts on behalf of the official receiver. The official receiver should
make no attempt to actively recover book debts other than through the contractor.
26.7 Cheques received by the official receiver
prior to an instruction
If the official receiver recovers cheques from the business premises of the insolvent
or if they are handed over at interview by the bankrupt/director, they should be
banked as normal and the official receiver’s usual fees charged if the contractor has
not yet been instructed. The official receiver must take steps to ensure that the
instruction to the contractor does not then include the debt(s) which have already
been paid. If the contractor has already been instructed, they should be notified of
the remittance received by the official receiver via the ‘payments’ screen on Debt
View. The contractor will not be entitled to the usual commission if the remittance to
the official receiver does not result from any action on their part.
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26.8 Remittance of book debts to the official
receiver after the contractor instructed
Occasionally, a book debtor may remit payment for a debt direct to the official
receiver notwithstanding the fact that they have been requested to pay the
contractor. Where the official receiver is satisfied that the remittance is as a result of
the action of the contractor, e.g. a letter sent to the book debtor requesting payment,
the contractor is entitled to their commission on that debt. The official receiver should
inform the contractor of the remittance via the ‘payments’ screen on Debt View so
that they do not continue to pursue the debt and bank the cheque. The contractor will
deduct their commission on that debt from other receipts in the accounting to Estate
Account and Insolvency Practitioners Services
26.9 Conflict of interest
In the event that a book debtor is represented by the contractor, the contractor will
inform the official receiver forthwith and return the responsibility for the collection of
that debt to the official receiver. The official receiver should pursue the debt.
26.10 Official receiver not to write to book
debtor
Using the contractor means that the official receiver has no need to contact book
debtors at the initial notices stage and thus no letters requesting payment should be
sent to book debtors by the official receiver.
26.11 Existing debt collectors at date of
insolvency order
Book debt collectors may have been appointed by the insolvent prior to the date of
the insolvency order. The official receiver has the discretion to retain the services of
the book debt collection agent instructed by the insolvent if they feel it is appropriate.
Otherwise, the official receiver should disengage from any existing agreement at the
earliest opportunity, and instruct the contractor. The official receiver should instruct
the existing debt collectors to forward all payments already collected and any
supporting documentation held in respect of book debts still to be realised to the
official receiver (not to the contractor).
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Instruction of contractor and action to
take
26.12 Instruction – general
Instruction of the contractor is effected by completion and uploading of letter IMB to
the Debt View website.
26.13 Importance of an early instruction to the
contractor
Book debts become more difficult to collect as time passes and it is important that
the instruction to collect the books debts is given to the contractor as soon as
possible after the existence of book debts are notified to the official receiver even
where it is likely that an insolvency practitioner liquidator or trustee other than the
official receiver will be appointed.
26.14 Informing the insolvent of the
contractor’s appointment
At the same time as instructing the contractor the official receiver should inform the
directors, partners or bankrupt of the contractors appointment by issuing a BDTLTB
Coy 06 04 2017 or BDTLTB BKY 06 04 2017 letter. These letters request that they
cooperate fully in the collection of debts.
26.15 Initial action by contractor
The contractor will notify book debtors of the official receiver’s instruction within three
working days of receiving such instructions and follow the method of collection
agreed in the Service Level Agreement.
26.16 Information to be supplied to the
contractor by the official receiver
Successful debt recovery is dependent on the official receiver supplying the
contractor with as much information as possible as early as possible. In particular,
The contractor will need all the information requested in the IMB letter as follows;
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•
the name and court details of the case and the name and address of the official
receiver dealing with it
•
the name, address and telephone number of the company director, partner or
bankrupt who may be able to provide additional information
•
the name, address, telephone number and reference number of the book debtor
– including Companies House information if already obtained
•
the amount of the debt
•
the date the debt was incurred
•
the consideration for the debt, and
•
any documentary evidence held in support of the debt. Where this information is
not available to the official receiver or where the contractor needs further
information, the contractor must be prepared to make further enquiries at their
own expense. The official receiver should ensure that when they receive any
information after the initial instruction it is uploaded to the contractor via Debt
View
26.17 Documentary evidence to be supplied to
the contractor
Documentary evidence in support of the book debts will probably be in the
accounting records of the insolvent. Copies of any accounting records needed for the
collection of the book debts should be uploaded to the contractor via Debt View.
Where practical to do so, the supporting documentation should be uploaded to the
contractor via Debt View with the initial IMB letter. Where the volume of accounting
records is large or it is not practical to upload via Debt View the case officer assigned
to the case and/or the examiner should discuss the matter with the contractor to
facilitate delivery.
26.18 Interest on book debts
In all cases where statutory interest or charges under the provisions of the provisions
of the Late Payment of Commercial Debts (Interest) Act 1988 may be claimed from
book debtors of the insolvent, this should be claimed on behalf of the estate in
addition to the capital sum for the whole period during which such interest is due.
Discretion may be used in enforcing such interest where it is clear that late payment
of the debt by the book debtor has arisen as a consequence of the circumstances
surrounding the insolvency (e.g. the insolvent trader could not be traced, the book
debtor was uncertain as to whom to pay the sum outstanding to, etc). In practice, the
actual claiming and calculation of the interest will be dealt with by the contractor as
part of their debt collection duties on behalf of the official receiver. When calculating
the interest payable the interest does not compound 1 .
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1. Late Payment of Commercial Debts (Interest) Act 1998, section 1(1)
26.19 Information on progress of debt
collection
The contractor provides an online enquiry facility which allows access to cases for
monitoring progress and to provide instructions online. This can be accessed via the
Debt View website. The case officer assigned to the case at either the command
office or the LTADT has a login account and password to allow access.
26.20 Appointment of liquidator/trustee other
than the official receiver after contractor
instructed
Where an insolvency practitioner is appointed the official receiver should inform the
contractor within 5 days of their appointment by issuing the NACT letter. The
contractor will account for any monies in their hands at the date of the handover
direct to the insolvency practitioner and forward a copy of the account to the official
receiver via Debt View. It will be a matter for the insolvency practitioner after
appointment to determine whether the contractor will continue to collect the book
debt and on what terms.
26.21 Transfer of case to another official
receiver after contractor instructed
Where a case is transferred internally within The Insolvency Service or to another
court after initial instruction, the contractor should be informed of the transfer by
issuing letter NACT. When cases are transferred to the LTADT in ISCIS they will be
picked up by the LTADT Central Operations Team (COT) in Birmingham. The COT
team will allocate each case to a LTADT case clerk and notify the contractor of the
changes. Court transfer details can be passed on via the ‘instruct us’ tab on Debt
View.
Arrangements with the debtor for
repayment
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26.22 Compromises and negotiated
settlements
The contractor may consider a compromise to be more productive than taking
proceedings against a book debtor. Where a book debtor suggests a compromise
i.e. admits to a level of debt but offers a payment less than that, the contractor will
exercise their discretion as to whether to accept the proposals for settlement. All
such matters are to be reported to the official receiver via Debt View within seven
days of acceptance.
26.23 Payment by instalments
Where there is full admission of a debt by any book debtor who then offers to pay the
full sum in instalments, the contractor may exercise their discretion as to whether to
accept the proposals for settlement. All such matters should be reported to the
official receiver within seven working days of their acceptance.
Tracing of debtors
26.24 Book debtors abroad
Where the book debtor is overseas the contractor may, in appropriate
circumstances, pass details of the debt to a local agent for recovery. Inevitably this
will lead to a greater commission being charged by the contractor and the contractor
will liaise with the official receiver in advance to agree the fee payable.
26.25 No trace book debtors
Where a book debtor cannot be found, the contractor will decide whether to trace the
book debtor. Any additional costs incurred in tracing the book debtor will only be
charged to the estate if the debtor is found and the debt recovered. These costs are
in addition to the usual commission charged by the contractor.
Bad debts and insolvent debtors
26.26 Bad debts
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The decision to discontinue the collection of a debt and return the debt to the official
receiver uncollected rests with the contractor. This decision is not affected by the
size of the debt. The contractor will inform the official receiver that in their opinion the
debt is irrecoverable within seven working days of coming to that decision. The
official receiver will review the situation but in practice it is unlikely that the official
receiver will take further steps to recover a debt where the contractor considers it
irrecoverable and the debt will be written off.
26.27 Book debtor subject to insolvency
proceedings
Where a book debtor becomes subject to any insolvency proceedings the contractor
will contact the relevant insolvency office holder to register the official receiver’s
interest as a creditor and ascertain whether any dividend is likely to be paid. The
contractor will lodge a claim in the proceedings on behalf of the official receiver and
the collection of the debt can then be treated as concluded by the official receiver. If
a dividend becomes payable at a later date the contractor will be entitled to their
commission on the dividend.
Legal proceedings to recover debt
26.28 Legal Action to recover book debts
If the contractor believes that there is a good chance of recovering a book debt by
way of legal proceedings, but cannot progress the recovery without funding, all
relevant details should be supplied to the owning official receiver or the LTADT. The
official receiver will consider the request to institute legal proceedings within six
weeks of receipt during which time creditors may be consulted. The official receiver
will decide whether or not to ask the creditors of the estate if they are willing to fund
the action. If the official receiver decides not to refer the matter to creditors (or if they
do so) and the creditors are not willing to fund the action, the matter will be
concluded. The same applies in principle to legal proceedings ongoing at the date of
the insolvency.
26.29 Instructing contractor to take forward
legal action
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If the creditors are willing to fund the action, on receipt of the funds, the official
receiver may instruct the contractor, in writing, to continue with the recovery. The
contractor will act as solicitors on behalf of the official receiver and they will be
entitled only to recover their legal fees not the fees they would be entitled to as
collection agents. Alternatively, the creditors may choose to appoint an insolvency
practitioner as liquidator or trustee of the estate to deal with the matter. The official
receiver should notify the contractor of the appointment. It will then be up to the
insolvency practitioner to decide whether to continue with the recovery and whether
they will continue to use the contractor to recover the book debts.
Completion of collection and fees
26.30 Completed recoveries
When the contractor has completed collection activity in respect of the book debts,
the official receiver will be informed via Debt View.
26.31 Fees charged by the contractor
[Text redacted]
26.32 Fees for legal proceedings
[Text redacted]
26.33 Remittances to the official receiver
All money collected by the contractor on behalf of the official receiver will be placed
into a global dedicated client account in the name of The Insolvency Service and
remitted weekly Estate Account Services net of fees charged. Each remittance is
accompanied by an electronic statement giving details of the case and a breakdown
of money collected and fees charged.
Directors’ loan accounts
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26.34 Directors’ loan accounts and similar
transactions
Generally a company may only make a loan to one of its directors or to a director of
its holding company where the loan has been approved by resolution of its members
1, 2, 3, 4, 5 .
See also chapter 32 regarding recoveries from directors.
1. Companies Act 2006, section 197
2. Companies Act 2006, section 204
3. Companies Act 2006, section 205
4. Companies Act 2006, section 206
5. Companies Act 2006, section 207(1)
26.35 Public companies and directors’ loan
accounts
A public company, and a private company which is part of a group of companies that
includes a public company, may make a loan, quasi-loan, credit transaction or
guarantee to provide security for the benefit of a director or a person connected to a
director (see where it is approved by resolution of its members subject to certain
exceptions 1, 2, 3, 4, 5 . Where the director is also a director of a holding company a
resolution of the members of the holding company endorsing the loan or transaction
is also required. For these purposes a director includes a shadow director 6 .
1. Companies Act 2006, section 198
2. Companies Act 2006, section 199
3. Companies Act 2006, section 200
4. Companies Act 2006, section 201
5. Companies Act 2006, section 202
6. Companies Act 2006, section 223(1)
26.36 Notice re directors’ loan accounts and
similar transactions
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Where a loan is made the company must give notice to its members setting out the
nature of the transaction, the amount and purpose of the transaction and the extent
of the company’s liability related to the transaction 1 .
1. Companies Act 2006, section 197(3)
26.37 Outstanding director’s loan account or
similar transactions – approved
Where the loan or other transaction has been approved by the members of the
company (and, where appropriate, the members of the holding company 1 ), the
official receiver should determine the amount outstanding by making enquiries of the
company’s director(s) and/or by reference to the company’s records.
1. Companies Act 2006, section 197
26.38 Voidable director’s loan account or
similar transactions
Where the loan or other transaction has not been approved by the members of the
company and, where appropriate, the members of the holding company, it is
voidable unless:
•
restitution of any money or other asset is no longer possible
•
the company has been indemnified for any loss for damage resulting from the
loan or other arrangement, or
•
a person, who is not a party to loan or transaction and has not been given
notice of the contravention, acquired rights as a result of the loan or transaction
which would be affected by the avoidance1
1. Companies Act 2006, section 213(2)
26.39 Collection of directors’ loan accounts or
similar transactions
The contractor may be instructed to collect a voidable or outstanding director’s loan
account but only once the amount due has been established by the official receiver.
The monies may be collected from:
•
in the case of a transaction with a director, that director
•
in the case of a transaction with a person connected with a director, both that
person and the director with whom they are or were connected; and
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•
any other director who authorised the transaction. ; Where the monies may be
collected from two or more persons they will be jointly and severally liable to
account for any profit and/or to indemnify the company for any loss or damage
suffered as a result of the transaction (e.g. should the loan debtor fail to pay or
the company fail to pay or the company be called upon to pay under a
prohibited guarantee)1
1. Companies Act 2006, section 213
26.40 Information to be provided to the
contractor with respect to a directors’ loan
account
The official receiver should supply the contractor with a copy of the director’s loan
account or a schedule of how the outstanding balance has been calculated. Where
possible the director’s acknowledgment of the debt should also be sought and
supplied to the contractor. The contractor will refer any new evidence or meaningful
argument on the debt supplied by the director back to the official receiver for
consideration. If necessary, the director and/or the other person(s) should be
interviewed again to establish the necessary information to enable the asset to be
realised.
Factoring agreements
26.41 Factoring agreements
Where a business has a factoring agreement its sales invoices are sent to the
factoring company as soon as they are raised and the factoring company advances
a percentage of the debt to the business immediately. This means that the business
gets cash instantly rather than having to wait for the customer to pay. The factoring
company collects the debt and remits the balance due, less a standard rate of
commission charged, to the business. Many factoring companies deal with the whole
of a business’s sales ledger and credit control functions.
26.42 Invoice discounting
Another similar type of agreement is invoice discounting where more limited action is
taken by the factoring company usually only collecting selected debts on behalf of
the business.
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26.43 Effect of insolvency on factoring and
invoice discounting agreements
The insolvency order will have no effect on factoring or invoice discounting
agreements, which will remain valid notwithstanding the order. The official receiver
should request a copy of any factoring agreement and should make no attempt to
realise factored book debts or to instruct the contractors.
26.44 Reassignment of book debts by the
factoring company
The factoring company may wish to reassign the debts to the original owner i.e. the
insolvent but this is only likely to occur where the debt has proved uncollectable or
the factoring company has been paid in full from other book debts. In these cases
the official receiver should instruct the contractor to realise those debts.
Sale or assignment of book debts
26.45 Sale of book debts
The official receiver may sell book debts to the purchaser of a business sold as a
going concern, however the book debts should not be sold through the contractor as
their agent as this would be against the general principle that book debts should not
be sold by the official receiver through the agency of the contractor. The special
circumstances justifying the sale and the circumstances should be recorded on
ISCIS.
26.46 Assignments of book debts in liquidation
In the case of a limited company, an assignment by way of a charge over the book
debts must be registered within 21 days of creation with the Registrar of Companies
if it is to be valid.
Assignments of book debts made after the commencement of a winding up may also
be void 1 .
1. section 127
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26.47 Assignments of book debts in
bankruptcy
Where a bankrupt has made a general assignment to another person of their existing
and future book debts the assignment is void against the trustee, as regards the
book debts that were not paid before the presentation of the bankruptcy petition,
unless the assignment has been registered under the Bill of Sale Act 1878. A
general assignment does not include-
•
an assignment of book debts due at the date of the assignment from specified
debtors or of debts becoming due under specified contracts 1 , or
•
an assignment of book debts included in a transfer of a business made in good
faith and for value or in an assignment of assets for the benefit of creditors
generally 2 . A factoring agreement is generally an assignment of specific debts 3
Assignments of debts made after the presentation of the bankruptcy petition may
also be void as a disposition of property under the provisions of the Act 4 .
1. section 244(3)(b)(i)
2. section 244(3)(b)(ii)
3. Hills v Alex Lawrie Factors [2001] B.P.I.R. 1038
4. section 284
Book debts subject to a fixed or floating
charge
26.48 Background
Book debts are a current asset and whether or not there can be a valid fixed charge
on book debts has been the subject of much legal discussion 1 .
1. Re Spectrum Plus Ltd; National Westminster Bank plc v Spectrum Plus Ltd and others- [2005] UKHL 41
26.49 Establishing whether book debt subject
to a fixed charge.
The Official Receiver needs to establish whether a charge over book debts should
be counted as fixed or floating, they should do this looking at the terms of the
debenture rather than simply whether the debenture describes it as a fixed or floating
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charge.
The level of control the company has over the collection and disposition of the book
debts should indicate whether the charge is fixed or floating, if for example the
company was able to recycle receipts from the trade debts purportedly subject to the
fixed charge this would point to the charge being floating or whether they were in
some way retained by the chargeholder (bank), with the company’s access to them
being denied or severely restricted, perhaps by the use of a blocked account, this
would point to it being fixed.
26.50 Book debts subject to a valid fixed
charge
Where there is a fixed charge and no prospect of a surplus for the benefit of the
estate once the chargeholder has been paid, the official receiver, as liquidator or
trustee, has no obligation to seek to realise the debts for the benefit of the secured
creditor as it is the chargeholder who will benefit from the realisation not the general
body of creditors. The chargeholder may appoint a receiver to realise the book debts
or take direct action himself/herself to collect the debts. Where the official receiver is
aware of the chargeholder’s interest, a copy of the list of book debts should be
provided to the chargeholder so that they may approach the book debtors directly for
payment. If the chargeholder is not prepared to collect the debts, they are not
entitled to assume that the official receiver will seek to realise the asset on their
behalf. The official receiver should not normally commit their resources to such
activity but the collection of book debts should not be neglected, with both the official
receiver and the chargeholder expecting the other to take action to collect the book
debts. The action to be taken should be agreed in writing between the official
receiver and the chargeholder.
26.51 Realisation of book debts where the
holder of a valid fixed charge refuses to realise
the book debts
If the official receiver has satisfied themselves that there is a valid fixed charge but
the chargeholder does nothing to protect or collect an asset of the estate which could
be at risk of collection by a former director or successor company, the official
receiver should instruct the contractor to collect the book debts. Thus the book debts
will at least be collected and once remitted to the official receiver they can be put
through a secured creditor’s account. In this way appropriate action is taken to
collect the assets, a creditor may receive some benefit (albeit only small) and the
contractor and the official receiver will receive fees.
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26.52 Official receiver agrees to collect book
debts subject to a fixed charge
Where the official receiver does agree to collect book debts subject to a valid fixed
charge, they should make it clear to the chargeholder that the contractor will be
instructed to realise the book debts. It should be pointed out to the chargeholder that
there will be additional costs involved in the form of the contractor’s fee and that the
official receiver will also charge remuneration 1 , together with VAT on that
remuneration, and that those charges will be deducted from the amounts realised
before any payment is made to the chargeholder. The chargeholder should be asked
for confirmation in writing that they still wish for the official receiver to proceed in
such circumstances. In such a case, the official receiver should open a fixed charge
account (by contacting EAS) to receive the proceeds and to charge fees etc. and to
make payments. Where such a situation arises the contractor must be informed that
the realisation is being performed by it as agent for the official receiver on behalf of a
secured creditor to avoid any difficulties at a later stage in the proceedings.
1. Insolvency Regulations 1994, regulation 35
26.53 Collection of book debts subject to a
floating charge
Where a receiver has not been appointed under a floating charge it falls to the
liquidator of the company (including the official receiver when they occupy that
position) to realise any book debts covered by the floating charge. The official
receiver should instruct the contractor to collect the debts in the usual way. In the
case of a floating charge the preferential creditors take priority over the
chargeholder, and any book debts realised under a floating charge, once the fees,
etc. have been paid, will be used in the first instance to pay the preferential creditors
rather than the chargeholder 1 .
The official receiver must make the chargeholder aware that they will be instructing
the contractor to collect the debts covered by the floating charge and there will be
additional costs involved in the form of the contractor’s fee. The usual realisation
fees and VAT will also be charged once the book debts are recovered 2 . All monies
received from the realisation of book debts subject to a floating charge should be
paid into the estate account (as usual).
Where a floating charge was created after 15 September 2003, and monies are
collected in and any preferential creditors are paid in full a prescribed part calculation
will need to have been undertaken by the examiner. See chapter 49 for guidance on
the prescribed part.
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1. section 175
2. The Insolvency Proceedings (Fees) Order 2016
Unpaid share capital
26.54 Unpaid calls on company shareholders
A contributory, or shareholder, of a company is liable to contribute to the assets of a
company in the event of its winding-up1. Usually, this liability is limited to the cost of
the shares purchased2. In most cases encountered by Official Receivers the
contributories will have paid their liability in respect of their shareholding at the time
of purchase or, if not, the liability will be of a nominal value only and further action
will not be necessary.
Where there is a substantial sum outstanding, the Official Receiver, as liquidator,
should take steps to recover the sums owed. In the first instance, the contributories’
ability and/or willingness to pay should be established. The directors or accountants
of the company may be able to assist in this. However, as with any other debt
recovery action, the true position may only be discovered when the contributories
themselves are approached for payment.
The antecedent recovery/book debt contractor (see Chapters 26 and 40) can be
instructed to make such a recovery.
1. section 46
2. section 80
26.55 Settling a list of contributories –
production of the list
The court has the power to settle a list of contributories1. Effectively, this means that
a list of the contributories is drawn up in order that unpaid calls can be pursued. This
power is delegated to the liquidator in the rules2 and it is the duty of the liquidator, as
an officer of the court, to settle a list and, with the court’s approval, rectify the register
of members as necessary (where there have been changes to the list kept in the
company’s statutory books)3.
The list produced should identify the following4:
•
The different classes of the company’s shares (if more than one);
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•
The different classes of contributories, distinguishing between those who are
liable to pay as a shareholder in their own right, and those who are liable due to
their representing or being liable for the debt of someone else (referred to
sometimes as the A and B lists);
•
The address of each contributory;
•
The number and class of each contributory’s shareholding, or the extent of any
other interest attributed to him/her;
•
If the shares are not fully paid up, the amounts which have been called up and
paid (and the equivalent, if any, where his/her interest is other than shares).
Before undertaking this action, the Official Receiver should discuss matters with any
appointed recovery contractor, or prospective contractor, to establish if they would
want to proceed in this way.
1. section 148
2. rule 7.79
3. rule 7.80
4. rule 7.82
26.56 Settling a list of contributories - issuing
notice of the list
Once the list of contributories has been drawn up, notice should be sent by the
official receiver as liquidator to every person included in the list of creditors informing
them that he/she has settled a list of contributories and giving them a chance to
object to any entry in, or omission from, the list. The notice should contain details of
the following1:
•
In what character (for example, in his/her own right or as a representative of
another) and for what number of shares or other interest he/she is included.
•
What amounts have been called up and paid in respect of the shares or
interest.
•
That, in relation to any shares or interest not fully paid up, his/her inclusion in
the list may result in the unpaid capital being called.
The notice should also inform the contributories that if they object to any entry in, or
omission from, the list they should inform the liquidator in writing within 21 days of
the notice2.
1. rule 7.82(1)(2)
2. rule 7.82(3)
26.57 Objections to the list of contributories
--- PDF page 24 ---
On receipt of any objection to an entry in, or omission from, the list of contributories
the liquidator must consider the details of the objection and, within 14 days, give
notice to the objector that he/she has either amended the list (specifying the
amendment) or that he/she considers the objection to be not well founded and
declines to amend the list1. The official receiver as liquidator has the power to amend
or add to the list2. The objector may, within 21 days of the notice of the liquidator’s
response to the original objection, apply to court for an order removing the entry to
which he/she objects or otherwise amending the list3. The Official Receiver is not
personally liable for the costs relating to such an application4.
1. rule 7.82(4)
2. rule 7.84
3. rule 7.83
4. rule 7.85
26.58 Making calls on contributories
Once any objections have been disposed of and the list of contributories has been
settled, the official receiver as liquidator may (subject to sanction or leave of the
court outlined below) make calls on any or all of the contributories to the extent of
their liability1 2.
The official receiver as liquidator requires the sanction of the liquidation committee3
or leave of court4 before making calls. In the absence of a liquidation committee the
official receiver will require the consent of the Secretary of State5 and should contact
the Senior Official Receiver’s Office to obtain sanction (see Chapter 1).
Once sanction has been obtained the official receiver may serve notice on the
contributories requiring payment to be made. The notice should be given to each of
the contributories and should contain details of the amount of balance due from
them and whether the call is being made with sanction or the leave of the court6.
The payment of any amount due may be enforced by order of court7.
1. section 150
2. rule 7.86
3. rule 7.87
4. rule 7.88
5. section 141(4)
6. rule 7.90
7. rule 7.91
--- PDF page 25 ---
26.59 Other debts due from contributories
The court may make an order that any contributory on the list of contributories pay,
in a manner directed by the order, any money other than unpaid calls due from
him/her to the company1.
1. section 149
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 11 March 2020.
27. Motor Vehicles
Annexes
Annex A – Letter to DVLA for vehicle history
Annex B – Example of completed DVLA form VQ615
Annex C - DVLA Form VQ615 - additional information
Annex D - DVLA Form VQ615 (blank)
Annex E - DVLA Form VQ615 (company)
Annex F - DVLA Form VQ615 (generic)
How to deal with a motor vehicle
How to deal with an exempt motor vehicle
How to deal with a low value motor vehicle
How to deal with a motor vehicle subject to finance
Cartakeback – Instruction sheet: How to complete online form’ and their online
website
Chapter content
Frequently asked questions
Introduction
Dealing with a vehicle – General and initial actions
DVLA and registration of a motor vehicle
Insurance of a motor vehicle
Vehicles subject to third party interest (including finance)
--- PDF page 2 ---
Valuing a vehicle
Sale of vehicles with realisable value
Disposal of vehicles with no realisable value
Disclaimer of a motor vehicle
Dealing with personalised (cherished) registration numbers
Frequently asked questions
These FAQs are to assist official receivers in understanding the subject and should
be read in conjunction with the more detailed guidance given in the main body of the
Technical Manual chapter.
I think the insolvent owns a motor vehicle,
what do I do?
Obtain details of the vehicle including make, registration number, finance
outstanding, insurance and the other people who use it. Good indicators of
ownership include the registered keeper, the name on the insurance policy, the
name on the purchase invoice or any credit agreement and the source of funds used
to buy it. The official receiver should ensure as far as possible that there are no third
party claims on the vehicle.
Is there a difference between the registered
keeper and the owner?
The registered keeper keeps the motor vehicle on the road and is responsible for
taxing the vehicle. They do not have to be the owner of the vehicle. It is important
that the official receiver confirms whether the owner of the vehicle is the same as the
registered keeper.
How quickly should I deal with a motor
vehicle?
The ownership and use of a motor vehicle includes a number of obligations, such as
ensuring it is taxed, insured and road worthy. After confirming the motor vehicle is an
--- PDF page 3 ---
asset in the proceedings it should be dealt with quickly to avoid potential liabilities or
depreciation in value.
How do I make a DVLA search?
You complete and submit form VQ615 (2018 version) including the official receiver’s
data protection registration number and the full office address.
Can I drive an insolvent’s motor vehicle?
Under no circumstances should this be done. If a vehicle needs to be moved you
should employ agents and charge the costs to the estate.
Do I need to insure the motor vehicle?
The official receiver should check to see if the motor vehicle is already insured. The
certificate of insurance should be checked to confirm the cover is adequate and up-
to-date. Where the certificate is not available, the broker/insurer should be asked to
confirm that cover exists and is sufficient for the vehicle in question. If there is no or
inadequate insurance refer to the relevant technical guidance.
What do I do if there is no current tax on the
motor vehicle?
If the motor vehicle is not taxed, the official receiver must ensure the motor vehicle is
either taxed, or the necessary statutory off road declaration (SORN) has been
completed, unless it is likely to be sold in the very near future. The SORN declaration
may be made online, the registration document (V5 ) and vehicle tax renewal form
are needed to make the application.
What should I do if the motor vehicle is on
finance?
Where the vehicle is thought to be subject to a finance agreement the official
receiver should write to the finance company asking for a copy of the agreement and
to be informed of the outstanding balance. Where the finance company has no rights
over the vehicle, for example the motor vehicle was bought with an unsecured loan,
the official receiver as trustee may sell the vehicle. HPI checks can be carried
but there is a charge and such searches should therefore not be carried out as a
matter of routine. Where there is doubt the official receiver can request that their
agents conduct a finance search before selling the vehicle.
--- PDF page 4 ---
Can I sell a motor vehicle on lease?
No, the official receiver generally has no interest in a motor vehicle leased or rented
to the company or bankrupt. See the guidance on lease agreements with an option
to purchase for a possible exception.
When can I sell a motor vehicle subject to hire
purchase or conditional sale agreement?
The official receiver should know the amount required to “settle”, i.e. pay off, the
finance agreement and the approximate value of the motor vehicle. The official
receiver as trustee may sell the motor vehicle only when the proceeds of any sale
are expected to be greater than the amount outstanding to the finance company and
the costs of sale. Prior agreement of ORS Advice is required where the amount
outstanding to the finance company is over £2,500.
Can the official receiver be sued if a motor
vehicle subject to hire purchase, conditional
sale agreement, etc. is sold?
The official receiver after making all reasonable checks may unwittingly sell a motor
vehicle subject to such an agreement. As long as the official receiver has not been
negligent he/she is not responsible for any loss or damage resulting from the sale.
However the net sale proceeds must be paid to the finance company.
The insolvent wishes to claim their vehicle as
exempt, what do I do?
Exempt property does not form part of the estate and is therefore not automatically
available to the trustee of the estate to deal with on behalf of the creditors.
Amongst the items that may be exempted are motor vehicles that are necessary for
the personal use of the bankrupt in his employment, business or vocation in seeking
employment and/or where the vehicle is necessary to meet a basic domestic need of
the bankrupt and their family.
It is for the insolvent to prove to the official receiver that the vehicle should be treated
as exempt. The examiner will decide whether to accept the claim and provide
appropriate instructions. (See the relevant guidance)
--- PDF page 5 ---
The insolvent has satisfied their requirement
for a vehicle but their current vehicle is of
excess value can they keep their vehicle?
A third party offer equivalent to the estimated net value to the estate may be
accepted to avoid seizure, sale and replacement i.e. the offer should be based on
the value of the vehicle less £1,000 allowance for a replacement vehicle. (e.g.
vehicle valued at £2,500 offer should be based around £1,500). Agents should deal
with third party offers. If no offer is made in a reasonable time the agents will
continue with the collection and sale of the vehicle and providing an allowance for a
replacement
Can a vehicle be treated as exempt if subject to
outstanding finance?
In the recent case of Mikki v Duncan [2016] EWCA Civ 1312 it was held that the
benefit of a hire purchase contract did not remain vested in the bankrupt but vested
in the trustee. In reaching this decision the court considered that the literal wording
of section 283 of the Insolvency Act 1986 should be applied and that the bankrupt is
not entitled to the benefit of the contract (the hire purchase agreement) because the
hire purchase agreement is not capable of being a tool of his/her trade. The hire
purchase agreement vests in the trustee and the finance company can prove for any
debt arising from a shortfall.
The effect of this decision is that it is not possible for a trustee to exempt a motor
vehicle subject to a hire purchase agreement. The continuing obligations under the
hire purchase agreement pass to the trustee so a decision must be made without
delay on whether or not to disclaim the hire purchase agreement.
Can I sell a motor vehicle the bankrupt claims
is exempt property?
The official receiver should first consider whether the claim is valid. Where the official
receiver agrees that the motor vehicle is required for the personal use of the
bankrupt in his/her employment, business or vocation or where the vehicle is
necessary to meet a basic domestic need of the bankrupt and his/her family it will not
form part of the bankruptcy estate. Where the official receiver decides the claim for
exemption is not valid the motor vehicle is part of the bankrupt’s estate and may be
sold, if appropriate.
--- PDF page 6 ---
When can I sell a vehicle which is exempt
property?
The official receiver may sell a motor vehicle which is exempt property and not
subject to any third party interest when it can be replaced by a suitable alterative. In
practice this means that any motor vehicle worth at least £1,000 may be sold and a
replacement bought with the proceeds. The official receiver must take into account
the buying and selling costs when making a decision to replace an exempt vehicle.
An exempt motor vehicle should only be replaced when the net benefit to the estate
is at least £500 after payment of all costs. A third party offer can be considered if the
insolvent wishes to retain their current vehicle but is worth over £1,000.
Can I sell a motor vehicle which is not exempt
and there is no third party interest?
The official receiver may sell a motor vehicle which is not exempt property or subject
to a third party interest, for example hire purchase. Where the official receiver
decides to sell the motor vehicle it must be sold through local agents or a firm with
national coverage, for example Cartakeback. The motor vehicle must not be sold at
a loss after taking into account the costs of sale.
How do I value a motor vehicle?
The official receiver may rely on the Parker’s Guide which is updated regularly, to
find out the guideline value of a vehicle. The official receiver may ask his agents to
value the motor vehicle, especially if it is a vintage or specialist car which is not
covered in Parker’s Guide.
Why do I need to value the motor vehicle?
It is important to value the motor vehicle to determine the net benefit, if any, to the
insolvent’s estate taking into account insurance costs, agent’s fees, and any
outstanding balance to a finance company.
Can I sell the vehicle to family or friends of a
director, partner or bankrupt?
Yes, a motor vehicle may be sold to a member of the family a friend or other third
party introduced to the official receiver by the director, partner or bankrupt. However,
the sale must be dealt with by the official receiver’s agents.
--- PDF page 7 ---
Can the official receiver be prosecuted for
selling a motor vehicle?
The official receiver may be prosecuted for selling, supplying, causing or permitting
the sale or supply of a vehicle in an unroadworthy condition. Due to the possible
criminal offences the official receiver must use agents to sell any motor vehicle.
What happens to any insurance after the sale
of a motor vehicle?
Where there is no outstanding claim under the policy it will usually be cancelled as
soon as the motor vehicle is sold and any refund paid to the official receiver. Where
the vehicle has been sold to a third party with the intention that the insurance will
remain in the bankrupt’s name the sale price should include an amount for the
unused part of the insurance policy.
What should I do if a motor vehicle has no
realisable value?
Where a motor vehicle has no realisable value the official receiver should arrange for
it to be scrapped. The Insolvency Service has an agreement with Cartakeback
whereby they collect the motor vehicle free of charge and pay a minimum of [text
redacted] for the benefit of the estate. See the guidance, alternatively, the official
receiver may use a local Authorised Treatment Facility (ATF). Detailed advice on
using an ATF is provided within the guidance. The official receiver should obtain a
Certificate of Destruction, scan it into ISCIS and save to the asset folder.
Can I disclaim the official receiver’s interest in
a motor vehicle with no realisable value?
The official receiver, given the service provided by Cartakeback and ATFs, is not
expected to have to disclaim his/her interest in a motor vehicle with no realisable
value. Possible exceptions being;
•
the motor vehicle is on third party land and access has been denied to the
official receiver without the payment of charges
•
the motor vehicle has been abandoned overseas
•
the motor vehicle has been stolen and an insurance claim has been made (see
guidance)
--- PDF page 8 ---
The motor vehicle has a
personalised/cherished number plate, does it
have a value?
It may not be obvious whether a registration number has a value, however, it is
relatively easy to check. The Cherished Numbers Dealers Association has a list of
members some of whom provide a valuation service. Alternatively the official
receiver’s agents may provide advice. A search of e-bay may show up similar
registration numbers to indicate a rough valuation.
What do I do with a personalised/cherished
number plate that has a value?
The simplest way of realising the value of a personalised/cherished number plate is
to sell it with the motor vehicle. However this may not be possible, for example the
motor vehicle may be exempt or the purchaser does not want to buy it. In these
circumstances the official receiver should withdraw the registration number and hold
on retention see the detailed guidance. This enables the registration number to be
sold separately. The motor vehicle must be taxed at the time the plate is withdrawn.
The registration plate may be sold to a third party introduced by the insolvent, via the
official receivers agents or through a member of the Cherished Numbers Dealers
Association.
What is the Motability Scheme?
The Motability Scheme enables disabled people to obtain a new car, powered
wheelchair or scooter, under a contract hire variable lease agreement. Prior to 1 July
2014 a motor vehicle on hire purchase could be acquired under the scheme
To be eligible for the scheme the person concerned must be in receipt of the higher
rate mobility component of the Disability Living Allowance, the enhanced rate of the
mobility component of the Personal Independence Payment (PIP) or in receipt of a
War Pensioners Mobility Supplement. A parent or carer may apply on behalf of a
child aged three or over who is eligible under the scheme. The beneficiary does not
need to be the driver of the vehicle and may nominate two other people as drivers.
What do I do if the bankrupt has a motor
vehicle supplied under the Motability Scheme?
--- PDF page 9 ---
If the vehicle is on contract hire the official receiver has no interest in the vehicle and
cannot object to the individual keeping the vehicle. Make a note under general notes
that the insolvent has a Motability vehicle that does not form part of the bankruptcy
estate.
If it is on hire purchase (vehicle acquired pre 1 July 2014) the official receiver may
adopt the agreement subject to the terms of the Mobility Scheme. Further
information and detailed guidance is available within the chapter. Motability should
only be contacted if the vehicle s subject to a hire purchase agreement.
How do I instruct Cartakeback?
(See Instruction sheet: How to fill in the Cartakeback online form)
How do I claim a refund of road tax?
Where a vehicle is to be disposed of by an ATF, the official receiver should consider
claiming a refund relating to the unexpired portion of the vehicle road fund licence. If
the value of the unexpired portion is worth claiming, the official receiver should apply
for a refund. Previously applying for a refund required the completion of DVLA Form
V14, which was sent to the DVLA with section 9 of the registration document V5.
However, the application for a refund of road fund licence should now be made
online at www.gov.uk/vehicle-tax-refund
If the refund is automatically sent to the person named on the V5 ’log book’ which is
likely to be the bankrupt a letter and REMIT form should be sent to the bankrupt
requesting that, once received, they forward the refund to the official receiver. The
refund should be entered as a separate asset on ISCIS and its receipt should be
monitored.
Introduction
27.1 General
This chapter gives advice on dealing with motor vehicles and related issues such as
insurance, operators’ licences and ‘personalised’ number plates. Information on
motor vehicles as exempt property (including guidance on establishing if a vehicle is
exempt) is contained in chapter 24. Of all the items of property encountered by
official receivers, vehicles are perhaps the ones most likely to give rise to a liability
and, in this respect; vehicles should be dealt with quickly and correctly, following the
guidance in this chapter. The chapter is divided into the following sections: Dealing
--- PDF page 10 ---
with a vehicle – general Vehicles subject to third party interests (including finance)
Sale of vehicles with realisable value Disposal of vehicles with no realisable value
Dealing with personalised (cherished) registration numbers
Dealing with a vehicle – general and
initial actions
27.2 Motor vehicle to be dealt with proactively
Unlike most other property of an insolvent, a motor vehicle is a potential source of
liability in that there are obligations attached to the ownership and use of a vehicle.
As a result of this, the official receiver does not have the luxury of time when dealing
with a motor vehicle and should, in all cases, deal with motor vehicles both
proactively and expeditiously, whilst ensuring that they and the estate are protected
from potential liabilities and from losses to the value of the vehicle as an asset.
27.3 Establishing the ownership of a vehicle
The official receiver should, of course, only deal with a vehicle that is property of the
insolvent. Generally, it will be appropriate to rely on a director’s or bankrupt’s
account if they maintain that the company/they own a motor vehicle. Where there is
doubt, the official receiver should look to indicators such as who is insuring the
vehicle, who is the registered keeper and, significantly, the source of the monies
when the vehicle was purchased and/or the contract under which it was purchased.
The official receiver should be careful to check that there are no third party interests
in the vehicle and that the vehicle is not exempt (see chapter 24) before realising it.
27.4 Establishing the details of and
whereabouts of a vehicle
It is important that the official receiver establishes the current whereabouts of a
vehicle owned by an insolvent as soon as possible after the making of the order, as
this will greatly assist in protecting the vehicle. Ideally, this should be when
conducting the initial enquiries or on first contact with the director/bankrupt,
whichever is the sooner. The official receiver should also establish, at that stage, the
following details regarding the vehicle:
•
make and model
•
registration number
--- PDF page 11 ---
•
year of registration
•
engine size
•
colour
•
name, address and telephone number of any third party controlling or using the
vehicle
•
details of any finance outstanding on the vehicle (including the identity of the
finance company, the nature of the finance agreement and the amount
outstanding)
•
details of any insurance cover on the vehicle (including the type of cover held
and the identity of the insurers and/or brokers)
27.5 Exemption of a motor vehicle from the
estate of a bankrupt
There are grounds under which a motor vehicle may be treated as exempt property
in a bankruptcy1. The considerations for the official receiver, as trustee, when
deciding if a vehicle should be dealt with as exempt property are dealt with in chapter
24. Where a motor vehicle is treated as exempt property, it will not be necessary to
deal with the motor vehicle as property of the estate though, of course, the vehicle
should be protected until the decision regarding exemption is made.
1. Section 283
27.6 Third party interests in a vehicle
A third party, such as a finance company, leasing company or hire company may
have an interest in a vehicle used by the insolvent. Depending on the nature of the
interest this is likely to have an effect on the value of the property to the estate and
will affect whether it forms property of the estate at all. It may therefore limit the
extent to which the official receiver, as liquidator or trustee, will be able to realise the
vehicle for the benefit of the estate.
27.7 A stolen motor vehicle
Where the director or bankrupt reports that the company’s/their vehicle has been
stolen prior to the making of the insolvency order the official receiver should obtain a
full account of the circumstances of the theft and also have the director or bankrupt
provide a copy of the crime report showing the crime reference number. These
actions are to establish that the theft is real and not an attempt to put the vehicle out
of reach. Any monies due under a related insurance claim should be secured for the
estate and, where a claim has not yet been made, the official receiver should make a
claim for the benefit of the estate. This is so even if the vehicle would have been
--- PDF page 12 ---
treated as exempt property, if not stolen (see chapter 24). In addition, the official
receiver should reclaim any unexpired tax on the vehicle, by writing to Disposal,
DVLA Swansea, SA99 1BD, and enclosing a copy of the Bankruptcy order or
Winding up order and the log book, if available, and explaining why the official
receiver is reclaiming the money rather than the insolvent. If the logbook is
unavailable we should enclose the registered keeper’s name and address and full
details of the vehicle to enable the DVLA to match up their records. This should be
undertaken as soon as possible as the DVLA will only provide refunds on full
unexpired months, not part-months. A stolen vehicle should not be disclaimed until
any related insurance claim has been made. In the meantime the reporting of the
theft of the vehicle should be sufficient to protect the official receiver from any liability
in relation to the vehicle.
DVLA and registration of a motor vehicle
27.8 Overview
On application to the Driver and Vehicle Licensing Agency (DVLA), the DVLA will
issue a vehicle with a registration number1, unique to that vehicle, which is shown on
the front and rear of that vehicle (rear only for most motorcycles) and will be detailed
on the vehicle registration certificate (V5C)2.
1. Vehicle Excise Registration Act 1994 section 23
2. Vehicle Excise and Registration Act 1994 section 21
27.9 V5C vehicle registration certificate
The V5C vehicle registration certificate (also commonly known as the ‘logbook’)
records details of the vehicle such as its vehicle identification number (VIN), make,
model and registered keeper. The V5C also contains ‘tear-off’ slips to be used to
notify DVLA of events affecting the vehicle – primarily the transfer of the vehicle to a
new keeper.
27.10 The registered keeper of a motor vehicle
The registered keeper of a motor vehicle is the person who keeps the vehicle on the
public road and has responsibility to tax and register the vehicle. This is not
necessarily the owner of the vehicle, but the identity of the registered keeper and the
identity of the owner are usually the same. As outlined above the identity of the
--- PDF page 13 ---
registered keeper is shown on the V5C, though in the absence of a V5C the DVLA
can provide the details of the registered keeper to the official receiver.
27.11 Establishing the current and/or past
keeper of a vehicle
The official receiver can establish who the registered keeper of the vehicle was at a
specific date by submitting a request to the DVLA using form VQ615 (see following).
Where the enquiry seeks to establish whether the bankrupt has an historic interest in
the vehicle, this should be explained in a covering letter, using the template attached
to this chapter as Annex A.
27.12 Completion of DVLA search requests
If handwritten, the form VQ615 must be completed in full using black ink and in
capital letters. Photocopies of forms with much of the repeated information
completed by hand prior to copying, or by typing using the PDF editor (Adobe
Reader) prior to printing, will now be accepted with an original signature in section 7.
Section one of the form requires the official receiver’s data protection registration
number. A list of these numbers is available here, ‘official receivers - data protection
registration numbers’. DVLA should now send replies to official receivers’ PO Box
addresses. An example of the completed form is available at Annex B to this
chapter. Sections 3, 4, 5, 6 can have ‘See attached’ entered and the form at Annex
C can be attached to provide the relevant information. Annex C can be adapted for
companies or other situations/requests. Sections 1, 2 and 7 need to be completed in
full by hand on a (copied) VQ615 form so that the signed declaration is effective for
data protection requirements. Sections 1, 3, 4, 5, 6 can be completed prior to
photocopying. Following the implementation of the GDPR the wording to include n
section 6 of the form (‘What legislation are you requesting this under?’) is: Schedule
2 Paragraph 2 (2) (b) of the Data Protection Act 2018.
Providing your email address means DVLA can email if they need more information
to process the application. They need a reply within 48 hours otherwise they have to
reject the request by post. DVLA will routinely check for all names shown in the
bankruptcy order. If you are aware of other aliases, these can be included in the
covering letter to assist identification and reduce rejections. DVLA need an
explanation why a search is needed on any names not in the bankruptcy order.
Where you have out of the ordinary requests, such as where you have reason to
believe an insolvent had an interest in a vehicle which was not in their name in the
last three years, then please provide a full explanation on the additional sheet or in
the covering letter.
--- PDF page 14 ---
The completed request form should be sent (along with a certified copy of the
bankruptcy/winding up order) to Vehicle Record Enquiries (VRE), DVLA, Swansea
SA99 1AJ, there is no fee payable for this service. The DVLA will not accept
searches submitted on form VQ4 or on Insolvency Service headed paper. DVLA
have confirmed that when the insolvent has been the registered keeper during the
previous three years, but is no longer the keeper, they will provide details of the
current keeper (ie after the insolvent transferred the vehicle). If DVLA reject a
request, the Assistant Official Receiver can email ORS Advice explaining why the
request should be reconsidered. The Senior Official Receiver’s Team can then make
further enquiries with DVLA. Similarly urgent requests can be emailed by the AOR to
ORS Advice. Form VQ615 is available through the DVLA stores department in pads
of 50 forms each. A request for forms can be made by email to
stores.order.forms@dvla.gov.uk or in writing on headed paper by fax to 01792 783
525, stating how many pads are required.
Insurance of a motor vehicle
27.13 Establishing the position
Where a vehicle is an asset of an insolvent estate it is important to establish the
position with regard to the insurance of the vehicle. As a minimum, the official
receiver should seek to obtain the information outlined in chapter 14, paragraph
14.20. Where the details of the insurance company/broker are known, the official
receiver should notify the insurance company of the insolvency, confirm with that
company that the insurance is still in place and ask the company to note the official
receiver’s interest in the policy in its records.
27.14 Motor vehicle with no
insurance/inadequate insurance
If the insolvent does not have cover or has cover that is insufficient (for example,
third-party only cover), then the official receiver should effect their own insurance
using the facility provided (see chapter 14). If the vehicle is in the custody of the
official receiver then it will not be necessary to effect separate insurance as the
scheme operated provides blanket coverage in these circumstances (see chapter
14). The official receiver should ensure that the value of the motor vehicle is
sufficient to meet the insurance premium. Once the motor vehicle has been sold or
otherwise disposed of the official receiver should cancel the policy in accordance
with the guidance in chapter 14.
--- PDF page 15 ---
27.15 Road tax
With limited exceptions (primarily relating to vehicles used in connection with
agriculture1 road tax (properly called Vehicle Excise Duty) is payable on every
vehicle registered in the UK and used on or kept on the public road2. The rate of tax
varies depending on the type of vehicle and the level of emissions of that vehicle and
is payable in advance for periods of 6 or 12 months. When a vehicle is sold, or
otherwise disposed of, it is possible to reclaim any tax paid for the unexpired portion
of the tax (see paragraph 27.61). If the vehicle is not kept or used on the public road,
the registered keeper is required to inform the DVLA of this fact by completing a
Statutory Off Road Notification (SORN) (see following paragraph), following which
the vehicle will not be subject to taxation. The DVLA carry out an automatic check of
all registered vehicles and if any vehicle is untaxed and not subject to a SORN, the
DVLA will issue an automatic penalty of £80. The official receiver should check that
any vehicle owned by the insolvent is taxed or subject to a SORN.
1. Vehicle Excise and Registration Act 1994 section 5
2. Vehicle Excise and Registration Act 1994 section 1
27.16 Statutory Off Road Notification (SORN)
Where a vehicle is being kept off the public road, it is not necessary to meet the
requirements of the legislation as regards insurance1 and taxation. The registered
keeper is required annually to declare officially that a vehicle is kept off-road, by
completing a SORN.
1. Road Traffic Act 1988 Part VI
27.17 Official receivers’ staff not to drive
vehicles
In no circumstances should official receivers’ staff drive a motor vehicle belonging to
an insolvent estate. If the vehicle needs to be moved – for example, to a place of
safety – agents should be instructed as a matter of urgency, with the costs being a
charge on the estate.
Commercial vehicles
--- PDF page 16 ---
27.18 Vehicles owned and operated
commercially
The vast majority of vehicles encountered by the official receiver will be small
passenger vehicles or light goods vehicles owned, and operated by a bankrupt. The
advice in this chapter is equally applicable to vehicles owned and operated by a
company or bankrupt on a commercial basis. The following paragraphs apply
particularly to commercial vehicles.
27.19 Standard operator’s licences
Where the insolvent is the owner of a vehicle that exceed 3.5 tonnes (a heavy goods
vehicle – HGV) or was a vehicle used to carry more than eight passengers (a public
service vehicle – PSV), the insolvent will have been required to obtain a standard
operators licence. A licence is normally issued for a period of five years and gives
details of each vehicle and trailer covered by it. Licences are issued by the Traffic
Commissioner for Great Britain (Traffic commissioner).
27.20 Accounting for vehicles on the standard
operator’s licence
Where the insolvent holds a HGV or a PSV licence then a search should be made of
the Traffic Commissioner’s website. The Website allows you to search for licences
based on location, business name, Licence number and Person’s name and will give
various information including operating addresses, contact details and numbers of
each type of vehicle covered by the licence. This could assist with tracing of
businesses and asset recovery enabling the Official Receiver to check that all
vehicles have been accounted for.
27.21 Notification to the Traffic Commissioner
of the insolvency order
Where the holder of a standard operators licence is subject to an insolvency order,
the official receiver should inform the Traffic Commissioner responsible for the area
of operation of the making of the order. The insolvent’s licences and discs should be
returned to the Central licensing office Hillcrest House, 386 Harehills Lane, Leeds,
LS9 6NF along with a request that a refund be issued for any unexpired portion of
the licence. It is not possible for a licence to be transferred to another party. Where a
disc is not recoverable, the Central Licensing Office can usually accept written
confirmation from the official receiver of its loss, and issue a refund.
--- PDF page 17 ---
Vehicles subject to third party interest
(including finance)
27.22 Vehicles with third party interest
Whilst the insolvent may be the registered keeper of a vehicle, the vehicle may not
be available to the official receiver as an asset. Other parties (and, primarily, we are
talking about lenders in this context) may have an interest in the vehicle or may
retain limited ownership rights over the vehicle. Equally, the insolvent may have use
of a vehicle that it not owned by themselves – such as a vehicle that is leased,
rented or provided by their employer.
27.23 Official receiver to check extent of third
party ownership rights before dealing with
vehicle
It goes almost without saying that the official receiver should not deal with a vehicle
(by, for example, disposing of it) until they are sure that no other party has any valid
claim over the vehicle. It is possible for the official receiver to conduct a search of
outstanding finance on a vehicle using the facilities provided by companies such as
HPI or by requesting agents to undertake the search on the official receiver’s behalf.
There is a charge for conducting the search and such searches should therefore not
be carried out as a matter of routine. HPI Ltd provides a glossary of terms useful in
interpreting HPI searches. Generally, it will be sufficient to rely on information
provided by the director or bankrupt to assess whether a vehicle is subject to any
third party interest. Where there is doubt, the official receiver should request that
their agents conduct a finance search before selling the vehicle.
27.24 Vehicles purchased using finance
The most common third party right claimed in a vehicle is that of a finance company
where the finance agreement gives the lender rights of ownership over the vehicle
(see paragraph 27.26).
An agreement where the lender retains no rights to the vehicle is generally a simple
loan and will usually be called a ‘credit agreement’ on the relevant documentation. It
may be arranged through a ‘High Street’ lender directly by the borrower or through a
specialist lender by a car dealer on behalf of the borrower. Where there is doubt, the
--- PDF page 18 ---
official receiver should peruse the terms of the agreement to confirm that the lender
retains no ownership rights. Where the vehicle is not subject to finance the official
receiver may deal with the vehicle normally. Sometimes, the lender will retain the car
ownership documents (primarily, the V5C) to prevent the borrower from disposing of
the vehicle. Unless the agreement provides otherwise, the finance company will
have no rights over the vehicle and the official receiver should realise the vehicle as
appropriate, requesting that the loan creditor provide them with any vehicle
documents it is retaining.
27.25 Action to take in respect of vehicle
purchased using finance
Where an official receiver is dealing with a vehicle purchased using finance, they
should send the standard letter1 to establish the type of agreement (that is, whether it
is a simple credit agreement or the lender has retained an interest in the vehicle) and
the amount required to settle the agreement. Where the finance is a simple credit
agreement the official receiver may deal with the vehicle in line with later guidance.
The official receiver may make a payment from the estate account to secure a
vehicle for the estate. Such a payment should only be made where there is a
demonstrable benefit to the estate in doing so. The majority of conditional sale or
hire-purchase type agreements are structured in such a way that this is rarely an
appropriate way to proceed.
If the payment required is in excess of £2,500 and the estate account is in a debit
position, the guidance in chapter 1 regarding the requirement to obtain the
permission of the Senior Official Receiver's Office should be followed before
committing to any expenditure.
If there is no benefit to the estate from securing and selling the vehicle, the official
receiver must disclaim the hire purchase agreement (see chapter 42).
A vehicle subject to finance can not be exempted by a trustee.2
1. ISCIS doc NHP
2. Re Mikki v Duncan [2016] EWCA Civ 1312
27.26 Agreements where the finance company
has rights over the vehicle
There are a number of finance agreement types available to consumers which allow
for the use and in some cases the purchase of a new vehicle. Some finance
agreements ensure ownership or repossession rights over the vehicle remain with
--- PDF page 19 ---
the lender until a specific date or when certain conditions (such as the amount of
repayment made) are met. Types of these agreements include:
•
Personal Contract Purchase (PCP)
•
Hire Purchase
•
Balloon Hire Purchase
•
Personal Contract Hire (PCH)
•
Conditional Sale
Some agreements simply spread the purchase price of a vehicle over an agreed
period while others allow the consumer to use a vehicle for a set period of time and
then hand it back. Payments due under these agreements normally consist of an
initial payment (in the form of a deposit or advance rental), regular monthly payments
and a final payment (in some agreements the final payment is optional). Other
charges may also be due such as excess mileage charges, damage charges and
option to purchase fee however these would depend upon the type and terms of the
individual agreement. Subject to any express clause in the agreement, the rights of
the insolvent under the agreement (such as the right to acquire ownership of the
vehicle) will pass to the official receiver as liquidator or trustee. Advice on whether to
exercise those rights is in paragraph 27.27. It should not be assumed that because a
vehicle was purchased on finance that the lender has any rights over the vehicle,
where there is doubt, the official receiver should peruse the terms of the agreement
to confirm the extent to which the finance company retains ownership rights.
27.27 Check ‘equity’ position of vehicle before
realisation
Where a vehicle is subject to finance, the official receiver must consider the amount
required to settle any finance agreement when considering the value of the vehicle to
the estate. If there would be a realisable value after taking the outstanding finance
(including possible additional charges for excess mileage and or damage etc.) and
costs of sale into account, the official receiver may instruct agents to deal with the
sale of the vehicle (see paragraph 27.41) and the settling of the finance. If the
vehicle has no realisable value, the agreement should be disclaimed. The finance
company should also be notified of the location of the vehicle, as in the address of
the person who retains control of it. The official receiver may make a payment from
the estate account to secure a vehicle for the estate. Such a payment should only be
made where there is a demonstrable benefit to the estate in doing so. The majority of
conditional sale or hire-purchase type agreements are structured in such a way that
this is rarely an appropriate way to proceed. If the payment required is over £2,500,
the guidance in chapter 1 regarding the requirement to obtain permission from ORS
Advice should be followed before committing to any expenditure.
--- PDF page 20 ---
27.28 Lenders actions where vehicle subject to
finance
In practice an agreement where the lender retains an interest in the vehicle will
usually contain a clause giving the lender the right to terminate the agreement in
certain circumstances, such as default on repayment or the making of an insolvency
order against the borrower. Where the lender exercises such a right in relation to an
agreement that relates to property of an insolvent, the potential benefit to the official
receiver as liquidator or trustee will be restricted to the rights of the insolvent on
termination of the agreement. The key right that the insolvent would hold in this
regard is that the vehicle may not be repossessed without a court order if more than
two thirds of the total price of the vehicle has been paid1. In deciding whether to
consent to such an order, the official receiver should consider the value of the
vehicle to the estate were it to be sold (taking into account the need to settle the
finance and any arrears).
1. Consumer Credit Act 1974 section 90
27.29 Creditor taking vehicle where no right to
repossess
It is not unknown for a creditor to take possession of a bankrupt’s vehicle despite
having no right to do so (either because the agreement was a credit agreement or
because there was no right to repossess without a court order). Often, it will be the
case that the bankrupt has voluntarily ‘handed back’ the vehicle. In such a case, the
official receiver should notify the creditor of their interest in the vehicle and decide
whether there is any benefit to the estate in instructing agents to collect the vehicle
from the creditor for sale. It is likely to be better that the vehicle is left with the
creditor for them to conduct the sale with their reasonable costs being taken from the
sale proceeds and the remainder being remitted to the official receiver.
27.30 Effect of third party paying the
outstanding finance
Where a third party pays the outstanding finance on a vehicle, for example, a third
party pays the finance on behalf of a bankrupt, the title to the vehicle will pass to the
hirer (in this case, the bankrupt) and not to the third party1. Depending on the terms
of the finance (i.e., whether the finance company retained ownership of the vehicle)
and when the finance was paid-off, this will either have the effect of increasing the
value of the vehicle to the estate, or making it available to be claimed as after
acquired property (see chapter 36).
--- PDF page 21 ---
1. Bennett v Griffin Finance (A Firm) [1967] 2 QB 46
27.31 ‘Logbook loans’
A ‘logbook loan’ is a type of loan that is granted generally to individuals in severe
financial difficulty where other sources of borrowing are not available. Typically, the
loan will have a very high APR (rates of up to 500% are not unknown) and, with
punitive charges for missing payments, etc., the amount required to be repaid is
often well in excess of the original loan. The loan is secured on the borrower’s
vehicle through a bill of sale transferring ownership of the vehicle to the lender.
Where the official receiver encounters a logbook loan, or similar, they should check
that the bill of sale on which the transfer is registered with the court (following the
guidance in chapter 32. If it is not, the lender will have no security over the vehicle
and it may be dealt with normally. If the bill of sale is registered, the official receiver
should treat the vehicle as one with hire purchase. Depending on the nature of the
arrangement entered into by the bankrupt, or the manner in which the account was
managed by the lender, the official receiver should also consider whether the
agreement might be challenged as an extortionate credit transaction (see chapter
32)
27.32 Lease agreements
A lease agreement generally gives the person leasing the vehicle no ownership
rights over the vehicle, which remains as the property of the lessor at all times.
Lease agreements are most often encountered in a trading case, but are not
unknown otherwise. Generally, a lease agreement will give the lessee exclusive
rights to use the vehicle for a set period (normally, between 2-5 years) in return for a
fixed, monthly payment. This right would pass to the official receiver as liquidator or
trustee but, subject to any ‘right to buy’ agreement (see paragraph 27.34), it is
unlikely to be of any benefit to the estate. In such circumstances the official receiver
should inform the lessor that they do not intend to adopt the agreement and inform
them of the whereabouts of the vehicle. This should be done within 24 hours of the
official receiver becoming aware of the location of the vehicle.
27.33 Motability scheme agreements
The Motability Scheme enables disabled people to lease a car, powered wheelchair
or scooter by using their government-funded mobility allowances. An individual is
able to exchange their allowance for a mobility package. Payments to Motability are
made directly by the Department for Work and Pensions. The right to receive these
benefits is personal to the individual. As the official receiver is not capable of fulfilling
the eligibility criteria it is considered that this renders the contract with Motability
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personal to the bankrupt and therefore not capable of vesting. As neither the vehicle
nor the lease contract with Motability forms part of the bankruptcy estate the official
receiver has no interest in the vehicle.
27.34 Lease agreement with an option to
purchase
At the end of a leasing period, the vehicle will generally be returned to the leasing
company, but there may be a clause in the agreement that gives the lessee the right
to purchase the vehicle (sometimes at a pre-agreed price). Subject to any express
term in the agreement that right will pass to the official receiver as liquidator or
trustee.
In deciding whether to take advantage of this right, the official receiver should
consider the value of the vehicle against the price being asked by the leasing
company. In the likely event that the vehicle is worth less than the amount being
asked for, the official receiver should follow the advice in paragraph 27.27 regarding
disclaiming the agreement.
27.35 Hire agreements
A hire agreement is an agreement to rent a vehicle for a short period of time
(generally, less than 30 days). The person hiring the vehicle has no ownership rights
over the vehicle and, whilst the benefit of the agreement will pass to the official
receiver as liquidator or trustee, the agreement is extremely unlikely to be of any
value. Where an insolvent is hiring a vehicle at the date of the making of the order,
the official receiver should inform the company hiring out the vehicle that they do not
wish to adopt the agreement and inform them of the location of the vehicle. This
should be done within 24 hours of the official receiver becoming aware of the
location of the vehicle.
27.36 Vehicles subject to employee loan
scheme
A number of motor manufacturers operate employee car loan schemes as benefits to
their employees. As only employees of the manufacturer are eligible to join the
scheme and membership will terminate if the employment with the manufacturer
ceases, the membership is considered to be personal to the individual member and
will not pass to the official receiver as trustee. In general, these schemes give the
member an opportunity to purchase a car by means of a 12 month rental period with
an option to buy at the end of the period. The agreement will state the terms under
--- PDF page 23 ---
which the manufacturer can continue to exert control of the car during that initial
period – which may include a clause terminating the agreement on bankruptcy.
27.37 Action to be taken with regards to a
vehicle subject to an employee loan scheme
If the scheme agreement is in the initial ‘pre-purchase’ period (normally 12 months),
the official receiver need take no action as regards the vehicle as it is not, at that
point, property of the bankrupt. If the agreement has passed that initial period and
the bankrupt has taken the option of purchasing the vehicle, the official receiver
should deal with the vehicle normally. If the agreement passes the 12 month period
during the period of bankruptcy and the bankrupt exercises the right to purchase, the
official receiver should consider claiming the vehicle as after-acquired property,
following the guidance in chapter 36.
Valuing a vehicle
27.38 Online resources
In deciding how to deal with a vehicle, in addition to checking for any third party
interest, the Official Receiver will need to establish its approximate value. To obtain a
valuation, the official receiver may refer to the Parkers Guide Wisebuys (which gives
a ‘list’, or recommended, price) and/or classifieds listings sites such as ebay,
Gumtree or Autotrader . Alternatively, some offices may have arrangements with
their local agents to provide a valuation at no cost. If the exact model of a vehicle is
not known it may be established, using the registration number on Freecarcheck.
27.39 Sale of vehicles with realisable value –
general
Where a motor vehicle has realisable value, no third party interest and is not exempt
(see chapter 24), steps should be taken to dispose of it as soon as possible by way
of a sale. As a vehicle is potentially a source of liability, the official receiver, as
liquidator or trustee, should take steps to realise the vehicle without delay. This is the
case even if a liquidator or trustee other than the official receiver is likely to be
appointed. Any sale by the Official Receiver will need to be made through agents
(see paragraph 27.41) and so the Official Receiver will also need to consider the
--- PDF page 24 ---
costs of realisation (see following paragraph) in determining how to deal with the
vehicle.
27.40 Vehicle not to be sold at a loss
The official receiver should ensure that the agents’ costs justify the sale and that
monies are realised for the estate from any sale, otherwise the official receiver
should consider the vehicle to be not worth the cost of realisation and deal with the
vehicle in line with the guidance for dealing with vehicles with no realisable value.
Sale of vehicles with realisable value
27.41 Official receiver to appoint agents to sell
vehicle
Due to the criminal penalties associated with the sale of an unroadworthy vehicle
(see paragraph 27.46), the Service’s policy is that a vehicle should only be sold
through agents. This will apply whether the official receiver’s is using local agents or
a firm with national coverage such a Cartakeback.
27.41 Cartakeback auction service
Cartakeback provide a service whereby the firm will arrange for the sale of realisable
vehicles under ten years old, by auction, for a flat fee of [text redacted], with the net
sale proceeds being remitted to the estate. Official receivers are not obligated to use
this facility, but it is probable that, in most cases where there is not a ready
purchaser (introduced by the director/bankrupt, for example), this service will provide
a better return than using local agents. Cartakeback can be instructed to auction a
vehicle through this link.
27.42 Agreeing the price for the vehicle
As with all assets, the official receiver has discretion to negotiate a sale price for a
motor vehicle (though this is likely to be best left to the agents, who will have greater
experience in negotiating a sale). Whilst this means that the ‘recommended’ price
(see paragraph 27.38) may not always be achieved, it does not mean that an
unreasonably low offer should be accepted. The agreed price should take into
account the value of any personalised number plate (see paragraph 27.74) and the
--- PDF page 25 ---
value of any remaining tax (see paragraph 27.61) or insurance (see paragraph
27.48).
27.43 Care to be taken where vehicle is or may
be subject to finance
Where a vehicle is subject to finance that gives the lender ownership rights over the
vehicle (see paragraph 27.26), the official receiver should not sell the vehicle unless
written confirmation has been received that the finance company is content for the
sale to proceed. Where there is doubt as to the finance position of the vehicle, the
agents should be instructed to carry out a finance search before selling the vehicle. If
this shows outstanding finance then the vehicle should only be sold if there will be a
net benefit to the estate. The search will also assist in protecting the official receiver
from any claim made by the finance company in the event that there was
unregistered finance on the vehicle.1
1. Section 284(4)
27.44 The sale of a financed vehicle –
consequences
Where the official receiver, as trustee, disposes of property not comprised in the
bankruptcy estate where there are reasonable grounds for believing that they are
entitled to dispose of that property they are not liable to any person in respect of loss
or damage resulting from the seizure (except insofar as it can be shown the loss
resulted from negligence).1 Where a vehicle is subsequently found to be on finance
and this was not known to the official receiver at time of sale despite all efforts to
establish the correct position (the agreement was not registered on HPI (see
paragraph 27.23), for example), the sale proceeds (less the official receiver’s costs
of sale) should be submitted to the finance company.
1. Section 304(3)
27.45 Sale to party introduced by director or
bankrupt
It is possible for the sale of a motor vehicle to be effected to a third party introduced
by a director or bankrupt, but the sale should be conducted through agents (see
paragraph 27.41). In such a case, it is important that the administration of the case is
not delayed unreasonably by negotiations regarding the sale, or the provision of
--- PDF page 26 ---
paperwork regarding the sale and, where there are delays, the official receiver
should not hesitate to instruct agents to sell the vehicle to another buyer.
27.46 Offence of selling an unroadworthy
vehicle
It is a criminal offence for a person to sell or supply, or to cause or permit the sale or
supply, of a vehicle which is in an unroadworthy condition1. The seller must be able
to satisfy a court that they actually believed, at the time of the sale, that the vehicle
was in a condition in which it might be used lawfully, or that the vehicle was not
going to be used until it had been made lawful2. An offence is not committed where,
in the course of trade or business, a person sells an unroadworthy vehicle in
circumstances where they made the purchaser aware of the unroadworthy condition
of the vehicle and the offence of using such a vehicle3. Such an exception would not
be available to the official receiver, but would be available to their agents.
1. Road Traffic Act 1988 section 75
2. Road Traffic Act 1988 section 75(6)(b)
3. Road Traffic Act 1988 section 75(6A)
27.47 Change of registered keeper
If the sale of the motor vehicle results in a change of keeper (the person named as
keeper on the V5) it will be necessary to inform the DVLA1. This is effected by
completing section 6 ‘new keeper or new name/new address details’ of the V5C.
Both the keeper and the buyer must sign section 8 and send the V5C immediately to
DVLA, Swansea, SA99 1BA. The buyer should also be passed the properly
completed V5C/2 section. The agents appointed to deal with the sale of a motor
vehicle should be instructed to deal with this.
1. Road Vehicles (registration and Licensing) Regulations regulation 22
27.48 Insurance to be cancelled following
disposal
Assuming there is no outstanding claim in relation to the policy, any insurance taken
out by the company or the bankrupt over a vehicle should be cancelled as soon as
the vehicle is disposed of and any unexpired premium paid should be recovered
from the insurance company. If the vehicle is being transferred to a third party
introduced by the bankrupt with the intention that the bankrupt will continue to use
the vehicle, the unexpired portion of the insurance should be taken into account
--- PDF page 27 ---
when negotiating the sale, and it will then not be necessary to have the insurance
cancelled. Likewise, any insurance taken out by the official receiver over the vehicle
should be cancelled in accordance with the guidance in chapter 14.
Disposal of vehicles with no realisable
value
27.49 Disposal of vehicles with no realisable
value – general
Even though a vehicle has no realisable value, it is not possible to simply abandon
the vehicle as there are obligations on the owner of a vehicle (such as the obligation
to tax and insure the vehicle) which, if not complied with, could result in a liability
being incurred by the estate or the official receiver personally. It is the case,
therefore, that the official receiver must take positive action as regards the vehicle –
which, in the vast majority of cases, will be to arrange for the vehicle to be scrapped.
27.50 ‘End-of-life’ vehicles and statutory
requirements
The basis on which ‘end-of-life’ vehicles (this is what vehicles with scrap value only
are known as in the legislation) are to be dealt with are set down in law, in the
Regulations1. These Regulations became fully effective on 1 January 2006 and have
the effect of ensuring that the UK meets requirements in European agreements for
the prevention, reduction and elimination of pollution caused by end-of-life vehicles.
1. The End-of-Life Vehicles Regulations 2003
27.51 Operation of the statutory provisions as
regards end-of-life vehicles
The Regulations operate by placing a responsibility on motor manufacturers to
provide a process by which end-of-life vehicles can be disposed of in a way that is
not harmful to the environment (largely, by recycling) and has no significant cost
impact on the final owner of the vehicle. This has been achieved by the
establishment of a network of Authorised Treatment Facilities (ATF), who will recover
and dispose properly of end-of-life vehicles, issuing a Certificate of Destruction to
prove proper disposal. The Regulations apply to the following vehicles:
--- PDF page 28 ---
•
passenger carrying vehicles up to 3500kg
•
light goods vehicles up to 3500kg (light goods vehicles)
•
three-wheeled motor vehicles (excluding motor tricycles) Motorcycles are not
therefore included, though it may still be possible to have an ATF agree to take
such a vehicle
27.52 Authorised Treatment Facilities
ATFs are the only facilities where an end-of-life vehicle can be disposed of legally
and properly. To provide a link between the ATFs, manufacturers and owners, there
are two ‘umbrella’ organisations:
Cartakeback (see paragraph 27.55)
Reward Recycling
Whilst ATFs are only obliged to take complete vehicles, given the high price of scrap
metal it is likely that official receivers will be able to negotiate the removal and
disposal of vehicle parts or parts of vehicles, if required.
27.53 Transport of end-of-life vehicles
It is likely that end-of-life vehicles may be considered to be hazardous or controlled
waste, particularly where the vehicle is dismantled or otherwise incomplete. The
relevant legislation1, 2 provides that all persons who transport hazardous waste (the
transport of an end-of-life vehicle to an ATF, for example) are required to hold the
appropriate waste transfer licence. ATFs who carry out such collections are holders
of the relevant licence. If the official receiver uses any other agent for this, they
should check that that agent holds the appropriate waste permit or licence.
1. Hazardous Waste (England and Wales) Regulations 2005
2. Environmental Protection Act 1990
27.54 Practicalities of instructing an ATF –
other than through Cartakeback
A list of Authorized Treatment Facilities ATFs is available from the environment
agency. If the official receiver requires a vehicle to be scrapped but is not using the
services of Cartakeback (see below) then an alternative ATF can be instructed in
writing (by e-mail, letter or fax) to the ATF closest to the location of the vehicle,
providing the following details:
•
location of vehicle (postal address, in most cases including post code). Where it
would assist in locating a vehicle, landmarks should be provided
--- PDF page 29 ---
•
address and telephone number of the director/bankrupt
•
description of the vehicle (make, model, colour)
•
registration number of the vehicle
•
statement that the official receiver has power to deal with the vehicle by virtue of
being liquidator of the company or is the legal owner of the vehicle (in the case
of bankruptcy) by virtue of the vesting of the bankruptcy estate
•
the vehicle registration documents or details of the whereabouts of those
documents
•
any other relevant information regarding the vehicle or its location (such as an
accessibility issues or the condition of the vehicle)
•
request that the ATF notify the official receiver if any costs are to be incurred
and not to act until those costs have been agreed
27.55 Instructing Cartakeback
[Text redacted]. Each office has been given login details but new users can be set up
by contacting Cartakeback on [text redacted]. Any monies due will be remitted
monthly directly to EAS for allocation to the appropriate cases.
27.56 Certificate of destruction
A certificate of destruction is issued by the responsible ATF (see paragraph 27.52) to
confirm to the last owner of an end-of-life vehicle that it has been destroyed. The
official receiver should request the certificate and keep a copy on the file. The ATF
can issue a certificate if there are no documents available for the vehicle, but would
require a statement of ownership from the official receiver and be able to identify its
identity from its vehicle identification number (VIN) (a number stamped on the
chassis of the vehicle) or registration number.
Disclaimer of a motor vehicle
27.57 Appropriate circumstances for a
disclaimer
Given the comprehensive facility to dispose of a vehicle provided by ATFs (including
Cartakeback) it is extremely unlikely to be necessary to issue a disclaimer (see
chapter 42) of a vehicle. That said, there are very limited circumstances where such
a disclaimer will be appropriate, as follows;
--- PDF page 30 ---
•
the vehicle has no realisable value, is on private land not owned or leased by
the insolvent, and the owner of the land is refusing access to the vehicle without
the payment of storage charges (or similar), or
•
the vehicle has no realisable value and has been abandoned overseas (subject
to the guidance in paragraphs 27.59 & 27.60), or
•
the vehicle has been stolen and any related insurance claim has been made
(see paragraph 27.7)
•
where the official receiver has been unable to obtain control of the vehicle and
the cost involved in releasing it outweighs the value of the vehicle. (such as
when a vehicle has been impounded
If an official receiver considers that any other circumstance warrants a disclaimer
being issued in respect of a vehicle, they may do so, but such a disclaimer must
never be issued simply for the sake of administrative convenience and it must be an
act of last resort when all other options for dealing with the vehicle have been
explored and found not to be available. A record of the reasons why a disclaimer
was considered necessary should be made on the relevant ISCIS Notes.
27.58 Service of notice of disclaimer
Notice of the disclaimer should be served on the DVLA and the owner of the land on
which the vehicle is stored.
27.59 UK registered vehicle left overseas
Where the bankrupt claims that he has left a UK-registered vehicle overseas, it is
unlikely to be worth the cost of recovering the vehicle to this country for sale. Many
EU countries have schemes to scrap ‘end-of life’ vehicles similar to those in the UK
and the official receiver may be able to take advantage of such a scheme – seeking
advice from ORS Advice where required. If the official receiver considers that the
value of the car warrants a local sale, they may wish to consider employing a local
agent to deal with the sale and should seek advice where required. Otherwise, the
official receiver should ask the bankrupt to confirm that the DVLA has been notified
that the vehicle has been permanently ‘exported’. If this has not been done the
official receiver should carry out this process themselves, following the guidance.
The official receiver may then issue a disclaimer of the vehicle with a copy of the
disclaimer and certificate of export being served on any person with control of the
vehicle in that other country.
27.60 Foreign registered vehicle left overseas
Where the bankrupt claims that he has left a foreign registered vehicle overseas, it is
unlikely to be worth the cost of recovering the vehicle to this country for sale. Many
--- PDF page 31 ---
EU countries have schemes to scrap ‘end-of life’ vehicles similar to those in the UK
and the official receiver may be able to take advantage of such a scheme – seeking
advice from ORS Advice where required. If the official receiver considers that the
value of a car overseas warrants a local sale, they may wish to consider employing a
local agent to deal with the sale and should seek advice where required. Otherwise,
the official receiver may issue a disclaimer of the vehicle with a copy of the
disclaimer being served on any person with control of the vehicle in that other
country.
27.61 Refund of road fund licence
Where a vehicle is to be disposed of by an ATF, the official receiver should consider
claiming a refund relating to the unexpired portion of the vehicle road fund licence. If
the value of the unexpired portion is worth claiming, the official receiver should apply
for a refund. Previously applying for a refund required the completion of DVLA Form
V14, which was sent to the DVLA with section 9 of the registration document V5.
However, the application for a refund of road fund licence should now be made
online at www.gov.uk/vehicle-tax-refund
27.62 Insurance to be cancelled following
disposal
Assuming there is no outstanding claim in relation to the policy, any insurance taken
out by the company or the bankrupt over a vehicle should be cancelled as soon as
the vehicle is disposed of and any unexpired premium paid should be recovered
from the insurance company. Likewise, any insurance taken out by the official
receiver over the vehicle should be cancelled in accordance with the guidance in
chapter 14.
Dealing with personalised (cherished)
registration numbers
27.63 Personalised registration numbers -
general
A registration mark (to give it its official name) is issued to a vehicle on registration of
that vehicle by the DVLA1 and may be defined as the characters that are shown on
the number plate of a vehicle. A registration mark is also more commonly known as
--- PDF page 32 ---
a registration number. Some registration marks have a transferable value in their
own right. The ‘F1’ number plate, for example, was sold by Essex County Council in
2008 for £440,000. Not all registration marks are worth that sort of money and a
more typical value is likely to be in the hundreds or low thousands of pounds.
Registration marks that have a transferable value are called personalised or
cherished numbers.
1. Vehicle Excise and Registration Act 1994 section 23
27.64 Frequency of personalised registration
marks
It is difficult to say how likely it will be that the official receiver will encounter a
personalised registration mark when dealing with the administration of an insolvency.
As at the end of 2010, there were 34.1 million vehicles licensed in the UK and in the
financial year 2000-2001 the DVLA processed 259,400 applications to transfer a
registration mark. Assuming that the number of applications has stayed roughly the
same (more recent figures are not available), this represents a rate of application to
registration of fewer than one personalised number plate per 1,300 cars registered.
Of course, the number of transfers is likely to be lower that the total number of
personalised registrations but, even so, the official receiver can expect to encounter
such a registration as an exception – though not a rare exception.
27.65 Considering the value of a registration
number when dealing with a vehicle
When dealing with a vehicle owned by the insolvent, the official receiver should
consider whether the registration number allocated to that vehicle has a value in its
own right (see paragraph 27.77) and, if so, deal with it as an asset following the
guidance in this Part of the chapter. This would be the case even if the vehicle itself
were to be treated as exempt property (see paragraph 27.75). It is not always
obvious that a registration mark has a value, though if it looks unusual or does not fit
the normal pattern for a registration mark then it may well do. Registration marks can
be valued relatively easily (see paragraph 27.77).
27.66 Property status of a registration mark
A registration mark does not have a property status in its own right – rather it is the
right to assign that mark that is the property that would pass to the official receiver as
liquidator or trustee. In as much as a registration mark is owned at all, it is owned by
the Secretary of State for Transport. On the issue of a new registration, the person
--- PDF page 33 ---
entering into the contract with the DVLA buys the right to assign the registration mark
to a vehicle registered in their name or the name of another person (known as the
‘nominee’). The nominee has no rights to the mark until it is registered to their
vehicle. The person on whose vehicle the registration mark is allocated then has the
right to transfer it to another vehicle in their name (when, for example, they buy a
replacement car – see paragraph 27.71) or to another person (see paragraph 27.70).
27.67 Time limits to assign the registration
mark to a vehicle
Following the initial purchase of the right to the registration mark, the DVLA will issue
the purchaser with a certificate (known as the Certificate of Entitlement – V750)
showing the date by which the mark must be applied to a vehicle. This period is
usually 12 months from the date of the certificate and can be extended, by
application for periods of one, two or three years. Details of how to make such
application for extension are shown on the Certificate of Entitlement. Official
receivers should take care that where an insolvent holds the right to assign a
registration mark, that right does not lapse prior to realisation.
27.68 Owner of the vehicle has the right to
transfer the registration mark
Once a registration mark has been assigned to a vehicle, the keeper of that vehicle
gains the right to transfer that mark to another vehicle. So if, for example, the vehicle
is sold without the mark first being transferred to another vehicle kept by the original
holder of the mark (see paragraph 27.71) or being retained (see paragraph 27.69) by
the original keeper, the right to assign the mark will pass to the new owner of the
vehicle. In this context, it is important that the official receiver deals with a
personalised registration mark on an insolvent’s vehicle before the vehicle is dealt
with (which would include selling the vehicle, scrapping the vehicle or allowing it to
be repossessed by a finance company).
27.69 Retention of a registration mark
It is possible to withdraw a registration mark from a vehicle and hold it on retention.
This may be necessary where, for example, the holder of the right is planning to sell
their vehicle but has yet to purchase a new vehicle. As with the original purchase,
this right is time limited, but may be extended. On retention (using form V317), the
DVLA will issue a Retention Document (V778) showing the date by which the mark
must be assigned to a vehicle and giving instructions for the extension of that date.
The official receiver may follow this procedure where a vehicle owned by an
--- PDF page 34 ---
insolvent is being dealt with and it has not been possible to reach an agreement for
the transfer of the mark as part of the sale of the vehicle. The fee for the retention of
a mark is shown in form V317.
27.70 Transferring the registration mark to
another person
The process for transferring a registration mark (other than by the sale of the vehicle)
is connected to the retention process (see paragraph 27.69) in that the person
retaining the mark may choose another to be the ‘grantee’ of the mark. The grantee
then becomes the one with the right to transfer the mark, or to assign it to a vehicle.
The process of retention and passing the right to a grantee is conducted using form
V317. The fee for the transfer of a mark to another person is shown in form V317.
27.71 Transferring the registration mark to
another vehicle
It is possible for a registration mark to be transferred directly from one vehicle to
another. This process is conducted through the completion of form V317. The fee for
the transfer of a mark to another vehicle is shown in form V317.
27.72 Dealing with a registration mark
generally
The official receiver may instruct their agents to deal with the sale of the registration
mark, or may deal with the matter directly, following the guidance elsewhere in this
Part. Alternatively, the official receiver may instruct a specialist in the sale of
registration marks (see paragraph 27.77).
27.73 Dealing with a personalised registration
mark as an asset – where mark has not been
assigned to a vehicle
Where an insolvent holds the right to a personalised registration mark that has not
been assigned to a vehicle (including one that has been retained), the mark may be
sold as any other item of property. If the mark is being sold to a person introduced by
the bankrupt to purchase the right on behalf of the bankrupt then the purchaser may
be satisfied with the transaction being conducted on an informal basis with no
requirement for completion of the transfer document (see paragraph 27.70).
--- PDF page 35 ---
Otherwise, or if the transfer is to an un-connected party, it will be necessary to
complete form V317 to formally effect the transfer. The fee for the transfer of a mark
is shown in form V317. This fee should be covered by the purchaser and the official
receiver will need to take this into account when negotiating the sale.
27.74 Dealing with a personalised registration
mark as an asset - where mark has been
assigned to a vehicle
Where a registration mark has been assigned to a vehicle that is property of the
insolvent, the simplest way to deal with the mark would be to sell it with the vehicle
(taking account of the value of the mark when negotiating the sale). Where the
purchaser of the vehicle is not interested in buying the mark or unable to make an
acceptable offer, it will be necessary to retain the mark (see paragraph 27.69) before
sale in order that it can be dealt with separately (see paragraph 27.73).
27.75 Dealing with a personalised registration
mark as an asset - where mark has been
assigned to a vehicle that is likely to be exempt
If the mark is assigned to a vehicle that is likely to be treated as exempt (see chapter
24), the mark should be retained before the vehicle is treated as exempt in order that
it can be dealt with separately. As an alternative, the bankrupt may wish to introduce
a third party to ‘buy-out’ the official receiver’s interest in the mark.
27.76 Vehicle(s) must be taxed when transfer
or retention of registration mark takes place
The DVLA will not accept an application for the transfer or retention of a registration
mark unless the vehicle(s) involved is (are) taxed.
27.77 Valuation of registration marks
Depending on experience and expertise, the official receiver’s normal agents may be
able to offer an opinion as to the value of a registration mark. Alternatively, a
company specialising in the sale of personalised registration marks will usually be
able to value a mark. The Cherished Numbers Dealers Association keeps a directory
of members – some of whom provide web-based or telephone instant valuation
--- PDF page 36 ---
services. Finally, a search of listings sites such as ebay may show up marks similar
to the one held by the insolvent on which a valuation may be based.
27.78 Marketing of registration marks
Where the registration mark appears to have a significant realisable value and/or
there is no ready purchaser, it may be necessary to market the mark for sale. The
official receiver has various options in this regard:
•
the official receiver may use their current agents if they are aware that they
have experience/expertise in this area
•
a company specialising in the sale of personalised registration marks. The
Cherished Numbers Dealers Association keeps a directory of members – who
will value and buy marks
•
sale to the director/third party introduced by bankrupt
27.79 Vehicles subject to finance with a
personalised registration mark
If a vehicle with a personalised registration mark is subject to finance, the official
receiver will need to establish whose name is on the vehicle registration document
as it is that person who has the rights to the mark (see paragraph 27.66). If the
finance company is the registered keeper then the official receiver should endeavour
to ensure that the finance company applies the value of the mark to the repayment of
their debt, to reduce the insolvent’s liability and to account to the official receiver for
any surplus arising.
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ATTACHMENT: 28.Freehold_and_leasehold_property.pdf
TEXT_FILE: 28.Freehold_and_leasehold_property.pdf.txt
METHOD: pdf_native
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 11 March 2020.
28. Freehold and leasehold property
Dealing with an insolvent's freehold or leasehold property, including action to be
taken to protect an interest in the property and also steps to be taken where the
property is the bankrupt's 'family home'
Annexes
Annex A - Worked example of equity of exoneration
How to apply for charging order
How do LTADT review a family home at the two year and three month review point
How to establish if property is a family home
How to deal with a family home where there is an offer to purchase
Chapter content
Frequently asked questions - Charging orders
Frequently asked questions - The family home
Frequently asked questions - Jointly owned property
Frequently asked questions - Establishing the beneficial interest
Introduction
General background and initial action
Protection of the official receiver’s interest in a property
The family home (bankruptcy only)
Matrimonial or civil partnership proceedings (bankruptcy only)
Valuation of the property and establishing the insolvent’s interest in the property
(including equitable accounting)
Realisation of the insolvent’s interest
--- PDF page 2 ---
Dealing with leasehold properties (leasehold enfranchisement)
Sale and rent back schemes
Reviewing and dealing with a property at review stage, including the obtaining of a
charging order
Shared ownership property
Leased commercial property
Frequently asked quesions – Charging
orders
These FAQs are to assist official receivers in understanding the subject and should
be read in conjunction with the more detailed guidance given below.
What is a charging order?
A charging order is an order of court which has the effect of creating a charge over
the debtor’s interest in a property. The charge can be enforced at a later date to
satisfy the debt.
Why does the trustee get a charging order?
A bankrupt’s interest in a property automatically vests in their trustee. However, if the
OR as trustee fails to deal with their interest in a family home within three years of
the bankruptcy order date (or three years from the date they became aware of the
property if after this time), it will automatically re-vest in the former bankrupt. A
charging order is a way of ‘dealing’ with the interest where it has otherwise not been
possible to do so.
When will the official receiver as trustee apply
for a charging order?
At the two year three month review of a property (see How do the LTADT review a
family home at the two year three month review point). A charging order is only
obtained when it hasn’t been possible to deal with a family home by selling the
bankrupt’s interest or by appointing an insolvency practitioner.
--- PDF page 3 ---
What if three years from the date of the
bankruptcy order or the date the official
receiver became aware of the property has
already passed before we try to get a charging
order?
The bankrupt’s interest in the property will re-vest in them and will be lost to the
estate. As long as the application to the court for a charging order has been made
before 3 years has passed, then it will be valid. This is why the official receiver or
LTADT reviews all family homes at 2 years and 3 months.
Are charging orders only requested for family
homes?
Yes. In other properties, the trustee’s interest does not re-vest after three years so
the bankruptcy restriction remains on the property indefinitely. If the property is no
longer a family home then then a charging order is not appropriate (see detailed
guidance in chapter 28). Don’t forget that there can be more than one family home in
a case.
How does the LTADT calculate the value of the
bankrupt’s interest?
Solely owned = value of property - (costs of sale + loans & secured charges)
Jointly owned = value of property – (costs of sale + loans & secured charges + value
of joint owner’s interest)
Any endowment policy or similar attached to the mortgage must also be taken into
account.
What about calculating the potential value of
the charging order?
This is more complex. Please see detailed guidance within chapter 28.
How does the LTADT or the official receiver
apply for a charging order?
--- PDF page 4 ---
Please refer to How do the LTADT review a family home at the two year three month
review period? For more detail on how the official receiver may apply for a charging
order see the guidance within the chapter.
Who completes the charging order
application?
The charging order unit of the LTADT in Ipswich. The notifications are sent out by
the unit. The unit liaises with the local official receiver’s office to arrange for an AOR
or the OR to attend Court and answer any questions. Once the order has been
made, the official receiver’s insurance on the property must be cancelled.
How is the charging order registered –
registered land?
The charge must be registered at the Land Registry by using the prescribed forms
and paying the relevant fee.
How is the charging order registered –
unregistered land?
On the making of a charging order against solely owned unregistered land, the
official receiver, as trustee, should lodge an application to the Land Charges
Department for the entry of the charging order in the Register of Writs and Orders.
The registration will last for 5 years and can be renewed.
Where a jointly owned property is unregistered it will not be possible to protect the
charging order by registration. This is because the charge is against the bankrupt’s
beneficial interest in the land, and not the land itself. Instead, a copy of the charging
order should be sent to all interested parties (especially any charge-holder holding
the deeds) with a request that the official receiver’s interest in the unregistered land
is noted and acknowledged.
How long does the charging order last?
Indefinitely, it does not matter how long a charge is held before it is released. Once
and order of sale is made the time period is 12 years.
Can the amount of the charging order be
varied?
--- PDF page 5 ---
No, it is fixed at the date of the order imposing the charge.
When should the charging order be reviewed?
Either every three years for registered land and every five years for unregistered
land, when the official receiver should check whether any circumstances have
changed. Also whether there is a potential order for sale as this will initiate the 12
year limitation period.
If there is notification from the land registrar that attempts are being made to deal
with the property the official receiver should contact all of the parties concerned
immediately to ensure that they are reminded of the amount required to satisfy the
charging order.
The official receiver should ensure that they take steps to deal with the bankrupt’s
interest as soon as any change occurs. If the interest protected by the order is more
likely to be realisable, the LTADT should consider whether it is appropriate to offer
the sale of the interest back to the former bankrupt or seek the appointment of an IP
to enforce the charging order.
What happens if another creditor has ‘got in
there first’?
If a charging order has been obtained by another creditor post-bankruptcy but before
the official receiver, then checks should be made to ensure that the charge is valid
(i.e. not a pre-bankruptcy debt). If it was for a provable debt, then the official receiver
should challenge it. Where the debt is for a post bankruptcy debt, that creditor will
rank higher than the official receiver in the order of payment funds.
Frequently asked questions - The family
home
These frequently asked questions are to assist official receivers in understanding the
subject and should be read in conjunction with the more detailed guidance given in
the main body of the chapter.
What is meant by the ‘family home’?
The term only has relevance when dealing with a bankruptcy. A property will be a
family home where it is a dwelling house, which at the date of the bankruptcy order
was the sole or principle residence of;
--- PDF page 6 ---
•
the bankrupt,
•
the bankrupt’s spouse or civil partner, or
•
a former spouse or civil partner of the bankrupt.
What is meant by ‘dwelling house’?
Dwelling house is defined in the Act as including any building or part of a building
which is occupied as a dwelling and any yard, garden or outhouse belonging to the
dwelling house and occupied with it.
Could a houseboat or a caravan be the family
home, considering the definition of dwelling
house?
It is unlikely that a boat could be considered to be the family home, it not being a
building. So far as a caravan is concerned, this would depend on the extent to which
it was fixed to the ground and connected to mains services.
What else do I need to know about a family
home?
1.The bankrupt does not need to be living in the property for it to be a family home.
2. Family home provisions do not apply to a common law couple, even if they have
children.
3. It is still a family home if the official receiver fails to send the BHNOT.
4. Company property cannot be a family home.
5. A family home cannot be an antecedent recovery.
6. There can be more than one family home in a case.
What is the consequence of a property being
the family home?
Where the property is the family home, any interest held by the bankrupt in the
property at the date of the bankruptcy order will re-vest in them after a period of
three years unless it is dealt with by the official receiver, as trustee.
And if the property interest re-vests?
--- PDF page 7 ---
Then it would be lost to the estate. Which is likely to be a very bad outcome for the
official receiver, leading, probably, to the department having to compensate
creditors.
These provisions are not known as the ‘use it or lose it’ provisions for nothing.
The re-vesting will be three years after the
bankruptcy order date?
Assuming that the official receiver is aware of the bankrupt’s interest in the family
home within three months of the order then the property would re-vest on the third
anniversary of the making of the bankruptcy order.
If the official receiver becomes aware of the property interest after that initial three
months then it will re-vest on the third anniversary of the date that it came to the
attention of the official receiver.
Can that three year period be extended?
Yes it can. This is most likely to be appropriate where the property interest cannot
be accessed until after the expiration of the three year period. An example of this
would be where the bankrupt has an interest in the former matrimonial home that
cannot be realised until a child of the former marriage reaches 18. Another example
would be where the property is held on trust for the bankrupt – only devolving some
years in the future. It is also possible for the three year period to be extended where
the bankrupt withholds necessary information, causing a delay in procedure.
Can the period be extended simply because the
official receiver has not had time to deal with
the property?
No. Administrative difficulties are not considered to be a valid reason to extend the
period. Similarly, the period cannot be extended after it has expired.
Are there any circumstances in which the
property interest can re-vest sooner than
three years?
--- PDF page 8 ---
There is provision in the Act for early re-vesting of the property interest, but this
would only be carried out in tightly constrained circumstances – generally where
there is no chance of the property recovering from a position of negative equity.
What do you mean by property ‘interest’?
In most cases this will be bankrupt’s direct share in a property as at the date of the
bankruptcy order, but it may equally be an indirect interest, such as a charging order
over the property following matrimonial proceedings, or a right to buy the property.
What if the property is not the family home?
If the property is not the family home (generally, this will be a commercial property or
a second property held for investment purposes or holiday home), it will vest in the
estate and will remain vested until the property interest is realised.
Given the qualification criteria for the family
home, I presume that it is possible for there to
be more than one family home in a case?
Yes, for example where the bankrupt lives in one property, their estranged wife lives
in another and a former (divorced) wife lives in a third.
But, presumably, a second home or investment
property rented out to a third party would not
qualify?
That’s right. A second home, or holiday home, would not be the principle place of
residence, and an investment property rented to someone other than the bankrupt’s
spouse, civil partner or former spouse of former civil partner would also not qualify
(see chapter 29 and chapter 30).
In what ways can the official receiver ‘deal’
with a property interest such as to prevent it
re-vesting?
The Act provides a number of ways that a property interest may be dealt with, but
the ones most likely to be engaged by the official receiver, as trustee, would be a
--- PDF page 9 ---
sale of the interest (back) to the bankrupt or a third party introduced by the bankrupt,
or to apply for a charging order over the bankruptcy estates interest.
How will interested parties know that a
property is the family home?
The official receiver is required to issue a notice to each of (as appropriate) the
bankrupt, their spouse, their civil partner, their former spouse or their former civil
partner them notifying them that the interest in the property forms part of the
bankruptcy estate.
How is the family home valued?
There are several ways to value a property, the official receiver should decide on the
most appropriate valuation on a case by case basis.
How is the interest in a family home
calculated?
The family home must be valued and any charges deducted from that valuation
figure (for example the amount due to a mortgage company). For jointly-owned
properties you should first deduct the joint owner’s share of any equity.
Would the official receiver deal with all family
home interests?
No. Generally speaking, any interest greater than £25,000 should be handled by an
insolvency practitioner, subject to local conditions, unless there is a willing
purchaser.
What about properties where the interest is
less than £25,000?
The official receiver can ask if the bankrupt or any interested parties would like to
buy back the official receiver’s interest in the family home.
Where the interest is below £1,000 this is not usually offered. However, the official
receiver has the discretion to accept offers, if one is proactively made by a third
party, for around £1,000 for the interest plus solicitors costs for both sides (see How
do I deal with the sale of a family home with offer to purchase?).
--- PDF page 10 ---
How is a property sold back to interested
parties?
[Text redacted] currently provide the official receiver with a low cost conveyancing
scheme which is [Text redacted] for jointly owned properties. Solely owned
properties are not covered by this scheme and solicitors costs will be higher. For
information on how to do this (see How do I deal with the sale of a family home
with offer to purchase?).
What happens if there is no offer made?
The LTADT will review the case at the 2 year 3 month stage where interested parties
will again have the opportunity to buy the interest. See How do the LTADT review a
family home at the two year and three month point? and How do I transfer a case to
the LTADT?
If no offer is made the case could go to a trustee (if equity is over £25,000) or go to
the National Charging Order (NCO) team but this must be done before 2 years and 9
months to allow sufficient time to obtain the charging order.
What happens to properties if no offer is made
and there is less than £1,000 of equity at the
review stage?
The property is left to automatically re-vest in the bankrupt (see How do the LTADT
review a family home at the two year and three month point?). The bankrupt and
other interested parties are notified of the re-vesting by BHLET and BHCERT letters.
What is the purpose of these provisions?
There had been concerns that trustees sitting on vesting properties for a prolonged
period of time whilst they increased in value, then forcing a sale sometimes 10 or
more years after the order was unfair for the bankrupt and their family. The
provisions also had the purpose of supporting the concept of bankruptcy being a
fresh start and also to reduce the stigma of bankruptcy.
Can a property that comes into the estate after
bankruptcy be the family home?
--- PDF page 11 ---
No. A property must form part of the estate as at the date of the making of the order
to be considered a family home. An example of where this exclusion would apply
would be a property returned to the estate following a successful action to recover a
transaction at an undervalue, or a property claimed as after-acquired property.
Frequently asked questions – Jointly
owned property
These requently asked questions are to assist official receivers in understanding the
subject and should be read in conjunction with the more detailed guidance given
within the chapter.
What does jointly owned mean in relation to
bankruptcy?
The trustee does not have an interest in the legal estate of the property, their interest
is in the proceeds of its sale and any income from the property (also known as
‘beneficial interest’). The legal title does not vest in the trustee, even if both parties
are bankrupt. This is because the legal title cannot be severed.
What else do I need to know about beneficial
interest?
It is the share in the property to which an individual is entitled. Unlike the legal
interest, a person’s beneficial interest in a property can change over time. Working
out how the beneficial interest is split between parties can be quite complicated. For
example a wife may have raised children in the property and not contributed to its
upkeep in a financial sense, such as paying the mortgage or for home
improvements, but nevertheless is likely to be entitled to a share of the beneficial
interest (see more detailed guidance in the chapter and FAQ Establishing the
beneficial interest).
How can the trustee register their interest in
the property?
The land registry will not register a bankruptcy restriction against any jointly owned
land in which the bankrupt has an interest. To protect the official receiver’s interest in
the property a RX1 form (Form J) should be sent to the land registry. The official
--- PDF page 12 ---
receiver must provide evidence that they have sufficient interest in the property in
order for it to be registered. For further information see chapter 7.
It is also important for the mortgagee, charge holders and the joint owner to be
aware of the insolvency in order to fully protect the official receiver’s interest.
What does the RX1 form (Form J) do?
It is entered on the proprietorship register at Land Registry as a warning that the
bankrupt’s trustee has an interest to anyone having possible dealings with the
property. As part of the purchase of a property, a solicitor will usually check the Land
Registry information and contact will be made with the official receiver. For further
information see chapter 7.
How long does the official receiver have to
deal with the property?
If the property is a family home, then three years. If the property is not a family home
then there is no time limit. However, the official receiver will not want to ‘sit on’ a
property indefinitely.
What can the official receiver do with a jointly
owned property that has equity in it?
Please refer to (How do I deal with the sale of a family home where there is an offer
to purchase?).
What about a jointly owned property with no
equity in it?
The property can be transferred to the LTADT for review at a later date (see How do
the LTADT review the family home at the two year and three month review point?).
Offers can also be accepted from a solvent joint owner or a third party subject to
certain conditions. Please refer to (How do I deal with the sale of a family home
where there is an offer to purchase).
Can I disclaim jointly owned property?
The legal title in a jointly-owned property cannot be disclaimed as the legal title
remains vested with the joint owners. The bankrupt’s beneficial interest can be
disclaimed if it is considered to be onerous.
--- PDF page 13 ---
What is the low cost conveyancing scheme?
The Insolvency Service has entered into an agreement with a firm of solicitors, [Text
redacted], to provide a low cost conveyancing scheme for jointly owned domestic
property, so that a bankrupt’s beneficial interest in a jointly owned property can be
transferred to the bankrupt, their spouse, civil partner, partner, relative or friend,
without incurring excessive costs.
The low cost conveyancing scheme should only be pursued in the period of two
years and three months following the making of the bankruptcy order where a willing
purchaser has made an offer which is clearly in the interest of creditors to accept (i.e.
where it is anticipated that bankrupt’s interest is in excess of £1000). (i.e. where the
offer is in the region of £1000 or higher).
What conditions must be met for the low cost
conveyancing scheme to apply?
•
The property is a domestic property owned jointly by the bankrupt and others;
and
•
it is unregistered or registered freehold or leasehold property which is currently,
or was previously occupied by the bankrupt and his/her spouse or civil partner,
former spouse or former civil partner; and
•
it is situated in England or Wales,
What if there are tenants in the property?
The joint legal owners remain landlords of the property, even if they are all bankrupt.
Guidance on dealing with jointly owned tenanted property is provided in (see chapter
30).
What if the property has been repossessed but
not yet sold?
The mortgagee should be notified of the official receiver’s interest in any sale
proceeds. The official receiver should cancel any insurance obtained on the property
(see chapter 14) and tell the charge-holder that it has been cancelled.
What if the property has been sold following
repossession?
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The official receiver should obtain a copy of the completion statement from the
mortgagees and should claim the bankrupt’s share of any surplus following sale.
Frequently asked questions -
Establishing the beneficial interest
Why might a dispute arise concerning the
beneficial interests in a property?
This is most likely to occur in relation to a bankruptcy case where a joint-owner or
other third party is claiming a share, or a greater share, in a property which forms
part of the bankrupt’s estate.
What action should the official take where
such a claim is made?
The official receiver should ensure that the claimant recognises that the onus is on
him/her to prove that the presumption that beneficial interest follows legal title should
be displaced. The chapter contains guidance of the sort of evidence that should be
provided.
You mention a presumption that beneficial
interest follows legal title. What do you mean?
In it simplest terms, this means that where a bankrupt solely owns a property he/she
will hold 100% of the beneficial interest and, where he/she jointly owns a property
with another person, each party will hold 50% of the beneficial interest.
What sort of evidence might there be to
displace that presumption?
The most compelling piece of evidence will be an express declaration of trust
between the parties at the date of the purchase of the property. This is a declaration,
usually noted at the Land Registry, as to the shares in which the property is to be
held.
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Is this conclusive proof of the parties’
intentions?
Not necessarily so. It is possible for the intentions to shift over time if, for example,
the parties separate (or join) their financial affairs. This is known as a constructive
trust (see more detailed guidance within the chapter).
It is rare however that, in the absence of an express trust, it could be considered that
a property purchased as a marital or quasi-marital home will be held in shares other
than 50/50.
Should the official receiver just accept an
express declaration of trust?
No. The official receiver should investigate the veracity of the document, following
the guidance in the chapter as it is not unknown for an express trust to be back-
dated in an effort to take a bankrupt’s interest in a property out of the bankruptcy
estate. Even assuming that the document is genuine, it might be challenged as a
transaction at an under-value, as appropriate.
What about resulting trusts?
A resulting trust is one where the shares in the property are decided, in the absence
of a express trust, based on contributions to the purchase price. So, for example, the
party that provided 60% of the purchase price would hold 60% of the beneficial
interest.
The principle of a resulting trust cannot normally be applied to a marital or quasi-
marital home, but is likely to be relevant when dealing with an investment property
(see more detailed guidance within the chapter).
Introduction
28.1 Introduction
This part provides guidance to assist the official receiver when dealing with a
freehold or leasehold property including provisions regarding the ‘family home’. A
freehold or leasehold property will generally be the most valuable asset of an
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insolvent, and this chapter contains advice on protecting and realising the insolvent’s
interest for the benefit of the estate.
General background and initial action
28.2 Key concepts
There are some key terms and concepts associated with freehold and leasehold
property.
28.3 Legal title
Legal title in a property (or legal estate) is the interest which is recognised and
enforceable in a court of law but carries no beneficial interest (see paragraph 28.4) in
the property. It brings with it all legal responsibility for the property including the
power to convey (sell/transfer). On the making of a bankruptcy order the legal title to
a property solely owned by a bankrupt will vest in the trustee in bankruptcy1. Where a
company is subject to a winding-up order the legal title will remain vested in a
company, unless application is made to vest the title in the liquidator2. The legal title
to a jointly owned property remains with the joint owners3.
1. Section 306
2. Section 145(1)
3. Section 283(3)(a)
28.4 Beneficial interest
The beneficial, or equitable, interest is an interest in the proceeds of sale of a
property and in the rents and profits which could be earned from the property. The
beneficial interest can be dealt with separately to the legal title and/or the beneficial
interest of others and will vest in the official receiver, as trustee1.
The beneficial interest generally mirrors, or follows, the legal interest. For example, a
house where the legal title is in joint names generally will have those two individuals
owning the beneficial interest jointly, but this is not always the case, and can be
affected by a number of factors. It is possible for a person to have a beneficial
interest in a property despite not having a legal interest and, conversely, it is possible
for a person to have no beneficial interest despite holding the entire legal interest.
1. Re: McCarthy (a bankrupt) [1975] 1 WLR 807
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28.5 Equity
In the context of a property “equity” is used to describe the money value of property
in excess of any mortgages or claims on the proceeds of sale of the property.
28.6 Freehold
The majority of properties encountered by official receivers will be in bankruptcy
cases and will be freehold properties. A freehold property is one where the owner(s)
of the property own the building and the land on which the building is located, and
the ownership is not time-limited.
28.7 Flying or creeping freeholds
A flying freehold is where one freehold is above another freehold – where, for
example, a room in a semi-detached house is above a passageway used to access
the neighbour’s back-garden. A creeping freehold is similar, but it describes a
situation where the property is below the neighbour’s property. In theory problems
can arise with these types of freehold as the structural integrity of the freehold
property is reliant on the neighbouring property being kept in good repair, in practice
the implication for the official receiver is minimal other than the market value may be
less than similar property without a flying freehold.
28.8 Leasehold
A leasehold is effectively the ownership of a right to occupy the property for a
specified period of time, usually in return for rent. Leasehold properties are generally
flats in the residential context but can also be houses particularly recent builds or in
certain areas of the country. The leasehold of a residential property will usually be for
a long period, 99 years or more, and require payment of an, often nominal, ground
rent. There is little practical difference in dealing with a house which is held on a long
lease as opposed to freehold.
A leasehold property of this sort will have its own entry at the Land Registry and can
be sold. Leasehold property should not be confused with property that the insolvent
occupies under a tenancy agreement.
Where the official receiver is dealing with commercially leased property, the lease
should be valued and, if it has a value, it should be marketed and sold, using agents
where appropriate. Where the lease has no value, the official receiver, as liquidator
or trustee, should consider issuing a disclaimer. For guidance on disclaimers see
chapter 42.
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28.9 Tyneside flat scheme
This is a development of leasehold mainly used in Tyneside. Under the scheme the
lease to each flat is granted with the freehold reversion of the other flat. For example,
if there are two flats, the purchase of the lease of the ground floor flat will also
include the purchase of the freehold for the upper floor flat and conversely.
This type of arrangement is used in other parts of the country apart from Tyneside
and is commonly used with maisonettes. The scheme depends on the flat lease
always being transferred with, and to the same person as, the freehold reversion of
the other flat. If there is a mortgage, both should be mortgaged to the lender.
28.10 Freehold reversion
Where a property is leasehold there will also be a freehold property which is held
subject to the leases. The freeholder has the right to grant a new lease when the
existing lease expires; this right is known as the ‘freehold reversion’, and the right
can be purchased.
In some cases, the leaseholders have the right to purchase the freehold reversion.
This applies to both leasehold flats and leasehold houses.
28.11 Licence to occupy
Licences, in relation to property, allows a person a legal right of occupation of a
property they do not own. The licence does not create an interest in the land and if
the property is sold the interest under the licence will terminate.
A licence may be irrevocable. Consideration should be given as to whether an
irrevocable licence has been given by the insolvent, prior to the insolvency
proceedings, to another party who provided funds for the purchase of the property,
or otherwise improved the property on the understanding that they would be able to
remain in the property.
An irrevocable licence is likely to result in someone having the right to remain in the
property, which may affect the value of that property, legal advice may be required.
28.12 Jointly owned or solely owned
Where the property is solely owned by the bankrupt, both the legal title and
beneficial interest (see 28.3 and 28.4) will vest in the official receiver as trustee. For
a jointly owned property it is only the beneficial interest in the property that vests.
Even if all the joint owners of a property are bankrupt, it will only be their beneficial
interests and not the legal title that vests in the official receiver as trustee.
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28.13 Joint tenancy or tenants in common
The beneficial interest in a jointly owned property can be held on the basis of a ‘joint-
tenancy’ or as ‘tenants in common’. A joint tenancy is where each party owns the
whole of the property and on the death of one party the deceased’s share
automatically passes to the survivor (often known as the ‘survivorship’ rule). A jointly
held legal title is always held as a ‘joint tenancy’. Where the property is held on the
basis of tenants in common, each party has a distinct share in the property, the
share passes through inheritance.
A jointly owned family home will generally be held on the basis of a joint tenancy.
That a property is held on the basis ‘tenants in common’ is often indicative of an
unequal share of the beneficial interest. Similarly, an investment property (or similar)
will generally be held on the basis of tenants in common. A joint tenancy is capable
of being converted into a tenancy in common by service of a relevant notice1. A
beneficial joint tenancy is automatically converted on the making of a bankruptcy
order2.
1. Law of Property Act 1925, section 36
2. Morgan v Marquis (1853) 9 Exch. 145; Re Dennis (A Bankrupt) [1996] Ch.80
28.14 Mortgages
A mortgage is effectively a pledge given by a borrower to repay monies lent. The
borrower pledges to the lender, hence the borrower is known as the mortgagor and
the lender the mortgagee. If the monies are not otherwise repaid the mortgagor has
pledged the property to the mortgagee for the debt.
Mortgages are secured debts and the amount of secured debt is important to the
calculation of an insolvent’s interest in a property. Mortgages may be repayment
(where the debt and interest are repaid over the term of the loan) or interest only
(where the interest on the loan is paid, with the original loan being repaid in full at the
end of the loan term).
Borrowers in an interest only mortgage are often required to have some means to
repay the loan at the end of the term. Generally, this is an endowment policy. In
respect of some investment properties, the purchaser will intend to repay the
mortgage from the capital value of the property.
28.15 Support for Mortgage Interest loans
(SMI)
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From 05 April 2018 assistance for homeowners who are on income related benefits
in paying the interest on their mortgage debt is by way of an SMI Loan. The loan will
be repayable with interest when a property is sold or transferred and may need to be
taken into account when calculating equity in a property. The scheme is detailed on
GOV.UK.
28.16 Charges
A charge against a property is obtained to secure a debt. It may be placed in
connection with a mortgage, following judgment being entered against the debtor, or
by the trustee in bankruptcy. There are other circumstances charges can arise, e.g.
matrimonial charges.
28.17 Registered land and unregistered land
Whether land is registered at the Land Registry or unregistered does not affect the
ownership of the land but, clearly, ownership is easier to evidence where the land is
registered.
Unregistered land is rare. Since 1990 (and much earlier in some cases) a system of
compulsory registration has been in place whenever there are dealings in land which
is unregistered.
28.18 Registered land
With registered land there is a public record of ownership, rights, covenants and
mortgages, held by the Land Registry. Each piece of registered land is given a
unique ‘title number’, which should be used to identify the land (in correspondence,
for example) where there is doubt. For more information on the Land Registry and
protecting property interests see chapter 7.
28.19 Unregistered land
Owners of unregistered land will normally hold a bundle of deeds which will record
ownership, previous sales, mortgages and other dealings in the land. If the land is
mortgaged, the mortgagee may hold the deeds. The Land Charges Department
maintains a record of restrictive covenants, rights and mortgages relating to
unregistered land, but these are registered against the landowner, rather than the
land.
Where the official receiver is dealing with unregistered land steps should be taken to
take possession of the title deeds.
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28.20 Searches of the land registry and
register of land charges
Where there is doubt over the ownership or charges position of a property, the
official receiver may carry out a search of the land register or register of land
charges, as appropriate. Guidance on conducting such searches is contained in
chapter 7.
28.21 Initial enquiries in relation to property
interests
Details of any property in which the insolvent is, or may have been, in occupation,
registered as the owner or hold a financial interest should be obtained at an early
stage to assist in establishing the extent of the insolvent’s interest. The early
acquisition of this information will also assist the official receiver in identifying any
properties which may be classed as a family home for the purposes of the Act and
will assist in protecting that interest.
The following information should be obtained as soon as possible, in respect of each
property where the insolvent has, or may have had, and interest:
•
the amounts due under any mortgages or charges in relation to the property
•
details of any third parties who have, or may have, an interest in the property
•
details of those resident or recently resident in the property
•
details of any property adjustment order, often granted in divorce proceedings,
in force
•
whether the property has been repossessed, or whether there are any
repossession proceedings in progress
•
issue notices to the Land Registry as required (see chapter 7)
Particular interest should be paid to the possibility that the property (or some part of
it) may have been transferred to a spouse, civil partner or other associate.
28.22 Notices to the mortgagees
The official receiver should issue the standard letter to all mortgagees1. The official
receiver should also issue a standard letter2 putting the mortgagee on notice of the
official receiver’s interest in the property.
1. MP2
2. MP3
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28.23 Potential antecedent recoveries
The official receiver should investigate any pre-insolvency order disposals of
property in which the insolvent has been involved to establish whether any of the
transactions may be recoverable. See chapters 31 and 32 for guidance on
antecedent recoveries.
The official receiver should also consider the veracity of any charge over the
property given voluntarily by the insolvent to a third party.
28.24 Disclaimer of interest in a property
There is no reason why the official receiver cannot disclaim an interest in a family
home or any other freehold or leasehold property. That said, such action is likely to
be appropriate only in rare cases where the property is onerous giving rise to likely
cost beyond the value of the beneficial interest.
A commercial lease, on the other hand, is property that is more likely to be
considered for disclaimer.
Disclaimer should only be considered after taking into account the guidance in
chapter 42.
28.25 Contaminated land
Where the official receiver becomes aware that property/land of the insolvent is
contaminated, reference should be made to archived guidance on Environmental
legislation.
28.26 Role of the LTADT
Following the initial stages outlined the official receiver, as trustee, should transfer
the case to the LTADT (providing there are no other asset related matters that need
to be dealt with by the home office), who will;
•
attempt to sell the beneficial interest and (if appropriate) legal title either back to
the bankrupt or to a third party introduced to the official receiver by the
bankrupt, where the sale is clearly in the interests of the creditors, or
•
place the property on a register for review to establish, at a later date, if sale of
the interest, or placing a charging order against the property is appropriate
28.27 Council tax
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The local authority issues one council tax bill for each dwelling, whether it is rented
or owned. Generally speaking, the occupier(s) of the property are liable for payment
of the tax.
Where a property is unoccupied, the legal owner is, generally speaking, liable for
payment of the council tax. A property is exempt from council tax where the liable
person is a trustee in bankruptcy1 (which will only be the case where the official
receiver holds legal title) or the property has been taken into possession by the
mortgagees. The exceptions apply even if the property is furnished, and will still
apply if the trustee is liable with some other person.
In a company case, the company will remain liable for the council tax where it is the
owner or occupier of the property.
1. Council Tax (Exempt Dwellings) Order 1992, article 3 (Class Q Exemption)
28.28 Priority of charges
Charges against land/property generally have priority in the order that they are
created, unless they are both legal charges, in which case priority is determined by
the date of registration at the Land Registry, unless there is an agreement to the
contrary between lenders and one party has acted to its own detriment in relation to
that agreement1.
A legal charge created before an equitable charge, but registered after it will have
priority. For a definition of legal charge and equitable charge see chapter 43. Where
legal charges have the same date of registration, it is the date of the interim order
that determines priority, providing that the charging order is made final prior to the
date of the insolvency.
The registration of charging orders by a creditor after a bankruptcy order is covered
in chapter 12.
1. Lancashire Mortgage Co Ltd v Scottish & Newcastle [2007] EWCA 684
28.29 Marshalling
Marshalling, or marshalling of securities, is the term to describe the equitable remedy
available to secured creditors where they have security over the same assets of a
debtor. Without going into detail, it describes the process of sharing the assets
between the secured creditors.
It is unlikely that an asset value would have been diminished in value to the estate as
a consequence marshalling being applied.
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28.30 Repossession of a property
A secured creditor generally has the power under the terms of their charge to seek
repossession of a property regardless of the making of an insolvency order against
the debtor.
Where a property is sold and there is a shortfall on the mortgage debt (and/or other
secured creditors), the shortfall will be a debt in the insolvency proceedings1 subject
to any deed of acknowledgment, or similar (see paragraph 28.32).
1. Section 382(1)(b)
28.31 Appointment of Law of Property Act
receiver
A receiver may be appointed by the chargeholder in relation to the property, and that
receiver may have power of sale. Official receivers are most likely to encounter an
LPA receiver when dealing with a company, or a tenanted property.
28.32 Re-mortgages, re-scheduling of debt and
deeds of acknowledgement
A re-mortgage is simply the process of exchanging one mortgagee for another,
though there may be further borrowing as part of the re-mortgage.
In coming to an arrangement with a mortgagee (to deal with arrears, for example), a
bankrupt may obtain a re-mortgage, after the date of the bankruptcy order. Providing
that the effect of the re-mortgage is not to increase borrowing, and does not affect
the bankrupt’s ability to make payments under an IPA/IPO (which is unlikely as the
mortgage payments are likely to reduce), then the official receiver need not become
involved in this process. The re-mortgage will create a new post order debt with the
original loan being repaid.
Without re-mortgaging a mortgagee or other secured chargeholder may request the
bankrupt to sign a document acknowledging the level of debt or responsibility for any
shortfall. Such a document is generally known as a deed of acknowledgement. This
might be in connection with an arrears repayment plan or a sale/transfer of the legal
or beneficial interest in the property. The deed of acknowledgment will create a new
debt on which recovery action might be based post bankruptcy. The underlying debt
is still a bankruptcy debt and any unsecured part may still be claimed in the
bankruptcy.
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It is not for the official receiver to influence the bankrupt about how to proceed in this
matter. The bankrupt should simply be advised to seek independent legal advice.
28.33 Re-mortgages and assets associated
with the mortgage debt
Where there are assets other than the property associated with the mortgage debt
(an endowment policy, for example) and a re-mortgage is being considered by the
bankrupt, the official receiver should ensure that all parties are aware of the official
receiver’s interest, as trustee, in the policy.
28.34 Islamic home purchase plans
Loans which are interest based do not comply with the tenets of Islamic law,
Sharia’a, under which, in principle, all forms of interest are forbidden. Traditional
mortgages are therefore not available for those following Sharia’a. As a result,
certain specialist and some high street financial institutions have developed Sharia’a
compliant financial products to assist in the purchase of a property, as follows:
•
Ijara home purchase plans
An ijara is a leasing agreement where the financial institution will purchase the
property and become the legal owner. The ijara-wa-iqtina is a variation on this
scheme allowing the lessee to buy the property at the end of the term, usually for
pre-agreed price, paying in instalments over the term of the lease.
The property would not vest in the official receiver, belonging as it does to the
financial institution. The agreement to purchase the property would be a contract
capable of vesting in a trustee, as would the lease agreement. Unless it is close to
the date at which the bankrupt can opt to purchase the property, it is unlikely to be
worth taking the option. Forfeiture or disclaimer of the lease might defeat any interest
the trustee has in the property which would mean that the trustee would be unable to
benefit from any right of purchase.
•
Musharaka investment partnership
Musharaka is an investment partnership, and the musharaka home purchase plan is
a variety of ijara, except that the property is transferred to the customer in stages as
payment stages are met.
The effect in bankruptcy would be the same as with an ijara in all substantial effect.
•
Murabaha credit plan
Murabaha is a form of credit where the financial institution purchases the property
and sells it to the customer on a deferred basis. The property is purchased by the
financial institution at market value and then sold back to the customer at a higher
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price than was paid for it. The resale price is paid by equal instalments over an
agreed period with the bank securing the payments by means of a charge on the
property.
Where the bankrupt is involved in such an arrangement, the property (or property
interest) would vest in the bankruptcy estate in the usual way, with the bank being a
secured creditor in the proceedings for the balance of the purchase price.
28.35 Housing grants
It is possible for a homeowner to apply for a grant to make repairs to their property,
for example, to adapt it to assist with a disability. Such grants are usually
administered by the local housing authorities and, generally speaking, not repayable,
so there should be no issue with the grant affecting the trustees’s interest in the
property, for example by the creation of a charge.
Where the official receiver is asked to agree to a grant being given to a bankrupt, the
official receiver should not object provided that any statutory charge against the
property that will be imposed is recognised as not affecting the official receiver’s
priority interest in the property.
28.36 Solar panels
Some homeowners have solar panels installed on their properties. Typically, this is
carried out in one of two ways:
•
panels purchased outright – in this case the homeowner will receive the benefit
of free electricity whilst generated and also a payment, known as a ‘feed-in
tariff’, from an energy company for surplus electricity
•
panels leased – in this case the homeowner still receives the benefits of the free
electricity, but the feed-in tariff goes to the owner of the panels. The lease
agreement is typically for 25 years and the panels are installed free of charge.
Lenders require that the lease contract and installation meet certain minimum
conditions before they will agree to an installation
Where at the date of the bankruptcy order the bankrupt owns the panels and the
agreement with the energy supplier is in the bankrupt’s sole name the contract for
the feed-in tariff will form part of the bankrupt’s estate, meaning that the payments
will be due to the estate. The official receiver, as trustee, should inform the bankrupt
and the energy company of this position.
Where the bankrupt owns the panels and the property is jointly owned, it will be the
benefit of the agreement (and not the agreement itself) which forms part of the
estate. In this case, the official receiver, as trustee, should look to the joint-owner to
remit the bankrupt’s share of the feed-in tariff to the estate. In either case, and to
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avoid the official receiver, as trustee, having to collect these payments over a
prolonged period, the official receiver should consider assigning the interest in the
agreement (back) to the bankrupt, or to a third party, particularly as there is an
argument that the interest in the agreement would re-vest in the bankrupt where the
panels are on the family home.
Where the bankrupt leases solar panels, the lease (or the benefit under it) would
form part of the bankrupt’s estate. Since most lease agreements do not provide for
any payment, there is unlikely to be any benefit to the estate in the agreement.
28.37 Dealing with a property outside England
and Wales
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,
the official receiver should obtain as much information as possible regarding the
property/land from the bankrupt or director. Local assistance (probably legal
assistance) should be instructed where realisation of the property is required. The
Law Society provides a “find a solicitor” facility via their website,
www.lawsociety.org.uk, can be used to assist in locating solicitors in other countries.
Valuing properties abroad can be difficult. The bankrupt or a third party may be
invited to make an offer to purchase the official receiver’s interest but where the
official receiver is reasonably satisfied that there will be no value in the property,
taking into consideration the costs of sale and recoginition, if required, the property
interest should be disclaimed. For guidance on disclaimers see chapter 42.
28.38 Timeshares
Timeshares have been in existence since the mid 1960s and are used by individuals
as a way of obtaining a stake in a property without purchasing the entire property.
Commonly timeshare is 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 of timeshare is that the individual will be able to have access to a
property they would not be able to afford to buy outright. 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.
The Timeshare Consumers Association can offer advice on dealing with a timeshare
interest but generally these have a very poor resale value (estimated as low as 15%
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of the price originally paid) and the bankrupt / company are likely to have significant
arrears in service charges.
If the value of the timeshare is not worth realising then the official receiver should
disclaim (see chapter 42). The service charges may be onerous (sometimes equal to
or greater than the value of the timeshare interest).
Protection of the official receiver’s
interest in a property
28.39 General
In all cases where the insolvent has an interest in a property the official receiver
should take action, at the earliest possible opportunity to protect that interest for the
benefit of the insolvent estate.
28.40 Inspecting and securing commercial
premises
Reference should be made to chapter 11 concerning the action to be taken to secure
commercial property. The official receiver should remember that they are likely to
have a duty of care to visitors and trespassers.
28.41 Insurance
The official receiver should obtain insurance (including public liability insurance)
where required. Guidance on insurance is available in chapter 14.
In essence, insurance will be required where the insolvent is the legal owner of the
property, there is no (or insufficient) existing cover, and/or where the insolvent is
owner and/or occupier and there is a particular risk of damage to people or property
near the building.
Where the property has no value to the estate the official receiver may limit the
insurance to public liability (as required), but should inform the mortgagees of the
lack (or inadequacy) of buildings insurance.
28.42 Cancellation of insurance
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The official receiver should ensure that the insurance is cancelled in any of the
following circumstances:
•
immediately upon annulment
•
if an insolvency practitioner is appointed trustee
•
where the property re-vests with the bankrupt (see paragraphs 28.51 and
28.69)
•
where the official receiver as trustee obtains a charging order
•
where the property (or the bankrupt’s beneficial interest) is sold
•
where there a disclaimer is issued; or
•
on repossession
28.43 Protecting the interest at the Land
Registry
The process for protecting the property at the Land Registry is covered in detail in
chapter 7. The official receiver should ensure that guidance is followed in all
bankruptcy cases. It is generally not necessary to register a winding up order.
28.44 Protection of unregistered land
Clearly, where land is unregistered it will not be possible to effect protection at the
Land Registry by obtaining a restriction.
Where the property is solely owned, the official receiver should arrange for a first
registration of the unregistered land, following the guidance in chapter 7.
In all cases (jointly and solely owned), the official receiver should ensure that the
order has been registered with the Land Charges Department and that any third
party with an interest in the property is on notice of the official receiver’s interest in
the bankrupt’s share in the property. Other than having notice placed with the deeds,
this is the only effective method of protection.
28.45 Protection of jointly owned unregistered
land
When dealing with a jointly-owned unregistered property, or where there is likely to
be a delay in applying for registration of a solely owned property, the official receiver
should, where possible, attempt to gain control of the title deeds where the property
is unencumbered or the deeds are otherwise not in the control of the mortgagees.
--- PDF page 30 ---
Where the title deeds are under the control of the mortgagee, the official receiver
should ensure that the mortgagee in control of the deeds places notice with the
deeds of the official receiver’s interest in the property.
28.46 Notification to bankrupt and other
interested parties when dealing with family
home
Where the official receiver is dealing with the family home (see paragraph 28.51) the
official receiver should ensure that the bankrupt and any interested parties are put on
notice that the interest has vested in the trustee.
28.47 Notice to mortgagees
The official receiver should ensure that the mortgagees have been issued with the
standard letter putting them on notice of the official receiver’s interest in the property
and obtain acknowledgement of that notice1.
This notice also requests the mortgagee(s) to inform the official receiver of any
attempted dealings in the property.
1. MP3
28.48 Protection of repossessed property
Where a property has been repossessed it is still necessary to register the
appropriate restrictions at the Land Registry to ensure that the official receiver’s
interest in the property is protected and, particularly, that any surplus is not passed
to a joint owner.
The official receiver has discretion not to seek such protection where a sale has
been agreed and the protection may hinder that sale. The solicitor should be asked
to provide an undertaking to remit the bankrupt’s share of the sale proceeds.
In all cases of repossessed property, the official receiver should issue the standard
letter1 to the mortgagees to put them on notice of the official receiver’s interest in the
bankrupt’s share of surplus sale proceeds.
1. MP3
28.49 Protection of rental income
Guidance on tenanted properties that are owned either by a company or a bankrupt
is provided in chapters 29 (solely owned) and 30 (jointly owned).
--- PDF page 31 ---
28.50 Charging order against an interest in a
property in favour of bankrupt
Where the bankrupt’s interest in a property is held as a charge granted in
matrimonial proceedings the property may also be qualifying family home. If the
official receiver is unable to realise the charge due to its terms, it will normally be
appropriate to seek to extend the period in which the official receiver can deal with
the interest. (see paragraph 28.65)
The family home (bankruptcy only)
28.51 The family home or ‘use it or lose it’
provisions
Provisions introduced on 1 April 20041 require a trustee to deal with an interest in a
qualifying property within a period of three years from, usually, the date of the
bankruptcy order, or lose the right to do so. If the trustee doesn’t deal with the
interest the property re-vests in the bankrupt. The provisions were introduced to give
certainty at an early stage to the fate of the bankrupt’s family home.
1. Section 283A
28.52 Properties to which the provisions apply
(a ‘qualifying property’)
An interest in a property, which is a “dwelling house”, which at the date of the
bankruptcy order was the sole or principle residence of:
•
the bankrupt
•
the bankrupt’s spouse or civil partner, or
•
a former spouse or civil partner of the bankrupt
•
will be considered to be a qualifying property (“the family home”)
A “dwelling house” is defined as any building or part of a building which is occupied
as a dwelling and any yard, garden or outhouse belonging to the dwelling house and
occupied with it1.
1. Section 385(1)
28.53 “Spouse or civil partner”
--- PDF page 32 ---
Marriage1 and civil partnership2 are legal processes. A ‘spouse’ (husband or wife) is
an individual’s partner in marriage. A ‘civil partner’ can only refer to a man or a
woman who is the individual’s partner in that arrangement (and they must be of the
same gender). Both a marriage and a civil partnership can only be dissolved by the
courts, rendering each partner a former spouse or civil partner.
None of these definitions would include a cohabitant/partner, or former
cohabitant/partner, even if there are children of the relationship living with or cared
for by the cohabitant/partner. There is no concept in law of a “common-law” husband
or wife.
1. Marriage Act 1949 (as amended) 2. Civil Partnership Act 2004
28.54 Caravan, houseboat or mobile home as a
dwelling house
Whilst a ‘touring’ caravan and, possibly but less likely, a houseboat could be
considered to be a ‘house’ or home1, neither would fall under the definition of
‘dwelling house’ for the purposes of the Act as neither are a ‘building’, particularly as
they are mobile.
A caravan could be a dwelling house if the wheels are removed and/or it is fixed to a
permanent base or stabilising struts and if it is connected to mains services (e.g.
electric/water) and cannot easily be detached. This would generally be called a
‘static’ caravan.
A mobile home could be a dwelling house if it occupies an area which is owned or let
for the specific purpose of providing permanent occupation and has a significant
degree of immobility. Generally, mobile homes are transported on lorries, rather than
towed as a caravan.
The official receiver should take each case on its own merits and, where there is
doubt, should err on the side of the property being the family home to avoid the risk
of the interest being lost to creditors on the expiration of the three year period.
1. R v Rent Officer of the Nottinghamshire Registration Area ex parte Allen [1986] 52 P&CR 41
28.55 Definition of the bankrupt’s ‘interest’
The bankrupt’s interest in the family home may be in the legal estate (the bankrupt is
sole or joint owner of the property) or a beneficial interest (see paragraphs 28.3 and
28.4). A beneficial interest would include holding a matrimonial charge over the
property (see paragraph 28.73).
--- PDF page 33 ---
28.56 Bankrupt may have more than one
family home
The bankrupt may have more than one family home where, for example, the
bankrupt lives in one property, the bankrupt’s estranged spouse lives in another
property, and a former spouse lives in a third. If the bankrupt has an interest in any
of these properties, they would each re-vest in the bankrupt unless the official
receiver takes steps to deal with the property (see below).
Similarly, the bankrupt or (former) spouse/civil partner may have more than one
residence (for example one in the city for work and another in the country for
weekends and holidays) – in which case, the bankrupt would have to elect which
property was the principal residence and therefore qualified as the family home.
28.57 Effect of the family home provisions
The bankrupt’s interest in the family home will vest in the official receiver on the
making of the bankruptcy order1. Unless dealt with by the trustee (see paragraph
28.61) the property will re-vest in the bankrupt
•
three years from the date of the bankruptcy order; or
•
earlier if the trustee sends notice to the bankrupt that the trustee considers the
continued vesting is of no benefit to creditors, or re-vesting would facilitate a
more efficient administration of the estate, but
•
if the bankrupt does not inform the official receiver (or any insolvency
practitioner acting as trustee) of the bankrupt’s interest within three months of
the date of the bankruptcy order, then the family home will not re-vest until the
expiry of three years after the date that official receiver or other trustee
becomes aware of the bankrupt’s interest in the property (unless the early re-
vesting in point above, applies)2
The interest in the property will re-vest (where appropriate) without conveyance,
assignment or transfer3.
1. The provisions applied to all cases where the petition was presented on or after 1 April 2004. Transitional provisions applied the provisions to all properties in cases
where orders were made under the Insolvency Act 1986 prior to 1 April 2004 which remained vested in the trustee. Transitional provision properties revested on 1 April
2007. The provisions do not apply to orders made under the Bankruptcy Act 1914 (Pannell v Official Receiver [2008] EWHC 736(Ch)
2. Section 285A(5)
3. Section 283A(4)(b)
28.58 Provisions only apply to property which
vests at the commencement of bankruptcy
--- PDF page 34 ---
The provisions relating to the family home do not apply to property vested in third
parties at the commencement of the bankruptcy. So, for example, where property is
recovered for the estate following proceedings related to an antecedent recovery,
that property cannot be the family home1.
1. Stonham v Ramrattan [2011] 1 WLR 1617
28.59 Three-year period and non-surrender
cases
The legislation provides that the three-year period after which the property re-vests
in the bankrupt commences, in the absence of a notification of such from the
bankrupt, when the trustee becomes aware of the bankrupt’s interest1. The official
receiver should therefore treat a case as though the three years has begun from the
earliest notification of the bankrupt’s interest in the property, whether or not that
notification came from the bankrupt.
1. Section 285A
28.60 Notice to be issued to interested parties
When a property has been identified as a qualifying family home, the official receiver,
as trustee must send a notice1 to the bankrupt and, as appropriate, the bankrupt’s
spouse/civil partner or former spouse/civil partner. The Land Registry title number
should be included on the notice where it is known2.
The official receiver should send the notice as soon as reasonably practicable after
becoming aware that a property is the family home, and not later than 14 days
before the expiry of the three-year period3.
1. Rule 10.167; Form BHNOT
2. Rule 10.167(2)
3. Rule 10.167(3)
28.61 Dealing with the interest in a family
home
The bankrupt’s interest in the family home will re-vest in the bankrupt unless the
interest is dealt with by one of the following events occurring1:
•
the trustee realises the interest (the interest is sold)
•
the trustee applies for a charging order
•
the trustee applies for an order for sale in respect of the property
--- PDF page 35 ---
•
the trustee applies for an order for possession
•
the trustee agrees with the bankrupt that the bankrupt shall incur a specified
liability to the estate in consideration of which the interest will cease to form part
of the estate
It has been held that the realisation of the bankrupt’s interest in the family home can
only mean to turn the interest into money at that time, and not later2. This would
mean that a sale (assignment) of the bankrupt’s interest for future consideration
would not stop the property re-vesting in the bankrupt at the end of the relevant term
note3.
It is not necessary for the trustee to realise the property. It will be sufficient where the
property is realised, for example, by the mortgagee in possession4.
1. Section 283A(3)
2. Doyle v James [2010] BPIR 1063
3. Lewis v Metropolitan Property Realisations [2009] EWCA Civ 448
4. Re a debtor (No.29 of 1986) [1997] BPIR 183
28.62 Low value homes
There are certain restrictions on how the trustee, may deal with a low value family
home1. This is currently a property where the bankrupt’s interest has a value of
£1,000 or less2.
The intention of these legislative provisions is to recognise that the benefit to
creditors in dealing with a low value home is often outweighed by the suffering
imposed on the bankrupt and family by the loss of the home.
1. Section 313A
2. Insolvency Proceedings (Monetary Limits) Order 1986 (as amended)
28.63 Restrictions on dealing with a low value
home
The court will dismiss any application by the trustee for an order for sale or
possession of the property, or an application for a charge against the bankrupt’s
interest1 where the value of the interest is £1,000 or less.
1. Section 313A(2)
28.64 Application for order dismissed
--- PDF page 36 ---
Where any application for an order for sale or possession of the property, or an
application for a charge against the bankrupt’s interest in the property, is dismissed;
the interest will automatically re-vest in the bankrupt unless the court orders
otherwise1.
1. Section 283A(4)
28.65 Extending the three year period for re-
vesting of the bankrupt’s interest
The court may substitute a longer period than three years after which the bankrupt’s
interest in the family home will re-vest in the bankrupt1. An application for the period
to be extended may be appropriate in the following circumstances:
•
the interest in the property is subject to matrimonial court order and cannot be
realised until defined events occur. For example, if the former spouse re-
marries, or the youngest child of the relationship finishes full-time education
•
the interest in the property is held on trust for the bankrupt
•
the bankrupt has the right to ‘buy-back’ the property following a ‘sale and
leaseback’ of the property (see paragraph 28.182)
•
the official receiver has been unable to deal with the property interest due to
non-surrender/non-cooperation of the bankrupt
Any application to court should seek to set the period at six months after the
expiration of the date that the official receiver becomes aware that the property
interest has become available.
The official receiver should not apply for an extension where the delay has been due
to the official receiver failing to deal with the property. It is unlikely the court would
look favorably on such an application.
1. Section 283A(6)
28.66 Interest in the form of a charge (low
value homes)
Where the bankrupt’s interest in a family home is in the form of a charge to protect a
future interest in the property (usually this will be in relation to matrimonial
proceedings), the future interest will generally relate to the value of the property at a
certain point in time, for example, the youngest child’s 18th birthday.
In such cases the interest in the property is a deferred interest and even where the
value of the charged property is below £1,000 at the date of the bankruptcy order,
the official receiver should not consider this to be a low value home (see paragraph
--- PDF page 37 ---
28.62), as the relevant date for calculating the value will be the date that it is able to
be realised, by which time it may be worth over £1,000.
28.67 Application to substitute the period after
expiration of three years
It is unlikely that an application to substitute the period can be made after the three
year period set in the Act has expired. As a matter of policy, such an application
should not be considered unless the official receiver believes that there are
exceptional circumstances why such an application should be made.
28.68 Early re-vesting of the bankrupt’s
interest
The trustee may arrange for the bankrupt’s interest in the family home to be re-
vested in the bankrupt earlier than the normal three year period1. Re-vesting in a
shorter period is achieve by issuing notice to the bankrupt2 the trustee considers that
the continued vesting of the property in the estate is of no benefit to creditors and/or
early re-vesting would facilitate a more efficient administration of the bankrupt’s
estate.
The property would then re-vest one month from the date of the notice3.
1. Section 283A(7)
2. Rule 10.170(1); Form BHREV
3. Rule 10.170(2)
28.69 Circumstances in which a property
might be re-vested early.
The official receiver may wish to consider early re-vesting of a property in the
following circumstances:
•
where the property is in negative equity and the official receiver considers there
is no reasonable prospect of a surplus becoming available from the property
within the three year period, or
•
the property has a negative equity of is otherwise a low value home (equity of
less than £1,000) and the official receiver considers there is no reasonable
prospect of a surplus in excess of £5,000 becoming available from the property
within the three year period
--- PDF page 38 ---
•
where the property is a solely owned shared ownership property held on an
assured tenancy basis which has been claimed under section 308A and the
tenancy is subsequently found to have a value of less than £1,000
•
where the interest in the property would otherwise be considered suitable for
disclaimer, for example where the interest is subject to legal proceedings and
the rights of the bankrupt and a third party may be more suitably resolved by the
court
28.70 Action following revesting
Where a property re-vests the official receiver must make application, within five
days, to the Land Registry, where the property is on registered land, to amend the
register of proprietorship1. The application should be accompanied by evidence of
the bankruptcy and the trustee’s appointment (unless previously notified to the Chief
Land Registrar) and by a certificate stating that the property interest has re-vested2.
The official receiver must also inform3
•
the bankrupt
•
any (former) spouse/civil partner for whom the property is their principle
residence, and
•
any other person claiming an interest in the family home or under any liability in
respect of it that application has been made to the Land Registry
Where the property is unregistered, the official receiver must issue the bankrupt with
a certificate of re-vesting4.
The official receiver should ensure that any insurance effected by the official receiver
is cancelled once the property re-vests with the bankrupt. The property re-vests one
month from the date of the notice5.
1. Rule 10.168(3); Form RX3 (solely-owned); Form RX4 (jointly-owned)
2. Form BHLET
3. Rule 10168(4) and (5); BHLET
4. Rule 10.169; BHCERT
5. Rule 10.170(1) and (2)
28.71 Re-vested property cannot be claimed as
after-acquired property
A property interest that has re-vested in a bankrupt under the provisions relating to
the family home cannot be claimed as after-acquired property1.
--- PDF page 39 ---
1. Section 307(2)(aa)
28.72 Endowment policies
Any endowment policy (or similar) taken out with a view to repaying the mortgage on
the family home is a separate asset to the property interest. Guidance on dealing
with endowment policies can be found in chapter 33.
Matrimonial or civil partnership
proceedings (bankruptcy only)
28.73 Property adjustment order
Where a couple are involved in proceedings for divorce or the dissolution of a civil
partnership, the court can make various orders with regard to future financial
provision “ancillary relief” The court has the power to make an order transferring the
interest of one party to the other party as part of matrimonial or civil partnership
divorce proceedings: a property adjustment order.
28.74 Property adjustment order not effected
at date of bankruptcy order
Where a property adjustment order is made before the date of the bankruptcy order
the transfer of the property does not have to have been effected for the interest in
the property to have passed. For example, the order may provide that the transfer
takes effect 14 days after pronouncement and the bankruptcy order is made in the
interim period1.
The official receiver should still consider whether the property adjustment order was
a transaction at an undervalue (see chapter 31).
1. Mountney v Treharne [2002] EWCA Civ 1174
28.75 Consent orders
A consent order is where the parties to the proceedings agree terms for the financial
settlement and other matters. A property adjustment order may be just one element
of a consent order. The official receiver should be mindful that a transfer of property
under a property adjustment order by consent is more likely to constitute a
--- PDF page 40 ---
transaction at an undervalue than a property adjustment order following contested
proceedings.
A consent order generally takes effect at decree absolute, but the wording of the
order can provide that it takes effect at another date.
28.76 Initial action when proceedings in
progress
When the official receiver becomes aware ancillary relief proceedings are still in
progress and, in particular, that an application for a property adjustment order has
been made, the official receiver should immediately contact the court in which the
proceedings are ongoing. The court should be informed of the bankruptcy
proceedings and should make application for an adjournment or stay of the
proceedings, as required, to give the bankruptcy court opportunity to consider the
interests of the bankruptcy creditors.
The official receiver should also give notice of the bankruptcy proceedings to the
bankrupt’s spouse or civil partner and any solicitors acting for the bankrupt’s spouse
or civil partner, where known, to ensure that the parties are aware of the bankruptcy
and the trustee’s interest in the property.
28.77 Order made against bankrupt’s spouse
or civil partner prior to bankruptcy order
An order against the bankrupt’s spouse or civil partner made prior to the making of
the bankruptcy order requiring the transfer of the property on the bankrupt will be
effective and the property will bee part of the bankruptcy estate, available when the
order is given effect.
28.78 Effect of property adjustment order
made after bankruptcy order
If a property adjustment order is made after the bankrupt’s estate has vested in the
trustee it will be negated if it requires the bankrupt to settle or transfer any property
which forms part of the estate. This is because the bankrupt will, at that stage, no
longer be entitled to the property (the interest having vested in the trustee) and,
therefore, the bankrupt will be unable to transfer the property, or any part of it, in
accordance with the property adjustment order. Any requests for the official receiver,
as trustee, to transfer the property should be resisted as the relevant law applies
--- PDF page 41 ---
only to parties in the marriage/civil partnership. The court cannot make a property
adjustment order against a trustee in bankruptcy1.
1. Re Holliday (a bankrupt) [1981] Ch 405
28.79 Order made against bankrupt’s
spouse/civil partner after bankruptcy order
A property adjustment order made after the date of the bankruptcy order against the
bankrupt’s spouse or civil partner requiring settlement or transfer of property on/to
the bankrupt will be effective notwithstanding the bankruptcy. The property should be
claimed as after acquired property. After acquired property must be claimed within
42 days from the date the official receiver, as trustee, becomes aware of its
existence (see chapter 36).
28.80 Secured maintenance order
A secured maintenance order is an order made by the court in ancillary relief
proceedings giving the spouse/civil partner security against the property of the other
party. The enforcement of such an order should be resisted where it is made against
a bankrupt after bankruptcy or after the presentation of the petition.
28.81 Taking into account an application for a
property adjustment order
After taking the initial steps to deal with the application for a property adjustment
order the official receiver will have to consider the effect of the application on the
property of the bankrupt, making representations to the court as appropriate. The
official receiver should be particularly concerned to see that any proposed order
does not diminish the assets available to creditors and should also take into account
the effect of any proposed order on the ability of the bankrupt to make or continue to
make payments under an IPA/IPO (see chapter 35).
Valuation of the property and
establishing the insolvent’s interest in
the property (including equitable
accounting)
--- PDF page 42 ---
28.82 Introduction
Whether or not the insolvent is shown as an owner of the property, they may have an
interest in the property depending on their actions and intentions in relation to the
property. The following gives guidance on valuing the property in which the insolvent
has, or appears to have, an interest and on establishing the extent of the insolvent’s
interest in the property.
Certain of the concepts explained will occur only in respect of residential properties
in bankruptcy cases and the guidance has that in mind.
28.83 Establishing the insolvent’s interest in
the property
The ultimate purpose of establishing the insolvent’s interest in the property is to
establish how the property may be dealt with. The first stage in this process will
generally be the valuation of the property itself.
28.84 Verifying information provided by the
director/bankrupt
The initial valuation of the property will be provided by the director/bankrupt in the
statement of affairs or PIQ. The official receiver should carry out a separate valuation
unless the director / bankrupt’s estimate is based on a professional valuation carried
out within the previous six months.
28.85 Methods by which the value of a
property can be established
The value of a property may be established/verified in a number of ways. The official
receiver should decide which method is most appropriate on a case-by-case basis.
28.86 Local knowledge to assist in establishing
a valuation
The official receiver’s local knowledge may be of assistance in verifying a valuation
obtained by one of the other available sources but is unlikely to be sufficient in its
own right.
--- PDF page 43 ---
28.87 Professional valuation provided by
insolvent
An estate agent or surveyor’s report obtained by the director/bankrupt will provide
the most accurate valuation, given that the estate agent/surveyor is likely to have
visited the property and will have knowledge of the current market condition in that
particular area.
Where there are doubts, the official receiver should seek verification that the
valuation provided by the director/bankrupt is genuine – contacting the valuer where
necessary. Similarly, the official receiver should check that the valuation was not
conducted on the basis of a ‘quick sale’, as such valuations are typically lower. Any
valuation that is more than six months old should be verified by one of the other
methods outlined below.
28.88 Valuation information from mortgagee
Mortgagees often hold information relating to the value of a property, but this will
usually date from the time the property was purchased, or the date it was
remortgaged. Any valuation supplied by a mortgagee that is more than six months
old should be verified by one of the other methods outlined below.
The historical valuation that a mortgagee can provide will be useful in obtaining an
internet valuation.
28.89 Internet valuations – residential
properties
Internet valuations work on the basis that the valuation is arrived at by extrapolation
of a known historical valuation (usually the purchase price). The calculation can,
therefore, be thrown out if there have been significant changes to the property since
the last known valuation (an extension, for example).
When using internet valuation sites to establish the value of the property, the official
receiver should note that not all sites will give a reliable valuation of the property.
The official receiver should try to obtain an average of two internet valuations. A
combination of the following sites may be used.
Acadata is an index-based calculator and will provide a valuation based on
postcode. The site tracks the price from the last purchase price / date of purchase.
If this information is not available Nethouseprices might be used to give an indication
of recent sale prices (the sign-up pages can be skipped). Other useful sites might be
--- PDF page 44 ---
Rightmove, Zoopla and Mouseprice. Where a personal log-in is required staff may
use their IS email address.
The official receiver will need to exercise judgment on whether or not to accept the
average internet valuation where the property has been significantly altered (for good
or ill) since the last known valuation. In cases of doubt, and in the absence of an
acceptable valuation provided by the insolvent consideration should be given to
obtaining a drive-by valuation of the property, with details of the alterations to the
property being notified to the agents conducting the valuation.
28.90 Internet valuations – commercial
property
The effectiveness of an internet valuation of commercial property is likely to be low
and, in such cases, the official receiver should consider arranging for agent’s to
value the property instead.
28.91 Use of a drive-by valuation
Due to cost implications, drive-by valuations should be used only rarely, for example,
where there is no available professional valuation, there is no reliable internet
valuations or where the property is a commercial property.
A drive-by valuation is a valuation carried out by the valuer assessing a property
from the street. It can be more accurate than an internet valuation, as it is based on
the knowledge and skill of the valuer. A drive-by valuation is subject to the same
limitations as an internet valuation, in that the valuer will not be aware of the exact
condition of the property or may not be able to see any extensions to the property
from the street.
Where a drive-by valuation is considered necessary, it may be obtained using a local
agent for both residential and commercial property.
28.92 Dispute over valuation
Where there is a dispute over the valuation of a property, the disputing party should
be asked to obtain their own valuation at their own expense. Estate agents will often
provide a free valuation service.
28.93 Charges affecting the value of the
insolvent’s interest in the property
--- PDF page 45 ---
Once the value of the property has been ascertained, it will be necessary to establish
if there are any secured debts, such as a mortgage or other charges against the
property.
Details of charges may be obtained from the bankrupt/director, Land Registry, Land
Charges Department or from other charge-holders
The outstanding balance on the debt(s) secured by the charge should be deducted
from the likely sale price. The difference between the value of the property and the
amount outstanding under the secured loans is known as the equity in the property.
28.94 Equity in the property and the
insolvent’s interest therein
Any beneficial interest in the property will be an interest in the equity of the property.
The level of an insolvent’s beneficial interest in the property can be affected by a
number of factors.
28.95 Starting position
Unless there is an express declaration of trust providing otherwise1 (see paragraph
28.105) the presumption is that beneficial interest will follow legal title.
Therefore, the starting point for the official receiver when considering beneficial
interests in a jointly owned property is that the beneficial interest is equally divided
between the joint owners. Where there are two joint legal owners the beneficial
interest of each in the property is 50% of the equity. Where the property is solely
owned the beneficial interest is 100% of the equity. Unless evidence is produced to
the contrary the official receiver should always proceed on that basis2.
See paragraphs 28.96 to 28.101 for information on how charges may be adjusted
affecting the value of beneficial interests. See paragraphs 28.102 to 28.118 for
information on how the relative shares of beneficial interests may be adjusted.
1. Pettitt v Pettitt [1970] AC 777
2. Jones v Kernott [2011] UKSC 53
28.96 Equity of exoneration
In common law the court of equity is a court of fairness. If it is proven that the
loan/expenditure on which a charge was created was used purely for the benefit of
one of the joint owners (A), for example to finance a business venture, and the other
joint owner (B) derived no direct benefit from it, then B may be entitled to have the
--- PDF page 46 ---
secured debt discharged (so far as is possible) out of A’s share of the equity. A
worked example of equity of exoneration in effect can be found at Annex A.
28.97 The application of equity of exoneration
in a bankruptcy case
If a non-bankrupt joint owner of a property wishes to rely on exoneration to establish
a greater share in the equity of the property then the trustee should request evidence
to show the extent to which the monies/expenditure secured by the charge were
incurred solely for the benefit of the bankrupt and that the non-bankrupt joint owner
did not derive any consequential benefit.
Where the non-bankrupt joint owner has no independent income and the household
relies on the business income of the bankrupt for financial support, it is unlikely that
the principle of exoneration would apply1.
1. Re Pittortou (a bankrupt) [1985] 1 WLR 58
28.98 Circumstances where exoneration does
NOT apply
The official receiver should not agree that a debt under a charge can be discharged
first from the bankrupt’s interest under the principle of exoneration in the following
circumstances:
•
the non-bankrupt joint owner intended to make a gift to the bankrupt1; or
•
the money raised was to pay debts of the bankrupt incurred to maintain the
lifestyle of both parties2; or
•
the money raised was used to discharge the debts of the non-bankrupt owner3;
or
•
the money was used for the benefit of the non-bankrupt owner, either wholly or
jointly with the bankrupt. This will include money used to pay their general
household and living expenses4
1. Clinton v Hooper (1791) 29 ER 490
2. Paget v Paget [1898] 1 Ch 470
3. Lewis v Nangle (1752) 28 ER 275
4. Re Pittortou (a bankrupt) [1985] 1 WLR 58
28.99 Effect of official receiver agreeing that
exoneration does apply
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Any agreement by the trustee that the principle of equity of exoneration applies does
not affect the joint-owner’s responsibility to the chargeholder to discharge the debt.
28.100 Setting aside of a Charge
A party to a charged debt may have grounds to have their legal liability set aside in
certain circumstances:
•
on the grounds of fraud fraudulent misrepresentation or forgery of that person’s
signature1
•
on the grounds of duress, at the time the charge was executed the person was
subject to violence, threat of violence or actual or threatened imprisonment2
•
on the grounds of undue influence; taking advantage of a position of power or
trust over another. Before a presumption of undue influence can arise it is
necessary to show that the disadvantaged party placed trust and confidence in
the party taking advantage, and that the transaction is not readily explainable by
reference to their relationship3. If that is so, there are certain relationships where
the presumption of undue influence is irrebuttable, such as parent/child4 or
solicitor/client5. If the parties were husband, wife or civil partners, then the
presumption will arise, but it is rebuttable. In that case, it will be for the person
who benefitted from the arrangement to show that it was free from undue
influence6
•
on the grounds of non-registration (company only, see chapter 32)
This is a dispute the wronged party will have with the chargeholder and may require
determination by the court. Depending on the situation, the setting aside may be to
the benefit or detriment of the insolvent estate, depending on whether the insolvent
committed the wrongful act, or is the victim.
1. Kings North Trust Ltd v Bell [1986] 1 WLR 119
2. Barton v Armstrong [1976] AC 104
3. Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44
4. Bullock v Lloyds Bank Ltd [1955] Ch 317
5. Willis v Barron [1902] AC 271
6. Barclays Bank plc v O’Brien [1994] 1 AC 180
28.101 Undue influence – position of
mortgagee
Where a loan is entered into between a lender and a husband, wife or civil partners,
any undue influence will not affect the enforceability of the mortgage provided the
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lender was unaware, or has no reason to suspect, that there was undue influence,
and the lender believed that the transaction was to the benefit of the husband, wife
or civil partners1.
If the spouse/civil partner merely guaranteed the loan made to the other spouse/civil
partner, the security will be rendered invalid if the lender did not take steps to ensure
that the spouse/civil partner gave an informed and true consent to the guarantee2.
1. CIBC Mortgages v Pitt [1993] 3 WLR 802
2. Barclays Bank plc v O’Brien [1994] 1 AC 180
28.102 Establishing the shares in which equity
is held
If there is a common intention between the parties as to the shares in which the
property is to be held, such that the presumption of equal shares can be displaced
then that common intention should be followed, but such a change should be
scrutinised by the official receiver as a possible transaction at an undervalue (see
chapter 31).
Where the presumption can be displaced, but it is not possible for the parties to
agree the proportion in which the shares were to be held, it is necessary to
investigate the whole course of dealings in the property to reach a fair division of the
shares. Each case will turn on its own facts and, whilst financial contributions to the
property will clearly be an important factor, there will be other factors that might be
relevant1 (see paragraph 28.113).
1. Jones v Kernott [2011] UKSC 53; Oxley v Hiscocks [2004] 3 WLR 715
28.103 Dispute over the insolvent’s beneficial
interest in a property
Most of the legal principles in determining beneficial interest have arisen to decide
matters where unmarried couples have separated. Where couples have been
married and subsequently separate the court has the power to make a property
adjustment order1. The legal principles in determining beneficial interest are equally
applicable to deciding property shares in bankruptcy – whether the parties are
married or not.
The official receiver may be asked to consider the division of a beneficial interest
where a third party believes they are entitled to a (greater) share in the property, or
where the official receiver believes that the trustee has a claim to a (greater) share of
a property jointly owned by the bankrupt or owned by a third party.
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The court has held:
‘once the court was satisfied that it was the parties’ common intention that the
beneficial interest was to be shared in some proportion or other, the court might have
to give effect to that common intention by determining what in all the circumstances
was a fair share.’2.
‘In family disputes, strong feelings are aroused when couples split up. These often
lead the parties, honestly but mistakenly, to reinterpret the past in self-exculpatory or
vengeful terms. They also lead people to spend far more on the legal battle than is
warranted by the sums actually at stake. A full examination of the facts is likely to
involve disproportionate costs. In joint names cases it is also unlikely to lead to a
different result, unless the facts are very unusual3.
1. Matrimonial Causes Act 1973
2. Gissing v Gissing [1971] AC 886
3. Stack v Dowden [2007] 2 AC 432
28.104 Creation of trust
Case law1 suggests that when a party is claiming a beneficial interest that party will
rely on the equitable doctrines of trust law. These are discussed below.
1. Stack v Dowden [2007] 2 AC 432; Jones v Kernott [2011] UKSC 53
28.105 Express declaration of trust
An express declaration of trust clearly sets out the parties intentions. The Land
Registry has since April 1988 provided for a box on the TR1 form for the transferees
to declare how the beneficial interest in a property is to be held and where this is
available this should avoid any uncertainty in the parties’ intentions at the time the
property was purchased.
The fact that the beneficial interest is determined by an express declaration at the
date of acquisition does not mean that it cannot alter thereafter.
28.106 Verifying substance of an express trust
The trustee should take steps to satisfy themselves of the veracity of any trust deed.
These enquiries should seek to establish if the deed was created following advice
from a solicitor and, if so, the solicitor and witnesses should be contacted to confirm
that the deed was created on the date purported. The official receiver should, in
particular, ask the witnesses to confirm that they saw the signatures being appended
to the deed on the date stated.
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If the trust deed was prepared by a solicitor or other professional who confirms the
facts then this is likely to be conclusive evidence of the veracity of the deed.
28.107 Resulting trust
In general the application of a resulting trust is now limited and a beneficial interest
will not arise unless there is also an intention to create a trust as between the
parties.
The basic principle in relation to resulting trusts is that where the legal estate is
conveyed into the name of one person but another party has contributed to some or
all of the purchase price, there will be a rebuttable presumption that party making the
payment will own part or all of the beneficial ownership of the property1.
For a resulting trust to exist the party claiming a beneficial interest must have made a
direct financial contribution to the purchase price of the property. It is considered that
there is no requirement that there was also a common intention between the parties
as to the existence or extent of the resultant beneficial interest. The larger
percentage of the purchase a party pays the greater the resulting trust and thus the
beneficial interest will be.
1. Pettitt v Pettitt [1970] AC 777
28.108 Constructive trust
This is an implied trust that has been ‘constructed’. A constructive trust will arise
where there has been no express declaration of trust (or there was an express
declaration but the position changed over time) and is an equitable remedy.
Therefore the actions, conduct and intentions of the parties need to be considered.
For a constructive trust to exist there must be a common intention that a trust is to be
created, and second, that there has been some material alteration in the claimant’s
position which it would be inequitable to deny. Where there was an express trust and
a party claims that the intentions have changed, possibly creating a constructive
trust, the burden will be on that person to provide the evidence to prove the claim.
The intention of the parties can be constructed from their conduct (see paragraph
28.113).
28.109 Protective Trusts
A protective trust usually occurs where property is left in a will and the person
making the will has concerns about the irresponsibility of the beneficiary. It will be
held on trust until some “divesting act” happens. One such “divesting act” is
bankruptcy, following which the trust will become a discretionary trust allowing the
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trustees to vest the property or not. Where the person is in bankruptcy the trustees
will invariably decide not to vest the property.
28.110 Beneficial interest, trusts and jointly
owned property
It has been held that there cannot be a resulting trust in relation to a jointly-owned
matrimonial or quasi-matrimonial home. This is because there is a presumption that,
in the absence of evidence of a contrary intention, where a property is purchased
jointly as a home the couple have made an emotional and economic commitment to
a joint enterprise. Consequently, where a domestic property is conveyed into the
joint names of the cohabitants (whether in a relationship or not) the starting point is
that the legal and beneficial interests are joint and equal1.
1. Stack v Dowden [2007] 2 AC 432; . Jones v Kernott [2011] UKSC 53; Aspden v Elvy [2012] EWHC 1387 (Ch)
28.111 Claim of contrary intention to
beneficial interest following legal title
Where there is a claim that the parties held a contrary intention as to how the
beneficial interest would be split so as to override the principle that it will follow legal
title (see paragraph 28.95), it will be for the party claiming that the position is
different to make representations to the trustee and to provide the evidence to
substantiate the claim1.
In a solely-owned property, a party whose name is not on the proprietorship register
particularly has the burden of establishing an interest in the property – through
contributions, for example2.
1. Stack v Dowden [2007] 2 AC 432
2. Gissing v Gissing [1971] AC 886; Lowton v Coombes [1999] Ch 373
28.112 Evidence of a contrary or change of
common intention
In establishing whether there was any intention to hold the beneficial interests in the
property in shares other than in the same proportions as the legal title, it is
necessary to establish if there is evidence of an actual common agreement,
arrangement or understanding between the parties, possibly based on evidence of
discussions between them, however imperfectly remembered or imprecise the terms.
Such an agreement can be inferred from the parties’ conduct (changing the nature of
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the legal title, becoming party to a mortgage on the property or, even, simply
discussions) in relation to the property, but cannot be attributed in the absence of
any agreement or discussion1.
Further, it would be wrong for the parties to intend, at one and the same time, for the
beneficial interest to be shared equally should they separate on amicable terms but
to be shared unequally were they to split on acrimonious terms, or if one were to be
made bankrupt2.
The fact that one party apparently acts in a manner contrary to an agreement will not
change the agreement unless the change is communicated to the other party3.
1. Lloyds Bank plc v Rosset [1991] 1 AC 107; Jones v Kernott [2011] UKSC 53
2. Stack v Dowden [2007] 2 AC 432
3. Jones v Kernott [2011] UKSC 53
28.113 Factors to take into account in deciding
contrary intention and adjusted shares.
The court has held that, in deciding the shares in which a property is to be held, each
case will turn on its own facts. Matters to be taken into account include:
•
creation of a trust (see paragraph 28.105)
•
advice or discussions at the time of transfer which shed light on the parties’
intentions
•
reasons why the home was acquired in joint names or in a sole name
•
reasons why (if so) it was intended that the property would pass to the survivor
should the other party die (jointly owned only)
•
the purpose for which the property was purchased
•
the nature of the parties’ relationship
•
whether the parties’ had children for whom they both had a responsibility to
provide a home
•
how the purchase was financed initially
•
how the monthly mortgage repayments were made and by whom
•
how the parties arranged their finances, whether separately, together or a bit of
both
•
how they discharged the outgoings on the property and other household
expenses
•
any capital improvements to the property and who financed them/made loan
repayments. These should be significant. Repairs and decoration, unless
significant should not be taken into account1
•
consideration of life events e.g. separation of the parties
•
liquidation of other joint assets after purchase of property
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The court has held that, even taking all this into account, cases in which the joint
legal owners intended that their beneficial interests would be different from their legal
interests would be very unusual2.
1. Harnett v Harnett [1973] 3 WLR 1
2. Kernott [2011] UKSC 53
28.114 Contributions to the property leading
to a beneficial interest
It will be difficult for the non legal owner of a property to rebut the presumption of
beneficial interest following ownership unless they have made some financial
contribution to the property.
Fulfilment of domestic duties alone will not be sufficient to demonstrate a beneficial
interest1. Funding substantial improvements to the property will usually be sufficient2,
and the amount of the interest will generally relate to the financial value of the
improvement3. There is similar provision in the legislation relating to civil
partnerships4.
The discount available under a council right to buy scheme may be considered to be
a financial contribution to the property for the purposes of proving a beneficial
interest5.
1. Burns v Burns [1984] Ch 317
2. Harnett v Harnett [1973] 3 WLR 1
3. Griffiths v Griffiths [1974] 1 WLR 1350
4. Civil Partnership Act 2004
5. Ashe v Mumford [2001] BPIR 1
28.115 Equitable accounting
In some cases, there is a further principle to be applied in establishing the bankrupt’s
beneficial interest, which is the principle of equitable accounting. This principle is to
do with establishing how the parties’ financial contributions in the property affect their
beneficial interest and is applicable following one party leaving the house and in
connection with the subsequent sale or other disposal of the property. Equitable
accounting occurs only to work out contributions made to a property after a couple
no longer cohabit, the transactions when the couple are together do not count.
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The starting point for the calculations will be to establish the proportions in which it
was intended that the property be held (see above). The equitable accounting
principles would seek to establish if those proportions should be changed.
28.116 Principles of equitable accounting
Equitable accounting can only apply to an increase in the equity value that arises
directly from a reduction in the mortgage balance and/or structural improvements to
the property. It does not apply where any increase in the equity is due to a rising
property market.
•
Mortgage repayments
A party making a greater contribution to the mortgage capital repayments (but not
interest payments) may be entitled to a greater share of the sale proceeds of the
property1. Generally, the person making the mortgage repayments will be entitled to
one-half of the reduction in the outstanding mortgage loan, subject to an offset for
occupation rent.
•
Occupation rent
Where one party remains in occupation of the property, that party may be required to
account to the other for ‘rent’ for having had exclusive use of the property. This is
known as occupation rent. Occupation rent and mortgage interest repayments are
often off-set2. Where the person in occupation cannot control the date of the sale, it
may not be possible to charge occupation rent3. Similarly, it may not be possible to
charge occupation rent where the property was needed by minors4.
•
Renovations and improvements
Where a property has been renovated and improved, the party who has made the
renovations/improvements may be awarded with a greater share of the proceeds to
reflect the resulting increase in the value of the property5, but this principle would not
apply to improvements made whilst both parties were still in occupation6. Generally,
the person funding the improvements will be entitled to one-half of the increase in
value of the property resulting from the improvements.
1. Leake v Bruzzi [1974] 1 WLR 1528
2. Trustees of Land and Appointment of Trustees Act 1996, sections 12 to 15; Re Pavlou (a bankrupt) [1993] 1 WLR 1046; Re Gorman (a bankrupt) [1990] 1 WLR 616;
Re Byford (deceased) [2003] EWHC 1267 (Ch); French v Barcham [2008] EWHC 1505 (Ch)
3. Stack v Dowden [2007] 2 AC 432
4. Trusts of Land and Appointment of Trustees Act 1996
5. Re Pavlou (a bankrupt) [1993] 1 WLR 1046
6. Clarke v Harlowe [2005] EWHC 3062 (Ch)
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28.117 Changes in beneficial interest division
and equitable accounting
Where a change in beneficial interest occurs and moves from the usual split starting
point of 50:50 this change could be considered as having satisfied any call for
equitable accounting to be considered.
28.118 Summary of guidance relating to
division of beneficial interest
A summary of the guidance as regards the division of beneficial interest is as follows:
•
beneficial interest will follow legal interest unless the contrary can be proved
•
it will be difficult to prove the contrary where the property was purchased as a
domestic home for the purchasers unless there is evidence an agreement to
this effect
•
if there is an intention to share the beneficial interest in different proportions to
the legal interest then this should be followed
•
the intention can be changed by events, such as the division (or joining) of
financial affairs
•
if there is evidence of an intention to share the beneficial interest in different
proportions to the legal interest, but the proportions are in dispute then the
whole of the dealings in the property should be taken into account to decide the
shares
28.119 Investment properties
It is unlikely that the legal principles in relation to family homes set out above would
apply to properties purchased as, or used as, investment properties. In such a case,
it would be necessary to look to the shares in which the property were purchased, in
the absence of any express agreement in which the property was to be held.
Realisation of the insolvent’s interest
28.120 Introduction
It is rare for a company to own (rather than lease) property, but the general principles
set out below may also be followed where the official receiver is dealing with
company property. In the main the official receiver will be seeking to realise an
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interest in residential properties in bankruptcy cases and the guidance has that in
mind. Most properties owned by the bankrupt will be the family home, for which there
are special provisions.
28.121 Basic process
The basic process for the realisation of the bankrupt’s interest in a property is that
(subject to a minimum property value – see paragraph 28.62) a letter1 is sent to the
bankrupt and/or any joint owner to establish if any party wants to make an offer for
the bankrupt’s interest
If no such offer is received, the property interest will be passed to the LTADT to
review unless the bankrupt’s interest is significant (more than £25,000) in which case
the appointment of an insolvency practitioner should be sought. It is not anticipated
that the official receiver will seek an order for the possession of a bankrupt’s
property, though, as trustee, the official receiver has the power to do so.
1. MP1
28.122 Heading letters “Subject to Contract”
All correspondence entered into regarding a sale or potential sale of the official
receiver’s interest in a property must be clearly stated to be “SUBJECT TO
CONTRACT”
28.123 Inviting offers to purchase the
insolvent’s interest in the property
Consideration should be given by the official receiver to sending a letter note 1 to the
bankrupt and any joint owner inviting an offer to purchase the bankrupt’s interest in
the property. If the case is in the initial stages, and the property is identified as a
family home, any letter inviting an offer to purchase the official receiver’s interest
should only be sent where the insolvent’s interest in the property exceeds £1,000.
There is no standard procedure or letter for companies, but the official receiver may
offer to dispose of a property interest to a party connected to the company if the
official receiver believes that this will be in the interests of creditors.
28.124 Offers to purchase interest in low value
home should not be invited
Where the official receiver is dealing with a low value home, the standard letter
inviting offers to purchase the bankrupt’s interest should not be sent. Instead, the
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official receiver should consider early re-vesting the property (see paragraph 28.69)
or the property should be transferred to the LTADT for later review.
28.125 Content of standard letter to bankrupts
The standard letter to bankrupts makes it clear to the bankrupt and/or joint owner
that if a sale of the interest is not conducted, and if no other arrangements are made
to transfer the interest then the trustee, may take action to deal with the interest at
any point during the period that the property vests in the trustee. The letter asks the
bankrupt/joint owner to acknowledge receipt, which acknowledgment should be
recorded in the case notes on ISCIS. A failure to return the form should not delay
discharge.
28.126 Valuation of property
In order to assess whether any offer to purchase the insolvent’s interest in the
property is fair and in the interests of creditors to accept, the official receiver will
need to establish the level of the insolvent’s interest in the property (see section
above).
The official receiver should not include mortgage early redemption fees or council
right to buy charges in the calculation of a bankrupt’s interest in a property for the
purpose of inviting offers.
Any future general property value fluctuations should not be taken into consideration
in respect of the calculation of the insolvent’s interest in a property.
28.127 Sale to be in the interests of creditors
Before accepting any offer, the official receiver should be satisfied that the offer
represents a good deal for the creditors, based on the current value of the property
interest to the estate,
It has been held that a bankrupt’s creditors had an interest in an order for sale being
made regarding a property notwithstanding that the entirety of the bankrupt’s share
in the net proceeds of sale might be swallowed up in defraying the expenses of the
bankruptcy and it was in the interests of the creditors that the expenses of the
bankruptcy be discharged as far as possible out of the bankrupt’s assets1.
1. Thornhill v Atherton [2008] BPIR 691; Trustee of the estate of Bowe (a bankrupt) v Bowe [1998] 2 FLR 439
28.128 Competing offers for the interest
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Where there are competing offers for the insolvent’s interest in the property, the
official receiver should go with the offer that will provide the best return for creditors,
which may be an offer for a lower amount, but payable immediately (see also
paragraph 28.61). Where the competing offers are equal, the official receiver, as
liquidator or trustee, should, as a matter of policy, favour any offer that originates
from, or is on behalf of, an occupier of the property.
28.129 Unsolicited offer received for
bankrupt’s interest in a low value home
The official receiver may receive an unsoliticed offer to purchase the bankrupt’s
interest in the property, from the bankrupt or a third party. The official receiver should
give consideration to the offer received, accepting it if it is in the interests of the
creditors to do so.
28.130 Acceptance of the offer
Assuming that it is in order to accept the offer to purchase the insolvent’s interest,
the official receiver should ensure that the proposed purchaser undertakes to provide
a sum equivalent to the necessary conveyancing costs before instructing solicitors.
The sum to be paid in consideration should also be agreed, all letters or emails being
clearly marked “subject to contract”, before instructing solicitors. The official receiver
should make it clear to the proposed purchaser that, if the transaction is aborted due
to the purchaser’s failure to complete the purchase, the purchaser will remain liable
for the official receiver’s costs in respect of the aborted sale.
28.131 Additional requirements for solely
owned property
In addition to the conditions set out above, the official receiver should be satisfied
that arrangements have been made by the bankrupt or other proposed transferee to
deal with the outstanding charges on the property – for which they will become liable
as the legal owner.
28.132 Limited period of acceptance of offer
When accepting an offer to purchase the insolvent’s interest in a property, the official
receiver should make it clear that the agreement is for a limited period (normally, a
period of three months from acceptance is appropriate). The official receiver is at
liberty to review the position in the event of any delay exceeding this period which
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will allow the official receiver to restart the negotiation (seeking a new valuation as
appropriate) in the event of local volatility in the property market, or similar.
28.133 Case to be dealt with at local office
Where there is a willing purchaser who has made an offer that is in the interest of the
creditors to accept, therefore, the realisation of the property is not likely to be
protracted, the property should be dealt with by the local OR Command.
28.134 Insolvent’s interest has attracted no
willing purchaser – transfer to LTADT
Where the insolvent’s interest in a property is below £1,000, and the property is a
family home, the official receiver should consider revesting the property (see
paragraph 28.69). Where the interest value is over £1,000 (but see also paragraph
28.69) but less than £25,000 the property should be transferred to LTADT for review
at the two year, three month stage.. The fact that the case is on the investigation
register need not prevent the property being transferred to the LTADT as there is the
facility on ISCIS for the administrative and investigatory aspects of the case to be
separated.
28.135 Insolvent’s interest is over £25,000 but
has attracted no willing purchaser –
appointment of IP
In cases where the insolvent’s interest is greater than £25,000 and there is no willing
purchaser for the interest, the official receiver should seek the appointment of an
insolvency practitioner as liquidator or trustee. The figure of £25,000 is given as a
guide, and may vary depending on local conditions and the stance of local
insolvency practitioners. In some cases a lower figure may be sufficient to attract an
insolvency practitioner or, conversely, a higher amount may be required. It might
also be appropriate to seek the appointment of a liquidator or trustee where there is
a willing purchaser but there are other complex assets in the case, or if the level of
the insolvent’s interest in the property is in dispute and there are insufficient funds to
seek legal advice.
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28.136 Appointment of solicitors to deal with
transfer of interest – jointly owned bankruptcy
property
Where, in respect of a jointly owned property, an offer has been received that is in
the interest of creditors to accept, and the conditions outlined in paragraph 28.127
have been met, the solicitors appointed under the terms of the property
conveyancing scheme should be instructed to deal with the transfer provided:
•
the property is a domestic property owned jointly by the bankrupt and others;
and
•
it is unregistered or registered freehold or leasehold property which is currently,
or was previously occupied by the bankrupt and their spouse or civil partner,
former spouse or former civil partner; and
•
it is situated in England or Wales, The solicitors should be employed even if
some, or all, of the following conditions apply
•
the joint owner is also bankrupt
•
the property is subject to mortgage(s) including mortgages coupled with a
collateral endowment or pension policy or other form of collateral security
•
the property is affected by matrimonial/civil partnership proceedings; or
•
the property was purchased by sitting tenants from a local authority under the
provisions of the Housing Act 1985
The standard form of instruction1 should be used. Generally, the solicitors work to the
expectation that the transaction will be completed within five months of the
instruction. If there is a need for the transaction to be completed sooner than that,
this should be pointed out in the form of instruction, along with the reasons. The
solicitor will then inform the official receiver if completion within the shorter period is
realistic.
1. MP6
28.137 Appointment of solicitors to deal with
transfer of interest – solely owned or company
property
Where the property is solely-owned or owned by a company in liquidation, the official
receiver may instruct the solicitors under the property conveyancing scheme.
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28.138 Appointment of solicitors where the
standard form of instruction does not apply
The official receiver may instruct any solicitor to deal with a conveyance (rather than
appointing under the property conveyancing scheme:
•
where the property is in the sole name of the bankrupt
•
where the property is not used for solely domestic purposes
•
where planning permission for a non-domestic purpose has been applied for or
granted
•
where the property is subject to an uncompleted conveyancing transaction at
the date of the bankruptcy order
•
where the property is subject to a third party claim (other than in
matrimonial/civil partnership proceedings made before the date of instruction; or
•
where the property is a freehold reversion (see paragraph 28.181)
•
where the purchaser is unable to provide the costs up-front
•
where the official receiver is giving assistance to the sale by the mortgagee
•
where the bankrupt and co-owner are selling the legal estate to a third party
who is not the co-owner (see paragraph 28.142)
•
where the bankrupt as sole-owner of the property is selling the legal estate to a
third party (see paragraph 28.143)
•
where there is some defect in title at the Land Registry affecting the property
The solicitors appointed under the property conveyancing scheme have indicated
that they will be prepared to act on the official receiver’s behalf in the sale of an
interest in a solely owned property and the fee they charge for this work is likely to
be constant. The solicitors may also be prepared to act in the sale of a company
property.
28.139 Costs of appointed solicitors
The amount required by the solicitors engaged under the property conveyancing
scheme is [Text redacted]. If these solicitors are appointed outside of the property
conveyancing scheme then the costs are likely to be higher – [Text redacted].
If the solicitor is not being appointed under the property conveyancing scheme, it will
be necessary to agree the costs prior to instruction.
The official receiver should seek to have the costs paid directly to the solicitors
appointed by the proposed purchaser or their solicitors, so that the monies do not
have to be handled by the official receiver.
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The costs should be provided for by the purchaser, but may come from the sale
proceeds (see paragraph 28.143). There should be a net benefit from the sale to the
insolvent estate.
28.140 After-acquired property following
transfer
Under the terms of the legislation it is possible for the trustee to claim a property
interest that has been transferred (back) to a bankrupt by the official receiver if the
transfer takes place before discharge1.
It is considered to be inequitable for the official receiver to make such a claim. Once
the property interest has been transferred, there is an understanding that the
bankrupt is entitled to enjoy unhindered ownership of the property without the official
receiver making a subsequent claim over it.
The exception to this is where it comes to the official receiver’s attention that the
transfer was funded by undeclared assets or undeclared income, or where the
valuation was shown to be inaccurate. The property may then be claimed as after-
acquired property.
1. Section 307
28.141 Sale of property instigated by bankrupt
The official receiver will encounter situations where a property sale has been
instigated by the bankrupt, often having started prior to the order. The bankrupt may
have various reasons for doing this – to limit a shortfall (particularly if the case is a
surplus case), or through some personal need to move. The sale will usually be to an
unconnected party with the bankrupt intending to leave the property (a ‘common-or-
garden’ conveyance).
The action the official receiver should take will depend on whether the property is
jointly-owned, or solely owned.
28.142 Sale of jointly-owned property
Where the bankrupt or joint-owner have instigated the sale, the official receiver need
not become formally involved in the sale as the legal title remains with the joint-
owners and they retain the power to convey the property.
The official receiver may give permission for the sale to proceed in the following
terms:
•
the sale is at market value
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•
no costs of sale will fall to the official receiver as trustee of the estate,
particularly those of an abortive sale
•
the consent of the charge holders has been obtained
•
a copy completion statement is supplied to the official receiver, free of charge,
upon the sale completing
•
should there be any surplus of sale proceeds over and above that required to
redeem the outstanding charges, the official receiver is notified immediately and
the bankrupt’s share of the surplus is forwarded to the official receiver
28.143 Sale of solely-owned property
Where the bankrupt, as sole-owner of a property, has instigated the sale, the sale
will not be able to complete without the official receiver being joined in the sale in
order to transfer the legal title (the title having vested in the trustee). Assuming that
involvement in the sale is appropriate, it will be necessary for the official receiver to
appoint solicitors to handle this process, depending on costs the official receiver can
continue to instruct solicitors appointed by the bankrupt.
The costs of the conveyance can be met from the sale proceeds if there will be a
demonstrable benefit to the estate. Otherwise the costs of appointing solicitors
should be provided by the bankrupt or another third party, and the solicitor should
not be instructed until those monies have been received.
28.144 Potential problems in the sale of solely-
owned properties
In sales of property it is necessary for the vendor to give vacant possession of the
property on completion. In the case of a solely-owned property the official receiver
will be vendor. The difficulty for the official receiver is guaranteeing vacant
possession. If vacant possession is then not given by the occupier (the bankrupt) on
completion of the sale, the purchaser may then take action against the official
receiver to enforce possession.
Solicitors instructed by the official receiver should be asked to take steps to minimise
this risk such as:
•
making it clear in the contract that the official receiver does not give vacant
possession upon completion
•
ensuring that the bankrupt signs the contract (this means that the bankrupt
confirms contractually that the property is empty of chattels and people and that
no-one else has the right to occupy, with the bankrupt then being in breach of
contract if that is not the case)
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•
insisting that contracts are exchanged and completed simultaneously (which
ensures that nothing happens between exchange and completion and gives the
purchaser the opportunity to establish on the day of completion that the property
is, in fact, empty before exchange
•
advising that the purchaser must make their own enquiries as to whether the
property is vacant
28.145 Official receiver to consider benefit to
estate before agreeing to be joined in sale
As the steps outlined above will not necessarily entirely remove the risk of difficulties
in the sale of a solely-owned property, the official receiver should be satisfied that
there is a demonstrable benefit to the estate to justify being joined in the sale and
taking on the risk. Such benefit might be to avoid repossession (and the associated
costs) and therefore maintain an equity position in the property, or to limit the
shortfall where there are other distributable assets in the case.
If there is no demonstrable benefit, matters may be allowed to take their course. In
all likelihood this will result in the repossession of the property.
28.146 Property repossessed by mortgagee
Where the property has been repossessed by the mortgagee but has not yet been
sold, the mortgagee should be put on notice of the official receiver’s interest in any
surplus sale proceeds, using the standard letter1.
When the mortgagee obtains possession the official receiver should cancel any
insurance the official receiver has obtained on the property and inform the charge-
holder that the insurance has been cancelled.
Where the property has been taken into possession and sold, the official receiver
should obtain a copy of the completion statement from the mortgagees and should
claim the insolvent’s share of any surplus following sale.
1. MP3
28.147 Sale by mortgagee
The mortgagee in possession has a duty to take reasonable care to ensure that the
price at which the property is sold is the best price which could be achieved1. It is
possible for the official receiver, as liquidator or trustee to apply to court to stop the
sale of a property by a mortgagee, but this should not be considered unless there is
compelling evidence that the sale is being conducted significantly under market
value.
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If the official receiver is requested by a secured creditor (or a receiver appointed by a
secured creditor) to transfer or convey a property, the official receiver should charge
the appropriate remuneration on a time and rate basis2 and instruct solicitors to act in
the sale. The official receiver should ensure that the chargeholder gives a written
indemnity (and, if possible, a cash deposit) to cover all the expenses in connection
with the sale.
1. Skipton Building Society v Bratley [2000] 3 WLR 1031; Barclays Bank plc v Kingston [2006] EWHC 533 QB
2. Insolvency Regulations 1994, regulation 35
28.148 Order for sale
The trustee has the power to apply to court for the sale of the insolvent’s property1. It
is not anticipated that the official receiver will make such applications but an
application for possession and sale may be the most appropriate way to deal with
the property interest.
1. Section 335A; schedule 4; schedule 5; Trusts of Land and Appointment of Trustees Act 1996
28.149 Considerations for the court when an
application for sale of the family home is made
The court, when considering an application for the sale of the bankrupt’s family
home1, will have regard to:
•
the interests of the bankrupt’s creditors
•
the conduct of the spouse, civil partner, former spouse or former civil partner
•
the needs and financial resources of the spouse, civil partner, former spouse or
former civil partner
•
the needs of any children; and
•
all the circumstances of the case other than the needs of the bankrupt
In the year following the bankruptcy the court will be unlikely to make an order of
possession and sale having regard to the needs of the family. After one year has
passed the court assumes that, unless there are exceptional circumstances, the
interests of the bankrupt’s creditors outweigh all other considerations, and the order
will be given. The rights of the creditors are also considered paramount to any
matrimonial or civil partnership proceedings home rights2, and to the rights of
occupation of the bankrupt note3.
1. Section 335A
2. section 336; Re Ruiz [2011] EWCA Civ 1646
3. section 337
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28.150 Exceptional circumstances which
might prevail over the interests of the
creditors
The courts have largely taken a narrow view over what might constitute an
exceptional circumstance such that the rights of the bankrupt and family outweigh
the rights of the creditors beyond one year.
Family hardship caused by the bankruptcy is not considered an exceptional
circumstance. The hardship suffered by a spouse and children of a bankrupt when
the family home is taken is deemed distressing on the parties concerned, but not
exceptional1. Exceptional circumstances have been found to be present where there
is illness2, including mental illness3. The need for the bankrupt’s wife to care for her
terminally ill husband has also been held by the court to be an exceptional
circumstance4. Exceptional circumstances were also found where a bankrupt’s
spouse is disabled and in poor health. The court may make an order postponing the
sale of the property until an ill/disabled person has died or chosen to leave the
property5. In a case concerning a property in which a disabled child was resident, the
court delayed the sale for a period of three years6. Recent case law has emphasised
that it is for the family, not the trustee, to show “exceptional circumstances” which
must be supported by verifiable evidence7.
1. Re Citro (a bankrupt) [1991] Ch 142
2. Judd v Brown (2000) P&CR 491
3. Re Raval [1998] BPIR 389
4. Re Bremner [1999] BPIR 185
5. Claughton v Charalambous [1998] BPIR 558
6. Brittain v Haghighat [2010] EWCA Civ 1521
7. Pickard and another (Joint Trustees in Bankruptcy of Constable) v Constable [2017] EWHC 2475 (Ch)
28.151 Considerations under the Human
Rights Act
The court has held that the protections afforded under the Act mean that the power
of the trustee to seek an order for sale of a property are not at odds with the
protection of family rights available under the Human Rights Act1, unless there is a
(very) late application for an order for sale, in which case the court will consider the
merits of the application2.
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1. Ford v Alexander [2012] EWHC 266 (Ch)
2. Official Receiver for Northern Ireland v O’Brien [2012] NICh 12 BPIR 826
28.152 Matrimonial or civil partnership ‘home
rights’
The term ‘home rights’ relates to legislative provisions1 providing that, where one
spouse or civil partner has no ‘legal’ right (as owner, for example) to occupy the
property, but is nevertheless in occupation, they have the right not to be evicted from
the property except by order of court.
Such home rights may also apply to the children of the bankrupt, in certain
circumstances. Co-habitants who are not spouses or civil partners generally do not
have these rights unless there is an occupation order in force.
Any home rights are binding on the trustee and such rights apply to all property
which the bankrupt’s spouse/civil partner was entitled to occupy the day before the
petition was presented. The home rights give the spouse/civil partner and/or children
an effective charge over the bankrupt’s interest and an order of court will be required
to evict them prior to any sale.
Home rights are only likely to cause difficulty where the official receiver is dealing
with the forced sale of a bankrupt’s property.
1. Family Law Act 1996 sections 30 to 63
28.153 Council tax liability where property
taken into possession by official receiver
Where a property is unoccupied, it is generally the legal owner of the property that is
liable for the council tax. A property is however exempt from the council tax
provisions where the liable person is a trustee in bankruptcy in possession1. These
exemptions apply even where the trustee is jointly liable with another, but do not
apply to a liquidator in possession, with the liability remaining with the company.
1. Council Tax (Exempt Dwellings) Order 1992, article 3
28.154 Conveyance of property
A contract for the sale or other disposition of property must be in writing and signed
by both parties1.
1. Law of Property (Miscellaneous Provisions) Act 1989, section 2
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28.155 Conveyance of a company property
As liquidator, the official receiver has the power to convey company property1. Where
the company has a company seal, it may be used when executing the conveyance,
assuming it has been recovered. Where there is no seal the official receiver is still
able to execute a conveyance if it is delivered as a deed2. Guidance on the
completion of conveyance by deed is produced by the Land Registry3 and available
on GOV.UK.
1. schedule 4, paragraph 6
2. Companies Act 2006, section 46(1)
3. Practice guide 8: execution of deeds
28.156 Conveyance where bankrupt as joint
owner absent
Occasionally, if the whereabouts of a bankrupt are unknown and the joint-owner
wishes to sell the property, they may request that the official receiver ‘stand in the
shoes’ of the absent bankrupt for the purposes of the conveyance. The legislation
provides that the court can make an order to facilitate this1. The joint beneficial
owner, as trustee for sale, has the power to appoint a replacement trustee in court,
instead of applying for such an order.
The official receiver should not proceed with such a conveyance without legal
advice, the costs of which should be provided by the joint-owner. The official receiver
should also ensure that the bankrupt’s beneficial interest in the property is accounted
for in the prospective sale.
1. Trustee Act 1925, section 36 and section 41
28.157 Cancellation of insurance on
completion of sale
On completion of the conveyance the official receiver should cancel any insurance
the official receiver has obtained on the property should be cancelled within 5
working days of completion.
28.158 Corporation tax and capital gains tax
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Corporation tax is payable in relation to any profit derived from the sale of company
property. It is payable as an expense of the liquidation whether the property is sold
by the liquidator, secured creditor or receiver1.
In bankruptcy where a property that is not the family home is sold, there may be a
liability for capital gains tax. Generally, this will apply where the trustee is selling a
bankrupt’s commercial property, investment property or second/holiday home, but it
is equally payable as an expense of the estate if the property is sold by the trustee,
secured creditor or receiver2. A liability for capital gains tax is calculated as a
percentage of the profit achieved on the sale. Further information is available on
GOV.UK3.
1. Rule 7.108(4)(p)
2. rule 10.149(q); Re McMeekin (a bankrupt) [1974] STC 429
3. “Tax when you sell property”.
Dealing with leasehold properties
(leasehold enfranchisement)
28.159 Overview
Qualifying tenants have a right of first refusal on relevant disposals by landlords1.
What follows is an overview of the relevant provisions in order to bring them to the
attention of the official receiver but legal or professional advice should be obtained
when consideration is given to making a “relevant disposal”.
This guidance does not apply to assured or assured shorthold tenancies. Guidance
on dealing with tenanted properties where the property is let under an assured
tenancy or an assured shorthold tenancy can be found in chapters 29 (solely-owned)
and 30 (jointly-owned).
The provisions will most likely impact on the official receiver who holds the freehold
reversion of a block of residential flats.
1. Landlord and Tenant Act 1987, part 1
28.160 Applicable premises
The provisions apply in relation to premises consisting of the whole or part of a
building which contains two or more flats (see paragraph 28.161) held by qualifying
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tenants (see paragraph 28.162) who hold more than 50% of the total number of flats
contained in the premises1.
The provisions do not apply where more than 50% of the internal floor area of the
premises is occupied, or is intended to be occupied, otherwise than for residential
purposes2.
1. Landlord and Tenant Act 1987, section 1(2)
2. Landlord and Tenant Act 1987, section 1(3)
28.161 Definition of a flat
For the purposes of these provisions, a ‘flat’ is defined as a separate set of premises,
whether or not on the same floor, which forms part of a building, is divided
horizontally from some other part of that building and is constructed or adapted for
use for the purposes of a dwelling1.
1. Landlord and Tenant Act 1987, section 60(1)
28.162 Qualifying tenant
The provisions apply where the tenant is a company or individual holding a tenancy
(including a sub-tenancy or statutory tenancy), but not a protected short-hold tenant,
business tenant, service tenant, an assured tenant, a tenant in relation to their
employment or an assured agricultural tenancy. There are further qualifications
expressed in the legislation1.
1. Landlord and Tenant Act 1987, section 3
28.163 Relevant disposal
A relevant disposal is a disposal by a landlord of any estate or interest (legal or
equitable) in any applicable premises (see paragraph 28.160) whether by the
creation or the transfer of a estate or interest1. Certain disposals are excluded from
this definition.
1. Landlord and Tenant Act 1987, sections 3 and 4
28.164 Excluded disposals
Certain disposals are excluded from the provisions described, and it would not
therefore be necessary to give the tenants the right of first refusal. In all cases, the
official receiver should carefully consider the specific criteria set out in the legislation1
before deciding that a disposal is excluded.
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The main exclusions, which are most likely to be relied upon by the official receiver,
are:
•
a disposal by one corporate body to another, which has been an associated
company for at least two years. A corporate body includes limited companies,
limited liability partnerships, and friendly, industrial and provident societies
•
a disposal consisting of the transfer of an estate or interest in land held on trust
for any person where the disposal is made in connection with the appointment
of a new trustee or discharge of any trustee
•
a disposal being the transfer by two or more persons who are members of the
same family either to fewer of their number, or to a different combination of
members of the family (but one that includes at least one of the transferors)
•
a disposal consisting of the surrender of a tenancy in pursuance of any
covenant, condition or agreement contained in it
•
a disposal to the Crown
It will be noted from the above that a disposal to a joint owner is not one of the
excluded disposals, unless under the conditions outlined at the third bullet point
above.
The vesting of property in the trustee or (the less likely vesting of a property in a
liquidator) is not considered to be a relevant disposal for the purposes of this
provisions.
1. Landlord and Tenant Act 1987, section 4(2)
28.165 Disclaimer
It is strongly arguable that a disclaimer is not a ‘relevant disposal’ of an interest in a
property. Upon disclaimer of a solely-owned freehold property, the legal estate, in
the absence of a vesting order, reverts to the Crown. A disposal to the Crown is
excluded from the definition of relevant disposals. Where the property is jointly-
owned by the insolvent, the official receiver may only disclaim the beneficial interest
in the property and there is therefore no disposal of the legal title as it remains with
the joint owners.
28.166 Applicable landlords
The provisions apply to all landlords of applicable premises except where the
landlord / lessor:
•
is not the immediate landlord of the tenant or where the landlord would not be
entitled to the premises in the case of a statutory tenancy1. This is the only
provision likely to apply to the official receiver
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•
occupies, as their primary residence, a flat in a building not purpose built as a
block of flats and has resided there for at least 12 months2
•
is one of certain public bodies and housing associations3
1. Landlord and Tenant Act 1987 section 2(1)
2. Landlord and Tenant Act 1987 section 58(2)
3. Landlord and Tenant Act 1987 section 58(1)
28.167 Notice to the tenants
Assuming that all the conditions outlined above are met, it will be necessary for the
official receiver wishing to make a relevant disposal of the property to instruct
solicitors to prepare and serve an ‘offer notice’ giving the tenants first refusal. The
offer notice must comply with the requirements of the legislation. Primarily these
requirements are for the landlord to describe the property and the terms of the offer
(including the requested consideration), and to give a deadline in which to respond1 .
Although not obliged to use the service, agents WH Breading and Son Ltd (see
paragraph 28.181) offer a national service to dispose of a freehold reversions,
complying with all aspects of the legislation.
1. Landlord and Tenant Act 1987 sections 5A to 5E
28.168 Official receiver unable to serve all
tenants
Where the official receiver is unable to serve the offer notice on all the tenants, the
official receiver will be considered to have met this obligation if:
•
the official receiver has served notice on not less than 90% of the qualifying
tenants1, or
•
where the qualifying tenants number less than ten, the official receiver has
served notice on all but one of them2
1. Landlord and Tenant Act 1987 section 5(5)(a)
2. Landlord and Tenant Act 1987 section 5(5)(b)
28.169 Response to offer notice
The requisite majority of the qualifying tenants may serve notice on the landlord that
they accept the offer to sell the insolvent’s interest in the property to them (referred
to as an ‘acceptance notice’). The tenants are then required to nominate a person
(the ‘nominated person’) to acquire the interest within the period specified in the offer
notice. The interest can be disposed of only to that nominated person1.
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The tenants must be allowed at least two months, from the date of the notice, in
which to accept the offer to dispose of the property to them, and a further period of at
least two months within which to nominate a person to acquire the property. The time
limit will run from the date of the last notice to be served2.
1. Landlord and Tenant Act 1987 sections 6 and 8
2. Landlord and Tenant Act 1987 sections 5(4), 5A and 6
28.170 No response received to offer notice
If an acceptance notice is not received within the specified period the insolvent’s
interest may be sold to any other party, or otherwise disposed of, within 12 months
following the expiry of that notice.
Any sale may only be for a consideration of at least the amount shown in the offer
notice and on the terms corresponding to those specified in the offer notice. If a
lower consideration is to be accepted, then it will be necessary to recommence the
procedure by serving new notices on the tenants to include details of the revised
consideration/terms1.
1. Landlord and Tenant Act 1987 section 7
28.171 Notice of withdrawal
At any time after the acceptance notice and before a binding contract has been
entered into, the tenants, via the nominated person may serve a ‘notice of
withdrawal’. Similarly, the official receiver, as landlord, may serve a notice of
withdrawal1.
Where the nominated person serves the notice of withdrawal, the effect is the same
as if no offer of acceptance had been made, except that the official receiver would
have 12 months from the date of the service of the withdrawal notice in which to
dispose of the interest.
Where the official receiver serves a notice of withdrawal, the official receiver is not
entitled to dispose of the interest during the 12 months beginning with the date of the
withdrawal notice.
1. Landlord and Tenant Act 1987 section 9A and 9B
28.172 Costs on withdrawal
Where a notice of withdrawal is served within four weeks of the appointment of the
nominated person, there will be no liability to pay the other party’s costs.
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If the notice is served after that initial four week period, the party serving it shall be
liable for the other party’s costs from the end of the four week period to the service of
the notice of withdrawal1.
1. Landlord and Tenant Act 1987 sections 9A and 9B
28.173 Enquiry notices and purchase notices
served upon the official receiver
The official receiver may be dealing with a property that has been purchased by the
insolvent in circumstances where the person from whom the insolvent purchased the
property did not fulfil the obligations to the tenants.
In such a case, the tenants may serve an enquiry notice on the official receiver, the
purpose of which is to establish details of that earlier transaction. The official receiver
should reply to such a notice within one month of receipt with such details of the
transaction as are known1.
Following the enquiry notice, the tenants may enforce their right to take advantage of
the contract of purchase as if the tenants were the original purchaser. Where there
was no contractual disposal, the tenants may serve a ‘purchase notice’ requiring
disposal of the property to a person or persons nominated by a requisite majority of
the tenants on the same terms as the insolvent acquired the property2.
1. Landlord and Tenant Act 1987 section 11A
2. Landlord and Tenant Act 1987 sections 12A and 12B
28.174 Action where tenants attempt to force
right to purchase
Where the official receiver receives notice that the tenants are seeking to enforce
their right to purchase it is likely that legal advice will be required if the property has a
value to the estate.
28.175 Power of tenants to seek information
from landlord
In addition to the power of tenants to seek information relating to a previous sale of a
property, they also have the power to enquire into a landlord’s intentions and,
perhaps, force the landlord to sell the freehold or grant a new lease1.
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Where the insolvent’s interest is in a property which is wholly or mainly residential
and contains two or more flats, a qualifying tenant (which is essentially a tenant of a
residential property with a long lease) has the power to serve notices on the official
receiver requiring that certain actions are carried out.
1. Leasehold Reform, Housing and Urban Development Act 1993, sections 3, 5 and 7
28.176 Type of action that can be requested by
tenant
Tenants have the power to request the following from the official receiver, as
landlord, by notice1:
•
information about the insolvent’s interest in the property, including sight of
documents relating to the lease
•
to exercise their right to purchase the insolvent’s freehold interest (known as the
‘right of (collective) enfranchisement’)
•
to acquire a new lease
The official receiver, as landlord, is required to respond to requests for information
about the insolvent’s interest in the property within 28 days. Requests to exercise a
right of enfranchisement or acquire a new lease must be responded to within two
months (or longer if allowed in the notice)
1. Leasehold Reform, Housing and Urban Development Act 1993, sections 11, 13 and 42
28.177 Action where notice served and official
receiver not dealing with property
Where a notice has been served by a tenant and someone other than the official
receiver is dealing with the property (for example, a receiver has been appointed, or
an insolvency practitioner is trustee or liquidator), the official receiver should request
that the tenant serve the notice on the person with responsibility for the property.
Where the notice was served on the official receiver prior to handover of the estate,
the attention of the insolvency practitioner should be specifically drawn to it in the
handover record1.
1. IPROH
28.178 Action where notice served requesting
information
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Where the official receiver receives a notice requesting information, wherever
possible, the information should be provided within the applicable time limit. Where
the official receiver becomes aware that such a notice was served upon the
insolvent, steps should be taken to respond within the time period remaining, but
certainly within the same time scale starting from the date the official receiver
became aware of the notice.
28.179 Action where notice received
requesting enfranchisement or requesting a
new lease
Where the official receiver receives a notice requesting enfranchisement (often
known as the ‘initial notice’) or, a notice requesting a new lease, it will be necessary
for the official receiver to consider whether a right to enfranchisement or a right to a
new lease exists. If so, the official receiver will have to deal with the transfer of the
freehold to the tenants or the grant of the lease, including negotiating the
consideration.
Given the technical nature of the legislation in this regard, it is very likely that it will
be appropriate for the official receiver to seek legal advice, requesting that the
tenants provide the costs.
28.180 Further guidance
Further guidance on the aspects of leasehold property can be found on the LEASE
website. LEASE is governed by a board appointed by the Secretary of State for the
Ministry of Housing, Communities & Local Government.
28.181 Sale of freehold reversion – service
provider
WH Breading and Son Ltd offer a national service to dispose of a freehold reversion.
The official receiver is not obliged to use their services but the firm will:
•
check the payment of ground rents and, where appropriate, issue invoices to
recover amounts due
•
arrange sufficient insurance cover
•
determine a value for the freehold and issue the appropriate notices to
leaseholders
•
negotiate the sale
•
instruct solicitors
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•
deal with all enquiries from leaseholders, etc.
For instruction, WH Breading and Son Ltd require a copy of the land register extract
with, if possible, one of the leases.
Sale and rent back schemes
28.182 Introduction
Sale and rent back schemes (sometimes called sale and lease-back schemes) are
commercially operated schemes designed to allow a homeowner to sell their
property but remain living in it by entering into a rental agreement with the purchaser.
The benefit to the homeowner is that there may be a release of equity from the
property and/or a lowering of the monthly accommodation expenses (where the rent
charged is lower than the mortgage) without having to leave the property.
The similar public sector Mortgage to Rent scheme part of the Mortgage Rescue
Scheme was discontinued in March 2014.
28.183 Regulation of the sector
Due to concerns about the unregulated nature of the sale and rent back sector, and
concerns about the way the schemes were marketed and operated, the Financial
Services Authority (FSA) has regulated the sector since 1 July 2009.
Regulation requires the firm offering the sale and rent back scheme to be authorised
to do so by the FSA. Among the rules relating to authorisation, the firm has to ensure
that the valuer of the property owes a duty of care to the homeowner, resulting in a
‘fair’ valuation. The firm also has to ensure that they help provide security of
tenure.In particular, giving a tenancy of at lease five years, with no unfair eviction
‘triggers’.
28.184 Challenging a sale and rent back
agreement
It is possible that a sale and rent back agreement may be challenged as a
transaction at an undervalue (see chapter 31) or, less likely, a transaction defrauding
creditors, particularly if the property was transferred to the sale and rent back
company under market value and with no discernible benefit to the bankrupt (such
as a notably lower monthly accommodation cost). It is probable that any agreement
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entered into after regulation of the sector (1 July 2009) will have provided for a sale
at market value.
The circumstances of the sale may be relevant if the official receiver considers the
bankrupt’s conduct to merit a bankruptcy restriction order (see Enforcement
Investigation Guide, chapter 69, part 6).
28.185 Enquiries to be made regarding a sale
and rent back agreement
Where the bankrupt enters into a sale and rent back agreement a check should be
made that the firm who arranged the scheme was authorised by the FSA to do so.
This can be achieved by searching the register on the FSA website. Assuming that
the scheme was arranged by an authorised person, and subject to the following,
there are unlikely to be any further concerns.
The official receiver should, however, obtain a copy of the valuation carried out prior
to the sale of the property and, where there is doubt over the accuracy, check the
valuation. This will assist in establishing if there might have been a transaction at an
undervalue.
28.186 ‘Buy-back’ clauses in the sale and rent
back agreement
A sale and rent-back agreement will often include an option allowing the homeowner
to re-purchase the property at a pre-agreed date for a fixed price. It is not unusual
that the conditions of this ‘buy-back’ clause are such as to make exercising the right
unattractive. That said, the right would be an asset in the bankruptcy estate and,
where the agreement is not overturned, the right to re-purchase should be passed to
the LTADT for possible exercising and consequent realisation of the property.
28.187 ‘Buy-back’ clauses and the family home
A ‘buy-back’ clause in the family home is subject to the re-vesting provisions
requiring that such property interests are dealt with within a three year period.
Where the clause is not exercisable until after the expiration of that period, the
official receiver will need to apply to court for extension of that period (see paragraph
28.65).
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28.188 Concerns to be reported to Trading
Standards
Where the official receiver has concerns about the circumstances in which a
bankrupt has entered into a sale and rent back scheme the details may be reported
to the local Trading Standards department.
Reviewing and dealing with a property
at review stage, including the obtaining
of a charging order
28.189 Introduction
This guidance which follows is aimed at property which is a family home. Depending
on local priorities, the general principles outlined in (but not necessarily the
timescales described) may equally be applied to properties that are not the family
home. The official receiver should not seek a charging order over a property that is
not the family home.
28.190 Reviewing the property
Where it was not possible to deal with the bankrupt’s interest in a property at the
initial stages, and the property has been passed to the LTADT, it will be necessary,
where the property is a family home for the official receiver to review the property in
good time to ensure that the property interest is not lost due to the re-vesting of the
bankrupt’s interest. The review should include a review of the need for any insurance
obtained by the official receiver on the property.
28.191 When to review the property
The official receiver must review the property two years and three months after:
•
the date of the bankruptcy order, or
•
the date that the official receiver, as trustee, first had knowledge of the
bankrupt’s interest in a family home (where there was a late notification)
unless:
•
the mortgagee has realised their security in the property
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•
the bankrupt’s interest in the property has been otherwise realised by the official
receiver, or
•
the bankrupt’s interest in the property has ceased to vest in the official receiver,
as trustee
28.192 Calculating the bankrupt’s interest in
the property
In order to assist in calculating the bankrupt’s interest in the property, the official
receiver should obtain:
•
a valuation of the property
•
statements from the chargeholders showing the current outstanding balance on
the account, and
•
details of any third party interest in the property
From this information, the official receiver should be able to establish the amount of
the bankrupt’s interest in the property. Any endowment policy (or similar) attached to
the mortgage must also be taken into account when calculating the interest.
The guidance above in “Valuation of the property and establishing the insolvent’s
interest in the property” and “Realisation of the insolvent’s interest” should be
followed.
28.193 Applying for a charging order: a matter
of last resort
A charging order should only be sought in relation to a bankrupt’s qualifying family
home and as a matter of last resort, and not until the avenues outlined above for
dealing with the property have been attempted.
In summary, this means that the official receiver should only apply for a charging
order where, for whatever reason, it is not possible to realise the bankrupt’s interest
in the property. This is likely to be in the following circumstances:
•
the interest cannot be sold back to the bankrupt and is insufficient to attract the
appointment of an insolvency practitioner, but is still above the prescribed
minimum value of £1,000, taking into account any secured loans, charges, third
party interests and anticipated costs of sale (see also paragraph 28.196); or
•
the sale of the interest in the property might be prejudicial to the situation of
others with an interest in the property, such an interest may be the result of co-
ownership or occupation; and the associated litigation, and unpredictable costs,
may deter sale
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28.194 Power of official receiver to obtain a
charging order
The process of obtaining a charging order is available to the trustee, under the
provisions of the Act1 and the Rules2. These provisions provide a way in which the
trustee can ‘deal’ with the bankrupt’s interest in the family home (by obtaining a
charge in relation to that interest) where it has otherwise not been possible to do so
within the three year period allowed.
The legislation provides that such a charge takes effect as if it were an equitable
charge created by the debtor, enforceable by the same courts and in the same
manner.
1. Section 313
2. Rule 10.167
28.195 Not possible to get charge if no longer
family home
The wording of the legislation1 provides that a qualifying family home must still be
occupied as a family home at the date that the application for the charging order is
made, and that the interest in the family home is comprised in the bankrupt’s estate.
If the property has been vacated by the qualifying person (see paragraph 28.52) the
official receiver will not therefore be able to obtain a charge, though the three year
period to deal with the property still applies. In such a case, the official receiver
should seek to have the period to deal with the property extended (see paragraph
28.65).
1. section 313(1)
28.196 When a charging order should be
sought
Assuming that the case has reached the two years and three months point, the
bankrupt’s interest in the property is worth at least £5,000 (see paragraph 28.106)
and it is not possible to attract an insolvency practitioner as trustee, or to sell the
interest ‘back’ to the bankrupt, the official receiver should seek a charging order.
If the valuation at that date shows that the bankrupt’s interest is below £5,000 the
guidance as regards re-vesting should be followed (see paragraph 28.69).
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28.197 Charging order - timing of application
and hearing as regards re-vesting of the
bankrupt’s interest
It is necessary that the charging order application is made to the court within the
three year period in order to prevent the property interest re-vesting. It is not
necessary for the hearing of the charging order application to take place, or for the
notices of the hearing to be served within the three year period, as once the
application is made this effectively ‘stops the clock’.
Since it is operational policy that, where necessary, the charging order process
should be instigated soon after the date two years and three months after the
bankruptcy order, it is anticipated that all stages of the charging order process will be
competed before the expiration of the period allowed to deal with the family home.
28.198 Notice to bankrupt of charging order
application
Assuming all possible avenues for dealing with the property interest have been tried
and exhausted, the official receiver should proceed with the application for a
charging order. This first stage is to issue a letter1 to put the bankrupt on notice that a
charging order application is to be made, and provides advice on the nature and
effect of the charging order. This letter also advises the bankrupt of the ‘charged
value’ in the property calculated by the official receiver.
The official receiver should wait for a period of seven days after sending this letter
before applying to court for the charging order.
1. COLB
28.199 Format of charging order application to
court
Any application for a charging order made by the official receiver against land in
England and Wales should include the information required by the Rules1. The
standard application does not include the reasons why the application is being
sought and, where this information is sought by the Court it should, where possible,
be supplied verbally at the hearing. This may include the provision of a reason as to
why the bankrupt’s interest in the family home has not been realised.
The application must include the amount of the bankrupt’s interest over which the
official receiver is seeking the charge (known as the ‘charged value’).
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1. rule 10.171
28.200 Charged value of the property
The charged value of the property is, in essence, the amount of the bankrupt’s
interest which has vested in the official receiver, as trustee, and over which a charge
is therefore sought. This information is required for the charging order application
The intention of the provisions in this regard is that any increase in the bankrupt’s
interest in the property over time should be to the benefit of the bankrupt.
28.201 Inability to change charged value once
charging order obtained
The charged value, as set out in the charging order application, is fixed at the date of
the order imposing the charge1. It is unlikely that this can be circumvented by an
application under the general power of the court to review an order2, although this
may be possible, and appropriate, where the official receiver is seeking to reduce a
charged value obtained in error.
1. Charging Orders Act 1979
2. Section 375
28.202 Calculate whether the amount due to
creditors and costs is greater than bankrupt’s
interest
It will be necessary to calculate whether the bankrupt’s interest in the property is
greater than the amount due to creditors and costs. The calculation to establish the
amount of the unsecured creditors and costs is as follows:
Unsecured creditors total
(£)
Plus (+)
Interest at (currently) 8%1 to the date of the
application
Plus (+)
Official receiver’s costs including fees and distribution
costs
Plus (+)
Petition costs
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Equals (=)
Total creditors and costs (£a)
This figure should be compared with the amount of the bankrupt’s interest to
establish whether or not the bankrupt’s interest is greater than the total unsecured
creditors and costs. It will not be necessary to undertake this calculation if one figure
is clearly higher than the other.
If the bankrupt’s interest is greater than the unsecured creditors and costs, the
advice at paragraph 28.204 be followed to arrive at the charged value. Otherwise,
the calculation in paragraph 28.205 should be used for the charged value.
1. Judgments Act 1838, section 17
28.203 Calculation of bankrupt’s interest or
‘charged value’ in the property
The Rules 1provide how the charged value is to be calculated. Legal advice has been
obtained on the order of deduction, as follows:
Value of
property (£x)
Minus (-)
Costs of sale (currently estimated at 3% of £x)
Minus (-)
Loans or other charges secured on property including those
obtained post-bankruptcy for post-bankruptcy debts
Minus (-)
Value of third party interests
Equals (=)
Value of bankrupt’s interest at the date of the charging order (£y) –
to which interest and costs should be added to calculate total due
under charge
This calculation should form part of the application for the charging order, to which
should be added a calculation for interest and charges. There is a different
calculation to be used where the bankrupt’s interest is greater than the unsecured
creditors and costs (see paragraph 28.205).
1. Rule 10.171
28.204 Interest to be added to ‘charged value’
To arrive at the final amount due under the charge, interest and charges need to be
added to the ‘charged value’. The interest is only calculated when the charge is
--- PDF page 85 ---
realised; nevertheless the application for the charging order should include details as
follows:
Value of bankrupt’s interest
at the date of the charging
order (£y)
Plus (+)
Simple interest on that amount at the rate of
(currently) 8% per annum1.
Plus (+)
The costs of making the application (such as Land
Registry fees, court application fee, travel costs for
attending the hearing)
1. Judgments Act 1838 section 17
28.205 Calculation of bankrupt’s interest or
‘charged value’ in the property: value of charge
more than unsecured liabilities.
The legislation provides that the charging order should be limited to the amount of
the unsecured debts, plus interest and charges1. The calculation for the ‘charged
interest’ where the amount of the bankrupt’s interest exceeds the unsecured
liabilities) is as follows:
£x being the amount owing to
unsecured creditors at the
date of the application
Plus (+)
All other amounts which are payable otherwise
than to the bankrupt out of the estate (such as the
bankruptcy expenses and statutory interest)
Plus (+)
Simple interest on that amount at the rate of
(currently) 8% per annum2.
Plus (+)
The costs of making the application (such as
Land Registry fees, court application fee, travel
costs for attending the hearing)
Equals (=)
The charged interest (£z)
1. section 313(2)
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2. Judgments Act 1838 section 17
28.206 Allowance for sale costs
The calculations to establish the charged interest in the property requires the
inclusion of a figure representing the estimated cost of realising the property1.
Indications are that in matrimonial and similar proceedings, courts allow 3% of the
property value for the costs of sale. That figure should be used in making the
application, where required. It is open to the court to apply a different figure if it
deems it appropriate.
1. Rule 10.171
28.207 Filing of the application for a charging
order
The application for the charging order should be filed at court together with sufficient
additional copies (to be sealed and returned by the court) for each of the parties on
whom the application is to be served and a copy for the official receiver’s (electronic)
file. The court will notify the official receiver of the hearing date.
28.208 Service of a charging order application
The sealed copy of the charging order application should be served on the following,
using the standard covering letter1.
•
any spouse or former spouse or civil partner or former civil partner of the
bankrupt having or claiming to have an interest in the property
•
any other person appearing to have an interest in the property; and
•
such other persons as the court may direct
A certificate of service2 should be completed and filed at court for every party who
has been served the application.
1. CONA
2. COACERT
28.209 Time limit
The notice of the application for a charging order should be served a minimum of 14
days before the hearing1.
1. Rule 12.9
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28.210 Certificate of service
A certificate of service1 should be completed for every party who has been served
with the application for the charging order. Once the certificate of service has been
completed, a copy should be filed at court.
1. Court form N215
28.211 Attendance at hearing of application
for charging order
In the vast majority of cases, it will be a representative of the official receiver that is
attached to the court (rather than the LTADT) who will have to attend the hearing of
the application for the charging order. Once the application has been issued and
served by the LTADT, the local official receiver should be notified of the hearing date
and asked to access the relevant papers in the ISCIS fileplan.
28.212 Action to take where court questions
reason for charging order
Where a judge enquires into the decision to pursue a charging order over an order
for sale the explanation provided verbally at the hearing should include the following:
•
proceedings for the possession and sale of a family home are costly in as much
as they likely to be defended. In cases in which the OR is seeking a low value
charging order there are insufficient funds, or the prospect of funds, in the
bankruptcy estate to warrant such action to be in the creditors’ best interests
•
the vesting property interest has previously been offered for sale to persons
connected with the property, who have declined to act on the matter or are
unable to do so (to the official receiver’s satisfaction)
•
therefore, obtaining a charging order is the only remaining way of securing the
trustee’s interest in the property
Where the official receiver is seeking a charging order in a case with significant
equity, which should be rare, such that a possession and sale might be economic,
there are usually other reasons for not doing so specific to the case and these will be
addressed on an individual basis in the report or briefing note.
If it is considered that the facts of the application merit such an explanation, and one
is not provided, then the official receiver should raise this with the National Charging
Order team at the LTADT.
28.213 Registration of the charging order
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The attainment of the charging order is, on its own, insufficient to protect the
creditors’ interest in the property, as some form of registration is necessary to give
notice to potential purchasers that the charge must be dealt with. In effect this will
ensure that a party is unable to deal with the property without first discharging the
debt to the bankruptcy estate secured by the charge.
28.214 Registration of charging orders in
relation to registered land
Registration of the charge at the Land Registry is achieved by submission of form
RX1 for a jointly owned property or form AN1 for a solely owned property.
The fee for the registration depends on the charged value. Details of registration fees
can be found on GOV.UK
28.215 Removing the bankruptcy restriction
The official receiver should make application to the Land Registry, on form RX4
(jointly-owned) or RX3 (solely-owned) for the withdrawal of the bankruptcy
restriction. The RX4 or RX3 should be accompanied by a certified copy of the
charging order and certified copies of the bankruptcy order and evidence of the
trustee’s appointment. There is no fee for such applications.
Additionally, If the official receiver had previously placed a caution on the property,
this should be withdrawn when the charge is registered. This is achieved by
submission of form WCT. There is a fee for the withdrawal of a caution.
28.216 Cancellation of insurance
After obtaining the charging order the official receiver should ensure that any
insurance (including public liability insurance) over the bankrupt’s interest in the
property is cancelled.
28.217 Registration of charging orders in
relation to unregistered land ( solely owned)
On the making of a charging order against solely owned unregistered land, the
official receiver should lodge an application to the Land Charges Department for the
entry of the charging order in the Register of Writs and Orders1. This is achieved by
submission of form K4.
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This registration will last for five years, but should be renewed for successive periods
of five years note using form K7, as appropriate.
The fee for each of these forms is £1 per name against which the charge is to be
registered.
In addition to registering the charge in this way, the official receiver should write to
any mortgagee or chargeholder who has possession of the deeds asking that the
deeds be endorsed with details of the charging order.
1. Land Charges Act 1972 section 6
28.218 Registration of charging orders in
relation to unregistered land (jointly owned)
Where a jointly owned property is unregistered it will not be possible to protect the
charging order by registration1. This is because the charge is against the bankrupt’s
beneficial interest in the land, and not the land itself.
Instead, a copy of the charging order should be sent to all interested parties
(especially any chargeholder holding the deeds) with a request that the official
receiver’s interest in the unregistered land is noted and acknowledged.
1. Perry v Phoenix Assurance plc [1988] 3 All ER 60
28.219 Charging orders and limitation
Legislation provides that no action can be taken to recover a sum of money after the
expiration of 12 years from the date at which the right to receive the money accrued1.
The court has considered the effect of this provision as regards charging orders
obtained under the Act and has held that the ‘right to receive’ the money does not
accrue until there is an order for the sale of the property2. It is therefore irrelevant
how much time passes after the charge is obtained before it is realised; the twelve
year period begins with an order for sale of the property (which may, of course, be
obtained by one of the other chargeholders).
It is reasonable to assume that the principle that monies must be recovered within 12
years of an order for sale would apply to properties sold voluntarily.
1. Limitation Act 1980 section 20
2. Gotham v Doodes [2007] 1 WLR 86
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28.220 Dealing with notice received from Land
Registry of attempts to deal with property
Whenever the official receiver receives notice from the Land Registry that attempts
are being made to deal with a property subject to a charging order, the official
receiver should, as a matter of urgency, contact all parties concerned to ensure that
they are informed (or reminded) of the amount required to satisfy the charging order.
The official receiver should ensure that in all cases where a charging order has been
obtained steps are taken to deal with the bankrupt’s interest as soon as any change
(such as an imminent sale or repossession) occurs.
The official receiver should be particularly concerned to establish if:
•
another chargeholder has obtained an order for sale, or
•
the legal owners of the property (the former bankrupt and/or joint owners) have
sold the property
as these events would trigger the commencement of the 12 year period to recover
the monies under the charge.
28.221 Reviewing unregistered property after
charge placed
Where a property is unregistered, the official receiver will not be afforded the luxury
of being notified in advance of any dealings in the property, as with a registered
property.
The official receiver should therefore review an unregistered property at least once
every five years to verify that there have been no dealings in relation to it.
28.222 Applications to vary or discharge the
charging order
Any person interested (that is having a proprietary interest) in any property to which
a charging order relates is able, at any time, to apply for an order discharging or
varying the charging order1. Any such application should be resisted by the official
receiver in as much as it seeks to discharge the charging order without any
commensurate payment into the estate, or similar. The court does not have the
power to vary the charged value2.
1. Charging Orders Act 1979 section 3(5)
2. Section 313(5)
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28.223 Creditor obtaining a charging order
post bankruptcy prior to the official receiver
obtaining a charging order
Where a post-bankruptcy creditor obtains a charge over the official receiver’s
unprotected interest in a jointly owned property before the official receiver has placed
a charge, that creditor will rank higher than the official receiver in the order of
payment of funds from the realisation of the property.
In these circumstances, when establishing the value of the interest to be charged,
that value would be net of the bankrupt’s interest in the property at the date that the
charging order is sought – that is, net of the amount due to the new (earlier)
chargeholder.
If the new charge relates to a provable debt, it should be challenged under the
provisions of the Act1 which prohibit a creditor taking action against the property of a
bankrupt.
1. Section 285(3)
Shared ownership property
28.224 Shared ownership housing
Shared ownership housing schemes are Government backed and assist qualifying
individuals to purchase their own home. With a shared ownership property a long
lease is purchased from a housing association (using a commercial mortgage if
needed) usually for 99 years. The purchaser pays a premium for the lease which
represents usually between 25 per cent and 75 per cent of the full value of the
property, with the housing association owning the remaining share. The purchaser
pays a sub-market rent for the remaining value. These are also known as part buy,
part rent schemes.
28.225 Freehold title
Where a property is held on a shared ownership basis the freehold title will be held
by the housing association.
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28.226 Rights and responsibilities under a
shared ownership scheme
An individual’s rights and responsibilities in relation to a shared ownership property
are detailed in the lease, as are those of the housing association as landlord.
28.227 Shared ownership housing –
staircasing
After the purchase of the initial share in the property it is possible for an individual to
buy further shares in the property under the terms of the lease, until the whole value
of the property is owned. This is known as staircasing. The cost of the further share
purchase will depend on how much the property is worth at the time the share is
purchased.
Once 100% of the lease is owned the leasehold and freehold titles will be merged
and the individual will own the property..
28.228 Shared ownership lease – assured
tenancy
Even though the leases granted under shared ownership scheme are long leases it
has been held1 that they fall within the definition of an assured tenancy provided they
are not excluded from being an assured tenancy by legislation.2
1. Richardson v Midland Heart Ltd [2008] L.& T.R.31]
2. Housing Act 1988, section 1; schedule 1
28.229 Assured tenancies – excluded from
bankrupt’s estate
Assured tenancies are excluded from a bankrupt’s estate1. Where a shared
ownership property has equity, the value of the bankrupt’s interest in this equity will
be lost to the bankrupt’s estate unless the interest is claimed by the official receiver
as trustee
1. Section 283(3A)(a)
28.230 Assessment of tenancy agreement
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Before claiming the bankrupt’s interest in the assured tenancy for the benefit of the
bankrupt’s estate the official receiver, as trustee, will need to carry out an
assessment of the tenancy. The terms of the tenancy agreement need to be
considered to confirm that the tenancy is an assured tenancy, by considering if any
of the exclusions listed in the legislation apply.
28.231 Tenancy is excluded and is not an
assured tenancy
If any of the exclusions in the legislation apply, the tenancy will not be an assured
tenancy, but will be a common law tenancy. The terms of a common law tenancy
agreement are still valid but such a tenancy is not governed by the Housing Act
1988. A common law tenancy will vest automatically in the official receiver as
trustee, and consequently, there will be no requirement to claim the bankrupt’s
interest in the tenancy.
28.232 Claiming assured tenancy for the
benefit of the bankrupt’s estate
The bankrupt’s interest in the assured tenancy can be claimed for the benefit of the
estate by the official receiver, as trustee, where it is considered there is equity in the
property which can be realised..
Written notice1 must be served on the bankrupt in writing within 42 days beginning
with the day on which the property or tenancy came to the knowledge of the trustee.2
Where a failure on the part of the bankrupt has, in some way, been a cause of the
trustee’s failure to serve the notice in time, the court may allow the service of the
notice out of time.
Shared ownership training is available on the Insolvency Academy On-line Learning
and Training Packages.
1. Section 308A
2. Section 309
28.233 Effect of claiming assured tenancy
Once the bankrupt has been served with the written notice the interest (jointly
owned) or assured tenancy (solely owned) vests in the trustee as part of the
bankrupt’s estate and the trustee’s title has relation back to the commencement of
the bankruptcy i.e. the date of the bankruptcy order.
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28.234 Disclaimer of assured tenancy claimed
by trustee
Where the trustee claims an assured tenancy that is subsequently considered to be
onerous, the official receiver will not be able to disclaim the property without
permission of the court.
28.235 Bankrupt’s interest in shared
ownership property less than £1,000
Where the bankrupt’s interest in the assured tenancy has a value of less than £1,000
(the amount on which the OR can obtain a charging order) and therefore has no
value to the bankrupt’s estate, the interest in the assured tenancy should not be
claimed.
Where no claim is made for the assured tenancy and the tenancy is onerous, it will
not be necessary to disclaim it as the tenancy will not vest in the official receiver as
trustee.
28.236 Bankrupt’s interest in shared
ownership property greater than £1,000
Where the bankrupt’s interest in the assured tenancy is greater than £1,000
consideration should be given to claiming the interest in the assured tenancy for the
benefit of the bankrupt’s estate.
28.237 Solely owned assured
tenancy: claiming the bankrupt’s interest
Where the official receiver as trustee claims a solely owned assured tenancy for the
estate, the lease will vest in the official receiver. This will mean that the official
receiver is liable to pay the rent due to the housing association under the terms of
the lease as the official receiver will be an assignee of the lease by operation of law.
The official receiver can expect the bankrupt to maintain the rental payments to
secure occupation of the property (see below) but the official receiver may become
liable to pay the rent if the bankrupt defaults in making the rental payments to the
housing association.
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28.238 Solely owned assured tenancy: official
receiver will be landlord
It is unclear whether the lease will cease to be an assured tenancy when the official
receiver becomes an assignee on the lease. Whether or not the lease remains an
assured tenancy or by default becomes a common law tenancy agreement, it is likely
that by allowing the bankrupt to continue making the rental payments to the housing
association the official receiver will be creating a sub tenancy on the property and
consequently the official receiver will become the landlord of the bankrupt with all the
usual obligations that are attached.
Sub letting of the property is usually against the terms of the lease agreement. It is
likely the terms of the lease exist to prevent the leaseholder from profiting from
renting the property which would go against the aims of the shared ownership
housing initiative. It is considered that housing associations will not object to the
granting of a sub-lease, taking into account the purpose of the insolvency legislation
and the aims of the housing association to provide social housing.
28.239 Solely owned assured tenancy: whole
picture to be considered
Before claiming the bankrupt’s interest in the assured tenancy the official receiver
should consider the whole picture, having regard to the bankrupt’s capital value in
the tenancy and the rent which is due to the housing association, which potentially
may become payable as a bankruptcy expense, as a personal liability of the official
receiver as trustee. Consideration will also need to be given to any costs likely to be
incurred in respect of landlord responsibilities.
The greater the % of the capital value the bankrupt owns on the property the lower
the rent payable to the housing association will be. The lower the rent is the lower
the financial risk will be to the official receiver.
Many shared ownership properties have been owned for a considerable period of
time and may have accrued a significant value worth realising, despite the fact that
the bankrupt may not hold a significant proportion of the capital value. In such
instances the official receiver may be able to find a local insolvency practitioner who
specialises in this area and is prepared to take on such cases.
28.240 Solely owned assured
tenancy: assessment of risk
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Whilst there is a risk that, in claiming the lease, the official receiver will become liable
for the rent payable to the housing association under the terms of the lease, the
occupant (usually the bankrupt) is likely to be paying the rent to the housing
association and the monthly mortgage repayments as the property is the bankrupt’s
family home. There is therefore likely to be a desire by the bankrupt to keep the
home and to avoid repossession proceedings by either the housing association
under the terms of the lease or the mortgage company under the terms of the
mortgage deed.
This will afford the official receiver some protection. In effect this is no different to
any family home being dealt with by the official receiver where the bankrupt will often
continue to pay the mortgage and any ground rent or service charge due, in an
attempt to secure their home. In the shared ownership scenario the bankrupt is likely
to have a greater incentive to carry on paying the rent and the mortgage as the
combined amount payable as a consequence of the shared ownership scheme is
likely to be lower than that payable under a normal mortgage. It is considered that it
is unlikely that the bankrupt will default on the rental payments to the housing
association and therefore the official receiver’s risk of becoming liable for the rent is
considered to be minimal.
28.241 Solely owned assured
tenancy: bankrupt continues to pay rent to
housing association
Where the bankrupt continues to meet the rental payments (and any mortgage
payments due) it is likely that the bankrupt will be able to remain living in the property
and the official receiver can seek to deal with the interest in the property in normal
way.
28.242 Solely owned assured tenancy: early
application for a charging order
To remove any risk of liability to the official receiver, where the bankrupt’s interest is
greater than £1,000 but there is no willing purchaser who has made an offer to
purchase the interest and no insolvency practitioner is prepared to accept an
appointment as trustee, the official receiver should consider making an application to
the court for a charging order as soon as possible after claiming the assured
tenancy. Once the interest is converted into a charge the bankrupt’s interest will
cease to be part of the estate and will (re)vest in the bankrupt. On-going liability in
respect of rent to the housing association and in respect of any landlord’s duties will
cease from the date of the charging order.
--- PDF page 97 ---
28.243 Jointly owned assured
tenancy: claiming the bankrupt’s beneficial
interest
The position is simpler in the case of jointly owned shared ownership assured
tenancy. The effect of the trustee giving notice will be to vest only the bankrupt’s
beneficial interest in the trustee. The joint tenancy would continue to be held by the
legal owners (the bankrupt and the joint owner) on a trust of land1. Therefore where
the official receiver as trustee claims the bankrupt’s beneficial interest the official
receiver will not become the joint leaseholder with the solvent owner and the trustee
will not become liable for the rent on the property as with a solely owned assured
tenancy. This is the case even if both joint owners are bankrupt.
1. Trusts of Land and Appointment of Trustees Act 1996
28.244 Action to take following issue of notice
claiming the assured tenancy
Once the notice has been served on the bankrupt and the assured tenancy has
vested in the official receiver as trustee, the official receiver should take such action
as is necessary to protect and realise the property including, where appropriate, the
issue of letters to third parties such as the mortgage company. Where appropriate,
the official receiver should seek to insure the property.
Essentially, once the assured tenancy forms part of the estate, the official receiver
should deal with it as any other family home forming part of the estate. From this
point in the process, there are no special procedures for dealing with the asset, and
the information and guidance given elsewhere in this chapter should be followed.
28.245 Shared ownership and ISCIS
When entering a shared ownership property onto ISCIS it is important to record the
assured tenancy as accurately as possible. The current screen used to record
leasehold property does not allow users to record all the required information and
therefore it is important to record the additional information on the relevant assets
notes tab.
It is important to record the percentage of the value of the assured tenancy that is
held by the bankrupt and any joint owner and the percentage held by the housing
association. Any mortgage in respect of the assured tenancy will have been taken
out by the bankrupt and any joint owner and should not be deducted from the
housing association’s percentage share of ownership.
--- PDF page 98 ---
Leased commercial property
28.246 Scope of this Part
This Part provides advice to assist in dealing with a commercial lease held by the
insolvent. Such a lease is typically for a period of no more than 25 years and,
generally, a monthly rent is paid.
Residential leasehold property would generally be characterised as being for an
initial period of 99 years or more, with any rent being a ‘peppercorn’ (token) rent.
Such properties can effectively be dealt with by the official receiver as freeholder,
following the guidance elsewhere in this chapter.
The official receiver, after disposing of a commercial lease, either by assignment or
formal surrender, or disclaimer, should arrange for the cancellation of any insurance.
Where the lease is ended by the landlord taking action to obtain forfeiture the official
receiver should cancel any insurance obtained by the estate within 5 working days.
28.247 Valuation of a commercial lease
The following factors should be taken into account when deciding whether a
commercial lease has any value:
•
Whether any premium was paid for the lease and, if so, how much.
•
Whether it is a full repairing lease (where the tenant is responsible for all
repairs) and what state of repair the building is in.
•
The period of the lease remaining.
•
When the next rent review is due.
•
The level of any rent arrears.
•
Whether the insolvent has made any improvements to the building.
It is likely that the official receiver will need professional assistance in valuing
commercial leases. Such a valuation can generally be provided by the official
receiver’s usual agents.
28.248 Realisation of a lease
Where the lease has value to the estate, taking into account the need to ensure that
funds are available to discharge the liability for rent and any other expenses which
will accrue as an expense in the insolvency, the official receiver should consider
assigning the lease (subject to conditions therein).
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It is likely to be necessary for the official receiver, as liquidator/trustee, to engage
agents to market the lease. unless there is a willing purchaser introduced by the
insolvent.
28.249 Liability for rent and expenses
Any action taken by the official receiver, as liquidator or trustee, to sell an interest in
a lease may give rise to a liability for rent and other expenses relating to the property
from the commencement of insolvency, as an expense of the insolvency, whether or
not the sale completes1. Therefore the potential liability for rent and other dues must
be taken into account when deciding if it is beneficial to the estate to sell the interest
in such property.
1. Re Downer Enterprises Limited [1974] 1 WLR 1460; ABC Coupler and Engineering Co Limited [1970] 1 WLR 702
28.250 Assignment of a lease – comply with
terms of lease
Before seeking to dispose of a lease, the official receiver should comply with the
terms of the lease in its disposal. In particular, the official receiver should check the
lease to confirm the following:
•
That it does not contain a clause prohibiting an assignment.
•
Whether any clause restricts the parties to whom the lease may be transferred.
•
Whether the consent of the landlord to an assignment needs to be obtained.
•
Whether a forfeiture clause exists so as to terminate the lease.
28.251 Acceptance of offer to be marked
‘subject to contract’
Where the official receiver accepts an offer to purchase the lease, any written
acceptance (including e-mails) issued should be clearly marked ‘subject to contract’.
Similarly, written communications offering an assignment should be marked ‘subject
to contract’.
28.252 Landlord’s consent to the assignment
As outlined above, the official receiver should always comply with the terms of the
lease in its disposal. The official receiver should obtain the necessary consent of the
landlord before solicitors are instructed regarding the assignment.
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28.253 Landlord refuses to consent to
assignment
The landlord may be unwilling to grant consent where there is a proposed change of
usage of the property, the landlord does not consider that the proposed assignee will
be able to pay the rent or meet other obligations in the lease, or if he/she will be
seriously disadvantaged by the assignment1.
The landlord may not unreasonably withhold consent to the assignment or disposal
of a lease2 and must respond to a request for consent within a reasonable time3.
These provisions apply to most leases, except certain agricultural and mining
leases4. The landlord may seek to levy a charge to cover the administrative costs of
providing consent. These costs (if any) should be established early in discussions.
Where a lease has a saleable value and the landlord will not consent, the official
receiver should seek legal advice.
1. Norfolk Capital Group Limited v Kitway Limited [1976] 3 WLR 796; Bickel and others v Duke of Westminster [1977] QB 517
2. Landlord and Tenant Act 1927 section 19
3. Landlord and Tenant Act 1927 section 1(6)
4. Landlord and Tenant Act 1927 section 19(4)
28.254 Covenants to be included in the
conveyance
Where a lease was originally granted before 1 January 19961, or where the insolvent
is NOT the original lessee, the official receiver, through solicitors, should ensure that
the purchaser convenants: ‘that (the purchaser), and all successors in title, will pay
the rent and observe the other covenants under the lease and will keep the official
receiver/the insolvency estate indemnified against any liability arising from a breach
of those covenants.’
If the insolvent is a company and was the party to whom the lease was originally
granted, the official receiver’s solicitors should also obtain from the landlord a written
release for the company from any liability for breaches of the terms or covenants of
the lease and, failing this, should obtain indemnity insurance in case a claim is made
against the estate for future rent.
1. Landlord and Tenant (Covenants) Act 1995
28.255 ‘Informal’ surrender of a lease
--- PDF page 101 ---
A lease or tenancy may be surrendered by operation of law where the actions of
both parties to the lease or tenancy make it clear that they intend the lease or
tenancy to come to an end. Alternatively it may be relinquished by exchange of
letters (sometimes referred to by the official receiver as an ‘informal surrender’
although in legal terms this is incorrect). Neither of these two options should be
adopted by the official receiver, even with legal advice, because of the difficulties
that can arise if all relevant matters (not just the liability for future rent) are not
resolved prior to the ending of the lease or tenancy.
Instead, the official receiver should issue a disclaimer even when the landlord is
prepared to accept possession by way of an informal surrender of premises. A
disclaimer will result in a ‘clean-break’ of the estate’s interest in the property and will
avoid any future problems in relation to contingent liabilities.
28.256 ‘Formal’ surrender of a lease - general
A ‘formal’ surrender of a lease is achieved by the parties to the lease negotiating
terms to end the lease. Such a surrender may be beneficial to a landlord where it
would put the landlord in the position to issue a fresh lease.
Normally, a disclaimer would be the appropriate way to bring to an end an interest in
a lease that cannot be sold or assigned, but a formal surrender may be beneficial to
the estate where:
•
The landlord is willing to pay a consideration (and costs) for the surrender of the
lease; or
•
There is benefit to the estate in negotiating a reduction in the liabilities claimed
by the landlord against the estate (this is likely to be appropriate only in surplus
cases).
28.257 Surrender of a lease – matters to
consider
A surrender of a lease should be by deed, signed by the official receiver, as
liquidator or trustee, and also by the landlord.
The official receiver should engage solicitors to negotiate the terms of the surrender
and to draft the deed, ensuring that sufficient funds are made available by the
landlord to pay the solicitors’ costs.
--- PDF page 102 ---
28.258 Surrender of a lease – matters to
consider where company has sub-let the
property
Where the company or bankrupt has sub-let a leased property (and is therefore a
landlord as well as a tenant), the surrender may be a disposal for which the tenant
has a right of first refusal.
28.259 Forfeiture of lease
Forfeiture of a lease may occur where the terms of the lease have not been complied
with, resulting in the loss or compulsory transfer of the lease to another.
The landlord’s right to forfeit will be written into the lease, which may entitle the
landlord to end the lease upon breach of a covenant or terms of the lease by the
tenant. A lease may give the landlord a right of re-entry or forfeiture where the
tenant/lessee has failed to pay charges which are properly due under the lease, or
on the making of an insolvency order1.
1. Roe d Hunter v Galliers (1787) 2 Term Rep 133
28.260 Procedure for forfeiture
To exercise the right of forfeiture following failure to pay charges, the landlord must
meet all the legal requirements and obtain a court order. A court order will only be
granted if the tenant/lessee has admitted they are liable to pay the amount, or it is
determined by the court, a tribunal or by arbitration that the amount is due.
Before serving notice for forfeiture for rent arrears, the landlord may have to serve a
formal demand or commence action for Commercial Rent Arrears Recovery (‘CRAR’
- previously known as levying distress) see chapter 12.
For breach of any other covenant, the landlord must serve notice specifying the
breach, requiring it to be remedied if possible and requiring compensation. Only if
the lessee/tenant fails to comply with that notice within a reasonable time can the
landlord enforce his/her right of re-entry.
28.261 Relief from forfeiture
Where the official receiver is aware that the landlord has served notice to re-enter
the property or forfeit the lease, and the lease is of value to the estate, they should
consider applying to court for relief from forfeiture1, which is available within one year
of the insolvency order.
--- PDF page 103 ---
If the sole reason for forfeiture is non-payment of rent, the court will usually require
that the arrears are paid before granting relief.
Relief from forfeiture is not available for certain types of occupation including
furnished residential dwellings, public houses and agricultural land.
1. Law of Property Act 1925, section 146
28.262 Landlord taking action to forfeit after
winding-up order – leave of court required
Leave of court will be necessary before a landlord can enforce the right to forfeiture1,
notifying the official receiver, as liquidator, of the proceedings. Where the official
receiver is aware of the identity of any mortgagees, the official receiver should
advise them of the proceedings, as a matter of courtesy.
Provided that the lease is of no value to the liquidation estate, the official receiver
should not object to the application for leave, but should attend the hearing(s). This
is important because monetary judgment may be entered against the company – in
which case the official receiver should seek an undertaking that the order will not be
enforced against the company without leave of court.
1. Section 130(2)
28.263 Landlord taking action to forfeit after
bankruptcy order
If a landlord wishes to take action to forfeit a lease after the bankruptcy order, leave
of court will usually be required. This is because forfeiture is deemed to be a remedy
to determine the lease and not to enforce payment of the rent1.
Leave of court is also required to enforce re-entry where the tenant has made a
claim to acquire the freehold2, or is participating in a claim to exercise a right of
collective enfranchisement, or to acquire a new lease3.
Provided that the lease is of no value to the bankruptcy estate, the official receiver
should not object to the application for leave.
1. Section 285(1); Ezekiel v Orakpo [1977] QB 260
2. Leasehold Reform Act 1967
3. Leasehold Reform, Housing and Urban Development Act 1993
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ATTACHMENT: 29.Solely_owned_tenanted_property.pdf
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 10 March 2020.
29. Solely owned tenanted property
Dealing with an insolvent's solely-owned property where the property has or had
tenants
Annexes
Annex A – PowerPoint presentation of training provided by Technical Section in relation to
tenanted properties
Annex B – Welsh solely owned tenanted properties transfer protocol
Chapter content
Introduction
General information regarding tenanted properties
Official Receiver’s initial enquiries and actions as landlord
Official receiver’s duties and obligations as landlord
Collection of rent
Rights of entry
Leasehold, ground rent and service charges
Taxation
Disposal or ending of an assured shorthold tenancy agreement
Disclaimers
--- PDF page 2 ---
Mortgagees
Appointment of insolvency practitioner
Sale of the legal and beneficial interest
Eviction
Unusual circumstances
Form and letters available on ISCIS (formerly
annexed to this chapter)
Note: To access the templates on ISCIS please use 'annex' as your search term in
document production and include word documents in the search.
ORTPQ - Tenanted Property Questionnaire
Annex D – sole – letter to bankrupt
Annex E – sole – letter to tenant
Annex F – sole – letter to mortgagee
Annex G1 – sole – letter to insurance based deposit scheme
Annex G2 – sole – letter to custodial scheme deposit holder
Annex H1 – sole – letter of enquiry to letting agent
Annex H2 – sole – letter retaining or releasing letting agent
Annex J1 – sole – disclaimer letter to bankrupt
Annex J2 – sole – disclaimer letter to tenant
Not available on ISCIS
Annex H3 – solely owned – letter of instruction to OR’s agent
Abbreviations
AST – Assured shorthold tenancy agreement
IPA/O – Income payments agreement/order
HMO – House of multiple occupancy
BRO – Bankruptcy restriction order
--- PDF page 3 ---
Introduction
29.1 General
This chapter brings together advice and information relating to solely owned property
of which the bankrupt is a landlord. The chapter does not intend to cover every
possible scenario but does provide information relating to those situations that the
official receiver is most likely to encounter. Unless stated otherwise, the tenancies
discussed in this chapter are assured shorthold tenancies (see paragraph 29.16).
For solely owned tenanted properties in Wales please see paragraph 29.86.
This chapter deals with bankruptcy cases only, and does not specifically refer to
company cases, although the guidance within will generally apply to such cases. See
the section on unusual circumstances for some further information on company
cases.
Guidance on dealing with commercial property owned by the bankrupt, or a
company, is dealt with in chapter 28.
Guidance on dealing with the bankrupt’s interest in property used as their own
residence is given in chapter 28.
General information regarding tenanted
properties
29.2 Introduction
This section deals specifically with properties let on an assured shorthold tenancy
(AST), including those which have become statutory periodic ASTs (see paragraphs
29.16 to 29.18). Where reference is made to a tenancy, this should be assumed to
be an AST unless otherwise stated. This section provides details of the information
that should be obtained by the official receiver as trustee to enable a decision to be
made on how to best deal with the property. Where the bankrupt is the landlord
under a long lease rather than a tenancy, reference should be made to chapter 28
for guidance on how to deal with the property.
To assist in locating information in this section, it is broken down as follows:
--- PDF page 4 ---
•
general information (paragraphs 29.3 – 29.11)
•
types of tenancies (paragraphs 29.12 – 29.21)
•
official receiver’s duty of care (paragraphs 29.22 – 29.23)
•
Rent Deposit Schemes – (paragraphs 29.24 -29.31)
29.3 Property letting is not a trade
The holding of property as a long term investment, including the renting out of that
property, is treated as an investment business by HM Revenue and Customs rather
than a trading business. In an investment business the property is held to either
produce income in the form of rent, long-term capital growth or a combination of
both. In a property trading business property, is acquired with the intention of being
developed and sold for a quick profit, and the properties held are treated as stock.
Where property is rented out, and the underlying intention is to hold them for the
long-term, then it is generally accepted by HM Revenue and Customs that the
business is one of investment rather than trade (see paragraphs from 29.112 for
information on the tax treatment of rented property).
The resulting income or gain from an investment business is taxed differently to that
of a trading business.
29.4 Property cannot be claimed as exempt
As the property used in the business is an ‘investment’ rather than a ‘tool of the
trade’, it vests in the trustee of the bankruptcy estate and the exempt property
provisions are not applicable1. Any other items used for the purposes of the business
(for example, furniture in furnished rented property) cannot be claimed by the
bankrupt as exempt property1, as they are not required to meet a basic domestic
need of the bankrupt or their family.
It can also be argued that the property is not ‘necessary to the bankrupt for use
personally’, much in the same way as a business that provides equipment for hire.
See chapter 24 for further information.
1. Section 283(2)
29.5 Tenancies held by bankrupt as landlord
not excluded from the bankrupt’s estate
Certain types of tenancy agreements are excluded from the bankrupt’s estate by
legislation1. These exemptions include the majority of tenancies that the official
receiver is likely to encounter such as assured tenancies and secure tenancies (as
--- PDF page 5 ---
used by local councils and housing associations), and assured shorthold tenancies
(as used by most private landlords), see chapter 24 for a full list.
The Insolvency Service has received advice that this exclusion is limited to where
the tenancy is held by the bankrupt as a tenant, and not granted as a landlord.
Chapter 28 provides guidance on dealing with tenancies where the bankrupt is the
tenant.
1. Section 283(3A) and Section 308A
29.6 Official receiver as landlord
As a result of the commencement of The Insolvency (England and Wales) Rules
2016 on 6 April 2017 the official receiver trustee with immediate effect from the
making of the bankruptcy order unless the Court appoints another person1. As a
result of this the official receiver immediately becomes landlord when a bankrupt is
acting as a landlord of their solely owned residential tenanted property. The official
receiver is therefore obliged to act immediately to take the appropriate steps to deal
with such tenancies.
1. Section 291A
29.7 Difference between jointly and solely
owned tenanted property
Unlike solely owned tenanted property where the official receiver will immediately
become trustee and landlord upon the making of the bankruptcy order the legal title
of jointly owned property remains vested in the joint owners (even if all joint owners
are subject to bankruptcy orders). This is because the legal title cannot be severed.
In turn this means that the official receiver will not become landlord when they
become trustee. The joint legal owners will remain as the landlords, retaining all legal
rights and responsibilities under the tenancy agreement. The only interest that will
vest in the official receiver as trustee is the bankrupt’s beneficial interest in the
property as the beneficial interest itself will not be severed (see paragraph 29.33 for
a definition of beneficial interest and legal title).
29.8 Tenanted property is not usually a family
home
It is important to remember that a tenanted property is not normally a family home for
the purposes of section 283A (see chapter 28) and as such, it will not re-vest in the
bankrupt after 3 years. It will remain in the bankruptcy estate until it is dealt with (.
--- PDF page 6 ---
Tenanted property encountered by the official receiver will normally fall into one of
the four categories below:
a) Property purchased as an investment property with the help of a buy-to-let
mortgage (see paragraph 29.46),
b) Property purchased as a home with the help of a residential mortgage, with the
bankrupt having later obtained the consent of the mortgagee to let the property out
(consent to let) (see paragraph 29.46),
c) Property purchased as a home with the help of a residential mortgage, with the
bankrupt having later let the property out without the permission of the mortgagee
(unauthorised tenancy) (see paragraphs 29.47), or
d) Property purchased as a home with the help of a residential mortgage, with the
bankrupt having later taken on a ‘lodger’ whilst remaining in occupation (see
paragraph 29.9).
In situations a. to c. the notice offering the bankrupt the option to purchase back the
interest1 which would normally be sent by the official receiver as trustee, should not
be sent. Nor should the BHNOT notice to the bankrupt and other interested parties
informing them that the property falls under section 283A2. The exception to this
would be where the tenant is a former spouse, civil partner, ex spouse or ex civil
partner (see paragraph 29.10). The bankrupt should not be led to believe that they
may be able to purchase the property back from the official receiver. See guidance
from paragraph 29.119 for information on when it may be possible to sell back a
solely owned tenanted property.
1. Form MP1
2. Form BHNOT
29.9 Bankrupt residing in property with a
lodger
In paragraph 29.8 category d. when a ‘lodger’ is living with the bankrupt in their
home, the notice offering the bankrupt the option to purchase back the interest1
should be sent by the official receiver as trustee and where the bankrupt’s interest in
the property is greater than £1000, as the property is still the family home of the
bankrupt (see chapter 28). See paragraph 29.19 on occupation of property under
licence.
1. Form MP1
--- PDF page 7 ---
29.10 When tenanted property may be
considered to be a family home
When ascertaining the details of any tenancy agreement, the official receiver should
give consideration to the relationship of the tenant to the bankrupt. Where the tenant
is the bankrupt’s spouse, civil partner, ex-spouse or ex-civil partner, and the property
is the sole or principal residence of that person, then the property may be considered
to be a family home1. Where the bankrupt’s interest in the property is greater than
£1000 it may be appropriate to send the notice offering to purchase back the interest
in the family home to the bankrupt (see chapter 28).
1. Section 283A
29.11 Interaction with income payment
agreement/order (IPA/IPO)
All income receivable on an investment property forms part of the legal and
beneficial interest that will vest in the official receiver if they become trustee of the
bankrupt’s estate. Investment income which forms part of the estate cannot be
treated as the bankrupt’s income for IPA/IPO purposes as it will vest in the trustee
and should therefore be collected by the official receiver upon appointment as
trustee. All rent and other income from an investment property should be collected in
full by the official receiver and should not affect any IPA/IPO calculation. See chapter
35 for guidance on IPA/O’s.
For information on how to deal with rent received from a lodger occupying a room in
the bankrupt’s property under licence see paragraph 29.18.
29.12 Main types of tenancy agreements
There are four main types of residential tenancies (see chapter 24) used by private
landlords. Any of these tenancies can be either a fixed term tenancy (for an agreed
set period e.g. six months), or a periodic tenancy (for an indefinite rolling period e.g.
monthly or weekly).
•
the protected tenancy
•
the assured tenancy
•
the assured shorthold tenancy (AST) (see paragraph 29.16) and
•
the secure tenancy
In addition, the official receiver may encounter business tenancies when a property
is rented to a business or company using the premises for commercial/non-
residential purposes. Local authorities, housing authorities, registered providers of
--- PDF page 8 ---
social housing and housing action trusts can use different types of tenancies, see
chapter 24.
As the majority of tenancies encountered by the official receiver will be AST’s, the
advice in this chapter is applicable to those tenancies.
29.13 Informal tenancy
A tenancy can be created by the conduct of the parties; there does not need to be a
written agreement for it to be legally binding. Once a person is given possession of
land or property, usually evidenced by possession of the keys, and the owner
accepts rent payments, a tenancy comes into existence legally1. By default,
residential tenancies created in this way are usually assured shorthold tenancies
(see paragraph 29.16 below).
1. Re Bowes, ex p Jackson (1880) 14 ChD 725 at 739
29.14 Default tenancies
All residential tenancies created since 28 February 1997 are ASTs unless the
landlord gave specific notice that it is an assured tenancy1 (see chapter 24). There
are certain exceptions to this2, but these mainly relate to when notice is served, the
continuation of previous secure or assured tenancies, local authority/housing
association tenancies and assured agricultural occupancies.
1. Housing Act 1988 19A
2. Housing Act 1988 schedule 2A
29.15 Common Law tenancies
Common law tenancies fall outside the scope of the Housing Acts1, 2, 3. Such
tenancies will be rarely encountered by the official receiver. In the case of a common
law residential tenancy, the tenant’s rights and obligations are mainly dependent on
the terms agreed between the parties (written into the agreement) and therefore they
are contractual or “non-statutory contractual tenancies” as opposed to those being
regulated by statute.
Any residential tenancy which is excluded from being an assured tenancy by the
Housing Act 1988, including where the rent equates to an annual rate in excess of
£100,000, is a common law tenancy4.
Common law tenancies do not afford tenants the same protection regarding security
of tenure and statutory continuation as assured tenancies do (including assured
shorthold tenancies).
--- PDF page 9 ---
1. Housing Act 1988
2. Housing Act 1996
3. Housing Act 2004
4. Housing Act 1988 Schedule 1 paragraph 2(1)
29.16 Assured shorthold tenancy
Shorthold tenancies granted after 15 January 1989 and before 28 February 1997 are
only enforceable by the landlord if the correct notice was served at the start1. Under
assured shorthold tenancy agreements, the landlord cannot recover possession until
six months from the start of the tenancy but after that time, the landlord can recover
possession even if the tenant has not breached the terms of the agreement.
Possession can be gained fairly easily with two months notice2, see later guidance
on bringing a tenancy to an end.
1. Housing Act 1988 section 20
2. Housing Act 1988 section 21(1)b
29.17 Statutory periodic tenancy
A statutory periodic tenancy is a tenancy that is created when any of the main four
types of tenancies referred to in paragraph 29.12 come to an end1.
A periodic tenancy is created by agreement, a statutory one is created automatically.
The tenancy will generally continue on the same terms as the former tenancy and for
the period for which the rent is normally payable2. For example, if an assured
shorthold tenancy comes to an end on 31 January, and the rent was normally
payable monthly, if the tenant is allowed to continue living in the property without a
new tenancy agreement, it will automatically become a statutory periodic assured
shorthold tenancy automatically renewing on a monthly basis.
In a case that went to appeal, a flat was let on an assured shorthold tenancy that had
been renewed. The term of the last agreement had been for one year less one day,
and the rent was expressed as a yearly figure, payable quarterly in advance. The
landlord served notice to quit at the end of the year, giving a quarter’s notice. When
possession proceedings were brought, the district judge held that the tenancy was
an annual tenancy and that the notice was premature. On appeal it was decided that
the tenancy was actually for a quarterly period as determined by the last payment of
rent the tenant had been obliged to make3.
1. Housing Act 1988 section 5
2. Housing Act 1988 section 5(3)
--- PDF page 10 ---
3. Church Commissioners for England v Meya [2006] EWCA Civ 821
29.18 Occupation of property under licence
A licence is not a type of tenancy agreement (which is a property right), instead it is a
contractual right to occupy space for a period of time. A licence does not give the
tenant any legal interest in the land; it is simply the permission to occupy the land for
an agreed term and will usually come about when there is no right to exclusive
possession. When someone lets a room in their house out to a lodger, this is under
licence rather than a tenancy. The main difference between a tenancy and a licence
is that as a tenancy gives the tenant an interest in the land, that interest is binding on
any subsequent purchaser of the property. With a licence, if the landlord sells the
property, then the tenant no longer has any right to occupy, as their agreement was
with the landlord and not attached to the land1.
A licence does not vest in the official receiver unless it is capable of being assigned2.
As the arrangement between the bankrupt home owner and a lodger cannot be
assigned, any rent paid under the licence does not vest in the official receiver as
trustee. The official receiver should assess the rent received from that lodger as
income, available for inclusion in any calculation for an IPA/IPO entered into before
discharge, or in any variation of the amount to be collected under an existing
IPA/IPO.
1. Ashburn Ansalt v WJ Arnold & Co [1988] 2 WLR 706
2. Rothschild V Bell (a bankrupt) [1999] BPIR 300, CA (Civ Div)
29.19 Tenancy requires there to be exclusive
possession
The general rule as to whether an arrangement is a tenancy or a licence is whether
the occupier has a right of exclusive occupation, that is, whether he or she can keep
other people, including the landlord (unless the landlord is exercising rights to enter
under the terms of the tenancy), out of defined premises. There can be no tenancy
without the granting of exclusive possession. This means that a tenancy can only be
granted over whole lockable premises rather than just a room in a home which the
landlord has promised not to enter. The ability to secure the premises is an essential
factor in defining exclusive possession.
29.20 Types of agreements to allow to
continue
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The types of agreements most usually granted by a bankrupt will be either assured
shorthold tenancies. When either of these are encountered the official receiver
should usually allow the agreement to continue for the benefit of the estate but
before a decision can be taken, further enquiries are needed to establish the terms
of the tenancy or licence, see paragraphs 29.35 to 29.65.
29.21 Tenanted property abroad
When the official receiver encounters a tenancy where the property is overseas,
enquiries should be made with the bankrupt and any co owners, as well as
undertaking any appropriate internet searches, to try to establish the value of the
property. The law that governs the tenancy will be that of the country in which the
property is located and specialist advice may need to be sought.
29.22 Duty of care to visitors and trespassers
A duty of care is owed between an occupier of premises and their lawful visitors1 and
an occupier also owes a limited duty of care to trespassers2. The question of who is
an occupier depends upon the particular facts of each case but generally it would be
the person who is in actual occupation for the time being, or who has possession or
physical control of the premises. Accordingly, it will normally be the tenant that has
the duty of care, although where a tenant has left the premises, which are otherwise
unoccupied, the official receiver, as trustee and landlord, is likely to be considered to
be the occupier of the premises.
The official receiver should establish whether or not public liability insurance is held
by the bankrupt, as landlord, and should ensure that such insurance is put in place
where none is in existence, see paragraphs 29.38 and 29.39.
1. Occupiers Liability Act 1957 section 2
2. Occupiers Liability Act 1984 section 1
29.23 Duty of care in relation to defective
premises
In all cases where the insolvent is a landlord there is likely to be a duty of care in
relation to defective premises1. The landlord owes to all persons who might
reasonably be affected by defects in the state of the premises a duty to take such
care as is reasonable in all the circumstances to see that they are reasonably safe
from personal injury or from damage to their property caused by a relevant defect.
Legislation provides that a duty of care is owed by a landlord to visitors, and possibly
trespassers, where the premises are let under a tenancy agreement which places
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the landlord under an obligation to the tenant for the maintenance or repair of the
premises or where the landlord has the right to enter the premises and carry out
such repairs. The duty arises when there has been a breach of that obligation to
repair (or failure to exercise the right of repair) which has led to the defect in the
premises which caused an injury to, or damage to the property of, the tenant or
visitor or any other person who might reasonably be expected to be affected by
defects in the premises. This duty only applies if the landlord knew, or in the
circumstances ought to have known, of the relevant defects. The duty cannot be
excluded and the official receiver as liquidator or trustee may become subject to it.
See chapter 11 for more information.
The official receiver should ensure public liability insurance is held by the bankrupt
and, if not, it should be obtained as a matter of urgency on all tenanted properties,
see paragraph 29.38 and chapter 26 for further information.
1. Defective Premises Act 1972 section 4
29.24 Rent deposits
It is a common requirement of a tenancy agreement that the tenant pays a security
deposit to the landlord. The security deposit is a refundable charge and is usually
charged at one months rent. At the end of the rental period the deposit will be
refunded, providing that the tenant has not damaged the property.
29.25 Tenancy Deposit Scheme
Where the tenancy agreement has been entered into after 6 April 2007, the landlord
must protect the deposit within a tenancy deposit scheme. This applies to all assured
shorthold tenancy agreements where the annual rent does not exceed £25,0001. The
deposit must be protected within fourteen days of the landlord receiving it.
If the landlord resides in the same property as the tenant, the tenancy cannot be an
assured shorthold tenancy and so any deposit taken in these situations does not
need to be placed in a tenancy deposit scheme (see paragraph 29.18 on licences).
1. Housing Act 2004 section 213
29.26 Disputes over return of deposit
Tenants have a responsibility to make sure that the property is in as good a condition
when they move out as it was when they moved into the property, subject to
normal/fair wear and tear. When the tenancy comes to an end, the landlord is
entitled to check the condition and contents of the property and, if all is well, the full
amount of the deposit should be returned to the tenant. Where damage, other than
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usual wear and tear, has occurred, the landlord may be entitled to withhold all or part
of the deposit to restore the property to the original position.
If an agreement about how much of the deposit should be returned cannot be
reached between the landlord and the tenant, tenancy deposit schemes offer a free
service to help resolve disputes.
29.27 Types of deposit schemes
There are two types of tenancy deposit schemes available:
•
a custodial scheme where the deposit is protected in an account which can be
accessed by both the landlord and tenant although withdrawals cannot be made
without the agreement of both parties. There is only one custodial scheme provider,
The Deposit Protection Service, see paragraph 29.28.
•
insurance based schemes, where the landlord, directly or through agents, retains the
deposit and takes out an insurance policy to provide security to the tenant in respect
of that deposit. There are two providers of an insurance based scheme, Mydeposits
(see paragraph 29.30) and the Tenancy Deposit Scheme (see paragraph 29.31)
29.28 The Deposit Protection Service
The Deposit Protection Service offers the only type of custodial scheme. It is funded
entirely from the interest earned on the deposits held. When completing the ORTPQ
- Tenanted Property Questionnaire, see paragraph 29.36) with the bankrupt, it is
important to establish all relevant details about the deposit. The bankrupt should be
able to provide the name of the scheme in which the deposit is held and, if it is held
with The Deposit Protection Service, the deposit ID should also be requested from
the bankrupt for correspondence purposes. A request should not be made by the
official receiver for the provisions of the bankrupt’s password as this would have
security implications. See paragraph 29.55 for details of the letter to be sent by the
official receiver.
29.29 Contacting the Deposit Protection
Service
The contact details for the Deposit Protection Service are:
The Pavilions
Bridgwater Road
Bristol
BS99 6AA
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Telephone: 0844 4727000
Additionally the website operates both a Virtual Customer Service Agent and an
Online Enquiry Form to deal with any enquiries. The frequently asked questions on
the website may also provide the official receiver with additional useful information.
29.30 Mydeposits
Mydeposits is one of two insurance based schemes available. When completing the
ORTPQ - Tenanted Property Questionnaire (see paragraph 29.36) with the bankrupt,
it is important to establish all relevant details about the deposit. The bankrupt should
be able to provide the name of the scheme and, if it is held with Mydeposits, the
property’s rental postcode, tenant’s surname and month the deposit was provided.
This will enable the official receiver to check if the deposit is covered by the scheme
online. A membership number should also be requested from the bankrupt for
correspondence. A request should not be made by the official receiver for the
bankrupt’s password as this would have security implications. See Mydeposits for
more details of the scheme and paragraph 29.55 for details of the letter to be sent.
Contact details are:
Mydeposits
Ground Floor, Kingmaker House
Station Road
New Barnet
Hertfordshire
EN5 1NZ
Telephone: 0844 9800290
Fax: 08456 343403
Email: customerservices@mydeposits.co.uk
29.31 The Tenancy Deposit Scheme
The Tenancy Deposit Scheme is the second of the two insurance based schemes
available. When completing the initial questionnaire (see paragraph 29.36) with the
bankrupt, it is important to establish all relevant details about the deposit. The
bankrupt should be able to provide the name of the scheme and, if it is held with The
Tenancy Deposit Scheme, a tenancy UID code is all that is needed to check if the
deposit is covered by the scheme online. A membership number should also be
requested from the bankrupt for correspondence purposes. A request should not be
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made by the official receiver for the bankrupt’s password as this would have security
implications. See The Dispute Service for more details of the scheme and paragraph
29.55 for details of the letter to be sent.
Contact details are:
TDS Limited
PO Box 1255
Hemel Hempstead
HP1 9GN
Telephone: 0845 2267837
Fax: 01442 253193
Email: deposits@tds.gb.com
Official Receiver’s initial enquiries and
actions as landlord
29.32 Introduction
Upon the making of the bankruptcy order, the official receiver automatically becomes
landlord of any solely owned tenanted property, as a solely owned property vests in
a trustee from the date of order (see paragraph 29.34 for further details). There are
exceptions to this if, for example the property is held on trust. This and the following
sections deals with the official receiver’s initial enquiries, how to deal with a tenanted
property and their role as the landlord, and covers both the rights and obligations
that the official receiver will assume whilst acting as landlord of a property let under
an assured shorthold tenancy (AST).
Following the initial enquiries into the tenanted property, the official receiver should
have sufficient information to decide how to deal with the tenanted property. If an
insolvency practitioner is to be appointed, or the reversionary interest and tenancy
agreement are to be disclaimed, or the tenancy agreement is to be ended in some
other way, see guidance from paragraph 29.119.
29.33 Definitions
The following terms are used in the remainder of this chapter and should be
interpreted as follows:
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•
a beneficial interest is an interest in the proceeds of sale of a property and in the
rents and profits which are or could be earned from the property until the sale. It
amounts to an equitable, as opposed to a legal, interest in the property. Beneficial
interests often arise as a result of contributions to the purchase of, or payments for
improvements made to, the property and can arise whether or not the person is the
legal owner of the property (see chapter 28)
•
the legal estate is the title to the property itself which vests in its owner
•
the reversion of a property is the landlord’s interest in a property whilst a tenancy
agreement is in place. Whilst a tenancy agreement has been granted over a property
owned by someone, the tenant holds an interest or property right. The landlord has a
reversionary interest - the right to regain possession of that property when it reverts
to them at the end of the tenancy agreement
•
a covenant is a type of legal promise or term of contract to either do or not do
something, which is often contained within the terms of a lease or tenancy
agreement
29.34 Vesting of legal estate in official receiver
as trustee
If the tenanted property is solely owned by the bankrupt, then the official receiver, as
trustee immediately upon the making of the bankruptcy order, has two interests in
the property:
•
they are the legal owner of the property (which brings with it all legal responsibility for
the property with the power to convey etc.). The value of the property is affected by
the existence of a tenant (and other things). For the duration of the tenancy
agreement, the legal owner’s interest is in the freehold or leasehold ‘reversion’, that
is on the expiry of the tenancy agreement, the legal owner may again exercise full
rights of ownership over the property, (including occupation), and
•
the tenancy agreement which is a contract between the bankrupt and the tenant,
vests in the trustee (as it follows the reversionary interest) and the official receiver,
as trustee, therefore holds all responsibility and entitlements, as landlord, under the
agreement
29.35 Importance of establishing type and
validity of tenancy
It is important that early in the proceedings the official receiver takes steps to
establish the type of tenancy agreement granted by the bankrupt on the property and
whether or not it is currently valid. As the official receiver becomes landlord
automatically on the making of the bankruptcy order their obligations need to be
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established immediately. See paragraph 29.12 for information on the different types
of tenancies. As soon as the official receiver becomes aware of a tenanted property,
they should ascertain details of the tenancy and obtain a copy of the tenancy
agreement, if one exists. As the majority of tenancy agreements likely to be
encountered by the official receiver will be ASTs, this chapter deals specifically with
ASTs.
29.36 Initial enquiries – creditor’s petition
cases
When dealing with creditor petition cases, a tenanted property is most likely to be
discovered if contact is made with the bankrupt by telephone, face to face, at the
interview or on an inspection. As soon as a tenanted property is discovered, then the
examiner or case support officer should complete the ORTPQ - Tenanted Property
Questionnaire whilst speaking to the bankrupt. As much information as possible
should be established, to enable enquiry letters to be sent to all relevant parties as
soon as possible. Where the bankrupt cannot provide the information, they should be
encouraged to call back within the next 24 hours with the information needed. If the
bankrupt cannot provide all the information needed within 24 hours, then a copy of
the questionnaire may be sent out and the bankrupt asked to return it with any other
information requested within seven days.
29.37 Initial contact – adjudicator cases
In an adjudicator case it is likely that the bankrupt will highlight a tenanted property at
the initial contact stage when asked whether there are any assets in jeopardy or
whether there are any matters requiring immediate attention. Also a tenanted
property should be listed in the bankruptcy application completed for the
Adjudicator’s Office and therefore discovered when the examiner reviews the
application as part of the initial enquiries.
Immediately on discovering a tenanted property the examiner should attempt to
complete the ORTPQ - Tenanted Property Questionnaire with the bankrupt over the
telephone. As much information as possible should be obtained to enable enquiry
letters to be sent to all relevant parties as soon as possible. Where the bankrupt
cannot provide the information they should be encouraged to call back within the
next 24 hours with the information needed. If the bankrupt cannot provide all the
information needed within 24 hours, then a copy of the questionnaire may be sent
out and the bankrupt asked to return it with the other information requested in time
for the interview.
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29.38 Current insurance
Enquiries must be made in all cases and as regard all properties to obtain details of
any insurance policies in force and, wherever possible, possession should be taken
of the relevant policy documents and any current certificates relating to those
policies. The bankrupt may have specific ‘landlord insurance’ which includes public
liability insurance along with buildings insurance and, if the property is furnished,
contents insurance. See chapter 14 for guidance on continuing existing insurance
policies. Any policy documents recovered should immediately be handed to the
office cashier to record in the valuables register and place in the office safe for safe
keeping.
29.39 Insurance cover required
If adequate insurance is not in place on a tenanted property, i.e. landlord’s insurance
including public liability insurance and building insurance, this should be attended to
immediately. Reference should be made to chapter 14 for advice on how to obtain
cover under the Willis Insolvency Open Cover Insurance Facility. Generally
speaking, provided that the property is still used for residential purposes and certain
limits are not exceeded, then the case will be suitable for the premium bordereau for
smaller non-trading cases (see chapter 14 for details of the exclusions to this). If a
case is eligible for this cover, then the official receiver is required to add the case to
the office bordereau form (Annex 2 to the Willis Insolvency Manual). In order for an
asset to be covered by Willis, it must be put on the office bordereau as soon as the
official receiver becomes aware of its existence. Only where a case does not fall into
these criteria is it necessary to telephone Willis to agree individual insurance cover.
Generally speaking, this will relate to property rented out to a business for
commercial purposes.
29.40 Cancelling insurance cover
The official receiver’s insurance must be cancelled when the property is:
•
sold or otherwise disposed of
•
an LPA receiver is appointed
•
an insolvency practitioner is appointed; or
•
disclaimed
The official receiver should follow the guidance in chapter 14 when cancelling
insurance.
29.41 Initial letters to be sent
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Following completion of the questionnaire, letters should be sent to the following
people as soon as their details are known:
a) the bankrupt (see paragraph 29.42)
b) the tenant (see paragraph 29.43)
c) the mortgagee and any other chargeholder (see paragraph 29.44)
d) the letting agent (if applicable) (see paragraph 29.50) and
e) the deposit scheme holder (see paragraph 29.55)
29.42 Letter to the bankrupt
A letter should be sent to the bankrupt1 following the initial contact or initial enquiries
enclosing copies of the letters sent to the tenant and letting agent if appropriate. The
letter states that the property(ies) vest in the official receiver and that the official
receiver is the landlord and is entitled to collect the rent. It informs the bankrupt that
they should no longer attempt to contact the tenant or deal with the property,
including not attempting to evict the tenant, propose a new tenancy agreement or
collect the rent. It also tells the bankrupt to forward to the official receiver any rent
received from the tenant following the making of the bankruptcy order. It also
confirms that the mortgage debt will not be paid and that any shortfall on the
mortgage loan will be a debt in the bankruptcy
1. ISCIS letter Annex D –sole – letter to bankrupt
29.43 Letter to tenant
The official receiver should send a letter to the tenant1 to establish the current
position of the tenancy. The letter confirms that the official receiver is now landlord
(see paragraph 29.68) and asks for the tenant to confirm details regarding the
payment of rent, whether there are any arrears and for a copy of the tenancy
agreement if the bankrupt has not already provided a copy.
The letter also seeks to reassure the tenant that if the bankrupt held any security
deposit at the date of the bankruptcy order, then it will be secured by the official
receiver.
1. ISCIS letter Annex E – sole – letter to tenant
29.44 Letter to mortgagee and other
chargeholders
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Any mortgagee of tenanted property should be sent notice1 in order to protect the
official receiver’s interest in respect of the charged asset (the property) and to make
early enquiries into the value of the asset. The notice for a tenanted property differs
to the standard mortgagee enquiry letter2 as it asks for a response within seven days
on the most urgent queries. The official receiver needs to know urgently whether or
not the mortgagee;
•
has consented to the property being let
•
wishes to appoint a receiver of rents, and
•
wishes to, or has already taken, any possession proceedings
This information will assist the official receiver in deciding whether or not to consult
creditors and apply for an urgent Secretary of State appointment of an insolvency
practitioner as trustee, see paragraphs 29.63. If the mortgagee intends to appoint a
receiver, or take possession quickly, then it is unlikely that it would be a suitable
case for the appointment of an insolvency practitioner based on that particular
property alone.
The official receiver will also need to decide whether to obtain insurance as a matter
of urgency.
1. ISCIS letter Annex F – sole – letter to mortgagee
2. Form MP2
29.45 Rent collected will not be used to pay
mortgage
It is important to let the mortgagee know at an early stage that if the official receiver
does collect rent from the tenant, this will not be used in paying the mortgage debt.
This information is contained in the notice to mortgagee.
It is important that the mortgagee understands this position as such information may
well assist the mortgagee in deciding whether or not to appoint a receiver.
29.46 Position of mortgagee when buy to
let/consent to let given
The mortgagee is bound by the terms of the tenancy agreement and so cannot evict
the tenant if they repossess the property without giving proper notice1 in the following
situations:
a) if the tenancy has been granted with the consent of the mortgagee, either on:
•
a buy-to-let mortgage, or
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•
a residential mortgage where the mortgagee has subsequently consented to the
mortgagor renting out the property
b) if the tenancy was already in place prior to the mortgage loan being granted2 or
c) where the mortgagee has acknowledged a tenancy by its action after the tenancy
was granted without its initial consent3.
For information on proper notice required to evict a tenant, see Eviction.
1. Housing Act 1988 section 21
2. Land Registration Act 2002 sections 28 to 32
3. Underhay v Read [1887] 20 QBD 209
29.47 Position of mortgagee when consent to
let not given
A tenancy agreement is not binding on the mortgagee when the following criteria are
met:
•
where a property is rented out after a mortgage loan is obtained on the property
without the mortgagee’s consent and
•
the mortgagee has not acknowledged the tenancy by any subsequent positive action
(for example, receiving rent directly from tenant). Inaction by the mortgagee with the
knowledge that there is an unauthorised letting on the property of the bankrupt does
not amount to positive action1
If both the above criteria are met, the mortgagee is free to sell the property with
vacant possession2 and without giving the tenant proper notice3.
Where the property has been rented out without the mortgagee’s consent the official
receiver may wish to consider investigating the reasons for this.
1. Parker v Braithwaite [1952] ALL ER 837
2. Rust v Goodale [1957] Ch 33 at 44
3. Keech v Hall (1778) 1 Doug KB 21
29.48 Likelihood of mortgagee appointing
receiver where consent to let not given
It is unlikely that a mortgagee will appoint a receiver when they have not given the
bankrupt permission to rent out the property. This is because to do so may bind the
mortgagee to a tenancy that they are not currently bound by1. The likely action, if any
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action is to be taken by the mortgagee, will be to commence possession
proceedings.
1. Keech v Hall (1778) 1 Doug KB 21
29.49 Mortgage terms and conditions
Some mortgage deeds may contain a clause entitling the mortgagee to security over
the rent. This is only likely where a specific buy-to-let mortgage has been obtained.
Official receivers should proceed on the basis that the mortgage does not contain
such a clause. If the notice to the mortgagee prompts them to notify the official
receiver of such a clause, a copy of the mortgage terms and conditions should be
requested to verify this.
Where there is a condition in the mortgage entitling them to the rent directly, the
official receiver should ask the mortgage company to confirm that they will also be
taking on the responsibility for the tenancy agreement. If the mortgage company
refuses to do so, and the property is in negative equity, consideration should be
given to disclaiming the reversionary interest in the property and tenancy agreement.
See paragraph 29.33 for a definition of reversionary interest.
29.50 Letter to letting agent
If a letting agent has been appointed by the bankrupt, the type of service they
provide will depend on the terms of the contract. These range from the collection of
rent only to a full management service where the agent is responsible for arranging
any repairs and safety inspections and dealing with tenants. A letter should be sent
to the letting agent1 to ascertain the level of service provided, and details of the
tenancy. It should also be established whether the agent holds any rent or other
money and, if so, the agent should be asked to hold those monies to the order of the
trustee.
1. ISCIS letter Annex H1 – sole – letter of enquiry to letting agent
29.51 When to continue with letting agent’s
services
Having obtained a copy of the agency agreement from the agent in response to the
letter sent to the letting agent, the agreement should be inspected and a decision
made as to whether or not the official receiver wishes to continue with the services of
the agent. If the letting agency is a well established and reputable business, and the
terms of the agreement do not place excessive requirements or fees on the landlord,
then the official receiver should consider continuing with the services provided. If the
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agency is a member of the National Association of Estate Agents (NAEA) or the
Association of Residential Letting Agents (ARLA), then it may reasonably be
considered to be reputable. Both of these websites have the facility to check if a
letting agent is registered with them.
If the official receiver decides to continue with the agency agreement, contact by
telephone with the agent should be made to discuss with the agent whether or not
they would consider allowing the official receiver to continue with the agreement. If
the agent is not prepared to act, see paragraph 29.54. A template letter is available1.
1. ISCIS letter Annex H2 – sole – letter retaining or releasing let agent
29.52 If letting agent will not act, or fees are
excessive
If the letting agent will not consider allowing the official receiver to continue the
agreement, consideration should be given to seeking the services of another agent
(see paragraph 29.54).
If the letting agent’s fees seem excessive for the services provided, and the official
receiver believes that the services can be obtained elsewhere at a better rate, the
assistance of another agent should be sought. Letting agents’ fees are usually
around 10% to 15% of the rent collected.
29.53 Letting agent is creditor
If the letting agent is owed money by the bankrupt at the date of the bankruptcy
order, then the agent is a creditor in the proceedings for that amount. The agent
should not be allowed to deduct this debt from future rent collected. This should be
made clear to the agent should the official receiver wish to continue the agent’s
services. If the agent disagrees with this course of action, then their services should
not be continued to prevent possible future disputes. In certain exceptional
circumstances, if it may be better overall, this guidance may not be followed.
29.54 Official receiver using other agents
Where it is not possible to use an existing letting agent or there was no letting agent
managing the property at the date of the bankruptcy order the official receiver can
consider asking their local agent to act in the collection of rent and management of
the property or consideration can be given to the use of a letting agent in the locality
who is prepared to act. If a new letting agent is found, then the agents fees and
services should initially be agreed by telephone, and then confirmed in writing by
sending a letter instructing the agents1.
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Before instructing the letting agent the official receiver should ensure that after
payment of the agent’s costs there will be a benefit to the estate. The letting agent’s
fees should not seem excessive for the services provided. A letting agent’s fees are
usually around 10% to 15% of the rent collected where management services are
provided.
1. Annex H3 – solely owned – letter of instruction to OR’s agent
29.55 Letter to deposit-holder – custodial
scheme
A letter1 should be sent to the Deposit Protection Service scheme administrator if the
tenant’s deposit has been protected (see paragraph 29.45 for contact details). A
copy of the bankruptcy order should be sent as evidence of its existence, and the
deposit ID number should be quoted, where known. If the bankrupt cannot provide
the deposit ID number, the scheme administrator should be able to find the deposit
using the name of the bankrupt landlord, the name of the tenant, and the address of
the rented property. The (approximate) date that the tenancy commenced will also
assist in locating the deposit.
The scheme administrator should be told that the official receiver is and the landlord
and that no action should be taken to release the deposit without the official
receiver’s agreement.
1. ISCIS letter Annex G2 – sole – letter to custodial scheme deposit holder
29.56 Letter to deposit-holder – insurance
based scheme
A letter should be sent to the relevant scheme administrator1 if the tenant’s deposit
has been protected by an insurance based scheme (see paragraphs 29.27 and
29.31 for contact details). A copy of the bankruptcy order should be sent as evidence
of its existence, and the relevant reference number should be quoted where known.
If the bankrupt cannot provide a reference number, the scheme administrator should
be able to find the deposit with the name of the bankrupt landlord, the name of the
tenant and the address of the rented property. The (approximate) date that the
tenancy commenced will also assist in locating the details.
The letter to the scheme administrator should provide information as to whether or
not the deposit is still held. If not, then the tenant will be able to claim back the
deposit from the scheme administrator who, on settling the claim, will then become a
creditor in the proceedings for that amount. The insurance company is subject to the
same restrictions on taking proceedings for a bankruptcy debt as the tenant1.
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Following bankruptcy, the insurance based schemes may terminate cover. If the
cover is terminated, the tenant will have 90 days from the date of the cancellation
notice to make a claim or the deposit will cease to be protected.
1. ISCIS letter Annex G1 – sole – letter to insurance based deposit scheme
2. Section 285(3)
29.57 Deposit not protected or retained
If the bankrupt has not protected the deposit, and at the date of the bankruptcy order
the deposit is not held, then the tenant will become a creditor for the amount of the
deposit which would be due back on termination of the tenancy1.
Where the bankrupt has not protected the deposit the official receiver may wish to
consider investigating the reasons for this.
1. Section 382
29.58 Official receiver to protect any deposit
recovered
The official receiver should ensure that any deposit held by the bankrupt at the date
of the order is protected. Where a deposit is held by the bankrupt at the date of the
order, it should be secured by immediately writing to the bank (or other party) where
the deposit is held (see chapter 33). The official receiver should then withdraw the
deposit monies and place them into the Deposit Protection Service scheme (see
paragraph 29.27).
29.59 Deposits taken prior to 6 April 2007
Where a deposit has been taken prior to 6 April 2007 (see paragraph 29.25), or for a
type of tenancy which is not subject to the provisions of tenancy deposit schemes,
then provided it has been retained, the official receiver should look to secure the
account in which it is held for future release to the tenant. If the monies cannot be
identified (for example, if they have been kept in the bankrupt’s current account), the
tenant would be a creditor in the bankruptcy proceedings. See paragraph 29.57.
29.60 Decision on receipt of initial information
Where possible the official receiver needs to obtain sufficient information to make an
immediate decision on how to best proceed with the property. All the information
received from the questionnaire and responses from the tenant, any agent appointed
and the mortgagee should be reviewed to decide how the property will be dealt with.
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The official receiver should attempt to ascertain:
•
information which will assist in deciding whether the property, including the tenancy
agreement, is onerous, see paragraph 29.61
•
information from the mortgagee to ascertain whether the mortgagee intends to
appoint a Law of Property Act receiver or to take possession of the property, see
paragraph 29.62
•
information in relation to any charges on the property and the value of the property to
ascertain whether there is any equity in the property, see paragraph 29.63
29.61 Information to establish whether
property is onerous
The official receiver, should, obtain sufficient information to make a decision on
whether or not to disclaim the tenancy agreement and reversionary interest in the
property.
For this purpose the official receiver’s enquiries should ascertain:
•
the current condition of the property and whether any major or expensive repairs are
required (e.g. roof or chimney unsafe). See paragraph 29.77 onwards for further
guidance on the cost of repairs
•
details of the current occupants of the property and the terms of their occupancy
•
details of any rent arrears in relation to any tenancy agreement and the willingness of
the tenant to pay these arrears and the future rent
•
details of any tenancy with unusual and excessive requirements on the landlord
29.62 Law of Property Act receiver already
appointed
If a Law of Property Act receiver has already been appointed, then a letter should be
sent to the mortgagee asking for a copy of the document of appointment. The
receiver should also be informed that the official receiver considers that if the
mortgagee has the right to receive the rent, they will also be considered to be the
landlord of the property and that the official receiver will not be taking any action in
relation to the obligations attached to the tenancy agreement.
29.63 Tenanted property with equity
Where a tenanted property has sufficient equity to attract an insolvency practitioner,
then an appointment should be sought as soon as possible via the Secretary of State
(see chapter 45). Such an appointment is considered urgent as the property
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(including the tenancy agreement) can be regarded as being an asset in jeopardy. A
mortgagee in relation to the property should be given seven days to reply to the
notice sent. If the mortgagee has not replied within seven days, the letter should be
followed up with a telephone call to be certain that the mortgagee has been given
sufficient opportunity to consider the contents of the letter prior to an insolvency
practitioner being appointed trustee.
An insolvency practitioner appointment may be appropriate even if the mortgagee
has indicated that they are going to appoint a receiver or take possession if they
have not indicated when they will take that action.
29.64 Tenanted property without equity but
other assets
Where there are assets in a bankrupt’s estate other than the tenanted property e.g.
the family home, a motor vehicle or book debts, then consideration should be given
by the official receiver to a possible appointment of an insolvency practitioner, to act
as trustee of the bankrupt’s estate, from the local rota.
29.65 Tenanted property only asset
Where there are no assets in a bankrupt’s estate other than the tenanted property
and the mortgagee has not indicated that a receiver of rents will be appointed or that
action will be taken to repossess the property, then the official receiver may consider
whether the case should be offered to the next insolvency practitioner on the local
rota depending on the nature, number and value of the tenancies concerned. If the
mortgagee has indicated that they are going to take immediate steps to appoint a
receiver, then the case should not be offered to an insolvency practitioner.
Official receiver’s duties and obligations
as landlord
29.66 Obligations of official receiver as trustee
in relation to tenancy agreement
The obligations of landlord vest in the official receiver automatically upon their
appointment as trustee1 whether or not the rent is collected (see paragraph 29.94).
Action can be taken by the tenant where the landlord refuses to accept rent tendered
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or to perform the duties of landlord under the terms of the tenancy agreement, as
this would be a breach of the covenants under the AST agreement. Refusal to
receive the rent would not have the effect of terminating the tenancy agreement.
1. Section 306
29.67 Official receiver to secure spare keys
When the official receiver is landlord of a solely owned tenanted property, the official
receiver should establish the whereabouts of all sets of keys to the property as a
matter of urgency. The official receiver should make a list of all persons who hold a
set of keys on the file for future reference and require the bankrupt to deliver up all
sets of keys in their control. The official receiver should place all keys that they
secure into the office safe for safe keeping. Any keys placed in the safe should be
clearly and securely labelled with details of the name of the case and the property
concerned and the details should be entered into the office safe register. The keys
should be retained until the property is disposed of.
29.68 Trustee’s duty to notify tenant of change
of landlord
If the interest of a landlord under a residential tenancy agreement is assigned (which
includes the automatic vesting of the tenancy in the trustee under the Insolvency Act
1986), then the new landlord must give notice in writing of the assignment1. The
notice must provide the new landlord’s name and address and be sent to the tenant
not later than the next day on which rent is payable under the tenancy or, if that is
within two months of the assignment, the end of that period of two months.
The official receiver should ensure that where a solely owned tenanted property
vests in them as trustee, the letter to the tenant (see paragraph 29.43) provides
information that the official receiver is the new landlord and relevant contact details
1. Landlord and Tenant Act 1985 section 3
29.69 Penalty for failing to notify tenant of
new landlord
If the new landlord under that tenancy (the trustee), fails without reasonable excuse
to notify the tenant of the assignment and of their name and address, they commit a
summary offence and is liable on conviction to a fine currently up to £2,5001.
1. Landlord and Tenant Act 1985 section 3(3)
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29.70 Duty of care regarding waste
Where the bankrupt is the landlord of a solely owned residential property, the official
receiver is under a duty of care regarding any waste if it can be said that the official
receiver is “keeping” household waste1. The term “keeping” is believed to include
having the temporary possession or being in the presence of something, so the
official receiver may be “keeping” waste when the property where it is situated forms
part of the insolvent’s estate. An offence may be committed even if the waste is
“kept” for only a short time.
The landlord should ensure that tenants have suitable and sufficient facilities to cope
with their waste. It is advisable that the tenant is encouraged to deal with their own
waste whilst in occupancy of the property as if the property becomes vacant, and the
landlord is left with unwanted items, then this waste is no longer considered as
household but becomes commercial waste and is now the responsibility of the
landlord. As the Household Waste Recycling Centres are provided and licensed only
for household waste, this avenue of disposal is not available for use by a landlord. A
skip, direct delivery to a private disposal point or professional removal services
would be required in this case. If the official receiver has to deal with waste left
behind by a tenant, any deposit held could be used to defray the costs incurred (see
paragraph 29.126).
1. Environmental Protection Act 1990
29.71 Landlord duties under an assured
shorthold tenancy
The official receiver’s obligations as trustee in relation to solely owned property
cases are the same as that of the landlord1, as prescribed by the tenancy agreement
and legislation. Under an AST the landlord’s obligations will usually be to:
•
allow the tenant peaceful enjoyment of the property2 (see paragraph 29.73)
•
hold any deposit paid by the tenant in a government authorised tenancy deposit
scheme (see paragraph 29.24)
•
insure the property and any fixtures or furniture provided by the landlord and provide
a copy of the insurance policy to the tenant (specific landlord insurance including
public liability is needed, see paragraphs 29.38). This should already be in place so
a copy of the policy should be obtained, held, and renewed if it expires
•
keep the exterior structure in good repair and repair and keep in good working order
the installations in the property relating to heating, gas and sanitation3 (see
paragraphs 29.77 onwards)
•
comply with Gas Safety (Installation and Use) Regulations 1998 to have a gas safety
check on the property annually4 (see paragraph 29.83)
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•
ensure smoke alarms are fitted on each storey and a carbon monoxide alarm in each
room in which solid fuel is used5
•
ensure the electrical installation complies with legislation (a certificate is valid for
between 1 and 5 years, depending on the electrician’s recommendations) and
ensure smoke alarms are fitted3, 6 (see paragraph 29.84)
•
if it is a furnished let, ensure furnishings comply with fire safety regulations7, 8 (see
paragraph 29.87)
1. Landlord and Tenant (Covenants) Act 1995 section 3(1)(b)
2. Markham v Paget [1908] 1 Ch 697
3. Landlord and Tenant Act 1985 section 11
4. Gas Safety (Installation and Use) Regulations 1998 regulation 36
5. Smoke and Carbon Monoxide Alarm (England) regulations 2015
6. Electrical Equipment (Safety) Regulations 1994
7. Consumer Protection Act 1987 section 11 and 46
8. Furniture and Furnishings (Fire Safety) (Amendment) Regulations 2010
29.72 Initial inspection of property
As the official receiver becomes landlord upon appointment as trustee, they need to
ensure that the property is reasonably safe. The official receiver should rely on the
bankrupt’s account of the property unless there is reason to doubt the bankrupt. If
the bankrupt cannot provide copies of the required gas and electrical safety
certificates and assurances that the property is in good order, then the official
receiver may consider arranging for a general inspection of the property by local
agents (or previous agents retained) to determine its general condition and any risks.
There is no Service Level Agreement with an agent for this service.
29.73 Allow the tenant peaceful enjoyment of
the property
Under a standard AST the tenant has a right to peaceful enjoyment of a property.
Where this clause is not specified in the terms of the tenancy agreement, it is an
implied covenant1. This should be taken to mean that the tenant has a right to remain
undisturbed by the landlord, who should not gain entry without the tenant’s consent
or make unannounced visits on a regular basis.
1. Markham v Paget [1908] 1 Ch 697
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29.74 Repairs and maintenance of the
property
The official receiver should ensure any necessary repairs and maintenance of the
property are carried out where funds permit (see following paragraphs) Reference
should be made to the terms of any tenancy agreement in place to see what the
landlord is responsible for. For example, this may include arranging for a ‘Gas Safe
Register’ registered gas engineer to repair a broken boiler.
The cost of making a repair should be met from the rental income. If the costs of the
repair are likely to be expensive in relation to the rental income being received, it is
possible that the tenancy agreement may have become onerous and the official
receiver may need to give consideration to disclaiming the reversion of the property
and the tenancy agreement.
29.75 Practicalities of arranging repairs and
general maintenance
The official receiver, as trustee and landlord, is responsible for arranging any repairs
on the property specified in the AST. Firstly, the official receiver should establish the
likely costs of any repairs by obtaining quotes to carry out the required work. If there
are letting agents in place, the official receiver may consider requesting that the
agents arrange for the appropriate repairs to be made and account to them for the
expenditure, provided that the costs of obtaining the agent’s services in this regard
are reasonable.
29.76 Allowing tenant to arrange for repairs
Consideration may also be given to allowing the tenant to arrange the repairs and
account to the official receiver for the cost, providing receipts as evidence. As the
tenant is not responsible for arranging these repairs, they may refuse. Any such
request should be made over the telephone initially to see if the tenant would be
prepared to find a suitable person to carry out the repairs and attend at the property
at the tenant’s convenience. If the tenant does not wish to assist the official receiver
in this way, then they should not be pushed on the matter.
29.77 Repairs – what is considered essential?
Repairs of a cosmetic nature, such as redecorating, should not be considered as
being essential. The landlord’s responsibility is provided for in legislation1 and
includes;
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a) to keep in good repair the structure and exterior of the property (including drains,
gutters and external pipes)
b) to keep in repair and proper working order the installations in the property for the
supply of water, gas and electricity and for sanitation (including basins, sinks, baths
and sanitary conveniences, but not other fixtures, fittings and appliances for making
use of the supply of water, gas or electricity)
c) to keep in repair and proper working order the installations in the property for
space heating and heating water (the heating including pipes, radiators and boiler)
If the tenancy agreement contains a covenant that the tenant be responsible for
these things rather than the landlord, it has no effect2.
In determining the standard of repair required, regard must be had to the age,
character and prospective life of the property and locality in which it is situated3.
1. Landlord and Tenant Act 1985 section 11
2. Landlord and Tenant Act 1985 section 11(4)
3. Landlord and Tenant Act 1985 section 11(3)
29.78 Repairs that are not necessary
Where one of the repairs referred to above is required under ‘the landlord’s repairing
covenant’, it is not, however, to be construed as requiring the landlord1;
a) to carry out works or repairs for which the tenant is liable by virtue of his duty to
use the premises in a tenant-like manner, or would be so liable but for an express
covenant on his part
b) to rebuild or reinstate the premises in the case of destruction or damage by fire, or
by tempest, flood or other inevitable accident; or
c) to keep in repair or maintain anything which the tenant is entitled to remove from
the property
For a definition of covenant, see paragraph 29.33.
1. Landlord and Tenant Act 1985 section 11(2)
29.79 Tenant to give reasonable access to
property for purposes of repair
In order to carry out necessary repairs the tenant is required to give access to the
property to the official receiver, as landlord, or any person authorised by them in
writing, at reasonable times of the day on receipt of 24 hours notice in writing for the
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purpose of carrying out the repair1. The right of entry is limited to that which is strictly
necessary to do the work and the repair and does not oblige the tenant to give the
landlord exclusive occupation or access to all parts of the house at the same time
unless this is essential for the execution of the repairs2.
1. Landlord and Tenant Act 1985 section 11(6)
2. McGreal V Wake (1983) 13 HLR 107
29.80 Repairs needed – examples
The repair of the structure and exterior includes the reinstatement of decorations
damaged by the work of repair1 but not damage to decorations and furnishings
caused by condensation which was not due to structural damage2. Saturation of the
plaster is considered to be damage to the structure3.
‘The structure of the dwelling house’ has been said to ‘consist of those elements
which give it its essential appearance, stability and shape’ but not to extend to ‘the
many and various ways in which the dwelling house will be fitted out, equipped,
decorated and generally made to be habitable’; it is not limited to load-bearing
elements; it does not include a separate garage, gates, internal plaster and door
furniture but does include windows, including their sashes, cords, frames and
essential furniture4. Floor joists included in the lease of the flat were part of the ‘main
structure’ of the building and so within the landlord’s repairing obligations5.
In addition, repairs to slabs in a back yard were found to not be covered6.
1. McGreal V Wake (1983) 13 HLR 107
2. Quick v Taff-Ely Borough Council [1986] QB 809
3. Staves v Leeds City Council (1990) 23 HLR 107
4. Irvine v Moran (1990) 24 HLR 1
5. Marlborough Park Services Ltd v Rowe [2006] EWCA Civ 436
6. Hopwood v Cannock Chase District Council [1975] 1 All ER 796
29.81 Duty to repair does not extend to repairs
landlord isn’t aware of
The landlord’s obligation to repair extends only to instances where the landlord has
knowledge of the defect but it is sufficient if they have information about the
existence of a defect which would put a reasonable person on inquiry as to whether
repairs are needed1.
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1. O’Brien v Robinson [1973] 1 ER 583, HL
29.82 Repairs to be carried out in a timely
manner
The official receiver, as landlord, should ensure that where it is considered that the
repairs should be carried out the repairs should be undertaken within a reasonable
time of receiving notice of the defect1.
1. Morris v Liverpool City Council (1987) 20 HLR 498
29.83 Gas safety
The official receiver, as trustee and landlord, is required to ensure that all gas
appliances and flues are in good order so as to prevent the risk or injury to any
person lawfully occupying the premises. As landlord, the official receiver is required
to ensure that an annual safety check is carried out by a ‘Gas Safe Register’
registered tradesman1 (see www.gassaferegistrer.co.uk). A copy of the issued safety
certificate should be issued to the tenant within 28 days of the check.
If the bankrupt cannot produce a current gas safety certificate, the official receiver
should arrange for one to be obtained as a matter of urgency. Where a current
certificate does not exist, the official receiver should make an appointment for a gas
safe engineer to attend on the property within five working days, with the aim of
obtaining the certificate within ten working days of the official receiver becoming
trustee (or within ten working days of first becoming aware of the property). Where
the property being inspected is an average size home, (e.g. one domestic boiler, one
gas fire and one gas cooker), where the equipment passes the safety check, the cost
of obtaining a certificate should not be greater than £200.
1. Gas Safety (Installation and Use) Regulations 1998 regulation 35(2)
29.84 Electrical safety
The official receiver, as trustee and landlord, is required to ensure that any electrical
system and appliances supplied by the landlord should be safe when a tenancy
begins, and remain safe throughout the tenancy1, 2. This is usually achieved by
obtaining a periodic electrical certificate on the property from a qualified electrician,
normally every 1 to 5 years depending on the electrician’s recommendation3.
The official receiver should seek to ascertain that the electrical safety certificates are
current and, where they are not, should make arrangements to obtain the certificates
in respect of the property at the earliest opportunity in order to comply with the
legislation. Where a current certificate does not exist, the official receiver should
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make an appointment for an appropriate tradesman to attend on the property within
five working days, with the aim of obtaining the certificate within ten working days of
the official receiver becoming trustee (or within ten working days of first becoming
aware of the property). The cost of obtaining these certificates should be paid from
the estate and covered by the rental income. The cost of the assessment and
certificate should not cost more than £200 in an average home.
1. Landlord and Tenant Act 1985 section 11
2. The Electrical (Safety) Regulations 1994 SI 1994 No. 3260
3. Code of Practice for In-Service Inspection and Testing of Electrical Equipment
29.85 Smoke and Carbon Monoxide Alarms
On 1 October 2015 The Smoke and Carbon Monoxide Alarm (England) Regulations
2015 came into force in respect of rented properties in England (for Welsh properties
see paragraph 29.86). Private sector landlords are required from 1 October 2015 to
have at least one smoke alarm installed on every storey of their properties and a
carbon monoxide alarm in any room containing a solid fuel burning appliance (eg a
coal fire, wood burning stove). After that, the landlord must make sure the alarms are
in working order at the start of each new tenancy.
The requirements will be enforced by local authorities who can impose a fine of up to
£5,000 where a landlord fails to comply with a remedial notice.
The official receiver is therefore advised to check with the bankrupt/any letting agent
that a smoke alarm is fitted, as required, on each floor of the property, preferably in
the hall and landing areas. Where no smoke alarms are fitted in the property, the
official receiver should ensure that they are fitted. Where the alarms are battery
operated, and thus must be regularly checked and replaced, the onus for doing this
should be placed on the tenant. Where the tenancy agreement does not specifically
refer to this, a letter should be sent to the tenant (see paragraph 29.43) informing
them that they have the obligation to check that any smoke alarm fitted in the
property is working and to replace the batteries regularly in accordance with the
manufacturer’s instructions.
29.86 Tenanted properties in Wales
Housing Act (Wales) 2014
Under the Housing Act (Wales) 2014, landlords of tenanted properties in Wales are
subject to compulsory registration and licensing delivered through Rent Smart
Wales. Any landlord with a rental property in Wales, which is rented on an assured,
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assured shorthold or regulated tenancy, is required to register. It is therefore
necessary for the Official Receiver to be licensed where they act as ‘landlord’ for a
Welsh tenanted property and register the property with Rent Smart Wales.
The implications of failing to comply with the compulsory registration and licencing
requirements are that the official receiver would be:
•
in contravention of the Housing Act (Wales) 2014 resulting in liability for a fine
•
unable to serve a Section 21 Notice, where a tenancy eviction is necessary, if the
property is not registered
The Official Receiver in Cardiff holds a licence, and has the responsibility to manage
and register all Welsh solely owned tenanted properties where the officer receiver
would act as landlord. Therefore all cases where Welsh solely owned tenanted
properties have been identified will now be dealt with by the Official Receiver in
Cardiff. Those cases identified must be transferred to the Official Receiver at Cardiff
in line with the protocol at Annex B so that the property can be registered and
managed in line with the legislation and the protocol .
Smoke alarms
As above, properties built since 1992 must be fitted with mains-powered, inter-linked
smoke detectors/alarms.
For Welsh tenanted properties, those built since 1992 must be fitted with mains-
powered, inter-linked smoke detectors/alarms but landlords are advised to provide at
least battery operated alarms in older properties.
There is no legislation requiring smoke alarms to be fitted in older tenanted property
but it is considered that common law duty of care means that landlords could be held
liable should a fire cause injury or damage in a tenanted property. Landlords are
therefore advised to provide at least battery operated alarms in older properties.
The official receiver should therefore check with the bankrupt/any letting agent that a
smoke alarm is fitted on each floor of the property, preferably in the hall and landing
areas. Where no smoke alarms are fitted in the property, the official receiver should
ensure that they are fitted. Where the alarms are battery operated, and thus must be
regularly checked and replaced, the onus for doing this should be placed on the
tenant. Where the tenancy agreement does not specifically refer to this, a letter
should be sent to the tenant (see paragraph 29.43) informing them that they have
the obligation to check that any smoke alarm fitted in the property is working and to
replace the batteries regularly in accordance with the manufacturer’s instructions.
29.87 Fire safety of furnishings
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Where the property is rented out as furnished or part furnished, the official receiver
should check that the furniture complies with current fire safety regulations1. Where a
letting agent has been employed by the bankrupt, the letting agent should be able to
confirm that any furnishings supplied comply with the legislation.
1. Furniture and Furnishings (Fire Safety) (Amendment) Regulations 2010
29.88 Service agreements
Where the bankrupt has maintained a service agreement on something such as the
heating system, the official receiver should obtain all documents relating to that
agreement and consider continuing the agreement if the cost of doing so is not
prohibitive.
29.89 Local Authority action against
hazardous property
The Housing Act 2004 provided for a new system of assessing the condition of
residential premises. A local authority must review the housing conditions in their
area and if they consider a property should be inspected with a view to determining
whether a hazard exists, they must arrange for such an inspection to take place1.
If a Local Authority inspects a property and finds it to be dangerous, it can take
enforcement action by serving improvement notices, prohibition orders, or hazard
awareness notices. There are also emergency measures that may be taken, or in
worse case scenarios, slum clearance declarations or demolition orders may be
obtained. Generally, a notice will firstly require the landlord to put the hazard right2. If
the official receiver is notified of or served with one of the above notices, the
reversionary interest in the property is likely to be onerous and the most likely course
of action for the official receiver will be to disclaim the reversionary interest and
tenancy agreement (see paragraph 29.142). Only where the costs of rectifying the
hazard are less than the combined equity and rent, should the official receiver
consider effecting the repairs required (see following paragraphs for guidance on
balancing the costs against benefit).
1. Housing Act 2004 sections 1 to 4
2. Housing Act 2004 sections 5 to 10
29.90 Considering paying for repairs and other
essential costs
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The official receiver will need to decide on a property by property basis whether or
not the cost of any repairs or other expenses on the property are necessary. See
guidance in paragraphs 29.77 on what is considered necessary. If an essential cost
or repair is considered necessary, the official receiver will then need to decide
whether it should be paid/the work undertaken and paid for, or whether the property
has now become onerous, with a disclaimer being more appropriate. Deciding
factors will include:
•
how much rent has already been collected
•
whether the tenant is a reliable, good payer
•
whether the rent is significant in relation to the cost of the repairs
•
whether the tenant has given notice to quit or the tenancy has ended
•
if the mortgagee is about to appoint a receiver or take possession
•
whether or not there is equity in the property. If there is no equity, it may be more
appropriate to disclaim the reversion and tenancy
29.91 Example of a circumstance when a
repair would be paid for
The official receiver is dealing with a case in the early stages after being appointed
trustee, and they have collected 2 months rent (£2,000, from £1,000 a month). The
boiler breaks down, and the official receiver instructs a gas safe engineer to inspect
and quote for the repairs (see paragraph 29.83). The gas engineer advises that
repairs will cost £1,000. The tenant is left without heating and it is winter, so the
decision is urgent. The official receiver inspects the case file and the mortgagee has
said they are not going to appoint a receiver or take possession proceedings. The
tenant has paid the rent on time and does not have any rent arrears. His tenancy is
due to run for another three months and he has spoken to the official receiver saying
he doesn’t want to lose his home.
In this case it would be reasonable to go ahead with the repairs as the next 3 months
rent will total £3,000. £2,000 has already been collected, so after paying the £1,000
for the repairs to the boiler the estate should benefit by £2,000.
29.92 Decision not to pay for necessary repairs
The official receiver has an obligation as landlord to carry out necessary repairs and
so not to do so, means they are in breach of the relevant legislation1 and terms of the
tenancy agreement. When the official receiver decides that although the repair is
necessary, the obligation to pay for the repair has meant that the property has
become onerous, the official receiver will need to consider disclaiming the
reversionary interest in the property and the tenancy agreement.
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1. Landlord and Tenant Act 1985 section 11
29.93 Paying for repairs and other essential
costs
Where the official receiver, as trustee, concludes that payment for repairs is going to
be made, the repairs should usually be funded from income already collected.
Occasionally an expense may need to be paid prior to the collection of rental
income, for example insurance. Where an essential payment is needed immediately
on notification of the case, it will need to be paid for from the main estate account.
See chapter 14 for guidance on the payment of insurance premiums.
The official receiver may also need to pay for essential expenses from the rental
income collected. Where such a payment is needed, this should be paid from the
estate account set up for rental income balance (see paragraph 29.103). If there is
no such balance from rent already collected, then the official receiver needs to
decide whether or not it is likely that sufficient rent will be collected in the future to
cover the expense. If there is a risk that sufficient monies will not be collected to
cover the cost, then consideration needs to be given to disclaiming the reversionary
interest in the property and the tenancy agreement instead.
Collection of rent
29.94 When to commence collection of rent
The official receiver should collect the rent as soon as the bankruptcy order is made
and they are trustee and has collected sufficient information to enable rent collection.
The rent should be collected in full from the date of the bankruptcy order, including
any arrears arising prior to the order. The official receiver should ensure that any rent
that was held by the tenant or letting agent pending their appointment as trustee is
also collected.
The rental income should be collected where there is a current tenancy agreement in
place, which includes a statutory periodic tenancy. (See paragraph 29.99 for
circumstances when rent should not be collected.
29.95 Collection of rent when fixed term of
AST has expired
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A tenancy is still current if an assured shorthold tenancy (see paragraph 29.12) has
ended but the landlord has allowed it to continue verbally, as by default, the tenancy
continues as a statutory periodic assured shorthold tenancy with the same terms and
conditions as the former tenancy. In this situation rent should continue to be
collected.
29.96 When rent collection should cease
The official receiver should only cease to collect rent if the mortgagee appoints a
receiver, takes possession of the property, or their reversionary interest in the
property and interest in the tenancy agreement is disclaimed or the property is sold.
The official receiver, as trustee, continues to be responsible as landlord for the
collection of rent and other landlord duties even after the bankrupt receives their
discharge.
29.97 Collection of rent prior to obtaining
information regarding tenancy agreement
Rental income should be collected by the official receiver, as trustee, directly from
the tenant or letting agent in the circumstances detailed in paragraph 29.94 whilst
waiting for the mortgagee to reply or to take other action. The mortgagee does not
have any right to the rent until it either a) enters into possession of the property or b)
appoints a receiver. In the meantime, the rent should be collected for the benefit of
the bankruptcy estate.
29.98 Need for timely collection of rent
By collecting the rent from the tenant, the official receiver will generally ensure that
no further payments are made in respect of any mortgage on the property. Where
the mortgage payments cease, this is likely to have the effect of ensuring that the
mortgagee takes early action to protect any interest held in the property, thereby
relieving the official receiver of their responsibility.
The official receiver should not allow rent to build up for long with an agent. If the
mortgagee appoints a receiver of rents or enters possession, the receiver will be
entitled to collect any rents that have yet to be collected by the official receiver,
including any arrears and consequently this rental income would be lost to the
bankruptcy estate1. See paragraph 29.161.
1. Law of Property Act 1925 section 190(3)
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29.99 Circumstances when rent should not be
collected by official receiver as trustee
The official receiver as trustee should not collect rent when there is;
•
a tenant who has defaulted on their obligations (for example, to pay rent) (but see
paragraph 29.100 for further guidance on the circumstances when rent arrears
should be collected), or
•
a squatter or a tenant who has stayed on in the property after being given valid notice
to quit
To collect rent in these circumstances may validate an otherwise invalid tenancy to
the detriment of the value of the property and thereafter to the bankruptcy estate.
The basic rule is that if one party permits another into possession of their land on
payment of rent, without more the inference sensibly and reasonably to be drawn is
that the parties intended there to be a periodic tenancy1.
1. Javad v Aqil [1991] 1 All ER 243
29.100 Rent arrears
Although under normal circumstances rent arrears should not be collected (see
paragraph 29.99 above), it will sometimes be acceptable to do so and to be
beneficial to the estate. Where rent arrears exist, the official receiver needs to decide
on a case by case basis whether or not to attempt to collect them from the tenant.
Generally where rent arrears are ongoing and significant (e.g. over 3 months is
owing at the date of the bankruptcy order), or where the bankrupt has already
commenced action to evict the tenant prior to the bankruptcy order, then rent should
not be collected.
Where rent is offered up by the tenant, the official receiver as trustee and landlord
cannot refuse to accept it, and the tenant may even come to the office and leave
money in order to preserve their rights of occupation. If a tenant pays rent arrears, a
record should be kept of how much and when payment is made in case future action
is taken to evict the tenant for breaching the terms of the tenancy agreement.
29.101 Rent arrears post bankruptcy order
The official receiver, as trustee, should actively attempt to collect rent arrears from a
tenant where the arrears have only built up since the date of the bankruptcy order or
within a short period prior to the bankruptcy order. Consideration should be given as
to why the tenant has fallen into arrears and the official receiver should exercise their
discretion on a property by property basis in deciding whether or not to collect the
arrears. On this, professional assistance maybe required.
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29.102 How to collect rent
The official receiver may consider:
a) asking the tenant to send in a cheque for the rental amount every month/week (as
per the terms of the tenancy agreement)
b) asking any current letting agent to continue to act and send in the balance on the
account every month (see paragraphs 29.51)
c) asking the official receiver’s local agent to act in the collection of rent (see
paragraph 29.54)
d) using a letting agent in their locality who is prepared to act for the official receiver
(see paragraph 29.52)
29.103 How to account for rent collected
All rent collected by the official receiver, as trustee and landlord, in respect of a
tenanted property should be banked in the usual manner.
This applies even where the bankrupt is the sole owner of more than one tenanted
property. To ensure that the necessary decisions can be made in relation to a
particular property the official receiver will need to know all the receipts and
payments of monies which relate to that property. The official receiver should
therefore maintain a schedule of receipts and payments in relation to each tenanted
property.
All receipts are banked centrally by Estate Account Services in Birmingham. To
ensure that rent due in relation to a particular tenanted property has been received it
is the responsibility of the local office to monitor its receipt.
29.104 Rights of bankrupt in relation to tenant
Where there is a tenant in occupation, and the official receiver as trustee is the
landlord, the bankrupt no longer has any rights to deal with the tenancy. This means
they do not have the right to evict the tenant; only the official receiver as landlord has
that right. From the date the official receiver becomes landlord (upon appointment as
trustee), the bankrupt no longer has any reason to be in contact with the tenant.
Rights of entry
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29.105 No right of bankrupt to re-enter
property
The bankrupt should not be permitted to move back in to the property should any
tenant subsequently vacate the property. As from the date of the bankruptcy order,
the property, and any tenancy agreement vests in the official receiver as trustee and
the bankrupt no longer has any right to enter the property. If the bankrupt enters the
property without the official receiver’s permission, they would be a trespasser on the
property. The official receiver would then have to consider taking steps to evict the
tenant or to disclaiming the property (see paragraphs 29.137 and 29.189).
If the official receiver were to accept rent from the bankrupt in such circumstances
this may result in the creation of a tenancy agreement between the bankrupt and the
official receiver, as trustee, and the bankrupt would become a tenant of the official
receiver1.
1. Javad v Aqil [1991] 1 All ER 243
29.106 Rights of mortgagee if bankrupt re-
enters property
If the official receiver were to let the bankrupt move back in to the property, it would
compromise the position of the mortgagee, as when there is an unauthorised
tenancy or a vacant property, the mortgagee can seek repossession and sell the
property with vacant possession. Allowing the bankrupt to move back in would make
selling the property in the event of repossession more difficult.
As the mortgage payments are not an allowable expense, see paragraph 29.113,
repossession is a possibility. For these reasons the bankrupt should not be offered
the option to buy back the interest in the property from the official receiver1, see
paragraphs 29.180 to 29.186 for more details.
1. Form MP1
29.107 Mortgagee’s rights on repossession
As soon as a receiver of the property is appointed, or the mortgagee takes
possession, it becomes the mortgagee’s responsibility to carry out the duties of the
landlord and their right to collect the rental income, including arrears1, 2.
1. Landlord and Tenant (Covenants) Act 1995 section 15(1)
2. Cockburn v Edwards [1881] 18ChD 449
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Leasehold, ground rent and service
charges
29.108 Dealing with leaseholds that are
tenanted
When the official receiver encounters property owned by the bankrupt on a leasehold
basis, which has subsequently been let out on an assured shorthold tenancy
agreement, there are very few differences to dealing with freehold property. The
official receiver should check that the lease does not contain a restriction on the
granting of tenancies. If it does, then the tenancy will be invalid and the official
receiver will need to consider whether or not to acknowledge the tenancy by
collecting the rent or to disclaim the leasehold reversionary interest and tenancy
agreement. See paragraphs 29.138 onwards for guidance on disclaimers.
Where there is equity in the leasehold property, the official receiver should consider
whether or not the leasehold property and the invalid tenancy agreement are
onerous when considered together. Where there is equity in the property, the official
receiver may consider it to be more appropriate to collect the rent rather than issuing
a disclaimer, where there are no current onerous obligations attached to the tenancy
agreement.
29.109 Ground rent on leasehold property
When dealing with leasehold property, the lease usually contains a requirement to
pay ground rent, either annually or monthly. It is effectively a rent charge for the
underlying freehold land where the leasehold is situated. The official receiver would
not usually pay ground rent when dealing with a leasehold property in negative
equity. The requirement to pay ground rent would normally cause a leasehold
property with no or negative equity to be onerous and consequently the leasehold
reversion and tenancy agreement should be disclaimed (see chapter 42). Where the
leasehold property is tenanted, and there is sufficient surplus for the estate from the
rent after allowing for the ground rent, then the ground rent should be paid by the
official receiver as trustee.
Ground rent differs from mortgage payments in that it is a requirement for payment
attached to the leasehold property; whereas a mortgage is a debt in the bankruptcy
proceedings and is not attached to the underlying lease.
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29.110 Service charges on leasehold property
Service charges are a requirement to pay, for example, the upkeep of a communal
area and are often payable on leasehold flats. Where the service charges are not
excessive in comparison to the rent being paid by the tenant, the charges should be
paid by the official receiver, as trustee, as long as they wish to preserve the benefit
of the reversionary interest in the leasehold property and the tenancy agreement.
Taxation
29.111 Taxation of profits
Any profits from renting out a property are taxable and are treated as income for
income tax purposes, see chapter 59. Generally speaking, profits are considered to
be all rental income received less all allowable expenses (see HMRC guidance). The
LTADT or official receiver will need to account to HM Revenue and Customs prior to
the case being closed by tax return.
29.112 Accounting for taxation on rental
income
As explained in paragraph 29.3, property letting is not considered to be a trade by
HM Revenue and Customs, but is considered an investment, and the official receiver
must account to HM Revenue and Customs for tax due on any investment income
(see chapter 59). Rental income is not classed as ‘earnings’ and so is not subject to
National Insurance Contributions. The owning official receiver or LTADT office as
appropriate (whichever office has the case at the time the tax becomes due) should
complete the tax return. Tax returns are due by 31 January in the year following the
end of the tax year. All rental income is accounted for on a standard tax period of 6
April to 5 April. Therefore if the bankruptcy order was made on 2 May 2009, income
tax is due from the official receiver on any income received in the tax year 6 April
2009 to 5 April 2010 and the tax return and payment would be due by 31 January
2011.
29.113 Allowable deductions for taxation
purposes
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Allowable deductions from rental income for taxation purposes are based on actual
expenses incurred in that taxation period. Note it is the period the expense was
incurred in or invoiced in and not the date it was actually paid that is relevant for tax
purposes. Deductions from rental income are allowed for:
•
letting agent’s fees
•
building and contents insurance
•
maintenance and repair costs (but not improvements)
•
rent, ground rent and service charges
•
utility bills (such as gas, water, electricity)
•
council Tax
•
services the landlord pays for (such as gardening or cleaning)
•
legal fees (for drafting tenancy agreements etc)
•
accountant’s fees
•
interest on property loans (mortgages)
•
other direct costs of letting the property such as stationery, advertising, telephone
calls
If the annual rental income received is less than £15,000 before deducting expenses,
then only the total for the expenses needs to be entered onto the tax return and not a
breakdown of each expense.
29.114 Calculating taxation
When the bankrupt has more than one tenanted property, all the rental income
should be added together for taxation purposes. Income tax is due on the rental
income due in the relevant period minus allowable deductions. All of the rental
income for that period is added together and then all of the allowable expenses are
added together and deducted from the income figure, leaving the amount of net profit
made in that period. Tax is payable on the net profit. A loss from one property can be
offset against the profit from another property.
29.115 Taxation - Rent a room scheme
Where the bankrupt is renting out a room in their home (under a licence rather than
tenancy agreement, see paragraph 29.18), then tax is not payable provided the total
income generated is £4,250 or less a year. This includes rent and any other income
paid by the lodger for meals, bills etc. Tax is only payable on anything received
above the £4,250 allowance. See also chapter 59.
29.116 Taxation - Holiday lets, letting overseas
property
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Holiday lets and foreign letting taxation is generally calculated in the same way as for
AST’s. Tax is payable on income from overseas property whether or not the money
received in rent is brought into the UK. With foreign property, the income needs to be
declared on the foreign pages of the tax return. Where more than one foreign
property is held, it is classed as one business, and all foreign rental income and
deductions are taken together. Where a UK rental property is also held, this is kept
separate from overseas property, and they are treated as two separate businesses
for tax purposes. See HMRC guidance for more information.
29.117 VAT
A property investment business does not need to register for VAT, as the letting of
residential property is an exempt supply for VAT purposes. The letting of holiday
accommodation is standard rated for VAT (currently payable at 20% of all taxable
supplies), although it is unlikely to reach the threshold for compulsory registration. In
the tax year 2017/2018, the threshold for compulsory registration was £85,000. See
the Directgov website for further information on VAT.
29.118 Taxation records
The official receiver needs to keep all records for the rental income and expenses for
6 years after the tax year they are for. This should include any invoices, receipts,
rent books, letting agent papers and LOLA records.
Disposal or ending of an assured
shorthold tenancy agreement
29.119 Introduction
This part deals with the ending of an assured shorthold tenancy (AST) agreement
and covers ways that the tenancy may be ended by the tenant, mortgagee or official
receiver. In addition, this part deals with the disposal of the underlying property when
the tenancy is continuing.
29.120 Ways that a tenancy may be brought to
an end
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When the official receiver is trustee, they will, at some point, want to cease to be
responsible for a tenanted property. The official receiver’s role as landlord of a
tenanted property will be brought to an end following the occurrence of any of the
following events:
•
the tenant decides to leave the property (see paragraphs 29.122 to 29.135)
•
the official receiver, as trustee, disclaims their interest in the reversionary interest in
the property and tenancy agreement (see paragraphs 29.138 to 29.1545)
•
the mortgagee takes possession action against the property (see paragraphs 29.156
to 29.166)
•
the mortgagee appoints a receiver of rents (see paragraphs 29.167 to 29.172)
•
an insolvency practitioner is appointed as trustee (see paragraph 29.173)
•
the official receiver, as trustee, sells the legal and beneficial interest to a third party or
back to the bankrupt (only in exceptional circumstances) (see paragraphs 29.175 to
29.188)
•
eviction of the tenant under the Housing Act 1988 (see paragraphs 29.189 – 29.194
29.121 Landlord and Tenant Act 1987 and
disposal of tenanted property
When a property let on an AST agreement is disposed of, it is not classed as a
‘relevant disposal’ for the purposes of the Landlord and Tenant Act 1987. Part 1 of
this act gives ‘qualifying tenants’ of certain premises the right of first refusal to
acquire a landlord’s interest in premises, when a landlord proposes to make a
‘relevant disposal’. The official receiver does not need to be concerned with these
obligations when disposing of property let on an AST because a tenant on an
assured tenancy (which includes ASTs) cannot be a qualifying tenant1 (see chapter
28).
1. Landlord and Tenant Act 1987 section 3(d)
29.122 Where tenant leaves before end of
tenancy agreement
If a tenant wishes to leave the property, they should give proper notice to the official
receiver as landlord. The notice should be in writing1 and comply with the period
specified in the tenancy agreement.
Where the period of the tenancy agreement has not expired, the tenant should be
expected to stay until the end of the fixed term within the agreement or pay the rent
until the end of that term (e.g. if the tenant has only been in a property for 2 months
out of a 6 month tenancy, the requirement under the terms of the agreement is that
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the remaining 4 months rent should be paid). If the tenant leaves during the fixed
tenancy agreement period, see the following paragraphs.
1. Protection from Eviction Act 1977 section 5(1)a
29.123 Where tenant leaves without proper
notice – rent
If a tenant leaves without giving the official receiver proper notice, then they are
liable for the rent for the unexpired period of the tenancy. Where the official receiver
has an address for the tenant, the official receiver should pursue the tenant for any
unpaid rent. The official receiver should give consideration to instructing Clarke
Willmott (agents appointed by The Insolvency Service under the book debt and IPA
contract) to collect the outstanding rent.
29.124 Where tenant leaves after tenancy has
expired
Where the initial tenancy period has expired, and the tenancy is a statutory periodic
tenancy (see paragraph 29.17), then the tenant should give notice of one period of
that tenancy1. A tenancy period is usually determined by the period that rent is paid
for. Thus if the rent is paid per calendar month, the tenant should give one calendar
months notice in writing to the landlord, subject to a statutory minimum of not less
than four weeks notice before the date on which it is to take effect2.
1. Lemon v Lardeur [1946] K.B. 613
2. Protection from Eviction Act 1977 section 5(1)b
29.125 Where tenant leaves – retaining
deposit for rent owed
Where the tenant leaves the property without giving proper notice, owing rent for the
notice period, then the official receiver should claim an amount from the deposit for
the outstanding rent. Where the deposit is held in the Deposit Protection Service
scheme (see paragraph 29.28), the official receiver as landlord needs to make a
statutory declaration at least 14 calendar days after the tenancy has ended under the
Single Claim Process1 either because:
•
the official receiver has no current address for the tenant, or
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•
that the official receiver has given notice to the tenant requiring that the they be paid
some or all of the deposit within 14 calendar days of the end of the tenancy and the
tenant has failed to respond to the official receiver as landlord’s written notice
To start the single claim process then the landlord needs to call the Deposit
Protection Service on 0330 303 0030 to request the prescribed form for completion.
Information is available on the Deposit Protection Scheme website.
Payment should be made payable to the official receiver by name, as trustee of the
bankrupt’s estate.
Where the deposit is not retained in this scheme any recovery of the deposit is
unlikely.
1. The Housing Act 2004 Schedule 10, sections 4A and 4C
29.126 Where tenant leaves – deposit
If the tenant leaves the tenanted property, either at the end of the tenancy
agreement, or earlier than permitted by the agreement, and the official receiver is
acting as trustee and landlord, then the deposit will need to be dealt with. Tenants
have a responsibility to make sure that the property is in as good a condition when
they move out as it was when they moved into it, subject to normal/fair wear and
tear. When the tenancy comes to an end, the landlord is entitled to check the
condition and contents of the property, and if all is well, the full amount of the deposit
should be returned to the tenant. Where damage, other than usual wear and tear,
has occurred the landlord may be entitled to withhold all or part of the deposit to
restore the property to the original position.
Any deduction from the deposit is not to compensate the landlord for damage; it is to
pay to make good the damage. The official receiver should not normally carry out
repairs at the end of a tenancy.
Unless there is a detailed inventory from commencement, and a further one at
termination of the tenancy, it is unlikely that a deduction will be accepted readily by
the tenant.
29.127 Where tenant leaves – inspection
The official receiver should be conscious of the fact that when a tenant leaves the
property, an inspection of the property will need to be funded by the bankrupt’s
estate and may not result in any deduction from the deposit being made. Further,
any deduction made should be used for undertaking any required repairs and an
inspection and retention of deposit in a property where there is negative equity is
unlikely to benefit the creditors in any way, other than the mortgagee.
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It is therefore unlikely to be beneficial for the official receiver to arrange for an
inspection in the majority of cases.
29.128 Where tenant leaves – inspection when
equity in property
Where there is equity in a property, and the official receiver is trustee, the official
receiver should not normally consider carrying out an inspection or repairs as it is
unlikely to result in a benefit to creditors. Additionally, unless there is a detailed
inventory from commencement, and a further one at termination of the tenancy, it is
unlikely that a deduction from the deposit will be accepted readily by the tenant.
The official receiver should ensure that proper insurance is in place when a property
becomes vacant and a disclaimer is not going to be issued, see paragraph 29.130.
29.129 Where tenant leaves – dealing with
deposit where there is minimal or negative
equity
Where there is minimal (£25,000 should be used as a minimum guide figure but this
may vary depending on local and general circumstances) or no equity in the
property, the mortgagee should be informed that the property is empty and asked if
they wish to inspect the property and to take possession. The mortgagee should be
given a set time, for example, 10 days, to decide whether they wish to take
possession of the property and deal with the deposit and should be informed should
they fail to do so, the official receiver will authorise its release in full to the tenant. If
the mortgagee does not respond within the time given, the deposit should be
released to the tenant. If the mortgagee is not going to take any action, the official
receiver will need to decide whether the property has become onerous and consider
disclaiming their interest in the property within 30 days of the property becoming
vacant to prevent the insurance cover from lapsing, see following paragraphs.
29.130 When tenant leaves – inspection for
insurance purposes
Where the tenant leaves, and the mortgagee does not wish to take possession of the
property, the official receiver will need to decide to either inspect and insure the
property on an ongoing basis, or to disclaim their interest in it (assuming it has not
been possible to get an insolvency practitioner appointed as trustee). Even if no
deductions are going to be made from the deposit for repairs, where there is an
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empty property in a bankruptcy estate, there are specific insurance requirements that
will necessitate an inspection and the securing of those premises (see Annex A to
chapter 14). Insurance cover is available for unoccupied buildings from Willis Ltd,
provided that within 30 days of the building becoming unoccupied the code of
practice referred to Annex A of chapter 14 for securing that building is followed. The
official receiver should consider disclaiming the property prior to the 30 day period
expiring if they decide to disclaim rather than insure the property on an ongoing
basis at a cost to the estate.
29.131 When tenant leaves – insurance or
disclaimer
Where the property is in negative equity, and the estate is no longer in receipt of
rental income, the obligation to inspect and insure the property is likely to mean that
the property has become onerous. If the mortgagee does not wish to take
possession of the property, and where it has become onerous, the official receiver,
as trustee, should consider disclaiming their interest in the property to protect the
estate from ongoing insurance costs.
Only when there is some equity in the property should the official receiver consider
the continuation of insurance. Where the official receiver decides to insure a property
on an ongoing basis, rather than disclaiming it, the case should be transferred to
LTADT to deal with in accordance with guidance provided in chapter 28.
29.132 When tenant leaves – tenant cannot
withhold rent to recover deposit
If the deposit has not been retained by the bankrupt, and the tenant vacates the
property at the end of the tenancy agreement, the tenant will be a creditor in the
bankruptcy proceedings for the amount of the deposit (see paragraph 29.43).
The tenant may attempt to withhold the last month’s rent due under the tenancy
agreement as repayment of the deposit. The deposit is a debt in the bankruptcy, and
thus cannot be repaid in this way. The rental income due, is due to the official
receiver as the landlord for occupation for the property post bankruptcy, and should
be collected for the benefit of the estate (see chapter 48). If the tenant were to retain
rent in this way, the official receiver should attempt to recover it.
A deposit debt cannot be off-set against rental income as there must have been
mutual dealings prior to the date of the order and the deposit was money held on
trust. See chapter 43.
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29.133 When tenant leaves – furnished
property
The official receiver should arrange for their agents to dispose of any furnishings left
in the property when a tenant vacates, if this is likely to produce some benefit to the
estate. The tenant should be asked to confirm, prior to the agent’s instructions, that
they have removed all their personal belongings from the property.
Where the property is in negative equity, and the furnishings are of no value, the
official receiver should consider disclaiming their interest in the property and the
contents (see paragraph 29.70).
Any furniture in a rented property would not be claimable by the bankrupt under the
exempt property provisions1.
1. Section 283(2)b
29.134 When tenant leaves – keys to property
When the tenant leaves the property, the official receiver, as landlord, should ensure
all keys for the property are returned to them and placed in the office safe. The
tenant should not return the keys to the bankrupt who no longer has any legal
interest in the property. The whereabouts of all sets of keys should be established as
soon as a tenant vacates the property, including making enquiries of the bankrupt
who may still retain a set. See paragraphs 29.131 regarding insurance if the property
is not to be disclaimed. When the tenant leaves the property, if the property is not
going to be disclaimed, the case should be transferred to LTADT to deal with in
accordance with guidance provided in chapter 28. Where the official receiver as
trustee disclaims the property, any keys held should be returned to the mortgagee.
29.135 When tenant leaves – council tax
Council tax is a tax set by local councils to help pay for local services. There is one
council tax bill for each dwelling, whether it is rented or owned. Generally speaking,
the occupier(s) of the property are the liable person(s) for payment of the tax1.
When the tenant(s) vacate(s) a property and it is left unoccupied, the legal owner is,
generally speaking, the person liable for payment of the council tax. A property is
exempt from council tax where the liable person is a trustee in bankruptcy2 or the
property has been taken into possession by the mortgagees3 (see chapter 28).
These exceptions apply even if the property is furnished, and will still apply if the
trustee is liable with some other person (see chapter 30).
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In a company case, the company will remain liable for the council tax where it is the
owner or occupier of the property.
1. Local Government Finance Act 1992 section 6
2. Council Tax (Exempt Dwellings) Order 1992 article 3 Class Q
3. Council Tax (Exempt Dwellings) Order 1992 article 3 Class L
29.136 Position of bankrupt in relation to
vacant property
The bankrupt no longer has a legal interest in the property owned by them at the
date of the bankruptcy as the property vests in the official receiver as trustee
appointed on the making of the bankruptcy order (see paragraph 29.6) or a
subsequently appointed trustee. When the tenant vacates the property, the official
receiver should not permit the bankrupt to move into the property. The reasons
behind this are:
a) it is no longer the bankrupt’s property, it vests in the official receiver, as trustee. If
the bankrupt enters without permission, they are a trespasser
b) if the bankrupt takes up residence in the property, and the official receiver allows
this without taking action, a new tenancy agreement may be created with the official
receiver as the landlord and the bankrupt as the tenant. This would leave the official
receiver subject to all the usual landlord’s obligations
c) allowing the bankrupt to move back into the property is likely to compromise the
mortgagee’s ability to sell the property with vacant possession see paragraph 29.106
29.137 When bankrupt moves back in without
permission
Should the official receiver discover that the bankrupt has moved back in to the
property without permission, and an insolvency practitioner has not been appointed
because there is minimal (£10,000 or less), or no equity in the property, then the
official receiver needs to consider the most appropriate course of action. The official
receiver could consider taking court action to obtain possession of the property from
the bankrupt as a trespasser (see paragraph 29.105) but the costs of such
proceedings would have to be paid for by the estate and consequently such action
may not be in the best interests of creditors. Instead, the official receiver should write
to the mortgagee informing them that the bankrupt has moved back in to the property
and asking if they, the mortgagee, intend to take any action. If the mortgagee does
not take any action ,then it is unlikely that the official receiver will take any further
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action in relation to the bankrupt. The official receiver can rely on the bankruptcy
restriction registered on the property at HM Land Registry as security for any equity
in the property (see chapter 28). If the property later becomes onerous, the official
receiver would then need to consider disclaiming their interest in the property (see
paragraphs 29.138 onwards).
As the property is not a family home, it is not capable of re-vesting in the bankrupt at
any point (see paragraph 29.8). A letter should be sent to the bankrupt informing
them that although they have moved back in to the property, it will not re-vest in
them but will remain as part of the bankruptcy estate until the interest is sold. Upon
sale, any surplus will be paid to the bankruptcy estate. The letter to the bankrupt
should explain the situation and potential loss to the estate and suggest that the
bankrupt consider seeking legal advice. Consideration should be given by the official
receiver to any potential misconduct for the purposes of a BRO.
If there is equity in the property it is likely that the case will have been handed over to
an insolvency practitioner to act as trustee.
Disclaimers
29.138 General
Disclaimer of tenanted property should only be considered by the official receiver, as
trustee, where the tenancy agreement and property when considered together are
onerous1. Onerous property is defined as any unprofitable contract or any other
property which is unsaleable or not readily saleable or is such that it may give rise to
a liability to pay money or perform any other onerous act2.
Where a tenanted property is found to be onerous, the proper course of action is to
disclaim it unless the mortgagee is going to take urgent action (see paragraphs
29.48). See chapter 42 for further information on disclaimers. If the property has any
equity, or a paying tenant, then the decision should be taken with care and with
regard to the creditors. The bankrupt should provide information regarding equity
and rental income when completing the ORTPQ - Tenanted Property Questionnaire.
See paragraph 29.61 for a list of issues which may cause a property to be onerous.
1. Section 315
2. Section 315(2)
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29.139 When is a solely owned tenanted
property onerous?
Tenanted properties are not usually onerous on the basis that the tenancy
agreement simply imposes certain covenants (see paragraph 29.33) on the official
receiver as landlord, e.g. to ensure the exterior of the property is kept in good repair.
These covenants are not usually particularly onerous. If a tenancy agreement is
producing rent which is greater than the outgoings in relation to that agreement, it
cannot be considered to be onerous even if the underlying freehold/leasehold
property is in negative equity. The official receiver will need to balance the benefits of
the reversionary interest in the property and the tenancy agreement against the
detriments to decide whether the agreement is onerous1.
A tenanted property will generally only be considered onerous when the obligation to
pay monies in carrying out the landlord’s obligations (see paragraph 29.71) exceeds
any equity in the property and any expected rental income (less expenses). See
chapter 42 for more information on disclaimers and the process for issuing one.
1. SSL Realisations (2002) Ltd [2006] Ch 610
29.140 Mortgagee to appoint receiver –
onerous property
A disclaimer should not be issued where the mortgagee has indicated they are going
to appoint a receiver. When dealing with onerous property, it is imperative that it is
dealt with quickly and so the mortgagee should be pressed for a time by which they
will appoint a receiver or take possession. Onerous property should not be left whilst
the mortgagee makes a decision on how to proceed. The mortgagee should be
warned that if they have not dealt with the property by a certain date, a disclaimer
will be issued.
29.141 Tenanted property becomes onerous in
the future
A solely owned tenanted property which cannot be considered by the official receiver
to be onerous initially, as the rental income exceeds any outgoings, may become
onerous at a future point in time. This may occur where the official receiver is notified
of a required expensive repair in a property with no equity e.g. the roof of the
property requires extensive repair. As soon as the property and tenancy agreement,
when considered together, become onerous, the official receiver is then able to
consider disclaiming the property. See examples below.
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29.142 Disclaimer cannot be against tenancy
agreement only
Should the official receiver decide to proceed with a disclaimer, care should be taken
to disclaim both the freehold/leasehold reversionary interest in the property and the
tenancy agreement, as legal advice suggests that to disclaim only the tenancy
agreement would not fully protect the official receiver from liability. Reference in the
Insolvency Act to an “unprofitable contract” is considered to be to pure contract, in
contrast to other forms of property1. By disclaiming a tenancy only, the trustee would
be destroying someone else’s property, rather than their own. Instead, it is thought
that all the trustee can do is to disclaim the bankrupt’s property, which in the case of
tenanted property is the freehold reversion and any interest held in the tenancy
agreement as landlord (see paragraph 29.33). Where a tenancy agreement has
ended, and the property is vacant, or the bankrupt has moved back in, any
disclaimer would be against the freehold/leasehold property only.
1. ABC Coupler & Engineering Ltd (No 3) [1970] 1 WLR 702
29.143 Disclaimer – example of onerous
tenanted property
A bankrupt solely owns a negative equity property with a tenant, on a statutory
periodic assured shorthold tenancy (see paragraph 29.17) the rent being £300 a
month. The property was not considered to be onerous initially as the rental income
from the property exceeded the costs in renting the property. The tenant has paid
two months rent (£600). The tenant calls the official receiver and informs them that
the boiler has broken. A subsequent quote from a gas safe engineer is that the boiler
cannot be fixed and should be replaced at a cost of £2,000. As his tenancy
agreement is a statutory periodic tenancy renewable monthly (as the original 6
month agreement has expired), the tenant can leave with 1 months notice. The
obligation to replace the boiler has made the property onerous for the first time, as
there is no guarantee that funds will become available from the rental income to
recoup the costs of replacing the boiler. The official receiver decides to disclaim his
interest in the reversion of the property and tenancy agreement.
29.144 Disclaimer – further example, roof
repairs
The official receiver is trustee in a case where the bankrupt solely owns a property
let on an assured shorthold tenancy agreement (AST). The AST still has four months
to run and the rent is £500 a month. The tenant is therefore contracted to pay a
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further £2,000 under the terms of the tenancy agreement. One months rent has so
far been collected by the official receiver. The bankrupt has stated that the property
has £5,000 equity. The case has been offered to an insolvency practitioner but they
have declined the appointment. On initial investigation, the property and tenancy are
profitable and so disclaimer action by the official receiver, as trustee, is not
appropriate. Shortly after the official receiver becomes trustee the tenant notifies the
official receiver that the roof is in need of repair as it is dangerous. Following a storm
there are several slipped slates which have fallen off narrowly missing the tenant on
two occasions and there is also rain water leaking into the house causing damp.
29.145 Disclaimer – roof repairs example,
action to take
Because of the equity in the property, and the potential future rent, the official
receiver cannot disclaim the reversionary interest in the property without further
enquiries to see if the costs of repairing the roof will cause the property to become
onerous or not. The official receiver obtains three quotes from roofing contractors for
the work, and all three contractors recommend the roof is replaced at a cost of
approximately £4,000.
The official receiver has no guarantee that the tenant will not default on future rent
payments and given the current state of the housing market, and the costs involved
in any sale of the property, there is no guarantee that the £5,000 equity will be
realised. The official receiver therefore decides that the property has become
onerous and decides to disclaim his interest in the reversion of the property and the
tenancy agreement.
29.146 Disclaimer following collection of rent
The collection of rent does not preclude the official receiver, as trustee, from
disclaiming their interest in the reversion of the property and tenancy agreement at a
later date. Irrespective of an intention to disclaim the tenanted property, the official
receiver should arrange initially for the collection of the rent for the benefit of the
insolvent estate. Once the disclaimer has become effective, the right to collect rent,
including any rent arrears, comes to an end.
29.147 Disclaimer – effect
Disclaimer brings to an end the official receiver’s interest in the tenancy and
reversion in the property from the date of the disclaimer. It will also bring the
tenant/landlord relationship to an end and discharge the trustee from all personal
liability in respect of the property as from the commencement of their trusteeship1.
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1. Section 315(3)
29.148 Disclaimer – effect on tenant’s rights
The disclaimer does not bring to an end the rights and obligations of any third parties
interested in the property. The tenant will not lose their rights of occupation under the
tenancy. As the disclaimer brings to an end the trustee’s rights and obligations under
the tenancy, the official receiver will no longer have the right under the tenancy
agreement to seek possession of the property or to collect rent.
After a disclaimer has been served, the rental income does not revert to the bankrupt
who has no remaining interest in the property. The tenant may still wish to pay the
rent to preserve their rights under the tenancy agreement, if so, the official receiver
should inform the tenant to contact the mortgagee, who still retains security on the
property post disclaimer, to request that the mortgagee accept the rent.
A copy of the disclaimer should be served on the tenant and anyone else known to
be living in the property or with a right to occupy it1 (see chapter 42).
1. Section 318
29.149 Disclaimer – effect on guarantor of
tenant
Disclaimer of the freehold/leasehold reversionary interest in the property and
tenancy agreement by the official receiver does not affect the rights or liabilities of
any other person. It has been held that a guarantor of a tenant remained liable
notwithstanding disclaimer1.
1. Hindcastle Ltd v Barbara Attenborough Associates Ltd [1997] A.C. 70
29.150 Disclaimer – property vests in Crown
Estate
Disclaimed land vests in the Crown Estate by escheat. The Crown Estate does not
incur any liability in respect of land unless it takes possession of, or exercises control
over it. Where a property is mortgaged for more than its value, the Crown Estate is
unlikely to take any action as in doing so it may become liable for that property. By
accepting rent, the Crown Estate would most likely be exercising some control and
so become liable for the property. Instead, the most likely course of action is that the
mortgagee will exercise control to protect their interest (see chapter 42).
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29.151 Disclaimer – effect on mortgagee’s
rights
As a disclaimer does not end third party rights or liabilities, the mortgagee will retain
its security over the property, and its right to appoint a receiver of rents or take
possession1. If the mortgagee enters possession of the property after the tenancy
agreement has been disclaimed, it would be a matter between the mortgagee and
the tenant whether a new agreement is created. It would also be the mortgagee’s
responsibility to deal with any deposit still held.
A copy of the disclaimer should be served on the mortgagee2 (see chapter 42)
1. Scmlla Properties Ltd v Gesso Properties (BVI) Ltd [1995] NPC 48
2. Insolvency Act 1986 section 318
29.152 Disclaimer – vesting orders
Where the official receiver disclaims a freehold or leasehold reversion, then any
person with an interest in it may apply for a vesting order1, (see chapter 42). This will
include the tenant, any other occupiers and the mortgagee, but not the bankrupt.
1. Section 320
29.153 Disclaimer – insurance
Following disclaimer, the official receiver, as trustee, will no longer be the landlord of
that property or have any rights or liabilities in respect of it. Any insurance taken out
by the official receiver on the tenanted property should therefore be cancelled.
29.154 Disclaimer – letter to tenant
Along with serving notice of the disclaimer on the tenant, the official receiver should
also write to the tenant stating that the official receiver is no longer the landlord and
is no longer responsible for the property using the template letter1.
The official receiver should provide the tenant with the mortgagee’s contact details
and inform them that contact may be made by the mortgagee shortly regarding the
tenancy. If the official receiver is aware of a deposit being held, they should inform
the tenant of its whereabouts and how to obtain the funds when the tenancy ends.
1. ISCIS letter Annex J2 – sole – disclaimer letter to tenant
29.155 Disclaimer – letter to bankrupt
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Along with serving notice of the disclaimer on the bankrupt, the official receiver
should send a letter confirming the implications of the disclaimer using the template
letter1.
1. ISCIS letter Annex J1 – sole – disclaimer letter to bankrupt
Mortgagees
29.156 Mortgagee’s right to take possession
A mortgagee usually has the power to take possession of a property over which they
hold a secured charge when the borrower (mortgagor) breaches the terms of their
mortgage loan1. Where the mortgagor has not obtained permission from the
mortgagee to grant a tenancy over that property, they are usually in breach of the
mortgage terms and so granting an unauthorised tenancy is usually sufficient
grounds for repossession. Failing to make mortgage payments will also make the
mortgagor in breach of the terms of their mortgage.
1. Law of Property Act 1925 section 101
29.157 Mortgagee’s right to actual possession
when consent to let granted
When a mortgagee has given a bankrupt consent to let their property out, or the
mortgage is a buy-to-let mortgage, their right to repossess the property is the same
as above, although they are bound by the tenancy agreement. This prevents the
mortgagee from obtaining vacant possession (i.e. evicting the tenant), without
following the proper notice period1. See paragraphs 29.189 onwards.
1. Housing Act 1988 section 21
29.158 What constitutes possession
Where a mortgagee takes actual possession of a property, there is no doubt as to
their intention to take possession and they assume the liabilities of a mortgagee in
possession (see paragraph 29.160). Where the mortgagee gives notice to the tenant
to pay rent to them, it is also clear that they intend to go into receipt of rents and
profits. This is equivalent to taking possession1. This is also the case if they give
notice to the tenant not to pay rent to the mortgagor2. The mortgagee must either
take possession or leave the mortgagor in possession3.
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1. Horlock v Smith [1842] 11 LJCh 157
2. Mexborough UDC v Harrison [1964] 2 All ER 109
3. Heales v M’Murray [1856] 23 Beav 401
29.159 Mortgagee not in possession
A mortgagee cannot be said to be in possession when they merely receive a sum
equal to the rent from the mortgagor’s agent, when the agent has not served on the
tenant any notice on the mortgagee’s behalf1. The mortgagee must act in such a
manner to substitute themselves for the mortgagor in the control and management of
the property. The mortgagee does not assume possession by insuring the property
or by making arrangements with the tenant if the tenant does not recognise the
mortgagee as landlord2.
1. Noyes v Pollock [1886] 32 ChD 53
2. Ward v Carttar [1865] LR 1 Eq 29
29.160 Landlord’s duties when mortgagee in
possession
When a mortgagee is in possession of a tenanted property, the official receiver, as
trustee, is no longer actively in control of that property, and is no longer entitled to
collect rent. The mortgagee will assume the role of manager of that property1,
effectively becoming the landlord. When a mortgagee takes possession of a
tenanted property, they also take on responsibility for that tenancy, including the
collection of rent2.
1. Kendle v Melson [1998] 193 CLR 46
2. Cockburn v Edwards [1881] 18 ChD 449
29.161 Mortgagee’s right to rent arrears
When a mortgagee enters possession, they are entitled to collect any rent arrears
that exist at the date of possession1. The mortgagee is entitled to arrears of rent
whether falling due before or after the mortgage was granted. They are also entitled
to receive rents held by a letting agent not yet paid over to the official receiver, as
trustee. Any rent collected by the mortgagee in possession should be used firstly in
paying the current outgoings such as insurance, repairs and taxes. The balance is
then used in payment of the interest on the mortgage loan, followed by the capital 2.
1. Landlord and Tenant (Covenants) Act 1995 section 15(1)
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2. Webb v Rorke [1806] 2 Sch & Lef 661
29.162 Mortgagee’s right to sell when tenancy
not binding
When a mortgagee in possession exercises its right to sell the property, and a
tenancy was granted by the mortgagor without the mortgagee’s consent, then the
tenancy is void against the mortgagee. Where a tenancy agreement is void against
the mortgagee, it is also void against any purchaser from the mortgagee1. The
mortgagee would normally obtain vacant possession prior to selling a property either
by peaceful entry of the property or by obtaining an order for delivery of the land.
See paragraphs 29.164 and 29.165 below on the repossession process. The
mortgagee may choose to sell a property with a sitting tenant.
1. Rust v Goodale [1957] Ch 33 at 44
29.163 Mortgagee’s right to possession when
tenancy is binding
Where a tenancy is binding on a mortgagee, the mortgagee must give a minimum of
two months notice to the tenant to evict them1 see paragraph 29.189.
1. Housing Act 1988 section 21
29.164 Repossession process – overview
Before a mortgagee can obtain actual possession of a property by evicting a tenant,
the mortgagee must obtain a court order. If the mortgagee is not aware of the
tenant’s details, notice needs to be served on the property addressed to “the
occupiers” of the hearing date, at least five days before the hearing. There are
various options open to the court at the possession hearing, but if the mortgagee
proves grounds for possession, and the application is not defended, the court will
most likely make a possession order.
The possession order will give the occupier a date by which they should leave, which
is usually 28 days after the hearing, although it may only be a few days in some
cases. If the occupants have not left by the date on the possession order, then the
mortgagee will need to go back to court and obtain a warrant for possession before
they can evict the occupants. This usually occurs only one or two weeks after the
date to leave on the possession order.
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29.165 Repossession process – enforcing the
order
The court’s bailiffs will execute a warrant for possession and will change the locks to
secure the property. They can break into the property if it is empty at the time they
attend.
29.166 Mortgagee in possession entitled to
appoint receiver
A mortgagee in possession may relieve itself of its position and responsibility by
appointing a receiver under its statutory power1 and the court may appoint a receiver
after a mortgagee has taken possession if the circumstances render it just and
convenient. The receiver would be the agent of the mortgagee not the mortgagor in
this instance (see paragraph 29.168).
1. Anchor Trust Co v Bell [1926] Ch 805 at 817
29.167 Mortgagee’s right to appoint a receiver
of rents
A mortgagee has the right to appoint a receiver of any rents and profits of a property
on which they hold a secured charge when the borrower (mortgagor) breaches the
terms of their mortgage, see paragraph 29.156. This right is enshrined in the Law of
Property Act 19251 and it is also normally contained in the terms of the mortgage
deed. Failing to make mortgage payments will make the mortgagor in breach of the
terms of their mortgage loan. Where the mortgagor has not obtained permission from
the mortgagee to grant a tenancy over that property, the mortgagee will not normally
appoint a receiver as to do so will be acknowledging and giving validity to that
tenancy.
1. Law of Property Act 1925 section 101(1)iii and section 109(1)
29.168 Receiver of rents is agent of mortgagor
It is worth noting that when a receiver is appointed either by the mortgagee (under
the terms of the mortgage) or by the court (under the Law of Property Act 1925), they
act for the mortgagor (the borrower) and not the mortgagee1. The receiver is
therefore unable to bring possession proceedings against the mortgagor being the
same person. Instead, if possession proceedings are taken following the
appointment of a receiver, it will be in the name of the mortgagee.
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1. Law of Property Act 1925 section 109(2)
29.169 Receiver’s duties to repair property
Where a receiver is appointed by the mortgagee, they are responsible for paying the
running costs of that property from the rents received as follows1;
•
all rents, taxes, rates and outgoings whatever affecting the mortgaged property
•
keeping down all annual sums or other payments, and the interest on all principal
sums, having priority to the mortgage of which he is receiver
•
in payment of his commission, and of premiums on fire, life and other insurances,
and the cost of executing necessary repairs directed by the mortgagee
•
in payment of the interest accruing in respect of any principal money due under the
mortgage
•
towards discharge of the principal money, if so directed by the mortgagee
1. Law of Property Act 1925 section 109(8)
29.170 Receiver’s duty to manage property
The receiver’s duty of care was tested in a case where the receiver had failed to
serve notice under a rent review clause in a lease, which meant that the rent was not
increased and income was lost1. The judge found that the receiver had failed to
come up to the standard of care required of a receiver. The receiver had regarded
his function as to do what he was told by the lender but that was an unhappy
misapprehension of the function of a receiver; for although he was appointed by one
party, his function was to look after the property of which he was receiver for the
benefit of all those interested in it. The receiver took over the management of the
properties from the borrowers and it was held that failure by the borrowers to take
steps to alert the receiver to the rent review clause did not amount to contributory
negligence.
1. Knight & Anor v Lawrence [1991] BCC 411
29.171 Checking validity of receiver
appointment
Where the official receiver receives notice of the appointment of a receiver of rents,
they should request a copy of the relevant appointment document. This may take the
form of a court order or of a document signed by the mortgagee provided the power
of sale has become exercisable1. When the official receiver is satisfied the
appointment is valid, they should write to the mortgagee and receiver confirming that
they have accepted that the appointment is valid and that they are no longer
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responsible for the tenancy or property from the date of the appointment. The official
receiver should also write to the tenant providing information of the appointment of
the receiver and stating that the receiver will deal with all further tenancy queries as
landlord.
1. Law of Property Act 1925 section 109(1)
29.172 Transfer of case to LTADT following
appointment of receiver
Where a receiver of rents is appointed and the property is the only outstanding asset
matter, the case may be transferred to LTADT where it is unlikely that the property
will be sold within 12 months (probable where rents are being received). If the
property is likely to be disposed of by the receiver of rents within 12 months, the
case should remain with the local official receiver to deal with. The official receiver
will need to consider each case on an individual basis.
The official receiver should check that a bankruptcy restriction has been registered
against the property in every case, and prior to any transfer to LTADT (see chapter
7).
Appointment of insolvency practitioner
29.173 Grounds for appointment
When there is significant equity in a tenanted property, the case should be offered to
an insolvency practitioner as a property with a tenant in occupation does not classify
as a straightforward asset realisation. As there is a need for a trustee to be in office
as soon as possible to deal with any landlord responsibilities and rights under the
tenancy agreement it is likely that their appointment will be via the SOS rota. See
chapter 45 for guidance on Secretary of State rota appointments.
Where there is little or no equity in a tenanted property, but the property is still
producing an income for the estate, an appointment from the SOS rota should still be
considered (see paragraph 29.65).
29.174 Appointment of insolvency
practitioner, mortgagee enquiries
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Prior to seeking the appointment of an insolvency practitioner to act as trustee,
enquiries should be made of any mortgagee to ascertain whether they intend to
appoint a receiver or take possession (see paragraph 29.44). If the mortgagee is
going to take imminent action, an insolvency practitioner is unlikely to accept the
appointment unless there is significant equity in the property or there are other
assets in the bankrupt’s estate, as any rental income will no longer be available for
collection by the trustee.
Sale of the legal and beneficial interest
29.175 Tenanted property not a family home
The main point to remember when dealing with a solely owned tenanted property is
that it no longer belongs to the bankrupt; it vests in the official receiver as trustee.
Neither is it a qualifying property under section 283A1 if the bankrupt (or their family)
did not live in it at the date of the bankruptcy order (see paragraph 29.10). There is
no reason for the official receiver to consider selling a tenanted property back to the
bankrupt as they do not need it for living in.
1. Section 283A
29.176 Legal and beneficial interest to be sold
in exceptional circumstances only
For the reasons in paragraph 29.175 the official receiver should only consider selling
a solely owned tenanted property back to a bankrupt in exceptional circumstances
(see paragraph 29.180). It is possible to sell the legal and beneficial interest to a
third party if the sale is for the financial benefit of the estate (see paragraph 29.178).
29.177 Mortgage debt in the bankruptcy
The unpaid element of the mortgage loan (including any negative equity) is provable
in the bankruptcy. Even if the monthly mortgage payments are up to date at the date
of the bankruptcy order, no further mortgage payments will be made from future
rental income, except if the mortgagee goes into possession of the property, there
are likely to be future liabilities relating to the mortgage loan and the costs of any
subsequent repossession which would be provable in the bankruptcy.
The mortgage loan is a contributing reason not to sell the legal interest in the
property back to the bankrupt, as to sell the legal interest in the property may entail
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the mortgage company insisting that the bankrupt acknowledge the mortgage loan
as a post bankruptcy debt, leaving the bankrupt fully liable for the mortgage debt
post discharge (see paragraph 29.184).
29.178 Sale of legal and beneficial interest to a
third party
The official receiver, as trustee, can sell and transfer the beneficial interest and legal
title to a third party (but this should only take place in exceptional circumstances –
see paragraphs 29.174 to 29.176 and 29.179). As a rule, and as the property is an
investment rather than the bankrupt’s home, it should only be sold if to do so would
benefit the creditors over and above what would be achieved by the official receiver
retaining the property. Where the property is solely owned, the transfer will need to
be a transfer of the legal title, and the low cost conveyancing scheme will not apply
(see chapter 28). A separate quote from TLT Solicitors (solicitors appointed by The
Insolvency Service under the property conveyancing scheme) for their fees will need
to be obtained by the official receiver. It is likely that the purchaser will need to take
out a new mortgage loan for the purchase of the property, as the existing mortgagee
is very unlikely to allow the legal title to be sold without the mortgage loan being
redeemed (as occurs in the usual sale of a property).
29.179 Sale to third party – calculating value
Before the transfer of the legal title to a third party can proceed (subject to contract),
the official receiver has to agree on the value of the interest being transferred. To do
this, the official receiver will need to see an up to date valuation of the property
prepared by an independent valuer or agent and up to date details of the amounts
owed to creditors claiming mortgages and other charges over the property. The
official receiver will also need details of how much rent is likely to be achieved for the
estate over the remaining period of any tenancy agreement in place or a suitable
period calculated on a case-by-case basis. The payment from a third party will need
to compensate the estate for the loss of this rental income (e.g. if the rental income
is £400 per calendar month and there is four months left on the tenancy, the official
receiver may expect £1,600 plus all the costs), plus any equity in the property. The
official receiver may consider accepting a lower amount for the rental income as
there is no guarantee that the tenant will not default on rental payments. Ultimately,
the best should be done for the creditors.
29.180 Sale to bankrupt (exceptional
circumstances)
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In exceptional circumstances the official receiver may consider selling the legal
interest back to the bankrupt. Provided all of the following grounds are met it may be
possible:
a) where the property was originally purchased as a home and was only let out on a
temporary basis (e.g. whilst the bankrupt “got back on their feet”)
b) where the property has no equity
c) where no income is being received as the tenant has left
d) where the property is available (as the tenant has left) and suitable for the
bankrupt to live in
e) where the bankrupt does not currently have any permanent residence (e.g. is
lodging with friends) and needs to find a home
f) where the bankrupt can afford the monthly mortgage loan payment and it is not
excessive for a suitable home in that area
g) the bankrupt has sought independent legal advice, see paragraph 29.181
h) the mortgagee’s consent has been obtained, see paragraph 29.183. If the tenant
is still resident in the property, it is very unlikely to be practical as the property is not
available for the bankrupt to move in to and they would not be able to afford the
mortgage loan payments as well as their own accommodation costs
29.181 Bankrupt encouraged to seek
independent legal advice
Whenever the bankrupt expresses a desire to purchase the legal and beneficial
interest from the official receiver, as trustee, they should be strongly encouraged to
seek independent legal advice. Where a property is in negative equity, or has little
equity, the purchase of the legal title may not be in the bankrupt’s best interest. If the
bankrupt agrees to take on the mortgage debt post bankruptcy, and they
subsequently default on the mortgage loan following the purchase of the legal and
beneficial interest, the mortgagee could take action to recover the debt against the
bankrupt outside the current bankruptcy proceedings.
29.182 Discussion between mortgagee and
bankrupt
The official receiver should distance themselves from any negotiations between the
bankrupt and the mortgagee in relation to the bankrupt’s intention to purchase the
legal and beneficial interest in the previously tenanted property. The official receiver
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should ensure that they are not a party to any negotiations between the mortgagee
and the bankrupt to avoid any future criticism.
29.183 Mortgagees consent to sale
Prior to the official receiver agreeing to sell the legal and beneficial interest in the
property to the bankrupt, they will need to obtain consent from the mortgagee to the
sale of the legal and beneficial interest from the official receiver to them. The
mortgagee may require the bankrupt to come to an arrangement in relation to the
existing mortgage debt.
29.184 Bankrupt to take over mortgage post-
bankruptcy
Should the mortgage company be prepared to consent that the bankrupt purchase
the legal and beneficial interest in the property and therefore to move into the
property, it is highly likely that the bankrupt will be asked to sign an agreement to
take over the mortgage debt post bankruptcy. This effectively means the bankrupt
will not be released from the mortgage debt on discharge from bankruptcy. It is for
this reason that the official receiver should strongly encourage the bankrupt to seek
independent legal advice before proceeding in this way.
29.185 Process for selling interest to bankrupt
If the bankrupt obtains the mortgagee’s written consent in relation to the property
transfer, the official receiver should then proceed to sell the legal title and beneficial
interest to the bankrupt on the basis that the bankrupt pays for the costs of the
transfer and £1, if there is no equity in the property (see paragraph 29.178).
The bankrupt may contact the official receiver seeking to move back into the
property as a matter of urgency, only when the official receiver is in receipt of the
funds for the transfer and permission from the mortgagee, should the bankrupt be
allowed to move into the property.
29.186 Selling interest to bankrupt post
discharge
The bankrupt may wish to buy back the legal and beneficial interest in the property
after discharge for various reasons, for example, their credit rating may restrict future
mortgage products being available to them. If there is still a tenant in the property, it
may be possible to sell the legal and beneficial interest back to the bankrupt
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following their discharge, provided they are not subject to an IPA/O which will restrict
the amount of available income the bankrupt has. In addition to the payment for the
legal fees and any equity (or £1,000 if negative equity), the discharged bankrupt will
also need to pay an amount equal to the rent that will be lost to the insolvent estate.
The official receiver should ensure that the bankrupt is strongly encouraged to get
independent legal advice before proceeding with the transfer (see paragraph
29.181). The bankrupt will also need to obtain the necessary permission of the
mortgagee, see paragraphs 29.183.
29.187 When bankrupt allowed to move back
in, IPA/O calculation
The official receiver needs to make it clear that if the bankrupt were to move back
into the property after purchasing the legal and beneficial interest, and then take on a
lodger to help with the mortgage payments, the official receiver would assess the
rent received from that lodger as income, available for inclusion in any calculation for
an IPA/IPO entered into before discharge, or in any variation of the amount to be
collected under an existing IPA/IPO.
29.188 Termination of insurance after sale of
interest
If the legal and beneficial interest is sold to a third party or the bankrupt, the official
receiver no longer holds any responsibility for that property, and should ensure that
any insurance taken out is cancelled to prevent further costs accruing.
Eviction
29.189 Eviction under Housing Act 1988
Section 21
Under the Housing Act 1988, a landlord who has granted an AST has a legal right to
get their property back at the end of the tenancy. To legally terminate an AST in
England and Wales at the end of a fixed term, the landlord must serve a section 211
possession notice personally on the tenant and must give the tenant a minimum of
two months notice. The notice can be served in one of two circumstances, either at
the end of the agreement (see paragraph 29.191) or during the running of the
agreement (see paragraph 29.192), provided that it does not seek to terminate the
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tenancy any earlier than the day the agreement ends. If the tenant fails to vacate the
property after proper notice, possession action is needed to evict them. Not until an
order for possession is made by the court would the tenancy actually terminate.
1. Housing Act 1988 section 21
29.190 When to serve section 21 notice to quit
The official receiver should not normally consider bringing a tenancy to an end by
evicting a tenant. The most appropriate course of action is to either allow a tenancy
to continue where the tenant is paying rent, or to disclaim the reversionary interest in
the property and tenancy agreement where it subsequently becomes onerous (see
paragraphs 29.138 onwards). If the official receiver were to evict a tenant, they
would be left with an empty property and a public liability insurance risk for which
insurance would be required. See paragraphs 29.38.
If the official receiver considers that it would be appropriate to serve a section 21
notice on a tenant of a property of which, as trustee, they are landlord advice should
be sought from ORS Advice who may seek legal advice depending on the
circumstances of the case. Failure of the tenant to vacate the property following
service of a valid section 21 notice is contempt of court and will allow enforcement
action to be taken by the trustee (see paragraph 29.193).
29.191 Service of notice to quit on a tenant –
after AST comes to an end in exceptional
circumstances only
A section 21 notice to quit can be served after the AST has come to an end,
provided no further assured tenancy is in existence other than a periodic tenancy1.
An AST will become a statutory periodic tenancy if it continues after the expiration of
the fixed term see paragraph 29.17. For a section 21 notice to be effective:
•
two months notice should be given in writing that the landlord wants possession of
the property on the termination of the agreement
•
the section 21 notice has to expire the last day of a period of the tenancy, which is
usually the day before rent is due for a new period. To find out what the period of the
tenancy is, the original AST agreement will need to be referred to
•
the notice should be served by post or in person, but when served by post it should
be sent by recorded delivery and three working days should be allowed for receipt
There is no prescribed form for a section 21 notice but it must comply with statutory
requirements. The official receiver should only consider issuing a section 21 notice in
--- PDF page 73 ---
exceptional circumstances, and should consult ORS Advice before issuing one (see
paragraph 29.190).
1. Housing Act 1988 section 21(1)a
29.192 Service of notice to quit on a tenant –
during life of AST in exceptional circumstances
only
A section 21 notice requiring a tenant to quit the premises can be served during the
running of the AST1 to expire after the tenancy has ended. For notice to be served
under this section:
•
two months notice should be given in writing that the landlord wants possession of
the property on the termination of the agreement
•
the two month period cannot expire before the end of the tenancy agreement
•
the section 21 notice should be served by post or in person, but when served by post
it should be sent by recorded delivery and three working days should be allowed for
receipt
There is no prescribed form for a section 21 notice but it must comply with statutory
requirements. The official receiver should only consider issuing a section 21 notice in
exceptional circumstances, and should consult ORS Advice before issuing one (see
paragraph 29.190).
1. Housing Act 1988 section 21(1)b
29.193 Service of notice to quit on a tenant –
action after expiry of notice
If following the expiry of the two months notice mentioned in either paragraphs
29.191 or 29.192, the tenant has not vacated the property, court action may be taken
to evict the tenant. The official receiver would need to seek legal advice before
commencing any further action. Taking court action to evict a tenant may be costly
and time consuming.
29.194 Service of notice to quit when deposit
not retained
When the deposit paid by the tenant is not being held in an authorised tenancy
deposit scheme, then a section 21 notice evicting the tenant may not be served until
such time as the deposit requirements are complied with1. Where the official receiver
--- PDF page 74 ---
wishes to serve a section 21 notice and the deposit has not been retained, they
would need to rectify the breach by providing such deposit funds from the estate, but
see paragraph 29.190. This is not an option that the official receiver should consider,
instead disclaimer action is likely to be more appropriate (see paragraph 29.138
onwards).
1. Housing Act 2004 section 215
Unusual circumstances
29.195 Company in liquidation as landlord of a
tenanted property
In company cases, assets do not vest in the liquidator unless a specific order is
sought from the court vesting the assets in the liquidator1. This is an extremely rare
occurrence. The assets remain as property of the company (in liquidation), and so
the official receiver is not directly the landlord of the property, the company remains
as such. As the official receiver is the liquidator of the company, it is prudent to act
appropriately to protect them from any residual liability as ultimately; they will be
responsible for the company’s actions. When giving the tenant written notice of a
change of landlord (see paragraph 29.43)2, the letter should state that the company
(in liquidation) is still landlord, and that the official receiver (by name) is the liquidator
of the company and has the powers of liquidator as provided by legislation to deal
with the company’s assets3. The official receiver, as liquidator, should ensure that the
company, as landlord, complies with the duties and obligations as landlord or
otherwise seeks to end the tenancy agreement.
1. Section 145
2. Landlord and Tenant Act 1985 section 3
3. Insolvency Act 1986 schedule 4
29.196 Dissolution of company
A company that owns property is not suitable for early dissolution and indeed, the
official receiver will not be able to apply for their release as liquidator until any
property owned by the company is sold (or otherwise dealt with) and, thereafter, the
proceeds of sale dealt with (see chapter 48). Where a receiver is appointed, or the
mortgagee takes possession, dissolution should be deferred to prevent the property
becoming bona vacantia (see chapter 54).
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29.197 Tenant failing to cooperate with the
official receiver
The official receiver becomes landlord of a solely owned tenanted property when
they are appointed as trustee immediately upon the making of a bankruptcy order
(see paragraph 29.6). Provided notice has been served on the tenant notifying them
of the change of landlord (see paragraph 29.43)1, the tenant is obliged to continue
paying rent and complying with the terms of the tenancy agreement.
Where a tenant defaults in the payment of rent to the official receiver, a letter should
be sent to the tenant chasing payment and attempting to ascertain the reasons for
non payment (if agents are not being used to deal with this matter). Where the tenant
continues to default on rental payments, without reasonable explanation, a further
letter should be sent to the tenant warning of the consequences of failing to pay the
rent (see paragraph 29.198) and the tenant should be advised to seek legal advice if
they are in any doubt as to the position of the official receiver/company as their
landlord.
1. Landlord and Tenant Act 1985 section 3
29.198 Action to be taken to enforce
cooperation
If the tenant continues to fail to cooperate after a letter has been sent chasing unpaid
rent, then the official receiver, as trustee and landlord, should consider taking
appropriate enforcement action, depending on the reasons for the default in payment
(see below).
Landlords have a right to distrain for unpaid rent under the Law of Distress
Amendment Act 1908. The right to distrain is only available to the person who is
legally entitled to the landlord’s interest both at the time the rent falls due and at the
time of the distress. Under common law the right is limited to distraint for rent. Any
sum treated as rent in the lease may be distrained for e.g. service charges (see
chapter 12). The official receiver is likely to require specialist advice before
commencing such action.
29.199 Tenant defaults in payment of rent –
tenant cooperating
Where a tenant defaults in the payment of rent, it may be as a consequence of a
change in circumstances of the tenant since the date the tenancy agreement was
signed (e.g. the tenant is no longer in employment). Where a tenant notifies the
--- PDF page 76 ---
official receiver of a change in circumstance, and subsequent difficulty in meeting
rental payments, the official receiver will need to take these reasons into
consideration before commencing any enforcement action.
29.200 Bankrupt failing to cooperate with the
official receiver
Where the bankrupt is failing to cooperate with the official receiver, and continues to
attempt to collect rent from a tenant, the official receiver should take appropriate
enforcement action. The bankrupt has a duty to deliver possession of their estate to
the official receiver1, failure to do so is contempt of court. A public examination of the
bankrupt and/or suspension of the bankrupt’s discharge from bankruptcy should be
considered to enforce cooperation (see chapter 19 for further guidance on enforcing
the bankrupt’s co-operation).
If the bankrupt is threatening or intimidating a tenant, the official receiver should
report the bankrupt’s conduct to the police. Consideration should also be given to
changing the locks to protect the tenant from the bankrupt entering the property
without authority.
1. Section 291
29.201 Tenant paying mortgagee directly
Where the tenant pays rent directly to the mortgagee whilst the official receiver is
entitled to receive that rent, the official receiver can recover the rent directly from the
mortgagee1 who is not entitled to keep the rent unless they appoint a receiver or take
possession of the property. By attempting to collect the rent (back) from the
mortgagee, the official receiver may prompt the mortgagee into taking action to
appoint a receiver so that the mortgagee can legitimately collect the future rents from
the tenant.
1. Gledhill v Hunter [1880] LR 14 Ch D 492
29.202 Solely owned property, tenancy
agreement in joint names
Where the bankrupt solely owns property but the tenancy agreement is in joint
names, how the official receiver treats that tenancy depends on the intentions of the
parties at the time the tenancy was created, and how the tenancy has been dealt
with by both parties. Enquiries need to be made by the official receiver to establish
--- PDF page 77 ---
why the tenancy agreement is in joint names, and evidence sought to back up those
claims.
29.203 Solely owned, joint tenancy, payment
of mortgage loan
When deciding how to treat a tenancy agreement, the official receiver should
consider what the rental income received so far has been used for. If the rental
monies have been used solely to discharge a debt in the bankrupt’s name (e.g. the
mortgage loan is in the bankrupt’s name and the rent has historically been used to
pay the mortgage loan), and the monies were not used by both parties then the
official receiver should give consideration to treating the tenancy as though it is
solely owned by the bankrupt (i.e. it will vest in the official receiver as trustee) and all
the rent, less expenses, should be collected. Other factors will need to be taken into
consideration and if the non bankrupt joint tenancy holder contributed to the property
(e.g. by providing a significant deposit for the property’s purchase or by paying for a
significant improvement to the property), this may give weight to accepting the
tenancy as a joint tenancy as the third party would be able to claim a beneficial
interest in the property (see below and chapter 28).
29.204 Solely owned, joint tenancy claim of
beneficial interest
Where the property is solely owned by the bankrupt, but the tenancy agreement is in
joint names with another, it is possible that the non bankrupt joint tenancy holder has
a beneficial interest in the property.
The official receiver will need to investigate any claim to a beneficial interest in the
property from the joint tenancy holder in considering whether to accept that the
tenancy agreement as a joint tenancy agreement or a sole agreement in the
bankrupt’s name. If there is a valid reason for the third party interest, for example,
the third party has a beneficial interest in the property from contributing to the deposit
paid on the purchase of the property, then it may be considered to be a joint tenancy
and the official receiver should treat the tenancy as a jointly owned tenancy
agreement and only seek to collect the bankrupt’s share of the rental income less
allowable expenses (usually 50% or other percentage as evidenced by the parties to
the official receiver). Expenses would not include payment of any of the mortgage
loan if the mortgage loan is in the bankrupt’s sole name (see paragraph 29.45).
--- PDF page 78 ---
29.205 Solely owned, no claim to beneficial
interest
If there is no claim to a beneficial interest by the joint tenancy owner, the official
receiver should question why the tenancy was placed in joint names and, if there is
no valid reason, treat the tenancy agreement as though it has vested fully in the
official receiver as trustee. Where this is the case, the official receiver, as trustee and
landlord, should seek to collect the full rent less allowable expenses notifying the
other joint tenancy owner as appropriate (see paragraph 29.113).
If the official receiver believes the tenancy agreement is a solely owned tenancy
agreement, then they will need to give the third party, and the bankrupt, written
notice of the official receiver’s decision to treat the tenancy agreement as if it were in
the sole name of the bankrupt and the consequences of the decision.
29.206 Tenancy in name of third party
Where a tenancy agreement, on a property solely owned by a bankrupt, is created in
the sole name of a third party, whilst it is not likely to be a legal lease (tenancy), it is
probably what is known as an equitable lease and the tenant is likely to be
considered by the courts to have a valid tenancy agreement.
Where a tenancy is created in the sole name of a third party, it may only be legally
binding when that third party owns 100% of the beneficial interest in the property and
the owner of the legal title simply holds the property on trust for that third party. If this
is the case, the official receiver should treat the property as though the property is
held in trust and consequently it would not form part of the bankruptcy estate. Legal
advice may be needed to verify the third party’s claim to 100% of the beneficial
interest. Also see paragraph 29.209 on tenancy by estoppel.
Such a tenancy is unlikely to be legally binding on any mortgagee on the property
unless the consent of the mortgagee to the tenancy agreement was obtained prior to
it being granted.
29.207 Tenancy agreement in name of third
party – action by official receiver
The official receiver should seek to ascertain the reason why a tenancy agreement
on a solely owned property was placed in the name of a third party. The factors
discussed in paragraphs 29.202 to 29.205 should be considered. Where no
underlying reason can be established for the tenancy agreement to have been
placed in the name of a third party, the official receiver should inform the third party,
--- PDF page 79 ---
as trustee, that in their opinion the tenancy agreement vests in the bankruptcy estate
and that as trustee they will seek to enforce the rights and obligations as landlord
under the terms of the tenancy agreement. The official receiver should treat the
tenancy agreement as though it was created in the bankrupt’s sole name and so the
official receiver should write to the tenant informing them that the tenancy vests in
the official receiver as trustee and that they are now landlord, see paragraph 29.43.
29.208 Tenancy agreement created after
bankruptcy order and appointment of trustee
Where a bankrupt creates a new tenancy agreement after a bankruptcy order is
made and after a trustee is therefore appointed, the tenancy agreement has no legal
standing. This is because the legal title to the property vests in the trustee on
appointment and the bankrupt had no legal title to the property on the date the
tenancy was created.
The tenant does not have a legal lease (tenancy) but has a tenancy by what is
known as estoppel with the bankrupt, as the tenancy was granted by the bankrupt
without any legal interest in the property. A tenancy by estoppel is a valid tenancy
agreement between the bankrupt and the tenant, but only comes into force when
one of the parties seeks to default on the agreement on the basis that the landlord
had no legal estate at the date of creation of the tenancy1. A tenancy agreement by
estoppel is not binding on the official receiver as trustee.
As soon as the official receiver becomes aware of such a tenancy they should
attempt to ascertain full details of the agreement.
1. Bruton v Quadrant Housing Trust [1998] 3 WLR 438
29.209 Tenancy created by the bankrupt after
the official receiver’s appointment as trustee –
action to be taken
Although a tenancy agreement created by the bankrupt post the appointment of the
official receiver as trustee is not legally binding on the official receiver as trustee, the
official receiver will need to take some action in relation to the agreement. The
official receiver has various options and will need to decide how to proceed on a
property-by-property basis, depending on how cooperative the tenant and bankrupt
are, and whether the property is onerous. As the bankrupt has no legal interest in the
property, the official receiver should write to the bankrupt informing them that no
further contact should be made with the tenant. The official receiver can either:
--- PDF page 80 ---
•
acknowledge the tenancy by writing to the tenant in accordance with earlier guidance
in this chapter and take on the role of landlord and obtain the rental income for the
benefit of the insolvent estate
•
disclaim the reversionary interest and tenancy if it is onerous (see paragraphs 29.138
onwards)
•
ask the tenant to leave as they do not have a legally binding tenancy agreement
against the official receiver. See guidance at paragraphs 29.119 onwards on vacant
property. If the tenant refuses to leave, court action is likely to be required to evict
the tenant
29.210 Tenancy created by the bankrupt after
the official receiver’s appointment as trustee –
mortgagee and insurance
The official receiver should inform the mortgagee of the position immediately and ask
whether they intend to take an action in relation to the tenancy agreement.
By default, as the property vests in the official receiver as trustee, they may become
ultimately liable for any claims that the occupier may make for injury. Public liability
insurance should therefore be obtained as soon as possible.
29.211 Protection of deposit
The official receiver should obtain details from the tenant/bankrupt as to any deposit
paid. Where possible the official receiver should locate the deposit ensure it is
protected (see paragraphs 29.26 onwards).
29.212 Tenancy created by the bankrupt after
the official receiver’s appointment as trustee –
letter to bankrupt
Where the official receiver decides to acknowledge a tenancy agreement created
after their appointment as trustee and become landlord, action should be taken to
ensure the bankrupt is informed in writing of the official receiver’s decision
The official receiver should inform the bankrupt of the decision to acknowledge the
tenancy, that they are now landlord and that the bankrupt is not entitled to collect any
rent due under the terms of the agreement.
--- PDF page 81 ---
29.213 Tenancy created by the bankrupt after
the official receiver’s appointment as trustee –
letter to tenant
The official receiver should write to the tenant informing them of the decision to
adopt the tenancy agreement. The official receiver will become landlord from the
date notice is served on the tenant. The letter should request that the next payment
of rent is sent to the official receiver on the next date payment is due.
29.214 Annulment applications
The official receiver may be informed that the bankrupt has made an application to
court for an annulment of the bankruptcy order (see chapter 6A). Where the official
receiver is trustee and landlord they will need to consider, on a property by property
basis, what action needs to be taking pending the outcome of the hearing.
29.215 Stay of advertisement
Where a stay of advertisement (see chapter 8) is ordered pending the annulment
hearing, the official receiver should ask the bankrupt to hold the rent to the order of
the trustee pending the outcome of the hearing. If the official receiver feels the stay
of advertisement will jeopardise the collection of rent, they can apply to the court for
directions1.
1. Rule 13.4
29.216 Houses of Multiple Occupancy (HMO’s)
- definition
Since 6 April 2006 mandatory licensing of any ‘House of Multiple Occupancy’ (HMO)
came into force1. A building or part of a building is a HMO2 if it meets one of the
following conditions:
1) It meets the “standard test” which is;
•
it consists of one or more units of living accommodation not consisting of self
contained flats
•
the living accommodation is occupied by persons who do not form a single
household
•
the living accommodation is occupied by those persons as their only or main
residence or they are to be treated as so occupying it
--- PDF page 82 ---
•
their occupation of the living accommodation constitutes the only use of that
accommodation
•
rents are payable or other consideration is to be provided in respect of at least one of
those persons’ occupation
•
two or more of the households who occupy the living accommodation share one or
more basic amenity or the living accommodation is lacking one or more basic
amenity (a toilet, personal washing facilities or cooking facilities)
2) It meets the “self contained flat test”, i.e. it consists of a self contained flat, and
meets conditions 1) a) to f) above.
3) It meets the “converted building test”, i.e. it is a converted building, and meets
conditions 1) a) to e) above.
4) A HMO declaration is in force.
5) It is a converted block of flats, i.e. a building or part of a building which has been
converted into and consists of self contained flats, if the building work undertaken did
not comply with the appropriate building standards, and still does not comply with
them, and less than two thirds of the self contained flats are owner occupied3.
1. Housing Act 2004 section 55
2. Housing Act 2004 section 254
3. Housing Act 2004 section 257
29.217 Landlord’s additional obligations in
relation to HMO
HMOs are subject to additional regulation such as maintenance of the common
parts, a duty to display the landlord’s details in the common parts, and compulsory
mains electric smoke alarms. The landlord needs to be a fit and proper person and
there needs to be adequate amenities in place1.
1. Housing Act 2004 section 67
29.218 HMO and action required by official
receiver as trustee
Where the official receiver is aware that the bankrupt is the landlord of a HMO, they
need to check that the proper licence is held, and the property complies with all
requirements imposed by the local authority which regulates such licences.
When the official receiver becomes the landlord of a HMO, they will need to obtain
an appropriate licence to continue managing that property and collect the rent1. The
--- PDF page 83 ---
application should be made to the local authority and a fee is payable, which is set
by each local authority. The fee is likely to be in the region of £300 to £500.
Alternatively, when a licence is already held by the bankrupt, an application can be
made to either vary that licence2 or an application for a temporary exemption of three
months3 can be made if the property is likely to be handed to an insolvency
practitioner or repossessed.
1. Housing Act 2004 section 63
2. Housing Act 2004 section 69
3. Housing Act 2004 section 62
29.219 HMO penalty for non compliance and
disclaimer
Failure to apply for a licence when needed is a criminal offence1 subject to a
maximum fine of £20,000. A maximum fine of £5,000 is also payable for any HMO
regulation breached by a licence holder. If the official receiver is unable to verify that
the accommodation complies with the licensing requirements, and there is unlikely to
be sufficient income received to bring the property up to the compliance standard,
then they will need to consider disclaiming their reversionary interest in the property
and all the tenancy agreements (see paragraphs 29.138 onwards). If a disclaimer is
issued, it should be served on the local authority responsible for granting the HMO
licences along with all other interested parties. See chapter 42 on disclaimers.
1. Housing Act 2004 section 72
29.220 Selective compulsory landlord licences
in certain areas
In addition to all HMO’s requiring a licence, certain areas of the country which suffer
from low housing demand and significant and persistent anti-social behaviour can
also introduce local regulation requiring compulsory licensing of all private rented
accommodation1. The local authorities which currently contain such areas are
(please also see note below):
•
Salford City Council
•
Middlesbrough Council
•
Manchester City Council
•
Gateshead Council
•
Sedgefield Borough Council
•
Burnley Council
--- PDF page 84 ---
•
Bolton Council
•
Blackburn Council
•
Leeds City Council
•
Easington Council
•
Hartlepool Council
•
Nottingham
It should be noted local authorities may be consulting on implementing selective
licensing within any of their areas at any time and therefore the list above may not be
comprehensive. Each office should therefore be aware of the possibility of selective
licensing coming into force and check as necessary on the local authority website.
1. Housing Act 2004 sections 79 and 80
29.221 Selective compulsory licences of
certain areas
When the official receiver encounters a solely owned rented property in one of the
areas referred to in paragraph 29.221, they will need to check that the bankrupt held
an appropriate licence with the local authority and enquire whether the property
complies with all requirements imposed by the local authority which regulates such
licences.
The official receiver will need to obtain an appropriate licence to continue managing
that property and collect the rent1. The application should be made to the local
authority and a fee is payable, which is set by each local authority. The fee may be in
the region of £300 to £800. Alternatively, when a licence is already held by the
bankrupt, an application can be made to either vary that licence into their name2, or
an application for a temporary exemption of three months3 can be made if the
property is likely to be handed to an insolvency practitioner or repossessed.
1. Housing Act 2004 section 87
2. Housing Act 2004 section 92
3. Housing Act 2004 section 86
29.222 Selective compulsory licence penalty
for non compliance and disclaimer
Failure to apply for a licence when needed is a criminal offence1 subject to a
maximum fine of £20,000. A maximum fine of £5,000 is also payable for any
regulation breached by a licence holder. If the official receiver is unable to verify that
the accommodation complies with the licensing requirements, and there is unlikely to
--- PDF page 85 ---
be sufficient income received to bring the property up to the compliance standard,
then they will need to consider disclaiming their reversionary interest in the property
and all the tenancy agreements. If a disclaimer is issued, it should be served on the
local authority responsible for granting the selective landlord licences along with all
other interested parties. See chapter 42 for information on disclaimers.
1. Housing Act 2004 section 95
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ATTACHMENT: 3.Bankruptcy_orders_initial_action.pdf
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--- PDF page 1 ---
This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 10 March 2020.
3. Bankruptcy orders - initial action
Actions to take in the initial stages of a bankruptcy including letters to be sent and
enquiries to be undertaken
Annexes
Annex A – List of useful addresses
Annex B - Authorised and regulated businesses
How to make an application for an amended description
How to make an applicaton for amended description persons at risk of violence
Chapter content
Frequently asked questions - Dealing with banks, building societies and credit card
companies
The role of the Official Receiver
Receiving and checking the bankruptcy order
Notices to be issued and actions to be taken immediately
Adjudicator cases - Initial actions
Creditor’s petition - Initial actions
--- PDF page 2 ---
Debtor applications and creditor petitions - Dealing with bankrupts
Case administration
Common notices to be issued and actions to be taken
Less common notices to be issued and actions to be taken
Frequently asked questions – Dealing
with banks, building Societies and
credit/charge cards
What happens to a bank account when an
insolvency order is made?
The account will be frozen by the bank. Where there is a credit balance in a
bankruptcy funds can be released for essential living expenses or any joint owners
share of the money.
Why does the official receiver contact banks or
building societies?
One of the main duties of the official receiver is to identify, collect, secure and protect
any assets upon the making of an insolvency order. In some cases it may be
necessary for the official receiver to give immediate notice of the insolvency order by
telephone to ensure the account is frozen. The giving of this early notice helps to
ensure that funds in accounts do not disappear.
When should I make contact?
Notice (BANK1, BANK 2 or NORD1 for credit card companies) should be given as
soon as possible, but in any event within 5 working days of the order being made.
Full information should be sent including the branch sorting code and account
number.
How do I know what accounts a bankrupt has?
--- PDF page 3 ---
The information can be obtained from the company director/bankrupt. In debtors
petition cases it will be listed in the statement of affairs or PIQB. In the event that a
bankrupt cannot be traced the details may be found in the Experian search.
How do I know which letter to send to the
bank?
There are a number of bank letters, all of which have provide a different instruction.
These are:
Bank1: used when there is a credit balance to be claimed by the official receiver
Bank2: used when it is agreed that funds will be released to the bankrupt
Bank3: used where there is FI in a company case
Bnk1: used in company cases
How should I deal with bank/credit cards?
Bankrupts should also be instructed to refer to their bank for instructions on what to
do with any debit cards held in respect of a current account. Company directors and
bankrupt should be instructed to destroy any other bank/credit cards in their
possession and dispose of the cards appropriately. Any cards passed to the official
receiver should be destroyed in the presence of the company officer/bankrupt and a
file note made.
Can a bankrupt still operate an existing bank
account after they are made bankrupt?
Yes, subject to any bank or building society policy. This is most likely to occur where
a bankrupt’s regular income is paid into an account comprising their wages or benefit
payments.
A bank or building society frequently asks the official receiver for authority to operate
an account on behalf of a bankrupt. The official receiver is not in a position to provide
such an authority and it is entirely a matter for the bank or building society to make
that decision
Can the bankrupt open a new bank/building
society account after the bankruptcy order?
--- PDF page 4 ---
Yes - but they must tell the bank or building society that they are bankrupt. Some
banks will allow continued use of the bank account after the bankruptcy order.
It is the bankrupt’s responsibility to make arrangements for an account to receive any
income. It is then at the discretion of the bank or building society whether to permit
an undischarged bankrupt to operate an account. The publication Guide to
Bankruptcy will provide the bankrupt with information.
Any request from the bankrupt or their agents regarding the operation of a new bank
account can be answered using form BAOPB (Docs tab).
What happens where there is a credit balance
on a bankrupt’s account at the date of the
order?
If a bankrupt evidences to the official receiver that they need any money in their
account or a proportion thereof for normal living expenses before the next "pay day",
then they may be allowed to retain some or all of the funds for that purpose.
Authorisation should be given to the bank, using form BANK2 tailoring the letter
according to the circumstances of each case.
What happens to the bank card where only
some of a credit balance should be released?
Where only part of the funds in the account is to be released to the bankrupt a
decision needs to be made whether to leave the bank card with the bankrupt. In
order to protect the part of the balance the official receiver should immediately
telephone the bank to specify how much of the balance should be remitted to the
official receiver, followed by a letter to confirm this. The sum the official receiver
intends to recover should be shown as the asset on ISCIS. The asset note should be
used to record the detail of the arrangement i.e. how much was in the account and
how much was agreed that the bankrupt could withdraw.
What will happen to a joint account?
If there is a credit balance, consideration should be given as to whether all or part of
the credit balance vests as an asset in the bankruptcy or whether it belongs to the
joint account holder. Where it is established that funds belong to the third party
account holder an instruction should be given to the bank release the money.
The notes tab should be updated to record any decision made.
--- PDF page 5 ---
How do I deal with a telephone or internet
bank account?
You should not ask for details of the password, pin number or security information, or
otherwise attempt to access the account through the internet or telephone. The
director/bankrupt should be told not to access the accounts and a note should be
recorded on ISCIS. The banks should be notified and the cards dealt with as detailed
above.
What do I do with an old style credit card
machine?
The metal plate from the imprinting machine should be returned to the issuer.
Post office card account
A post office card account is operated through the post office and can only be used
to receive benefit, state pensions and tax credit payments. There is no overdraft
facility on this account, and no other payments, such as wages, can be paid into it.
No credit checks are undertaken when the account is opened. The official receiver
will therefore have no interest in the balance of such an account and should not take
the cash card for one of these accounts from a bankrupt.
How do I deal with a building society account
where there a passbook?
Where there is a passbook this is likely to be a savings account. The building society
will normally require the production of a passbook or card before releasing the
balance to the official receiver. In the event that the passbook is not available a ‘lost
passbook declaration’ form will have to be signed by the official receiver as trustee.
Usually the building society will also require a withdrawal form to be signed by the
official receiver before releasing any funds and a copy of the bankruptcy order.
How do I obtain bank statements?
The Service has an agreement with certain banks/building societies that requests for
copy statements will be sent centrally. Copy bank statements can be requested via
the fortnightly bank statement spreadsheet which is centrally collated and issued on
behalf of ORS, IES and CI offices.
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How do I deal with a foreign bank account?
A written authority from the director or bankrupt should be obtained to get
information and /or monies from the bank. Either a general authority or a specific
authority directed to a particular bank to authorise the provision of information and
the remittance any credit balance to the official receiver should be provided. Some
banks may release information on production of a copy of the winding-up or
bankruptcy order. Other banks may require a court order from within the relevant
jurisdiction.
The role of the Official Receiver
3.1 The official receiver as trustee
On the making of a bankruptcy order the official receiver is appointed trustee of the
bankrupt’s estate unless the court appoints an insolvency practitioner as trustee on
the making of the bankruptcy order.
3.2 The official receiver’s duties following the
making of a bankruptcy order
The official receiver’s principal duty, immediately following the making of a
bankruptcy order, is to protect the bankrupt’s estate. The official receiver may take
such steps as they think necessary, including continuing a business to protect any
property that may be claimed for the estate.
3.3 Insolvency practitioner appointed by the
court
The court may directly appoint an insolvency practitioner as trustee on the making of
a bankruptcy order in the following instances:
•
where on the initial hearing of a petition the court asked them to prepare a report as
to whether a debtor is willing to make a proposal for a voluntary arrangement1
•
where the bankruptcy order follows a voluntary arrangement the court may appoint
the supervisor of the arrangement as trustee2
1. Section 297 (4)
2. Section 297 (5)
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3.4 The trustee’s duty to co-operate with the
official receiver
An insolvency practitioner appointed trustee by the court on the making of the
bankruptcy order will usually be a useful source for information about the bankrupt’s
affairs, especially in the initial stages of the case. The trustee has a duty to co-
operate with the official receiver and must produce or allow the inspection of the
bankrupt’s books, papers and other records. This may involve visiting the trustee’s
offices1. If the trustee fails to co-operate the official receiver may apply to the court
for an order to enforce compliance2.
1. Section 305 (3)
2. Rule 10.93
3.5 The official receiver’s duties where a
trustee is appointed by the court
Where a trustee other than the official receiver is appointed immediately upon the
making of a bankruptcy order the official receiver remains under a statutory duty to
investigate the conduct and affairs of the bankrupt where they deem it appropriate.
Where the official receiver in the course of their investigations discovers undisclosed
assets, which may include rights of action, they should inform the trustee and
provide copies of any relevant documents (see chapter 22 and chapter 45 for further
details)1. The official receiver has to give notice of the order, gazette the order and
provide information to the creditors2.
1. Rule 10.75(7)
2. Rules 10.32 and 10.66
3.6 Trustee appointed by court – initial notices
The official receiver may consider restricting their initial notices to those recipients
whose reply may relate directly to the duty to investigate and not to send letters or
notices relating to asset recovery. In practice it may be difficult to separate these
functions, for example when writing to the bank there may be no need to know the
current balance on the account but details of any overdraft facilities may be relevant
to the investigation of the bankrupt’s conduct and affairs.
3.7 The official receiver’s power to request
information
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The official receiver may make an application to the court for the examination of any
person believed to be able to provide information concerning the bankrupt or the
bankrupt’s dealings, affairs or property1. Further information on private examinations
can be found in chapter 21.
1. Section 366 (1) (c)
3.8 Confidentiality
The official receiver must not disclose information about a case to any person who
does not have a legitimate reason to have the details of the case. For further details
see chapter 22. In particular the official receiver should note the disclosure rules
regarding a person who has undergone gender reassignment (transsexual). The
official receiver’s attention is also drawn to the specific provisions relating to
bankrupts who may be at risk of violence.
Receiving and checking the bankruptcy
order
3.9 Adjudicator’s office
From 6 April 2016 the process of making bankruptcy orders on debtor petitions was
removed from the Court and transferred to the Adjudicator’s office. As opposed to
completing a petition and statement of affairs, a debtor completes an online
application form which is submitted to the adjudicator for review and if appropriate an
order will be made. The Adjudicator will create an Electronic Bankruptcy Folder
(‘EBF’) which replaces the Court file. This sits separately to ISCIS and documents
that relate to the Order are stored on the EBF. The Court will still make orders in
respect of debtor applications under the Insolvency Partnerships Order 1994 (see
chapter 52) and the Administration of the Insolvent Estates of Deceased Persons
Order 1986 (see chapter 56).
3.10 Copies of the bankruptcy order to be
delivered to the official receiver
The court should send at least two sealed copies of the bankruptcy order to the
official receiver in creditor petition cases as soon as reasonably practical after the
making of the order. The adjudicator must deliver copies of the bankruptcy order to
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both the Official receiver and the bankrupt as soon as reasonably practical after the
making of the order1.
1. Rules 10.32(1) and 10.45(1)
3.11 Initial notice of creditor’s petition cases
A local court should notify the official receiver when a bankruptcy order is made. The
notification may be by secure email, fax or by post. The official receiver is able to
monitor the progress of bankruptcy petitions by using the Case Pending Hearing
Search tab in ISCIS which can be found under the Case tab. The Petitions and
Transfers Team will notify the local official receiver where a bankruptcy order is
made in the High Court and where a bankruptcy order is made in the Central London
County Court on a creditor’s petition.
3.12 Service of the bankruptcy order –
creditor’s petition
The official receiver must send one copy of the sealed bankruptcy order to the
bankrupt as soon as reasonably practicable1. The official receiver must keep a note
of how they served the bankruptcy order, normally by recording as a note on ISCIS.
1. Rule 10.32(2)
3.13 Initial notice of adjudicator cases
The adjudicator will notify the official receiver of a new bankruptcy order via email.
The email will include the name of the bankrupt, the BKT reference, their postcode,
the date of the bankruptcy order and the Equifax search reference. The official
receiver should download the bankruptcy order and application from the Electronic
Bankruptcy Folder and save them to Wisdom. The Equifax report should also be
retrieved using the provided reference and a copy uploaded to the fileplan.
3.14 Service of the bankruptcy order –
adjudicator cases
The court on the making of a bankruptcy order on a debtor’s application the
adjudicator will send a sealed copy of the order to the bankrupt by email. The
bankrupt can make application to the Official Receiver for a hard copy of the order1.
1. Rule 10.45(2)
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3.15 Adjudicator applications – conditions to
be satisfied
To present a bankruptcy application a debtor must be unable to pay their debts1; and
•
have their centre of main interests in England and Wales
•
be domiciled in England and Wales
•
in the three years ending with that day has been ordinarily resident, had a place of
residence or had carried on business in England and Wales2
1. Section 263H(2)
2. Section 263I
3.16 Title of proceedings – bankruptcy
description (creditor petitions)
The petition must contain sufficient information about the debtor to enable them to be
correctly identified1. The petition shall include the following:
•
their name, place of residence and occupation (if any)
•
any other name used at any time (the official receiver should refer to chapter 22
where an order is made against a person who has undergone gender reassignment
(transsexual)
•
the name or names in which they carried on business, if other than in their true
name, and whether, in the case of any business of a specified nature, they carry it on
alone or with others
•
the nature of the business, and the address or addresses at which they carry it on
•
any name or names, other than their true name, in which they have carried on
business at or after the time when the debt was incurred, and whether they have
done so alone or with others
•
any address or addresses at which they have resided or carried on business at or
after that time, and the nature of that business. The above details are referred to as
the full title of the proceedings2
1. Rule 10.8
2. Rule 10.8(2)
3.17 Bankruptcy description – adjudicator
cases
There is no reference to “Title of Proceedings” in respect of adjudicator orders,
where identifying information is required the Insolvency Rules (England and Wales)
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2016 prescribe what information should appear on various documents (Bankruptcy
Order, Gazette notice, Land Registry Notice and Individual Insolvency Register). The
prescribed information for description on the bankruptcy order made by the
adjudicator is the debtor’s title, debtor’s identification details (name and address) and
any previous name or other names by which the debtor is known or has been known
in the 5 years immediately before the date of the application1.
1. The Insolvency Rules (England & wales) 2016 Schedule 7, Part 1
3.18 Persons at risk of violence – disclosure of
the bankrupt’s address
There may be circumstances where the disclosure or continuing disclosure to other
persons (whether to the public generally or to specific persons) of the bankrupt’s
current address or whereabouts might lead to violence against the bankrupt or a
family member who resides with them. The court may, on the application of the
bankrupt, the official receiver, the trustee or the Secretary of State, order that their
current address be withheld from specified documents and public sources of
information1. The bankrupt’s “current address” means their current place of residence
and any address at which they carried on business2.
1. Rule 20.1(2)
2. Rules 20.5(3) and 20.6(3)
3.19 Persons at risk of violence - application to
court
An application to court by any of the parties mentioned in to restrict the publication of
a bankrupt’s “current address” must be accompanied by a witness statement
referring to rule 20.5 or 20.6. The witness statement should contain sufficient
evidence to satisfy the court that the bankrupt, or their family member, would be at
risk of violence or harm should their “current address” be disclosed1. In debtor
application cases the application should be made after the online application has
been commenced but before the finalised application has been submitted to the
adjudicator.
1. Rules 20.5(4) and 20.6(4)
3.20 Person at risk of violence - court order
Where the court accepts that a bankrupt, or a family member, may be at risk from
violence it may order one or more of the following, that:
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a) details of the bankrupt’s address be removed from any part of the court file which
is open for public inspection and be kept on a separate file not open to inspection
b) the bankrupt’s current address be removed from the bankruptcy order
c) the full title of the proceedings be amended by the removal of the bankrupt’s
current address from the description
d) details of the bankrupt’s current address be omitted from any notice to be
gazetted or otherwise advertised
e) the bankrupt’s current address is not included on the individual insolvency register
or bankruptcy restrictions register (see chapter 5) and/or
f) details of the bankrupt’s current address kept on the individual insolvency register
or bankruptcy restrictions register be removed1
1. Rules 20.5(5) and 20.6(5)
3.21 Person at risk of violence – further court
orders
Where the court makes an order on grounds 2 to 6 listed in paragraph 3.20 it may
make additional orders. The court may order that a previous residential and/or
trading address be included in the description in the bankruptcy order; be included in
the full title of the proceedings; be included in the contents of any gazette notice or
advertisement; or be kept on or be entered onto the individual insolvency register
(see chapter 5)1.
1. Rule 20.7(3)
3.22 Official receiver - action to be taken to
comply with the court order(s)
The official receiver must ensure that immediate action is taken to comply with the
terms of any court order made e.g. updating the ISCIS ‘Case Header’ tab to show
‘address withheld’ as this links to the Individual Insolvency Register. The official
receiver should ensure when issuing any bankruptcy restriction proceedings that the
application complies with the court order and that, if applicable, the current address
does not appear on the bankruptcy restrictions register if an undertaking is given or
an order made. In appropriate cases the attention of the Authorisations Team
Bankruptcy should be drawn to the court order restricting disclosure of the “current
address” when reporting the result of a bankruptcy restrictions hearing or a
bankrupt’s consent to a bankruptcy restrictions undertaking.
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3.23 Persons at risk of violence – additional
actions to be taken
Where the court has made an order to amend the title of the proceedings the official
receiver must immediately send notice of the order to the Chief Land Registrar who
will amend the register, where appropriate. The official receiver has the discretion
either to gazette, or to gazette and advertise, the court order1. Any notice, gazette or
advertisement should contain the standard contents with the exception of the
bankrupt’s current address. The amended title of the proceedings and the date of the
bankruptcy order should be included. The notice should not include the description
under which the proceedings were previously published2.
1. Rule 20.7(4)
2. Civil Procedure Rules 1998 rule 40.12
3.24 Checking the bankruptcy order – the slip
rule
When checking the bankruptcy order the official receiver may discover that the court
has made an error when compared to the details on the petition, for example, an
incorrect spelling of bankrupt’s name. The official receiver should contact the court
and ask for the order to be corrected under the slip rule, and an amended version
issued. The Civil Procedure Rules allow the court, at any time, to correct an
accidental slip or omission in a judgment or order. A party, for example, the
bankrupt, the official receiver or a petitioning creditor’s solicitors, may apply for a
correction without notice1. The court has the general power to rectify matters where
there has been an error of civil procedure2.
1. Civil Procedure Rules 1998 rule 3.10
2. Yee Fun Chu v Price [2003] EWCA Civ 1744 and [2004] BPIR 603
3.25 Checking the bankruptcy order –
amended description (creditor petitions)
Where the information is incorrect or is insufficient to enable creditors to identify the
bankrupt. For example, the description may be missing trading addresses or trading
styles, or may be incomplete because the bankrupt has used multiple aliases1, the
official receiver should apply to the court to amend the title of the proceedings,
commonly referred to as amending the description2. There is no fee payable to the
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court where the official receiver makes the application to amend the description as
official receiver rather than as trustee in bankruptcy.
1. Rule 10.165
2. Rule 10.8
3.26 Matters to be considered when amending
the description
The official receiver should take into account the following specific matters when
deciding whether to make an application to amend the title of proceedings:
•
the description should state the bankrupt’s occupation1
•
where a bankruptcy order is made against a member of the Armed Forces any
reference to their rank, military establishment or ship in the description should be
deleted
•
any request by the bankrupt to amend the description because of concerns that the
publication of their address will affect their safety, for example a police officer, prison
officer, etc
•
a prison address or any indication that the bankrupt has been in prison should not be
in the description
1. Rule 10.165(3)
3.27 Amended description advert
The official receiver has the discretion to gazette and/or advertise the amended
description1. In deciding whether to advertise the amended description the official
receiver should balance the benefit to the administration of the case against the cost
of the gazette and advert. Chapter 4 explains the circumstances where advertising
the amended description may be appropriate and provides further general
information on the discretionary publication of insolvency information.
1. Rules 10.165 and 10.44
3.28 Amended description - transfer of
proceedings
It is usual that where a transfer of the bankruptcy proceedings to another court is
imminent that any application for an amended description will be made by the
recipient official receiver. However the official receiver may consider combining the
transfer application with an application to amend the description. Where the official
receiver makes such an application they will be responsible for sending notice to the
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Land registry and if required, gazetting and/or advertising the amended description.
See chapter 10 for further information on the transfer of proceedings.
3.29 Consolidation of two or more bankruptcy
petitions
It is possible that two or more bankruptcy petitions are presented against the same
debtor. The petitions may be presented in different courts. If the orders are made the
official receiver should make an application for directions to the court1 for an order
consolidating the proceedings. Where the orders have been made in different courts
the official receiver may consider waiting until the proceedings have been transferred
into the local court before making the application. The application should, generally,
include a request that the proceedings are consolidated under the distinctive court
number of the earliest bankruptcy order and that the petition deposits are retained by
the official receiver to set against the costs and fees incurred. The subsequent
bankruptcy orders and proceedings will be merged into the first order and care
should be taken that the application requests that the court provide for this in the
order. In considering the official receiver’s application the court may make an order
on such terms as it thinks fit. If the court does not consolidate the orders on the
above terms an application to annul the second bankruptcy order should be made.
1. Rule 13.4
3.30 ISCIS and the consolidation of bankruptcy
orders
Where two or more bankruptcy orders are made against the same person they
should be consolidated under the court number of the earliest bankruptcy order. The
official receiver should not record any further information on ISCIS for the
subsequent order(s).
3.31 Application for annulment or stay of
proceedings or advertisement
The official receiver should refer to chapters 8 and 9 where an application for
annulment, stay of proceedings and/or stay of advertisement has been, or is likely to
be, made.
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Notices to be issued and actions to be
taken immediately
3.32 Introduction
The following paragraphs cover the actions the official should take and the notices
that should be issued either immediately, or within 24 hours, following the making of
a bankruptcy order.
3.33 Notice to the official receiver of a
bankruptcy order
The court is required to give notice as soon as reasonably practicable to the official
receiver on the making of a bankruptcy order on a creditor’s petition1.
1. Rule 10.32(1)
3.34 Initial enquiries and initial contact
On the making of a bankruptcy order the official receiver’s approach, in the initial
stages of a case, will depend on who presented the petition. The enquiries
necessary on a creditor’s petition are called “initial enquiries” and are covered in
‘Creditor’s petition – initial action’. The enquiries conducted on an adjudicator case
are called the “initial contact” and are covered in ‘Adjudicator cases – initial action’.
3.35 Bankruptcy search
On being informed of the making of a bankruptcy order by the court the official
receiver should conduct a party search on ISCIS to see whether the bankrupt has
previously been made bankrupt. When conducting the party search the official
receiver should ensure that any previous bankruptcy orders have not been annulled.
They should search the Individual Insolvency Register (see chapter 5) to see
whether the bankrupt has previously been made bankrupt, and subject to a
bankruptcy restriction order or bankruptcy restriction undertaking. The official
receiver should further check to see whether the bankrupt has been discharged from
the earlier proceedings. Bankruptcy restriction orders and bankruptcy restriction
undertakings are recorded on the Electronic Individual Insolvency Register available
via The Insolvency Service web-site.
3.36 Trustee of a previous bankruptcy
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A bankrupt may have been subject to a previous bankruptcy order made against
them in a court dealt with by another official receiver’s office. In these circumstances
the official receiver should contact that office to obtain any further relevant
information not contained on ISCIS. Where an insolvency practitioner has been
released as trustee of the estate the official receiver should send them notice of the
bankruptcy order. Where the insolvency practitioner remains trustee the official
receiver should send ISCIS document production letter NPBB to them. Further
information can be found in chapter 55 and chapter 40.
3.37 Other insolvency proceedings – individual
voluntary arrangement
The bankrupt may have entered into an individual voluntary arrangement (IVA) or
approached an insolvency practitioner to prepare an IVA. The supervisor or
insolvency practitioner may be able to provide details of the bankrupt’s assets and
liabilities to the official receiver. This information may not be current but it can be
used to support the information provided to the official receiver by the bankrupt and
to possibly identify undisclosed assets. The official receiver should send ISCIS
document production letter NPBB to the supervisor. The notice asks for details of the
proposal, including a copy of the statement of affairs and details of the assets, both
realised and unrealised. The official receiver should also ask the supervisor whether,
in their opinion, any trusts were established by the IVA1.
1. Re: N T Gallagher & Son Ltd [2002] B.C.C. 867
3.38 Other insolvency proceedings –
administration order
The bankrupt may have previously applied to court for an administration order. The
county court may be able to provide details of the bankrupt’s liabilities. This
information may not be current but it can be used to support the information provided
to the official receiver by the bankrupt and to possibly identify undisclosed assets.
The official receiver should send ISCIS word template form NCCAO to the court.
3.39 Other insolvency proceedings – deed of
arrangement
Although the Deeds of Arrangement Act 1914 was repealed with effect from 1
October 2015. A bankrupt may have entered into a deed of arrangement prior to that
date. Where this is the case the trustee may be able to provide details of the
bankrupt’s assets and liabilities. This information may not be current but it can be
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used to support the information provided to the official receiver by the bankrupt and
to identify any undisclosed assets. The official receiver should send ISCIS document
production letter NPBB to the trustee.
3.40 Disqualification searches
The official receiver should also make a search of the register of disqualified
directors to see whether the bankrupt is subject to a disqualification order or
disqualification undertaking. The registrar of companies is responsible for
maintaining the register of disqualified directors, which details all disqualification
orders and undertakings made in England and Wales currently in force, including
any obtained by the Financial Conduct Authority or other specified regulator.
Disqualification orders made in Scotland and Northern Ireland are also registered
with the registrar of companies. The register of disqualified directors also records
details of those directors who have obtained permission from the court to continue to
act as directors following an application made under section 17 of the Company
Directors Disqualification Act 1986.The register of disqualified directors can be
searched and filtered to check if the bankrupt is subject to any disqualifications.
Clicking on the name in the search results brings up further details, including the
bankrupt’s address, date of birth, period of disqualification and the section under
which the order/undertaking was made1.
1. The Company Directors Disqualification Act 1986 – sections 2 to 8, 8a, 9b and 10
3.41 Equifax searches
The Insolvency Service currently has a contract with Equifax for one detailed report
to be run in each bankruptcy case. This search will be run by the Adjudicator’s office
for debtor application cases and by the official receiver for creditor petition cases. An
additional report should not be run unless there is a clear business need for doing
so. The report should be used as part of an intelligence led approach to early
decision making on new cases and should be used to shape future actions on the
case. The contents of the report should be treated as reliable intelligence but should
not be considered to necessarily provide a complete picture of the bankrupt’s affairs.
This is primarily because not all credit providers subscribe to Equifax and other
creditors may exist.
3.42 Equifax searches – Contents of report
The full investigation report contains information regarding the bankrupt including
their current and previous addresses, known aliases, known and potential
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associates, details of financial accounts in the name of the bankrupt including current
balance, credit limited account number and a monthly account history.
3.43 Equifax searches – further information
Further information and best practice guidance for using Equifax is available on
the intranet
3.44 Land Registry searches
The official receiver may determine whether or not the bankrupt has an interest in
any property and/or establish the bankrupt’s interest, if any, in the address shown on
the bankruptcy order by conducting a Land Registry search. Further information on
conducting Land Registry searches can be found in chapter 7.
3.45 Publishing the order in the London
Gazette
On the making of a bankruptcy order the official receiver is required to publish notice
of the order in the “London Gazette” (more commonly referred to as the Gazette) as
soon as possible after the receipt of a sealed copy of the order1. Publication in the
Gazette is carried out centrally, following an automatic instruction instigated by the
creation of a case on ISCIS. As a consequence care should be taken to ensure all
the required information is entered into ISCIS. If the order of the court is varied or a
mistake has been made it is the responsibility of the official receiver to ensure notice
of the varied order is published in the Gazette.
1. Rules 10.32(3) and 10.45(3)
3.46 Advertising the order more generally
The official receiver may (in addition to publication in the London Gazette) advertise
the order in such manner as they think fit. The official receiver does not have to
further advertise the order if they do not believe it is necessary. See chapter 4 for
guidance on exercising this discretion1 and further general information on the
procedures required to advertise the order in the Gazette and in other publications.
1. Rules 10.32(3)(c) and 10.45(3)(b)
3.47 Stay of advertisement or stay of
proceedings
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Where an application for a stay of advertisement or stay of proceedings is granted,
reference should be made to chapter 4 and chapter 8.
3.48 Bankruptcy order: notice to Land Registry
The official receiver must send notice (LRRABO) of a bankruptcy order to the Chief
Land Registrar within 24 hours of receiving the order unless the court orders
otherwise1. Further information on dealing with the Land Registry, including an
outline of the procedures when a bankruptcy order is made, is contained in chapter
7.
1. Rules 10.32(3) and 10.45(3)
3.49 Court order suspending notice to the
Land Registry
A bankrupt or creditor may apply to the court for an order preventing the official
receiver sending notice to the Chief Land Registrar, for instance if there is a prospect
of a rescission or annulment1. The bankrupt or creditor making the application should
serve a copy of the any order made upon the official receiver. The official receiver
should carry on as normal until they have been served with the order2.
1. Rules 10.32(5) and 10.45(5)
2. Rules 10.32(7) and 10.45(7)
3.50 Land Registry - annulment of the
bankruptcy order
The debtor is responsible for giving notice to the Land Registry where the court
makes any order vacating the registration of a petition or bankruptcy order. The court
order will include a provision to this effect.
3.51 Amendment of title: notice to Land
Registry
Where the title of the proceedings is subsequently amended by order of the court the
official receiver must send notice of the change to the Chief Land Registrar.
3.52 Effect of notification to the Land Registry
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This notification of the bankruptcy order or an amended title of proceedings will be
sufficient to ensure a restriction is registered against a property solely owned by the
bankrupt. This notification, however, is not sufficient to ensure a restriction is
registered against a jointly-owned property. Where the bankrupt has an interest in a
jointly owned property the official receiver must register a Form J restriction at the
appropriate district Land Registry.
3.53 Notice of the bankruptcy order –
immediate notice
The official receiver should give notice of the bankruptcy order by telephone, first
class post, email, fax, DX or any other faster or cost effective method immediately, if
possible but within 24 hours of the notification of the order to banks, building
societies, potential suppliers and the secretary of any company of which the
bankrupt may be a shareholder. The notice should include references where
available. This list is not exhaustive and the official receiver should issue immediate
notice to other parties where appropriate.
3.54 Courts – general notice
Where the bankruptcy order is made in the Central London County Court, or High
Court, the official receiver should consider sending notice to the local county court as
the bankrupt may be a party to other legal proceedings of which the official receiver
is unaware. The legal proceedings may have an effect on the bankrupt’s property
(e.g. divorce proceedings) or the bankruptcy in general. Where the official receiver is
aware of other on-going legal proceedings to which the bankrupt is involved notice
should be given to the court(s) and other parties, quoting the case numbers and
other court references, if known. It is important that the court is aware of the legal
effects of the bankruptcy order and the official receiver’s duty, as trustee, to protect
and realise the bankrupt’s assets1.
1. Sections 285(3) and 287 (1)
3.55 Notice to court(s)
The official receiver should send notice to the court(s by recorded delivery within 24
hours of the making of the bankruptcy order, or within 24 hours of becoming aware
of the legal proceedings. If more urgent delivery is warranted the official receiver
could use the fastest available means, for example, fax or email.
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3.56 Restriction on legal proceedings and
remedies on the making of a bankruptcy order
After the making of a bankruptcy order no person having a provable claim against
the bankrupt shall have any remedy against them, or their property or commence
proceedings against them without the permission of the court1. In certain
circumstances this permission may be granted retrospectively by the court where
legal proceedings have commenced without leave after the date of the bankruptcy
order2. There may be some exceptions to this provision in relation to the attachment
of a debt due to the bankrupt, execution and the right of a landlord to distrain3.
Further information on the right to take action against a bankrupt’s property can be
found in chapter 12.
1. Section 285 (3)
2. Bank of Scotland plc (trading as Birmingham Midshires) v Johannes Paulus Breytenbach and Lenza Claressa Breytenbach High Court of Justice In Bankruptcy Nos
106 & 112 of 2011
3.Sections 346 and 347
3.57 Notice of the order to be issued within 24
hours or shortly after
After making their initial telephone enquiries the official receiver may be able to send
notice of the bankruptcy order, by first class post, to a limited number of people, such
as the bankrupt’s bank, accountant, solicitors, local courts, etc. Once additional
information has been obtained, for example after receiving the statement of affairs in
debtor petition cases, after interviewing the bankrupt or from third parties, the official
receiver should be in a position to send out further notices of the order. The type of
companies, people and organisations that notices should be sent to are shown
‘Common notices of the bankruptcy order issued’ and ‘Less common notices of the
bankruptcy order issued’ later in this chapter.
3.58 Individual insolvency register
On receiving a copy of the bankruptcy order the official receiver must enter on ISCIS
the following information:
•
the information contained in the petition with regard to identifying the bankrupt1
•
the date of the bankruptcy order
•
the identification details for the proceedings
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This information once entered would be automatically transferred to the individual
insolvency register at 5:00am the following day to enable the official receiver to
comply with the Insolvency Rules2.
1. Rule 10.8
2. Rule 11.16(1)
3.59 Updating the individual insolvency
register
The official receiver is required to enter the following information, as soon as
reasonably practicable after receipt, into ISCIS to enable the individual insolvency
register (see chapter 5) to be updated:
•
the name, gender, occupation (if any) and date of birth of the bankrupt
•
the bankrupt’s last known address
•
the date of any bankruptcy order or debt relief order (or if more than one the latest of
them) made in the period of six years immediately prior to the date of the latest
bankruptcy order made against the bankrupt (excluding for these purposes any order
that was annulled or any debt relief order that was revoked)
•
any name by which the bankrupt is known, other than that which they were adjudged
bankrupt
•
the address of any business carried on by the bankrupt and the name in which that
business was carried on if under a name other than the name in which they were
adjudged bankrupt
•
the name and address of any insolvency practitioner appointed to act as trustee in
bankruptcy
•
the address at which the official receiver may be contacted
•
the date of any automatic discharge (section 279 of the Insolvency Act 1986)
•
where a bankruptcy order (based on a petition presented on or after 6 April 2010) is
rescinded by the court, the fact that such an order has been made, the date the
order was made and (if different), the date on which it has effect1
1. Rule 11.16(2)
Adjudicator cases - initial actions
3.60 Bankruptcy order – action on receipt of
order
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Following receipt of the notification of a bankruptcy order from the adjudicator the
official receiver should review the bankruptcy application form in advance of
contacting the bankrupt to identify who is dealing with the case.
3.61 Review of the application form
The review of the application form should consider whether the other available
information confirms or contradicts the content of the application and the causes of
insolvency. The review should also
•
determine whether the case requires an interview either by telephone or face to face
•
identify what additional information may be required to confirm the cause of
insolvency, assets, liabilities, etc
•
determine whether an IPA/IPO should be sought
•
enable instructions to case officers to be prepared
•
Identify any matters that may require urgent attention should be dealt with
immediately
3.62 Other actions following the review of the
application form
The official receiver, within two working days of the review, must
•
send the appropriate letter and enclosures to the bankrupt (see paragraph 3.87)
•
record the trade classification on ISCIS (see paragraph 3.109)
•
send notice to any other appropriate parties
3.63 Completing the ICON
The ICON should be used to record essential information and should be limited to
establishing:
•
the bankrupt’s contact details to enable an interview to be arranged if required and
details of any special needs which would need to be considered
•
whether the bankrupt is trading
•
whether there are any assets in jeopardy which need to be dealt with
•
whether there are any matters requiring immediate attention e.g. impending legal
action
•
details of funds in a bank/building society that may be required for living expenses
3.64 Inspection
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Where the official receiver confirms that the bankrupt is trading they need to consider
transferring the case to the local office to the bankrupt for reallocation with a view to
carrying out an inspection of the bankrupt’s premises. In making the decision the
official receiver should consider the nature of the bankrupt’s business, for example
there may be no need for an inspection where the bankrupt traded from their own
home and the only business assets are hand tools. An inspection of a non-trading
bankrupt’s premises is rare. Following an inspection the official receiver should,
where necessary, arrange appropriate insurance cover. Further details on
inspections are contained in chapter 11.
3.65 Insurance
If the official receiver identifies any assets whilst reviewing the application,
completing the ICON or at any other stage in the bankruptcy, insurance cover should
be arranged in accordance with the instructions contained in chapter 14. If the asset
is subsequently discovered to have no value the cover should be cancelled promptly.
3.66 Bankrupt’s appointment letter
Within two days of reviewing the application the official receiver should send the
appropriate appointment letter to the bankrupt. The type of appointment letter
(NTB1) sent will depend upon the outcome of the review and the case type. The
options available are ‘No Interview’, ‘Telephone Interview’ and ‘Face to face
interview’ and are produced in the ISCIS document package – BKTINITIAL.
3.67 Documents to be included in the
bankrupt’s appointment letter
The following should be included with the bankrupt’s appointment letter (NTB1) to
the bankrupt:
•
NTB2 – notice setting out the duties and responsibilities of an undischarged bankrupt
•
TNIDIS – tax and national insurance disclosure form
•
Ethnic monitoring form
•
DPADA-Data protection act disclosure authority
The NTB2, TNIDIS, Ethnic monitoring form (EMF) and DPADA are contained within
the combined package BKTINITIAL.
3.68 Initial assessment of case
An interview will not be required where:
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•
no additional essential information is required following review of the application and
equifax report
•
no further investigation is required
•
the examiner believes that all necessary recommendations can be made and
instructions given without contacting the bankrupt
•
the reason for the insolvency is fully explained in the application. Where no interview
is held the official receiver must ensure that all potential assets are appropriately
dealt with. Where the official receiver accepts property as exempt, a letter confirming
this should be sent to the bankrupt promptly
3.69 Cases requiring an interview
An interview should be fixed where after reviewing the application and equifax report,
and any other information provided, the examiner needs any additional information
even if only a small amount. For example there may be insufficient information to
decide if a motor vehicle is exempt property; or additional information may be
required to decide whether an Income Payments Agreement or Order should be
sought; or incomplete addresses have been supplied and the official receiver is
unable to send a report to all creditors.
3.70 The interview
It is expected that the majority of adjudicator case interviews will be conducted by
telephone, although the bankrupt may request a face to face interview. The majority
of these interviews should take no longer than an hour. The interview may only
involve obtaining one or two additional pieces of information, for example, when the
debts were incurred, the balance at bank, confirmation of household income, etc.
The bankrupt may request a face to face interview in which circumstances
consideration should be given as to whether the case should be transferred to the
office local to the bankrupt for reallocation.
3.71 Conducting the interview
The official receiver should use the form TCIR to focus on the key issues. The TCIR
is intended for guidance only and may be used to identify any gaps in the initial
review. It is indicative of the types of questions to be asked, but it is not exhaustive.
Additional questions covering credit obtained in the last 12 months, payments to
relatives, assets sold, etc. may be relevant in a particular bankruptcy.
3.72 Information to be recorded on TCIR
The following information should be recorded on the TCIR:
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•
confirmation that the contents of the NTB2 has been drawn to the bankrupt’s
attention
•
confirmation that the bankrupt has been informed which assets will be realised
•
confirmation that the attention of the bankrupt has been drawn to the information
provided in the Insolvency Service’s leaflets, that these should be read at their
leisure and that they have been informed to contact the office regarding any
questions
•
assets - any additional information
•
income payments agreement assessment and agreement
•
reason(s) for the insolvency
•
documents to be provided by the bankrupt within the next seven days
•
any other relevant information regarding asset realisation and investigation matters
The TCIR should be read in conjunction with the application, the ICON and any other
information provided by third parties. The TCIR may be appointed to an insolvency
practitioner if appointed trustee and it will assist in their duties.
3.73 Further enquiry/investigation
If it becomes apparent during the interview that there are matters for further
investigation, for example possible misconduct, where the bankrupt may have
committed a criminal offence, where there are complex asset matters, etc, the
examiner should ensure that all case administration matters are dealt with and obtain
all relevant information regarding the further matter to enable their AOR to consider a
referral to the local office. Where it appears that there is misconduct sufficient for a
recommendation for a BRO investigation to be made if possible the examiner should
explain the BRO procedure, put the potential misconduct to the bankrupt and
ascertain whether it is likely that the bankrupt will offer an undertaking making the
case suitable for the EIPS process (see Enforcement and Investigation Guide).
Where it becomes clear a face to face interview will be required the examiner should
advise the bankrupt that the case will be transferred to the local office for a face to
face (‘Type 2’) interview. If possible to the RTC should be sent out to all creditors
prior to the reallocation.
3.74 Requirement for face-to-face interview
A face-to-face interview should be held where the official receiver determines that a
face to face interview is necessary, this may include cases with recent trading,
second (or subsequent) bankruptcies and other cases where the official receiver
considers further investigation is necessary. This type of case will normally be
allocated to a L2/L3 examiner, who would conduct a face to face interview
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3.75 Initial appointment letter
The initial appointment letter will include the PIQ booklet if the bankrupt has traded
within the two years ending with the date of the bankruptcy order, as well as the
documents mentioned. The PIQ should be completed by the bankrupt and returned
to the office or be brought to a face to face interview.
3.76 Other parties the official receiver should
contact
The official receiver, after receiving information from the bankrupt and/or others,
should send immediate notice to:
•
any bank or building societies where the bankrupt maintained (either solely or jointly)
an account
•
any potential supplier of goods, so as to stop delivery
•
the secretary of any company in which the bankrupt is believed to be a shareholder
and where it is necessary to prevent the registration of a transfer of shares
3.77 Trading bankrupt
Where the bankrupt is trading it is imperative that immediate action is taken. In most
cases the official receiver will close down the business and dismiss any employees.
See chapter 58 for further information on employment law. For details on inspecting
a trading premises see chapter 11.
Creditor’s petition - initial actions
3.78 Initial enquiries
On receiving notification of a bankruptcy order made on a petition presented by a
creditor, the official receiver should make their initial enquiries (defined as the initial
contact). The official receiver should consider making those enquiries mentioned in
the following paragraphs before contacting the bankrupt. Where possible, initial
enquiries and contact with the bankrupt should be made within 24 hours of the office
being notified of the order, and if this is not possible, within 48 hours. The initial
enquiries should be completed on form IEBC.
3.79 Purpose of the initial enquiries
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The purpose of the initial enquiries made by the official receiver shortly after the
making of the bankruptcy order is to:
•
establish whether there is any continued trading activity and the nature of the assets
•
to preserve the estate, which includes ensuring that assets are adequately insured,
selling, or otherwise disposing, of perishable or other goods likely to fall in value and
protecting the estate from possible third party claims where the public could be at
risk
•
to decide, if possible at this stage, whether investigation work is needed
•
to locate, safeguard and collect books and records relating to the bankrupt’s affairs
3.80 Initial information from third parties
The official receiver, in appropriate bankruptcies, should seek information from third
parties, such as
•
Equifax (see 3.41 and 3.43)
•
the petitioning creditor’s solicitor (see paragraphs 3.81 to 3.83)
•
the petitioning creditor
•
the bankrupt’s accountant (see paragraph 3.138)
•
the bankrupt’s solicitor (see paragraph 3.133)
These enquiries may provide further contact details for the bankrupt and provide
valuable information about the affairs of the bankrupt.
3.81 Contacting the petitioning creditor’s
solicitors
On receiving notice of the bankruptcy order the petitioning creditor’s solicitors should
be asked, initially by telephone, whether there are any matters, other than those
referred to in the petition, to which the official receiver’s attention should be drawn.
The standard letter (PSOL) should be sent out to the petitioner’s solicitors as part of
the initial notices. Where HMRC are the petitioning creditor the Petitions and
Transfers section will receive a petition pack. The pack will be sent to the appropriate
official receiver who should not make any initial contact with HMRC. For further
information on the ability of Crown departments to provide information please see
paragraph 3.96 and chapter 22.
3.82 Petitioning creditor’s solicitors –
information about the bankrupt
The petitioning creditor’s solicitors may be able to provide information on: -
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•
the bankrupt’s telephone number(s)
•
any alternative contact address
•
how the petition was served, personal or substituted service
•
whether the bankrupt was a trader
•
details of any trading addresses (the petitioner may have delivered goods and/or
services to these addresses)
•
whether the bankrupt is still trading
•
the bankrupt’s solicitors or accountants
•
any possible assets
•
any bank accounts
•
any supporting or other creditors
•
any previous insolvency proceedings, for example a failed voluntary arrangement or
earlier bankruptcy
3.83 Petitioning creditor’s solicitors: further
information
If the petitioning creditor’s solicitors only have limited details about the bankrupt, they
may be able to provide the contact details of an employee of their client able to
provide further information.
3.84 Contacting the bankrupt
The official receiver must try and make contact with the bankrupt within 24 hours of
receiving written notification of the bankruptcy order. If this is not possible the official
receiver shall try and make contact with the bankrupt within two working days at the
latest. The bankrupt may attend the petition hearing or attend the official receiver’s
office after the making of the bankruptcy order thereby allowing contact to take place
reasonably quickly. In all other cases the official receiver should try and contact the
bankrupt by telephone or, if appropriate, by inspection. The telephone number or
numbers could be obtained from the directory enquiries, the internet (access the
relevant search engines on the intranet) or third party sources, for example the
petitioning creditor’s solicitors.
3.85 Information to be obtained from the
bankrupt
Where the official receiver contacts the bankrupt they should obtain the following
information (IEBC):
•
that they are the correct person
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•
whether the bankrupt is trading and an inspection is required
•
initial information, including details of any bank or building society accounts
•
whether immediate action is required to collect, protect or realise assets
•
whether the appointment of an insolvency practitioner is required to deal with any
onerous property
•
the location of accounting records, if any, and arrange delivery or collection
•
the details of any of the relevant parties mentioned in paragraphs 3.32 to 3.59 to
whom notice must be provided immediately or within 24 hours
•
whether the bankrupt is involved in any former and/or current insolvency
proceedings, or any other civil litigation
•
arrange an appointment for the bankrupt, either at the office or by telephone. In the
case of a telephone interview the bankrupt should be asked details of their telephone
number
The official receiver should provide contact details of the person dealing with their
case, provide any further appropriate information and to answer any questions the
bankrupt may have.
3.86 Inspection
Where the official receiver has confirmed, or believes, the bankrupt is trading they
need to consider carrying out an inspection of the bankrupt’s premises. In making
the decision the official receiver should consider the nature of the bankrupt’s
business, for example there may be no need for an inspection where the bankrupt
trades from their own home and the only business assets are hand tools. An
inspection of a non-trading bankrupt’s home and/or other premises is not usually
required. Following an inspection the official receiver should arrange appropriate
insurance cover. Further details on inspections are contained in chapter 11.
3.87 Trading bankrupt
Where the bankrupt is trading it is imperative that immediate action is taken. In most
cases the official receiver will close down the business and dismiss any employees
(see paragraph 3.145). See chapter 58 for further information on employment law.
For details on inspecting a trading premises see chapter 11.
3.88 Insurance
If the official receiver identifies any assets whilst completing the IECB, after
conducting an inspection or at any other stage in the bankruptcy, insurance cover
should be arranged in accordance with the instructions contained in chapter 14. If
the asset is subsequently discovered to have no value the cover should be cancelled
promptly.
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3.89 The bankrupt’s initial appointment
The official receiver should send the combined package BKTINITIAL (containing
appointment letter NTB1, and forms NTB2, TNIDIS, DPADA and Ethnic Monitoring
Form (EMF)) to the bankrupt requiring their attendance upon the official receiver for
interview The interview should take place as expeditiously as possible to ensure that
other deadlines, such as the completion of the ISCIS conduct assessment tab and
issuing the report to creditors, are met. The appointment should be made whether or
not the bankrupt has been contacted. The appointment letter should be sent to the
bankrupt at the address on the bankruptcy order unless the official receiver has
confirmation that they reside at a different address. This letter may be the bankrupt’s
first contact with the official receiver.
3.90 Documents to be included with the
bankrupt’s appointment letter
The following should be included with the appointment letter (NTB1) sent to the
bankrupt.
•
The preliminary information questionnaire (PIQB)
•
a sealed copy of the bankruptcy order, although the order may be served personally
if this is more convenient
•
NTB2 – notice setting out the duties and responsibilities of an undischarged bankrupt
•
TNIDIS – tax and national insurance disclosure form
•
Ethnic monitoring form
•
DPADA – data protection act disclosure authority
•
a customer comment card
•
a map showing the location of the official receiver’s office, details of parking facilities
and public transport
The NTB2, TNIDIS, ethnic monitoring form (EMF) and DPADA are contained in the
combined package BKTINITIAL.
The appointment letter informs the bankrupt they can find further information
regarding bankruptcy in our “Guide to Bankruptcy” available on our website.
3.91 The interview
The official receiver should arrange a face to face interview with the bankrupt except
in those instances listed in chapter 17 which also provides guidance on how the
interview should be conducted.
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Debtor applications and creditor
petitions - dealing with bankrupts
3.92 Bankrupt’s duty to the official receiver
The bankrupt has a duty to provide the official receiver with information about their
estate and has a further duty to attend upon the official receiver when reasonably
required1. The bankrupt should be made aware of these provisions in any initial
contact with the official receiver. Section 291 of the Insolvency Act 1986 is
reproduced in the NTB2 which should be either be personally served or sent to the
bankrupt.
1. Section 291 (4)
3.93 Bankrupt in prison
The official receiver may discover that a bankrupt is in prison, but their location is
unknown. In these circumstances the official receiver should contact HM Prison
Service, Prisoner Location Service , by e-mail. The e-mail should contain the full
name of the person subject to the enquiry, any other names by which they may have
been known, date of birth and the reason for the enquiry. The e-mail address is
prisoner.location.service@hmps.gov.uk. If the official receiver needs to follow up the
e-mail by letter, the address can be found in Annex A. Further information and
guidance on interviewing a person in prison can be found in chapter 17.
3.94 Telephone contact with a bankrupt in
prison
It should be noted that the possession and use of mobile phones by prisoners is a
criminal offence1. The Law Society have issued guidance here to solicitors, pointing
out that it may be a criminal offence for a person to contact a prisoner on a mobile
phone. Under no circumstances should a prisoner be contacted within a prison by
telephoning, emailing or texting a mobile phone. Where a prisoner telephones from
within a prison, and it is established that they are using a mobile phone, the caller
should be informed that they are committing an offence and that any such calls will
not be accepted. The call should then be terminated.
1. The Prison Act 1952 section 40D (as amended by Crime and Security Act 2010 section 45)
3.95 Inability to contact the bankrupt
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Where the official receiver has been unable to contact the bankrupt by telephone
within 24 hours where required, further attempts at different times of the day should
be made. If the official receiver is unable to contact the bankrupt, no reply is received
to correspondence or they do not attend for interview, a tracing inspection could be
carried out (see chapter 17 for further information) and further enquiries made to
establish the bankrupt’s current whereabouts.
3.96 HM Revenue and Customs – Petitioning
creditor
Where the petition debt is in respect of unpaid tax and/or national insurance
contributions contact should be made with the Enforcement Office, Worthing. Where
the petition debt is in respect of unpaid tax and/or national insurance contributions or
for unpaid VAT the (VAT), reference should be made to the current partnership
agreement with HMRC.
3.97 VAT number
When the VAT number is known it should be entered into ISCIS. When a VAT
number is entered onto a case on ISCIS it will be automatically uploaded onto
various documents, including the report to creditors and the IP report on handover
(IPROH). It is important to ensure that any VAT number entered onto ISCIS is the
correct one for the insolvent. The VAT number should only be entered onto ISCIS
where it has come from a reliable/trustworthy source, which would include the
petition, the insolvent, the insolvent’s accountant, HMRC or where it has been
extracted directly from the insolvent’s books and papers.
When there is any doubt as to the validity of the VAT number, for example where the
number has been supplied by a third party such as a creditor, it can be checked.
3.98 Checking the bankrupt’s identity – non-
surrender cases
Where initial enquiries suggest that a person with the same name as the bankrupt
resides at a different address from the order the official receiver must make some
checks to ensure that this individual is the bankrupt. No contact should be made
unless there are strong grounds for suspecting that the individual is the bankrupt, for
example their name is distinct. The official receiver should firstly check with the
petitioning creditor’s solicitors, if any, to attempt to confirm that this individual is the
bankrupt. Only in exceptional circumstances should the official receiver then make
--- PDF page 35 ---
contact with the individual and this must be by way of a general enquiry without
stating that the individual is bankrupt.
3.99 The bankrupt fails to cooperate
Where the bankrupt does not cooperate with the official receiver consideration
should be given to holding a public examination1 and making an application for the
bankrupt’s discharge to be suspended. An application for the suspension of
discharge may be made by the official receiver or by an insolvency practitioner2.
Further information on non co-operation can be found in chapter 19 and on
suspension of discharge in chapter 47.
1. Section 290
2. Rule 10.142
3.100 Redirection of the bankrupt’s post
The official receiver may, if the circumstances warrant it, apply to the court for an
order for the redirection of the bankrupt’s post to their office. Further guidance on
when to make such an application is contained in chapter 191.
1. Section 371
3.101 Post interview queries
When the bankrupt contacts the official receiver with a case related query after being
interviewed they should initially be directed to the relevant leaflet(s). The bankrupt
should be informed that if, after reading the leaflet(s), there are still matters which
they do not understand or cause concern to telephone the official receiver for further
information.
3.102 Pre-bankruptcy queries from debtors
The official receiver should refer pre-bankruptcy queries to the Insolvency Enquiry
Line, telephone number: 0300 678 0015. The Insolvency Enquiry Line cannot give
advice or deal with case related queries unless the question is of a general nature.
The official receiver should inform their local agencies, for example the Citizens
Advice Bureau, that pre-bankruptcy queries are dealt with centrally.
3.103 Non case related enquiries
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The official receiver should refer non-case related callers to The Service’s wide
range of leaflets and the FAQs on the internet site. If the caller requires a copy of the
leaflet this should be sent to them. The official receiver should ask the caller to read
through our material and if they still have any queries questions to contact the
Insolvency Enquiry Line (telephone number 0300 678 0015).
Case administration
3.104 Electronic Case files
The official receiver is required to keep a case file in respect of each bankruptcy. The
electronic file is maintained on Wisdom and is divided into 8 parts. The papers are
filed in each section as follows:
•
Part 1 - Preliminary investigation papers
•
Part 2 - Court documents
•
Part 3 - Statutory notices
•
Part 4 – Case Correspondence
•
Part 5 - Meetings, RTCs, Notices
•
Part 6 – Case Assets
•
Part 7 – Closing papers, IP Handover
•
Part 8 - Early discharge
3.105 Completion of ISCIS Conduct
Assessment tab
It is expected that in 80% of cases the ISCIS conduct assessment tabs will be
completed within 4 weeks (28 days) of the bankruptcy order for cases that are self-
signed by the examiner and 80% within 56 days where the case is not self-signed.
For further information on completing the ISCIS conduct assessment tab see chapter
15.
3.106 Appointment of Trustees
The official receiver should consider whether a trustee other than the Official
Receiver should be appointed at an early stage in the proceedings. The process to
follow in respect of the appointment of a Trustee can be found in chapter 45. This
does not apply where the court appoints a trustee other than the official receiver on
the making of the bankruptcy order1.
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1. Section 297
3.107 Statement of affairs
The official receiver should, in a creditor’s petition bankruptcy, decide at an early
stage in the proceedings to either:
•
require the bankrupt to submit a statement of affairs within 21 days of the order
•
to extend the period for the submission of a statement of affairs
•
to release the bankrupt from the requirement to submit a statement of affairs1
Further information may be found in chapter 18.
1. Sections 288(1) and 288(3)
3.108 Report to creditors
The official receiver shall, at least once after the making of the bankruptcy order
issue a report to creditors (RTC)1. The RTC will be prepared from information from
the bankrupt and third parties, such as banks, solicitors, creditors, etc. It is expected
that 85% of reports to creditors will issued within 15 days of the attended interview ,
the date of decision that no interview is required or of the second missed
appointment (whichever is earliest). Further information relating to the report to
creditors can be found in chapter 46.
1. Rule 10.66
3.109 Trade Classifications
The official receiver should complete the trade classification tab in ISCIS to enable
the information to be collated. The information is automatically collected from ISCIS
on the 1st of the month following the making of the bankruptcy order.
3.110 Removing information from the
Individual Insolvency Register
All information concerning a bankrupt must be deleted from the Individual Insolvency
Register after three months have elapsed from the date of discharge or from the date
of rescission or annulment on the grounds of payment in full, and within 28 days if
annulled on the grounds that the order ought not to have been made1.
1. The EC Regulation on Insolvency Proceedings 2000 Article 40
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3.111 Provision of information to creditors in
other EU states
As soon as insolvency proceedings are opened in a member state, the court of that
state having jurisdiction, or an office holder appointed by it is under a duty to inform
known creditors who have their habitual residences, domiciles or registered offices in
other member states by individual notice of the circumstances and rules under which
they may lodge claims1. The notice must satisfy the language requirements of the
EU2. The official receiver should send a notice to all creditors in other member states
at the initial notices stage.
1. The EC Regulation on Insolvency Proceedings 2000 Article 40
2. The EC Regulation on Insolvency Proceedings 2000 Article 42
Common notices to be issued and actions
to be taken
3.112 Banks and building societies – initial
notice
The official receiver should notify the bankrupt’s bank or building society as soon as
practically possible (and certainly within five working days of the bankruptcy order).
Further references in this section to banks also includes building societies. The
official receiver should send the notice as soon as they obtain the bank’s full address
and account numbers. If the bank is informed promptly this may prevent any
unauthorised withdrawal of funds by the bankrupt. A list of bank contact details is
available on the centrally managed parties spread sheet. The official receiver should
inform the ORS Advice if they have any problems with the contacts provided on the
list.
3.113 Internet and telephone bank accounts
The official receiver should not ask for the bankrupt’s password, pin number or
security information. The official receiver should not access, or attempt to access the
account through the internet or by telephone.
3.114 Bank letters
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There are two standard letters, BANK 1 and BANK 2, available to the official
receiver. Which letter the official receiver sends will depend on the specific
circumstances of the bankruptcy.
3.115 Banks - Bank 1 letter
The official receiver should send a BANK1 letter when they wish to close the
account. The BANK 1 template provides three options which cover the following
circumstances:
•
where the credit balance should be paid to the official receiver
•
where there is a nil or debit balance and the official receiver requires no further
information
•
where the official receiver requires further information, i.e. the current balance of
account, the balance as at the date of the bankruptcy order and a copy of the most
recent statement
3.116 Banks - Bank 2 letter
The official receiver should send a BANK 2 letter where the official receiver agrees
that the bankrupt, subject to the bank’s permission, can continue to operate the
account. This is most likely to occur where the bankrupt’s regular income is paid into
that account. The official receiver must choose one of BANK 1 template options:
•
to allow the bankrupt to keep the credit balance in the account
•
to remit all, or part, of the credit balance to the official receiver
A copy of this letter should be sent to the bankrupt with a covering letter.
3.117 Banks – dealing with credit balances
Where the bank holds a credit balance (after taking in account any right of set-off
and monies required to fund essential living expenses, see chapter 33) the official
receiver should take a practical approach. The cost of the effort made should not be
more than the amount realised. If the credit balance (or the sum of balances with one
bank) is £50 or less, the ISCIS notice BANK 1 or BANK 2 should be sent asking for
the balance to be paid to the official receiver. The notice should be followed up by a
telephone call and no more than one further follow-up letter. Where the credit
balance exceeds £50, the official receiver should use their discretion as to the effort
required from their staff to collect the monies. Chapter 33 provides further
information on the realisation of cash at bank.
3.118 National Savings Accounts
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The official receiver should send notice to the Director of Savings where the
bankrupt is known to hold premium bonds, savings certificates, savings bonds and/or
a National Savings account. A full list of investment products can be found on
the NS&I website. The notice NORD 1 should be sent to the address shown
in Annex A.
3.119 E-Bay account
The official receiver should send notice to E-bay where the bankrupt is known to
have an E-bay account. The address can be obtained by entering “EBay” as a Party
Name in ISCIS. An E-bay account may be used to buy or sell household goods,
however the level of transactions may show significant activity and indicate that a
bankrupt may be trading. The official receiver should follow the advice given in
paragraph 3.117 when realising any credit balance.
3.120 Paypal account
The official receiver should send notice to Paypal Europe Limited where the bankrupt
is known to have a Paypal account. The address can be obtained by entering
“Paypal” as a Party Name in ISCIS. A bankrupt may use their Paypal account like a
current bank account for receiving and making payments and it may be in credit. A
trading bankrupt may operate a Paypal account to accept payment for goods and/or
services provided. The official receiver should follow the advice given in paragraph
3.117 when realising any credit balance.
3.121 Mortgage creditors
The official receiver should send the initial notice of the bankruptcy order (MP2) to
the mortgagee and any other charge-holders of property in which the bankrupt may
have an interest. The notice will protect the official receiver’s interest in the property
and they should make early enquiries into its value. The notice should still be sent
where the property has been repossessed and not yet sold.
3.122 Loan creditors
The official receiver should send ISCIS Word template form NLC to all loan creditors.
The early receipt of the information requested by the form may assist the official
receiver’s enquiries into the affairs of the bankrupt which may be helpful during the
initial interview, if held.
3.123 Landlord – assured shorthold tenancies
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Where the bankrupt resides in premises under an assured shorthold tenancy
agreement, or in premises otherwise exempt, e.g. a tenancy with a local authority or
registered social landlord, the agreement does not form part of their estate1. For
more information on assured shorthold tenancies see chapter 24. Where the official
receiver is satisfied that the rent is paid up to date, and the landlord is not a creditor
in the proceedings, it is not necessary to send notice (NTL) to the landlord. Where
the landlord is a creditor the official receiver should send the form NTL to them.
1. The Insolvency Act 1986 section 283 (3A)
3.124 Landlord – other types of tenancies
Chapter 24 describes other types of tenancies not mentioned in paragraph 3.123.
The official receiver should send notice (NTL) to the landlord of any premises rented
or occupied by the bankrupt under these other types of tenancy. Where the landlord
has obtained possession of the property or indicates that they will be levying distress
the official receiver should refer to chapter 12.
3.125 Landlord - leasehold property
Where the bankrupt’s premises are held on a lease the official receiver should obtain
sufficient information from the landlord and the bankrupt to enable them to decide
whether the lease is of any value to the estate. The official receiver may then decide
to disclaim their interest in the lease or may require a further valuation prior to its
sale. Further guidance on dealing with leasehold property can be found in chapter
28.
3.126 Landlord – collection of accounting
records
The official receiver should make arrangements with the landlord for the collection of
the bankrupt’s accounting records or other papers within 10 days of the making of
the bankruptcy order. Chapter 16 provides further guidance on obtaining custody of
the accounting records.
3.127 Assurance companies
The bankrupt may have an interest in a life policy, or other policy issued by an
assurance company. Where a bankrupt has such an interest the official receiver the
official receiver should send the form NTASS to the relevant assurance companies.
Further information can be found in chapter 33.
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3.128 Local authority
The official receiver should send a notice to all relevant local authorities where the
bankrupt is responsible for the payment of council tax or business rates on any
premises. Further information on council tax may be found in chapter 43. The notice
should quote the address(es) of the premises together with the reference number(s)
if known. Where the bankrupt no longer occupies business premises the local
authority should be informed as it may be the case that no further business rates
may be incurred. If the bankrupt owns or leases the premises there may still be a
liability for business rates even if the property is unoccupied.
3.129 Premises licensed to sell alcohol – local
authority
The official receiver should inform the relevant local authority as soon as possible of
the insolvency of a premises licence holder.
Details of the dedicated email address and telephone number for licensing
notifications can be located on the web site of the relevant local authority.
3.130 Utilities - general
Utilities such as water, electricity, gas and telephone are provided by private
companies and in many areas of the country there will be multiple service providers.
In the initial stages of the bankruptcy the official receiver may have difficulty
identifying the bankrupt’s supplier.
3.131 Utilities– notice not normally required
There is no reason why the official receiver should treat the utility companies
differently to other trade creditors. In general these companies should receive
notification of the order when the report to creditors and meeting/no meeting notice
are issued. However, there may be special circumstances, such as the continuation
of a business or where information is required for the official receiver’s enquiries,
when early contact with the supplier is necessary.
3.132 Bankrupt holding shares
The official receiver should send notice to the secretary of any company in which the
bankrupt is believed to be a shareholder. The notification is necessary to prevent the
registration of any transfer of shares.
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3.133 Solicitors
The bankrupt’s solicitors should be sent the form NORD2 which asks, amongst other
things, for details of all matters in which they have acted in the last three years
together with any books, documents, papers, etc. in their possession relating to the
bankrupt’s affairs. Arrangements should be made for the delivery or collection of any
accounting records or other papers within 10 working days of the order. The official
receiver should issue a receipt to the solicitors. See chapter 16 for further
information on dealing with the bankrupt’s records and papers.
3.134 Solicitors - lien unenforceable re records
If the bankrupt’s solicitors attempt to claim a lien on the company’s records, it is
unenforceable and reference should be made to chapter 12 and chapter 16. For
information and advice on steps to take if a solicitor fails to co-operate with the
official receiver’s enquiries, please see chapter 19 and chapter 22.
3.135 Insurers
Where the bankrupt has any current insurance cover, for example fire, motor or other
insurance, the official receiver should write to each insurance company and/or
insurance brokers asking them to provide details of the existing insurance cover,
quoting, when known, policy numbers. Further information can be found in chapter
14.
3.136 Third party owners – items on lease,
hire, hire-purchase, etc.
The official receiver should send notice to the owners of any goods or property held
by the bankrupt on hire, hire-purchase (ISCIS document NHP), lease, on loan, for
safety custody, for repair or otherwise, including suppliers of stock/goods where
retention of title is claimed. The official receiver should follow the policy outlined in
chapter 34 hen dealing with third party goods.
3.137 Third parties holding the bankrupt’s
property
The official receiver should send notice to any person holding or thought to be
holding any property belonging to the bankrupt (including assignees of book debts or
any other assets) to prevent assets being disposed of. If the assets are believed to
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be in jeopardy, they should be promptly collected. Where the bankrupt’s property is
held by a pawnbroker reference should be made to chapter 25.
3.138 Accountants – notice and collection of
records
The bankrupt’s accountants should be sent the form NORD2 which asks, amongst
other things, for a copy of the last set of accounts and details of all books,
documents, papers, etc. in their possession. Arrangements should be made for the
delivery or collection of any accounting records, statutory books or other papers
within 10 working days of the order. The official receiver should issue a receipt to the
accountants. See chapter 16 for further information on dealing with the bankrupt’s
accounting records.
3.139 Accountants - lien unenforceable re
records
If the accountants attempt to claim a lien on the company’s records, it is
unenforceable and reference should be made to chapter 12 and chapter 16. For
information and advice on steps to take if an accountant fails to co-operate with the
official receiver’s enquiries accountant, please see chapter 19 and chapter 22.
3.140 Credit card companies – trading
bankrupt
The official receiver should send a notice to all credit/charge card companies where
a trading bankrupt holds an account. It is important to give immediate notice where
the company operated a facility for acceptance of payment by credit/charge card for
their goods or services. The official receiver should try to obtain the account
numbers from the bankrupt or the bankrupt’s records before sending the notice.
Generally credit or charge card companies will be unable to trace an account without
the account number(s). Any such notice is likely to be returned requesting the
account number.
3.141 Trade Suppliers
The official receiver should send notice to any trade suppliers to stop any delivery of
goods to the bankrupt.
3.142 Book debts - unsecured
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Where a bankrupt has book debts at the date of the bankruptcy order, which are not
subject to a charge, the official receiver should instruct their agent “the contractor” to
realise the book debts on their behalf. As the chance of recovering a book debt
diminishes with time the contractor should be instructed as soon as possible even
where an insolvency practitioner is likely to be appointed trustee. Chapter 26
provides detailed guidance on book debts.
3.143 Book debts – bankrupt continues to
trade
The official receiver should be aware that in some cases the bankrupt may continue
trading, for example, a jobbing joiner. In these instances the official receiver should
instruct the contractor to collect the book debts to prevent the trade debtors making
payment to the bankrupt. Where the book debts are secured the official receiver
should draw the attention of the charge-holder to the continued trading of the
bankrupt.
3.144 Book debts - secured
Where any book debts of the bankrupt are subject to a charge the official receiver
should make early contact with the charge-holder and should establish who will
protect and collect the book debts. In the event that the charge-holder refuses to
collect the book debts the official receiver will instruct the contractor to collect them
as per the instructions in chapter 26 which also provides guidance where there is an
assignment of book debts or a factoring agreement.
3.145 Employees
Where the bankrupt has employees the official receiver will generally terminate
employment with effect from the date of the order. The official receiver should notify
Redundancy Payments Services (RPS) of the insolvency using the RP20 template.
On receipt, RPS will set up the OR case on their system which will generate a
unique reference number and email the official receiver a spreadsheet for
completion. The official receiver should complete with details of all employees who
may have a claim for wages, holiday pay or payment in lieu of notice. RPS will then
send out the EMPLET (employer letter) to all employees and provide copies to the
official receiver which should then be uploaded to the file plan.
3.146 Pension schemes
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A trading bankrupt against whom a bankruptcy order is made may operate an
occupational pension scheme for the benefit of employees. The official receiver has
a statutory duty to send notice of an “insolvency event” to The Pension Protection
Fund. The Pensions Regulator (see paragraph 3.149) and the pension scheme
trustees and/or managers (see paragraph 3.150)1. Chapter 57 provides further
advice on pension schemes. The notice is referred to as a “section 120 notice”. The
form, entitled Section 120 Insolvency Event Notice is a suggested pro forma which
the official receiver should use where possible.
1. The Pensions Act 2004 section 120
See also paragraph 3.197 regarding pensions administered in Germany.
3.147 What is an ‘insolvency event’?
An ‘insolvency event’ with regard to bankrupts is defined in sections 121(2) of the
Pensions Act 2004. The ‘insolvency events’, in addition to the making of a
bankruptcy order, of which the official receiver is required to provide notification to
the relevant bodies are as follows;
•
the submission by a nominee of a report stating that meetings should be called to
consider proposals for a voluntary arrangement (in relation to a company,
partnership or individual)
•
the making of equivalent orders in relation to certain types of entity (relevant bodies)
which have their own insolvency regime. The relevant bodies as scheduled in
Regulation 5(2) of the Pension Protection Fund (Entry Rules) Regulations 2005, are:
•
a credit union
•
a limited liability partnership
•
a building society
•
a person who has permission to act under Part IV of the Financial Services and
Markets Act 2000
•
the society of Lloyds and Lloyds members
•
a friendly society
•
a society which is registered as an industrial and provident society
The appointment of an interim trustee is not an insolvency event and notification will
only be required if a bankruptcy order is eventually made. The change of an office-
holder in the same procedure, such as the handing over of a case to an insolvency
practitioner, does not need to be notified.
3.148 The Pension Protection Fund
The official receiver is required to give notice to The Pension Protection Fund within
14 days of the ‘insolvency event’, or, after this time limit, within 14 days of becoming
aware of the pension scheme. The address of The Pension Protection Fund is
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Renaissance, 12 Dingwall Road, Croydon, Surrey, CR0 2NA. Their telephone
number is 0345 600 2541. Their e-mail address is information@ppf.gov.uk. See The
Pension Protection Fund for further details.
3.149 The Pensions Regulator
The official receiver should send notice to The Pensions Regulator at the same time
to The Pensions Regulator, whose address is Napier House, Trafalgar Place,
Brighton, BN1 4DW. Their telephone number is 0345 600 0707. Their e-mail address
is customersupport@thepensionsregulator.gov.uk. Further information can be
obtained from The Pensions Regulator.
3.150 The pension scheme trustees or
managers
The official receiver should also send notice to the pension scheme trustees or
managers. This information may be supplied by the bankrupt, their accountants,
solicitors or found in their records.
3.151 Contact with Crown Departments
The Insolvency Service has a dedicated intranet page dealing with contact with
Crown Departments. This page includes the partnership agreement with HMRC
amongst other matters.
3.152 HM Revenue & Customs – Tax and
National Insurance
The Insolvency Claims Handling Unit of the HM Revenue & Customs (HMRC) deal
with claims in insolvency proceedings in respect of tax and National Insurance. The
official receiver should ensure that the bankrupt’s case name is entered onto ISCIS
as quickly and accurately as possible. This information is automatically extracted
from ISCIS and sent to the Insolvency Claims Handling Unit at Longbenton. A paper
copy of this information is not necessary. Further information on direct taxation is
provided in chapter 59.
3.153 HM Revenue & Customs – VAT
In the every case where the bankrupt is registered for VAT the official receiver
should complete HMRC form “VAT 769” as soon as possible after the making of the
bankruptcy order. In completing the form the official receiver should indicate whether
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deregistration is appropriate. Where it is not known at the initial stage of a case
whether VAT de-registration will be appropriate, the VAT769 should be completed
but the relevant box on the form should not be ticked. A second VAT769 should not
be submitted as HMRC automatically issue a de-registration enquiry form VAT167
when notified of the insolvency. If the VAT167 is not completed and returned HMRC
will issue a final reminder VAT168. Both the VAT167 and VAT168 forms contain a
box to be ticked requesting that the company not be de-registered. The form “VAT
769” should not be sent until the official receiver can answer questions 1 to 6. If the
VAT number is not provided HMRC will return the form. The complete form VAT769
should be sent to insolvencyhelpdesk@hmrc.gov.uk. Further information on VAT is
provided in chapter 59.
Less common notices to be issued and
actions to be taken
3.154 Trustees of will and settlements
The official receiver must give immediate notice of the bankruptcy order to the
trustee of any wills and settlements under which the bankrupt has or appears to
have, a reversionary or other interest. Such notice must be given even if it appears
that the interest is mortgaged or charged to its full value. If the official receiver
becomes trustee of the estate, notice of the bankruptcy order must be followed by a
further notice sent, in duplicate, asking the trustees of the will to return one copy
receipted at the foot. This action should protect the trustee in bankruptcy’s rights
against mortgagees, who may not have received notification of the bankruptcy order,
and to protect a potential asset.
3.155 Assignee of book debts
Where the bankrupt has assigned their book debts to a creditor the official receiver
should send notice to the assignee. An assignment of book debts is void against the
trustee if they are not paid before the presentation of the bankruptcy petition unless
the assignment was registered under the Bill of Sales Act 18781. See paragraphs
3.142 to 3.144 for further information on dealing with book debts.
1. The Insolvency Act 1986 section 344 (2)
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3.156 Magistrates – Lord Chancellor’s
Department
Magistrates are appointed by the Secretary of State for Constitutional Affairs and
Lord Chancellor, on the advice of local Advisory Committees. The official receiver
should notify the secretary of the local advisory committee if they become aware that
a bankruptcy order or disqualification order has been made against a lay magistrate.
The making of a bankruptcy order automatically disqualifies an individual from
holding that office. A list of all local advisory committees is available within
the magistrate application information
No other information about the case should be given to an advisory committee. If
further information is requested, the official receiver should consult Technical
Section.
3.157 Solicitors – Law Society
Where a bankruptcy order is made against a practising solicitor the official receiver
should notify the Solicitors Regulation Authority, address as per Annex A. As a result
of the bankruptcy order the bankrupt may lose their licence to practice.
3.158 Barristers – General Council of the Bar
Where a bankruptcy order is made against a barrister the official receiver should
notify the General Council of the Bar. The contact details are provided in Annex A.
The Bar Council website and the Bar Standards Board website provide more
information.
3.159 Accountants – recognised professional
body
The Association of Chartered Certified Accountants (ACCA) and the Institute of
Chartered Accountants in England and Wales (ICAEW) expect one of their members
to notify them of any bankruptcy order made against them. In those instances where
the official receiver has doubts that the bankrupt will do so, or the bankrupt has not
surrendered to the proceedings, they should notify the relevant body. Details of
the ACCA and ICAEW are available on their websites.
3.160 Insolvency practitioners – relevant
professional body
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Where a bankruptcy order is made against an insolvency practitioner the official
receiver should send details of the order to the Insolvency Practitioner Unit in
Birmingham initially by telephone with confirmation in writing. This action is required
even where the bankrupt ceased to practice prior to the bankruptcy order. Insolvency
Practitioner Unit will notify the appropriate authorising body of the order and obtain
details of any action being taken to deal with the insolvency practitioner’s affairs.
3.161 Chartered Institute of Taxation or the
Association of Tax Technicians
The official receiver should send notification of a bankruptcy order made against a
member, either of the Chartered Institute of Taxation, or the Association of Tax
Technicians. The addresses of both bodies can be found in Annex A
3.162 Dentists, doctors and pharmacists –
Clinical commissioning groups (CCGs)
CCGs replaced primary care trusts (PCTs) on April 1 2013. Where a bankruptcy
order is made in relation to the practice of a dentist, doctor or pharmacist in England
notice should be sent to the CCG for the area. Where the official receiver is not
prepared to carry on the business, notice of their intention to discontinue the trading
must also be given to the relevant CCG in England.
In Wales seven Health Boards are responsible for planning and delivering NHS
health services in their geographical areas and should be given notice of Winding-up
proceedings and any discontinuance of trading.
3.163 Dentists and doctors – private practice
Where a bankruptcy order is made in relation to a dentist or doctor in private practice
it is not necessary to inform the Clinical commissioning group. Where a dental
practice ceases to trade the official receiver should notify any health plan company
from which the bankrupt receives payments.
3.164 NHS dentists
For every piece of work done by a dentist through NHS practice, they will charge a
fee. That fee will be met partly by the patient and partly by the Dental Services
Division of the NHS. An NHS client will pay up to a maximum of 80% of the fee
charges, depending on their circumstances. In addition, the dentist will be entitled to
claim other reimbursements, depending on the level of their NHS work - for example,
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a certain proportion of the business rates paid by the practice or a proportion of the
costs of practice improvements. Each month the dentist will raise the equivalent of
an invoice for the Dental Services Division, who will pay, via a BACS transfer,
monthly in arrears.
3.165 NHS dentists – collection of monies due
When a bankruptcy order is made against an individual trading as a dentist there
may be money due to the bankrupt from the Dental Services Division. The official
receiver should, in addition to notifying the Clinical Commissioning Group (see
paragraph 3.162), notify the Dental Services Division of the NHS. The notice should
state the name of the bankrupt, the date of the bankruptcy order and ask for details
of the amount outstanding as at that date. The official receiver should ask that any
monies due be held to the order of the trustee. The address for the Dental Services
Division is shown in Annex A.
3.166 Care or nursing homes
Where the official receiver is dealing with the bankruptcy of the proprietor of a care
or nursing home, they should contact the local health authority and also the Care
Quality Commission where the home is in England or the Care and Social Services
Inspectorate Wales (CSSIW) where the home is in Wales.
3.167 Post Offices – Subpostmasters and
Subpostmistresses
Post Office branches are managed under a number of different types of contract.
The differing contracts dictate the title that the individuals managing the post offices
are given. Most post office branches are Scale Payment Sub-Offices (SPSO’s) and
are managed by “Subpostmasters” or “Subpostmistresses”. Other contracts are
managed by “Operators” or “Franchisees”. The title “Postmaster” was previously
used to refer to the managers of Post Office branches run by Post Office Limited
staff, however these staff are now referred to as branch managers.
3.168 Post offices – bankruptcy order
If a bankruptcy order is made against an individual running a post office then the
Post Office Limited Audit Team should be contacted. The individual should be able
to supply the details of their contact in the Post Office but, failing that, the Audit
Team can be contacted by fax on 01226 273697.
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3.169 Where bankrupt is a serving police
officer – relevant Chief Constable
Where a bankruptcy order is made against a serving police officer, there is no
statutory requirement for the official receiver to notify the Chief Constable of the
relevant constabulary of the making of the order. The police officer is expected to
declare their bankrupt status to the constabulary themselves. It is possible for a
police officer to be dismissed for failing to pay a lawful debt1. The official receiver
should not take any steps to notify the chief constable but may ask the bankrupt to
notify their employer.
1. The Police Regulations 2003 regulation 6 and schedule 1
3.170 Trustee of a charity
An undischarged bankrupt cannot act as a trustee of a charity without the permission
of the court. Where a bankrupt holds such an office, they should be informed that
they must either cease to act or to apply to the court for permission. The official
receiver should notify the relevant charity of the bankruptcy order1.
1. Charities Act 2011 c. 25 Section 178
3.171 Asylum seekers
Where a bankruptcy order is made against an individual who is seeking asylum,
there is no statutory requirement for the official receiver to notify the Home Office.
However, the Asylum and Policy Directorate of the Home Office have indicated that
they would like to receive notification of the bankruptcy order. Their address is
shown in Annex A.
3.172 Farmers – Department of Environment,
Food and Rural Affairs
Where the bankrupt is or has been concerned in farming or similar operations they
may have been in receipt of a grant or subsidy from the Department of Environment,
Food and Rural Affairs (Defra). The official receiver should contact Defra to confirm
the current position and whether any monies are due. Any grants and subsidies paid
or payable to the bankrupt are dealt with by the Rural Payments Agency at one of
their regional offices. The relevant regional office can be traced using the Rural
Payments Agency website. The official receiver could also use the Defra helpline
number 03000 200 301. Any initial contact should be followed by the official receiver
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providing written notification of the bankruptcy order. Where the official receiver is
aware of the relevant reference number this should be included in the notice.
3.173 Milk producers – milk co-operatives
Where a bankruptcy order is made against a dairy farmer the official receiver should
identify their customers. With the demise of the Milk Marque scheme the bankrupt
may have a sole supply agreement with one a dairy farmers’ co-operative or a
commercial milk wholesaler. The most commonly used organisations are First Milk
Limited, Arla Foods UK plc and Müller UK & Ireland Group LLP. The addresses of
each of the above can be found in Annex A. The official receiver should notify the
bankrupt’s customer(s) of the bankruptcy order as there may be monies due and on-
going contractual obligations with regard to current milk stocks. Some additional
information is contained in chapter 34.
3.174 Plant Breeders’ Rights – general
A breeder of any species of plant may apply for Plant Breeders’ Rights which enable
them to charge royalties for protected varieties. The rights cover agricultural,
horticultural and ornamental plants. A Plant Breeders’ Right is a form of intellectual
property and may have a value. Further information is available from the Plant
Breeders’ Rights and in Annex A of chapter 40.
3.175 Plant Breeders’ Rights - asset in the
proceedings
Where a bankruptcy order is made against an individual which has Plant Breeders’
Rights the official receiver should send notice to the British Society of Plant Breeders
Limited, see Annex A for their address. The bankrupt may be entitled to unpaid
royalties in respect of the use of the protected species. The registered right, and the
species it covers, may have a resale value and be an asset in the proceedings.
3.176 Plant Breeders Rights – a liability in the
proceedings
The official receiver should be aware that in cases involving agricultural merchants,
corn merchants, farmers licenced to deal in plant varieties (for example, seed
potatoes), horticulturalists, etc. there may be a liability for royalties under the Plant
Varieties and Seeds Act 1964. Where a bankruptcy order is made against an
individual involved in these trades the official receiver should send notice to the
British Society of Plant Breeders Limited, see Annex A or their address. Unpaid
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royalties at the date of the bankruptcy order will be a debt provable in the
bankruptcy. See chapter 34 for the conditions necessary to sell any seed in stock. If
the stock is sold as seed the royalties due will be an expense in the bankruptcy.
3.177 Building & Civil Engineering (B & CE)
benefit schemes
If the bankrupt traded in the building industry, they may have been a member of a
B&CE benefit scheme. These schemes provide holiday pay and retirement benefits
for a bankrupt’s employees. B&CE have requested that they be informed of a
bankruptcy order when the official receiver is dealing with a bankrupt operating a B &
CE benefit scheme. The address of B & CE is shown in Annex A.
3.178 Controlled Waste
A bankruptcy order may be made against an individual who is holding, or has held,
controlled waste. Whilst the bankruptcy should hold a waste management permit this
may not always be the case. In these circumstances the official receiver should give
notice to the relevant waste regulation authority (which is usually the local authority)
and the Environment Agency.
3.179 Holders of vehicle operators or public
service operators licences
Where the bankrupt holds a vehicle operator’s licence and/or public service
operating licence the official receiver should send notice to the appropriate local
traffic area office. The official receiver must also return any licences (see chapter
27). For details of the nearest local traffic area office, contact the Driver and Vehicle
Standards Agency (DVSA) on 0300 123 9000. DVSA’s address is shown in Annex A.
It is possible to carry out an operator search for heavy good vehicles and public
service vehicles using a town name, operator/trading name, individual name of
operator’s licence number.
3.180 MOT testing centre
Where the bankrupt is authorised to conduct MOT tests, all accountable documents,
including MOT test certificates and documents recording the results of tests
conducted within the preceding 18 months, should be returned to the local traffic
enforcement office. To obtain details of the nearest local traffic enforcement office,
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contact the Driver & Vehicle Standards Agency (DVSA) on 0300 123 9000. DVSA’s
address is shown in Annex A.
3.181 Bookmakers – Gambling Commission
To act as a bookmaker an individual must hold an operating licence. In addition the
bankrupt may obtain personal licences for specific individual representatives within
the business. The Gambling Commission issue and regulate these licences and
should be notified of the making of a bankruptcy order as they lapse in the event of
insolvency. The official receiver should send notice to the Gambling Commission.
The address is shown in Annex A.
3.182 Bookmakers – betting premises licence
Where an individual trades as a bookmaker from premises they need to hold a
betting premises licence. A betting premises licence is issued by the local council. A
betting premises licence lapses in the event of insolvency. The official receiver
should obtain the appropriate licences held by the bankrupt. The official receiver
should notify the relevant local council of the bankruptcy order as it may be possible
to recover a proportion of the licence fee from the local council upon surrender of the
licence.
3.183 On-course bookmakers
In order to operate at a racetrack bookmakers are likely to hold a specific type of
premises licence, known as a betting premises (track) licence. Such bookmakers are
known as on-course bookmakers. When dealing with this type of bookmaker, the
official receiver should send notice to the office of the racetrack(s), covered by the
licence(s), of the bankruptcy order.
3.184 Bookmakers – HM Revenue and
Customs
The official receiver should inform HM Revenue and Customs when a bankruptcy
order is made against a bookmaker. The notice should be addressed to: HM
Revenue & Customs, Greenock Accounting Centre (GAC), Custom House, Custom
House Quay, Greenock PA15 1EQ.
3.185 Person authorised under the Banking
Act 1987 - Financial Services Authority (FSA)
--- PDF page 56 ---
Where the bankrupt is an authorised institution under the provisions of the Banking
Act 1987 the official receiver should send notice to the Financial Services Authority
and the Financial Services Compensation Scheme. The addresses for both
organisations are provided in Annex A. Whilst there is no obligation contained in the
Insolvency Act 1986 to inform either body on the making of the bankruptcy order, the
FSA must receive notice of the presentation of a petition against an authorised
institution and both the FSA and the Financial Services Compensation Scheme must
receive notice of the first meeting of creditors. Therefore, for the purposes of
continuity, notification of the order should also be sent.
3.186 Lloyd’s of London – Lloyds’ names
If a bankruptcy order is made against a Lloyd’s name the official receiver should
notify Lloyd’s of London’s Financial Recovery Department. The address is shown
in Annex A
3.187 Investment businesses – regulatory
bodies
The official receiver should send notice to the relevant regulatory body where the
bankrupt is required, by statute, to be licensed to carry on an investment business.
For a list of such business see Annex B
3.188 Unpaid deposits – Deposit Indemnity
Schemes
In a number of industries schemes are in place to guarantee the deposits paid by a
bankrupt’s customers. For example, The Glass and Glazing Federation operates a
Deposit Indemnity Scheme to which double glazing contractors may belong. The
official receiver should confirm from the bankrupt whether such a scheme is in
operation. They should obtain details of the scheme together with a schedule of the
names and addresses of any of their customers who may have a claim under the
scheme. This schedule should be provided to the operators of the scheme as quickly
as possible.
3.189 Consumer credit licence and the
Financial Conduct Authority
Where a bankruptcy order is made against an individual who which holds
authorisation under the Consumer Credit Act 1974 to carry out regulated activity the
--- PDF page 57 ---
official receiver should give notice to the Financial Conduct Authority, see Annex
A for the address.
3.190 Intellectual property - Patents
Where a bankrupt appears to have an interest in a patent the official receiver should
send notice to the Intellectual Property Office, address shown in Annex A. For more
information on intellectual property in general see chapter 40.
3.191 Intellectual property - Designs
Where a bankrupt appears to have an interest in a patent the official receiver should
send notice to the Designs Registry at the Intellectual Property Office, address
shown in Annex A.
3.192 Intellectual property – Trade Marks
Where a bankrupt appears to have an interest in a patent the official receiver should
send notice to the Trade mark Registry at the Intellectual Property Office, address
shown in Annex A.
3.193 Explosives and firearms
The storage of all explosives in quantities of over two tonnes requires a licence from
the Health and Safety Executive. The Health and Safety Executive, local authorities
or the police may issue a licence for explosives in quantities below two tonnes.
However some explosives in quantities below two tonnes also require an explosives
certificate, for example, blasting explosives or black powder. An explosives
certificate is provided by the local police force. The storage of explosives not
requiring an explosives certificate in quantities of less than two tonnes is licenced by
the local authority (usually the trading standards department), except for
metropolitan counties where the licensing is carried out by the fire and rescue
service. See licensing requirements for further information. A firearm or shotgun
certificate is provided by the local police force. See chapter 34 for further information
on explosives and firearms.
3.194 Explosives – factory and storage
Where a bankruptcy order is made against an individual who operates a factory for
the manufacture of explosives or occupies a licenced magazine, i.e. storage facility,
the official receiver must send notice of the order to the Explosives Inspectorate at
the Health and Safety Executive, address shown in Annex A. Alternatively, for
--- PDF page 58 ---
queries about licensing the official receiver can e-mail the Explosives Inspectorate
at: explosives.licensing@hse.gov.uk. For queries about the classification or
transportation of explosives they can e-mail the Explosives Inspectorate at:
cad.explosives@hse.gov.uk.
3.195 Explosives and firearms – police
inspection
Where the official receiver discovers either explosives or firearms in their enquiries
the local police force should be notified. The explosives or firearms should not be
touched or moved until after an inspection by the police. The police will confirm that
the explosives and/or firearms have been correctly licenced and will provide advice
on their safe removal. See police explosives liaison for details.
3.196 Premises licensed to sell alcohol – local
authority
The official receiver should inform the relevant local authority as soon as possible of
the insolvency of a premises licence holder.
Details of the dedicated email address and telephone number for licensing
notifications can be located on the web site of the relevant local authority.
3.197 German state pension administrator -
Deutsche Rentenversicherung Bund (DRV)
The official receiver should notify, as soon as possible, the DRV of the making of a
bankruptcy order against:
•
a German national
•
a person who has worked in Germany
In relation to the second bullet point, official receivers are not expected to investigate
a bankrupt’s employment history for this purpose any more than would normally be
required to administer the case and establish the cause of insolvency.
The standard notice of the bankruptcy should be e-mailed to the DRV at insolv-
service@drv-bund.de.
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ATTACHMENT: 30.Jointly_owned_tenanted_property.pdf
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 10 March 2020.
30. Jointly owned tenanted property
Annexes
Annex A – Flowchart of process of dealing with jointly owned tenanted property
Annex B – PowerPoint presentation of training in tenanted properties
Chapter content
Introduction
Official Receiver as trustee and definitions
Initial enquiries and insurance
Letters to be sent
Deposits
Deciding how to proceed with property
Lodgers and occupation under licence
Insolvency practitioner appointments
Duty of care
Collection of rent
Leaseholds, ground rent, and service charges
--- PDF page 2 ---
Taxation
Calculating a bankrupt’s beneficial interest in a jointly owned tenanted property
Disposal or ending of an assured short hold tenancy agreement
Appointment of insolvency practitioner
Tenant is evicted or decides to leave
Sale of the bankrupt’s beneficial interest
Mortgagee possession
Receiver of rents
Disclaimers
Unusual circumstances - Companies
Unusual circumstances – Property abroad
Unusual circumstances – Non cooperation issues
Unusual circumstances – Tenancies not in names of joint owners and post bankruptcy
tenancies
Annulments and stays
Houses of Multiple Occupancy
Selective compulsory licensing
Form and Letters
Available on ISCIS (formerly annexed to this
chapter):
Note: To access the templates on ISCIS please use 'annex' as your search term in
document production and include word documents in the search.
--- PDF page 3 ---
ORTPQ - Tenanted Property Questionnaire
Annex D – joint – letter to bankrupt
Annex E – joint – letter to tenant E
Annex F – joint – letter to mortgagee
Annex G – joint – letter to joint owner
Annex H – joint – letter to letting agent
Introduction
30.1 General
This chapter provides guidance in respect of a property jointly owned by a bankrupt
and another where the owners have entered into an assured shorthold tenancy
(AST) agreement with a tenant or tenants in relation to the property. The chapter is
not intended to be an exhaustive account dealing with every possible scenario which
may be encountered when dealing with jointly owned tenanted property, but does
provide information relating to those situations that the official receiver is most likely
to encounter. Unless stated otherwise, the types of tenancies discussed are ASTs
(see paragraph 30.7). Later guidance in this chapter provides information on unusual
situations.
The chapter assumes for simplicity that the property is jointly owned by two
individuals. Where there are more than two joint owners of a property the guidance is
equally applicable. Guidance sometimes differs when both joint owners are bankrupt
to when there is a remaining solvent joint owner. Where this is the case, it is made
clear within the chapter.
30.2 Bankruptcy cases only
This chapter deals with bankruptcy cases only, and does not specifically refer to
company cases, although the guidance within will generally apply to such cases. See
the section on unusual situations for some further information on company cases.
For information and guidance in relation to solely owned tenanted property, see
chapter 29.
30.3 Commercial property
--- PDF page 4 ---
Guidance on dealing with commercial property owned by the bankrupt or a company
is dealt with in chapter 28.
30.4 Family home
Where an individual was adjudged bankrupt on a petition presented on or after 1
April 2004, if the bankrupt has an interest in a dwelling-house which is either solely
or jointly owned and that dwelling-house was, at the date of the bankruptcy order,
the sole or principal residence of the bankrupt, bankrupt's spouse, civil partner, ex-
spouse or ex civil partner, the official receiver should refer to the guidance given in
chapter 28. This guidance applies even where the property is the sole or principal
residence held on a tenancy agreement by that person.
Official Receiver as trustee and
definitions
30.5 Introduction
The following guidance deals with the initial action that should be taken by the official
receiver, as trustee, where a bankrupt is the joint owner of a property and is acting
as a landlord in respect of an assured shorthold tenancy agreement (AST) in relation
to that property. The following guidance deals specifically with properties let on an
AST, including those which have become statutory periodic ASTs (see chapter 29).
Where the bankrupt is the landlord under a long lease rather than an AST, reference
should be made to chapter 28.
30.6 Definitions
The following terms are used in the remainder of this chapter and should be
interpreted as follows:
•
a beneficial interest is an interest in the proceeds of sale of a property and in the
rents and profits which could be earned from the property until its sale. It amounts to
an equitable, as opposed to a legal interest in the property. Beneficial interests often
arise as a result of contributions to the purchase of, or payments for improvements
made to, the property and can arise whether or not the person is the legal owner of
the property (see chapter 28)
--- PDF page 5 ---
•
the legal estate in relation to a jointly owned property is the title to the property itself
which is held by both owners most usually on trust of land for themselves as
beneficiaries1. That joint legal estate cannot be severed
•
the reversion of a property is the landlord’s interest in a property whilst a tenancy
agreement is in place. After a tenancy agreement has been granted over a property,
the tenant holds an interest or property right. The landlord has a reversionary interest
- the right to regain possession of that property when it reverts to them at the end of
the tenancy agreement
•
a covenant is a type of legal promise or term of contract to either do or not do
something, which is often contained within the terms of a lease or tenancy
agreement
1. Trusts of Land and Appointment of Trustees Act 1996
30.7 Assured shorthold tenancy
The standard type of tenancy agreement likely to be encountered by the official
receiver is likely to be an AST. This is the standard type of tenancy agreement
entered into since 28 February 1997. It was introduced by the Housing Act 1996. For
further information on other types of tenancy agreements see chapter 29. In addition,
the official receiver may commonly encounter lodgers living with the bankrupt(s), see
paragraphs 30.71 to 30.73 for guidance.
Additionally, local authorities, housing authorities, registered providers of social
housing and housing action trusts can use different types of tenancies; see chapter
30 and chapter 28.
30.8 Legal title – jointly owned property
Where property is owned by the bankrupt jointly with another, the legal title to the
property vests in both those parties as joint trustees and is not severable (see
paragraph 30.6). The legal title does not form part of the bankrupt’s estate and so
does not vest in the official receiver as trustee1. Even if all the joint owners are
bankrupt, it will only be their beneficial interests and not the legal title which will vest
in their trustee(s).
1. Section 283(3)
30.9 Beneficial interest – jointly owned
property
The bankrupt’s beneficial interest in the proceeds of sale of the property, and rent
and profits of the property pending sale are severable and do however vest in the
--- PDF page 6 ---
trustee1. The interests of the parties are normally declared in the conveyance or in a
trust deed executed at the time of the conveyance. Such declarations are conclusive
of the interests of the parties unless there has been a mistake or fraud.
1. Re McCarthy (a bankrupt) [1975] 2 All ER 857
30.10 Vesting of beneficial interest in official
receiver as trustee
If the bankrupt is a joint owner of a tenanted property, and the tenancy agreement is
in the names of both joint owners, then the legal ownership of the property and the
tenancy agreement remain vested in the joint owners and the responsibilities of the
landlord remains with them. This is because a joint legal estate cannot be severed
and property held on trust by a bankrupt does not vest as part of a bankruptcy
estate.
The official receiver’s interest, as trustee of the bankrupt’s estate, is limited only to
the bankrupt’s share of the profits from the AST agreement and the bankrupt’s share
of the reversion of the freehold/leasehold interest at the end of the tenancy (being
the bankrupt’s beneficial interest). It is this beneficial interest that vests in the official
receiver as trustee (see paragraph 30.9).
30.11 Dealing with beneficial interest when
both joint owners bankrupt
Where both joint owners of the tenanted property are bankrupt, the official receiver,
as trustee, will hold 100% of the beneficial interest in the property. The legal title to
the property will remain with the bankrupts as it cannot be severed. The official
receiver, on holding 100% of the beneficial interest, will not become the legal owner
of the property.
30.12 Joint owners remain landlord of
tenanted property
Unlike solely owned property where the official receiver will become the landlord
when the property vests in them as trustee, upon the bankruptcy or one or more or
all of them, the joint legal owners will remain as the landlords of a tenanted property,
and retain all the legal rights and responsibilities under the terms of the AST
agreement. It is only the bankrupt’s beneficial interest in the property which will vest
in their trustee. The legal title of jointly owned property remains vested in the joint
owners (even if all joint owners are subject to bankruptcy orders).This is because the
--- PDF page 7 ---
joint legal title to the property cannot be severed and property held on trust by a
bankrupt does not vest as part of a bankruptcy estate.
The only interest that will vest in the official receiver as trustee is the bankrupt’s
beneficial interest in the property, which can be severed.
The official receiver does not have any rights or obligations in relation to any AST
agreement created on a jointly owned property as only the bankrupt’s beneficial
interest in the AST agreement vests in them as trustee. The official receiver cannot
seek to bring an AST on a jointly owned property to an end, and will not be required
to carry out any landlord duties. (See guidance from paragraph 30.110).
30.13 Property letting is not a trade
The holding of property as a long term investment, including the renting out of that
property, is treated as an investment business by HM Revenue and Customs rather
than a trading business. In an investment business the property is held to either
produce income in the form of rent, long-term capital growth or a combination of
both. In a property trading business property is acquired with the intention of being
developed and sold for a quick profit, and the properties held are treated as stock.
Where property is rented out and the underlying intention is to hold the property for
the long-term, then it is generally accepted by HM Revenue and Customs that the
business is one of investment rather than trade (see paragraphs 30.96 – 30.104) for
information on the tax treatment of rented property).
30.14 Property letting by joint owners is not a
partnership
With a property investment business (such as renting out property), joint ownership
means each individual has their own property investment business and is taxed on
their own share of rental profits and capital gains accordingly. Joint ownership does
not affect the underlying business. It will not generally constitute a business
partnership unless the joint owners also formally create such a partnership. Joint
owners are not necessarily trading together – instead they are both investing in the
same property.
30.15 Definition of joint AST agreement
A joint AST agreement arises where there are several tenants under the same AST
agreement, with all of the tenants having exclusive possession of the entire property
together. Joint tenants take a tenancy of the property as a group at a single rent for
--- PDF page 8 ---
the whole property, with each tenant's interest in the property being exactly the same
as that of the others.
30.16 Tenants in common
A joint AST is not the same as 'tenants in common' or a 'licence to occupy’. 'Tenants
in common' is where there are several tenants under the same tenancy, where each
of the tenants has the exclusive possession of a specific bedroom in addition to the
use of the other communal areas of the property. A 'licence to occupy‘ is the right to
possession of the property without any of the legal rights in the property (see
paragraph 30.72).
30.17 Requirements for joint AST agreement
There are the following requirements for a joint AST:
•
all the tenants must hold the tenancy under one legal document
•
the commencement and termination dates must be the same for all the tenants
•
all the tenants must be entitled to possession of the entire property; and
•
all the tenants must have an equal interest in the entire property
30.18 Liability of tenants in joint AST
The tenants in a joint AST are usually jointly and severally liable for the rent and
damages to the property. This means that should either one or some or all of the
joint tenants breach any of the terms of the AST agreement, or where there are rent
arrears and/or damages to the property, the landlord can elect to claim against all of
them jointly or against each one individually for the full outstanding amount. This
provides some security for the landlord, as well as additional risk for the joint tenants,
as well as any guarantors that the tenants may have.
30.19 Changing joint AST agreements
Where one or more of the joint tenants wishes to leave the property, and/or there are
new joint tenants wishing to occupy the place of the old joint tenants, a new AST
agreement will need to be concluded. This can be done either by way of a deed of
variation that will be attached to the AST agreement, or a new AST agreement can
be drawn up.
30.20 Death of a joint tenant
If a tenant dies and the AST is a joint tenancy, the remaining joint tenant or tenants
have an automatic right to stay on in the property. If it was a statutory periodic
--- PDF page 9 ---
tenancy (see chapter 29), the tenant’s husband or wife (or a person living with the
tenant as husband or wife), has an automatic right to succeed if they were living with
the tenant at the time of the tenant’s death, unless the tenant who died was already
a successor themselves. Only one succession is allowed. No one else in the family
has an automatic right to succession although other family members can negotiate a
new AST agreement with the landlord1.
1. Housing Act 1988 s39(2)
30.21 Duty of care
When the official receiver is dealing with jointly owned tenanted property they will
never hold the full responsibilities of landlord (see paragraph 30.12), but they may be
considered to hold some residual duty of care obligations, see paragraphs 30.77 to
30.78.
Initial enquiries and insurance
30.22 Obtain copy of tenancy agreement
On becoming aware that the bankrupt is a joint owner of a tenanted property the
official receiver should seek to obtain a copy of the tenancy agreement to determine
the details of the AST agreement, The tenanted property questionnaire
(ORTPQ)requests a copy of the AST agreement at the initial enquiry stage, see
paragraphs 30.22 and 30.23.
The official receiver needs to establish that there is an AST agreement rather than
occupation under a licence (see paragraph 30.72).
30.23 Importance of establishing details of
ownership
It is important that the official receiver establishes at the earliest opportunity details
of;
•
the legal owners of the property
•
the beneficial owners of the property
•
the party (parties) understood to be acting as landlord(s) of the property
This information is requested in the ORTPQ. When the parties listed above are not
the same, for example, Mr & Mrs X are the legal owners of the property, but only Mrs
--- PDF page 10 ---
X is understood to be the landlord, it may effect how the official receiver treats the
tenancy agreement, see paragraphs 30.203 to 30.210 for details.
30.24 No tenancy agreement
If there is no AST agreement the official receiver should ascertain the following
details from the bankrupt;
•
the date the tenancy started
•
the terms of the agreement (if there are any terms or conditions that have been
agreed)
•
the rent payable and when the payments are due, and
•
the date the tenancy is due to end (if a date has been agreed)
30.25 Default tenancy where no written
tenancy agreement
Where there is no written tenancy agreement and the tenancy was created after 28
February 1997, then by default a residential tenancy is most likely to be an AST.
30.26 Tenancy agreement in names of joint
owners of property
Where an AST agreement is in the names of both joint owners of the property,
whether both joint owners are bankrupt or not, the joint owners remain as landlords
of that property, and retain all the legal rights and responsibilities under the terms of
the AST agreement (see paragraph 30.12).
30.27 Tenancy agreement in name of bankrupt
as joint owner only
Where an AST agreement is in the name of the bankrupt only and not the other
solvent owner, then the official receiver needs to establish why the agreement is only
in the bankrupt’s name before a decision can be made on how to treat the
agreement and rent collection. See paragraph 30.203.
30.28 Tenancy agreement in name of bankrupt
as joint owner and a third party who is not
joint owner
--- PDF page 11 ---
Where an AST agreement is in the name of the bankrupt and a third party who is not
a joint owner, then the official receiver needs to establish why the agreement is in
the bankrupt and non owner’s name before a decision can be made on how to treat
the agreement and rent collection. See paragraph 30.210 for further information.
30.29 Property jointly owned by bankrupt but
bankrupt’s name does not appear on tenancy
agreement
Where an AST agreement is not in the name of the bankrupt even though the
bankrupt is a joint owner, then the official receiver needs to establish why the
bankrupt’s name is not on the agreement before a decision can be made on how to
treat the agreement and rent collection. See paragraphs 30.203 to 30.210 for further
information.
30.30 Initial enquiries – creditor’s petition
cases
When dealing with a creditor’s petition case, a tenanted property is most likely to be
discovered if contact is made with the bankrupt(s) either by telephone or face to face
at the interview or on an inspection. As soon as a tenanted property is discovered
then the examiner or case support officer should seek to complete the tenanted
property questionnaire (ORTPQ). As much information as possible should be
obtained to enable enquiry letters to be sent to all relevant parties. Where the
bankrupt(s) cannot provide the information they should be encouraged to call back
within the next 24 hours with the information needed. If the bankrupt(s) cannot
provide all the information needed within 24 hours, then a copy of the questionnaire
may be sent out and the bankrupt(s) asked to return it with any other information
requested within 7 days.
30.31 Initial contact – adjudicator cases
In an adjudicator case it is likely that the bankrupt(s) will highlight a tenanted
property in their application to the Adjudicator in bankruptcy. The existence of a
tenanted property should therefore be discovered during the initial review of the
application. Alternatively at the initial contact stage when asked whether there are
any assets in jeopardy, or whether there are any matters requiring immediate
attention, the bankrupt may make reference to a tenanted property. Immediately on
discovering the existence of a tenanted property the examiner should complete the
tenanted property questionnaire (ORTPQ) with the bankrupt(s) over the
--- PDF page 12 ---
telephone. As much information as possible should be obtained to enable enquiry
letters to be sent to all relevant parties as soon as possible. Where the bankrupt(s)
cannot provide the information they should be encouraged to call back within the
next 24 hours with the information needed. If the bankrupt(s) cannot provided all the
information needed within 24 hours, then a copy of the questionnaire may be sent
out and the bankrupt(s) asked to return it with the other information requested in time
for the interview.
30.32 Insurance position
At the earliest opportunity the official receiver should seek to establish the insurance
position in relation to the tenanted property. The official receiver does not have the
responsibility of obtaining landlord’s insurance as this responsibility remains with the
joint owners of the property as landlords (but see following paragraphs).
Enquiries must be made in all cases to obtain details of any insurance policies in
force and, wherever possible, a copy should be taken of the relevant policy
documents and any current certificates relating to those policies to satisfy the official
receiver that that is the case. See chapter 14 for guidance on continuing existing
insurance policies.
30.33 Insurance – both joint owners are
bankrupt – no insurance in place
Where the official receiver is aware that there is no insurance in place and both
owners are bankrupt, public liability insurance is required to protect the official
receiver from any legal liability in case of personal injury being sustained by a third
party.
Where no insurance is in place and there is equity in the property then the official
receiver should also obtain sufficient buildings insurance to protect the underlying
interest. Where the property has negative equity, then the official receiver will only
need to obtain public liability insurance. The mortgagee should be informed where
the official receiver decides not to obtain insurance. The bankrupts should also be
informed that the official receiver will not be taking out buildings insurance and that it
remains their responsibility as landlords to obtain landlord’s insurance.
Reference should be made to chapter 14 for advice on how to obtain cover under the
Willis Insolvency Open Cover Insurance Facility.
30.34 Insurance – where remaining solvent
joint owner
--- PDF page 13 ---
Where there are one or more joint owners of the tenanted property, who are not
subject to bankruptcy proceedings, the official receiver should inform the bankrupt
and joint owners that it is their responsibility to obtain landlord’s insurance, including
public liability insurance.
Where there is equity in the property and the official receiver establishes that there is
no current buildings insurance in place the official receiver should seek to obtain
buildings insurance to protect the bankrupt’s beneficial interest.
Where there is no equity in the property no insurance should be obtained and the
official receiver should inform the mortgagee that there is no insurance in place.
30.35 Summary of insurance required
Jointly owned – solvent joint owner
(paragraph 30.34)
Jointly owned – both owners bankrupt
(paragraph 30.33)
Equity
Full buildings insurance only to
be obtained
Buildings and public liability insurance
to be obtained
No
equity
No insurance to be obtained
Public liability insurance only to be
obtained
30.36 Willis Insolvency Open Cover Insurance
Generally speaking, provided that the property is used for residential purposes and
certain limits are not exceeded, then the case will be suitable for the premium
bordereau for smaller non-trading cases under the Willis Insolvency Open Cover
Insurance (see chapter 14, annex B for details on the exclusions to this). If a case is
eligible for this cover, then the official receiver is required to add the case to the
office bordereau form for each office. In order for an asset to be covered by Willis it
must be put on the office bordereau as soon as the official receiver becomes aware
of its existence. Only where a case does not fall into these criteria is it necessary to
telephone Willis to agree individual insurance cover (see chapter 14). Generally
speaking, this will be property rented out to a business for commercial purposes.
Where a property subsequently becomes vacant, see paragraphs 30.146 to 30.148.
30.37 Continuation of insurance cover
If the official receiver obtains insurance under the Willis Insolvency Open Cover
Insurance Facility, this should be continued for as long as the bankrupt’s beneficial
--- PDF page 14 ---
interest in the property remains vested in the official receiver, or until the bankrupt
and the joint owner obtain their own insurance and evidence of this is provided to the
official receiver.
Reference should be made to chapter 14 for advice on how to obtain cover. This is
done by ensuring the case is added to the premium bordereau for smaller non-
trading cases on a monthly basis.
30.38 Cancelling insurance cover
The official receiver’s insurance must be cancelled when the property is:
•
sold or otherwise disposed of
•
an LPA receiver is appointed
•
an insolvency practitioner is appointed; or
•
disclaimed (only applies when all joint owners are bankrupt)
The official receiver should follow the guidance in chapter 14 when cancelling
insurance.
30.39 Jointly owned commercial tenanted
property
Where a jointly owned tenanted property is a commercial property, the Willis
Insolvency Open Insurance Policy (see paragraph 30.36) will not apply and the
official receiver will need to open a quote from Willis for insurance on a case by case
basis. In order to provide a quote for insurance to the official receiver the nature of
the business undertaken from the premises concerned will need to be provided.
Letters to be sent
30.40 General
As soon as the official receiver has received the completed questionnaire (ORTPQ)
from the bankrupt, letters should be sent to the following:
•
the bankrupt(s) (see paragraph 30.41)
•
the tenant (see paragraph 30.44)
•
the joint owner (see paragraph 30.49)
•
the mortgagee and any other chargeholder (see paragraph 30.50)
•
the letting agent (if applicable) (see paragraph 30.58)
--- PDF page 15 ---
30.41 Letter to the bankrupt
A letter should be sent to the bankrupt following the initial contact or initial enquiries
enclosing copies of the letters sent to the tenant and letting agent if appropriate. The
letter confirms the official receiver is trustee and states that the bankrupt and joint
owner will retain joint legal responsibility for the tenancy agreement, and that the
official receiver will not carry out any landlord’s duties, even if both owners are
bankrupt. The letter also states that the Official Receiver, as trustee, is entitled to the
bankrupt’s share of the profits from rental income under the terms of the AST (see
paragraph 30.105 onwards).
30.42 The bankrupt(s) remain as landlord and
entitled to collect rent
The official receiver should be aware that if the bankrupt declines to set aside the
rent for the trustee and continues to pay the capital element of the mortgage debt
(see paragraphs 30.129 to 30.130), the trustee will need to consider whether to take
any action to enforce cooperation, see paragraph 30.200.
In such circumstances to avoid any difficulties in recovery later on, the official
receiver as trustee should ask the bankrupt to forward the relevant part of the
monies on to them immediately1.
1. Section 287(3)a
30.43 Bankrupt and joint owner may re-enter
property
Unlike solely owned property, the official receiver cannot object to the bankrupt or
solvent joint owner moving into the property should any tenant subsequently vacate
the property, as it is only the bankrupt’s beneficial interest and not the legal interest
which vests in the official receiver as trustee.
30.44 Letter to tenant
The official receiver, as trustee, should send an initial enquiry letter to the tenant
informing them of the position of the joint owners in relation to the bankruptcy and
the property. The letter should make it clear whether or not the joint owner is also
subject to bankruptcy proceedings. The letter asks for a copy of the tenancy
agreement to be sent to the official receiver if one has not already been obtained
from the bankrupt.
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The letter tells the tenant that the joint owners retain legal responsibility and will
remain as their landlords and will retain any rights and responsibilities in relation to
the tenancy agreement, for example collecting rent and carrying out any necessary
repairs under the terms of the tenancy agreement.
30.45 Property with a lodger may be classed as
a family home
When a ‘lodger’ is living with the bankrupt in their home, the notice offering the
bankrupt and joint owner the option to purchase back the interest1 should still be sent
by the official receiver as trustee when the bankrupt’s interest in the property is
greater than £1000, as the property is still the family home of the bankrupt (see
chapter 28). Additionally the notice to the bankrupt and other interested parties
informing them that the property falls under section 283A should be sent2.
See paragraphs 30.71 to 30.72 on occupation of property under licence and on
income received from a lodger occupying a property under licence.
1. Housing Act 1988 s39(2)
2. Section 284
30.46 Tenanted property is not usually a
family home
It is important to remember that a tenanted property is not usually a family home for
the purposes of section 283A (see chapter 28), and as such the bankrupt’s beneficial
interest will not re-vest in the bankrupt after three years, it will remain in the
bankruptcy estate until it is dealt with. Tenanted property encountered by the official
receiver will normally fall into one of the four categories below:
a) property purchased as an investment property with the help of a buy-to-let
mortgage (see paragraph 30.54)
b) property purchased as a home with the help of a residential mortgage, with the
bankrupt having later obtained the consent of the mortgagee to let the property out
(consent to let) (see paragraph 30.54)
c) property purchased as a home with the help of a residential mortgage, with the
bankrupt having later let the property out without the permission of the mortgagee
(unauthorised tenancy) (see paragraph 30.55)
d) property purchased as a home with the help of a residential mortgage, with the
bankrupt having later taken in a ‘lodger’ whilst remaining in occupation (see
paragraphs 30.71 to 30.72 and 30.101)
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If a property were to be let to a former spouse of the bankrupt, for example, it could
be both a tenanted property and fall within the scope of a family home for the
purposes of section 283A (see paragraph 30.48).
30.47 Letter MP1 should not be sent
In situations a to c referred to in paragraph 30.46, the letter offering the bankrupt and
the joint owner the option to purchase back the interest,1 which should normally be
sent when the official receiver is trustee, should not be sent, as the low cost property
conveyancing scheme is for the protection of the bankrupt’s home and so is not
appropriate when dealing with an investment property.
In addition, the letter to the bankrupt and other interested parties informing them that
the property falls under section 283A2 should not be sent. Where there is a solvent
joint owner, they may be able to purchase the bankrupt’s beneficial interest in the
property from the official receiver, as trustee, but this should not be offered as a
matter of course. See guidance from paragraph 30.151 for details of the
circumstances where the official receiver, as trustee, may consider selling the
bankrupt’s interest in a tenanted property.
1. form MP1
2. form BHNOT
30.48 When tenanted property may be
considered to be a family home
When ascertaining the details of any tenancy agreement the official receiver should
give consideration to the relationship of the tenant to the bankrupt. Where the
occupier is the bankrupt's spouse, civil partner, ex-spouse or ex-civil partner and the
property is the sole or principal residence of that person then the property may be
considered to be a family home1. In such circumstances it is unlikely a formal
tenancy agreement as described in this chapter exists as the occupier is likely to be
the joint owner. In such circumstances it may be appropriate, where the bankrupt’s
interest in the property is greater than £1000, to send the notice offering to purchase
the interest in the family home2 to the bankrupt and any joint owner (see chapter 28)
1. Form MP1
2. Section 283A(1)
30.49 Letter to joint owner
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A letter should be sent to the joint owner following the initial contact or enquiries,
enclosing a copy of the letter sent to the tenant. The letter informs the joint owner
that they will retain joint legal responsibility for the tenancy agreement, and that the
official receiver will not carry out any of the landlord’s duties. It also explains that the
bankrupt’s beneficial interest in the property is vested in the official receiver as
trustee and they will be entitled to the bankrupt’s share of the rental profits.
The letter suggests that they may want to obtain independent legal advice.
30.50 Letter to mortgagee and other
chargeholders
Any mortgagee with a charge over the jointly owned tenanted property should be
sent notice in order to protect the official receiver’s interest in respect of the charged
asset and to make early enquiries into the value of the asset. The notice in tenanted
property differs to the standard mortgagee enquiry letter1, as it asks for a response
within 7 days on the most urgent queries. The official receiver needs to know
urgently whether or not the mortgagee;
•
has consented to the property being let
•
wishes to appoint a receiver of rents
•
wishes to, or has already taken, any possession proceedings
This information will assist the official receiver in deciding whether or not to consult
creditors and apply for an urgent Secretary of State appointment of an insolvency
practitioner trustee, see paragraphs 30.74. If the mortgagee intends to appoint a
receiver of rents or take possession proceedings quickly, then, without more, it is
unlikely that it would be a suitable case for the appointment of an insolvency
practitioner as trustee.
1. Form MP2
30.51 Rent collected will not be used to pay
mortgage
It is important to let the mortgagee know at an early stage that if the official receiver
does collect the bankrupt’s share of the rent from the tenant, this will not be used in
meeting any capital element in respect of the mortgage payments due in relation to a
mortgage loan on the property (see paragraph 30.130) This information is contained
in the letter to mortgagee. See paragraphs 30.79 to 30.92 for information on the
collection of the bankrupt’s share of the rent.
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It is important that the mortgagee is clear of their position as such information will
assist the mortgagee in deciding whether or not to appoint a receiver of rents or to
commence possession proceedings in relation to the property
30.52 Mortgagee has no right to receive rent
unless they take action
The mortgagee has no right to receive the rental income arising from the property as
long as the mortgagee allows the mortgagor to remain in legal ownership of the
property. Whilst the mortgagors (the bankrupt and joint owner) remain in possession,
they are free to utilise the rent without need to account to the mortgagee. This is, of
course, subject to the right of the trustee in bankruptcy, as the beneficial owner, to
receive the bankrupt’s share.
The asset that vests in the trustee is the bankrupt’s beneficial interest, which
comprises the bankrupt’s share of profits arising from the property, including the rent
received.
30.53 Mortgagee’s rights on repossession
As soon as a receiver of rents of a jointly owned tenanted property is appointed, or
the mortgagee takes possession, it becomes the mortgagee’s responsibility to carry
out the duties of the landlord, and their right to collect the rental income, including
arrears1, 2. See paragraphs 30.174 to 30.180 for more information on a receiver’s
powers.
1. Landlord and Tenant (Covenants) Act 1995 section 15(1)
2. Cockburn v Edwards [1881] 18ChD 449
30.54 Position of mortgagee when buy to
let/consent to let given
The mortgagee is bound by the terms of the AST agreement and so cannot evict the
tenant if they repossess the property without giving proper notice1 in the following
situations:
•
if the tenancy has been granted with the consent of the mortgagee, either on
o a buy-to-let mortgage, or
o a residential mortgage where the mortgagee has subsequently consented to
the mortgagor renting out the property
•
if the tenancy was already in place prior to the mortgage being granted2
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•
where the mortgagee has acknowledged a tenancy by their actions after it being
granted without their consent3
1. Housing Act 1988 section 21
2. Land Registration Act 2002 sections 28 to 32
3. Underhay v Read [1888] 20 QBD 209
30.55 Position of mortgagee when consent to
let not given
An AST agreement is not binding on the mortgagee when the following criteria are
met:
•
where a property is rented out after a mortgage is obtained on the property, without
the mortgagee’s consent, and
•
the mortgagee has not acknowledged the tenancy by any positive action (for
example, receiving rent directly from tenant). Inaction by the mortgagee with the
knowledge that there is an unauthorised letting on the property of the bankrupt does
not amount to positive action1
If both the above criteria are met, the mortgagee is free to sell the property with
vacant possession2, and without giving the tenant proper notice3. How that is
achieved is, of course, for the mortgagee to consider.
1. Parker v Braithwaite [1952] ALL ER 837
2. Rust v Goodale [1957] Ch 33 at 44
3. Housing Act 1988 section 21
30.56 Likelihood of mortgagee appointing
receiver of rents where consent to let not
given
It is unlikely that a mortgagee will appoint a receiver of rents when they have not
given the bankrupt permission to rent out the property. This is because to do so may
bind the mortgagee to a tenancy that they are not currently bound by1 (see
paragraph 30.55). The likely action, if any action is to be taken by the mortgagee, will
be to commence possession proceedings in relation to the property.
1. Keech v Hall (1778) 1 Doug KB 21
30.57 Mortgage terms and conditions
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Some mortgage deeds may contain a clause entitling the mortgagee to security over
the rent. In practice this is usually the right to collect the rent directly from the tenant.
This is only likely where a specific buy-to-let mortgage has been obtained. Official
receivers should proceed on the basis that the mortgage does not contain such a
clause. If the letter to the mortgagee prompts them to notify the official receiver of
such a clause, a copy of the mortgage terms and conditions should be requested for
verification.
30.58 Letter to letting agent
Letting agents assist a landlord in finding a suitable tenant for a property and in
drawing up a tenancy agreement and other related matters. If a letting agent has
been appointed by the bankrupt, the type of service provided will depend on the
terms of the contract. The services range from the collection of rent only, to a full
management service where the agent is responsible for arranging any repairs, safety
inspections (see guidance from paragraph 30.110) and dealing with tenants.
Generally the charges of a letting agent are deducted as a percentage of the rental
income received. A letter should be sent to the letting agent to ascertain details of
the rental agreement, including whether the agent holds any rent or other money.
The letter explains that the AST agreement and the agreement between the letting
agent and the joint owners will not vest in the trustee. Instead the joint owners will
remain as landlords of the property. The letter requests that the bankrupt’s share of
any balance held on account, after the deduction of the costs of the tenancy
agreement, should be forwarded to the official receiver.
30.59 Need for care when dealing with letting
agents
The official receiver as trustee should be careful, when dealing with letting agents of
jointly owned property, that they do not interfere with the collection of rent. If the
official receiver interferes with the collection of rent, they may inadvertently create a
new tenancy agreement between the official receiver and the tenant on similar or
completely new terms to that of the original agreement. This may occur if the official
receiver allows the letting agent to become their agent, by asking them to collect rent
on behalf of the official receiver.
30.60 Letting agent as a creditor
If the letting agent is owed money by the bankrupt at the date of the bankruptcy
order, then the agent is a creditor in the proceedings for that amount. The agent
should not be allowed to deduct this debt from the bankrupt’s share of future rent
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collected although, in practice, this may prove to be difficult to prevent, especially if
the agent were to be able to claim a lien on the future rent receipts. In certain
circumstances, where the services of the letting agent are required for the future
management of the property and the amounts are not significant, it might be
preferable to permit such deduction as being in the best interests of the creditors.
Deposits
30.61 Rent deposits
It is a common requirement of an AST agreement that the tenant pays a security
deposit to the landlord. The security deposit is a refundable charge and is usually
one months rent. The deposit will normally be held to protect the landlord against
any damage caused by the tenant during the tenancy.
Tenants have a responsibility to make sure that the property is in as good a condition
when they move out as it was when they moved into it, subject to normal/fair wear
and tear. When the tenant leaves, the landlord is entitled to check the condition and
contents of the property, and if all is well the full amount of the deposit should be
returned to the tenant. Where damage, other than usual wear and tear, has occurred
the landlord may be entitled to withhold all or part of the deposit to restore the
property to the original position.
30.62 Tenancy Deposit Scheme
Where the tenancy agreement has been entered into after 6 April 2007, the landlords
must protect the deposit within a tenancy deposit scheme. This applies to all AST
agreements where the annual rent does not exceed £25,0001. The deposit must be
protected within 14 days of the landlord receiving it.
If the landlords reside in the same property as the tenant, the tenancy cannot be an
AST and so any deposit taken in these situations does not need to be placed in a
tenancy deposit scheme (see paragraphs 30.71 to 30.73) on licences).
For further information on tenancy deposit schemes see chapter 29.
1. Housing Act 2004 section 213
30.63 Deposits taken when both joint owners
bankrupt
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Where both joint owners are bankrupt, legally it remains the responsibility of those
joint owners as landlords to protect the deposit. The joint owners should be left to
arrange any inspection of the property and the return of the deposit to the tenant. If
the deposit monies are not protected, the tenant will have a claim in the bankruptcy
proceedings1. As the bankrupts remain responsible for the tenancy, the official
receiver should not take control of the deposit.
1. Section 382
30.64 Deposits taken when remaining solvent
joint owner
Where there is a solvent joint owner who is also landlord, both the joint owners
remain jointly and severally liable for the deposit to the tenant. If the deposit monies
are not protected, the solvent joint owner will be liable for the repayment of the
deposit, and the tenant will also have a claim in the bankruptcy proceedings1. As the
bankrupt and the joint owner remain responsible for the tenancy, the official receiver
should not take control of the deposit.
1. Section 382
30.65 Disputes over return of deposit
If an agreement about how much of the deposit should be returned cannot be
reached, tenancy deposit schemes offer a free service to help resolve disputes.
Dealing with disputes and the return of the deposit remains the responsibility of the
bankrupt(s) and any joint owner.
Deciding how to proceed with property
30.66 Decision on receipt of initial information
Where possible the official receiver, as trustee, needs to obtain sufficient information
to make an immediate decision on how to best proceed with the property.
The official receiver should attempt to ascertain:
•
information from the mortgagee to ascertain whether the mortgagee intends to
appoint a Law of Property Act receiver or to take possession of the property, see
paragraphs 30.68 and 30.69
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•
information in relation to any charges on the property and a value of the property to
ascertain whether there is any equity in the property
30.67 Information to establish whether
property is onerous is not needed
The official receiver, as trustee, cannot disclaim a jointly owned property as the legal
title remains vested in the joint owners (see paragraph 30.12), and it is unlikely that
the bankrupt’s beneficial interest, which will vest in the trustee, will be onerous.
Therefore the official receiver should not make enquiries of the bankrupt, any solvent
joint owner or the tenant at the initial stages regarding any onerous obligations which
the bankrupt(s) may have.
The decision as to whether or not to disclaim the bankrupt(s) beneficial interest still
lies with the official receiver as trustee, see paragraphs 30.182 to 30.195.
30.68 Information in relation to the
mortgagee’s intentions
To assist the official receiver on their appointment as trustee, the official receiver,
should ascertain if the mortgagee intends to appoint a receiver of rents or commence
possession proceedings in relation to the property.
If the mortgagee intends to appoint a receiver of rents or take possession quickly
then without more, it is unlikely that an insolvency practitioner trustee will be
appointed in the place of the official receiver, unless there is significant equity in the
property.
30.69 Receiver of rents already appointed
If a receiver of rents has been appointed then a letter should be sent to the
mortgagee asking for a copy of the document of appointment. The receiver should
be informed that as the property is jointly owned, the legal interest in the property
and tenancy agreement do not form part of the bankruptcy estate, and that any
future queries regarding the tenancy agreement should be addressed to the
bankrupt(s). The letter should also state that as the official receiver considers that
the mortgagee has the right to receive the rent and the bankrupt(s) do not act as
landlords they will be taking no further action.
30.70 Interaction with income payments
agreement/order (IPA/IPO)
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All income receivable from an AST agreement forms part of the beneficial interest
that will vest in the official receiver as trustee of the bankrupt’s estate. Investment
income which forms part of the beneficial interest cannot be treated as the
bankrupt’s income for IPA/IPO purposes as it will vest in the trustee and should
therefore be collected by the official receiver as trustee. All rent and other income
from an investment property should be apportioned between the bankrupt and joint
owner and the bankrupt’s share collected from the bankrupt by the official receiver in
accordance with the guidance contained in paragraphs 30.105 to 30.109. See
chapter 35 for guidance on IPA/IPOs.
Lodgers and occupation under licence
30.71 Income from a lodger
Income received by the bankrupt from a lodger residing in the bankrupt’s property
under licence, does not form part of the beneficial interest and so does not vest in
the official receiver if they become trustee. This is because a licence is not a
property right, but is an agreement between the licensee and licensor. Such a
licence cannot be sold. If the property were to be sold, the licence would terminate.
Payments made by a lodger should be classed as income when calculating the
disposable income of the bankrupt for the purposes of an IPA/IPO, see chapter 35.
30.72 Occupation of property under licence
A licence is not a type of tenancy agreement (which is a property right), instead it is a
contractual right to occupy space for a period of time. A licence does not give the
tenant any legal interest in the land; it is simply the permission to occupy the land for
an agreed term and will usually come about when there is no right to exclusive
possession. When someone lets a room in their house out to a lodger, this is under
licence rather than a tenancy. The main difference between a tenancy and a licence
is that as a tenancy gives the tenant an interest in the land that interest is binding on
any subsequent purchaser of the property. With a licence, if the landlord sells the
property, then the tenant no longer has any right to occupy, as their agreement was
with the landlord, and not attached to the land1.
1. Ashburn Anstalt v WJ Arnold & Co [1988] 2 WLR 706
30.73 AST requires there to be exclusive
possession
--- PDF page 26 ---
The general rule as to whether an arrangement is a tenancy or a licence is whether
the occupier has a right of exclusive occupation, that is, whether they can keep other
people, including the landlord, (unless the landlord is exercising rights to enter under
the terms of the tenancy) out of defined premises. There can be no tenancy without
the granting of exclusive possession. This means that a tenancy can only be granted
over whole lockable premises rather than just a room in a home which the landlord
has promised not to enter; the ability to secure the premises is essential in defining
exclusive possession. Also see paragraphs 30.15 to 30.20 regarding joint AST
agreements where more than one person rents a property.
Insolvency practitioner appointments
30.74 Tenanted property with equity
Where the only asset in a case is a tenanted property with sufficient equity, then an
appointment of an insolvency practitioner trustee should be sought as soon as
possible. Where there are other assets in a case which would attract an insolvency
practitioner along with a tenanted property, then an appointment should be sought
via the Secretary of State rota (See chapter 45). An appointment of a trustee may be
considered urgent if the property (including the AST agreement) can be regarded as
an asset in jeopardy. When dealing with jointly owned tenanted property, the
bankrupt and joint owner remain as landlords with the ability to deal with the property
including collecting the rent and ending the tenancy. There is a risk that the
bankrupt(s) will not cooperate in handing over their rent, and so an early insolvency
practitioner appointment is considered to be the most appropriate course of action.
A mortgagee in relation to the property should be given seven days to reply to the
initial enquiry letter (see paragraph 30.50) as to whether or not they wish to appoint a
receiver of rents or to take possession proceedings in relation to the property. If the
mortgagee has not replied within seven days, the letter should be followed up with a
telephone call to be certain that the mortgagee has been given sufficient opportunity
to consider the contents of the letter prior to an insolvency practitioner being
appointed trustee.
An insolvency practitioner appointment may be appropriate even if the mortgagee
has indicated that they are going to appoint a receiver of rents or take possession
(see paragraph 30.53) if they have not indicated when they will take that action
although this state of affairs should be explained to the insolvency practitioner
nominee when they are offered the case.
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30.75 Tenanted property with little of no
equity
Where the initial enquiries made by the official receiver establish that the property
has no or very little equity, then the case could still be offered to the next insolvency
practitioner on the rota. An insolvency practitioner may accept the appointment
purely on the basis of the bankrupt’s share of the profits from the ongoing rental
income and possible future increases in property prices.
If the mortgagee has indicated that they are going to appoint a receiver, then the
case should not be offered to an insolvency practitioner.
30.76 Providing information to insolvency
practitioner
When an insolvency practitioner accepts an appointment, as trustee, then it is not
necessary to send any (further) initial letters to third parties. The insolvency
practitioner should be provided with a copy of the tenanted property questionnaire
(ORTPQ) relating to the property as a matter of urgency so that they are in
possession of all relevant information relating to the property and the tenancy
agreement.
Duty of care
30.77 Duty of care to visitors and trespassers
A duty of care is owed between an occupier of premises and their lawful visitors1,
and an occupier also owes a limited duty of care to trespassers2. The question of
who is an occupier depends upon the particular facts of each case but generally it
would be the person who is in actual occupation for the time being, or who has
possession or physical control of the premises. Accordingly, it will normally be the
tenant that has the duty of care.
The official receiver should establish whether or not public liability insurance is held
by the bankrupt(s), as landlord, and should ensure that where all joint owners are
bankrupt, such insurance is put in place where none is in existence, see paragraphs
30.32 to 30.36. When both joint owners are bankrupt it could be argued that the
official receiver is in control of the premises and so liable for any breach of the duty
of care, legal action could then be taken against the official receiver as trustee.
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Where there is a remaining solvent owner, that person would be liable for any breach
of the duty of care as they would be in control of the premises with the official
receiver’s interest only being in part of the beneficial interest rather than the full
beneficial interest.
1. Occupiers Liability Act 1957 section 2
2. Occupiers Liability Act 1984 section 1
30.78 Duty of care in relation to defective
premises when bankrupt is a landlord
In all cases where the insolvent and joint owners are a landlord there is likely to be a
duty of care upon them in relation to defective premises1. Legislation provides that a
duty of care is owed by a landlord to visitors, and possibly trespassers, where the
premises are let under a tenancy agreement, which places the landlord under an
obligation to the tenant for the maintenance or repair of the premises or where the
landlord has the right to enter the premises and carry out such repairs. The duty
arises when there has been a breach of that obligation to repair (or failure to
exercise the right of repair) which has led to the defect in the premises which caused
an injury to, or damage to the property of, the tenant or visitor or any other person
who might reasonably be expected to be affected by defects in the premises. This
duty only applies if the landlord knew, or ought in the circumstances to have known,
of the relevant defects. When both joint owners are bankrupt it could be argued that
the official receiver is in control of the premises and so liable for any breach of the
duty of care, legal action could then be taken against the official receiver as trustee.
See chapter 11 for more information.
The official receiver should ensure public liability insurance is held by the
bankrupt(s), and if not, it should be obtained as a matter of urgency on all tenanted
properties when all joint owners are bankrupt, see paragraphs 30.32 to 30.36 for
further information.
1. Defective Premises Act 1972 section 4
Collection of rent
30.79 Calculating the bankrupt’s share of
rental profits
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The official receiver, as trustee, will need to calculate how much of the bankrupt’s
share of the rental income they are entitled to as trustee. This should be calculated
as the total rent paid by the tenant less any allowable direct costs covering the
landlord’s obligations to arrive at a net profit figure. Further information on calculating
this figure is provided from paragraph 30.109.
30.80 When to commence collection of the
bankrupt’s share of rent
The official receiver, as trustee, should collect the bankrupt’s share of the rent less
direct costs from the bankrupt as soon as they become trustee. The bankrupt’s share
of the rent should be collected in full from the date of the bankruptcy order, including
any arrears arising prior to the order, if received by the bankrupt after the making of
the bankruptcy order (see paragraph 30.85). The official receiver should ensure that
any rent that was held by the tenant or letting agent is also accounted for.
The bankrupt’s share of the profits from rental income should be collected whether
there is a current AST agreement in place or not. But an invalid tenancy should not
be validated by this action, were that to be possible to avoid.
30.81 Collection of bankrupt’s share of rent
when fixed term of AST has expired
A tenancy is still current if an AST has ended but the landlord has allowed it to
continue verbally, as by default, the tenancy continues as a statutory periodic AST
with the same terms and conditions as the former agreement1 (see chapter 29). In
this situation the bankrupt’s share of the rent should continue to be collected.
1. Housing Act 1988 section 5
30.82 When collection of the bankrupt’s share
of rent should cease
The official receiver should only cease to collect the bankrupt’s share of the rent after
allowing for direct costs in the following circumstances:
•
when the mortgagee appoints a receiver of rents (see paragraph 30.174 to 30.180)
•
when the mortgagee takes possession (see paragraph 30.163 to 30.173)
•
when the bankrupt’s beneficial interest in, or the property itself is sold to a third party
(see paragraphs 30.151 to 30.162)
The official receiver, as trustee, should continue to collect the bankrupt’s share of the
profits from the rental income even after the bankrupt receives their discharge as the
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bankrupt’s beneficial interest in the jointly owned property and the tenancy
agreement are assets that vest in the official receiver as trustee from the date of the
bankruptcy order.
30.83 Collection of bankrupt’s share of rental
profits whilst awaiting mortgagee’s reply
The bankrupt’s share of the rental income should be collected by the official receiver,
as trustee, in the circumstances detailed in paragraph 30.80 whilst waiting for the
mortgagee to reply or to take other action. The mortgagee does not have any right to
the rent until it either a) enters into possession of the property or b) appoints a
receiver of rents. In the meantime, the bankrupt’s share of the profits from the rental
income should be collected for the benefit of the bankrupt’s estate.
30.84 Need for timely collection of bankrupt’s
share of rent
The official receiver should not allow the profits from rental income to build up over a
period of time but instead should arrange to collect the monies on a monthly basis
(or for the same period referred to in the AST). If the mortgagee appoints a receiver
of rents or enters into legal possession of the property, the receiver will be entitled to
collect any rents that have yet to be collected by the official receiver, including any
arrears, and consequently this rental income would be lost to the bankruptcy estate1.
See paragraph 30.169.
1. Law of Property Act 1925 section 190(3)
30.85 Rent arrears
When dealing with a jointly owned property where the tenant is in arrears of rent at
the date of the bankruptcy order, it remains the bankrupt and joint owner’s
responsibility to collect those arrears. This is because the monies are due to the
landlords under the tenancy agreement which is not an asset that vests in the
trustee. It is the beneficial interest in the property which vests in the trustee, which
includes any rental profits under the terms of the AST agreement.
Where rent arrears are collected by the bankrupt and joint owner, the official
receiver, as trustee, should then claim the bankrupt’s share of those arrears after
allowing for the payment of any direct costs, see paragraphs 30.105 to 30.130 on
allowable costs.
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30.86 How to collect the bankrupt’s share of
rent
The official receiver should collect the bankrupt’s share of the rental profits by
requiring the bankrupt to send the monies to them on a monthly basis (or a different
period of time depending on the terms of the AST) along with a copy of any receipts
for deductions made from the rental income. If a letting agent has been used to
collect the rent, ideally the bankrupt’s share of the net rent should be remitted to the
official receiver by the agent (as this affords greater protection in its collection).
30.87 How to account for rent collected
All of the bankrupt’s share of rental profit collected by the official receiver, as trustee,
in respect of a jointly owned tenanted property should be banked in the estate
account in the usual manner. This applies even where the bankrupt is the joint owner
of more than one tenanted property. It is the responsibility of the local office to
ensure that the profits from the rental income due in relation to a particular tenanted
property have been received.
To ensure that the official receiver can account for the amount of the
bankrupt’s share of rental profits received in respect of each property, a schedule of
payments received should be kept. Information relating to expenses considered
allowable in respect of each property should also be retained on the schedule. This
information is necessary to assess whether a property interest is a valuable asset or
onerous, leading to the possibility of it being disclaimed.
30.88 Deposit to be held in a tenancy deposit
scheme
The bankrupt and joint owner must ensure that where a deposit was taken after 6
April 2007 and it has been retained, that it is preserved in one of the government
schemes for rental deposits (see paragraphs 30.61 to 30.65). If the bankrupt has
retained a deposit in a bank account rather than a proper scheme, then the official
receiver, as trustee, should release the funds to the joint owner for securing (see
following paragraph)
All reasonable costs associated with maintaining the tenant’s deposit in a tenancy
deposit scheme should be allowed as a deduction from rental income.
30.89 Official receiver to release any deposit
held by bankrupt
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The official receiver should ensure that where a deposit is held by the bankrupt
(other than in a deposit scheme), and these monies can clearly be identified as the
original deposit money at the date of the order, then the monies should be released
to the solvent joint owner to protect. Where both joint owners are bankrupt, then the
deposit will need to be released to the bankrupts with a letter informing the bankrupts
that they have a responsibility as landlords to place the monies in a recognised
deposit scheme. The letter should be copied to the tenant so that the tenant knows
that the monies have been returned to the bankrupts.
30.90 Responsibility for repairs and
maintenance of the property
The official receiver is not responsible for any repairs or maintenance of the property.
These remain the responsibility of the bankrupt and joint owner as landlords. When
calculating the amount of the bankrupt’s beneficial interest in the rent, deductions
can be allowed for actual costs of repairs and maintenance carried out by the
landlords.
30.91 Local Authority action against
hazardous property
The Housing Act 2004 provided for a new system of assessing the condition of
residential premises. A local authority must review the housing conditions in their
area and if they consider a property should be inspected with a view to determining
whether a hazard exists, they must arrange for such an inspection to take place1.
If a Local Authority inspects a property and finds it to be dangerous, it can take
enforcement action by serving improvement notices, prohibition orders, or hazard
awareness notices. There are also emergency measures that may be taken, or in
worse case scenarios, slum clearance declarations or demolition orders may be
obtained. Generally, a notice will firstly require the landlord to put the hazard right2. If
the official receiver is notified of or served with one of the above notices, they should
write back notifying the authority that as the property is jointly owned, only the
bankrupt’s beneficial interest vests in the official receiver, and that the bankrupt and
joint owner remain responsible for the property. A copy of the correspondence
should be sent to the other joint owner/owners.
Where the bankrupt receives such a notice, an allowance should be made for the
bankrupt to pay for the costs of rectifying the hazard from the rent.
1. Housing Act 2004 sections 1 to 4
2. Housing Act 2004 sections 5 to 10
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30.92 Property cannot be claimed as exempt
As a jointly owned tenanted property is considered to be an ‘investment’ rather than
a business (see paragraph 30.13), the ‘tool of the trade’ exempt property provisions
are not applicable1. Any other items used for the purposes of the investment (for
example furniture in furnished rented property), cannot be claimed by the bankrupt
as exempt property, as they are not required to meet a basic domestic need of the
bankrupt or their family. The only exception to this would be where the bankrupt’s
spouse, civil partner, ex-spouse or ex-civil partner was living in the rented property
as a tenant (see paragraph 30.48).
It can also be argued that the property is not ‘necessary to the bankrupt for use
personally’, as with a business that provides equipment for hire. See chapter 24 for
further information.
1. Section 283(2)
Leaseholds, ground rent, and service
charges
30.93 Dealing with leaseholds that are
tenanted
When the official receiver encounters property owned by the bankrupt on a jointly
owned leasehold basis, which has subsequently been let out on an AST, there are
very few differences to dealing with jointly owned freehold property. When the
leasehold property is jointly owned, the legal title does not vest in the official receiver
as trustee, and so it is not the official receiver’s responsibility to determine whether
the lease allows the bankrupt to sub-let the property or not.
30.94 Ground rent on leasehold property
When dealing with jointly owned leasehold property, the lease usually contains a
requirement to pay ground rent, either annually or monthly. It is effectively a rent
charge for the underlying freehold land where the leasehold is situated. The official
receiver, as trustee, should allow the ground rent as a deduction from the rental
income when calculating the bankrupt’s beneficial interest in the AST on a jointly
owned leasehold property.
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30.95 Service charges on leasehold property
Service charges are a requirement to pay, for example, for the upkeep of a
communal area, and are often payable on flats owned on a leasehold basis. Service
charges should be allowed as a deduction from the rent by the official receiver, when
calculating the bankrupt’s beneficial interest as trustee.
Taxation
30.96 Taxation of profits
Any profits from renting out a property are taxable and are treated as income for
income tax purposes, see chapter 59. Generally speaking, profits are considered to
be all rental income received less all allowable expenses (as specified by HM
Revenue and Customs on Directgov. Where a tenanted property is jointly owned, it
is the obligation of the bankrupt, and the joint owner, to account for the tax due to
HM Revenue and Customs from the rental income. Taxation is an allowable cost by
the bankrupt when accounting to the Official Receiver, as trustee, for their share of
the profit.
30.97 Taxation due when two or more parties
are landlords
When the property being rented out is owned and rented out by two or more
individuals, the tax due is on the profits each individual has earned. On the tax
return, each individual should show their share of the rental income and expenses
and their share of the profit or loss.
When dealing with jointly owned property, any solvent joint owner will be responsible
for their own tax return accounting for their share of the rental profit, and the official
receiver should submit a tax return on behalf of the bankrupt for the rental income
and profit received from the bankrupt’s beneficial interest.
30.98 Accounting for taxation on rental
income
As explained in paragraph 30.13, property letting is not considered to be a trade by
HM Revenue and Customs, but is considered an investment, and the official receiver
must account to HM Revenue and Customs for tax due on any investment income
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(see chapter 59). Rental income is not classed as 'earnings' and so is not subject to
National Insurance Contributions. The official receiver, as trustee, should complete
the tax return for the bankrupt’s share of the rental income and profit. Tax returns are
due by 31 January in the year following the end of the tax year. All rental income is
accounted for on a standard tax period of 6 April to 5 April. Therefore if the
bankruptcy order was made on 2 May 2009, income tax is due from the official
receiver on any income received in the tax year 6 April 2009 to 5 April 2010, and the
tax return and payment would be due by 31 January 2011.
For further information see the HM Revenue and Customs website
30.99 Allowable deductions for taxation
purposes
Should the official receiver need to complete a tax return for the bankrupt, the official
receiver will need to provide a breakdown of the rent received by the bankrupt, the
allowable deductions made, and the final rental profits paid to the official receiver.
The bankrupt is asked to provide copy receipts for any deductions made from the
rent in the letter sent to the bankrupt.
Allowable deductions from rental income for taxation purposes are based on actual
expenses incurred in that taxation period. Note it is the period the expense was
incurred in or invoiced in and not the date it was actually paid that is relevant for tax
purposes. Deductions from rental income are allowed for:
•
letting agent's fees
•
building and contents insurance
•
maintenance and repair costs (but not improvements)
•
rent, ground rent and service charges
•
utility bills (such as gas, water, electricity)
•
council Tax
•
services the landlord pays for (such as gardening or cleaning)
•
legal fees (for drafting tenancy agreements etc)
•
accountant's fees
•
interest on property loans (mortgages)
•
other direct costs of letting the property such as stationery, advertising, telephone
calls
If the annual rental income received is less than £15,000 before deducting expenses,
then only the total for the expenses needs to be entered onto the tax return and not a
breakdown of each expense. See working out your rental income for more
information on allowable expenses.
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30.100 Calculating taxation – bankrupt owns
more than one property
When the bankrupt has more than one tenanted property, all the rental income
received should be added together for taxation purposes. Income tax is due on the
rental income due in the relevant period minus allowable deductions (see paragraph
30.99). All of the rental income for that period is added together and then all of the
allowable expenses are added together and deducted from the income figure,
leaving the amount of net profit made in that period. Tax is payable on the net profit.
A loss from one property can be offset against the profit from another property.
30.101 Taxation - Rent a room scheme
When the bankrupt is renting out a room in their home (under a licence rather than
tenancy agreement, see paragraphs 30.71 to 30.73), then tax is not payable
provided the total income generated is £4,250 or less a year. This includes rent and
any other income paid by the lodger for meals, bills etc. Tax is only payable on
anything received above the £4,250 allowance. This allowance will still apply to the
official receiver (see chapter 59).
30.102 Taxation - Holiday lets, letting overseas
property
Holiday lets and foreign letting taxation is generally calculated in the same way as for
AST’s. Tax is payable on income from overseas property whether or not the money
received in rent is brought into the UK. Holiday lets are now treated the same for tax
purposes as residential lettings – prior to 6 April 2010, a capital allowance for the
replacement of furniture was available. The landlord can now only claim a wear and
tear allowance of 10% of net rent, which is claimable on all furnished lettings.
See working out your rental income for more information. With foreign property, the
income needs to be declared on the foreign pages of the tax return. Where more
than one foreign property is held, it is classed as one business, and all foreign rental
income and deductions are taken together. Where a UK rental property is also held
this is kept separate from overseas property, and they are treated as two separate
businesses for tax purposes.
30.103 VAT
A property investment business does not need to register for VAT, as the letting of
residential property is an exempt supply for VAT purposes. The letting of holiday
accommodation is standard rated for VAT (currently payable at 17.5% of all taxable
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supplies), although it is unlikely to reach the threshold for compulsory registration. In
the tax year 2009/2010, the threshold for compulsory registration was £68,000. See
the Directgov website for further information on VAT.
30.104 Taxation records
The official receiver needs to keep all records for the rental income received for 6
years after the tax year they are for. This should include any papers relating to the
calculation of the bankrupt’s beneficial interest in a property and the AST and papers
relating to receipts of rental profit from the bankrupt, and LOLA records that have
been provided to, or generated by the official receiver.
Calculating a bankrupt’s beneficial
interest in a jointly owned tenanted
property
30.105 What is the bankrupt’s beneficial
interest?
The interest of the official receiver, as trustee, in a jointly owned tenanted property
where there is a jointly owned AST agreement, is limited to the bankrupt’s beneficial
interest, see paragraph 30.9. This beneficial interest comprises the bankrupt’s
interest in the proceeds of sale on the reversion of the freehold/leasehold at the end
of the tenancy and the bankrupt’s share of any profits from the AST.
30.106 Calculating the bankrupt’s share of
beneficial interest
The interests of the parties in a jointly owned property are normally declared in the
conveyance or in a trust deed executed at the time of the purchase of the property.
HM Land Registry has, since April 1988, provided a box on the relevant form (note
Form TR1) for the transferees to declare how the beneficial interest in a property will
be held. Generally where the property is a jointly owned property it defaults to a
beneficial joint tenancy. Such declarations are conclusive of the interests of the
parties unless there has been a mistake or fraud.
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The usual declaration will be that the bankrupt and the joint owner are joint trustees
of the property in equal shares. When dealing with a property owned by two joint
owners, of which only one is subject to bankruptcy, unless evidence is shown to the
contrary, the official receiver as trustee should claim 50% of the rent after the direct
costs of the AST have been paid. If one party claims a larger share of the beneficial
interest it is for that party to produce evidence to show that the original intention of
an equal split of the beneficial interest has changed or did not accurately reflect the
intentions at the date of purchase1, 2. Case law indicates that it will be an exceptional
case where the beneficial interest was found to be different to that originally
intended.
1. Stack V Dowden [2007] BPIR 913
2. Kernott V Jones [2010] ALL ER (D) 244
30.107 Expenditure post bankruptcy order to
be taken into consideration
On the making of the bankruptcy order the beneficial interest in the property will be
severed and any increase in value of the property as a result of expenditure by a
solvent joint owner should be taken into account to calculate the respective
beneficial interests of the parties1.
1. Re Pavlou (a bankrupt) [1993] 3 All ER 955
30.108 Calculating the bankrupt’s interest in
property – equity in property
In order to calculate the bankrupt’s beneficial interest in the jointly owned tenanted
property, the official receiver, as trustee, will need to establish the amount of any
equity in the property. The official receiver should obtain a valuation of the property
from the bankrupt and consider the accuracy of the valuation taking into account the
property market and their own knowledge of housing prices in the area concerned
(see also chapter 28). In calculating the bankrupt’s interest in a property,
consideration should be given to the amount due in respect of mortgage loans or
charges and other debts secured on the bankrupt’s interest in the property. Any
interest in an assigned endowment policy must also be taken into account when
calculating the interest.
30.109 Calculating the bankrupt’s beneficial
interest in an AST
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The official receiver, as trustee, will also need to calculate how much of the
bankrupt’s share of the rental income from a jointly owned tenanted property that
they are entitled to collect as trustee. This should be calculated as the total rent paid
by the tenant less any allowable direct costs (see paragraphs 30.106 to 30.128)
covering the landlord’s obligations to arrive at a net profit figure.
The total net figure should then be divided into the appropriate percentage between
the joint owners depending on the percentage of the beneficial interest each joint
owner is entitled to (see paragraph 30.106).
30.110 Landlord duties under an AST
The bankrupt and joint owner retain all of the landlord’s obligations as an AST
granted on a jointly owned property does not vest in the official receiver as trustee1.
These obligations are prescribed by the tenancy agreement and legislation, and are
considered to be allowable direct costs of the tenancy agreement. Under an AST the
landlord’s obligations will usually be to:
•
allow the tenant peaceful enjoyment of the property2 (see chapter 29)
•
hold any deposit paid by the tenant in a government authorised tenancy deposit
scheme (see paragraph 30.111)
•
insure the property and any fixtures or furniture provided by the landlord, and provide
a copy of the insurance policy to the tenant (specific landlord insurance including
public liability is needed, see paragraph 30.112). This should already be in place so
a copy of the policy should be obtained, held, and renewed if it expires
(see paragraphs 30.32 to 30.36)
•
keep the exterior structure in good repair and repair and keep in good working order
the installations in the property relating to heating, gas and sanitation3 (see
paragraphs 30.113 to 30.121)
•
comply with Gas Safety (Installation and Use) Regulations 1998 to have a gas safety
check on the property annually4 (see paragraph 30.122)
•
ensure smoke alarms are fitted on each storey and a carbon monoxide alarm in each
room in which solid fuel is used5 (see paragraph 30.123)
•
ensure the electrical installation complies with legislation (a certificate is valid for
between 1 and 5 years, depending on the electrician’s recommendations)6, 3 (see
paragraph 30.124)
•
if it is a furnished let, ensure furnishings comply with fire safety regulations7, 8 (see
paragraph 30.125)
1. Landlord and Tenant (Covenants) Act 1995 section 3(1)(b)
2. Markham v Paget [1908] 1 Ch 697
3. Landlord and Tenant Act 1985 section 11
4. Gas Safety (Installation and Use) Regulations 1998 regulation 36
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5. Smoke and Carbon Monoxide Alarm (England) regulations 2015
6. Electrical Equipment (Safety) Regulations 1994
7. Consumer Protection Act 1987 section 11 and 46
8. Furniture and Furnishings (Fire Safety) Regulations 1988
30.111 Costs of maintaining deposit
The bankrupt and joint owner must ensure that where a deposit was taken since 6
April 2007 and it has been retained, that it is preserved in one of the government
schemes for rental deposits. All reasonable costs associated with maintaining the
tenant’s deposit in a tenancy deposit scheme should be allowed as a deduction from
rental income.
30.112 Landlord’s obligation to insure
The bankrupt and joint owner remain responsible for obtaining landlord’s insurance
(see paragraph 30.32), and all reasonable costs of obtaining and continuing suitable
landlord’s insurance should be allowed as a deduction from rental income.
30.113 Landlord’s responsibility for repairs
under the Landlord and Tenant Act 1985
Repairs of a cosmetic nature, such as redecorating, should not be considered as
being essential. The landlord’s responsibility in relation to repairs to a tenanted
property is provided for in legislation1 and includes;
•
to keep in good repair the structure and exterior of the property (including drains,
gutters and external pipes)
•
to keep in repair and proper working order the installations in the property for the
supply of water, gas and electricity and for sanitation (including basins, sinks, baths
and sanitary conveniences, but not other fixtures, fittings and appliances for making
use of the supply of water, gas or electricity)
•
to keep in repair and proper working order the installations in the property for space
heating and heating water (the heating including pipes, radiators and boiler)
If the tenancy agreement contains a covenant that the tenant be responsible for
these things rather than the landlord, it has no effect2.
In determining the standard of repair required, regard must be had to the age,
character and prospective life of the property and locality in which it is situated3.
Repairs of a cosmetic nature, such as redecorating, should not be considered as
being essential.
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1. Landlord and Tenant Act 1985 section 11
2. Landlord and Tenant Act 1985 section 11(4)
3. Landlord and Tenant Act 1985 section 11(3)
30.114 Repairs required under an AST
Reference should be made to the terms of any AST agreement in place to see if
there are any further repairs specified in the agreement that the landlord is
responsible for according. For example, this may include arranging for an alarm
service engineer to attend and rectify a fault in a burglar alarm system fitted to the
property. The cost of rectifying the fault should be met from the rental income.
30.115 Allowing for repairs and maintenance
The following paragraphs give some guidance on what type of repairs are
considered essential for the bankrupt and joint owner to arrange and so what type of
repairs should be an allowable deduction, by the official receiver as trustee, from
rental income prior to calculating the bankrupt’s share of rental profit.
30.116 Repairs that are not necessary
Where one of the repairs referred to in paragraph 30.113 above is required under
'the landlord's repairing covenant', it is not, however, to be construed as requiring the
landlord1;
•
to carry out works or repairs for which the tenant is liable by virtue of their duty to use
the premises in a tenant-like manner, or would be so liable but for an express
covenant on their part
•
to rebuild or reinstate the premises in the case of destruction or damage by fire, or by
tempest, flood or other inevitable accident; or
•
to keep in repair or maintain anything which the tenant is entitled to remove from the
property
For a definition of covenant, see paragraph 30.6.
1. Landlord and Tenant Act 1985 section 11(2)
30.117 Repairs needed – case law
The repair of the structure and exterior includes the reinstatement of decorations
damaged by the work of repair1, but not damage to decorations and furnishings
caused by condensation which was not due to structural damage2. Saturation of the
plaster is considered to be damage to the structure3.
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'The structure of the dwelling house' has been said to 'consist of those elements
which give it its essential appearance, stability and shape' but not to extend to 'the
many and various ways in which the dwelling house will be fitted out, equipped,
decorated and generally made to be habitable'; it is not limited to load-bearing
elements; it does not include a separate garage, gates, internal plaster and door
furniture but does include windows, including their sashes, cords, frames and
essential furniture4. Floor joists included in the lease of the flat were part of the 'main
structure' of the building and so within the landlord's repairing obligations5.
In addition, repairs to slabs in a back yard were found to not be covered6.
1. McGreal V Wake (1983) 13 HLR 107
2. Quick v Taff-Ely Borough Council [1986] QB 809
3. Staves v Leeds City Council (1990) 23 HLR 107
4. Irvine v Moran (1990) 24 HLR 1
5. Marlborough Park Services Ltd v Rowe [2006] EWCA Civ 436
6. Hopwood v Cannock Chase District Council [1975] 1 All ER 796
30.118 Paying for repairs and other essential
costs
The bankrupt cannot claim an allowance from future rent to refund the costs of
repairs already paid for prior to the bankruptcy order. Only payments made after the
date of the bankruptcy order should be allowed to be deducted from the rent
received from the tenant post bankruptcy.
The bankrupt cannot claim monies that have already been paid into the estate
account back from the official receiver towards future expenses. Instead the
bankrupt should be allowed to deduct the monies from future rental payments until
sufficient funds have been recovered to pay for the expenses.
30.119 When joint owners cannot afford or
refuse to pay for repairs
Where the bankrupts or a bankrupt and solvent joint owner either cannot afford to
pay for repairs or refuse to pay for repairs, the official receiver, as trustee, is not
required to provide any funds already collected as rental profit towards the cost of
repairs. The bankrupt’s share of rental profits which have already been collected are
held for the benefit of creditors and there is a risk that if the official receiver releases
some of these funds, it will put the creditors in a less favourable position. The
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bankrupt and any joint owner are legally responsible for the property and any repairs,
and the official receiver is not liable if the repairs are not carried out.
30.120 Example of allowance for repairs
A tenant is paying £500 a month rent to 2 joint owners, one of whom is bankrupt.
After allowing for monthly insurance and letting agent’s fees, the net income is £400,
of which the bankrupt is entitled to £200 a month which they paying to the official
receiver, as trustee of their bankruptcy estate, as their share of the beneficial
interest. The bankrupt notifies the official receiver that the boiler needs repairing at a
cost of £1,000, and provides a written quotation to evidence this. The cost of this will
be met from the next two and a half months rent (2 x £400, plus £200 in the third
month). The bankrupt would not need to send any monies in to the official receiver
for the next two months, and in the third month only £100 would be due.
30.121 Service agreements
Where the bankrupt/joint owner has maintained a service agreement on something
such as the heating system or a burglar alarm system, the official receiver should
allow the reasonable cost of maintaining that agreement as a deduction from the rent
when calculating the bankrupt’s share of rental profit.
30.122 Gas safety
The bankrupt and joint owner as landlords are required to ensure that all gas
appliances and flues are in good order so as to prevent the risk or injury to any
person lawfully occupying the premises. The official receiver should allow for the
cost of an annual safety check to be carried out by a ‘Gas Safe Register’ registered
tradesman1 (see gassafe). A copy of the issued safety certificate should be issued to
the tenant within 28 days of the check.
If the bankrupt informs the official receiver that there is no current gas safety
certificate, the official receiver should write to the bankrupt and joint owner informing
them that as landlords they are legally responsible for obtaining one. Where the
property being inspected is an average size home, (e.g. one domestic boiler, one
gas fire and one gas cooker), where the equipment passes the safety check, the cost
of obtaining a certificate should not be greater than £200.
1. Gas Safety (Installation and Use) Regulations 1998 regulation 35(2)
30.123 Smoke and Carbon Monoxide Alarms
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On 1 October 2015 The Smoke and Carbon Monoxide Alarm (England) Regulations
2015 came into force in respect of rented properties in England (for Welsh properties
see below). Private sector landlords are required from 1 October 2015 to have at
least one smoke alarm installed on every storey of their properties and a carbon
monoxide alarm in any room containing a solid fuel burning appliance (eg a coal fire,
wood burning stove). After that, the landlord must make sure the alarms are in
working order at the start of each new tenancy.
The requirements will be enforced by local authorities who can impose a fine of up to
£5,000 where a landlord fails to comply with a remedial notice.
For Welsh tenanted properties, those built since 1992 must be fitted with mains-
powered, inter-linked smoke detectors/alarms but landlords are advised to provide at
least battery operated alarms in older properties.
It remains the bankrupt and joint owner’s responsibility as landlords to ensure the
property is fitted with the appropriate smoke and carbon monoxide alarms.
Reasonable costs in relation to the supply and fitting of smoke alarms in the property
should be treated as an allowable expense.
30.124 Electrical safety
The bankrupt and joint owner as landlords are required to ensure that any electrical
system and appliances supplied is safe when a tenancy begins, and remain safe
throughout the tenancy1, 2. This is usually achieved by obtaining a periodic electrical
certificate on the property from a qualified electrician, normally every 1 to 5 years
depending on the electrician’s recommendation3.
If the bankrupt informs the official receiver that there is no current electrical safety
certificate, the official receiver should write to the bankrupt and joint owner informing
them that as landlords they are legally responsible for obtaining one. The cost of the
assessment and certificate should not cost more than £200 in an average home and
is an allowable deduction from the rental income (see paragraph 30.113).
1. Landlord and Tenant Act 1985 section 11
2. Electrical Equipment (Safety) Regulations 1994
3. Code of Practice for In-Service Inspection and Testing of Electrical Equipment
30.125 Fire safety of furnishings
Legislation provides for levels of fire resistance for domestic upholstered furniture,
furnishings and other products containing upholstery, including the measures to be
taken to improve the fire safety of materials1. Fire resistant furniture carries a symbol
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that confirms that it is fire resistant. It remains the responsibility of the bankrupt and
joint owner to ensure any furniture complies with current regulations.
Where the AST agreement is in relation to a furnished property and the
bankrupt/joint owner are aware that furniture does not reach the fire safety
requirements the costs of replacing the required furniture is an allowable cost in the
calculation of the bankrupt’s beneficial interest in the AST.
1. Furniture and Furnishings (Fire Safety) Regulations 1988
30.126 Ground rent and service charges on
leasehold property
When dealing with jointly owned leasehold property, the lease usually contains a
requirement to pay ground rent, either annually or monthly and may also require the
payment of a service charge in relation to the upkeep of communal areas (see
paragraphs 30.94 and 30.95). The official receiver, as trustee, should allow the
payment of ground rent and any service charge as a deduction from the rental
income when calculating the bankrupt’s beneficial interest in the AST on a jointly
owned leasehold property.
Ground rent differs from payments in respect of a mortgage loan secured on the
property, where the capital element of the mortgage repayment is not an allowable
cost (see paragraph 30.130 to 30.131), in that it is a requirement for payment which
is attached to the leasehold property.
30.127 Improvement notice, prohibition
orders, hazard awareness notice
Where the bankrupt and joint owner receive a notice from the Local Council1
requiring the landlord to put a hazard in relation to the property right, the cost or
rectifying the hazard should be considered as an allowable cost by the official
receiver, as trustee, in calculating the bankrupt’s beneficial interest in the tenancy
agreement (see paragraph 30.91).
1. Housing Act 1988 sections 5 - 10
30.128 Letting agent’s costs
Where the bankrupt and joint owner have employed a letting agent, reasonable costs
under the terms of the contract with the letting agent should be allowed by the official
receiver, as trustee, when calculating the bankrupt’s beneficial interest in the AST.
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Where a letting agent is acting for the landlords, the official receiver should allow a
reasonable amount as a deduction from the final rent to pay for a final inspection and
inventory (see paragraph 30.145).
30.129 Dealing with the mortgage loan
A distinction needs to be drawn between the capital repayment element on a
mortgage loan and the interest repayment element. Most jointly owned tenanted
properties are purchased as an investment and financed with a buy-to-let mortgage,
which are usually interest only mortgages. The interest only element of a mortgage
payment in respect of a mortgage loan is an expense for which the borrower
receives no benefit.
The capital element of the mortgage goes towards paying off the borrowers’ debt. As
the debt has been reduced by the same amount as the capital repayment element,
the borrowers have benefitted by that amount and at the end of the mortgage loan
period the borrowers will own the property. By contrast the interest element of the
repayment has no corresponding benefit and so it may be treated as an expense
that can be deducted from the rental payment.
30.130 Payment of capital element of
mortgage loan repayment is not an allowable
expense
The official receiver, as trustee, is able to collect the bankrupt’s share of the rent,
after deductions for the allowable costs of letting the property under an AST
agreement for the benefit of the bankrupt’s creditors. Allowable costs would include
the interest element of the mortgage repayment made but should not include any
payment in respect of the capital element of the mortgage loan payments.
This is consistent with HMRC, who allow the mortgagee interest element as an
allowable expense when calculating the tax due on a landlord’s rental profit.
30.131 Position of solvent owner
If the joint owner of a tenanted property is solvent and the bankrupt fails to pay any
mortgage loan payment due in respect of a mortgage loan on the property from their
share of the rent, then in practice the whole of the mortgage loan payment will fall to
be paid by the solvent owner.
30.132 Both joint owners bankrupt
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Where both owners of a jointly owned tenanted property are bankrupt then 100% of
the rental income, less the allowable costs of renting the property under the terms of
the AST agreement (but not the including any capital element if any payments in
respect of the mortgage loan on the property) should be collected by the official
receiver, as trustee, for the benefit of the insolvent estates.
Disposal or ending of an assured short
hold tenancy agreement
30.133 Introduction
The following guidance deals with the ending of an AST and covers ways that the
tenancy may be ended by either the tenant, mortgagee, bankrupt or joint owner. In
addition, the guidance deals with the disposal of the bankrupt’s interest in the jointly
owned property when the tenancy is continuing.
30.134 Ways that a tenancy may be brought to
an end
When the official receiver is trustee, they will, at some point, want to dispose of their
interest in a jointly owned tenanted property. An AST agreement and/or the official
receiver’s interest in a jointly owned tenanted property will be brought to an end
following the occurrence of any of the following events:
•
an insolvency practitioner is appointed as trustee (see paragraphs 30.136 to 30.137)
•
the tenant decides to leave or is evicted from the property (see paragraphs 30.138 to
30.149)
•
the official receiver, as trustee, sells the bankrupt’s interest in the property to a
solvent owner, third party or back to the bankrupt (see paragraphs 30.151 to 30.162)
•
the mortgagee takes possession action against the property (see paragraphs 30.163
to 30.173)
•
the mortgagee appoints a receiver of rents (see paragraphs 30.174 to 30.180)
•
the official receiver, as trustee, disclaims their interest in the bankrupt’s beneficial
interest in the property (exceptional circumstances only) (see paragraphs 30.182 to
30.195)
30.135 Landlord and Tenant Act 1987 and
disposal of tenanted property
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When a jointly owned property let on an AST agreement is disposed of, it is not
classed as a ‘relevant disposal’ for the purposes of the Landlord and Tenant Act
1987. Part 1 of this act gives ‘qualifying tenants’ of certain premises the right of first
refusal to acquire a landlord’s interest in premises, when a landlord proposes to
make a ‘relevant disposal’. The official receiver does not need to be concerned with
these obligations when disposing of property let on an AST because a tenant on an
assured tenancy (which includes ASTs) cannot be a qualifying tenant1 (see chapter
28).
1. Landlord and Tenant Act 1987 section 3(d)
Appointment of insolvency practitioner
30.136 General
When there is a tenanted property (with or without equity), the solvent owner or third
party has not expressed a desire to purchase the interest, and the official receiver
believes an insolvency practitioner may accept an appointment as trustee, the case
may be offered to an insolvency practitioner. Where there are other assets that
would attract the appointment of an insolvency practitioner as trustee, then the
official receiver should give consideration to seeking an appointment..
Where there are other assets that would attract the appointment of an insolvency
practitioner to act as trustee, but disputes or ongoing issues relating to the AST
agreement are ongoing, necessitating a more urgent trustee appointment, then a
Secretary of State appointment of an insolvency practitioner trustee should be
considered. See chapter 45 for guidance on Secretary of State rota appointments.
30.137 Appointment of insolvency
practitioner, mortgagee enquiries
Prior to seeking the appointment of an insolvency practitioner to act as trustee,
enquiries should be made of any mortgagee to ascertain whether they intend to
appoint a receiver of rents or to take possession proceedings in relation to the
property (see paragraph 30.50). If the mortgagee is going to take imminent action,
an insolvency practitioner is unlikely to accept the appointment unless there is
significant equity in the property or there are other assets in the bankrupt’s estate, as
any future rental income will no longer be available for collection by the trustee.
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Tenant is evicted or decides to leave
30.138 Eviction under Housing Act 1988
Section 21
Under the Housing Act 1988, a landlord who has granted an AST has a legal right to
get their property back at the end of the tenancy. To legally terminate an AST in
England and Wales at the end of a fixed term, the landlord must serve a section 211
possession notice personally on the tenant and must give the tenant a minimum of
two months notice. The notice can be served in one of two circumstances, either at
the end of the agreement or during the running of the agreement (see chapter 28),
provided that it does not seek to terminate the tenancy any earlier than the day the
agreement ends. If the tenant fails to vacate the property after proper notice,
possession action is needed to evict them. Not until an order for possession is made
by the court would the tenancy actually terminate.
As the official receiver is not the landlord of jointly owned tenanted property, they
cannot serve a section 21 notice evicting the tenant.
1. Housing Act 1988 section 21
30.139 When bankrupt or joint owner serves a
section 21 notice to quit
Where the bankrupt or joint owner serves notice on a tenant bringing a tenancy to an
end, the official receiver as trustee should continue collecting the bankrupt’s share of
the profit from the rent until the tenant vacates the property. Once the property is
empty, the bankrupt and joint owner are free to deal with the property as they wish
including entering into a new AST, moving into the property, or handing the keys to
the property to the mortgagee. The official receiver retains a beneficial interest in the
bankrupt’s share of property, which in the absence of rent, is the value of the
reversionary interest (see paragraph 30.6) in the underlying property, see guidance
from paragraph 30.105 and chapter 28 for calculating the value of a bankrupt’s
beneficial interest.
30.140 When tenant leaves before end of
tenancy agreement
If a tenant wishes to leave the property, they should give proper notice to the
bankrupt and joint owner as landlords. The notice should be in writing1 and comply
with the period specified in the tenancy agreement. If a tenant leaves without giving
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the landlord proper notice, then they are liable for the rent for the unexpired period of
the tenancy. When those monies are paid to the landlords, the official receiver, as
trustee, should claim the bankrupt’s share of the profits from the rent for the benefit
of the estate (see guidance from paragraph 30.109).
1. Protection from Eviction Act 1977 section 5(1)a
30.141 When tenant leaves after tenancy has
expired
When the initial tenancy period has expired, and the tenancy has become a statutory
periodic tenancy (see chapter 28), then the tenant should give notice of one period of
that tenancy1. A tenancy period is usually determined by the period that rent is paid
for. Thus if the rent is paid per calendar month, the tenant should give one calendar
months notice in writing to the landlord, subject to a statutory minimum of not less
than four weeks notice before the date on which it is to take effect2.
1. Lemon v Lardeur [1946] K.B. 613
2. Protection from Eviction Act 1977 section 5(1)b
30.142 When tenant leaves – retaining deposit
for rent owed
When the tenant leaves the property without giving proper notice, owing rent for the
notice period, then the bankrupt and joint owner as landlords can claim an amount
from the deposit for the outstanding rent.
When the bankrupt and joint owner recover rent from the tenant’s deposit, the official
receiver, as trustee, should claim the bankrupt’s share of the profit from that rent.
30.143 When tenant leaves – deposit
If the tenant leaves the tenanted property then the bankrupt and joint owner will need
to deal with the return of the deposit. Where damage, other than usual wear and
tear, has occurred the landlord may be entitled to withhold all or part of the deposit to
restore the property to the original position. Any deduction from the deposit is not to
compensate the landlord for damage; it is to pay to make good the damage. The
official receiver should not normally claim any portion of a deposit that is withheld by
the bankrupt and joint owner, as the monies will normally be used to affect repairs.
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30.144 When tenant leaves – tenant is creditor
for lost deposit
If the deposit has not been retained by the bankrupt or joint owner, and the tenant
vacates the property at the end of the tenancy agreement, the tenant will be a
creditor in the bankruptcy proceedings for the amount of any deposit lost (see
paragraphs 30.63 and 30.64). The solvent owner, if any, also remains jointly and
severally liable to the tenant for the lost deposit.
The tenant may attempt to withhold the last month’s rent due under the tenancy
agreement to recoup the lost deposit. As the official receiver is not the landlord, only
the bankrupt and joint owner can pursue the tenant for the outstanding rent.
30.145 Where tenant leaves – inspection
The bankrupt and joint owner may carry out or arrange for an inspection of the
property when the tenant leaves. Where a letting agent is acting for the landlords,
the official receiver should allow a reasonable amount as a deduction from the final
rent to pay for a final inspection and inventory.
30.146 When tenant leaves – insurance
position where solvent joint owner
When the tenant of a jointly owned property leaves the official receiver will need to
review the insurance position regarding the property, see paragraphs 30.32 to 30.36.
Where there is a solvent joint owner, insurance should only have been obtained by
the official receiver when there is equity in the property. When there is a solvent joint
owner, insurance remains the responsibility of that solvent owner. The official
receiver does not need to consider disclaiming the bankrupt’s beneficial interest in
the property in this instance (see paragraph 30.182).
30.147 When tenant leaves – insurance
position, both owners bankrupt
When the tenant leaves the official receiver will need to review the insurance position
regarding the property, see paragraphs 30.32 to 30.36. Where there is an empty
property in a bankruptcy estate, there are specific insurance requirements that may
necessitate an inspection and the securing of those premises. Where both joint
owners are bankrupt the official receiver will need to ascertain what public liability
insurance is in place (and buildings insurance where there is equity in the property)
(see chapter 14, annex A). Where there is no insurance in place relating to an empty
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building and the bankrupts’ have indicated it is not their intention to obtain insurance,
the official receiver will need to seek the permission of the bankrupts to gain access
to and possibly secure the property to meet insurance requirements, as the official
receiver is not the legal owner, and is unlikely to have a set of keys. This should only
be considered when both joint owners are bankrupt as only then would the official
receiver have a potential public liability risk as the owner of 100% of the beneficial
interest (see paragraph 30.33).
Insurance cover is available for unoccupied buildings from Willis Ltd, provided that
within 30 days of the building becoming unoccupied the code of practice referred to
in chapter 14, Annex A for securing that building is followed. The official receiver
should consider disclaiming the bankrupt’s beneficial interest in the property prior to
the 30 day period expiring if they decide to disclaim rather than insure the property
on an ongoing basis at a cost to the estate (see paragraph 30.148 below).
30.148 When tenant leaves – insurance or
disclaimer, both owners bankrupt
Where the property is in negative equity, both joint owners are bankrupt, and the
estate is no longer in receipt of rental income, the obligation on the official receiver to
obtain public liability insurance on the property may mean that the property has
become onerous (see paragraph 30.184). In the first instance, the mortgagee should
be asked to take responsibility for the insurance. Only if the mortgagee does not
wish to take possession of the property or obtain insurance, and where the property
has become onerous, should the official receiver, as trustee, consider disclaiming
their beneficial interest in the property to protect the estate from ongoing insurance
costs.
Where the property has some equity, both joint owners are bankrupt, and the estate
is no longer in receipt of rental income, the obligation on the official receiver to obtain
public liability insurance may not mean that the property has become onerous (see
paragraph 30.184). In the first instance, the mortgagee should be asked to take
responsibility for the insurance. Only if the mortgagee does not wish to take
possession of the property or obtain insurance, an insolvency practitioner cannot be
found to act as trustee, and where the property has not become onerous, should the
official receiver, as trustee, consider obtaining buildings and public liability insurance
on an ongoing basis. A jointly owned tenanted property is not suitable for transfer to
LTADT.
30.149 When tenant leaves – council tax
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Council tax is a tax set by local councils to help pay for local services. There is one
council tax bill for each dwelling, whether it is rented or owned. Generally speaking,
the occupier(s) of the property are the liable person(s) for payment of the tax1.
When the tenant(s) vacate(s) a property and it is left unoccupied, the legal owner is,
generally speaking, the person liable for payment of the council tax. A property is
exempt from council tax where the liable person (legal owner) is a trustee in
bankruptcy2 or the property has been taken into possession by the mortgagees (see
chapter 28)3. When dealing with jointly owned property, the official receiver only
holds the bankrupt’s beneficial interest (see chapter 28), although this is most likely
sufficient to be considered a “material interest”4 and so a jointly owned property will
be considered an exempt property and not chargeable where no one is in occupation
of the property.
1. Local Government Finance Act 1992 section 6
2. Council Tax (Exempt Dwellings) Order 1992 article 3 Class Q
3. Council Tax (Exempt Dwellings) Order 1992 article 3 Class L
4. Local Government Finance Act 1992 section 6(5) and (6)
30.150 When bankrupt and/or joint owner
moves into a previously tenanted property
Should the official receiver discover that the bankrupt or joint owner has moved into
the property without the mortgagee’s permission, then the official receiver should
write to the mortgagee informing them. There is no restriction upon the bankrupt or
joint owner moving into the property after a tenant vacates the property, provided
that the mortgagee consents. The official receiver should not get involved in any
negotiations as they do not hold the legal title to the property.
As a tenanted property would not normally be a family home at the date of the
bankruptcy order, the bankrupt’s beneficial interest will not re-vest in the bankrupt at
any point. A letter should be sent to the bankrupt and joint owner informing them that
although they have moved back in to the property, the bankrupt’s beneficial interest
will not re-vest in them but will remain as part of the bankruptcy estate until the
interest is sold1. Upon sale, any surplus will be paid to the bankruptcy estate.
If there is equity in the property it is likely that the case will have been handed over to
an insolvency practitioner to act as trustee.
1. Section 283A
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Sale of the bankrupt’s beneficial interest
30.151 General
The main point to remember when dealing with a jointly owned tenanted property is
that it is not a qualifying property under section 283A. If the bankrupt, (or their
family), did not live in it at the date of the bankruptcy order. There is no reason for
the official receiver to consider selling a tenanted property back to the bankrupt or
joint owner as a matter of routine, as they do not need it for living in.
30.152 Sale of interest to a solvent owner or
third party
The official receiver, as trustee, can sell the bankrupt’s beneficial interest in the
property to a solvent owner or third party. As a rule, and as the property is an
investment rather than the bankrupt’s home, it should only be sold if to do so would
benefit the creditors over and above what would be achieved by the official receiver
retaining the property. A sale of the bankrupt’s beneficial interest under the low cost
conveyancing scheme will not apply as it is an investment property (see chapter 28).
In the absence of alternative local arrangements, a separate quote from TLT
Solicitors (solicitors appointed by The Insolvency Service under the property
conveyancing scheme) for their fees can be obtained by the official receiver (see
chapter 28). The purchaser will either need to take out a new mortgage loan for the
purchase of the property, (where the existing mortgagee will not allow the legal title
to be sold without the mortgage loan being redeemed), or will need to take on
responsibility for the current charges secured on the property (see paragraph
30.159), depending of the circumstances of the sale.
Where the property is jointly owned by the bankrupt and another person, it is only the
bankrupt’s beneficial interest in the proceeds of sale (and rent and profits until sale)
which vests in the trustee. The legal estate remains vested in the joint owners. If the
property is to be sold, it will be necessary for the bankrupt and co-owner to convey
the legal estate under their own signatures. If, as is likely, the official receiver as
trustee is not arranging the sale, they may be asked by the solicitors dealing with the
sale to sign a deed of concurrence to confirm that, as one of the beneficial owners,
or otherwise (as necessary) in their capacity as trustee, they agree to the sale. Such
a deed is not strictly necessary but the official receiver may sign it if they are
satisfied that the sale is in order, to facilitate the sale and, in particular, that the
arrangements for the payment to them of any surplus on the sale which is due to the
estate are satisfactory. The official receiver should seek a small fee for dealing with
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the transfer, based upon their time costs, unless an asset realisation will accrue (see
chapter 48 for more information on fees)1.
1. Insolvency Regulations 1994 schedule 2, table 2 & 3
30.153 Sale to solvent owner or third party –
calculating beneficial interest
Before the transfer of the legal title or beneficial interest to a solvent owner or third
party can proceed (subject to contract), the official receiver has to agree on the value
of the interest being transferred. For details on how to calculate the bankrupt’s
beneficial interest in the property see guidance from paragraph 30.105.
30.154 Sale of beneficial interest – remaining
term of tenancy
Once the official receiver, as trustee, has established the bankrupt’s beneficial
interest in the sale proceeds of the property and has established the bankrupt’s
interest in the profits from the AST (see paragraph 30.109), consideration will need
to be given to the remaining term of the AST. The payment from the solvent owner or
third party will need to compensate the estate for the loss of this rental income. For
example if there is six months left to run on an AST and the tenant has been a
reliable payer of the rent then the official receiver should look to receive the
bankrupt’s share of the proceeds of any likely sale of the property and the profit from
that six months rent. The official receiver may consider accepting a lower amount for
the rental income as there is no guarantee that the tenant will not default on rental
payments. Ultimately, the best should be done for the creditors.
30.155 Example of calculating beneficial
interest
A bankrupt is the joint owner of a property let on an AST. The property was
purchased by both owners in equal shares. The solvent owner has expressed an
interest in buying the bankrupt’s beneficial interest in the property valued at
£200,000 with a mortgage loan charge of £175,000 (£25,000 equity). The monthly
rent on the AST is £500 per month and there are 4 months remaining on the
agreement. Allowable costs in relation to the AST have been calculated at £50 per
month. The tenant is a reliable payer and there is no reason to consider they will
default in the payment of rent.
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•
bankrupt’s potential beneficial interest in sale proceeds (not including any costs of
sale) is £25,000 ÷ 2 = £12,500
•
bankrupt’s beneficial interest in profits from rent is (4 x £500) – (4 x £50) ÷ 2 = £900
The bankrupt’s beneficial interest in the property is £13,400 (£12,500 + £900). The
solvent owner offers the official receiver £12,000. The official receiver, as trustee,
accepts this offer as there is no guarantee that all the rent will be received or that a
sale price of £200,000 would be achieved.
30.156 Independent legal advice
Whenever the solvent owner or a third party expresses a desire to purchase the
beneficial interest from the official receiver, as trustee, they and the bankrupt should
be encouraged to seek independent legal advice. This is particularly appropriate
where the bankrupt is likely to keep the mortgage loan in their name following the
sale (see paragraph 30.156), or where the bankrupt wishes to buy the interest back
after their discharge (see paragraph 30.161).
Where a property is in negative equity, or has little equity, the purchase of the
beneficial interest may not be in the best interests of the bankrupt, solvent owner or
third party. If the bankrupt agrees to acknowledge the mortgage debt post
bankruptcy, and they subsequently default on the mortgage loan following the
purchase of the beneficial interest by a third party, the mortgagee could take action
against the bankrupt to recover the debt (see paragraph 30.159).
30.157 Discussion between mortgagee and
bankrupt
If the bankrupt wishes to take on joint responsibility for the mortgage post bankruptcy
when a solvent owner or third party intends to purchase the bankrupt’s interest in a
tenanted property, the official receiver should distance themselves from any
negotiations between the bankrupt and the mortgagee to avoid any future adverse
criticism.
30.158 Mortgagee’s consent to sale
Prior to the official receiver agreeing to sell the bankrupt’s beneficial interest in the
property to a solvent owner or third party, the solvent owner or third party will need to
obtain consent from the mortgagee to the transfer of the legal title. The mortgagee
may require the bankrupt or solvent owner/third party to come to an arrangement in
relation to the existing mortgage debt (see following paragraph).
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30.159 Bankrupt to take over mortgage post-
bankruptcy
Should the mortgagee be prepared to consent that the bankrupt’s beneficial interest
in the legal title be transferred to the solvent owner or third party, it is likely that the
bankrupt and/or solvent owner will be asked to sign an agreement to take over the
mortgage loan. Should the bankrupt sign such an agreement this effectively means
the bankrupt will not be released from the mortgage debt on their discharge from
bankruptcy. For this reason the official receiver should encourage the bankrupt to
seek independent legal advice before proceeding in this way (see paragraph
30.156).
30.160 When bankrupt moves into a
previously tenanted property, IPA/O
calculation
The official receiver needs to make it clear that if the bankrupt were to move into the
property after they, or the joint owner, purchases the beneficial interest, and then
take on a lodger to help with the mortgage payments, the official receiver would
assess the rent received from that lodger as part of the bankrupt’s income, available
for inclusion in any calculation for an IPA/IPO entered into before discharge, or in
any variation of the amount to be collected under an existing IPA/IPO continuing post
discharge (see following paragraph)
30.161 Selling interest to bankrupt post
discharge
The bankrupt (or bankrupts) may wish to buy back the beneficial interest in the
property after discharge from bankruptcy for various reasons, for example, their
credit rating may restrict future mortgage products being available. Whether there is
still a tenant in the property or not, it may be possible to sell the beneficial interest
back to the bankrupt following their discharge, provided they are not subject to an
IPA/O which will restrict the amount of available income the bankrupt has. In addition
to the payment for the legal fees and the bankrupt’s share of any equity (or £1 if
negative equity), the discharged bankrupt will also need to pay an amount equal to
their share of any rent that will be lost to the insolvent estate where the property is
still being rented out post discharge. The official receiver should base this calculation
on the bankrupt’s share of rental profits over a reasonable period (see paragraphs
30.153 to 30.155 above). The official receiver should ensure that the bankrupt is
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encouraged to get independent legal advice before proceeding with the transfer (see
paragraph 30.156). The bankrupt will also need to obtain the necessary permission
of the mortgagee, see paragraphs 30.146 to 30.148.
30.162 Termination of insurance after sale of
interest
If the bankrupt’s beneficial interest in a jointly owned property is sold the official
receiver should ensure that any insurance taken out is cancelled to prevent further
costs accruing. See paragraphs 30.32 to 30.36 on insurance.
Mortgagee possession
30.163 Mortgagee’s right to take possession
A mortgagee usually has the power to take possession of a property over which they
hold a secured charge when the borrowers (mortgagors) breach the terms of the
mortgage loan1. Where the mortgagors have not obtained permission from the
mortgagee to grant a tenancy over that property, they are usually in breach of the
mortgage terms and so granting an unauthorised tenancy is usually sufficient
grounds for repossession. Failing to make mortgage payments will also make the
mortgagors in breach of the terms of their mortgage loan.
1. Law of Property Act 1925 section 101
30.164 Mortgagee’s right to actual possession
when consent to let granted
When a mortgagee has given consent to the mortgagor to let a property to tenants,
or the mortgage is a buy-to-let mortgage, the mortgagee’s right to repossess the
property is set down in the terms of the mortgage loan (paragraph 30.163), but they
are bound by any AST agreement. This prevents the mortgagee from obtaining
vacant possession (i.e. evicting the tenant), without following the proper notice
period1. See paragraphs 30.138 to 30.139.
1. Housing Act 1988 section 21
30.165 What constitutes possession
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Where a mortgagee takes actual possession of a property, there is no doubt as to
their intention to take possession and they assume the liabilities of a mortgagee in
possession (see paragraph 30.167). Where the mortgagee gives notice to the tenant
to pay rent to them, it is also clear that they intend to go into receipt of rents and
profits. This is equivalent to taking possession1. This is also the case if they give
notice to the tenant not to pay rent to the mortgagors2. The mortgagee must either
take possession or leave the mortgagors in possession3.
1. Horlock v Smith [1842] 11 LJ Ch 157
2. Mexborough UDC v Harrison [1964] 2 All ER 109
3. Heales v M’Murray [1856] 23 Beav 401
30.166 Mortgagee not in possession
A mortgagee cannot be said to be in possession when they merely receive a sum
equal to the rent from the mortgagors’ agent, when the agent has not served on the
tenant any notice on the mortgagee’s behalf1. The mortgagee must act in such a
manner to substitute themselves for the mortgagors in the control and management
of the property. The mortgagee does not assume possession by insuring the
property or by making arrangements with the tenant if the tenant does not recognise
the mortgagee as landlord2.
1. Noyes v Pollock [1886] 32 ChD 53
2. Ward v Carttar [1865] LR 1 Eq 29
30.167 Landlord’s duties when mortgagee in
possession
When a mortgagee is in possession of a tenanted property, the bankrupt and joint
owner are no longer actively in control of that property, and are no longer entitled to
collect rent. The mortgagee will assume the role of manager of that property1,
effectively becoming the landlord. When a mortgagee takes possession of a
tenanted property, they also take on responsibility for that tenancy, including the
collection of rent2.
1. Kendle v Melson [1998] 193 CLR 46
2. Cockburn v Edwards [1881] 18 ChD 449
30.168 Council tax when mortgagee in
possession
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A property is exempt from council tax where the liable person is a mortgagee in
possession (see chapter 28)1.
1. Council Tax (Exempt Dwellings) Order 1992 article 3 Class L
30.169 Mortgagee’s right to rent arrears
When a mortgagee enters possession, they are entitled to collect any rent arrears
that exist at the date of possession1. The mortgagee is entitled to arrears of rent
whether falling due before or after the mortgage was granted. The mortgagees are
also entitled to receive rents held by a letting agent (see paragraph 30.58). Any rent
collected by the mortgagee in possession should be used firstly in paying the current
outgoings such as insurance and repairs. The balance will then be applied by the
mortgagee in payment of the interest on the mortgage loan, followed by the capital2.
The consequence of this on the official receiver, as trustee, is that if they do not
collect the bankrupt’s share of any rent arrears in a timely fashion, the rent arrears
may be lost to the estate.
1. Landlord and Tenant (Covenants) Act 1995 section 15(1)
2. Webb v Rorke [1806] 2 Sch & Lef 661
30.170 Mortgagee’s right to sell when tenancy
not binding
When a mortgagee in possession exercises its right to sell the property, and a
tenancy was granted by the mortgagors without the mortgagee’s consent, then the
tenancy is void against the mortgagee. Where a tenancy agreement is void against
the mortgagee, it is also void against any purchaser from the mortgagee1. The
mortgagee would normally obtain vacant possession prior to selling a property either
by peaceful entry of the property or by obtaining an order for delivery of the land.
See paragraphs 30.172 and 30.173 below on the repossession process. The
mortgagee may choose to sell a property with a sitting tenant.
1. Rust v Goodale [1957] Ch 33 at 44]
30.171 Mortgagee’s right to possession when
tenancy is binding
Where a tenancy is binding on a mortgagee, the mortgagee must give a minimum of
two months notice to the tenant to evict them1 see paragraph 30.138.
1. Housing Act 1988 section 21
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30.172 Repossession process – overview
Before a mortgagee can obtain actual possession of a property by evicting a tenant,
the mortgagee must obtain a court order. If the mortgagee is not aware of the
tenant’s details, notice needs to be served on the property, addressed to “the
occupiers” of the hearing date, at least five days before the hearing. There are
various options open to the court at the possession hearing, but if the mortgagee
proves grounds for possession, and the application is not defended, the court will
most likely make a possession order.
The possession order will give the occupier a date by which they should leave, which
is usually 28 days after the hearing, although it may only be a few days in some
cases. If the occupants have not left by the date on the possession order, then the
mortgagee will need to go back to court and obtain a warrant for possession before
they can evict the occupants. This usually happens only one or two weeks after the
date to leave on the possession order.
30.173 Repossession process – enforcing the
order
The court’s bailiffs will execute a warrant for possession and will change the locks to
secure the property. They can break into the property if it is empty at the time they
attend.
Receiver of rents
30.174 Mortgagee in possession entitled to
appoint receiver of rents
A mortgagee in possession may relieve itself of its position and responsibility by
appointing a receiver of rents under its statutory power1 and the court may appoint a
receiver of rents after a mortgagee has taken possession if the circumstances render
it just and convenient. The receiver would be the agent of the mortgagee not the
mortgagor in this instance (see paragraph 30.176).
1. Anchor Trust Co v Bell [1926] Ch 805 at 817
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30.175 Mortgagee’s right to appoint a receiver
of rents
A mortgagee has the right to appoint a receiver of any rents and profits of a property
on which they hold a secured charge when the borrowers (mortgagors) breach the
terms of their mortgage loan, see paragraph 30.163. This right is enshrined in the
Law of Property Act 19251 and it is also normally contained in the terms of the
mortgage deed. Failing to make mortgage payments will make the mortgagors in
breach of the terms of their mortgage loan. Where the mortgagors have not obtained
permission from the mortgagee to grant a tenancy over that property, the mortgagee
will not normally appoint a receiver of rents as to do so will be acknowledging and
giving validity to that tenancy.
1. Law of Property Act 1925 section 101(1)iii and section 109(1)
30.176 Receiver of rents is agent of
mortgagors
It is worth noting that when a receiver of rents is appointed either by the mortgagee
(under the terms of the mortgage loan) or by the court (under the Law of Property
Act 1925), they act for the mortgagors (the borrowers) and not the mortgagee1. The
receiver is therefore unable to bring possession proceedings against the mortgagors
being the same person. Instead, if possession proceedings are taken following the
appointment of a receiver, it will be in the name of the mortgagee.
1. Law of property Act 1925 section 109(2)
30.177 Receiver’s duties to repair property
Where a receiver of rents is appointed by the mortgagee, they are responsible for
paying the running costs of that property from the rents received as follows1;
•
all rents, taxes, rates and outgoings whatever affecting the mortgaged property
•
keeping down all annual sums or other payments, and the interest on all principal
sums, having priority to the mortgage of which they are receiver
•
in payment of their commission, and of premiums on fire, life and other insurances,
and the cost of executing necessary repairs directed by the mortgagee
•
in payment of the interest accruing in respect of any principal money due under the
mortgage
•
towards discharge of the principal money, if so directed by the mortgagee
1. Law of Property Act 1925 section 109(8)
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30.178 Council tax when receiver of rents
appointed
A property is exempt from council tax where the liable person is a mortgagee in
possession (see chapter 28)1. Generally speaking, when a receiver of rents has been
appointed, they are an agent of the mortgagor, however, when the mortgagors are
bankrupt, it is likely this agency has been brought to an end, and the mortgagee can
be considered in possession. Where the local authority is seeking payment of council
tax from the bankrupt(s), the official receiver should suggest that the local authority
seek guidance from the receiver as to whether they are now acting on behalf of the
mortgagee in possession under the powers of the mortgage deed.
1. Council Tax (Exempt Dwellings) Order 1992 article 3 Class L
30.179 Receiver’s duty to manage property
The receiver’s duty of care was tested in a case where the receiver had failed to
serve notice under a rent review clause in a lease, which meant that the rent was not
increased and income was lost1. The judge found that the receiver had failed to
come up to the standard of care required of a receiver. The receiver had regarded
their function as to do what they were told by the lender but that was an unhappy
misapprehension of the function of a receiver; for although they were appointed by
one party, their function was to look after the property of which they were receiver for
the benefit of all those interested in it. The receiver took over the management of the
properties from the borrowers and it was held that failure by the borrowers to take
steps to alert the receiver to the rent review clause did not amount to contributory
negligence.
1. Knight & Anor v Lawrence [1991] BCC 411
30.180 Checking validity of receiver
appointment
Where the official receiver receives notice of the appointment of a receiver of rents,
they should request a copy of the relevant appointment document. This may take the
form of a court order or of a document signed by the mortgagee provided the power
of sale has become exercisable1. When the official receiver is satisfied the
appointment is valid, they should write to the mortgagee and receiver confirming that
they have accepted that the appointment is valid and that they will no longer attempt
to collect the bankrupt’s share of the rental profits after allowable deductions.
1. Law of Property Act 1925 section 109(1)
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30.181 Transfer of case to LTADT following
appointment of receiver
Where a receiver of rents is appointed and the property is the only outstanding asset
matter, the case may be transferred to the LTADT if the property is unlikely to be
disposed of within 12 months (probable where rent is being received). However, if
the property is likely to be disposed of by the receiver of rents within 12 months, the
case should remain with the local official receiver to deal with. The official receiver
will need to consider each case individually.
A Form A and Form J restriction should be registered against all jointly owned
property in which the bankrupt has a beneficial interest (see chapter 7). The official
receiver should check that these restrictions are registered prior to any transfer of
the case to LTADT (see chapter 7)
Disclaimers
30.182 Disclaimer not usually appropriate in
jointly owned properties
The legal title to a jointly owned property and a related AST agreement do not vest in
the official receiver, as trustee, and it is not possible, consequently, for those items to
be subject to disclaimer. In jointly owned properties, it is the beneficial interest (the
right to receive a financial benefit) in the property or the AST agreement that vest in
the official receiver, as trustee. It is rarely necessary to disclaim a beneficial interest
as there are not normally any onerous obligations attached to such an interest.
The position might, though, be different if both (all) the joint owners are bankrupt
(see following paragraph).
30.183 Disclaimer – where both joint owners
bankrupt
Where both joint owners of a tenanted property are bankrupt it is possible that any
obligations relating to the property (and related tenancy agreement) might fall to the
official receiver as sole beneficiary. In this case, where there are onerous obligations
in excess of any value to the estate of the property (and/or benefit from the tenancy
agreement) (see following paragraph), then it would be appropriate to issue a
disclaimer of the interest of the bankrupts in the property and the tenancy.
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30.184 A tenanted property as onerous
property
The official receiver will need to balance the value of the beneficial interest to the
estate (including any equity in the reversion and the rental profits from the tenancy
agreement) against any expenses or liabilities the official receiver, as trustee, may
have in relation to the property to establish if the beneficial interest is onerous.
Where these expenses/liabilities are greater than the bankrupts’ beneficial interests
then the property is likely to be onerous.
30.185 Mortgagee to appoint receiver –
onerous property
The official receiver should initially seek to establish if the mortgagee intends to take
possession proceedings or appoint a receiver of rent when dealing with jointly owned
onerous property. A disclaimer should not initially be issued where the mortgagee
has indicated they are going to appoint a receiver. When dealing with onerous
property, it is imperative that it is dealt with quickly and so the mortgagee should be
pressed for a time by which they will appoint a receiver or take possession. Onerous
property should not be left whilst the mortgagee makes a decision on how to
proceed. The mortgagee should be informed that if they have not dealt with the
property by a certain date, a disclaimer will be issued.
30.186 Wording of disclaimer
The notice of disclaimer should contain a description of the jointly owned property
sufficiently detailed to ensure that there can be no doubt as to the property being
disclaimed1. As it is only likely that a disclaimer will be issued where both joint
owners are bankrupt, a disclaimer should be issued by the official receiver, as
trustee, disclaiming the bankrupt’s beneficial interest in each bankruptcy case. For
this purpose, there is no such thing as a joint disclaimer. In relation to the interest in
a jointly owned tenanted property, a suitable wording would be:
“…..the beneficial interest in the [freehold/leasehold] premises known as and
situated at [address of property] comprising [e.g., a two-storey terraced house] and a
tenancy agreement granted to [name of tenant] on [date of tenancy agreement] of
the aforementioned premises from [date of commencement of tenancy] at an
[annual/monthly] rent of [£].”
1. Rule 19.2 (1)(d)
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30.187 Disclaimer following collection of rent
The collection of the bankrupts’ share of the rental profits does not preclude the
official receiver, as trustee, from disclaiming the bankrupts’ beneficial interest in both
the property and tenancy agreement at a later date. Irrespective of an intention to
disclaim the bankrupts’ beneficial interests in tenanted property, the official receiver,
as trustee, should arrange initially for the collection of the rental profits for the benefit
of the insolvent estates. Once the disclaimer has become effective, the right to
collect the bankrupts’ share of the rental profits, including any rent arrears, comes to
an end.
30.188 Disclaimer – effect
Disclaimer brings to an end the official receiver’s interest in the bankrupt’s beneficial
interest in the property including the tenancy agreement from the date of the
disclaimer, and discharges the trustee from all personal liability in respect of the
property as from the commencement of their trusteeship1. A disclaimer will not end
an AST agreement, or end the bankrupts’ duties as landlord, although the bankrupts
will no longer be entitled to any of the rental profit which forms part of the beneficial
interest in the property.
Effectively, the bankrupts will remain as legal owners of the property, holding the full
beneficial interest on trust for the Crown (see paragraph 30.191).
1. Section 315(3)
30.189 Disclaimer – effect on tenant’s rights
The disclaimer does not bring to an end the rights and obligations of any third parties
interested in the property. The tenant will not lose their rights of occupation under the
tenancy.
After a disclaimer has been served, it remains the bankrupts’ responsibility to collect
the rental income, but they are not entitled to any surplus rental profits which forms
part of the beneficial interest. The tenant will probably still wish to pay the rent to
preserve their rights under the tenancy agreement. It is possible that the mortgagee,
who still retains security on the property post disclaimer, will either apply for a
vesting order in relation to the beneficial interest, or more likely take immediate
action to appoint a receiver of rents or to obtain possession of the property.
A copy of the disclaimer should be served on the tenant and anyone else known to
be living in the property or with a right to occupy it1 (see also chapter 42).
1. Section 318
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30.190 Disclaimer – effect on guarantor of
tenant
Disclaimer of both the bankrupts’ beneficial interest in the property and tenancy
agreement by the official receiver does not affect the rights or liabilities of any other
person. It has been held that a guarantor of a tenant remained liable notwithstanding
disclaimer1.
1. Hindcastle Ltd v Barbara Attenborough Associates Ltd [997] A.C. 70
30.191 Disclaimer – property vests in Crown
Estate
The effect of a disclaimer is to determine (end) the insolvent’s interest in the property
(being the beneficial interest), effectively leaving the beneficial interest without an
owner (see chapter 42). Assuming no vesting order is made (see chapter 42), the
interest would become bona vacantia (see chapter 54), and would vest in the Crown.
Property that is bona vacantia is dealt with by the Government Legal department
(GLD). The GLD is not required, as a matter of law, to assert a claim to the property,
which is, or may be, bona vacantia.
Both bona vacantia property and property under escheat (see chapter 42) in the
Duchies of Cornwall (which covers the modern county of Cornwall) and Lancaster
(which covers the modern county of Lancashire and parts of Merseyside, Greater
Manchester, Cheshire and Cumbria) falls to the respective Duchy. The solicitor to
these Duchies is Farrer & Co
By accepting rental profits, the Crown Estate may take on some duty of care in
relation to the property. Instead, the most likely course of action is that the
mortgagee will exercise control to protect their interest.
30.192 Disclaimer – effect on mortgagee’s
rights
As a disclaimer does not end third party rights or liabilities, the mortgagee will retain
its security over the property, and its right to appoint a receiver of rents or take
possession2.
A copy of the disclaimer should be served on the mortgagee1.
1. Section 318
2. Scmlla Properties Ltd v Gesso Properties (BVI) Ltd [1995] NPC 48
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30.193 Disclaimer – vesting orders
Where the official receiver, as trustee, disclaims both joint owner bankrupts’
beneficial interests in a freehold or leasehold reversion, then any person with an
interest in the beneficial interest may apply for a vesting order to vest in them the
bankrupts’ beneficial interest1, (see chapter 42). This will include the tenant, any
other occupiers, and the mortgagee. The court may also consider the bankrupts to
have an ongoing interest in the disclaimed beneficial interest, as the bankrupts will
retain the legal title to the property and also the landlords’ responsibilities following
disclaimer of the beneficial interest.
1. Section 320
30.194 Disclaimer – insurance
Following disclaimer, the official receiver, as trustee, will no longer have any rights or
liabilities in respect of the property. Any insurance taken out by the official receiver
on the tenanted property should therefore be cancelled.
30.195 Disclaimer – letter to tenant
Along with serving notice of the disclaimer on the tenant, the official receiver should
also write to the tenant informing them that although the legal title remains vested in
the bankrupts, the official receiver no longer has a beneficial interest in the property.
The official receiver should provide the tenant with the mortgagee’s contact details
and suggest that the tenant contacts the mortgagee regarding the tenancy. If the
official receiver is aware of a deposit being held, they should inform the tenant of its
whereabouts and how to obtain the funds when the tenancy ends.
Unusual circumstances - companies
30.196 Company in liquidation as joint
landlord of a tenanted property
In company cases, assets do not vest in the liquidator unless a specific order is
sought from the court vesting the assets in the liquidator1. This is an extremely rare
occurrence. The assets remain as property of the company (in liquidation). The
company and joint owner will remain as landlords of the property. As the official
receiver is the liquidator of the company, it is prudent to act appropriately to protect
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them from any residual liability as sent to the tenant giving written notice that the
company (in liquidation) and joint owner remain as landlords, but that the official
receiver is the liquidator of the company and has the powers of liquidator as provided
by legislation to deal with the company’s assets2. The official receiver, as liquidator,
should ensure that the company, as joint landlord, complies with the duties and
obligations as landlord or otherwise seeks to end the tenancy agreement.
Also see chapter 7 for guidance on registering a form J restriction to protect the
company’s interest in a jointly owned property.
1. Section 145
2. Insolvency Act 1986 schedule 4
30.197 Dissolution of company
A company that owns property is not suitable for early dissolution and indeed, the
official receiver will not be able to apply for their release as liquidator until any
property owned by the company is sold (or otherwise dealt with) and, thereafter, the
proceeds of sale dealt with (see chapter 48). Where the company is joint owner of a
freehold or leasehold property, the asset that belongs to the company is the
beneficial interest. Where a receiver of rents is appointed, or the mortgagee takes
possession, dissolution should be deferred to prevent the beneficial interest
becoming bona vacantia (see chapter 54).
Unusual circumstances – property
abroad
30.198 Tenanted property abroad
When the official receiver encounters a tenancy where the property is overseas,
reference should be made to archived guidance in chapter 43 on establishing the
value of the property. The law that governs the tenancy will be that of the country in
which the property is located. As only the beneficial interest vests in the official
receiver as trustee, the joint owners remain as the landlords of the property, and so
the property should be dealt with similarly to any other property held abroad, i.e.
seek to appoint an insolvency practitioner, or failing that register the official receiver’s
interest in the property, or sell that interest. The only real difference is that the official
receiver as trustee has the right to the bankrupt’s share of rental profits, for which the
bankrupt and joint owner remain responsible for collecting. GOV.UK provides guides
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to buying and renting properties in a number of European and other countries
worldwide.
Unusual circumstances – non
cooperation issues
30.199 Bankrupt failing to cooperate with the
official receiver
The official receiver is entitled to the bankrupt’s share of the rental profits as they
form part of the beneficial interest which vests in the official receiver as trustee. The
bankrupt is obliged to deliver up their share of the rent collected (less expenses) as
part of their duty to deliver possession of their estate to the trustee1. See guidance
from paragraph 30.105 on calculating the bankrupt’s beneficial interest.
Where the bankrupt defaults in the payment of rent to the official receiver, a letter
should be sent to the bankrupt chasing payment and attempting to ascertain the
reasons for non payment. Where the bankrupt continues to default on rental
payments, without reasonable explanation, a further letter should be sent warning of
the consequences of failing to pay the rent (see paragraph 30.200) and the bankrupt
should be advised to seek legal advice if they are in any doubt as to the position of
the official receiver’s entitlement to their share of the rent. See paragraphs 30.129 to
20.130 regarding the payment of amounts in relation to a mortgage loan on the
property.
1. Section 291
30.200 Action to be taken to enforce
cooperation
Where the bankrupt continues to fail to cooperate after a letter has been sent
chasing unpaid rent, and refuses to hand over their share of the rent (less
expenses), the official receiver should take appropriate enforcement action,
depending on the reasons for the default in payment (see following paragraph). The
bankrupt has a duty to deliver possession of their estate to the official receiver1,
failure to do so is contempt of court.
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Where the bankrupt is landlord of a jointly owned tenanted property, and is failing to
cooperate with the official receiver, reference should be made to chapter 19 and
chapter 47.
1. Section 291
30.201 Tenant defaults in payment of rent to
joint owners
Where the bankrupt claims that the tenant has defaulted in the payment of rent to the
joint owners, the official receiver will have to consider asking if the bankrupt has any
evidence of non payment, such as letters from the tenant explaining their situation.
The default in payment may be as a consequence of a change in circumstances of
the tenant since the date the tenancy agreement was signed (e.g. the tenant is no
longer in employment). Where the bankrupt notifies the official receiver of a change
in the tenant’s circumstances, and subsequent difficulty in meeting rental payments,
the official receiver will need to take these reasons into consideration before
commencing any enforcement action against the bankrupt in respect of the non
collection of rental profits. See paragraph 30.85 on rent arrears, and guidance from
paragraph 30.133 for information on dealing with the disposal or ending of an AST.
30.202 Tenant paying mortgagee directly
Where the tenant pays rent directly to the mortgagee whilst the official receiver is
entitled to receive the bankrupt’s share of that rent, the official receiver can recover
the bankrupt’s share of the rent directly from the mortgagee1 who are not entitled to
receive the rent unless they appoint a receiver of rents or take possession
proceedings in relation to the property under the terms of the mortgage loan. By
attempting to collect the bankrupt’s share of the rental profit from the mortgagee, it
may prompt the mortgagee into taking early action under the terms of their charge to
protect their security.
1. Gledhill v Hunter [1880] LR 14 Ch D 492
Unusual circumstances – tenancies not
in names of joint owners and post
bankruptcy tenancies
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30.203 Jointly owned property, AST
agreement in sole name of bankrupt or joint
owner
Legal advice has been received as to whether or not one of two owners of a property
can enter into an AST on the property. Advice received is that one owner cannot, as
all positive dealings with the land require both joint owners. It is possible that
arguments can be raised that one party had the authority on behalf of both of them
or, was acting as an agent for the other.
Where the bankrupt jointly owns property with another, but the AST agreement is in
the bankrupt or joint owner’s sole name, how the official receiver treats that AST
depends on the intention of the joint owners as to how the beneficial interest in the
property would be split between them at the time the agreement was created (see
paragraph 30.106). Enquiries need to be made by the official receiver to establish
why the AST agreement is in the sole name of one party, and evidence sought to
back up those claims. Case law indicates that it will be an exceptional case where
the beneficial interest was found to be different to that originally intended at the date
of purchase of the property1, 2.
1. Stack V Dowden [2007] BPIR 913
2. Kernott V Jones [2010] ALL ER (D) 244
30.204 Jointly owned property, AST
agreement in sole name – payment of
mortgage loan
When deciding how to treat an AST agreement, the official receiver should consider
what the rental income received so far has been used for. If the rental monies have
been used to discharge a debt in the bankrupt and joint owner’s name (e.g. the
mortgage loan is in joint names and the rent has historically been used to pay the
mortgage loan), and the monies were not used by the person solely named as
landlord on the AST agreement, this is an indication that the beneficial interest in the
property and profits from the AST are held in equal shares by both parties. The
official receiver should therefore, in the absence of other information, give
consideration to treating the agreement as though it is jointly owned by the bankrupt
and joint owner (i.e. the AST will not vest in the official receiver as trustee). In this
instance, both parties would be benefiting from the rental income up to the date of
the bankruptcy order, as it is being used to discharge a debt they are both liable for
jointly and severally.
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30.205 Jointly owned property, AST
agreement in sole name – claim of sole
beneficial interest in property
Where the property is jointly owned by the bankrupt and a solvent owner, but the
AST agreement is in the sole name of one party, it is possible that the beneficial
interest in the property belongs to one party only. If this is the case, both parties hold
that interest on trust for the beneficiary. A claim to the sole beneficial interest is the
most likely reason for a valid claim to the entitlement to the sole rental profits, as the
entitlement to receive rent follows the reversionary interest in that property2. It will be
for the individual who is claiming the sole beneficial interest to evidence that the
beneficial ownership is different to the legal ownership1 (see also paragraph 30.203).
The official receiver will need to investigate any claim to a sole beneficial interest in
the property in considering whether to accept the AST agreement as a sole
agreement or a joint agreement in both parties’ names. If there is a valid reason for
the beneficial interest in the property to be owned by one party (see following
paragraph), then it may be considered to be a sole AST and the official receiver
should treat the AST as a solely owned AST agreement. Where this is the case and
the bankrupt is considered to have the sole interest in the AST, the official receiver
would seek to claim all the rental income and act as landlord (see chapter 29).
1. Stack V Dowden [2007] BPIR 913
2. Landlord and Tenant (Covenants) Act 1995 section 3
30.206 Factors to consider in calculating
beneficial interest
In considering the beneficial interest held by each party the ‘whole’ of the parties’
conduct in relation to both the property and the AST should be considered1. Factors
to consider will include the initial contributions made to the purchase price of the
property (see chapter 28) and any amounts paid by either party to significant
improvements to the property. The critical question to be answered is, whether or
not, it can be inferred from the parties conduct a joint intention that, over time, the
original split (usually 50:50) has changed.
1. Stack V Dowden [2007] BPIR 913
30.207 Jointly owned, no claim to beneficial
interest
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If there is no claim to the sole beneficial interest in the property by one party, the
official receiver should question why the AST agreement was placed in that parties’
sole name and, if there is no valid reason, treat the agreement as though it is held in
equal proportions by the bankrupt and joint owner. Where this is the case, the official
receiver, as trustee, should seek to collect the bankrupt’s 50% share of the rent (in
the absence of any information to the contrary regarding the share held by each
party) less allowable expenses notifying the other joint AST owner as appropriate
(see paragraph 30.109).
If the official receiver believes the AST agreement is a jointly owned, then they will
need to give the joint owner and the bankrupt, written notice of the official receiver’s
decision to treat the agreement as if it were in joint names. The official receiver, as
trustee, should also give written notice to the bankrupt and joint owner that they will
be seeking to collect the bankrupt’s 50% share of the rent less allowable expenses,
and that they remain responsible for the landlord’s duties.
30.208 AST agreement in name of third party
Where an AST agreement, on a jointly owned property is created in the sole name of
a third party, whilst it is not likely to be a legal lease (tenancy) as it was not created
by the legal owners of the property, it is probably what is known as an equitable
lease and the tenant is likely to be considered by the courts to have a valid AST
agreement.
Where an AST is created in the name of a third party, the official receiver should only
consider treating the agreement as though that third party is the sole landlord entitled
to the full benefits of the rent, when that third party has clearly evidenced ownership
of 100% of the beneficial interest in the property, and the owner of the legal title
simply holds the property on trust for that third party (see also paragraphs 30.106
and 30.203). If this is the case, the official receiver should treat the property as
though it is held in trust and consequently it would not form part of the bankruptcy
estate. Legal advice may be needed to verify the third party’s claim to 100% of the
beneficial interest. Also see chapter 29 on tenancy by estoppel.
Such an agreement is unlikely to be legally binding on any mortgagee of the property
unless the consent of the mortgagee to the agreement was obtained prior to it being
granted.
30.209 AST agreement in name of third party –
action by official receiver
The official receiver should seek to ascertain the reason why an AST agreement on
a jointly owned property was placed in the name of a third party. The factors
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discussed in paragraphs 30.106 and 30.203 to 30.207 should be considered. Where
no underlying reason can be established for the agreement to have been placed in
the name of a third party, the official receiver should inform the third party, as
trustee, that in their opinion the bankrupt has a beneficial interest in the property and
that includes an interest in profits from any AST agreement granted on the property,
and as such, the official receiver is entitled to the appropriate proportion of the rental
profit. The official receiver should treat the AST agreement as though it was created
in the names of the joint owners and claim the bankrupt’s share of the profits from
the rent income from the person who actually collects the rent.
30.210 AST agreement in name of bankrupt
and third party
Where an AST agreement, on a jointly owned property is created in the name of the
bankrupt and a third party who is not the joint owner, whilst it in not likely to be a
legal lease (tenancy) as it has not been created by the legal owners to the property,
it is probably what is known as an equitable lease and the tenant is likely to be
considered by the courts to have a valid AST agreement.
Enquiries need to be made by the official receiver to establish why the AST
agreement is in the name of the bankrupt and a third party, and evidence sought to
back up those claims. The official receiver should only consider treating the
agreement as though that third party has a valid interest as joint landlord, when that
third party can evidence that they own a share of the beneficial interest in the
property, see paragraphs 30.204 to 30.207. The beneficial interest held by the non
bankrupt joint owner will also need to be taken into consideration.
Such an agreement is unlikely to be legally binding on any mortgagee of the property
unless the consent of the mortgagee to the agreement was obtained prior to it being
granted.
30.211 Tenancy created post bankruptcy
Where a bankrupt or solvent joint owner creates a new AST agreement after a
bankruptcy order is made, the agreement is valid as the legal estate remains vested
in the joint owners. This is the case whether the AST agreement is created before or
after a trustee is appointed, and whether both joint owners are bankrupt or not. As
soon as the official receiver becomes aware of such an agreement theyshould
attempt to ascertain details of the agreement so that they may collect the bankrupt’s
share of the profits from the rental income.
Where the agreement is created by a solvent owner only, and they claim the
bankrupt is not entitled to any of the rent, see paragraph 30.209.
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30.212 New AST agreement is not a
disposition of property
Where the bankrupt disposes of property between the presentation of the bankruptcy
petition and the vesting of the estate in the trustee, this disposition is void unless
made with the consent of, or ratified by, the court1. It is not considered that the
creation of a new AST agreement, which is in itself a property right, is a disposition
of the bankrupt’s share of their beneficial interest in the property. The bankrupt’s
beneficial interest in the property still vests in the trustee upon their appointment, the
difference is that the bankrupt’s share of the rental profits will also forms part of that
beneficial interest. As the legal title to the property remains vested in the joint
owners, they remain free to deal with the property as they wish.
Additionally, as the beneficial interest already forms part of the estate, the official
receiver as trustee does not need to claim the bankrupt’s share of the rent as after
acquired property2.
1. Section 284(1)
2. Section 307
30.213 AST agreement created post
bankruptcy – action to take
Where the joint owners enter into a new AST agreement post bankruptcy the official
receiver should consider informing the mortgagee of the new agreement to ensure
that the mortgagee is kept informed.
Where a new AST has been entered into, the official receiver, as trustee, will need to
consider the insurance position, see paragraphs 30.32 to 30.36.
A letter should be sent to the bankrupt requiring them to send in their profits from the
rental income on a monthly basis, see paragraph 30.41.
30.214 Tenancy created post bankruptcy –
protection of deposit
It remains the bankrupt and joint owner’s responsibility as landlords to protect any
tenancy deposit taken from the tenant (see paragraphs 30.61 to 30.65).
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Annulments and stays
30.215 Annulment applications
The official receiver may be informed that the bankrupt, as joint owner of a tenanted
property has made an application to court for an annulment of the bankruptcy order
(see chapter 8). Where the official receiver is trustee they will need to consider, on a
property by property basis, what action needs to be taken pending the outcome of
the hearing.
30.216 Stay of advertisement
Where a stay of advertisement (chapter 8) is ordered pending the annulment
hearing, the official receiver should ask the bankrupt to hold their profits from the
rental income to the order of the trustee pending the outcome of the hearing. If the
official receiver considers the stay of advertisement will jeopardise the collection of
the bankrupt’s share of the rent, they can apply to the court for directions1.
1. Rule 13.4
Houses of Multiple Occupancy
30.217 Definition
A building or part of a building is a ‘House of Multiple Occupancy’ (HMO)1 if it meets
one of the following conditions:
•
it meets the “standard test” which is;
o it consists of one or more units of living accommodation not consisting of self
contained flats
o the living accommodation is occupied by persons who do not form a single
household
o the living accommodation is occupied by those persons as their only or main
residence or they are to be treated as so occupying it
o their occupation of the living accommodation constitutes the only use of that
accommodation
o rents are payable or other consideration is to be provided in respect of at
least one of those persons’ occupation
o two or more of the households who occupy the living accommodation share
one or more basic amenity for example student accommodation or a shared
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house, or the living accommodation is lacking one or more basic amenity (a
toilet, personal washing facilities or cooking facilities)
•
it meets the “self contained flat test”, i.e. it consists of a self contained flat, and meets
conditions 1) a) to f) above
•
it meets the “converted building test”, i.e. it is a converted building, and meets
conditions 1) a) to e) above
•
a HMO declaration is in force
•
it is a converted block of flats, i.e. a building or part of a building which has been
converted into and consists of self contained flats, if the building work undertaken did
not comply with the appropriate building standards, and still does not comply with
them, and less than two thirds of the self contained flats are owner occupied2
1. Housing Act 2004 section 254
2. Housing Act 2004 section 257
30.218 Landlord’s additional obligations in
relation to HMO
All HMOs are subject to additional regulation such as maintenance of the common
parts, a duty to display the landlord’s details in the common parts, and compulsory
mains electric smoke alarms. The landlord needs to be a fit and proper person and
there needs to be adequate amenities in place1.
1. Housing Act 2004 section 67
30.219 Mandatory licensing of HMOs
Since 6 April 2006 mandatory licensing of certain higher risk HMOs came into force1.
Under the national mandatory licensing scheme an HMO must be licensed if it is a
building consisting of three or more storeys and is occupied by five or more tenants
in two or more households.
1. Housing Act 2004 section 55
Selective compulsory licensing
30.220 Selective compulsory landlord licences
in certain areas
--- PDF page 79 ---
In addition to certain HMO’s requiring a licence, certain areas of the country which
suffer from low housing demand and significant and persistent anti-social behaviour
can also introduce local regulation requiring compulsory licensing of all private
rented accommodation1. The local authorities which currently have such areas are:
•
Salford City Council
•
Middlesbrough Council
•
Manchester City Council
•
Gateshead Council
•
Sedgefield Borough Council
•
Burnley Council
•
Bolton Council
•
Blackburn Council
•
Leeds City Council
•
Easington Council
•
Hartlepool Council
•
London Borough of Newham
1. Housing Act 2004 sections 79 and 80
30.221 Selective compulsory licenses and
HMO licences
When the official receiver encounters a jointly owned rented property in one of the
areas referred to in paragraph 30.220, or a jointly owned property requiring a
mandatory HMO licence, it remains the responsibility of the joint owners to obtain
such licences. The bankrupt and joint owner should hold an appropriate licence
issued by the local authority, and are responsible for ensuring the property complies
with all requirements imposed by the local authority. A letter should be sent to the
bankrupt and joint owner confirming that the requirement to obtain and maintain a
licence remains their responsibility as landlords of the property.
Where the bankrupt and joint owner need to make an application for a compulsory
licence or HMO licence, the fee can be deducted from the rental income prior to
calculating the bankrupt’s share of the rental profits (see paragraph 30.109).
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ATTACHMENT: 31.Antecedent_recoveries.pdf
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
31. Antecedent recoveries
Annexes
Annex A - Types of antecedent recovery
Chapter content
Introduction
Preferences
Transactions at an undervalue
Common themes
Introduction
31.1 General
The main purpose of liquidation and bankruptcy is to effect an orderly and equitable
realisation of assets for the general benefit of creditors and contributories. If some
act occurs in the run-up to the insolvency which leads to one creditor being treated
more favourably than another, the transaction may well be one which gives rise to
recovery rights by an administrator, liquidator or trustee. Similarly, if a person other
than a creditor has benefited from the company or bankrupt to the detriment of
creditors generally, the Act may provide a remedy. These remedies would generally
be termed “antecedent recoveries”. The Act provides an administrator, liquidator or
trustee with opportunities to recover assets/monies and/or to avoid certain events
(e.g. the granting of charges) for the benefit of all creditors.
31.2 Explanation of term antecedent
--- PDF page 2 ---
This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
The term "antecedent" means a preceding thing or circumstance, and is used to
describe this sort of transaction as it occurred before a particular event (e.g. the
presentation of the petition or the date of the bankruptcy order) usually within a
specified time prescribed by the Act.
Annex A is a table containing a summary of information relating to the different
types of antecedent recoveries dealt with in this guidance and guidance contained in
32 – Antecedent Recoveries – other antecedent recoveries.
31.3 Identifying potential recoveries
It is unlikely that the recoveries referred to in this guidance will be scheduled as
assets in the bankruptcy application or the PIQ. However, during the course of a
preliminary examination, it may be possible to detect that a transaction removing the
property from the company or the bankrupt’s estate may have occurred and recovery
action may be possible.
Paragraph 31.6 gives guidance of the types of events that may lead to an
antecedent recovery.
31.5 Antecedent recoveries contractor
The Insolvency Service has an agreement with Clarke Willmott to deal with all
antecedent recoveries (see paragraph 31.7) on behalf of official receivers.
Paragraphs 31.6 to 31.16 give an overview of the Service Contract and procedures.
31.6 Events leading to an antecedent recovery
Where real property has been sold or otherwise transferred, the official receiver
acting as liquidator or trustee should always seek to satisfy themselves that the
property was transferred at a fair market value. Any transaction with a relative or
associate of the insolvent may be viewed with suspicion, as a transaction at an
undervalue in these circumstances is not uncommon.
Where there have been new borrowings by the insolvent, consideration should be
given as to whether the monies have been used to discharge debts owed to other
creditors, particularly connected creditors, as this may be a preference.
31.7 No Minimum level of recovery
--- PDF page 3 ---
This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
Clarke Willmott will accept instructions in respect of all antecedent recoveries and
there is no minimum amount.
31.8 Conditional fee arrangement
[Text redacted]
31.9 Referral to Clarke Willmott
The official receiver should endeavour to refer antecedent recoveries to Clarke
Willmott via the Debt View website at the earliest possible opportunity (as time is
usually of the essence in these matters), but not before the relevant information is
obtained. This can be in advance of the transfer of the case to an LTADT if there are
other matters delaying the case transfer of the case to the team.
The method of referral is by completion of an ARIA (Antecedent Recovery Instruction
to Agent) form, a Word template produced in ISCIS. This form sets out the
information that is required to make a referral;
•
estimated amount of debt
•
name of person who owes money
•
details of conduct/transaction
•
other matters to consider (listed on the ARIA)
The matter should not be referred until the form is substantially complete, assuming
the information is held or otherwise possible to obtain.
It is accepted that some of the required information may not be available and a
decision will have to be taken to refer the matter with incomplete information if a
potential recovery is not to be lost.
Once the form has been completed it should be submitted to Clarke Willmott via the
Debt View website. Information on the service provided by Clarke Willmott and full
guidance on using the Debt View website is available on the Clarke Willmott intranet
page.
31.10 Further enquiries following referral
--- PDF page 4 ---
This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
If, after initial consideration, Clarke Willmott agrees with the official receiver’s view
that there are reasonable grounds to pursue a realisation, they will take such action
as is necessary to pursue recovery including seeking such further information from
the beneficiary of the transaction as is necessary including, if appropriate, seeking
and conducting private examinations1, 2.
This should not, though, be an excuse for referring a matter with incomplete
information, and the information required to be provided in the referral form (see
paragraph 31.9) should, in any case, be necessary to enable the official receiver to
make a sound judgement that there is a matter of recovery.
1. Section 236
2. Section 366
31.11 Discussion with insolvent or
beneficiaries prior to referral
To avoid any prejudice on actions taken by Clarke Willmott, the official receiver
should avoid asserting any intention or right to recover either a specified amount or
by reference to a specific statutory provision when discussing or corresponding with
the insolvent or beneficiary – either before or after the instruction to Clarke Willmott
has been issued.
31.12 Recovery action successful
[Text redacted]
31.13 Expenses of winding up/bankruptcy
Costs relating to the conduct of any legal proceedings which the official receiver, as
liquidator or trustee, has the power to bring which are properly chargeable or
incurred are expenses of the liquidation or bankruptcy, respectively, and can,
therefore, be paid out of the estate1, 2
1. Rule 7.108
2. Rule 10.149
31.14 Disbursement costs
--- PDF page 5 ---
This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
The disbursements required for legal action will depend on the nature of each case.
However, typical disbursements, which Clarke Willmott expect to incur, include court
fees for issuing proceedings, possible Counsel’s fees, if the action is defended, and
enforcement fees if any judgment obtained requires enforcement.
31.15 Decision to take legal action under
conditional fee agreement
While the action will be brought in the name of the official receiver, the decision to
take a legal action will rest entirely with Clarke Willmott, and will be taken only in the
following circumstances:
•
the action is against the correct beneficiary of the transaction
•
there is proof that the debt is or was owed by that person, or that there is a valid
cause of action against that person
•
the beneficiary has assets against which a judgement could be enforced or,
having considered the matter, Clarke Willmott are willing to proceed prior to
assessing the assets of the beneficiary
•
[Text redacted]
31.16 Antecedent recoveries in Limited
Liability Partnerships and partnerships
The legislation relating to Limited Liability Partnerships (“LLP”)1 extends the
antecedent recovery provisions in the Act to LLPs. In addition, there are special
provisions relating to the recovery of withdrawals from the partnership.
Similarly, the provisions of the Act relating to antecedent recoveries are applied to
partnerships by virtue of the Insolvent Partnerships Order 19942.
1. Limited Liability Partnerships Regulations 2001
2. Insolvent Partnerships Order 1994 Articles 7 and 8
31.17 Antecedent recoveries and deceased
insolvents
The provisions in the Act relating to transactions at an undervalue and to
preferences also apply to deceased insolvents1.
--- PDF page 6 ---
This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
1. Administration of Insolvent Estates of Deceased Persons Order 1986 schedule 1, Part II, paragraph 26 adopting Insolvency Act 1986 sections 339 and 340 and
Administration of Insolvent Estates of Deceased Persons Order 1986 schedule 1, Part II, paragraph 36 adopting Insolvency Act 1986 section 423
31.18 Limitation periods
Generally, the law1 sets time limits to the period under which debts etc. can be
recovered. Although the legislation makes no particular provision for time limits in
respect of the recovery of monies due in respect of antecedent recoveries in formal
insolvency, case law has developed in this area.
In essence, the relevant legislation sets two time periods under which debts should
be recovered. These are 12 years for an action on a specialty (an obligation under a
contract, bond or other instrument)2 and six years for any sum due by virtue of any
enactment. Where there is an element of fraud on the part of the debtor, the time
period does not begin to run until the fraud has, or should have, been discovered.
It has been held that an action to recover a transaction under the provisions in the
Act relating to antecedent recoveries is a specialty and, therefore, the 12 year period
applies3. The court in that case considered that, where the substance of the claim
was the recovery of monies rather than the setting aside of a transaction, the shorter
six-year period may apply.
Generally speaking, the official receiver should aim to commence proceedings
(where appropriate) within the shorter, six year, period to avoid the recovery being
out of time.
1. Limitation Act 1980
2. Limitation Act 1980 section 8
3. Re Priory Garage (Walthamstow) Ltd, Anwar v Giblet (Ch, 23 May 2000)
31.19 Assignment of antecedent recoveries –
companies
It has been held that a claim for an antecedent recovery is not an item of property
belonging to a company in liquidation1, 2. One of the practical consequences of this is
that such a claim may not be assigned due to a bar on the trading of claims. In
October 2015 the legislation was amended to allow for the assignment of the
following types antecedent recovery claims:
•
fraudulent trading
--- PDF page 7 ---
This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
•
wrongful trading
•
transactions at an undervalue
•
preferences
•
extortionate credit transactions
This applies to all cases where the company enters administration or goes into
liquidation on or after 1 October 20153.
1. Re Oasis Merchandising Services Ltd [1998] Ch 17
2. Re Yagerphone Ltd [1935] Ch 392
3. Small Business, Enterprise and Employment Act 2015 (Commencement No.2 and Transitional Provisions) Regulations 2015 schedule 1, paragraph 16
31.20 Assignment of antecedent recoveries –
bankruptcy
It has been held that a claim for an antecedent recovery is not an item of property
belonging to the bankrupt1, 2. One of the practical consequences of this is that such a
claim may not be assigned due to a bar on the trading of claims. The legislative
change in October 2015 that provided for the assignment of certain antecedent
recovery claims in company cases (see paragraph 31.19) did not apply to
bankruptcy cases.
1. Re Oasis Merchandising Services Ltd [1998] Ch 17
2. Re Yagerphone Ltd [1935] Ch 392
31.21 Proceeds of antecedent recovery claim
or assignment of claim not available to satisfy
claims of floating chargeholders
In cases where the company entered administration, or went into liquidation, on or
after 1 October 20151, the proceeds of any claim, or assignment of any claim, in
respect of the following types of antecedent recoveries are not to be treated as
property which would be available for the satisfaction of claims of holders of
debentures secured by, or holders of, any floating charge created by the company:
•
fraudulent trading
•
wrongful trading
•
transactions at an undervalue
--- PDF page 8 ---
This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
•
preferences
•
extortionate credit transactions
1. Small Business, Enterprise and Employment Act 2015 (Commencement No. 2 and Transitional Provisions) Regulations 2015 schedule 1, paragraph 17
Preferences
31.22 Preferences - introduction
The provisions of the Act relating to preferences1, 2 allow the office-holder to
challenge the doing by a company or individual (or the suffering of anything by a
company or individual) of an act which has the effect of putting a creditor (or
guarantor) in a position which, in the event of the company going into insolvent
liquidation or the individual entering into bankruptcy, will be better than the position
they would have been in if that act had not been carried out.
The ability of the liquidator or trustee to challenge such transactions is subject to
time limits (see paragraph 31.30), the financial position of the company/debtor at the
time of the transaction (see paragraph 31.31), the relationship between the
company/individual and the beneficiary of the transaction (see paragraph 31.26) and
the purpose of the transaction (see paragraph 31.24).
1. Section 239
2. Section 340
31.23 Realising preferences
The following are the areas on which the official receiver should, ideally, obtain
information before instructing the contractor (Clarke Wilmott) and include on the
‘details of conduct/transaction’ section of the ARIA form
•
any connection between the beneficiary and the insolvent
•
the date of insolvency (as opposed to the date of the order)
•
details of the payment that constitutes the preference
•
the value of any assets transferred
•
the sum of monies owed to the beneficiary
•
evidence of the desire to prefer
•
the amount of monies owed to other creditors at the date of the transaction
•
any explanations given by the bankrupt or the insolvent for the transaction
--- PDF page 9 ---
This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
•
evidence of the asset position of the beneficiary
•
details of any of the insolvent’s property charged to the beneficiary
31.24 Desire to prefer
The key point so far as regards deciding whether a preference has taken place is to
decide whether or not the debtor was influenced by a desire to put the creditor in a
better position (desire to prefer) than they would otherwise have been as a
consequence of an insolvency event1, 2.
The debtor must have been influenced by a desire to prefer, but this need not have
been the dominant intention. In other words, for a preference to be successfully
challenged, the desire to prefer the creditor must have been part of the decision to
enter into the transaction, but it need not have been the only factor nor, even, the
factor that tipped the scales in favour of entering into the transaction.
Desire can be inferred from the circumstances of the case. It has been held by the
court that there was no desire to prefer when the company granted its bank a
debenture over its assets and therefore there was no preference3.
Just because the creditor gains an advantage does not, of itself, mean that the
debtor had a desire to prefer that creditor. It would still be incumbent upon the office-
holder to prove that the desire to prefer was actually a motivating factor4.
1. Section 239(5)
2. Section 340(4)
3. MC Bacon Ltd [1990] BCLC 324
4. Lewis v Hyde [1990] BCC 78, 88
31.25 When must the desire to prefer exist?
The desire to prefer must exist at the date that the decision was made to make the
payment that constitutes the preference, rather than that date that the payment was
actually made1.
This might be important where the desire to prefer was present when the decision to
make the payment was made, but was not present when the payment was made (if,
for example, a friendship had broken down).
1. Lewis v Hyde [1990] BCC 78, 88
--- PDF page 10 ---
This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
31.26 Desire to prefer – connected party or
associate
Where the person who benefitted from the preference is a connected party (see
paragraph 31.105) (or an associate, then it is presumed (unless the contrary can be
shown) that the debtor was influenced by a desire to prefer1, 2.
1. Section 236(6)
2. Section 340(5)
31.27 Desire to prefer – companies
A company itself cannot be said to have desire, and any desire in the “mind” of the
company must, of course, be formed in the mind(s) of those human beings
controlling the company – e.g., the directors1. In order to successfully challenge a
preference, the official receiver, as office holder, would need to show that the
decision to prefer arose from a proper decision by those controlling the company –
i.e., those with the controlling “mind” of the company.
Commonly in cases dealt with by the official receiver, the company has a small
number of directors and, in these cases, identifying the controlling mind would be a
relatively simple matter. For the vast majority of these cases, the person(s) causing
the company to undertake the transaction will be the sole director or the directors as
a group and, therefore, there should be no difficulty in showing that they were acting
on behalf of the company, and had authority to do so1.
Where an employee, other than a director, took the decision to effect the transaction,
it will be necessary to show that they had appropriate direct authority to act on behalf
of the company – to be the “mind” of the company. The motivation of the person with
authority needs to be considered2.
1. Re Agriplant Services Ltd [1997] BCC 842
2. Tesco Supermarkets v Natrass [1972] AC 153
31.28 Transactions not normally viewed as
preferences if desire to prefer not a motivating
factor
--- PDF page 11 ---
This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
A key feature of a preference is the desire on the part of the debtor to put the
beneficiary of the transaction in a better position in any subsequent liquidation or
bankruptcy then they would have been had the transaction not taken place.
Simply because the creditor gains an advantage from the transaction does not, of
itself, mean that the debtor had a desire to prefer that creditor. It would still be
incumbent upon the office-holder to prove that the desire to prefer was actually a
motivating factor.
An exception to this is where the transaction favours a person connected to or
associated with the insolvent, in which case the desire to prefer is presumed unless
the contrary can be shown.
31.29 Improvement in position
As outlined in paragraph 31.25, one of the key features of a preference is that there
must have been a desire to improve the position of the creditor. The Act is silent on
the measurement to be applied to assess the improvement. Whilst it is not
conclusive the case law on the subject has generally held that the improvement is to
be measured against a hypothetical winding up or bankruptcy made immediately
after the transaction rather than the date of actual insolvent liquidation or
bankruptcy1.
1. Willis and another v Corfe Joinery Ltd [1998] 2 BCLC
31.30 Time period
In a compulsory liquidation the transaction must have been entered into within six
months of the “onset of insolvency” (for a compulsory liquidation)1 or the presentation
of the petition (bankruptcy cases)2. The “onset of insolvency” is the date of the
presentation of the petition3, unless the liquidation follows administration – in which
case the “onset of insolvency” is the date of the making of the administration order4.
Where the beneficiary of the preference is a connected party (see paragraph
31.105), or an associate, the time period is extended to two years prior to the onset
of insolvency or the presentation of the bankruptcy petition5 6.
1. Section 240(1)(b)
2. Section 341(1)(c)
3. Section 129
--- PDF page 12 ---
This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
4. Section 240(3)(d)
5. Section 240(1)(a)
6. Section 341(1)(b)
31.31 Time period – financial position
In addition to the time limits detailed in paragraph 30.30, it is also necessary, for
companies, to show that the company was unable to pay its debts at the time of the
transaction, or became unable to pay its debts as a result of the transaction1 So far
as bankruptcies are concerned, it is necessary to show that the debtor was insolvent
at the time of the transaction or became insolvent as a consequence of the
transaction2.
1. Section 240(2)
2. Section 341(2)
31.32 Types of transactions that may be
viewed as preferences
The repayment (or part-repayment) of a debt is the most likely example of a
transaction that may be viewed as a preference. Other examples would be the
repayment of a guaranteed loan (see paragraph 31.39), the granting of a charge or
the return of goods obtained on credit.
31.33 Repayment of directors’ loan accounts
So far as company liquidations are concerned, one of the more common examples
of a preference would be in respect of a director causing a company to repay an
outstanding loan account owed to one or more of the directors.
31.34 Payments to creditors in relation to a
court order
Simply because a payment to a creditor is in respect of an order of court does not
prevent that payment being challenged as a preference where, otherwise, it would
be open to challenge - e.g. if a creditor had obtained a court judgement, payment of
that debt could still constitute a preference1. It would, though, still be necessary to
--- PDF page 13 ---
This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
show that all other features of a preference were present in the transaction for a
successful recovery.
1. Section 239(7)
31.35 Payment under an existing obligation
Simply because a payment is given by a debtor under an existing obligation (such as
a pre-agreed repayment plan) does not mean that it is not a preference. The relevant
date for deciding whether a preference has taken place is the date of the payment
and not the date that the decision was taken to make the payment1.
Conversely, the date of the desire to prefer (see paragraph 31.24) is the date of the
decision to make the payment, whereas the date to decide whether a preference has
taken place is the date of the payment (see paragraph 31.25).
1. Willis and another v Corfe Joinery Ltd [1998] 2 BCLC
31.36 Delay in payment of new debt
Where there has been a delay in payment between the debt being incurred and the
payment being made, this may constitute a preference as the supplier has, in the
period between supply and payment, become a creditor. It has been held that this
circumstance should not automatically be viewed as a being a preference without
looking at the reasons behind the delay – for example, the person with authority to
make the payment may have been unavailable during the relevant period1.
1. Re Brian D Pierson (Contractors) Ltd BCC 26
31.37 Return of goods – retention of title
Where goods supplied on credit are returned to a supplier, this would normally
constitute a preference (assuming all the other features were present) as those
goods would otherwise be available to the estate for the benefit of the general body
of creditors. Where, however, those goods were supplied on a “retention of title”
basis there cannot be a preference if they were returned as this would have
happened as a result of the making of the winding up or bankruptcy order anyway.
On the other hand, a preference may have taken place where the returned goods
that were subject to a retention of title clause were perishable or in some other way
affected adversely by the passage of time (perhaps, seasonal goods). The early
return of the goods would have the effect of putting the creditor in a better position
--- PDF page 14 ---
This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
than they would have been if they had re-claimed the goods following the making of
the winding-up or bankruptcy order – when the goods may have devalued.
31.38 Giving up an asset to a creditor
A transaction does not have to involve a cash payment to be considered a
preference. For example, the giving up of an asset to a creditor can be considered to
be a preference and the asset or, where this is not possible, the value of the asset
transferred should be recovered.
31.39 Guarantee debts
Where a debtor pays a debt which is guaranteed, it may be that the motivation was
to put the guarantor in a better position, rather than the creditor. In these
circumstances the recovery action may be made against the creditor or guarantor.
Recovery may be made against the creditor despite the debtor’s intention to prefer
the guarantor, rather than the creditor. If an order is made against the creditor, the
court may order that the guarantee be re-instated to prevent any injustice. Typically,
this will be experienced in company liquidations where the director causes the
company to pay or part-pay a debt that they had personally guaranteed.
Where a guarantee debt is secured on the insolvent’s property, there can be no
preference if it is repaid as the debt would be repaid anyway under the security in the
event of liquidation or bankruptcy (see paragraph 31.42). The repayment of any
resultant shortfall would, of course, be a preference if all other features were present.
31.40 Bank accounts
It is likely that a payment into a bank account will have been motivated by need to
have a place to put the monies, rather than a desire to put the bank in a better
position. Different considerations would apply where the debt to the bank was
covered by a guarantee (see paragraph 31.39).
That said, in certain circumstances, it may be considered that the bank was a
connected party (see paragraph 31.105) and, therefore, it would be presumed that
there was a desire to prefer (see paragraph 31.24). For a bank to be considered a
connected party (see paragraph 31.105) it will have to have been sufficiently
involved to have been considered a shadow director1, 2. It should be noted that,
whilst this is theoretically possible, it is improbable.
--- PDF page 15 ---
This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
Payments into or out of a bank account may constitute a voidable transaction (see
new guidance 32)
1. Section 251
2. Re a Company (No 005009 of 1987) (1988) 4 BCC 424
31.41 Creditor pressure
The most likely circumstance in which it may be viewed that a payment to a creditor
is not a preference is where that payment was made as a result of pressure applied
by the creditor. The pressure may be threats to bring legal or recovery action, or
threats to cease to supply the debtor – but, importantly, the threat(s) must be
genuine.
31.42 Payment to a secured creditor
Payment to a secured creditor would not normally be a preference as they would not
be getting any more than would be available to them following the making of the
winding-up or bankruptcy order. Things would be different, though, were the
payment over and above that which the secured creditor would have received in the
liquidation or bankruptcy proceedings.
31.43 The giving of a charge as a preference
Where there is the grant of a charge securing both pre-existing debts and new
monies, the recoverable preference may be in respect of the amount of the charge
that covers or seeks to cover the pre-existing debt only1.
The granting of a floating charge may also be challenged where there has been no
new benefit provided (see new guidance 32).
1. Burns v Stapleton (1959) 102 CLR 97
31.44 New consideration
Where the granting of a charge or other security to a creditor relates to new lending,
there cannot be a preference as there is no overall change in the position of the
debtor, even if the charge holder was an existing creditor of the debtor as payment is
matched with consideration.
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
Similarly, where there has been new consideration in the form of goods or services
supplied on credit there can be no preference.
Otherwise, suppliers or lenders may be discouraged from dealing with (and,
possibly, helping to rescue) a struggling business.
31.45 Right of set-off
Whilst a creditor reducing a debt under a right of set-off may, on the face of it,
appear to be a preference, it is unlikely to be so as it is usually instigated by the
creditor with no active involvement from the debtor1.
A preference may have taken place where a debtor allows the creation of a right of
set-off where none is allowed under law2 or where the debtor gives their consent to
the exercise of the right.
1. Re Exchange Travel Holdings [1996] BCC
2. Rule 14.25
31.46 Payment to a supplier in advance
Payment to a supplier in advance of the delivery of goods, or on “cash-on-delivery”
terms cannot be a preference as that supplier was not a creditor in respect of that
transaction.
31.47 Payment of a debt for the provision of
professional services
Where a debtor repays a debt to a professional advisor (perhaps, a solicitor or an
accountant), it is possible that they were motivated by a desire to retain the services
of that advisor at a difficult time, rather than to put them in a better position. In that
circumstance, it is unlikely to be a transaction open to challenge as a preference1.
1. Re Ledingham-Smith (A Bankrupt) [1993] BCLC 635
31.48 Knowledge available to immediate and
subsequent recipients of the property
The knowledge available to the recipient of the property is irrelevant so far as
deciding whether or not a preference has taken place. It matters not whether the
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and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
recipient was aware of, or ignorant of, the financial position of the debtor, as the Act
is concerned only with the motivations of the debtor (see paragraph 31.24). Even if
the creditor has received the preference honestly, and in good faith, this will not
alone prevent the recovery of the preference.
Where the property is transferred from the beneficiary of the transaction to a
subsequent party, the subsequent party is protected from being subject to an order
restoring the position (see paragraph 31.49) if the property was acquired in good
faith and for value1, 2. Where the person who acquired the property had knowledge of
the proceedings and surrounding circumstances, or is an associate or connected
person, then the onus to prove good faith is on that person and the property is
capable of recovery in the usual way1, 2.
1. Section 342(2)(a)
2. Section 241(2)(a)
31.49 Remedies - preferences
Unless the claim has been assigned (which is only possible in company cases – see
paragraph 31.19), only the office holder has the power to apply to court for an order
restoring the position where there is evidence that a company or individual has
entered into a transaction resulting in a preference1, 2.
The general principle is that, having decided that a preference has been made, the
court shall make such order as it thinks fit for restoring the position to what it would
have been if the company/individual had not entered into the transaction3, 4. In this
regard, the court has wide discretion as to the order it may make restoring the
position. The Act provides a “menu” of possible remedies5, 6 but the court is not
limited to those options. The order can be made against the recipient of the property
or their successors in title (but see paragraph 31.48 for an important defence for
innocent third parties).
1. Section 238
2. Section 339
3. Section 238(3)
4. Section 339(2)
5. Section 241(1)(a)-(f)
6. Section 342(1)(a)-(f)
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guidance available to official receivers as at 16 March 2020.
31.50 Discretion of court not to make order
It has been held that the court has discretion to decline to make an order restoring
the position (see paragraph 31.49) where, for example, to do so would result in a
hardship to the recipient1.
1. Re Paramount Airways Limited (in administration) [1993] Ch 223 CA
31.51 Effect of remedy on recipient of
property
When deciding on the appropriate remedy to be ordered to restore the position of the
estate, the court may also make an order providing for the extent to which the
recipient of the property who repays the debt or returns the property may prove in
the proceedings as a creditor1, 2.
1. Section 241(1)(g)
2. Section 342(1)(g)
31.52 Misfeasance – companies only
An action for misfeasance (see new guidance 32) may only arise where there has
been a financial loss to the company. The giving of a preference does not result in
any financial loss to the company – simply a change in the classification of the
company’s creditors and cannot, therefore, be a matter of misfeasance1.
1. Continental Assurance Co of London plc [2001] BPIR 733
Transactions at an undervalue
31.53 Introduction
The provisions of the Act relating to transactions at an undervalue1, 2 allow the office-
holder to challenge the gifting or undervalue transfer of property entered into by the
insolvent in the period leading up to the commencement of the winding-up or
bankruptcy.
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
The ability of the liquidator or trustee to challenge such transactions is subject to
time limits (see paragraph 31.60), the financial position of the company/debtor at the
time of the transaction (see paragraph 31.63), the relationship between the
company/debtor and the recipient of the property (see paragraph 31.64) and the
purpose of the transfer.
Crucially, unlike similar provisions relating to transactions defrauding creditors3 (see
new guidance 32) there is no requirement to show that the transaction was carried
out with the intention to put assets out of the reach of creditors, it is enough to show
that the transaction was, in fact, a transaction at an undervalue.
1. Section 238
2. Section 339
3. Section 423
31.55 Realising transactions at an undervalue
The following are the areas on which the official receiver should, ideally, obtain
information before instructing the contractor (Clarke Wilmott) and include on the
‘details of conduct/transaction’ section of the ARIA form:
•
any connection between the beneficiary and the insolvent
•
the date of insolvency (as opposed to the date of the order)
•
details of any assets transferred
•
the date of the transfer
•
the valuation of the assets transferred and details of the basis for this valuation
•
details of any consideration given for the asset
•
any explanations given by the bankrupt or the insolvent for the transaction
•
evidence of the asset position of the beneficiary
31.56 Transactions defrauding creditors
In addition to the provisions relating to transactions at an undervalue, the Act
contains provisions allowing for the challenge of undervalue transactions where an
intention to put assets out of the reach of creditors can be shown1.
Whilst the need to show an intention to put assets out of the reach of creditors
makes this provision less useful to challenge suspect transactions, it does have the
positive feature of having no time limit as regards the date in which the transaction
must have taken place to be recoverable.
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guidance available to official receivers as at 16 March 2020.
1. Section 423
31.57 Types of transaction that may be
considered as undervalue
The following transactions are identified in the Act as being those that are capable of
displaying “undervalue”:
•
a gift or transaction to a person on terms that provide for the company/individual
to receive no consideration1, 2
•
a transaction for a consideration the value of which, in money or money’s worth,
is significantly less than the value, in money or money’s worth, of the
consideration provided to the company/individual3, 4
•
a transaction with a person in consideration of marriage or the formation of a
civil partnership (bankruptcy only)5
1. Section 238(4)(a)
2. Section 339(3)(a)
3. Section 238(4)(b)
4. Section 339(3)(b)
5. Section 339(3)(c)
31.58 Person entering into the transaction
must be the insolvent
For a transaction to be voidable under the provisions of the Act, it must have been
entered into by the insolvent (rather than a third party). The sale of property by a
mortgagee under power conferred under its security would not, therefore, be a
relevant transaction1 – but the transaction could still be “attacked”2.
Conversely, the court has held that a sale of property by a receiver could be a
relevant transaction and open to challenge, as the receiver can be considered to be
an agent of the company and its directing mind at the time of the transaction3.
1. Re Brabon [2000] BCC 1171
2. Corbett v Halifax Building Society [2002] EWCA 1849
3. Demite Ltd v Protec Health Ltd [1998] BCC 638
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
31.59 Definition of transaction
The word “transaction” is defined in the Act to include “a gift, agreement or
arrangement”1. The definition can be taken to include the provision of services, loans
or property and guarantees and does not require that the transaction takes place
under a formal agreement such as a contract.
1. Section 436
31.60 Relevant time
For a transaction at an undervalue to be successfully challenged, it must have taken
place within a certain time period (see paragraph 31.61) and under a certain financial
circumstance (see paragraph 31.62).
31.61 Time period
In a compulsory liquidation the transaction must have been entered into within two
years of the “onset of insolvency”1 (for a compulsory liquidation the “onset of
insolvency” is the date of the presentation of the petition2).
In a bankruptcy the transaction must have been entered into within a period of five
years ending with the day of the presentation of the petition3.
Transactions that occur after the date of the presentation of the petition would be
automatically void4 5 (see new guidance 32 for information on voidable property
transactions).
1. Section 240(1)(a)
2. Section 129
3. Section 341(1)(a)
4. Section 127
5. Section 284
31.62 Time period - connected parties and
associates
The relevant time period is the same for connected parties or associates as it is for
unconnected parties. There is, though, some relevance to the relationship between
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and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
the recipient and the debtor as regards assumptions to be made regarding the
insolvency of the debtor (see paragraph 31.64).
31.63 Time period – financial position
In addition to the time limits detailed in paragraph 31.61, it is also necessary to show
that the company was unable to pay its debts at the time of the transaction or
became unable to pay its debts as a result of the transaction1. Evidence in support of
this would be items such as accounts and accounting information, demands for
payment from creditors or Crown departments or increasing overdrafts on bank
accounts.
So far as bankruptcies are concerned, if the transaction is more than two years prior
to the presentation of the petition, it is necessary to show that the debtor was
insolvent at the time of the transaction or became insolvent as a consequence of the
transaction2. Evidence in support of this would be documents such as accounts and
accounting information, demands for payment from creditors or Crown departments
or increasing overdrafts on bank accounts.
1. Section 249(2)
2. Section 341(2)
31.64 Financial position – connected parties
and associates
Where the beneficiary of the transaction is a connected party (see paragraph
31.105) or an associate, insolvency is presumed, unless the contrary can be shown1,
2.
In other words, where the beneficiary of the transaction is a connected party (see
paragraph 31.105) or an associate, the onus is on the insolvent (or the beneficiary)
to show that they (the insolvent) were not insolvent at the time of the transaction.
1. Section 240(2)
2. Section 341(2)
31.65 Consideration for money or money’s
worth
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
It is necessary to show that a transaction was entered into for no consideration or for
consideration that was significantly less than the true value of the property
transferred. There is no statutory definition of “significantly less” and courts have
tended to decide each case on the particular facts. In one case1 a difference of 10%
between the consideration and true value was held to be the result of a genuine
difference of opinion and, therefore, not a transaction at an undervalue. In another
case, a difference of 20% was held to be a transaction at an undervalue2.
1. Re Marini Ltd [2004] BCC 172
2. Gil v Baygreen Properties Ltd [2004] EWHC 1732 (Ch)
31.66 Valuation of consideration and of
property transferred
In order to decide whether property has been transferred for money or money’s
worth, it is necessary to value not only the property transferred (which should be
relatively straightforward assuming that records are available for the insolvent’s
affairs), but also the consideration received – which may not be quite so
straightforward. Paragraphs 31.69 to 31.72 outline the areas to be taken into account
when assessing the value of the property and paragraphs 31.73 to 31.77 give
information and advice of the matters to be taken into account when assessing the
valuation of the consideration given for the asset.
It should be noted, though, that it is not necessary to attribute an exact value to
either the item transferred or the consideration received1.
1. Clements (liquidator of HHO Licensing Ltd) v Henry Hadaway Organisation Ltd [2007] EWHC 2953 (Ch)
31.69 Value of property
The valuation of the property disposed of by the insolvent should be considered from
the perspective of the debtor, taking into account their position at the time of the
transaction1. For example, it may be acceptable for a debtor to dispose of property
for less than market value to ensure a quick sale to improve the cash position of a
business.
An assessment of the value of the property disposed of by the insolvent should
include only the actual value of the property, and not any consequent detriment to
the insolvent’s affairs (for example, damage caused to the business by the sale of a
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and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
key asset, perhaps to a competitor), unless that detriment was an agreed part of the
transaction.
1. Re MC Bacon Ltd [1990] BCC 78
31.70 Events affecting value subsequent to
transfer
The court may take subsequent events into account when deciding the actual value
of the property. For example, the sale of a life policy at a time that the debtor was
terminally ill. At the time of the sale the policy may have had no value but, on the
subsequent death of the debtor, it accrued a value. In this case the court took into
consideration the likely potential value at the time of the transaction1.
1. Reid v Ramalort Ltd [2004] EWCA Civ 800
31.71 Valuation – instructing agents
Where the official receiver is uncertain as to the value of property disposed of by the
insolvent, they should consider the use of agents to carry out a valuation.
31.72 Show that debtor had an interest in the
property
It is important to show that the debtor actually had an interest in the property
transferred to demonstrate that a transaction at an undervalue has taken place.
Where a third party has paid for an asset over which the debtor had use and
subsequently transferred, it is likely to be difficult to show that the debtor had a
beneficial interest1, 2.
1. Mears v Latif [2005] EWHC 1146
2. Pozzuto v Iacovides [2003] EWHC 431
31.73 Definition of consideration
The term “consideration” is not defined in the Act. In one legal dictionary1 it is defined
as “a compensation, matter of inducement, or [the giving of one thing of value for
another thing of like value], for something promised or done”. Consideration can take
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
the form of benefit to the recipient or detriment to the donor2 See paragraph 31.76 for
further information on detriment as consideration.
1. Mozeley & Whiteley’s Law Dictionary
2. Currie v Misa (1874-1875) LR 10 Ex 153
31.74 Retrospective consideration
For consideration to be considered valid in terms of the transaction, it should be
made in relation to that transaction and it should be understood by both parties that
payment is due under the transaction at the time that the goods or services are
provided1. It is not sufficient to give payment for the goods or services when there
was an original intention that they would be provided free – or, at least, no
agreement that they would be chargeable (for example, a director of a company
being paid retrospectively for “management services” in excess of their agreed
contract in the period leading up to winding-up). In such circumstances the
application of the provisions relating to the recovery of transactions at an undervalue
should be considered.
1. Lampleigh v Brathwait (1615) Hobart 105
31.75 Consideration provided by third-parties
For consideration to be considered valid, it need not be provided directly by the
recipient of the property – what is important is that the insolvent benefits from the
transaction. For example, it has been held that where company A agrees to sell an
asset to company B on terms that C agrees to enter into some collateral agreement
with A, the consideration for the asset will be the combination of any consideration
expressed in the agreement with B and the value of the agreement with C1.
1. Phillips v Brewin Dolphon Bell Lawrie [2001] 1 WLR 143 HL
31.76 Detriment as consideration
Detriment to the recipient of the property (for example, the giving up of some right
over the property of the insolvent) can be considered valid consideration so long as
that detriment was an intentional part of the transaction1.
An application for the recovery of a transaction at an undervalue where the stated
consideration was the waiving of a debt repayment succeeded as the court held that
the transaction would have been, in any case, a preference2.
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guidance available to official receivers as at 16 March 2020.
1. Agricultural Mortgage Corp plc v Woodward [1994] BCC 688 CA
2. Re Peppard [2009] BPIR 331
31.77 Transaction in consideration of
marriage – bankruptcy only
Historically, marriage has been considered to be a valid consideration in its own right
for the transfer of property1. Under the Act, however, any transaction in
consideration of marriage or the formation of a civil partnership is automatically a
transaction at an undervalue and is open to challenge2.
Similarly, it has been ruled that consideration in respect of love and affection or
similar emotional sentiments cannot be considered to have a value in excess of
nominal3 and, therefore, any gift or transaction where that is the only consideration is
likely to be open to challenge4.
1. De Mestre v West [1891] AC 264
2. Section 339(3)(b)
3. Moon v Franklin [1996] BPIR 196
4. Royscott Spa Leasing v Lovett [1995] BCC 502 CA
31.78 Transfers of property following
matrimonial proceedings
It has been held that, generally speaking and assuming the court is in full possession
of the facts when making the order, the spouse receiving property under a property
adjustment order in divorce proceedings (particularly, contested divorce
proceedings) is considered to have given consideration equivalent to the value of the
property transferred, since it is the responsibility of the court to effect a fair
distribution of the property of the marriage1 (see paragraph 31.79). In such cases,
the provisions of the Act in relation to transactions at an undervalue are not satisfied
and the order cannot be attacked as a transaction at an undervalue.
It is anticipated that applications to set aside property adjustment orders as
transactions at an undervalue will be rare.
1. Haines v Hill [2007] EWCA Civ 1284
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guidance available to official receivers as at 16 March 2020.
31.79 Responsibility of court to effect fair
division of property
It has been held that the responsibility of a Family Court is to seek to give a fair
division of matrimonial property which allows each party to go forward – a fair
division should not be confused with an equal division. One party may have greater
need to the property – for example, if they have responsibility for caring for children
of the marriage1.
1. Haines v Hill [2007] EWCA Civ 1284
31.80 Challenging property adjustment orders
In exceptional circumstances it may be possible for the trustee in bankruptcy to
demonstrate collusion, fraud, mistake, misrepresentation or some broadly similar
circumstances and, in this case, the transaction is capable of being challenged1. It
can be assumed that ancillary relief or property adjustment orders resulting from a
hard fought trial are far less likely to be tarnished by collusion or fraud on the
creditors than consent orders.
If property was transferred outside of the matrimonial proceedings, then it may be
possible to show that the court was not aware of the true position when making the
property adjustment order and, therefore, challenge to that order as a transaction at
an undervalue could be considered.
If the property adjustment order was made on the basis of a “clean break”, with the
court of the opinion that the property awarded was the only provision for the future
financial needs of the spouse, but it transpires that the other spouse is continuing
payments under a voluntary maintenance arrangement, or has returned to the former
family home, then the order may be open to challenge.
1. Re Kumar (a bankrupt) [1993] 1 WLR 225
31.81 Enquiries to make regarding the transfer
of property in matrimonial proceedings
Due to the need to establish the history, background and detail of the property
adjustment order, it is necessary for the official receiver to make enquiries into the
agreement reached by the divorcing parties.
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and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
The official receiver should obtain a copy of the property adjustment order and
consider this against other facts regarding the bankrupt’s affairs of which they are
aware. Apart from considering the bankrupt’s current circumstances (for example,
have they really left the former marital home, does the spouse have the stated
responsibility for childcare?), some consideration should be given to historical issues
to ensure that assets were not transferred outside of the matrimonial proceedings
(the usual enquiries, such as accounting for large sums expended or transferred).
31.82 Sale and lease-back schemes
Sale and lease-back schemes (sometimes called sale and rent-back schemes) are
designed to allow a homeowner to sell their property but remain living in it by
entering into a rental agreement with the purchaser. The benefit to the homeowner is
that there may be a release of equity from the property and/or a lowering of the
monthly accommodation expense (where the rent charged is lower than the
mortgage payments) without having to leave the property.
31.83 Sale and lease-back schemes as
transactions at an undervalue
Prior to regulation, the key feature of a typical sale and lease-back scheme was that
the property was usually sold to the business operating the scheme at less than the
true market value of the property. It is this aspect which may open the scheme up to
challenge as a transaction at an undervalue where the entering into the scheme is
followed by the bankruptcy of the former homeowner with the relevant time period.
Assuming that all the other features of a transaction at an undervalue are in place
then any agreement that provided for the property to be sold at less than its market
value should be challenged as a transaction at an undervalue. It is likely that a
below-market value sale of a property under one of these schemes would meet all
the relevant conditions to be challenged as a transaction at an undervalue.
The decision on how best to attack the agreement would normally be left to The
Service’s antecedent recovery contractor (Clarke Wilmott) but options available to
the sale and lease-back business are to restore the property to the bankruptcy estate
(holding the rights of the original chargeholder – assuming they were paid in full) or
making good the loss to the estate.
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and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
31.84 Sale and lease-back agreement as a
transaction defrauding creditors
Where it can be shown that the sale of the property was conducted with the intention
of putting assets beyond the reach of creditors, then the sale may be challenged as
a transaction defrauding creditors (see new guidance in 32). The official receiver
would not normally attack the transaction under these provisions, but seek recovery
as a transaction at an undervalue.
31.85 Sale and lease-back agreement fees as a
transaction at an undervalue
Prior to regulation of the sector, it was not unusual for a sale and lease-back scheme
to involve fees that might be described as exorbitant or, certainly, unreasonable. It is
likely that the fees paid will be in excess of any true value in the service provided by
the sale and lease-back business. Where the official receiver considers this to be the
case, any unreasonable fees may be recovered as a transaction at an undervalue.
31.86 Public sector Mortgage to Rent Scheme
The Mortgage Rescue Scheme (“MRS”) is a programme of schemes operated in the
public sector to support homeowners in financial difficulties.
Under the MRS, a homeowner whose house is at risk of repossession can apply to
their local authority for assistance and support. One of the schemes available under
MRS is the Mortgage to Rent Scheme. Under this scheme, the local authority
(liaising with the CAB) can negotiate a sale of the property to a Registered Social
Landlord (“RSL”), who will then rent the property back to the former homeowner.
Unlike many commercial “sale and leaseback” schemes, one of the key features of
the Mortgage to Rent scheme is that the property is purchased by the RSL at market
value, following an independent valuation. 10% of the sale price is used to deal with
the costs of the conveyance of the property to the RSL.
The fact that the property is transferred at market value means that a property dealt
with under the Mortgage to Rent scheme is unlikely to be challengeable as a
transaction at an undervalue. The official receiver should, though, inspect paperwork
relating to the transfer to satisfy themselves that there are no matters of concern.
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and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
31.87 Payments to employees
Where a payment is made under contract, it would be difficult to argue that the
transaction was undervalue, as it is likely that the employee would have provided
services to the value of the payment made.
Where a payment is made outside of the contract, such as a bonus, it may, in theory,
be open to challenge as a transaction at an undervalue. In a liquidation, however,
such a payment may be defended as one made in good faith to the benefit of the
company – where the goodwill of the employee was necessary during a difficult
period financially. A payment made upon termination of employment would be harder
to justify on the same basis. This defence is not available in a bankruptcy.
31.88 Birthday, Christmas or other
conventional gifts
The fact that a gift is given as a present for a birthday, Christmas or other, similar,
celebration or event does not prevent it being open to challenge under the Act. The
official receiver, as liquidator or trustee, should seek to recover the gift if this is,
otherwise, worthwhile when the value of the item is taken into consideration.
31.89 Purchase of goods or services at an
inflated price
It is not just the disposal or undervalue sale of property that could be considered to
be a transaction at an undervalue. The purchase of goods or services at an inflated
price would also be caught under the relevant provision.
31.90 Offset of a debt by the transfer of
property
Where a debtor offsets a debt by the transfer of property to a creditor, this could be
considered to be a transaction at an undervalue if the property was worth more than
the debt owed. Of course, this transaction could also be challenged as a preference.
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and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
31.91 Rental of property as a transaction at an
undervalue
Property transferred on a temporary basis could constitute a transaction at an
undervalue. For example where property is rented out by the debtor for insufficient
consideration or, conversely, where property is taken on by the debtor on a rental
basis at an inflated price.
31.92 Guarantees given as a transaction at an
undervalue
Where a debtor gives a guarantee for the debts of a third-party, this is considered to
be a transaction at an undervalue which the official receiver, as liquidator or trustee,
may seek to attack as a means to recover any payments made under the guarantee
or to release the guarantee. Typically, this circumstance will arise where a company
has guaranteed the debts of another in the same group or where a bankrupt has
guaranteed the debts of a company of which they are a director.
31.93 Charges as transactions at an
undervalue
It has been held that where a debtor grants a charge, they do not dispose of property
of any value and, therefore, there cannot be a transaction at an undervalue1. The
granting of a charge could be open to challenge as a preference.
The realisation of a charged assets has the effect of depleting the debtor’s assets
but also the depletion, or extinction, of the liability secured by the charge and,
therefore, there cannot be a transaction at an undervalue.
The sale of an asset at undervalue by a chargeholder could nevertheless give rise to
a claim against the vendor2.
1. Re MC Bacon Ltd [1990] BCLC 325
2. Corbett v Halifax Building Society [2002] EWCA 1849
31.94 Remedies - transactions at an
undervalue
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guidance available to official receivers as at 16 March 2020.
Unless the claim has been assigned (which is only possible in company cases – see
paragraph 31.19) the office holder has the power to apply to court for an order
restoring the position where there is evidence that a company or individual has
entered into a transaction at an undervalue1, 2.
The general principle is that, on hearing such application, the court shall make such
order as it thinks fit for restoring the position to what it would have been if the
company/individual had not entered into that transaction3, 4. In this regard, the court
has wide discretion as to the order it may make restoring the position. The Act
provides a “menu” of possible remedies5, 6, but the court is not limited to these
options. The order can be made against the recipient of the property or their
successors in title (though, see paragraph 31.96 for an important defence for
innocent third parties).
1. Section 238
2. Section 339
3. Section 238(3)
4. Section 339(2)
5. Section 241(1)(a)-(f)
6. Section 342(1)(a)-(f)
31.95 Discretion of court not to make order
It has been held that the court has discretion to decline to make an order restoring
the position (see paragraph 31.94) where, for example, to do so would result in a
hardship to the recipient1. Examples of this may be where the insolvent passed
property to a charity or to employees at the cessation of trade.
The court may exercise discretion not to make an order even where there is
evidence that a transaction at an undervalue had taken place – where, for example,
the transaction was undertaken to correct a mistake in an earlier conveyance2.
The court will also consider whether it is worthwhile making the order when the effect
of the order may be to restore the insolvent to a worse position than arrived at
following the transaction3.
1. Insolvency Act 1986 section 342(1)(a)-(f)
2. Re Paramount Airways Limited (in administration) [1993] Ch 22
3. Singla v Brown and another [2007] EWHC 405 (Ch)
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
31.96 Transactions in good faith – companies
only
The court cannot make an order restoring the position (see paragraph 31.94) if it is
satisfied1
•
that the company entered into the transaction in good faith and for the purpose
of carrying on its business, an
•
that at the time it did so there were reasonable grounds for believing that the
transaction would benefit the company.
The general principle here is that the court should be satisfied that a reasonable
board of directors could have genuinely considered the transaction to be beneficial to
the company and the continuation of its business. Hindsight is irrelevant so far as
deciding these matters is concerned.
This defence is not available in a bankruptcy case.
1. Section 238(5)
31.97 Position of immediate and subsequent
recipients of the property
The position of the recipient of the property is irrelevant so far as deciding whether or
not a transaction at an undervalue has taken place. It matters not whether the
recipient was aware of, or was ignorant of, the financial position of the debtor1.
Where the property is transferred from the recipient to a third party, the third party is
protected from being subject to an order restoring the position if the property was
acquired in good faith and for value2 3. Where the third party who acquired the
property had knowledge of the proceedings and surrounding circumstances, or is an
associate or connected person, then the onus to prove good faith is on that person2 3.
1. Re Barton Manufacturing Co Ltd [1998] BCC 827
2. Section 241(2)(a)
3. Section 342(2)(a)
31.98 Effect of remedy on recipient of
property
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
When deciding on the appropriate remedy to be ordered to restore the position of the
estate, the court may also make an order providing for the extent to which the
recipient of the property may prove in the proceedings as a creditor1, 2
1. Section 241(1)(g)
2. Section 342(1)(g)
31.99 Misfeasance – companies only
The entering into a transaction at an undervalue may constitute a misfeasance and
breach of duty on the part of the director(s) and, therefore, the liquidator may also
consider bringing an action for misfeasance1.
The advantage of this over an action to recover a transaction at an undervalue is that
an order can be made against the director(s) to repay the sums personally.
An action for misfeasance may be brought alongside an action to recover a
transaction at an undervalue, though the loss may only be recovered once and any
sums recovered must not exceed the amount originally lost to the company.
1. West Mercia Safteyware v Dodd [1998] BCLC 250
Common themes
31.100 Summary
Several of the provisions in the Act relating to antecedent recoveries have common
themes, such as a presumption of intent for parties associated to the insolvent or the
consequence of insolvency at a relevant time.
The following paragraphs provide a reference source for other parts of this guidance.
31.101 Commencement of a winding up
Where an order is made for the winding-up of a company by the court, the winding-
up is deemed to commence at the time of the presentation of the petition1. The use
of the word “time” in the relevant provision of the Act would suggest that the winding-
up begins at the precise time of the day that the order was made.
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
If the company was in voluntary liquidation prior to the making of the compulsory
winding-up order then the commencement is the time when the resolution for
winding-up was passed, though dispositions in the voluntary winding-up are deemed
to be valid unless the court, on proof of fraud or mistake, directs otherwise.
If the winding-up follows an administration, the commencement of the winding-up is
the date of the making of the administration order.
1. Section 129(2)
31.102 Commencement of bankruptcy
A bankruptcy commences on the day on which the order is made1.
1. Section 278
31.103 Inability to pay debts - companies
For a company, the circumstances in which it is deemed to be unable to pay its
debts are listed in the Act1:
•
if a creditor in a sum exceeding £750 has served the company with a statutory
demand requiring the company to pay the sum due and the company has, for a
period of three weeks, failed to pay the sum due2
•
if an execution or other process issued on a judgement, decree or order of any
court in favour of a creditor of the company is returned unsatisfied in whole or in
part3
•
if it is proved to the satisfaction of the court that the value of the company’s
assets is less than the amount of its liabilities4
If there are unpaid invoices, it may be inferred that the company is unable to pay its
debts5.
In the case of a transaction at an undervalue, where the recipient of the property is a
connected party (see paragraph 31.105), there is an assumption that the company
was unable to pay its debts at the relevant time, unless it can be shown otherwise6.
1. Section 123
2. Section 123(1)(a)
3. Section 123(1)(b)
4. Section 123(2)
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
5. Taylor’s Industrial Flooring [1990] BCC 44
6. Section 240(2)
31.104 Insolvency – bankruptcy
In a bankruptcy case, with regard to a transaction at an undervalue or a preference,
the individual is considered to be insolvent if:
•
they are unable to pay their debts as they fall due1, or
•
the value of their assets is less than the amount of their liabilities2
For transactions at an undervalue there is a presumption of insolvency, unless the
contrary can be shown, where the transaction was entered into with an associate
(see paragraph 31.106) of the debtor (other than by reason of employment3.
1. Section 341(3)(a)
2. Section 341(3)(b)
3. Section 341(2)
31.105 Connected parties (company)
Under the provisions of the Act, a person is connected with a company if:
•
they are a director or shadow director of the company or an associate (see
paragraph 31.106) of such a director or shadow director, or
•
they are an associate (see paragraph 31.106) of the company
A shadow director is defined in the Act as “a person in accordance with whose
directions or instructions the directors of the company are accustomed to act”. The
Act goes on to give an exemption where the advice is given in a professional
capacity1.
1. Section 251
31.106 Associates - general
Under the definition provided by the Act, a person is an associate of an individual if
that person is:
•
the individual’s husband, wife or civil partner
•
a relative (see paragraph 31.108) of:
o the individual, or
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
o the individual’s husband, wife or civil partner, or
•
the husband or wife or civil partner of a relative of –
o the individual, or
o the individual’s husband or wife or civil partner1
Additionally, a person is an associate (see paragraph 31.106) of any person with
whom they are in partnership, and of the husband or wife or civil partner or a relative
of any individual with whom they are in partnership2.
Further, a person is an associate (see paragraph 31.106) of any person whom they
employ or by whom they are employed3. A director of a company is treated as an
employee of the company4. Note, though that an employee does not count as an
associate (see paragraph 31.106) for the provisions of Act relating to the
presumption of desire to prefer (see paragraph 31.24).
1. Section 435(2)
2. Section 435(3)
3. Section 435(4)
4. Section 435(9)
31.107 Reputed husband, wife or civil partner
References in the relevant provision of the Act to husband, wife or civil partner are to
be taken to include a former or reputed husband, wife or civil partner1.
It has been held that the phrase ‘reputed husband, wife or civil partner’ refers to a
couple who, although not married, hold themselves out to be husband and wife – for
example, where the woman had taken their partner’s name as if they were married.
The court has held that the phrase means the ‘habit or reputation’ of marriage and
does not include couples who simply co-habit. Even if a couple are in a relationship
which has all the features of a marriage, they are not considered to be ‘reputed
husband, wife or civil partner’ unless they hold themselves out to be husband and
wife or civil partners2.
1. Section 435(8)
2. Smutwaite v Simpson-Smith and Mond (No.2) [2006] BPIR 1438
31.108 Relatives
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
A relative of a person is defined as “the individual’s brother, sister, uncle, aunt,
nephew, niece, lineal ancestor or lineal descendant”. The Act goes on to state that
any relationship of the half-blood is to be considered of the full-blood and the
stepchild or adopted child of a person is to be considered as their child. Additionally,
an illegitimate child is to be considered the legitimate child of their mother and
reputed father1, 2.
1. Section 435(8)
2. Smutwaite v Simpson-Smith and Mond (No.2) [2006] BPIR 1438
31.109 Associate of a company
A company is an associate of another company if:
•
the same person has control (see paragraph 31.110) of both, or
•
a person has control (see paragraph 31.110) of one and persons who are their
associate (see paragraph 31.106) or themselves and persons who are their
associate (see paragraph 31.106), have control of the other, or
•
a person has control (see paragraph 31.110) of one and themselves and
persons who are their associate (see paragraph 31.106) have control of the
other
•
a group of two or more persons has control of each company, and the groups
either consist of the same persons, or could be regarded as consisting of the
same persons by treating (in one or more cases) a member of either group as
replaced by a person of whom they are an associate. For example, if one
company is controlled by a husband and wife and the other is controlled by that
same husband and their wife’s brother1
The relevant provisions apply to companies in countries outside England and Wales
(that is, a company outside England and Wales can be considered to be connected
to a company registered in England and Wales)2.
1. Section 435(8)
2. Smutwaite v Simpson-Smith and Mond (No.2) [2006] BPIR 1438
31.110 Control of a company
A person is considered to have control of a company if1:
•
the directors of the company (or of another company which has control of it) are
accustomed to act in accordance with their directions or instructions, or
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 16 March 2020.
•
they are entitled to exercise, or control the exercise of, one third or more of the
voting power at any general meeting of the company or another company that
has control of it;
Where two or more persons together satisfy either of the above conditions, they are
to be taken as having control of the company.
1. Section 435(8)
31.116 Antecedent recoveries and deceased
insolvents
The provisions in the Act relating to antecedent recoveries apply to deceased
insolvents (see chapter 54) as they do to bankrupts with one small amendment. The
time limits for seeking an order to recover a preference, or a transaction at an
undervalue, ends not with the making of the bankruptcy petition, but with the death of
the debtor.
31.117 Antecedent recoveries – misconduct
Antecedent recoveries are made under civil law although the facts giving rise to such
recoveries may also lead to prosecutions for criminal offences and may be
considered in disqualification proceedings or as conduct befitting a Bankruptcy
Restriction.
In the period leading up to the formal insolvency, persons connected with a company
or the individual subject to bankruptcy may have been aware of the difficulties and
impending failure in advance of creditors. It is possible that steps may have been
taken to reduce some liabilities rather than others, to give some advantage over the
general body of creditors or to undertake some other transaction which would put
assets beyond the reach of creditors. It is necessary to consider whether any actions
have been taken to subvert the equitable principles of insolvency taking into
consideration when the company or individual first became insolvent or became
insolvent for the last time and whether the actions adversely affected creditors
generally.
Advice on the misconduct aspect of an antecedent recovery may be found in the
Enforcement Investigation Guide.
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 10 March 2020.
32. Antecedent recoveries – other
antecedent recoveries
Chapter content
Introduction
Realisation of antecedent recoveries
Antecedent recoveries – Common themes
Avoidance of charges - Companies only
Recoveries from directors and other company officers
Avoidance of dispositions
Extortionate credit transactions
Transactions defrauding creditors
Avoidance of general assignment of book debts (bankruptcy only)
Recovery of excessive pension contributions
Introduction
32.1 Introduction
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The main purpose of liquidation and bankruptcy proceedings is to effect an orderly
and equitable realisation and distribution of assets for the general benefit of creditors
and contributories. If some act occurs in the run-up to the insolvency which leads to
one or more creditors being treated more favourably than another, the transaction
may give rise to recovery rights by the liquidator or the trustee. Similarly, if a person
other than a creditor has benefited from the company or bankrupt to the detriment of
creditors generally, the Insolvency Act (The Act) may provide a remedy. These
remedies would generally be termed “antecedent recoveries”. The Act provides the
liquidator or the trustee with opportunities to recover assets/monies and/or to avoid
certain events for the benefit of all creditors.
32.2 Scope of this guidance
This guidance gives advice and information on forms of antecedent recovery other
than preferences and transactions at an undervalue (which are covered in 31 –
Antecedent recoveries).
Realisation of antecedent recoveries
32.3 Identifying potential recoveries
The recoveries referred to in this guidance are not likely to be scheduled as assets in
the bankrupt’s application or the Preliminary Information Questionnaire
(PIQB/PIQC). The information contained therein, however, may be used to establish
the occurrence of an event/transaction which could lead to recovery action. For
instance, transactions which have removed property from the company’s or the
bankrupt’s estate.
Where a property or other asset, (collectively referred to as property), has been sold
or otherwise transferred the official receiver, acting as liquidator or trustee, should
seek to satisfy themselves that the property was transferred at a fair market value.
Any transaction with a relative or associate of the company or bankrupt should be
investigated.
32.4 Antecedent recoveries contractor
The Service has an agreement with Clarke Willmott for them to act in all antecedent
recovery matters) on the official receiver’s behalf. Paragraphs 31.5 to 31.15 give an
overview of the agreement and procedures relating to it.
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32.5 Further guidance
Further guidance on the realisation of antecedent recoveries can be found in
paragraphs 31.16 to 31.21
Antecedent recoveries – common themes
32.6 See paragraphs 31.100 – 31.117 for
guidance on common themes
Avoidance of charges - companies only
32.7 Avoidance of charges – general
Charges can be avoided on two grounds:
•
due to provisions in The Act relating to the creation of floating charges in the period
leading up to winding-up (these are covered paragraphs 32.9 to 32.23), or
•
due to provisions in the Companies Act 2006 relating to the non-registration of
charges (which are covered in paragraphs 32.24 to 32.31).
32.8 Realising antecedent recoveries
As explained in paragraphs 31.16 or 31.21, all antecedent recoveries are handled by
The Service’s antecedent recovery contractor.
32.9 Floating charges – general
A floating charge is a charge on property that is constantly changing in value and
identity (for example, stock, book debts and work in progress). Although rare, it is
theoretically possible for a fixed charge to be created over changing assets1.
The essential characteristic of a floating charge which distinguishes it from a fixed
charge is that a floating charge does not attach to a specific item of property. The
holder of a floating charge has no right to possession of the assets covered by the
charge until one of the events specified in the charge instrument causes the charge
to crystallize2. In the meantime, the chargor is left free to use the charged asset and
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remove it from the charge without the prior consent of the chargeholder3. When the
property passes out of the ownership of the company (due, for example, to the sale
of the item), it ceases to be subject to the charge. Conversely, where the company
acquires property, for example, the purchase of new stock, that stock will become
subject to the charge.
1. Re Cimex Tissues Ltd [1994] BCC 626
2. Cimex Tissues Ltd [1995] 1 BCLC 409
3. Re Spectrum Plus Ltd (in liquidation) [2005] 2 AC 680
32.10 Avoidance of floating charges under the
Insolvency Act 1986 – purpose of provisions
The Act contains provisions to ensure that creditors who obtain floating charges in
the period leading up to the winding-up do something to deserve the charge and are
not simply seeking to convert unsecured debt into secured debt. The consequence
being that they are put into a better position in the event of the company being
wound up1.
1. Section 245
32.11 Avoidance of floating charges -
administration
It should be noted that the provisions of The Act dealing with the avoidance of
charges includes charges created in the lead up to an administration. This aspect is
not dealt with in any detail in this guidance because it does not apply to the work of
the official receiver. Suffice to say that the principles and effects of those provisions
are largely the same as those relating to compulsory liquidation.
32.12 Avoidance of floating charges under the
Insolvency Act 1986 – general principles
The general principle of the provisions in The Act relating to the avoidance of floating
charges is that a floating charge created in the period leading up to the winding-up of
the company) is automatically void unless the charge relates to the provision of new
monies, goods or services, or the discharge or reduction of a debt1 (see paragraphs
32.14 – 32.22). The provisions do not cover fixed charges unless that charge was
originally created as a floating charge2. The granting of a fixed charge may be
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challenged as a preference (see guidance on preferences in paragraphs 31.22 –
31.52)
1. Section 245(2)
2. Section 251
32.13 Relevant time
The period during which the creation of a floating charge would be avoided under the
provisions in the Act are as follows:
•
for connected parties (see paragraph 31.105), two years ending with the presentation
of the winding up petition1. The company need not have been insolvent at the time of
the creation of the charge
•
for non-connected parties, 12 months ending with the presentation of the winding up
petition2 and with the company being unable to pay its debts at the time of the
creation of the charge or if it became unable to pay its debts as a consequence of
the transaction under which the charge was created3
Whether a person is connected or not is relevant at the date of the charge rather
than the date of winding up. If the person subsequently changes status, from
connected to unconnected or vice-versa, it will not affect the relevant time
consideration.
1. Section 245(3)(a)
2. Section 245(3)(b)
3. Section 245(4)
32.14 Giving of new value
As outlined in paragraph 32.14, a floating charge granted during the relevant time
(see paragraph 32.13) is automatically void except to the extent that there is a
corresponding benefit to the company. This is commonly referred to as “new value”
The Act provides that new value is the aggregate of1
•
money paid, or goods or services supplied2
•
the discharge or reduction of any debt of the company3
•
interest payable in relation to the above4
A creditor would be able to rely on their charge and therefore have a higher priority in
the liquidation to the extent that the charge related to the amount of new value
outlined above. Other sums owing under the charge would fall to be dealt with as an
unsecured debt.
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Crucially, the new value must be given either at the same time as the charge is
granted or following the granting of the charge to qualify for the exception.
1. Section 245(2)
2. Section 245(2)(a)
3. Section 245(2)(b)
4. Section 245(2)(c)
32.15 Goods or services as new value
The terms “goods” or “services” are not defined in The Act. The service would
normally be expected to involve the provision of skill or labour, or the provision of
facilities. There is also some doubt as to what is covered by the term “goods”. In the
definition given in the Sale of Goods Act1 many forms of consideration which arise in
the normal course of business would be excluded.
In the absence of any case law on the matter it is thought that the terms goods and
service should be given the widest interpretation for the purpose of these provisions
of The Act. Ultimately, where there is doubt as to whether or not goods or services
have been provided it is advisable to seek the advice of Clarke Willmott prior to a
formal instruction.
1. Sale of Goods Act 1979 section 61(1)
32.16 Money as new value
For money to qualify under the “new value” exception it would be necessary for the
beneficiary of the charge to make a transaction in the manner of a money payment.
This does not necessarily have to be cash. It may be a cheque or a direct bank
transfer. It is important that there is a real payment of money. It will not be sufficient
for the monies to be paid and then immediately returned to the beneficiary. Likewise
an agreement not to press for repayment of a debt does not qualify as a money
payment. In short, the company must receive a money payment that it can keep and
use1.
1. Re Matthew Ellis Ltd [1933] Ch 458
32.17 Discharge or reduction of a debt as new
value
There is no special interpretation to be applied to the term “discharge or reduction of
a debt” when deciding whether the transaction constitutes “new value”. It should be
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noted that the debt discharged or reduced does not have to be one owing to the
person obtaining the charge, it may be a debt owed to a third party. The important
thing is that the charge is given in consideration of the reduction (see paragraph
32.20).
32.18 Interest as new value
As well as applying to new money, new goods or services or the discharge or
reduction of a debt, the extent to which a charge is not avoided can also apply to
interest payable on the charged debt. The interest should be at a reasonable level
and, where it is not, may not be permitted.
An unreasonably high level of interest may also be challenged as an extortionate
credit transaction (see guidance on Extortionate Credit Transactions later in this
guidance).
32.18 Valuation of the new value
So far as new lending or the discharge or reduction of a debt are concerned, it is
unlikely that there would be any question as to the value of the transaction as each
of these would be a straight money transaction. That is, the amount due under the
charge should relate directly to the amount lent or debt reduced plus any interest
payable.
For goods or services provided as new value the official receiver as liquidator should
be concerned with the actual value of the goods or services at the time of the
transaction and not the price agreed between the company and the chargee1. Where
necessary the official receiver should consider the use of agents to undertake a
valuation.
1. Section 245(6)
32.19 New value must be at same time as
giving of charge
In addition to being for new value, the provision of the new monies, goods or
services, or reduction of a debt that led to the creation of the charge, must have
been in consideration of the charge. That is, given or paid at the same time as, or
subsequent to, the creation of the charge in order for the charge not to be avoided.
So far as new monies, goods or services are concerned, the new value must have
been provided directly to the company to do with as it wishes1. It cannot come with
“strings attached”.
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The only circumstance where a charge may be created after the transaction would
be where there is an equitable charge created by agreement, but formal execution of
the charge has yet to take place2. That said, if the equitable charge is not registered
within 21 days of creation it would be automatically void under provisions in the
Companies Act 2006 (see paragraph 32.24)
1. Section 245(2)(a)
2. Power v Sharp Investments Ltd [1994] 1 BCLC 111
32.20 Delay between transaction and charge
A very short delay between transaction and charge may only be allowed if that delay
was so short as to be trifling - even where the delay is not the beneficiary’s fault. An
example of a coffee break between the two events has been given. It does not
matter whether the delay was excusable or inexcusable1.
1. Power v Sharp Investments Ltd [1994] 1 BCLC 111
32.21 Consideration for the charge in
“running” accounts
Whilst there is a general principle that any floating charge created over existing debt
would be void, it is possible to effectively convert unsecured debt into secured debt
in running or ongoing accounts. For example, where a company owes a debt to a
creditor, it may give a floating charge to that same creditor in respect of which further
lending is granted to validate the charge. Subsequently, when the company makes a
repayment to the creditor this payment will be allocated to the earlier unsecured,
debt, thereby reducing the proportion of unsecured debt in relation to the secured
debt1.
1. Re Yeovil Glove Co Ltd [1965] Ch 148
32.22 Effect of the avoidance of the floating
charge
The main effect of the avoidance of the floating charge is that the creditor will, to the
extent that the charge does relate to “new value”, lose their status as a secured
creditor and charged assets will become free to be dealt with in the liquidation.
The avoidance has no effect on the amount of the debt owed but simply that any part
of the debt that does not relate to “new value” can not be covered by the floating
charge and thus remains unsecured1.
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1. Re Parkes Garage (Swadlincote) Ltd [1929] 1 Ch 139
32.23 Date of avoidance
The charge becomes invalid as of the date of the winding-up rather than back-dated
to the date of the creation of the charge. Therefore, any payments made under the
charge prior to the winding-up are not open to challenge under these provisions, but
may be open to challenge as a preference (see guidance on preferences in
paragraphs 31.22 – 31.52).
On the basis of this principle, the avoidance of the charge would end the
appointment of any administrative receiver appointed under the charge created in
the relevant, but would not have any affect on actions taken by the receiver in the
interim.
32.24 Avoidance due to non-registration of a
charge
The Companies Act 20061, contains provisions relating to the registration of
company charges. A charge must be registered with the Registrar of Companies
within 21 days of its creation or, 21 days of the date that the charged property was
acquired by the company2, failing which the charge is void against the liquidator3.
(see paragraph 32.29). In these circumstances the chargeholder would lose the
benefit of their security and would be treated as an ordinary unsecured creditor.
The provisions relate to charged property outside the UK4, though the time limit in
which the charge must be registered is different (see paragraph 32.28).
See paragraph 32.29 for details of the effect of the non-registration of a charge.
1. Companies Act 2006 part 25, chapter 1
2. Companies Act 2006 section 870
3. Companies Act 2006 section 874
4. Companies Act 2006 section 866
32.25 Action to be taken by the official
receiver
The official receiver should, in the normal course of events, carry out a search of the
register of charges maintained by the Registrar of Companies (see paragraph
32.27). Where there is evidence that a charge has not been registered correctly the
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official receiver should seek the appointment of The Service’s antecedent recovery
contractor, Clarke Wilmott, to take action to avoid the charge.
Where there is doubt as the validity of the charge the official receiver should obtain
the certificate issued by the Registrar of Companies when the charge was registered
(see paragraph 32.26).
32.26 Registration of a charge
The Companies Act 2006 specifies the types of charges which must be registered1.
In addition to the company itself, the charge may be registered by any person
interested in the charge2. This is effected by sending the particulars of the charge,
together with any instrument (document) by which the charge is created or
evidenced, to the Registrar of Companies3. The Registrar of Companies will enter
the particulars of the charge in the register4 (see paragraph 32.27) and issue a
certificate5, which is conclusive evidence that the relevant requirements of the
Companies Act have been satisfied6.
Where the property is in Scotland or Northern Ireland, it is sufficient to send to the
registrar a copy of the certificate issued by the registrar in that other jurisdiction,
rather than the instrument proving the charge7.
1. Companies Act 2006 section 860(7)
2. Companies Act 2006 section 860(3)
3. Companies Act 2006 section 860(1)
4. Companies Act 2006 section 869(4)
5. Companies Act 2006 section 869(5)
6. Companies Act 2006 section 869(6)(b)
7. Companies Act 2006 section 867
32.27 Register of charges
The Registrar of Companies is obliged to maintain, in respect of each company, a
register of all charges requiring registration under the relevant provisions1. The
register contains the following particulars2:
•
the date of its creation or, if the charge already existed on the property when it was
acquired by the company, the date of the acquisition
•
the amount secured by the charge
•
short particulars of the property charged
•
the persons entitled to the charge
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These details may be viewed at Companies House
1. Companies Act 2006 section 869(1)
2. Companies Act 2006 section 869(4)
32.28 Late registration
In certain cases the 21 day period for registration is automatically extended, for
example where the charged property is outside the United Kingdom and extra time is
usually needed to obtain a document proving the charge1 2.
Otherwise the 21 day period may only be extended with the sanction of the court3. In
those circumstances the court would need to be satisfied that the failure to obtain
registration in time was accidental and did not prejudice the position of the creditors
or shareholders of the company4.
1. Companies Act 2006 section 870(1)(b)
2. Companies Act 2006 section 870(2)(b)
3. Companies Act 2006 section 873
4. Companies Act 2006 section 873(1)
32.29 Effect of non-registration
Failure to deliver to the Registrar of Companies the particulars of a registrable
charge within 21 days of its creation may result in a fine for the company and any
officers in default1. Also the charge, so far as it confers security over the company’s
property, is void against the liquidator of a company or any creditor of the company2.
If the charge has not been correctly registered, the appointment of any receiver
under that charge will be invalid against the liquidator. The debt due to the charge
holder is not avoided but it would only rank as an unsecured debt in the liquidation.
Where the charge is avoided, the whole of the debt together with any interest due is
repayable on demand3.
1. Companies Act 2006 section 860(5
2. Companies Act 2006 section 874(1)
3. Companies Act 2006 section 874(3)
32.30 Rectification of errors and omissions
If there are errors or omissions in the particulars which were delivered to the
Registrar of Companies the company or an interested person may apply to court for
an order that the error or omission be rectified. This also applies to any charges
--- PDF page 12 ---
which have not been registered within the specified time. The court will need to be
satisfied that the omission was accidental and had not prejudiced the position of the
company’s creditors or shareholders1.
1. Companies Act 2006 section 873
32.31 Keeping of a register of charges by the
company
In addition to the requirements to furnish the Registrar of Companies with details of
the charge, a company must also maintain a register of charges1 which is open to
inspection2. Unlike the provisions regarding registration of the charge, failure to
maintain the register does not invalidate the charge, though it can result in a fine for
every officer who was in default3.
1. Companies Act 2006 section 876
2. Companies Act 2006 section 877
3. Companies Act 2006 section 876(4)
Recoveries from directors and other
company officers
32.32 Recoveries from directors – general
There are a number of different circumstances where a company director may be
liable to recoveries by the liquidator or creditors of a company. In summary those
circumstances may be categorised into three areas:
•
as a result of a breach of duty or misfeasance
•
following misconduct or breach of a specific statutory provision
•
as a debtor of the company – for example an overdrawn loan account
32.33 Recoveries from other persons
In certain circumstances recoveries may be made against persons other than the
director.
32.34 Actions by the company
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It is possible for a company to bring a claim against a director for negligence,
misfeasance, breach of statutory duty or breach of fiduciary duty under the common
law. The Act provides a mechanism for these types of claims to be brought by
creditors, contributories, the official receiver or the liquidator1. So far as concerns
these types of actions, this guidance will cover only the procedure for the official
receiver to bring actions under the Act.
1. Section 212
32.35 Importance of investigating potential
recoveries and seeking evidence of breach or
debt
The official receiver when investigating the affairs of a company1 should be aware of
any potential recoveries that may benefit the company. This may arise where there
has been a breach by the director or where the director owes the company money.
The official receiver, as liquidator, will need to establish that the director has
committed a breach or owes the company money and attempt to establish the
amount of compensation or debt that is due. The official receiver will also need to
check that any breach has not been sanctioned by the company.
The evidence that is likely to be appropriate will vary from breach to breach and from
company to company and it is not easy to give specific guidance. Studying the
examples of breaches and comparing the actions of the director to the requirements
the law should assist.
1. Section 132
32.36 Recoveries – general
Unlike other forms of antecedent recoveries, recoveries of the type covered by this
Part are not ‘recoveries’ at all in the strict sense of the word, as the court does not
necessarily seek to restore the company to a position that it would have been in had
a transaction not have taken place. Instead the court will seek to have the director
(or other liable person) pay compensation for the loss to the company caused by
their action/inaction. It is not intended that the payment should be punitive, that is, to
punish the director or other person1.
1. Morphitis v Bernasconi [2003] Ch 552
32.37 Recoveries for a breach of
duty/misfeasance
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A director has a duty to act in the best interests of the company and not, for
example, to seek personal profit when carrying out their role as director.
Where a director has misapplied, or retained, or become accountable for any money
or other property of the company, or been guilty of any misfeasance or breach of any
fiduciary duty (including a duty of care)1 in relation to the company2, the official
receiver, as liquidator, can bring a claim in the court, for the court to examine the
director’s conduct and compel them:
•
to repay, restore or account for the money or property or any part of it, with interest at
such rate as the court thinks just3, or
•
to contribute such sum to the company’s assets by way of compensation in respect
of the misfeasance or breach of fiduciary or other duty as the court thinks just4
These provisions apply equally to any of the company’s officers (including a shadow
director5 and a de-facto director)6 7 or a company secretary, and the order for
compensation may be apportioned between the directors as the court sees fit8
1. Re D’Jan of London Ltd [1993] BCC 646
2. Section 212(1)
3. Section 212(3)(a)
4. Section 212(3)(b)
5. Gemma Ltd v Davies [2008] BCC 812
6. Section 212
7. Section 206(3)
8. Re Morcambe Bowling Ltd [1969] 1 All ER 753
32.38 Dealing with a recovery from a director
When the official receiver establishes that a recovery/claim may be made against a
director of the company (see paragraph 32.37), they should pass the matter to the
Service’s antecedent recovery contractor.
In general the official receiver must ensure that they have carried out the full range of
functions necessary to fulfil their duties including pursuing bankruptcy proceedings
against a director or pursuing a forced sale of property/properties although prior
permission from the Senior Official Receiver’s team must be sought.
In taking any steps to make recoveries the official receiver must consider the
following:
•
the likely costs of taking the action and whether in the event the action is
unsuccessful that these costs will be indemnified by the contractor
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•
that the action must represent value for money and there should be a reasonable
prospect of a return to the estate after legal costs
Where bankruptcy proceedings are to be pursued then to avoid a conflict of interest,
the bankruptcy case should be dealt with by a different official receiver as trustee.
32.39 Directors’ duties
The Companies Act 2006 provides a statement of a director’s duties, which are split
between general duties and specific duties, as follows:
General duties
To promote the success of the company
To exercise independent judgement
To exercise reasonable care skill and diligence
To avoid conflicts of interest
Not to accept benefits from third parties
To declare an interest in a proposed transaction or arrangement with a company
Specific statutory duties
To declare an interest in existing transactions or arrangements
To have the company approve a substantial property transaction
To have the company approve loans or quasi-loans
To have the company approve a payment for loss of office
To obtain a trading certificate (see paragraph 31.4B.88F)
In connection with the company’s purchase of its own shares
Whilst this list is not exhaustive and other actions of a director may constitute a
breach, it should give some indication of the areas in which the official receiver
should direct their enquiries.
32.40 Examples of recoveries for breach of
duty/misfeasance
The following are examples of behaviours which could be classed as misfeasance or
a breach of duty:
•
the director has received monies or other consideration from the company, other than
the proper remuneration for services provided, which has resulted in a material loss
to the company1
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•
the director has authorised payments or other dispositions of property to
himself/herself or to connected persons which has resulted in a loss to the
company2 3
•
the director has been responsible for the improper investing or payment of the
company’s money4 5 6
•
the director has been responsible for the payment of dividends out of capital, illegal
or ultra-vires dividends/distributions7 8
•
the director has been responsible for the non-disclosure to the company of any
contracts, dealings or other transactions in which use was made of the company’s
assets or property, including goodwill, and which has resulted in a material loss to
the company9
•
the director has failed to disclose an interest in a property purchased by the
company10 11
•
the director has been responsible for any material loss to the company occasioned
by the sale, assignment, transfer or property other than in the normal course of
business12
•
the director failed to introduce a proper accounting system into the company13
•
the director paid redundancy to an ex-employee when none were due and overpaid
redundancy to another14
•
the director failed to read a proposal for insurance before signing it15
1. Re Halt Garage Ltd [1982] 3 All ER
2. Re Barton Manufacturing Ltd [1998] BCC 827
3. Mullarkey and others v Broad and another [2008] 1 BCLC 638
4. Re Pantone 485 Ltd, Miller v Bain [2002] 1 BCLC 266
5. Gillespie Investments Limited v Thomas Graham Gillespie [2010] CSOH 113
6. Cook v Green [2009] BCC 204
7. Dovey v Cory [1901] AC 477 HL
8. Precision Dippings Ltd Precision Dippings Marketing Ltd [1986] Ch 447
9. Re J Franklin & Sons Ltd [1937] 4 All ER 43
10. Re Lady Forrest (Murchison) Gold Mine Ltd [1901] 1 Ch 582
11. Re Leeds and Hanley Theatres of Varieties Ltd [1902] 2 Ch 809, CA
12. Viscount of the Royal Court of Jersey v Shelton [1986] 1 WLR 985
13. Re Westlowe Storage and Distribution Ltd [2000] BCC 851
14. Re Brian D Pierson (Contractors) Ltd [1999] BCC 26
15. Re Pantone 485 Ltd, Miller v Bain [2002] 1 BCLC 266
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32.41 Breach of duty/misfeasance following
professional advice
When a director is subject to an application for recovery, the court may grant relief
(allow a lesser amount of some/all of the compensation to be paid) if the director was
shown to have acted on professional advice1 2. The court would, however, be unlikely
to grant relief to the director if to do so would leave a position where they benefitted
from the loss caused to the company or creditors3.
It is open to the director to seek a contribution from any professional advisors in
these circumstances4.
1. Singer v Beckett; Re Continental Assurance Co of London plc (No.4) [2007] BCLC 287
2. Re Ortega Associates Ltd [2008] BCC 256
3. Re Marini Ltd [2004] BCC 172
4. Re International Championship Management Ltd [2007] BCC 95
32.42 Recoveries for a breach of trust –
general
A company director is considered to be a trustee for the company’s property which
comes under their control1. A director who has misapplied, retained or otherwise
become accountable for the company’s property must make good any resultant
losses to the company and/or any personal gains2
1. Gwembe Valley Development Co Ltd v Koshy (no 3) [2003] EWCA Civ 1048
2. Flitcroft’s Case (1882) 21 ChD, 519
32.43 Claims for misfeasance/breach of duty
and the right of set-off
An amount to be ordered by the court to be paid by a director (see paragraph 32.38)
cannot be set-off1 against sums owing by the company to that director2.
1. Rule 14.25
2. Re Anglo-French Co-operative Society, ex p Pelly (1882) 21 ChD 492, CA
32.44 Recoveries following specific statutory
misconduct
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The official receiver, as liquidator, may seek a recovery from a director following
misconduct defined in the Act, namely:
•
fraudulent trading (see paragraph 32.45)
•
wrongful trading (see paragraph 32.46)
32.45 Fraudulent trading
If it appears that any business of the company has been carried on with intent to
defraud creditors of the company or of any other person, or for any fraudulent
purpose, the court may, on the application of the liquidator, declare that any persons
(not just company officers) who were knowingly parties to the carrying on of the
business in the manner mentioned above are liable to make such contributions to the
company’s assets as the court thinks fit1.
For a successful recovery action under the provisions relating to fraudulent trading it
is necessary to demonstrate that there was an intent to defraud2.
Fraudulent trading is also a criminal offence3. Information on fraudulent trading as a
crime can be found in the Enforcement Investigation Guide.
1. Section 213
2. Morphitis v Bernasconi [2003] Ch 552, Atkinson v Corcoran (2011) EWHC3484
3. Companies Act 2006 section 993
32.46 Wrongful trading
Where a director, former director or shadow director1, knew or ought to have
concluded that there was no reasonable prospect that the company would avoid
insolvent liquidation, and took the decision to carry on trading, the court, on the
application of the liquidator, may declare that the director is liable to make such
contribution to the company’s assets as the court thinks proper2 3.
Simply allowing the company to continue to trade when insolvent would not put the
director in contravention of these provisions. It must be shown that they ought to
have known, or concluded, that there was no reasonable prospect of avoiding
insolvent liquidation4.
Information regarding wrongful; trading as a matter of unfit conduct can be found in
the Enforcement Investigation Guide.
1. Section 214(7)
2. Section 214(1)
3. Section 214(2)
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4. Hawkes Hill Publishing Co Ltd [2007] BCC 937, Roberts v Frohlich (2011) EWHC257
32.47 Wrongful trading – conditions in which
the court will make an order
The court will not make an order requiring a director to make a contribution to the
company’s assets in connection with wrongful trading if it is satisfied that the director,
knowing that there was no prospect of avoiding insolvent liquidation, took every step
with a view to minimising the potential loss to the company’s creditors as they ought
to have taken1. In reaching this conclusion the court will take into account the general
knowledge, skill and experience that may reasonably be expected of a person
carrying out the same functions as that director2 and the actual knowledge, skill and
experience of the director3.
In addition, the court must be satisfied that the company’s position was worse as at
the date of liquidation than it was when there was knowledge of insolvency to make
an order for contribution4. It is possible that not all directors would be found liable as
each individual’s role and knowledge will be separately assessed by the court5.
1. Section 214(3)
2. Section 214(4)(a)
3. Section 214(4)(b)
4. Re Marini Ltd [2004] BCC 172
5. Singer v Beckett; Re Continental Assurance Co of London plc (No.4) [2007] BCLC 287
32.47 Wrongful trading following professional
advice
Where a director takes the decision to continue trading the court may grant relief
(allow a lesser amount of contribution to be paid) if they were acting on professional
advice1.
1. Singer v Beckett; Re Continental Assurance Co of London plc (No.4) [2007] BCLC 287
32.48 Recovery in relation to director’s
remuneration – including pension
contributions and benefits in kind
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Remuneration might be in the form of a straight salary or benefits in kind such as a
company car, health plan or pension contributions.
It has been held that if there is the power of a company to award remuneration to its
directors, remuneration cannot be challenged solely on the basis that it was not to
the benefit of the company1. The court, however, did give examples of general
circumstances where a challenge might be appropriate:
•
the remuneration is so excessive as to contribute a fraud on creditors
•
although the director could receive payment simply for holding office, if the payment
was above the amount which might be reasonably paid to the director in question, it
might be held to be a gift out of capital
32.49 Remuneration considered to be
unreasonable or excessive
Generally, excessive remuneration is remuneration which goes beyond what is
reasonable in all circumstances. Reasonableness might be measured in terms of
what the company could afford1 2. Whilst this is a useful rule of thumb, it should be
applied with care and without an over-reliance on hindsight.
Reasonableness cannot be measured by the remuneration that the director and their
family need to live on1 and does not necessarily equate to the market rate for a
director3.
The director should have reasonable grounds for believing that the company can or
will be able to afford the remuneration whether on its own or through a third-party
(see paragraph 32.50). If not, the remuneration should be deferred or taken as loans
(see paragraph 32.53).
1. Re Stanford Services Ltd (1987) BCC 326 at 336
2. Re CSTC Ltd [1995] BCC 173 at 181
3. Re Cargo Agency Ltd [1992] BCC 388
32.50 Decision to fix remuneration
The decision to fix remuneration rests with the company when it operates under
Table A of the Companies Acts 1948 or 19851 2. If the directors allow or fail to stop
the company paying unreasonable remuneration this might be a matter of
misfeasance leading to a civil recovery.
Where the company operates under Table A of the Companies Act 20063, it is the
directors who fix the remuneration. Any remuneration fixed that is unreasonable
--- PDF page 21 ---
might similarly be considered misfeasance, for which a recovery might be
appropriate.
Remuneration that is reasonable when the decision is taken to fix it might become
unreasonable following a change of circumstances, such as a change in the
company’s financial position)4. If so, the remuneration should cease, or the company
should stop trading5.
1. Companies Act 1948, Table A article 76
2. Companies Act 1985, Table A article 82
3. Companies Act 2006, Table A article 19(2)
4. Re Synthetic Technology Ltd [1993] BCC 549
5. Re Ward Sherrard Ltd [1996] BCC 418
32.51 Retrospective remuneration
Directors often draw money from the company and only at year end decide whether
to account for the drawings as dividends, loans (see paragraph 32.53) or
remuneration.
When deciding whether remuneration fixed retrospectively is reasonable, it is
necessary to take account of the ascertainable facts when the director took the
decision to fix the remuneration and not the position of the company during the
period to which the remuneration relates.
32.52 Remuneration and tax liability
Remuneration cannot be justified and would be considered to be excessive if the
company cannot afford to pay the tax due on that remuneration.
32.53 Debts owed to the company by a
company officer
Where a company officer owes money to the company under a contract or other
arrangement (such as an overdrawn loan account), this should be pursued through
the normal channels for debt recovery and not, for example, as a matter of
misfeasance1.
In addition, the official receiver should consider if any other company officers may be
liable under a breach of duty if the loan was not made with the consent of the
company.
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1. Re Etic Ltd [1928] Ch 861
32.53 Personal liability following use of a
prohibited name
When a company uses a prohibited name (see paragraph 32.55), a person will be
personally responsible for any debts incurred when they were involved in the
management of the ‘new’ business and/or incurred at a time when they were acting
or willing to act on the instructions of the person restricted from using the name (see
paragraph 32.56)1.
When only part of the business was conducted under a prohibited name, the person
will be liable only for those debts incurred under the prohibited name2.
The person will be jointly and severally liable for the relevant debts with the
company3, and liability is automatic i.e. there is no need for a court order or
conviction. When the official receiver is liquidator of the successor company, they
should seek a recovery from those liable (see paragraph 32.56).
1. Section 217
2. Glasgow City Council v Craig [2010] BCC 235
3. Section 217(2)
32.54 Restriction on re-use of a company
name
When a company goes into insolvent liquidation, the Act1 provides that any person
who has been a director or shadow director of that company in the 12 months prior
to the making of the winding-up order2 is not allowed to use (see paragraph 32.56)
the name (known as a prohibited name –see paragraph 32.55) of the company for a
period of five years from the day the company went into liquidation3.
1. Section 216
2. Section 216(1)
3. Section 216(3)
32.55 Prohibited name
A company name becomes a prohibited name if:
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it is a name by which the company in liquidation was known at any time in the period
of 12 months prior to the making of the winding up order (note that it does not just
apply to the registered name), or
•
it is name which is so similar to a name used by the company as to suggest an
association with that company
32.56 Use of a prohibited name
A person is considered to be using a prohibited name if they
•
is a director of a company that is known by the prohibited name, or
•
is in any way, whether directly or indirectly concerned or takes part in the promotion,
formation or management of any such company, or
•
Is in any way, whether directly or indirectly, concerned with or takes part in the
carrying on of a business (not a company) under the prohibited name
32.57 Exceptions to restrictions on re-use of a
company name
Apart from the person restricted from re-using a prohibited name (see paragraph
32.54) obtaining the permission of court1 2, there are three cases where a director will
be able to use the name without incurring personal liabilities:
•
where the new business/company acquires the whole, or substantially the whole, of
the business of an insolvent company, under arrangements made by an insolvency
practitioner acting as liquidator, administrator, administrative receiver or supervisor
of a voluntary arrangement, and gives notice to the insolvent company’s creditors
following the procedure in the Rules3. If the director applies to the court for
permission (see paragraph 32.55) to use the prohibited name (see above) within
seven days of the making of the order, they may continue to use the name for a
period of six weeks from the date of the winding-up order or until the date that the
court deals with the application for permission, whichever is sooner4
•
where the ‘new’ business/company has been known by the prohibited name for a
period at least 12 months ending on the day of the winding-up order5
1. Section 216(3)
2. Rule 22.3
3. Rules 22.4 and 5
4. Rule 22.6
5. Rule 22.7
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32.55 Applications for permission to re-use a
prohibited name
An application for permission to re-use a company name must be served on the
Secretary of State at least 14 days before the hearing1.
Such applications are dealt with by Investigations and Enforcement Directorate who
will contact the official receiver in relevant cases to seek any views on the
application.
1. Rule 22.3
32.56 Considerations in respect of an
application to re-use a company name
Clearly, where a director wishes to re-use the name it is likely that the name will
have some value to the director. The official receiver should therefore consider
whether there is in any goodwill value in the name. Such a transfer could be
conducted on an informal basis – by an exchange of letters – if the purchasing
director were content to proceed in that way. The Secretary of State can advise the
court of any prospective sale and the court may make the granting of permission
conditional on the payment being made.
32.57 Liability when acting whilst disqualified
Where a person is:
•
in contravention of a disqualification order, or whilst an undischarged bankrupt,
without leave of court is involved in the management of a company, or
•
involved in the management of the company, and they act or is willing to act on
instructions given without leave of the court by a person whom they know at that time
to be the subject of a disqualification order or to be an undischarged bankrupt
That person will be liable for any debts incurred when they were involved in the
management of the company and/or incurred at a time when they were acting or
willing to act on the instructions of the disqualified person or undischarged bankrupt1.
The person will be jointly and severally liable for the relevant debts with the
company2, and liability is automatic – there is no need for a court order or conviction.
The creditor may pursue the person for settlement of their debt.
When the official receiver is liquidator of a company where there has been such a
breach they should seek a recovery from those liable.
1. Company Directors Disqualification Act 1986 section 15
--- PDF page 25 ---
2. Company Directors Disqualification Act 1986 section 15(2)
32.58 Liability when company has purchased
own shares
Where a private company wishes to purchase its own shares, the company’s
directors must make a statutory declaration specifying the amount of permissible
capital payment for the shares in question and stating that there will be no grounds
on which the company could be found unable to pay its debts, and will carry on
business for at least a year1.
If the company is wound up within a year of re-purchasing shares out of capital, and
the aggregate amount of the company’s assets is not sufficient for the payment of its
debts and liabilities and the expenses of winding-up, any director who signed the
declaration may be liable to contribute to the assets of the company2.
The directors are jointly and severally liable with the shareholders whose shares
were repurchased for the amount received as consideration on the repurchase2. A
director may be able to avoid such a liability if they can show that they had
reasonable grounds for forming the opinion set out in the statutory declaration3.
In circumstances where the director is obliged to make a contribution under these
provisions, the official receiver should pass the matter to Clarke Willmott.
1. Section 709
2. Section 76
3. Section 76(2)(b)
32.59 Trading certificate under the Companies
Act
A company registered as a public company (plc) on its original certificate of
incorporation must satisfy the Registrar of Companies that it meets the requirements
for share capital for such a company before it may commence trading1. The company
does this by sending a Form
SH50 (https://www.gov.uk/government/publications/apply-for-trading-certificate-for-
a-public-company-sh50) to the Registrar containing a statement of compliance
signed by a company officer2. If the Registrar is satisfied with the information
provided, they will issue a certificate, often known as a trading certificate2.
A company re-registering from a private company to a public company does not
have to apply for a trading certificate.
--- PDF page 26 ---
1. Companies Act 2006 section 763
2. Companies Act 2006 section 762
32.60 Personal liability in connection with
failure to obtain a trading certificate
If a company does business or exercises any borrowing powers without obtaining a
trading certificate and then fails to comply with obligations in connection with that
activity within 21 days of being called to do so, the directors of the company are
jointly and severally liable to indemnify the other party to the transaction in respect of
any loss or damage suffered by them by reason of the company’s failure to comply
with those obligations1.
1. Companies Act 2006 section 761(2)
32.61 Illegal (ultra-vires)
dividends/distributions
A company can declare a dividend only if it has sufficient distributable reserves, as
defined by the Companies Act 20061. Any unlawful dividends are repayable by the
shareholders in receipt of the payment2. In deciding whether the distribution is
unlawful, it is irrelevant if the company was solvent at the time of the
distribution3 and ignorance of the law is no defence4.
Where the directors authorise or fail to stop an unlawful dividend payment being
made, this would be misfeasance in respect of which a civil recovery may be made5.
1. Companies Act 2006 section 830
2. Companies Act 2006 section 847
3. Bairstow v Queen’s Moat Houses plc [2001] 2 BCLC 531
4. It’s a Wrap (UK) Ltd v Gula [2006] All ER (D) 161
5. Re Loquitor Ltd, Inland Revenue Commissioners v Richmond [2003] EWHC 999
Avoidance of dispositions
32.63 Avoidance of dispositions – general
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The purpose of the provisions relating to avoidance of dispositions of property are to
ensure that the estate is preserved in the period between the service of the petition
and the making of the order. Without the relevant provisions there would be a risk
that the directors of the company or the bankrupt may seek to dissipate assets in
advance of the making of the order and consequent appointment of a liquidator or a
trustee. Additionally, the provisions seek to maintain the principle that the assets of a
company or bankrupt are distributed in an ordered manner to avoid any one creditor
or person benefiting unfairly.
32.64 Avoidance of dispositions – general
rules
So far as companies are concerned, the general rule is that any disposition of
property entered into by the company after the commencement of a winding-up is
void unless the disposition is authorised or validated by the court1. This includes a
disposition which benefits the company2.
For bankruptcies, dispositions of property or payments made after the date of the
bankruptcy application or, as the case may be, presentation of the bankruptcy
petition and up to the vesting of the estate in the trustee are void unless approved by
the court3.
1. Section 127
2. Gray’s Inn Construction Co Ltd [1980] 1 WLR 711
3. Section 284 (3)
32.65 Identifying voidable transactions
Transactions from or to the bank account can be identified from the accounting
records or bank statements. Information about the transfer of other assets may be
obtained in the interview with the company director or bankrupt. Information may
also come from suppliers and/or creditors, such as copies of statements of account
which may reveal transactions after the presentation of the petition.
32.66 Recovery of void dispositions
Whilst the Act is quite clear that dispositions after the commencement of the winding-
up or presentation of a bankruptcy petition are void (unless the court orders
otherwise), it gives no guidance on the consequences of avoiding the disposition, or
what should be done about it. It has been held that the invalidation of a disposition of
the insolvent’s property and the recovery of the property disposed of are two
separate matters, and that the remedy is a matter to be decided by general law1.
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In most cases the liquidator or trustee will simply apply to court for an order that the
disposition be declared void and the property disposed of be returned or the position
restored to what it was prior to the disposition.
1. Re J Leslie Engineers Co Ltd [1976] 1 WLR 292
32.67 Realising voidable transactions
All antecedent recoveries are handled by The Service’s antecedent recovery
contractor (Paragraphs 31.5 to 31.15 give an overview of the agreement and
procedures relating to it).
32.68 Costs in contested proceedings
In contested proceedings the liquidator or trustee will generally be entitled to an
order for costs where they are successful. Where the liquidator or trustee is unable
to recover their costs, they will be treated as an expense in the liquidation1 2.
Where proceedings are unsuccessful the costs are not automatically treated as an
expense in the liquidation or bankruptcy3, but the court may exercise its discretion to
allow this4.
1. Rules 2016 rules 6.44, 7.111 and 7.112
2. Rule 10.149
3. Mond v Hammond Suddards [2000] Ch 40
4. Lewis v Commissioners of Inland Revenue [2002] BCC 198
32.69 Property
Property is specifically defined in the Act to include “money, goods, things in action,
land and every description of property wherever situated and also obligations and
every description of interest, whether present or future or vested or contingent,
arising out of, or incidental to, property”1.
1. Section 436
32.70 Disposition
The Act gives no definition of the word “disposition”. The dictionary definition is given
as “a bestowal by deed or gift”1. A disposition may be viewed as having occurred
where there has been a transaction involving the transfer of ownership rights in
assets of the company or bankrupt.
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1. The Concise Oxford Dictionary, Ninth Edition, 1996
32.71 Examples of relevant dispositions
The following have been held to be dispositions of a company’s property within the
meaning of the relevant provision of the Act:
•
an outright transfer of company assets, by gift, sale or exchange12 3
•
the grant of a mortgage, charge or lease over the assets4 5 6
•
the grant of a declaration of trust, or other form of interest, in the assets7
•
a payment made with company money (including payments made against debts)8 9 10
11
1. Re Wiltshire Iron Company (1867-1868) LR 3 Ch App 443
2. Re AI Levy (Holdings) [1964] Ch 19
3. Re Tramway Building and Construction Co Ltd [1988] Ch 293
4. Re International Life Assurance Society (1870) LR 10 Eq 312
5. Re Park Ward & Co Ltd [1926] Ch 828
6. Re Steane’s (Bournemouth) Ltd [1950] 1 All ER 21
7. Re Selmar Pty Ltd [1978] VR 531
8. Re Liverpool Civil Service Association ex p Greenwood (1873-1874) 9 Ch App 511
9. Re Clifton Place Garage Ltd [1970] Ch 477
10. Re Western Welsh International System Buildings Ltd (1985) 1 BCC 99296
11. Re Webb Electrical Ltd [1988] 4 BCC 230
32.71 Examples of transactions that are not
dispositions
The following have been held to be transactions that are not dispositions of property
within the meaning of the relevant provision of the Act:
•
a transfer of property held by the company as trustee1. This is analogous to the
bankruptcy provisions within The Act2
•
a transfer of property under a contract entered into prior to the commencement of
winding up or bankruptcy3
•
the incurring of liabilities by the company or bankrupt
•
the use or consumption of the company’s assets by itself or bankrupt by themselves
1. Section 284(6)
2. All Benefit Pty v Registrar General (1993) II ACSR 578
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3. French’s (Wine Bar) [1987] 3 BCC 173
32.72 Payment to the petitioning creditor
The payment by the debtor of the petition debt in advance of the order being made
is not be a voidable transaction provided that the petition is withdrawn as a result of
the payment. This is because that a post-petition transaction only becomes voidable
once the order is made. Where, however, the petitioning creditor is substituted by
another1 2 and an order is subsequently made, that payment, to the original petitioner
would be recoverable as a voidable transaction3.
1. Rule 7.17
2. Rules 10.27 and 10.28
3. Re Western Welsh International System Buildings Ltd (1985) 1 BCC 99296
32.73 Disposition of charged property
A disposition of an asset subject to security in favour of a chargeholder would be a
voidable transaction in a bankruptcy (unless the disposition was made by the
chargeholder), but not in a liquidation1. This is because the company provision2
states that only a disposition of property owned by the company would be voidable,
whereas the bankruptcy provision3 merely refers to property transferred by the
bankrupt, apart from property held on trust4.
1. Re Margart Pty, Hamilton v Westpac [1985] BCLC
2. Section 127
3. Section 284
4. Section 284(6)
32.74 Disposition avoided where floating
charge in operation - company only
Where a disposition is declared void and property is recovered as a result, it is
considered that the property should be treated as though it had never left the
company. Therefore, the property would fall within the scope of a floating charge,
and it would be open to an administrative receiver to lay claim to the property1 where
the charge was created before 15 September 20032.
1. Mond v Hammond Suddards (No.1) [1996] 2 BCLC 470
2. Enterprise Act 2002 (Commencement No 4 and Transitional Provisions and Savings) Order 2003
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32.75 Disposition of property by Trustee
where subsequent petition presented
Where the official receiver, as trustee, is dealing with a bankruptcy case and a
bankruptcy petition is presented against the same person, the provisions of the Act
relating to voidable transactions1would not apply to dispositions made by the official
receiver, as those provisions apply only to the bankrupt.
There are provisions in the Act2, however, that have the same effect on the trustee
as do those relating to voidable transactions on the bankrupt. These provide that any
disposition of property, or monies that are the fruits of the sale of property of the
bankrupt is void unless it was made with the consent of the court3. This includes
monies from IPA/IPOs4 and property claimed as after-acquired property5.
1. Section 284
2. Section 334
3. Section 334(2)
4. Section 334(3)(b)
5. Section 334(3)(a)
32.76 Payments into a Company’s or
bankrupt’s bank account – account in credit
Where a Company’s or bankrupt’s bank account is in credit, any payments into the
account after the commencement of the winding up), or the presentation of the
petition for bankruptcy, are considered to be invalid dispositions, which may be
recovered from the bank. When a company or individual pays monies into an
account (whether by cheque or cash), the monies are technically exchanged for a
claim against the bank and this transaction counts as a disposition1.
Assuming that the bank is solvent, the fact that the deposits are considered to be
invalid transactions is academic as the bank will be required to remit the balance on
the account to the liquidator or trustee in bankruptcy.
1. Re Gray’s Inn Construction Co Ltd [1980] 1 WLR 711
32.77 Payments into a Company’s or
bankrupt’s bank account – account overdrawn
Where the account is overdrawn, any monies paid into the account during the
relevant period will result in the company’s or bankrupt’s indebtedness to the bank
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being cleared in part or in full. Such a transaction would count as a disposition which
would be void under the relevant provisions of the Act and may be recovered from
the bank.
32.78 Payments out of a company’s or
bankrupt’s bank account – account in credit
Where the Company’s or bankrupt’s bank account is in credit any payments out of
the account are considered to be in favour of the payee, rather than the bank, and
recovery action would, accordingly, be against the payee and not the bank1.
1. Bank of Ireland v Hollicourt (Contracts) Ltd [2001] Ch 555
32.79 Payments out of a Company’s or
bankrupt’s bank account – account overdrawn
When a bank authorises a payment from an overdrawn account, this is effectively a
further loan from the bank to the company or bankrupt. The honouring of the
payment by the bank cannot, therefore, be a disposition of the Company’s or
bankrupt’s property. When the bank as agent consequently passes this “loan” money
on to the payee, it becomes a disposition of property as, by then, the “loan” money
has become the company’s or bankrupt’s property. The monies are recoverable by
the liquidator or trustee from the payee1.
1. Coutts & Co v Stock [2000] 1 WLR 906, Train Construction Ltd Rose v AIB Group (UK) Plc (2003) EWHC
32.80 Transfer of shares
The transfer of shares in a company and alterations in the status of its members
made after the commencement of the winding-up are void under the relevant
provisions, unless validated by the court.
32.81 Disposition pursuant to an order of
court
Where a disposition made during the relevant period is made in compliance with a
general court order, it will still be void unless ratified by the insolvency court1. Where
the party who benefitted from the order has incurred costs in enforcing the order and
that order has resulted in a benefit to the estate (such as tracing assets), the court
may allow those costs to be recovered from the estate2. A court order ordering a
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transfer of property would not constitute a disposition but steps taken in compliance
with it would3.
1. Re Flint [1993] Ch 319
2. Treharne v Forrester [2003] EWHC 2784 (Ch)
3. Re Mordant [1995] BCC 209
32.82 Increase in value of disposed property
Where the disposed property increases in value by the operation of market forces,
the liquidator or trustee should reclaim the original property and any increase in
value arising since the disposition. Where, on the other hand, the property has
increased in value due to actions on the part of the person who acquired the property
(perhaps, due to sensible investment or improvements made) the liquidator or
trustee may be required to compensate the beneficiary for an amount equal to the
increase in value caused by their actions1.
1. Greenwood v Bennett [1973] QB 195
32.83 Effectiveness of avoidance of disposition
provisions
The relevant provisions of the Act have no effect until the winding-up commences, or
the bankruptcy order is made. All dispositions entered into after the date of the
presentation of the petition are valid at the time that they are carried out, but will
become void (subject to court approval) if a winding-up order or bankruptcy order is
subsequently made. Once a winding up order or bankruptcy order is made an earlier
post-petition disposition will become retrospectively void and its validity will be
dependent on whether the court is minded to validate it.
Post winding-up dispositions would also be caught by the provisions of the Act,
though this does not affect the liquidator’s or trustee’s ability to dispose of the
company’s or bankrupt’s property1 2.
1. Insolvency Act 1986 schedule 4, paragraphs 6, 10 and 13
2. Insolvency Act 1986 schedule 5, paragraphs 9, 12 and 13
32.84 Moratorium in advance of a CVA
Where directors of an eligible company obtain a moratorium to enable them to put
forward proposals for a CVA the operation of the relevant provision of the Act1is
suspended for the duration of the moratorium2.
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1. Section 127
2. Insolvency Act 2000 section 1 and schedule 1, paragraph 12(2)
32.85 No effect on administrator while
petition suspended
The relevant provisions of the Act have no effect in respect of anything done by an
administrator of a company while a winding-up petition is suspended1.
1. Section 127(2)
32.86 Validation of post-petition dispositions
The Act sets no guidelines or statutory guidance as to the principles that should be
applied when a court is deciding an application for the validation of a post-petition
disposition. Courts have viewed that the exercise of discretion in this respect has
been left to the same general principles which apply to every kind of judicial
discretion1.
Provided a person has some discernable interest in the matter, they have standing to
make application for the validation of a post-petition disposition. This might include,
for example, shareholders or creditors of the company2.
The following paragraphs outline the matters that may be taken into consideration by
courts when deciding this type of application.
1. Re Steane’s (Bournemouth) Limited [1950] 1 All ER
2. Re Argentum Reductions (UK) Ltd 1974 WL 41939
32.87 Validation before or after the order
An application for validation may be made before or after the transaction becomes
void. The application can also be made in advance of the transaction, to gain the
court’s approval of a particular disposition or a general continuation of trading1.
1. Re AI Levy (Holdings) Ltd [1964] Ch 19
32.88 Validation – benefit to creditors
The court’s primary concern is to establish whether the proposed/past transaction
will/did benefit the general body of creditors1. The court will not normally allow a
transaction that benefits a sole creditor, or group of creditors or another person,
unless there are special reasons - for example, if the transaction is necessary for
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continued trading that will/has the benefit of improving the position of the business –
see paragraph 32.89 for further information on validations of continued trading2.
Approval will tend to be given where assets are sold at a fair market value, as this
would not change the overall position of the insolvent3.
1. Re Burton and Deakin Ltd [1977] 1 WLR 390, Wilson v SMC Properties Ltd (2015) EWHC 870
2. Re Webb Electrical Limited (1988) 4 BCC 230
3. Re Fairway Graphics Limited [1991] BCLC 468
32.89 Validation – continuance of trading
The court may give a general validation to the continuation of trading where that
continuation would lead to the business being preserved to allow it to be sold as a
going concern1. In deciding whether to allow continued trading the court will need to
consider whether the interests of unsecured creditors are being met2 and the
financial position of the company. Where the company is considered to be
irretrievably insolvent it is unlikely that validation will be given3.
It may be beneficial to the general body of creditors for the court to validate the
completion of a contract that the insolvent is engaged in.
1. Re Wiltshire Iron Co (1867-1868) LR 3 Ch App 443
2. Re Gray’s Inn Construction Co Ltd [1980] 1 WLR 711
3. Re a Company (No 007523 of 1986) (1987) 3 BCC 57
32.90 Validation – disposition in good faith
and in ignorance of the petition
Courts have tended to give validation where dispositions were made in good faith, in
the ordinary course of business and where the parties were unaware that the petition
had been presented, unless the transaction appeared to involve an attempt to prefer
the recipient1.
For a party to successfully argue that they were without notice of the service of the
petition, it will normally be necessary to show that the transaction took place before
the advertisement of the petition2. The advertisement of the petition is considered to
constitute notice to the whole world3.
1. Denney v John Hudson and Co Ltd [1992] BCC 503
2. Hollicourt (Contracts) Ltd v Bank of Ireland [2000] 1 WLR 895
3. Re J Leslie Engineers Co Ltd [1976] 1 WLR 290 CA
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32.91 Validation - disposition entirely post-
petition
Where the disposition is due to an entirely post-petition event (i.e. where both the
supply of goods and payment for those goods were made after the petition), the
court will normally validate the transaction. This is because there would be no
dissipation of the insolvent’s property provided that the equivalent value is being
given and received1. Where the transaction is at an undervalue validation is unlikely
to be given.
1. Re Gray’s Inn Construction Co Ltd [1980] 1 WLR 711
32.92 Validation – payment in respect of pre-
petition debts
Normally, the court will not validate a transaction which involves the payment of a
creditor, or a group of creditors or another person, to the detriment of the general
body of creditors (see paragraph 32.88). Validation may be given, however, where,
such a payment would have the result of benefiting the general body of creditors, for
example a business paying arrears in respect of a lease to allow that lease to be
sold when it might otherwise have become forfeit1.
1. Re AI Levy (Holdings) Ltd [1964] Ch 19
Extortionate credit transactions
32.93 Extortionate credit transactions -
introduction
The provisions of the Act relating to extortionate credit transactions1 2 allow the
liquidator or trustee to apply to court for credit transactions to be adjusted. For
instance when the company or bankrupt has been charged an unfairly high rate of
interest, has been subject to unfair credit terms (such as severe default provisions)
or was in a vulnerable position at the time of the transaction. It has to be said that
applications to adjust credit transactions under the Act are very rare and there
appears to be no case law on the matter. There have been, though, applications to
adjust credit transactions under similar provisions in the Consumer Credit Act 1974
(see paragraph 32.94) which give some idea as to how the courts view matters in
this regard.
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The difficultly in bringing actions is thought to be as a result of the wording of the Act
that requires the terms of the credit transaction to be not just exorbitant but “grossly”
exorbitant (see paragraph 32.100)3 4.
1. Section 244
2. Section 343
3. Section 244(3)
4. Section 343(3)
32.94 Legislative background
The relevant provisions in the Act are based on similar provisions in the Consumer
Credit Act 1974 which allowed debtors to challenge unfair and extortionate terms in
credit agreements. It should be noted that these provisions were repealed and
replaced by provisions relating to “unfair relationships” in the Consumer Credit Act
20061, though the 2006 Act has no effect on existing insolvency legislation.
1. Consumer Credit Act 2006 section 19
32.95 Realising an excessive credit transaction
All antecedent recoveries are handled by The Service’s antecedent recovery
contractor, Clarke Wilmott.
The following are the areas on which the official receiver should, ideally, obtain
information before instructing the contractor and include on the ‘details on the
conduct/transaction section of the ARIA form:
•
the date of the presentation of the winding-up or bankruptcy petition
•
a copy of the agreement entered into
•
an explanation of the company’s/bankrupt’s circumstances when they entered into
agreement
•
any explanations given by the company director or bankrupt for entering into the
agreement
•
a statement of account with the creditor
32.96 Vulnerable transactions
Under the provisions of the Act the following credit transactions are vulnerable to an
action for adjustment by the office holder:
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•
where the terms of it are or were such as to require grossly exorbitant payments to
be made (whether unconditionally or in certain contingencies) in respect of the
provision of the credit1 2, or
•
where it grossly contravened ordinary principles of fair dealing3 4
There is no definition on the Act of what constitutes “grossly exorbitant”, but case law
decided under the similar provisions of the Consumer Credit Act 1974 give some
indication of the considerations by courts in deciding such matters. These are
outlined in paragraph 32.104.
1. Section 244(3)(a)
2. Section 343(3)(a)
3. Section 244(3)(b)
4. Section 343(3)(b)
32.97 Burden of proof
If the liquidator/trustee considers that a credit transaction or agreement is
extortionate, they may apply to the court for an order setting it aside (see paragraph
32.96). Unlike many of the other provisions relating to the recovery of transactions,
the burden of proof in actions to adjust extortionate credit transactions is on the
creditor to prove that the transaction was not extortionate or otherwise unfair1 2.
1. Section 244(3)
2. Section 343(3)
32.98 Time limit
In order for a transaction to be successfully challenged it must have been entered
into within three years of the date of the making of the winding up or the bankruptcy
order1 2.
1. Section 244(2)
2. Section 343(2)
32.99 Provision of credit
For a transaction to be vulnerable to an action for adjustment it must be a transaction
for, or involving, the provision of credit.
The term “credit” is not defined in the Act but is defined in the Consumer Credit Act
1974 as including a “cash loan and any other form of financial accommodation”1.
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It can be taken, therefore, that any transaction entered into by a debtor for those
things that would normally be recognised as credit transactions (such as loans, hire-
purchase or deferred payment) are capable of being caught under the wording of the
Act, as are any matters related to the credit transaction, such as the provision of
security.
1. Consumer Credit Act 1974 section 9
32.100 Grossly exorbitant terms or unfair
contravention of principles of fair dealing
The Act requires that the terms entered into, or the circumstances where the debtor
entered into the credit agreement, to be grossly exorbitant or grossly contravening
the ordinary principles of fair dealing1 2. In order, therefore, that a transaction could
be successfully overturned, the official receiver, as liquidator/trustee, would need to
demonstrate that the transaction, or the terms of the transaction, were unfair or
exorbitant to a large margin against the norm. It should be noted that the transaction
does not have to have been taken out in unfair circumstances and contain unfair
terms to be capable of being adjusted. It would be sufficient to demonstrate either
feature.
1. Section 244(3)
2. Section 343(3)
32.101 Grossly exorbitant terms – interest rate
In the context of this chapter the most important term to any credit transaction is
usually the interest rate. It is this term that is most likely to be subject to scrutiny
when considering whether or not a credit transaction contained grossly exorbitant
terms.
Neither the Act nor the Consumer Credit Act(s) give any indication as to a level of
interest that would be considered to be grossly exorbitant. This may appear to be an
oversight but it is considered that were there to be a prescribed level then creditors
may be afforded the opportunity to structure credit terms in such a way as to avoid
falling foul of the prescribed level. In other respects, the setting of a prescribed level
may have the effect of stifling credit lending as lenders who would otherwise have
lent in high risk circumstances (albeit, at a higher than usual level of interest) may be
discouraged by the possibility of the transaction being adjusted at a later date. It
would be difficult to set a level that would automatically have the effect of avoiding
both possible consequences and, in the event, matters have been left to the courts
to decide.
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There have been cases decided which give some indication as to the mind of the
court when deciding these matters. The highest level of interest to be unsuccessfully
challenged was 48% (where the lender took considerable risk lending the money,
and provided it quickly)1 but lower rates of interest have been successfully
challenged. In cases where good security was given, rates of 42% and 39% have
been successfully challenged.
Of course, ultimately each case will turn on the facts. Paragraph 32.102 contains an
overview of the areas likely to be considered by a court when deciding matters.
1. Ketley v Scott [1981] ICR 241 and White V Davenham Trust Ltd (2011) BCC 77
32.102 Matters to be considered when
deciding whether an interest rate is grossly
exorbitant
As outlined in paragraph 32.101, the rate of interest charged is not in itself always
sufficient to persuade the court that it is grossly exorbitant. The rate charged must be
considered alongside other factors, such as:
•
security – generally, interest should be charged at a lower rate where security is
given
•
sisk – The higher the level of risk to which the lender is exposed, the higher the rate
of interest to be expected. A poor credit rating normally equals a greater risk
•
urgency – Where the borrower requires the money urgently and, perhaps, leaves the
lender insufficient time to do the normal credit checks, the rate of interest charged
might be expected to be higher
32.103 Other potentially grossly exorbitant
credit terms
The rate of interest charged may not be the term in a credit transaction that could be
considered to be grossly exorbitant. Matters such as the redemption terms, upwards
movement in the interest rate charged contrary to the underlying rate or severe
default provisions may also be considered.
32.104 Grossly contravening the ordinary
principles of fair dealing
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There is no prescriptive list of the types of matters that would constitute a credit
transaction contravening the ordinary principles of fair dealing. Some examples are
as follows:
•
an agreement signed without the borrower having proper opportunity to read the
terms and conditions
•
an agreement entered into in threatening or intimidating circumstances
•
an agreement entered into in breach of the relevant Consumer Credit Act provisions,
such as those relating to the regulations on advertising
•
an agreement entered into at a time, or in circumstances, where the borrower was
vulnerable
•
where the borrower was induced to enter into the agreement by false or misleading
statements
•
where important details have been hidden in the small print
•
where interest is charged on monies not lent (such as a first payment deducted from
the amount advanced)
32.105 Exorbitant credit transactions – advice
Where there is doubt as to whether a credit agreement is in breach of the relevant
Consumer Credit Act, advice may be sought from the local Trading Standards
Department. Contact details can be found at https://www.gov.uk/find-local-trading-
standards-office.
32.106 Remedies
Having found the transaction to have extortionate terms, or to be contrary to the
ordinary principles of fair dealing, the court has wide-ranging powers to adjust the
transaction. Specifically, the court may order one or more of the following1 2
•
provision setting aside the whole or any part of any obligation created by the
transaction
•
provision otherwise varying the terms of the transaction or varying the terms on
which any security for the purposes of the transaction is held
•
provision requiring any person who is or was party to the transaction to pay to the
liquidator/trustee any sums paid to that person, by virtue of the transaction, by the
debtor
•
provision requiring any person to surrender to the liquidator/trustee any property held
by themselves as security for the purposes of the transaction
•
provision directing accounts to be taken between any persons
The court is not obliged to make an order, however, even where it finds that the
transaction was exorbitant.
1. Section 244(4)
--- PDF page 42 ---
2. Section 343(4)
32.107 Alternative remedies
An extortionate credit transaction may also be challenged as a transaction at an
undervalue.
Transactions defrauding creditors
32.108 Transactions defrauding creditors –
scope of the provisions
The provision in the Act1 relating to transactions defrauding creditors applies equally
to both companies and bankruptcies.
1. Section 423
32.109 Transactions defrauding creditors -
general
Essentially, the purpose of the provisions in the Act relating to transactions
defrauding creditors are to enable the setting aside of transactions at an undervalue
where the intention of the transaction was to put assets out of the reach of creditors.
On the face of it, the provisions relating to transactions defrauding creditors1 are
similar to the provisions relating to transactions at an undervalue2 3, in that both sets
of provisions require that property has been transferred for less than its value.
When considered in more detail, however, there are some key differences between
the two provisions. Some of the differences make it easier for the official receiver, as
liquidator or trustee, to challenge transactions; some make it more difficult; and
others are of little consequence.
See paragraphs 32.111 and 32.112 for information relating to the differences
between transactions defrauding creditors and transactions at undervalue.
1. Section 423
2. Section 238
3. Section 339
--- PDF page 43 ---
32.110 Realising transactions defrauding
creditors
All antecedent recoveries are handled by The Service’s antecedent recovery
contractor, Clarke Wilmott.
The following are the areas on which the official receiver should, ideally, obtain
information before instructing the contractor and include on the ‘details of
conduct/transaction’ section of the ARIA form:
•
any connection between the beneficiary and the insolvent
•
the date of insolvency (as opposed to the date of the order)
•
details of any assets transferred
•
the date of the transfer
•
the valuation of the assets transferred and details of the basis for this valuation
•
details of any consideration given for the asset
•
any explanations given by the company director or the bankrupt for the transaction
•
details of why the transaction was undertaken
•
evidence of the asset position of the beneficiary
32.111 Transactions defrauding creditors
versus transactions at an undervalue –
differences consequential on the official
receiver
The two differences between the provisions in the Act relating to transactions
defrauding creditors and transactions at an undervalue that are most likely to have
an impact on the official receiver when considering whether to challenge a
transaction are:
•
there is no time limit during which a transaction must have occurred for it to be
recoverable as a transaction defrauding creditors whereas there are time limits
applying to recoveries as transactions at an undervalue
•
for a successful recovery of a transaction defrauding creditors it will be necessary to
show that the transaction was entered into with the intention of putting assets
beyond the reach of creditors or a creditor. It is not sufficient just to show that this
was the consequence of the transaction. It must have been the intention of the
person entering into it1
Where the transaction has taken place within the relevant time limits it is better for
the official receiver to challenge it as a transaction at an undervalue, due to the lower
--- PDF page 44 ---
burden of proof. Otherwise the official receiver will need to consider a challenge of
the transaction as a transaction defrauding creditors.
1. Section 423(3)
32.112 Transactions defrauding creditors
versus transactions at an undervalue –
differences with no direct consequence on the
official receiver
In addition to the differences outlined above there are other differences between the
provisions relating to transactions defrauding creditors and those relating to
transactions at an undervalue that are less likely to have a direct impact on the
official receiver:
•
unlike the provisions relating to transactions at an undervalue, a recovery action
under the provisions relating to transactions defrauding creditors need not take place
within a formal insolvency proceeding and does not require that the transferee was
insolvent at the time of the transaction
•
a recovery action under the provisions relating to transactions at an undervalue may
only be brought by the relevant office holder, whereas a recovery under the
provisions relating to transactions defrauding creditors may be brought, additionally,
by any “victim” of the transaction1 (see paragraph 31.113)
1. Section 424(1)
32.113 Who may apply for an order under the
provisions relating to transactions defrauding
creditors?
The ability to have a transaction defrauding creditors set aside is not limited to office-
holders. Nor is it limited to bringing actions against companies or individuals in some
form of formal insolvency proceeding. The company or individual need not even be,
or have been, insolvent for an action to be brought1. An action can be brought by any
“victim” of the transaction, whether or not that victim was the creditor who the
transferor had in mind when entering into the transaction2.
In circumstances where the company or individual is in liquidation or bankruptcy,
however, any “victim” of the transaction must first obtain leave of court before
bringing an action3.
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When the action is brought by one “victim” of the transaction, the action is treated as
having been brought by all victims of the transaction4. Consequently any sums
awarded in the action should be awarded to all those prejudiced. Generally
speaking, the court will achieve this by re-vesting the property in the
company/individual and allowing individual creditors to pursue claims against the
company/individual5.
1. Section 424(1)
2. Sands v Clitheroe [2006] BPIR 1000
3. Section 424(1)(a)
4. Section 424(2)
5. Dora v Simper [2000] 2 BCLC 561
32.114 Undervalue transactions
A key component of the provisions relating to transactions defrauding creditors is
that, for a successful recovery, it will be necessary to show that the asset was
transferred at an undervalue1.
The following transactions are identified in the Act as being those that are
undervalue:
•
a gift or transaction to a person on terms that provide for the company/individual to
receive no consideration
•
a transaction for a consideration the value of which, in money or money’s worth, is
significantly less that the value, in money or money’s worth, of the consideration
provided to the company/individual
•
a transaction with a person in consideration of marriage or the formation of a civil
partnership
1. Section 423(1)
32.115 Identifying and assessing transactions
at an undervalue
As outlined in paragraph 32.114, it is necessary to show that a transaction was
entered into for no consideration or for consideration that was significantly less than
the true value of the property transferred. There is no statutory definition of
“significantly less” and courts have tended to decide each case on the particular
facts. In one case1 a difference of 10% between the consideration and true value
was held to be the result of a genuine difference of opinion. In another case, a
difference of 20% was held to be a transaction at an undervalue2.
--- PDF page 46 ---
1. Re Marini Ltd [2004] BCC 172
2. Gil v Baygreen Properties Ltd [2004] EWHC 1732 (Ch)
32.116 Purpose behind the transaction
In addition to the need to show that the transaction was at an undervalue a
successful recovery would also require that it be shown that the transaction was
entered into for the purpose of1:
•
putting assets beyond the reach of a person who is making, or may at some time
make, a claim against them, or
•
otherwise prejudicing the interests of such a person in relation to the claim which
they are making or may make
Despite the title of the provision relating to transactions defrauding creditors, it is not
necessary to show fraud in any technical or criminal sense on the part of the person
transferring the property2.
1. Section 423(3)
2. National Westminster Bank plc v Jones [2001] 1 BCLC 98
32.117 Necessary to prove intention
For a successful recovery under the provisions relating to transactions defrauding
creditors, it is necessary to show that one of the purposes detailed in paragraph
32.116 was the actual intended purpose of the transaction.
The intention behind the transaction may, ideally, be proved by evidence provided by
those involved in the transaction. When this is not possible it is possible to draw
inferences from the timing and circumstances of the transaction1. It should be noted
that just because the consequence of the transaction was to put assets beyond the
reach does not mean that this was the intention2 3.
1. Moon v Franklin [1996] BPIR 196
2. IRC v Hashimi [2002] BCC 943
3. Papanicola v Fagan [2008] EWHC 3348 (Ch)
32.118 More than one purpose behind the
transaction
An intention to put assets beyond the reach of creditors may not have been the only
purpose behind a transaction. It is possible that a person may have had more than
one reason for entering into the transaction. In these cases the court would look to
--- PDF page 47 ---
see that the intention to put assets beyond the reach of creditors was a “substantial
purpose” behind the decision to enter into the transaction1 2.
There may be a good reason for entering into the transaction (for example, to save a
business or the family home) but this does not mean that the purpose was not to put
assets beyond the reach of creditors3.
1. Royscott Spa Leasing v Lovett [1995] BCC 502 CA
2. IRC v Hashimi [2002] BCC 943
3. Arbuthnot Leasing International Ltd v Havelet Leasing Ltd (No 2) [1990] BCC 636
32.119 Deciding a purpose – companies
A company itself cannot be said to be able to have a purpose in mind and any
purpose in the “mind” of the company must, of course, be formed in the mind of
those human beings controlling the company1. In order to successfully challenge a
transaction defrauding creditors, the official receiver would need to show that the
decision to enter into the transaction arose from a proper decision by those
controlling the company – i.e., those with the controlling “mind” of the company.
Commonly, in cases dealt with by the official receiver the company has one director
and identifying the controlling mind would be a simple matter. For the vast majority of
these and the other cases dealt with by the official receiver, the person causing the
company to undertake the transaction will be the sole director or directors as a group
and therefore, there will be no difficulty in showing that they were acting on behalf of
the company, and had authority to do so.
Where an employee, other than a director, took the decision to effect the transaction
it will be necessary to show that they had appropriate direct authority (a “blanket”
authority, as it were) to act on behalf of the company to be the “mind” of the
company. The motivation of the person with authority needs to be considered2.
1. Lennard’s Carrying Company, Limited Appellants; v Asiatic Petroleum Company, Limited Respondents [1915] AC 705
2. Tesco Supermarkets Ltd v Natrass [1972] AC 153
32.120 Professional advice
Assuming all relevant features to suggest that a transaction defrauding creditors has
taken place are present then the fact that the decision to enter into the transaction
was taken based on professional advice will not save it from challenge1.
1. Arbuthnot Leasing Limited v Havelet Leeasing Ltd (No 2) [1990] BCC 63
--- PDF page 48 ---
32.121 Remedies
Having found that a transaction is a transaction defrauding creditors under the
provisions of the Act the court may make such order as it thinks fit for1:
•
restoring the position to what it would have been if the transaction had not been
entered into; and
•
protecting the interests of persons who are victims of the transaction
The Act provides a “menu” of possible forms of relief that it is in the power of the
court to order2 but the power of the court is not restricted to this list.
The court has discretion to set aside the whole or any part of the transaction3.
1. Section 423(2)
2. Section 425
3. Chohan v Saggar [1994] BCC 134
32.122 Discretion of court not to make order
It has been held that the court has discretion to decline to make an order setting
aside the transaction (see paragraph 32.121) where, for example, to do so would
result in a hardship to the recipient1. It is envisaged that this discretion would be only
exercised rarely2.
1. Re Paramount Airways Limited (in administration) [1993] Ch 223 C
2. Arbuthnot Leasing International ltd v Havelet Leasing Ltd (No 2) [1990] BCC 63
32.123 Effect of remedy on third parties
When deciding on the appropriate remedy to be ordered to set aside the transaction
the court may also make an order providing for the extent to which the interests of
third parties who may have had dealings in the property since it was transferred are
to be protected1.
An order made setting aside a transaction defrauding creditors may affect the
property of, or impose an obligation on, a person whether or not they are the person
with whom the debtor entered into the transaction. In this respect, however, the Act
gives protection to those who acquired the property in good faith, for value and
without notice of the relevant circumstances2.
1. Arbuthnot Leasing International ltd v Havelet Leasing Ltd (No 2) [1990] BCC 636
2. Section 425(2)(b)
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32.124 Misfeasance – companies only
The entering into a transaction defrauding creditors may constitute a misfeasance
and breach of duty on the part of the directors and, therefore, the liquidator may
consider bringing an action for misfeasance1.
The advantage of this over an action to recover a transaction defrauding creditors is
that an order can be made against the directors to repay the sums personally.
An action for misfeasance may be brought alongside an action to recover a
transaction defrauding creditors, though the loss may only be recovered once, and
any sums recovered must not exceed the amount originally lost to the company.
1. West Mercia Safetywear v Dodd [1988] BCLC 250
Avoidance of general assignment of book
debts (bankruptcy only)
32.125 Introduction – assignment of book
debts
When a bankrupt has been running a business book debts may have been assigned
in an attempt to raise money. The general idea being that monies from the
assignment can be used to finance the business immediately, rather than waiting for
the debts to be paid to the business in the normal course of events.
Where the assignment is of all the book debts, or a particular class of book debt it is
called a “general assignment”.
32.126 Avoidance of general assignments
Where there has been a general assignment of book debts, the assignment is void
against the trustee as regards debts which were not paid prior to the presentation of
the bankruptcy petition, unless the assignment was registered under the Bills of Sale
Act 18781. The provisions do not have any effect on the assignment of specific book
debts.
32.127 Effect of an avoidance of a general
assignment
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As the avoidance affects only those book debts that were not paid prior to the
presentation of the bankruptcy petition1, the provisions have only partial retrospective
effect. The official receiver, as trustee, can recover those book debt payments
passed to the assignee where the payment of the debt was after the date of the
presentation of the petition. Those book debts that are unpaid would become “free”
assets in the estate.
1. Section 344(2)
32.128 Reasons for avoidance of general
assignments of book debts
The main reasons for the provisions relating to the avoidance of general
assignments of book debts are to encourage registration as, without registration, it
can be difficult to establish whether a proper price has been paid in respect of the
assignment. Registration also gives persons dealing with the debtor opportunity to
check the position of their book debts. The lack of registration may give a misleading
impression that the debtor’s financial position is healthy in that the book debts may
appear to be free of assignment.
So far as the official receiver, as trustee, is concerned, an inspection of the
registration documents (see paragraph 32.132) in conjunction with the bankrupt’s
accounting records would give the opportunity to assess whether or not the debts
were assigned at their true value. If not, the matter may be pursued as a transaction
at an undervalue.
32.129 Action to be taken by the official
receiver
When the official receiver considers that a general assignment of book debts
contravenes the provisions of the Act (see paragraph 32.126), then they should
issue a letter to the bankrupt’s book debtors instructing them to make payments to
the official receiver. See paragraph 32.130.
32.130 Realising voidable general assignments
Al antecedent recoveries are handled by the Service’s antecedent recovery
contractor, Clarke Wilmott.
The value of the recovery should include both amount to be recovered in respect of
debts paid after the presentation of the petition and the value of the remaining
unpaid book debts.
--- PDF page 51 ---
The following are the areas which the official receiver should, ideally, obtain
information before instructing the contractor and include on the ‘details of
conduct/transaction’ section of the ARIA form:
•
the date of the of bankruptcy petition
•
the date of the assignment
•
evidence that a search has been made of the register of bills of sale (see paragraph
32.133)
•
details of the book debts paid and passed over to the assignee
•
details of the book debts unpaid
•
any explanations given by the bankrupt for the transaction
32.131 Registration under the Bills of Sale Act
1878
For the purposes of these provisions, The Act treats the general assignment of book
debts as if it were a bill of sale (a document that transfers ownership of property from
one person to another) and states that the provisions of the Bills of Sale Act 1878
with respect to the registration of bills of sale apply1.
The Bills of Sale Act 1878 provides that an applicable bill of sale must be registered
within seven clear days of its making2, and must be renewed at least once every five
years3. The method of registering the bill of sale is to send to the High Court the
original bill of sale, together with a witness statement attested in front of a solicitor
stating that the effect of the bill of sale has been explained to the person granting the
assignment4.
1. Section 344(4)
2. Bills of Sale Act 1878 section 8
3. Bills of Sale Act 1878 section 11
4. Bills of Sale Act 1878 section 10
32.132 Entry in the register of bills of sale
The register of the Bills of Sale Act 1878 contains the particulars of registered bills of
sale and an alphabetical list of the names of guarantors.
Following receipt of the documents detailed in paragraph 32.131, the High Court will
seal a copy of the assignment, or a schedule to the assignment and return this to the
applicant. They will also issue a “debt number” which will be notated on the sealed
assignment. This number relates to the assignment’s position in the register. The
--- PDF page 52 ---
official receiver should seek to obtain this sealed assignment from the bankrupt to
confirm registration of the general assignment.
32.133 Searching the register of bills of sale
Where there is doubt as to whether a general assignment of book debts has been
registered under the Bills of Sale Act 1878 the official receiver may conduct a search
of the register by issuing a letter to the High Court of Justice Enforcement Section.
The letter should give details of the persons who may have been party to the
assignment, and also such details as are known of the assignment itself (such as the
date and the property concerned). The request should be accompanied by a
payment of £40 made payable to “HMCTS” and should be sent to:
Judgements and Orders Section
Room E15-17
Royal Courts of Justice
Strand
LONDON
WC2A 2LL
Tel no: 020 7947 6221
This office will provide a certificate showing details of the registration and for a
further fee of £5 will provide an office copy of the documents provided in support of
the application of registration (see paragraph 32.132)
32.134 Provisions apply only to bankrupts
engaged in business
The relevant provisions of the Act apply only to those bankrupts engaged in
business1. The Act defines “business” to include “a trade or profession”2, so the
provisions would cover professionals such as doctors, dentists or accountants.
In reality, it is unlikely that a bankrupt who is not a trader would have book debts to
assign. Activities carried out purely for pleasure which happen to make a profit would
not be considered to be engaging in a business as, under the accepted definition of
the term, a business is something capable of making a profit, which is carried out
with a view to making a profit3. The decision as to whether something is a business
or not would appear to turn on the original intention of the person carrying on the
activity.
1. Section 344(1)
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2. Section 436
3. Smith v Anderson (1880) 15 ChD 247
32.135 What is a book debt?
The definition of a book debt has been held to mean debts which are “commonly
entered in books”1.
Further, it has been held that a definition of “book debts” includes debts which would
or could, in the ordinary course of business, be entered in well-kept books and,
therefore, the fact that the debts may not have been entered into a book is
irrelevant2.
Also included in the definition of book debts are future debts and future rents under a
hire purchase or rental agreement3. A bank balance is not4.
1. Shipley v Marshall (1863) 12 CB (NS)
2. Independent Automatic Sales Ltd and Another v Knowles & Foster [1962] 1 WLR 974
3. Independent Automatic Sales Ltd and Another v Knowles & Foster [1962] 1 WLR 974
4. Re Bright life Ltd [1987] 1 Ch 200
32.136 Definition of assignment
“Assignment” is defined in the Act as including “assignment by way of security or
charge on book debts”, so is not limited to assignment by way of sale1.
The granting of a charge over book debts may also be challenged as a preference.
1. Section 344(3)(a)
32.137 General assignments not covered by
the Act
The Act1 aims to avoid only transactions detrimental to creditors and so excludes
some assignments which are likely to be beneficial. Therefore, a general assignment
of book debts as part of the transfer of a business made in good faith and for value is
not voidable under these provisions, nor is an assignment for the benefit of creditors
generally2.
1. Section 344
2. Section 344(3)(b)(ii)
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32.138 Specific assignments of book debts
The provisions of the Act cover only general assignments of book debts, so the
assignment of a specific book debt would not fall foul of the provisions1. For a book
debt to be considered a specific debt it would be necessary that the debt is identified
with clarity and precision in the document of assignment2.
An assignment of a specific book debt, or class of debt (see paragraph 32.139), may
be challenged as a voidable transaction.
1. Section 344(3)(b)(i)
2. Re Paddle River Construction Ltd (1961) 35 WWR 605
32.139 Assignment of a class of book debts
A general assignment does not have to relate to all book debts to be potentially
voidable. The assignment could be of a certain class of book debt which have a
common factor. For example, an assignment of all debts due from “ABC Ltd” or all
debts due during a certain period could fall foul of the provisions. This would be
termed a “class” of book debts.
32.140 Factoring agreements
The assignment of book debts most likely to have occurred in a bankruptcy case
would be where the bankrupt has entered into a factoring agreement and, on the
face of it, it would appear that this is a general assignment that would fall foul of the
provisions of the Act.
Where, however, the agreement with the factoring company requires that each book
debt is assigned and approved for payment individually, this would not be a voidable
assignment under the provisions as it would be considered that each debt is being
assigned specifically1(see paragraph 32.138). It is likely that all factoring agreements
with recognised factoring companies operate in this way but the official receiver, as
trustee, should obtain a copy of any factoring agreement entered into by the
bankrupt and check the details.
1. Hill v Alex Lawrie Factors Ltd [2000] BPIR 1038
Recovery of excessive pension
contributions
--- PDF page 55 ---
32.141 Recovery of excessive pension
contributions - general
As covered in guidance on pensions (chapter 57), the law1 provides that where a
bankruptcy order is made on a petition presented after 29 May 2000, an approved
pension held by the bankrupt will, generally speaking, fall outside of the bankruptcy
estate. Similarly, the bankrupt may have protected rights under an unapproved
pension scheme which means that the pension rights would not vest in the trustee.
To avoid the potential risk that individuals facing bankruptcy may choose to place
assets out of the reach of creditors by liquidating those assets and putting the funds
into a pension scheme, the Act also has provisions2 that allow the trustee to recover
excessive pension contributions that have unfairly prejudiced the bankrupt’s
creditors.
1. Welfare Reform and Pensions Act 1999 section 11
2. Welfare Reform and Pensions Act 1999 section 15
32.142 Scope of provisions
The provisions relating to excessive contributions cover both pensions that are
excluded from the bankruptcy estate by the provisions of the Welfare Reform and
Pensions Act 1999 or due to their having protected or excluded rights.
It is not necessary for the provisions to apply to pension schemes not falling into
either of those two categories as any such pension scheme would vest in the trustee
of the bankruptcy estate and would be dealt with accordingly.
32.143 Action to be taken by the official
receiver
Having considered the information and advice in this Part of the chapter, and having
established that excessive contributions have been made, the official receiver should
seek to instruct The Service’s antecedent recovery contractor at the soonest
possible opportunity. In the meantime, they should write to the pension
company and put them on notice that they consider that excessive contributions
have been made into the pension and request that no payments are made out of the
pension pending further instruction. A copy of this letter should be sent to the
bankrupt.
--- PDF page 56 ---
32.144 Realising excessive pension
contributions
As explained in detail in paragraphs 31.16 or 31.21, all antecedent recoveries are
handled by The Service’s antecedent recovery contractor, Clarke Wilmott.
following are the areas on which the official receiver should, ideally, obtain
information before instructing the contractor: and include on the ‘details of
conduct/transaction’ section of the ARIA form:
•
the date of the of bankruptcy order
•
details of the pension
•
evidence of the contributions made (for example, bank statements)
•
details of the bankrupt’s financial position when the contributions were made
•
any explanations given by the bankrupt for the contributions
•
evidence/view as to why the official receiver considers the contributions to be
excessive
32.145 Relevant contributions
In addition to being excessive (see paragraph 32.146), the contributions made to the
pension scheme must be “relevant” contributions. The Act provides that relevant
contributions are those:
•
which the individual has at any time made on their own behalf1, or
•
which have at any time been made on their behalf2
In reality, it is unlikely that any contributions made to a bankrupt’s pension would not
fall into one of these two categories.
1. Section 342A(5)(a)
2. Section 342A(5)(b)
32.146 Excessive contributions
There is no definition in the Act as to what may be considered an “excessive”
contribution. Whether contributions to a pension are excessive or not would depend
on whether the contributions unfairly prejudiced the bankrupt’s creditors (see
paragraph 32.147). This in turn, would depend on the bankrupt’s circumstances at
the time they made the contributions1. For example, contributions made at the
expense of a bankrupt’s business capital or other household expenses may be
considered to be excessive. Similarly, consideration should be given to the
bankrupt’s income and lifestyle and historical pension contributions. Contributions
made by one bankrupt who continues to make contributions during difficult times
--- PDF page 57 ---
may not be considered to be excessive whereas payments started by another
bankrupt in similar circumstances may be considered to be so.
HM Revenue and Customs set a limit (for tax relief purposes) on the amount that can
be contributed to a pension being 15% of remuneration. This figure should give the
official receiver a reference point when considering whether payments to a pension
by a bankrupt are excessive.
1. Section 342A(6)
32.147 Effect of the excessive contributions -
prejudiced insolvent’s creditors
It is not necessary to show that the excessive contributions prejudiced the bankrupt’s
creditors at the time they were made or that this was in the bankrupt’s mind when
they made the contributions. It is necessary only to show that the effect of the
contributions was to unfairly prejudice the creditors as at the date of the bankruptcy
order1.
Generally speaking, any contributions made in the period leading up to bankruptcy
could be described as having prejudiced the bankrupt’s creditors. It is, therefore,
important to show that the contributions unfairly prejudiced the creditors and, in this
respect, it will be necessary to consider the circumstances at the time the
contributions were made.
1. Section 342A(2)
32.148 Powers of enquiry
The trustee, in making enquiries into a bankrupt’s pension arrangement, has power
to require a person responsible for the administration of the pension to provide them
with such information regarding the arrangement that they may reasonably require1.
The person responsible for the pension has nine weeks in which to respond to such
a request2, though this period may be extended by the court3.
1. Section 342C(1)
2. The Occupational and Personal Pension Schemes (Bankruptcy) (No 2) Regulations 2002 regulation 10(1)
3. The Occupational and Personal Pension Schemes (Bankruptcy) (No 2) Regulations 2002 regulation 10(2)
32.149 Remedy available
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If the court is satisfied that the contributions made were excessive it may make an
order restoring the position to what it would have been had the excessive
contributions not been made1.
The court may give effect to this order by further ordering that the pension
company makes a payment direct to the trustee2. The court may also make an order
adjusting the sums payable by the pension company to the bankrupt to take into
account the effective reduction in contributions3.
The order is binding on the pension company and overrides the scheme’s rules so
far as is necessary to give the order effect4. Any rules or enactments barring the
assignment of pension rights do not apply to an order made under these provisions
of the Act5.
1. Section 342A(2)
2. Section 342B(1)(a)
3. Section 342B(1)(b) & (c)
4. Section 342B(7)
5. Section 342C(2)
32.150 Pension “sharing” cases
Where debits have been made to the bankrupt’s pension under a pension “sharing”
arrangement, and the rights transferred to the third party are the fruits of excessive
contributions, the court may treat the rights transferred as recoverable but, before
doing so, recovery should be sought from the rights remaining with the bankrupt1.
1. Section 342A(3) and (4)
32.151 Amount recoverable
The amount recoverable from the pension provider is the lesser of the amount of the
excessive contributions or the value of the bankrupt’s interest in the pension1.
1. Section 342C(3)
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ATTACHMENT: 33.Monetary_assets.pdf
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 10 March 2020.
33. Monetary assets
Annexes
Centralised bank statement request guidance
Monetary assets - How to deal with a bank account
How to deal with assurance policies
How to deal with jointly owned policy
Centrally Managed Parties and bank sort codes - The bank contact list is contained in
Centrally Managed Parties
Chapter content
Frequently asked questions - Monetary assets
Frequently asked questions - Bank & building society accounts
Introduction
Cash
Payment accounts, savings accounts and investments
Trusts
Life assurance and other policies
Shares and other traded investments (including employee share schemes)
--- PDF page 2 ---
Valuing Shares in unquoted companies
Shares with little or no realisable value receipt of dividends
Employee share schemes
Disposing of shares – Official receiver to inform creditors
Other monetary assets
Frequently asked questions - Monetary
assets
These frequently asked questions are to assist official receivers in understanding the
subject and should be read in conjunction with the more detailed guidance given in
the main body of the chapter.
Collecting cash, what should I do?
When, on inspection or in the office, the company, partnership or bankrupt has cash
you should first confirm it forms part of the estate. You should count the cash in the
presence of the director, partner or bankrupt and, if on inspection, issue a temporary
receipt. The cash should be handed to the cashier and a formal receipt will then be
issued.
Can a bankrupt keep some of the cash for
living expenses?
When collecting cash from a bankrupt allowance should be made for his/her
immediate living expenses before receiving their next wages and/or benefits. When
cash is handed over a receipt should be issued.
What should I do when a bankrupt has surplus
income?
Where a bankrupt has sufficient income to meet the reasonable domestic needs of
his/her family an income payments agreement or order (IPA/IPO) should be
obtained. Detailed guidance on obtaining an IPA/IPO is provided in chapter 35.
--- PDF page 3 ---
What should I do with rental income?
The official receiver as liquidator or trustee has an interest in any rental income from
property owned by a company, partnership or bankrupt. Detailed guidance on
commercial property is provided in chapter 28 and on dealing with rental income in
chapters 29 and 30.
What should I do if a bankrupt is made
redundant?
Redundancy payments and payments in lieu of income are compensation for the
loss of employment. As such they are not income but property and should be
claimed in the same way as other assets. If the payments are made after the date of
the bankruptcy order and before the date of discharge the monies should be claimed
as after-acquired property.
What is a trust?
Basically a trust splits the ownership of an asset between two or more persons. The
trustee is the legal owner and the beneficiary the equitable owner. Trusts are
commonly created over freehold property, life policies and to provide an income for
children and grandchildren.
What should I do if I discover a trust?
You should obtain a copy of the trust deed to establish what interest the official
receiver may have in the trust. This is not necessarily straightforward as there are
different types of trust and the company, partner or bankrupt may have created the
trust or they may be beneficiaries of a trust created by a third party.
Can I overturn a transfer of assets into a trust?
The official receiver can only overturn such a transfer of assets if they were
undervalued or the intention was to defraud creditors. Each case must be examined
on its merits following the guidance provided in chapter 31.
How do I realise assets held in a trust?
The official receiver, having established an interest in a trust, has a number of
options, depending on the nature of the interest. The trust may relate to assets that
can be sold, for example freehold property or shares, or may provide an income. The
--- PDF page 4 ---
trust may also impose time limits on when property may be disposed of. Each trust
must be considered individually. Detailed guidance is contained within the main body
of the chapter.
Can the official receiver leave a bank account
open?
Where the official receiver does not intend to close a bank account, for example
where it is used for the receipt of benefits or wages, a BANK 2 notice should be sent.
The bankrupt should be informed that the final decision as to whether the account
remains open is the bank’s decision.
Do I have to collect all of a bank credit
balance?
The official receiver must allow a bankrupt to keep sufficient funds to meet their
immediate day to day expenditure. The official receiver must agree this amount with
the bankrupt before releasing any funds to him/her.
What is life assurance?
Insurance companies usually refer to "assurance" when dealing with life policies, and
"insurance" when referring to policies covering events such as fire, theft or accidental
damage to cars, houses, boats etc.
What is a life policy?
A life policy is a legally binding contract between the policyholder(s) and the life
assurance company. The person whose life is covered must be specified and is
known as the “life assured”. It is also possible to have a policy covering the life of
more than one person and this type of policy is known as joint lives assured. The
owner of the policy and the “life assured” may be different people although the
policyholder must have an "insurable interest" on the life assured. An “insurable
interest is an entitlement to be compensated for the death of the life assured due to
such as the loss of earnings.
What is a 'Term Assurance' policy?
Term assurance policies usually provide life cover for a specified number of years
(the term), for example 20 years. The lump sum (the sum assured) only becomes
payable if the life assured dies during that period. This type of policy does not
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normally acquire a surrender value and will lapse without value if premiums are not
paid up to date.
What is a 'Whole Life' Assurance policy?
A “whole life” assurance policy provides protection with, or without investment, and
pays a guaranteed sum on the death of the policyholder. This insurance can be
without-profits, with profits or unit-linked and therefore may acquire a surrender
value.
What happens if premiums are not paid on an
assurance policy?
A policy may lapse without value if premiums are not paid. In some cases the
assurance company may treat the policy as being "paid up" and will pay out a
reduced sum if the condition for payment is fulfilled. Alternatively some life
assurance companies allow policies to become “paid up”. The insurance company
will pay out on a “paid up” policy once the outstanding premiums have been paid, for
example by reducing the amount paid to the beneficiary. In the meantime the policies
remain on their file as dormant.
Do lapsed or dormant policies vest in the
official receiver or trustee?
Lapsed policies which are treated as “paid up” by the life assurance company remain
an asset in the proceedings even if the pay out comes after the date of discharge.
Where a dormant policy is revived after the bankrupt’s discharge, the policy still
remains an asset in the bankruptcy estate and the official receiver will retain his/her
interest.
Can I sell a life assurance policy to the
bankrupt?
The official receiver should only consider selling a life policy to the bankrupt when it
has no surrender value. The official receiver must ensure that there is no prospect of
the policy paying out in the foreseeable future due to death or terminal illness.
Can I sell a life assurance policy to a third
party?
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The official receiver may sell a life assurance policy to a third party where it has a
surrender value. However the official receiver must ensure that there is no prospect
of the policy paying out in the foreseeable future due to death or terminal illness. The
policy should normally be sold for the full surrender value. Where the policy is jointly
owned, and only one of the joint owners is bankrupt, for half the surrender value. The
consent of the life assurance company to assign the policy is required to complete
the sale. Where the life assurance company refuses to assign the policy it remains
as an asset in the estate.
How do I deal with a joint life assurance
policy?
A joint life assurance policy, held by (for example) a bankrupt and their spouse, is
held on a joint tenancy. The bankruptcy order severs the joint tenancy and the
bankrupt’s beneficial interest vests in the trustee. The options open to the trustee
include:
•
keeping the policy for the benefit of the estate
•
surrendering the policy
•
selling the interest in the policy to the bankrupt
•
selling the interest in the policy to a third party
Detailed guidance is provided in within the main body of the chapter.
What is an endowment policy?
An endowment policy is a policy where a monthly premium is paid for a set period,
for example 25 years. The most common types of endowment policies are called
“with profits” and “unit linked”. Endowment policies were commonly used in the
purchase of homes with the mortgage loan secured on the property and the policy.
They are not as popular today. If the official receiver comes across an endowment
policy see the main body of the chapter for further information.
What is an employee share scheme?
There are a number of work related saving and share schemes which are approved
by HMRC and attract tax relief. The approved schemes are:
•
Save As You Earn (SAYE)
•
Share Incentive Plans (SIPs)
•
Company Share Option Plans (CSOPs)
•
Enterprise Management Initiatives (EMIs)
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What do I do if a bankrupt is in an employee
share scheme?
The bankrupt’s interest in an employee share scheme vests in the bankruptcy estate.
The specific actions required to protect and realise the trustee’s interest will vary
according to the scheme. Details guidance on each type of scheme can be found
within the main body of the chapter.
What are shares?
A share entitles the holder to receive a proportion of a company’s profits. Also it may
allow the holder the right to participate in the management of the company at a
meeting of the company’s members.
How can I sell shares?
The shares of quoted companies may be sold on the Stock Exchange. The shares of
unquoted companies are usually sold privately, although the company may impose
restrictions on their sale. Further details on selling shares can be found within the
main body of the chapter.
How do I deal with tax refunds?
There are three main types of tax refunds: corporation tax, VAT and personal income
tax. The Crown is allowed to use a tax refund of offset any debt owed to the Crown,
for example a VAT refund can be used to partially repay a corporation tax debt.
Whether a company, partnership or bankrupt is entitled to a tax refund will depend
on the individual circumstances of the case. Detailed information on reclaiming an
overpayment of tax can be found within the main body of the chapter.
How do I recover a tax refund from an
employed bankrupt?
Where the bankrupt is entitled to a Schedule E tax refund the official receiver should
accept any refund offered by the local HMRC office. Where a cheque has been
issued to the bankrupt and not yet cashed the official receiver should ask for it to be
stopped. Where the cheque has been sent to the bankrupt he/she should be asked
by telephone (followed up by letter/email) to send the cheque to the official receiver.
Further guidance is contained within the main body of the chapter.
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Frequently asked questions – Dealing
with banks, building societies and
credit/charge cards
What happens to a bank account when an
insolvency order is made?
The account will be frozen by the bank. Where there is a credit balance in a
bankruptcy funds can be released for essential living expenses or any joint owners
share of the money.
Why does the official receiver contact banks or
building societies?
One of the main duties of the official receiver is to identify, collect, secure and protect
any assets upon the making of an insolvency order. In some cases it may be
necessary for the official receiver to give immediate notice of the insolvency order by
telephone to ensure the account is frozen. The giving of this early notice helps to
ensure that funds in accounts do not disappear.
When should I make contact?
Notice (BANK1, BANK 2 or NORD1 for credit card companies) should be given as
soon as possible, but in any event within 5 working days of the order being made.
Full information should be sent including the branch sorting code and account
number.
How do I know what accounts a bankrupt has?
The information can be obtained from the company director/bankrupt. In adjudicator
cases it should be listed in the application. In the event that a bankrupt cannot be
traced the details may be found in the Experian search.
How do I know which letter to send to the
bank?
There are a number of bank letters, all of which have provide a different instruction.
These are:
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Bank1: used when there is a credit balance to be claimed by the official receiver
Bank2: used when it is agreed that funds will be released to the bankrupt
Bank3: used where there is FI in a company case
Bnk1: used in company cases
How should I deal with bank/credit cards?
Bankrupts should also be instructed to refer to their bank for instructions on what to
do with any debit cards held in respect of a current account. Company directors and
bankrupt should be instructed to destroy any other bank/credit cards in their
possession and dispose of the cards appropriately. Any cards passed to the official
receiver should be destroyed in the presence of the company officer/bankrupt and a
file note made.
Can a bankrupt still operate an existing bank
account after they are made bankrupt?
Yes, subject to any bank or building society policy. This is most likely to occur where
a bankrupt’s regular income is paid into an account comprising their wages or benefit
payments.
A bank or building society frequently asks the official receiver for authority to operate
an account on behalf of a bankrupt. The official receiver is not in a position to provide
such an authority and it is entirely a matter for the bank or building society to make
that decision
Can the bankrupt open a new bank/building
society account after the bankruptcy order?
Yes - but they must tell the bank or building society that they are bankrupt. Some
banks will allow continued use of the bank account after the bankruptcy order.
It is the bankrupt’s responsibility to make arrangements for an account to receive any
income. It is then at the discretion of the bank or building society whether to permit
an undischarged bankrupt to operate an account. The publication Guide to
Bankruptcy will provide the bankrupt with information.
Any request from the bankrupt or their agents regarding the operation of a new bank
account can be answered using form BAOPB (Docs tab).
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What happens where there is a credit balance
on a bankrupt’s account at the date of the
order?
If a bankrupt evidences to the official receiver that they need any money in their
account or a proportion thereof for normal living expenses before the next "pay day",
then they may be allowed to retain some or all of the funds for that purpose.
Authorisation should be given to the bank, using form BANK2 tailoring the letter
according to the circumstances of each case.
What happens to the bank card where only
some of a credit balance should be released?
Where only part of the funds in the account is to be released to the bankrupt a
decision needs to be made whether to leave the bank card with the bankrupt. In
order to protect the part of the balance the official receiver should immediately
telephone the bank to specify how much of the balance should be remitted to the
official receiver, followed by a letter to confirm this. The sum the official receiver
intends to recover should be shown as the asset on ISCIS. The asset note should be
used to record the detail of the arrangement i.e. how much was in the account and
how much was agreed that the bankrupt could withdraw.
What will happen to a joint account?
If there is a credit balance, consideration should be given as to whether all or part of
the credit balance vests as an asset in the bankruptcy or whether it belongs to the
joint account holder. Where it is established that funds belong to the third party
account holder an instruction should be given to the bank release the money.
The notes tab should be updated to record any decision made.
How do I deal with a telephone or internet
bank account?
You should not ask for details of the password, pin number or security information, or
otherwise attempt to access the account through the internet or telephone. The
director/bankrupt should be told not to access the accounts and a note should be
recorded on ISCIS. The banks should be notified and the cards dealt with as detailed
above.
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What do I do with an old style credit card
machine?
The metal plate from the imprinting machine should be returned to the issuer.
Post office card account
A post office card account is operated through the post office and can only be used
to receive benefit, state pensions and tax credit payments. There is no overdraft
facility on this account, and no other payments, such as wages, can be paid into it.
No credit checks are undertaken when the account is opened. The official receiver
will therefore have no interest in the balance of such an account and should not take
the cash card for one of these accounts from a bankrupt.
How do I deal with a building society account
where there is a passbook?
Where there is a passbook this is likely to be a savings account. The building society
will normally require the production of a passbook or card before releasing the
balance to the official receiver. In the event that the passbook is not available a ‘lost
passbook declaration’ form will have to be signed by the official receiver as trustee.
Usually the building society will also require a withdrawal form to be signed by the
official receiver before releasing any funds and a copy of the bankruptcy order.
How do I obtain bank statements?
The Service has an agreement with certain banks/building societies that requests for
copy statements will be sent centrally. Copy bank statements can be requested via
the fortnightly bank statement spreadsheet which is centrally collated and issued on
behalf of ORS, IES and CI offices. See Centralised Statement Request Guidance
How do I deal with a foreign bank account?
A written authority from the director or bankrupt should be obtained to get
information and /or monies from the bank. Either a general authority or a specific
authority directed to a particular bank to authorise the provision of information and
the remittance any credit balance to the official receiver should be provided. Some
banks may release information on production of a copy of the winding-up or
bankruptcy order. Other banks may require a court order from within the relevant
jurisdiction.
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Introduction
33.1 General
This chapter provides guidance on dealing with monetary assets: cash, savings,
investments, insurances. These are assets easily disposed of or concealed. It is
important that the official receiver takes early steps to identify and protect these
assets and to bring the money into the estate.
33.2 Income generating assets
An asset may be owned by a company or vest in the bankruptcy estate which
provides an income stream. If the underlying asset or source forms part of the
bankruptcy estate the official receiver as trustee is entitled to the income. By way of
example, a bankrupt will generate income through engaging in employment or trade.
The underlying source, the bankrupt’s labour, does not form part of the estate and
therefore, post order, the income is payable to the bankrupt and may only be brought
into the estate through an income payments agreement or order (see chapter 35).
Examples of income generating assets where the official receiver will be entitled to
receive any or all of the income can found within this chapter and chapters 28, 29,
30, 35, and 40.
Cash
33.3 Collecting cash in hand
Care must be taken when collecting cash or cheques from directors, bankrupts or
third parties to ensure that there are no disputes about the amounts involved at a
later date. The amount should, where possible, be independently verified and a
receipt issued.
33.4 Cash found on inspection
Any cash and/or cheques collected on inspection should be counted in the presence
of the director(s) or bankrupt, witnessed if possible by another member of the official
receiver’s staff, agents or a third party present at the premises. A receipt for that
amount should be issued to the director(s) or bankrupt. A note should also be made
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of any amounts retained by the bankrupt for day to day living requirements (see
paragraph 33.11).
On returning to the office the monies collected should be handed to the office cashier
who will issue an official receipt, a copy of which is scanned and uploaded to the
case file.
Cash should be returned immediately to the office but if this is not possible money
should be put in bags which are sealed and signed. This should be kept in a safe
place at home and delivered to the office the following working day. Agents attending
the inspection may be used to safeguard cash.
33.5 Cash brought to the official receiver’s
office
It is possible that director(s) or a bankrupt will bring sums of cash or uncashed
cheques with them to the interview. The official receiver should establish the source
of the monies and, in a bankruptcy, ask the bankrupt about meeting their immediate
living requirements (see paragraph 33.11). If confident the cash forms part of the
insolvent estate it should be counted in the presence of the director(s) or bankrupt,
witnessed if possible by another member of the official receiver’s staff. The monies
should be handed over to the cashier and a formal receipt issued by them. If this is
not possible the cash should be placed in in the office safe and a temporary receipt
issued, witnessed by another member of staff. A formal receipt should be issued as
soon as possible to the director(s) or bankrupt. All receipts issued should be
scanned and uploaded to the case file.
33.6 Cheques
Where cheques made payable to the company or bankrupt are collected care should
be taken where companies with similar names occupy the same premises or where
companies within a group have similar names. In a bankruptcy family members may
have the same name or the same initials. Where a third party appears or claims to
be the correct payee the official receiver should ask for evidence of the third party’s
entitlement to the cheque.
Cheques should be paid into the estate account without delay and not held pending
the appointment of an insolvency practitioner as liquidator or trustee.
33.7 Cheques more than six months old
By convention cheques that are more than six months old may be rejected by the
issuing bank to protect the drawer (the person who wrote the cheque). All cheques
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should be banked but if rejected, due to age, the drawer should be asked to provide
a replacement. If the request is refused the drawer is a debtor of the company or
bankrupt the debt should be pursued as any other book debt.
33.8 Cash at bank – initial contact
Directors and bankrupts are asked to provide details of any bank or building society
accounts, and warned not to use them, in the appropriate Preliminary Information
Questionnaire (PIQ) or bankruptcy application.
The bank should be contacted as soon as possible, but within five days of the
winding-up order, bankruptcy order, or the official receiver becoming aware of the
bank account. The director or bankrupt should always be asked to supply or confirm
the bank details (account number and sort code) during the initial telephone contact.
See also guidance from paragraph 33.16 onwards for further information on types of
account the company or bankrupt may operate.
33.9 Cash at bank– credit balance
In bankruptcy the official receiver needs to give some consideration to the funds the
bankrupt will require to meet their immediate living requirements, the bankrupt’s
ability to access banking facilities in the future to receive income and the claims of
joint account holders (see paragraphs 33.11, 31.12. and 33.13).
In all other cases the official receiver should close the account and bring the monies
into the estate as soon as possible1.
The cost of the effort made to recover a credit balance should not be more than the
amount realised. If the credit balance (or the sum of balances with one bank) is £50
or less, the initial letter should be followed up by a telephone call and generally no
more than one further follow-up letter. Where the credit balance exceeds £50 the
official receiver should exercise discretion as to the resources required to collect the
balance.
1. ISCIS forms BANK1 and BANK3.
33.10 Accessing accounts via internet and
telephone banking
The official receiver should not access, or attempt to access, bank accounts through
the internet or by telephone using a password, pin number or security questions. The
official receiver should not ask for details of these. The director(s) or bankrupt should
be informed not to access the bank accounts. Where the account is being closed all
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debit and/or cash withdrawal cards should be delivered to the official receiver and
destroyed.
33.11 Money required for the bankrupt’s
immediate living requirements
Cash in hand or in a bank account at the date of a bankruptcy order is not ‘income’
within the meaning of section 310(7) (see chapter 35) irrespective of the original
source of the funds. It is an asset of the bankruptcy estate.
Having said that, the bankrupt will rely on income received shortly before the
bankruptcy order to meet immediate living requirements. The bankrupt should be
allowed to keep or access sufficient monies to meet expenses such as
rent/mortgage (if about to fall due), daily travel and groceries. The bankrupt should
be asked to provide an estimate of their immediate needs by telephone or by e-mail.
In assessing this, account should taken of the bankrupt’s usual income source and
sufficient funds should be made available to enable the bankrupt to provide for the
immediate costs of the family whilst waiting for the next payment of income. After
releasing monies to the bankrupt, there may still be a credit balance in the bank
account which should be recovered.
33.12 The account into which the bankrupt’s
income is paid
The decision on whether to continue to offer the bankrupt banking facilities lies with
the bank, not the official receiver. Where the account has no overdrawn balance the
official receiver might confirm that they have no objection to the account remaining
open1. The official receiver should not take possession of the bankrupt’s bank card
as the decision to close the account, or not, will be taken by the bank. The letter
should state the amount of the credit balance to be released to the bankrupt and the
amount, if any, to be remitted to the official receiver. A file note should be made of
the agreement made with the bankrupt as to the amount to be released.
1. ISCIS form Bank 2
33.13 Joint accounts
Where the bankrupt has a joint bank account with a credit balance the official
receiver should take steps to determine who owns the monies. The official receiver
should obtain, where possible, documentary evidence to confirm the source of the
funds. Without more, the official receiver might assume that one half of the funds
belong to the bankrupt, and therefore are part of the bankruptcy estate. If the joint
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account holder(s) claim to be entitled to a greater share of the funds they should be
asked to produce evidence of the source of funds to support their claim.
The bankrupt should be allowed to retain sufficient funds to meet immediate living
expenses (see paragraph 33.11) but this should be calculated on the basis that the
joint account holder will also contribute to those expenses.
33.14 Joint accounts – deceased insolvents
On the death of an individual the deceased’s interest in jointly held assets, including
a joint bank account, passes to the surviving partner. The official receiver would
have no interest in a joint bank account where an Insolvency Administration Order is
made against a deceased debtor; the balance on the account would be retained
wholly by the surviving account holder. There are provisions in the legislation to
allow the trustee to recover for the estate any value lost by the operation of the right
of survivorship (see chapter 56).
33.15 Overseas accounts
If the official receiver becomes aware of any overseas bank accounts the director(s)
or bankrupt should be asked to provide a general or specific written authority
directing the bank to provide information and remit any credit balance to the official
receiver. If the official receiver is unable to obtain authorisation from the director(s) or
bankrupt some overseas banks (particularly those within EU members states) will
provide information and remit funds after being provided with a copy of the winding-
up or bankruptcy order. Other banks may require a court order from within the
relevant jurisdiction.
When corresponding with an overseas bank the letter is more likely to receive a
response if it is written in the language of the recipient bank. In order to minimise the
potential translation charges the official receiver’s initial enquiry letter should be as
brief as possible and focus on the request to remit any credit balance. For more
information on overseas assets see chapter 62.
Payment accounts, savings accounts and
investments
33.16 General
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This part provides an overview of some accounts, savings and investments the
official receiver may encounter in dealing with the winding-up of a company or, more
commonly, a bankruptcy. Further general information on types of savings accounts
and investments is available on the Money Advice Service website.
33.17 Realisation or longer term investment
The official receiver may use their discretion as trustee1 to continue to hold longer
term investments to maximise returns to creditors rather than losing funds through
early realisation. For example, most banks and building societies offer savings
accounts where a higher rate of interest is paid in return for restricted access to the
funds. Such accounts usually have a notice period of between 30 and 120 days
before monies can be withdrawn without incurring a penalty. The official receiver
should give the required notice before closing the account rather than forfeit any
interest due, unless the funds are considered to be in jeopardy. The official receiver
should realise the balance in the usual way2, amending the request for remittance to
include the required notice period.
In deciding whether to hold an investment the official receiver should have regard to
the length of time the creditors will have to wait for their money against the projected
gain from waiting. The realisation of the estate should not be unnecessarily
prolonged for little return. The official receiver can, of course, always seek the views
of creditors but should avoid holding speculative investments.
The official receiver as liquidator or trustee should only realise investments where
proceeds are likely to be greater than the costs of realisation. Before instructing
agents the official receiver should be clear on their costs and the costs of exiting the
investment to avoid a loss to the estate.
1. Section 305(2)
2. Forms BANK1 and BANK3
33.18 Post Office card account
This is an account that can only be used to receive benefits, state pensions and tax
credit payments. There is no overdraft facility on the account and no other deposits,
such as wages, can be paid into it. The official receiver may have an interest in the
balance of a post office card account at the date of the bankruptcy order (but see
paragraph 33.11) and should contact the bank if the official receiver considers there
are funds in the account which should be remitted to the official receiver. Currently
the Post Office card account is operated by J. P. Morgan Europe Limited. The official
receiver should not take the bank card from the bankrupt.
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33.19 PayPal account
A company or individual may operate a PayPal account (www.paypal.com). The
account operates in a similar manner to a bank current account and should be
treated in the same way. Any credit balance in the account should be realised for the
estate (see paragraphs 33.8 – 33.10)
33.20 Easy access savings accounts
The bankrupt may use an easy access savings account to receive their regular
income. If the account is being used in a similar manner to a current account it
should be treated in the same way as a current account (see paragraphs 33.8 –
33.10).
Otherwise the bank or building society should be notified as soon as possible, but
within five days of the winding-up order, bankruptcy order, or the official receiver
becoming aware of the bank account 1. Any passbooks and/or cards for the account
should be recovered as soon as possible and the bank or building society asked to
close the account and remit the funds.
1. Forms BANK1 and BANK3
33.21 Individual Savings Accounts (ISAs)
ISAs are a tax efficient way of saving or investing. Tax is not deducted from the
interest paid on an ISA account, nor is capital gains tax incurred if the value of the
investments made rise over the investment period. There are currently four types of
ISA: cash ISA, stocks and shares ISA, innovative finance ISA and lifetime ISA. You
can only pay your ISA limit into one of each type of ISA in the tax year but your ISA
limit can be paid into any combination of the types. An individual can’t hold an ISA
with or on behalf of someone else.
Current details of the ISA limit can be found on GOV.UK.
The official receiver should seek to close cash ISA, stocks and shares ISA,
innovative finance ISA accounts and ask for the monies to be remitted to the estate.
33.22 Lifetime ISAs
Lifetime ISAs are aimed at assisting individuals to save to buy their first home or
provide for later life. There is a limit, currently £4,000, on payments into a Lifetime
ISA. This limit counts towards the annual ISA limit. The government will add a 25%
bonus to the individual’s savings, up to a maximum of £1,000 per year. An individual
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can only open a Lifetime ISA if the are under 40 and can’t pay into the ISA or earn
the 25% bonus after the age of 50.
There is a 25% charge to withdraw cash or assets from a lifetime asset. The charge
doesn’t apply if the:-
a) funds are to be used by the individual to buy their first home
b) individual is 60 or over, or
c) individual is terminally ill with less than 12 months to live
The official receiver should seek to close the Lifetime ISA and subject to the
bankrupt meeting criteria (b) or (c) accept the 25% charge for withdrawal.
33.23 Junior ISAs
A parent or legal guardian can open a Junior ISA on behalf of a child under the age
of 18. Money in the account belongs to the child but they can’t withdraw the funds,
except in exceptional circumstances, until they are 18. Anyone can pay funds into
the account on behalf of the child up to the annual tax-year limit. If the limit is
exceeded the excess is held in a separate savings account in trust for the child.
As the monies in the account are on trust they do not form part of the bankrupt’s
estate even if the sole source of funding the ISA was the bankrupt. The official
receiver may be able to show that the gift to the child was a transaction at
undervalue or the account was used to put monies beyond the reach of creditors to
recover money for the estate1 (see also chapter 31).
1. Sections 339 and 423
33.24 Building society merger windfalls
In 2007 legislation was passed giving building societies and mutual societies greater
powers to merge with other companies1. This change led to a number of mergers
and demtualisations which resulted in members being offered incentives such as
share options or cash bonuses. These are now very rare but where an account
remains open or the bankrupt continues as a borrower, and therefore a member of
the building society, they would be entitled to receive any shares or bonuses that
arose. Where the bankrupt is entitled to receive free shares or bonuses before
discharge they may be claimed as after-acquired property2.
1. The Building Societies (Funding) and Mutual Societies (Transfers) Act 2007
2. Section 307
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33.25 National Savings and Investments
(NS&I)
NS&I is one of the largest savings and investment organisations in the UK. It is best
known for issuing premium bonds but offers a wide range of saving and investment
accounts.
It is possible for a company to hold certain NS&I accounts but this is likely to be a
rare occurrence. The official receiver should seek to obtain any passbooks, savings
certificates or bank cards held for the account and notify the Director of Savings,
NS&I, Boydstone Road, Glasgow, G58 1SB of the bankruptcy order and realise the
balance in the account.
Where the official receiver requires information from NS&I they will only respond if
the letter is personally signed by the official receiver. Enquiry letters should be sent
to The Head of Compliance, NS&I, 1 Drummond Gate, London, SW1V 2QX
33.26 Premium bonds
Premium bonds may be purchased by any person aged 16 years or over. Parents,
legal guardians, grandparents or great grandparents may buy premium bonds on
behalf of a person under the age of 16 years. Each bond costs £1 with a maximum
holding of £30,000. No interest is paid on the premium bonds, instead a monthly
draw is held and cash prizes awarded. Cash prizes may be automatically re-invested
in bonds up to the maximum holding.
All premium bonds should be realised by the official receiver. See paragraph 33.27
for the only exception. The official receiver should not use the online or phone
service to make the realisation, even if the bankrupt is registered to do so, but use
the online form available from the NS&I website.
Where information about the bond numbers is not available the form should be
accompanied by a letter explaining the position and asking for the value of the
bankrupt’s holding to be remitted to the estate. The official receiver will receive the
face value of the premium bonds together with any unclaimed winnings.
33.27 Premium bonds with sentimental value
A bankrupt may have a small number of premium bonds, usually on or below the
current minimum holding of £100, which was purchased for them as a gift at birth or
before their 16th birthday. They may wish to keep these bonds for largely
sentimental reasons. In such circumstances the official receiver may allow the
bankrupt to purchase the interest in the premium bond holding for the full face value
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of the holding plus the value of any unclaimed prizes. If the bankrupt supplies their
premium bond holder’s number the details of any outstanding unclaimed prizes can
be found via the NS&I website.
The bankrupt should confirm, in writing, that they will inform the official receiver of
any prizes won on draws occurring before discharge and acknowledge that any
monies won may be claimed as after- acquired property1.
1. Section 307
33.28 Government bonds or stocks
Often referred to as ‘Gilts’, these are investment bonds issued by HM Government.
The bonds pay a fixed rate of interest twice a year until the maturity date when the
final interest payment and capital sum are paid. Investors can also buy index-linked
gilts where the twice yearly interest payment is linked to the rate of inflation as is the
amount repaid on maturity. Gilts usually have a life of between 5 and 20 years,
although some have no redemption date. They are listed on the London Stock
Exchange and may be bought and sold prior to their maturity date. Where a
company or bankrupt is holding gilts the official receiver should obtain the certificates
from the director or bankrupt and issue a receipt. If the company or bankrupt is part
of the Crest system the advice provided in paragraph 33.77 should be followed. Gilts
may be sold through a stockbroker or a bank. More information on selling gilts can
be found on the UK Debt Management Office website.
33.29 Friendly Societies – tax exempt savings
plan
Friendly society savings plans offer an additional tax free investment in addition to
the annual ISA allowance. The plan may or may not include life assurance cover and
investment periods tend to be between 10 and 25 years. The maximum tax free
investment limit is £25 per month or £270 per year. Plans may be surrendered at any
time although fees charged by the friendly society may reduce the amount repaid.
The official receiver should recover any documents relating to the plan from the
bankrupt and notify the friendly society of the bankruptcy order as soon as possible,
requesting the plan be surrendered.
33.30 Precious metals – coins and bullion
Gold, silver and platinum may be bought as an investment in the form of coins or
bars. Coins and bullion can be bought and sold through banks, coin dealers,
stockbrokers or through the bullion dealing companies that make up the London
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Bullion Market Association. Current prices for precious metals are listed on the
internet. The official receiver should recover the coins or bullion from the director(s)
or bankrupt and issue a receipt. The coins or bullion would usually be stored in the
official receiver’s safe pending disposal unless safe alternative arrangements are
made. In the first instance the official receiver should instruct their local agent to sell
the coins or bullion. The world trade in gold is transacted in US dollars so the current
exchange rate between the US dollar and the pound will affect the amount realised.
33.31 Cryptocurrency
The best known cryptocurrency is Bitcoin but there are a number of others such as
Ethereum, Ripple and Litecoin. Cryptocurrencies only exist in a digital form and
individuals will hold their cryptocurrency in digital wallets. The currency is bought and
sold via a number of exchanges and brokers.
Cryptocurrency was designed as a way of storing currency and making purchases
without the involvement of a bank or other central regulator. The technology, known
as block-chain, is a financial ledger maintained by a network of computers.
It is an unregulated market and there is a risk of new cryptocurrencies being used as
investment scams or cryptocurrencies being used for money laundering.
The value in cryptocurrencies appears presently to be their scarcity and attraction to
an investment market. Like more traditional currencies or shareholdings, they have a
market value which is traded and the value of the cryptocurrency will increase, or
decrease, depending on the market at a given point in time.
The official receiver should obtain details from the bankrupt of where their digital
wallet is held and attempt to notify the provider of the winding-up order or bankruptcy
order. The cryptocurrency should be sold through a broker or exchange.
Trusts
33.32 Introduction
A trust is a way of managing assets. Property is held by one party (the legal owner)
for the benefit of another party (the beneficial or equitable owner). The legal owner
(the trustee) owes a duty of a care (a fiduciary duty) to the beneficiaries of the trust.
The creator of the trust is known as the “settlor”, if the trust is created during their
lifetime, or the “testator” if the trust is created under a will. A trust created under a will
is usually known as a “testamentary trust” and will come into existence on the death
of the testator.
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The official receiver is most likely to encounter trusts in relation to freehold or
leasehold property and life policies. A trust may also be created as part of a will to
provide an income for the deceased’s children or grandchildren.
33.33 Fixed trusts (or bare trusts)
A fixed trust is one where the interests of the beneficiary or beneficiaries are
determined at the outset when the trust is set up. The trustee has little discretion and
must simply carry out the wishes of the settlor. An example of a fixed trust is a life
interest trust, where a beneficiary may have a right to all of the trust’s income or use
of the trust’s assets during the beneficiary’s lifetime. On that beneficiary’s death, the
trust property will generally be payable to named capital beneficiaries. Another
example of a fixed trust is one contingent upon the beneficiaries satisfying certain
conditions, such as reaching a certain age. Once the condition is satisfied, the
beneficiaries have an absolute right to the trust property. The simplest form of a fixed
trust is called a ‘bare trust’. The interests of any bankrupt beneficiary under a bare or
fixed trust are absolute and will vest in the official receiver as trustee in bankruptcy.
33.34 Discretionary trusts
A discretionary trust provides the trustee of the trust with the power to decide which
beneficiaries will benefit from the trust and the extent of those benefits. The
beneficiaries cannot compel the trustee to use any of the trust property for their
benefit.
Discretionary trusts are more common than fixed trusts. Most family trusts or trusts
created under wills are discretionary trusts.
The official receiver as trustee in bankruptcy can have no better rights than the
bankrupt and will only receive funds from the trust if the discretion is exercised to
make a payment to the bankrupt as a beneficiary. Any payments made to a bankrupt
whilst undischarged should be claimed by the official receiver as after-acquired
property unless they are paid solely for the “maintenance and support” of the
bankrupt and their family where the payments should be treated as income (see
paragraph 33.44).
33.35 Hybrid trusts
It is possible for a trust to contain elements of both a fixed trust and a discretionary
trust. Any interest a trustee in bankruptcy will have would be dependent upon the
terms of the trust.
33.36 Accumulation trusts
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An accumulation trust is one where the trustees do not distribute the income from the
trust until a specified date, usually when the trust ends. The trustees may have
discretionary powers to use the trust’s income for the maintenance or education of
the beneficiaries before the trust terminates. An accumulation trust is likely to be a
form of hybrid trust.
33.37 Other types of trusts
A trust can be created by statute, for example, title in land can be held by up to four
joint owners on trust for themselves as joint tenants1. The court might determine a
trust exists, “constructive” and “resulting” trusts are the two main legal concepts
where the court might decide whether someone has a share in a property when the
legal title is registered in the name of someone else. For example, claims for
personal damages in an action which would otherwise be part of the bankruptcy
estate (see chapter 37) are held on constructive trust for the bankrupt by the official
receiver as trustee. A third party who has paid life assurance premiums up to the
date of the bankruptcy order may be entitled to a share of the benefits or surrender
value of the policy under a resulting trust (see paragraph 33.56).
1. Law of Property Act 1925 section 34 (2)
33.38 Protective trusts
Under a fixed trust a beneficiary may assign (transfer) their interest to another
person. The assignee would have the right to demand the beneficiary’s rights be
paid to them. Under a fixed trust the trust rights of a beneficiary pass to the trustee in
bankruptcy. A protective trust can be created to prevent a beneficiary transferring
their interest to a third party or to stop the rights passing to a trustee in bankruptcy.
Under a protective trust the beneficiary may lose the right to receive an income from
the trust upon the making of a bankruptcy order or other event. A protective trust is
described as a defeasible fixed trust (see paragraph 33.40) which becomes a
discretionary trust (see paragraph 33.34) after a defeating condition such as
bankruptcy, has occurred.
33.39 A contingent interest in a trust
A beneficiary’s interest in a trust is said to be a contingent interest if it is dependent
upon a certain event arising. For example, the beneficiary receives a quarterly
amount when they enter higher education and for the period they remain studying.
The trustee in bankruptcy would have an interest in the trust if the event triggering
the trust payments occurred before the date of discharge.
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33.40 A defeasible interest in a trust
A beneficiary’s interest in a trust is said to be a defeasible interest if it comes to an
end if a specified event occurs. For example, the beneficiary would no longer receive
income from the trust if they married. In this instance the trustee in bankruptcy’s
interest in the trust, if any, would terminate if the specified event occurred.
33.41 The creation of a trust – transactions at
an undervalue or defrauding creditors
A company director or bankrupt may create a trust with the intention of putting assets
beyond the reach of a liquidator or trustee in bankruptcy. A trust that transfers the
assets of a company, the benefits of a company director or the assets of a bankrupt
to another person or person(s) for no consideration or for a consideration which is
less than the value of the assets may constitute a transaction at an undervalue1 or a
transaction defrauding creditors2. Where the official receiver suspects that the
creation of the trust constituted a transaction at an undervalue or was a transaction
defrauding creditors the advice in chapter 31 should be followed.
1. Sections 238 and 339
2. Section 423
33.42 Establishing the official receiver’s
interest
The director or bankrupt should be asked to provide the name(s) and address(es) of
the trustee(s) together with a copy of the trust deed. The official receiver should write
to the trustee(s) as soon as possible asking for the official receiver’s interest in the
trust to be noted together with a schedule of payments made to the company or
bankrupt. If the director or bankrupt has not provided a copy of the trust deed the
trustee(s) should be asked to provide a copy.
On receiving a copy of the trust deed the official receiver should check the document
to establish what, if any, interest the company or bankrupt has in the trust. The
company or bankrupt may have an interest in both the trust’s capital and the income
generated by that capital dependent upon the terms of the trust deed. In particular,
the official receiver should establish that there are no clauses in the trust deed
referring to the bankruptcy of a beneficiary or restricting the transfer of the
beneficiary’s interest.
33.43 Realising an interest in a trust
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The steps the official receiver can take to realise their interest in a trust will be largely
dictated by the terms of the trust. The official receiver should try, as early as
possible, to realise all interests in which the bankrupt has an absolute right. If the
trust deed allows the official receiver might sell the interest in the trust. Where trust
assets are held for the benefit of the bankrupt and payments are made from monies
generated by those assets, for example the dividends from shares held in the trust,
the official receiver will be entitled to the payments.
33.44 Income from a trust
The trust may be the source of income provided under the terms of the trust for the
maintenance of the bankrupt and their family. Where this is an absolute interest it will
transfer to the official receiver but if the trustees have discretion over the payment or
the amount of the payment then the interest will not vest in the trustee in bankruptcy.
Any sums paid to the bankrupt above that required to meet reasonable domestic
expenses should be claimed by way of an income payments agreement or order.
See chapter 35.
33.45 A reversionary interest in a trust
A reversionary interest in a trust is created where the balance of the trust assets
revert to the creator of the trust (in reversion) or to a named person or persons when
the trust comes to an end. The company or bankrupt would have a reversionary
interest in the trust whilst it was in existence. For example, if a company created a
trust for a period of ten years after which time the trust assets revert back to the
company. A further example would be where a bankrupt’s grandfather leaves in his
will a freehold property in trust for the bankrupt’s father until such time as the father
dies after which it reverts to the bankrupt.
A reversionary interest is an asset in the insolvency and the official receiver should
immediately contact the trust trustees and inform them of the official receiver’s
interest. Where reversionary interest includes land or freehold property a restriction
could be lodged with Land Registry.
33.46 Realising a reversionary interest
The liquidator or trustee in bankruptcy may not be able to realise a reversionary
interest in a trust immediately. The liquidator or trustee in bankruptcy must wait until
the trust property has reverted to the company or bankrupt before realising the
asset(s). The reversionary interest itself may be sold.
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Life assurance and other policies
33.47 Introduction
This section explains how the official receiver should administer life assurance and
other policies, including when the policy may be sold to the bankrupt or a third party,
and when it should be surrendered.
It is very important that a policy is not sold or surrendered where there is the chance
of a claim being made against it (see paragraph 31.5.)
33.48 Types of life assurance policies
Life assurance policies come in a variety of forms.
Term life policies are the most common. This type of policy covers the insured for a
specific period of time. Provided the premiums are maintained, the policy will pay out
the sum assured if the insured dies before the end of the term. Term assurance is
usually taken out to cover a mortgage debt or to provide lump sum to assist relatives
in the event of death. The policy has no surrender or cash value and the cover
simply stops at the end of the term with no payout.
Whole life policies are more expensive and will pay out when the insured dies no
matter when death occurs. Premiums are required to be paid for a set period of time
but, provided the premiums are maintained, the policy will pay out when the insured
dies. The policy generally has no surrender value but payout is guaranteed. Some
policies do have an investment element (described as “with profits”) and in those
circumstances may acquire a surrender value.
Endowment policies are investment products set up as regular savings plans which
will pay out a lump sum at the end of a specified period. The amount of the lump
sum is not guaranteed. An endowment policy includes term life cover and will pay
out a death benefit if the insured dies during the term. An endowment policy will have
a surrender value.
33.49 Life assurance policies vest in the
trustee
Where the policy has not been surrendered or otherwise disposed of, the trustee will
receive any payments due under the policy which would have been payable to the
bankrupt as the policy-holder or joint policy-holder. For example a life assurance
policy may pay to a defined beneficiary or to the estate of the deceased policy-
holder. This may include monies paid on death, disability, or terminal diagnosis. The
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trustee would be entitled to receive the monies paid to the bankrupt (or their
deceased’s estate) even if they are paid after the bankrupt’s discharge1.
The official receiver should decide whether to retain an interest in the policy, which
may mean maintaining the premium payments (see paragraph 33.53), or whether to
sell or surrender the official receiver’s interest. It is very important that a policy is not
sold or surrendered where there is the chance of a claim being made against it.
1. Re Cork v Rawlins [2001] 3 WLR 300]
33.50 Protecting the official receiver’s interest
in life assurance policies
The policy documents, in all cases should be recovered from the bankrupt, unless
the policy is held as security by a secured creditor (see paragraph 33.69) The policy
document contains important information, such as the policyholder, life/ lives
assured, amount of cover (sum assured), commencement date, maturity date, type
of policy, conditions, etc. The official receiver on becoming aware of a life assurance
policy should write, using the form NTASS, to the assurance company to inform
them of the bankruptcy order and to ask them to note the official receiver’s interest, if
any. The assurance company should be asked to confirm the type of policy and the
amount of any surrender value.
The official receiver should explain to the bankrupt the policy is now vested in the
official receiver and the consequences.
33.51 Non-payment of premiums on a life
assurance policy
A policy may lapse without a surrender value if the premiums are not paid. However,
the assurance company may instead treat the policy as “paid up”. This often results
in the monies paid to the beneficiary being reduced in order to pay the outstanding
premiums. The policy would then be considered to be lapsed or dormant.
An assurance company may pay the full surrender value on a “paid up” policy once
the outstanding premiums have been paid (this is generally known a ‘reinstatement’).
33.52 Reinstatement of dormant or lapsed
policies
Where a bankrupt reinstates a lapsed or dormant policy, even where the payments
are made post-discharge, the whole benefit can be claimed by the trustee when it is
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paid out as the policy vests in the trustee. The official receiver should inform the
bankrupt of the consequences of reinstating and continuing to pay the premiums of a
lapsed policy which vests in the trustee.
33.53 Official Receiver continuing to pay
premiums where claim is likely
Where a claim is likely in the foreseeable future, (see paragraph 33.59), premiums
may be paid by the bankruptcy estate. Before committing to pay the future premiums
the official receiver should be satisfied that the potential benefit for creditors is
greater than the likely cost of the premiums.
33.54 Life assurance policies held in trust
The official receiver may come across life assurance policies where the policy
benefits are held in trust for the benefit of individuals other than the bankrupt. A trust
may be created by the assurance company when the policy is commenced at the
request of the policy-holder. An existing assurance policy may have been converted
into a trust either by way of a deed of assignment or by a declaration of trust. Where
a trust has been created, the individual whose life is insured cannot be a beneficiary.
Reasons for a policy being subject to a trust include controlling the destination of the
funds paid out on the policy and ensuring the payment of the sum assured without
the need to wait for probate or (in the absence of a will) letters of administration to be
granted.
33.55 The creation of a trust
The official receiver should be satisfied that the creation of a trust was not an attempt
by the bankrupt to put assets, for example the premiums paid or the surrender value
of the policy, out of the reach of creditors. Once the official receiver is satisfied,
regarding the existence of the trust, the official receiver will have no further interest in
the assurance policy1.
1. Section 283 (3)(a)
33.56 Third party payment of life assurance
premiums
Where a third party has paid the life assurance premiums up to the date of the
bankruptcy order a “resulting trust” is created. The contribution to the premiums
entitles the third party to a proportionate share of the surrender value or any
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repayment made under the terms of the policy1. A “resulting trust” is not created
where the third party intended the payments to be a gift or a loan.
1. Re Policy No 6402 of the Scottish Equitable Life Assurance Society [1902] 1 Ch 282 and Foskett v McKeown and others [1997] 3 ALL ER 392
33.57 Joint life assurance policies
The bankrupt may have a life assurance policy in joint names with another. Usually a
joint life assurance policy is held on a “joint tenancy”, meaning the policy will pay out
to a defined beneficiary or the surviving policy-holder on the death of the first life
assured. Provided the policy is not held in trust, the making of the bankruptcy severs
the joint tenancy and the bankrupt’s beneficial interest, usually 50%, vests in the
trustee in bankruptcy 1. To determine the extent of the trustee’s interest the official
receiver should obtain details of the beneficial owners together with the surrender
value, if any from the assurance company.
1. Pritchard (A Bankrupt) [2007] B.P.I.R. 1385
33.58 Joint life assurance policy – the official
receiver’s interest on the death of the
bankrupt and/or joint policy holder
Where the bankrupt’s interest in a joint life assurance policy vests in the trustee the
official receiver will have an interest in the policy proceeds should a claim be made
under the policy. The joint policy holder may be able to claim more than half the
policy proceeds if they can show they made all the premium payments. On
confirmation that the life assurance policy provides for the proceeds to be paid
directly to the bankrupt on the death of the joint policy holder any payment will vest in
the trustee in full.
33.59 Policy not to be surrendered or sold if a
claim is likely to be made under the policy
The official receiver should not consider surrendering or selling (see also paragraph
33.60) a life assurance policy to the bankrupt or other third party where a claim is
likely to be made under the policy in the foreseeable future.
In addition to paying out on death, life assurance cover may pay out on receipt of
notification of a critical or terminal illness. Critical illness is often defined as life
threatening, whilst terminal illness is defined as life limiting. What constitutes a
critical illness will be defined in the policy and usually covers a number of illnesses
as well as some accidents, involving for example, the loss of a limb. Where a
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payment is made the monies should generally be paid directly to the official receiver
as trustee. In some cases the insurance payment may include monies to pay for
rehabilitation. The official receiver should carefully consider any application to keep
all, or part of the pay out before agreeing to release the monies to the bankrupt.
33.60 Selling a life assurance policy with a
surrender value
Where the bankrupt has a life assurance policy with a surrender value the official
receiver may consider selling the policy to a family member or third party rather than
surrendering the policy where the bankrupt may find it difficult to obtain another
policy and would like the policy to continue (but see paragraph 33.59). The offer to
sell may be made by way of standard letters SOPOL (solely-held policy) or JTPOL
(jointly-held policy). The usual consideration for selling the policy is the full surrender
value of the policy.
The consent of the assurance company to assign the policy will need to be obtained
by the purchaser before the sale can proceed.
33.61 Selling a life assurance policy with no
surrender value
Only where the official receiver is satisfied that there is no foreseeable prospect of
making a claim under the policy (see paragraph 33.59) should the official receiver
offer to sell, or consider a request to buy, the official receiver’s interest to the
bankrupt.
The Insolvency Service has adopted a standard fee of £50 to cover the
administrative costs of any sale. The official receiver should send form LTBPOL to
the bankrupt (copied to joint policy holders, as appropriate) which explains the
position. The letter informs the bankrupt that if the trustee’s interest is not purchased
and they continue to pay the premiums then any payment due from the life
assurance policy will be an asset in the bankruptcy proceedings.
33.62 Sale of life assurance policy and an
IPA/IPO calculation
Where the official receiver, as trustee, decides to sell the interest in a life assurance
policy to the bankrupt any future premium payments should be allowed in the
calculation for an income payment agreement or order. As a result the amount of
these should be considered at the time the decision is made to sell.
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33.63 Letter to life assurance company if
interest is sold
Where the official receiver as trustee sells the interest in the life assurance policy to
the bankrupt the official receiver should write to the assurance company confirming
the official receiver no longer has an interest in the policy and any future monies due
under the terms of the policy should be paid to the beneficiary or beneficiaries. A
copy of the letter should be sent to the bankrupt.
33.64 Lost policy document
In some circumstances the bankrupt will be unable to produce the original policy
document. The official receiver should still be able to surrender the policy although
the procedure to do so with each assurance company may differ. Usually the
assurance company will issue the official receiver with a “lost policy declaration
form”. The form should be signed by the official receiver as trustee. If the policy is in
joint names the joint policy holder will be required to sign the form. The form should
be sent to the joint policy holder for signature before the official receiver signs it.
33.65 Lost policy document – indemnity
insurance
The assurance company may ask the official receiver to take out indemnity
insurance when asked to surrender a policy where the policy document has been
lost. The advice in chapter 14 should be followed. Where the surrender value is
substantial the official receiver should consider obtaining separate indemnity
insurance.
33.66 Windfall payments arising from
assurance policies
In the past assurance companies have merged with other financial institutions. Some
assurance companies have demutualised and subsequently floated their shares on
the stock exchange. In such cases financial incentives such as shares and/or cash
bonuses have been offered to existing account or policy holders. Such windfall
payments will now be very rare but should be claimed for the benefit of the
bankruptcy estate where the policy remains vested in the bankruptcy estate. (see
also paragraph 33.24).
33.67 Windfall payments and joint policies
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Where a joint policy is held the bonus payment is usually made to the first named
policy holder. The official receiver should agree to an equal division of the bonus with
the other policy holder. If the other policy holder does not agree to an equal division
of the monies the official receiver may consider making an application for a private
examination and seeking an order requiring payment of the monies to the trustee1.
1. Section 366
33.68 Endowment policies and house
purchases
Towards the end of the last century it was common for houses to be bought with an
interest only mortgage together with an endowment policy for the same period. The
policy would often then be charged to the lender. When the endowment policy
matured the proceeds would be used to pay off the balance outstanding on the
mortgage.
It is anticipated that the policy would also provide a surplus to the policy holders after
the mortgage had been repaid. This method of buying a house has become less
popular as with less favorable market conditions in more recent times the proceeds
from maturing policies have not been sufficient to cover outstanding mortgages.
Many lenders also no longer hold the endowment policies as security for the
outstanding debt. The official receiver may still encounter policies held as security.
33.69 Checking whether the endowment
policy is subject to a charge
The official receiver should check whether the endowment policy has been formally
charged to determine whether it is a free asset for the benefit of the estate. A formal
deed of assignment should be drawn up by the mortgagee who will also hold the
original policy document for safekeeping. Where the mortgagee does not have a
formal assignment of the endowment policy they may still have an equitable charge
on the policy. An equitable charge will have been created if the original mortgage
loan agreement contained a requirement that an endowment policy would be
purchased to support the loan.
33.70 Selling an unsecured endowment policy
Where a “with profits” endowment policy has a surrender value of £1,500 or more the
official receiver, as trustee, should consider selling it rather than surrendering it. The
official receiver may sell a “with profits” endowment by auction or to “market makers”.
A market maker is a company, a firm, or individual which buys endowment policies
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and sells them to other investors. More information on the sale of policies can be
found on The Association of Policy Market Makers website. Where the endowment
policy is in joint names the written agreement of the other beneficiary should be
obtained before the policy is offered for sale. The official receiver should follow the
important guidance in paragraph 33.59 before selling.
33.71 Other insurance policies
A bankrupt may have other types of insurance, for example income protection,
payment protection and ill health insurance. Where the policy is in the name of the
bankrupt or held jointly with another person, it is a vesting asset and comprises part
of the bankrupt’s estate. The official receiver should write to the insurance company
asking for the official receiver’s interest to be noted. If the bankrupt’s circumstances
change and the insurance policy pays out then the funds can be claimed by the
trustee for the benefit of the estate, even where the payments are being made
monthly, for example from an income protection policy.
The bankrupt should be made aware that if policy pays out, the benefit will be
claimed by the trustee. Where the policy has no surrender value and the insurance
company would allow the official receiver’s interest to be reassigned to the bankrupt
or third party such as, a family member, the official receiver may consider selling it
for the standard £50 fee. The official receiver should follow the important guidance in
paragraph 33.59 before selling.
Shares and other traded investments
(including employee share schemes)
33.72 What is a share?
A share is an entitlement to the profits of a company. Some shares offer the holder
the right to participate in the management of the company through voting at
meetings of the company’s members. Shareholding is also a vital source of long
term funding for companies. The amount a holder will receive will depend upon the
success of the company and the nature of their holding.
33.73 Share certificates
Shares in a private limited company or an unquoted public limited company will
normally be held by way of a share certificate. The certificate will normally state the
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name of the company, the name of the shareholder, the number of shares held and
the type/class of share along with the nominal/ face value of the shares. It is possible
to hold share certificates for publicly quoted companies although shares held this
way are usually more expensive to trade.
33.74 Electronic and nominee holdings
Shares can also be held electronically (via a brokerage service, nominee service, or
via Crest (see paragraph 33.77). Most high street banks now offer a
nominee/brokerage service where they will be registered as the holders of the
shares while the investor retains the beneficial interest in the holding (i.e. any
dividends due and the sale proceeds when the shares are sold will be payable to the
investor). One potential limitation with this type of service is that it may not be
possible for the investor to receive all of the associated benefits, e.g. the ability to
vote at shareholder meetings, or receive discounts available to shareholders.
33.75 Initial action where insolvent holds
shares
Where an insolvent claims to own shares, the official receiver should verify that the
company or bankrupt is the registered owner of the shares. Although it is useful to
have sight of any share certificates, checks should also be made through Companies
House and by writing to the company secretary or share registrars acting for the
company. Under no circumstances should a sale be commenced without ensuring
that the insolvent is the registered owner of the shares and, ideally, with the share
certificates in the possession of the official receiver. Where a bankrupt holds shares
in their name but a claim is made that the shares are held beneficially for another it
will be for the bankrupt or the other party to provide evidence regarding ownership of
the shares.
Where the shares are held by a broker or through a nominee service (see paragraph
33.74) the broker/ nominee should be informed of the making of the insolvency order
and the consequences of the insolvency and asked to note the official receiver’s
interest. Enquiries should be made of the broker’s/ nominee’s charges for dealing
with the shares.
33.76 Lost share certificates
If a share certificate has been lost, an indemnity may be required before the shares
are sold. Before giving such an indemnity the official receiver should take steps to
purchase indemnity insurance cover only if the actual value of the shares held is
£10,000 or more. The shares should only be realised if the official receiver is able to
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obtain cover at a premium which results in a net benefit to the estate of the
realisation. For lost share certificates, the amount of the indemnity is the current
value of the shares. Insurers will base the premium on this amount but do recognise
that share prices may go up or down. Some stockbrokers offer a service where they
obtain the indemnity cover on behalf of the official receiver.
33.77 Crest
Crest is the Stock Exchange’s paperless settlement system. Under Crest,
shareholdings are recorded electronically, avoiding the need for paper share
certificates, although shareholders can choose to keep their share certificates if they
so wish. Shareholders have the option of either holding their shares in nominee
names with their brokers or remaining as a registered shareholder as a sponsored
member of Crest. If an insolvent has been dealing under Crest and has no share
certificates, checks should be made with their broker who will have a record of the
holding whether the insolvent had nominee holdings, or was a sponsored member.
The broker should be contacted promptly to prevent any unauthorised dealing in the
shares taking place after the date of the insolvency order.
33.78 Stock exchange
A stock exchange has two main functions, firstly to enable companies to raise new
capital through the issue of new shares (known as the primary market) and secondly
to enable the efficient trading of those shares (known as the secondary market). The
market is made up of market makers who are traders who buy and sell (bid and
offer) securities, therefore making a market for them. Throughout the trading day, the
market makers are obliged to display to the market, for all stocks in which they are
registered, their bid (buying) and offer (selling) prices and the maximum bargain
(transaction) size to which these prices relate. These prices are fixed to other
Exchange member firms. Market makers compete to have the best quote and make
their income by buying and selling at a profit. Market makers’ bids and quotes are
carried on the Stock Exchange Automated Quotations (SEAQ) system which is a
continuously updated computer database containing price quotations and trade
reports in UK companies. Any broker employed by the official receiver will deal with
the market makers. For a company to be listed (or quoted) on a stock exchange the
company must meet the requirements of that particular stock exchange. The
principal trading market for trading shares in the UK is the London Stock Exchange.
Valuing shares in quoted companies
33.79 General
--- PDF page 37 ---
The valuing of shares in a quoted company is the same in principle as valuing the
shares in a unquoted company (see paragraph 33.82). In practice the availability of
an efficient market (i.e. a stock exchange) with regular trades means that more
reliance can be placed upon the market price of the shares and the valuation models
serve more as a tool for confirming them values. It is for anyone wishing to sell the
shares to decide whether they wish to accept the market price.
33.80 Selling shares in quoted companies
If the official receiver is intending to sell shares then a stockbroker should be
instructed. It is important that the official receiver considers the brokers fees in
carrying out the transaction before deciding whether to instruct the agent. Individual
trades of shares are limited to shares in the same company and with the same
shareholder. This means that if there are a number of shares in the same company
with different insolvents holding the shares then each of the holdings needs to be
dealt with in a separate transaction.
Where the shares are already held by brokers, in a nominee account, or where it is
obvious that a share registrar has been involved in previous dealings enquiries
should be made as to the cost of them continuing to act and to realise the holding.
When considering whether to use the services of an alternative broker consideration
should be given to the costs of transferring the shares as a transfer fee will normally
be charged.
33.81 Selling shares on the stock exchange
The official receiver should sell any publicly quoted shares provided that the sale of
those shares achieves a benefit to the estate. Up-to-date share prices can be found
on the London Stock Exchange website. It is important that the official receiver
considers the value of the shares as well as the brokerage fees before conducting a
sale. A broker should not be instructed to carry out the sale unless it is absolutely
clear that there will be a benefit to the estate after considering the brokers fees and
charges
Under the London Stock Exchange system sales and purchases of shares need to
be completed within 3 days of the transaction date, this is often referred to as “T + 3”.
Due to this tight deadline it is imperative that the broker instructed to conduct the
sale has the appropriate documentation and information to complete the transaction
within this deadline.
Valuing Shares in unquoted companies
--- PDF page 38 ---
33.82 General
Where companies are unquoted there is no readily available market to indicate the
value of shares and it can therefore be difficult to place a value on them. There are a
number of different models or calculations that can be used to calculate the value of
the shares.
As a guideline minimum amount the net asset value of the company (i.e. the net
value of the company’s assets) may be used. This figure is useful as a guide but this
model has serious limitations as it fails to account for the earning potential of the
underlying assets of the company. Another potential pitfall is that the fixed asset
values quoted in the company’s balance sheet will usually be out of date.
33.83 Considerations when valuing unquoted
shares
When the official receiver sells shares in unquoted public companies or private
limited companies, care should be taken to ensure that a proper price is obtained for
them. Valuing such shares is notoriously difficult. The first offer to buy shares should
not be accepted without the official receiver first confirming that the offer made
represents a fair value for the shares. It is unlikely that any two valuations would
provide the same value. When considering an offer to purchase shares, the official
receiver should take the following into consideration:
•
what the current balance sheet shows the value of the company as a whole to be,
and what the current balance is on the company’s last profit and loss account
•
what percentage of the total shares the insolvent’s holding represents. The larger the
percentage of the total shares held, the great the control the shareholder has over
the company and the greater the relative value of the shares
•
whether any shares have recently been sold, and for what price
•
what the dividend history of the company is. The value of shares may be affected on
the basis of the expected dividends attached
•
whether the shares are fully or partly paid up. Shares that are only partly paid up
carry a potential liability which should be included in calculation of their value
•
whether any restrictions have been placed on the transfer of shares in the company
(see also paragraph 31.87)
•
any other factors applicable to the company itself such as future trading prospects
33.84 Considering an offer to buy shares in an
unquoted company
--- PDF page 39 ---
Where there is any doubt as to whether an offer made to purchase shares in an
unlisted company is a fair one, the official receiver should not hesitate to obtain a
valuation from an accountant or other competent valuer. In applicable cases they
may also become involved in the negotiation of the sale price. Great care should be
taken when relying on information supplied by the company in which the shares are
held or by any company or person closely associated to it. Costs incurred in
obtaining professional assistance as sales or valuations should be paid from the
insolvent’s estate in the usual way.
33.85 Restrictions on transfer
Restrictions on the right of a member to transfer shares do not apply to a personal
representative or trustee in bankruptcy of a deceased or bankrupt member who
seeks to be registered as the holder of the shares which have vested by operation of
law1 unless the articles expressly apply restrictions on transfers to such cases as
well.
1. Bentham Mills Spinning Co (1879) 11 ChD 900
33.86 Refusal to register transfers
The company’s articles may give directors the power to refuse to register a transfer
of shares. The Companies (Model Articles) Regulations 2008 (if adopted) give
directors that power. The directors must exercise their power to refuse to register a
transfer of shares, in good faith and for the benefit of the company. There is
extensive historical case law where the court has ordered that transfers be
registered where the directors acted inappropriately in refusing to register such
transfers. It is unlikely that directors would refuse to register transfers.
33.87 Other members’ rights of pre-emption
over shares
The other common restriction on the transfer of shares found in the articles is a
provision that a member of the company who wishes to transfer shares to a
transferee who is not already a member, shall first offer them to the other members
of the company at a price ascertained in accordance with a formula set out in the
articles, or at a fair price at which the shares are valued by the directors or by the
company’s auditors, and that the member may transfer the shares to the proposed
transferee only if other members do not exercise their right of pre-emption. Before
commencing a sale it would be prudent to check that the company’s articles do not
contain such a provision. No such provision is contained in The Companies (Model
Articles) Regulations 2008.
--- PDF page 40 ---
The shares would be transferred to the purchaser by a ‘proper instrument of
transfer’1, the forms for such a transfer being contained in the Stock Transfer Act
1963.
1. Companies Act 2006 section 770(1)
Shares with little or no realisable value
receipt of dividends
33.88 General
In cases where the cost of the sale of the shares would be greater than the
realisable value of the shares, while the case remains open and where the official
receiver, as liquidator or trustee should receive any dividends payable as a result of
holding the shares and pay the amounts received into the insolvency estate.
33.89 Disclaiming shares with little or no
realisable value
If it is not possible for the official receiver to dispose of the shares in any other way,
the official receiver should disclaim the shares. Low value shareholdings should not
be kept on the long term long term asset realisation register. A copy of the disclaimer
should be sent to the company secretary or share registrar1. Further details
concerning the disclaimer of shares is contained in chapter 42.
1. Rule 19.3
Employee share schemes
33.90 General
There are a number of share schemes operated by employers that can provide
financial benefits with tax incentives for their employees.
Types of tax approved share scheme are-
•
Save as You Earn (SAYE)
•
Share Incentive Plans (SIPs)
--- PDF page 41 ---
•
Company Share Option Plans (CSOPs)
•
Enterprise Management Initiatives (EMIs)
Where an employee share scheme does not have HMRC approval it will not attract
the tax advantages associated with the above scheme types. Any shares already
accumulated by the bankrupt at the date of the bankruptcy order will form part of the
estate and will vest in the trustee. It should be noted that Income Tax and National
Insurance may be payable if acquired shares are sold before the deadline set in the
scheme’s terms.
Further details of the types of tax approved employee share schemes is available on
GOV.UK.
33.91 Realisations from employee share
schemes
The official receiver should obtain details of the scheme and ask the scheme
administrator to note the official receiver’s interest. The official receiver should use
the information gathered to choose the course of action which will lead to the best
return for creditors.
Disposing of shares – official receiver to
inform creditors
33.92 General
In all circumstances creditors should be informed of how shares have been disposed
of whether they have been sold or disclaimed. Creditors may be given this
information in the official receiver’s report to creditors or notice of intention to apply
for release as appropriate. Derivatives, Warrants, Options Futures and Commodities
33.93 Derivatives
A derivative is a financial instrument that is used for the purposes of ‘hedging’, It is
referred to as a derivative as its value is ‘derived’ from the security to which it relates.
These instruments allow parties to ‘hedge’ by transferring risk, at a cost, to one
another. The market dealing of derivatives is a specialist field and membership of the
particular market is required to be a trader on those markets. The principle market
for derivatives in the UK is the NYSE LIFFE London. Common types of derivative are
referred to below.
--- PDF page 42 ---
33.94 Employment of a broker to deal with
derivatives
Where the official receiver encounters an insolvent who holds derivatives (e.g.
futures, warrants, or options) then a broker should be employed to assist in the
realisation of these items. This paragraph does not apply to the options granted
under a Save As You Earn (SAYE) scheme or similar (see paragraph 33.88).
33.95 Warrants
A warrant is issued by a company and gives the holder the right to buy shares at a
particular time in the future at a price set in the present - the exercise price. In the
meantime they can be traded on the stock market. The aim is for the exercise price
to be cheaper than the future price or projected market value. You can then sell the
warrant for a windfall profit. But if the shares of the company never reach the
exercise price, then the warrants are worth nothing. The warrant’s value rises when
the share price rises.
33.96 Options
An option works in a similar way but is bought from a market-maker - a professional
buyer and seller of shares - rather than the company. The two types of option are the
put option (which is an option to sell) and a call option (which is an option to buy).
Options work by giving the purchaser the right (but not obligation) to buy or sell
shares at a set price (referred to as the strike price) subject to certain time
constraints. Traditional options last for three months and you can either buy or sell
the shares, or let the option lapse. There are also traded options which can be
bought and sold in their own right.
33.97 Futures
A futures contract is a contract for a transaction to occur at predetermined future
date and price. One example would be where a farmer who has yet to grow a crop
may be concerned that the price he is set to receive would be less than the current
market price of the crop which he is planning to grow. To protect against this he can
enter a futures contract to set a price now so that he knows what he shall receive in
the future.
33.98 Commodities
--- PDF page 43 ---
A commodity is another name for any marketable resource, be it gold, steel, cotton,
coffee or wheat. While commodities can be traded in their own right there exists a
substantial derivatives market in these items London’s main commodity markets
divide between metals and soft (foodstuff) commodities.
33.99 Realising financial derivatives and
commodities
The markets dealing in financial derivatives and commodities are specialised and
membership of the various markets is required to be a trader on those markets. If the
official receiver is dealing with an insolvent who had options, futures or commodities
as investments then a broker should be employed to assist in the realisation of these
items. Where the insolvent was a member of a recognised investment exchange the
specialised insolvency procedures contained in Part VII of the Companies Act 1989
apply. Other dealings on the Stock Exchange
33.100 General
The following are also traded on the Stock Exchange:-
•
Eurobonds - long term loans issued in a currency other than that of the country of
issue. The Eurobond market is dominated by large international institutions, and it is
difficult to sell them in bargains worth less than £100,000. It is therefore unlikely that
the Official Receiver would deal with the realisation of Eurobonds
•
depositary receipts - negotiable certificates representing a company’s shares. Often
used by companies from developing countries. These are marketed internationally to
sophisticated investors, mainly financial institutions
•
overseas equities - ordinary shares issued by non UK companies. Securities are
eligible for trading if they are listed on any stock exchange recognised by the London
Stock Exchange. Share prices are usually quoted in the home currency of each
country and transactions are settled through the local settlement system
•
UK Gilts - the Stock Exchange offers a secondary or trading market which allows
investors to buy and sell gilts (see also paragraph 33.26)
•
bonds or fixed interest stocks - usually issued by companies or local authorities. The
market for fixed interest securities is based on a competing market maker system.
Market makers register with the Exchange in specific securities and are obliged to
offer to buy and sell up to a marketable quantity of stock at a firm price to other
member firms, but are not obliged to buy or sell to other market makers
--- PDF page 44 ---
Other monetary assets
33.101 Tax refunds: Crown right of set-off
It is “fundamental constitutional doctrine that the Crown in the UK is one and
indivisible”1. The Crown therefore has a general right of set off in respect of all claims
due to or from any government department2. The official receiver should try to
establish whether there are any debts owing to other government departments
before accepting a refund. Details of any possible government creditors should be
provided to the refunding department to enable any Crown set off to be applied.
Some government departments will have a minimum set off limit below which they
will not offer funds to other departments. If this is the case the monies should be paid
direct to the liquidator or trustee.
1. Town Investments v Department of the Environment [1978] AC 359
2. Rule 14.25 and Section 323 and Secretary of State for Trade and Industry v Frid [2004] 2 AC 506
33.102 Corporation tax
In certain circumstances a company will be due a tax refund. A profitable company
may have paid corporation tax for a number of years. Then, for example, after a
significant fall in the company’s turnover in the final months of trading liabilities
increased and a winding-up order was made. The losses during this period can be
offset against its previous corporation tax payments and a refund claimed. Where the
official receiver believes, either from the directors or another source, that a company
may be due a refund the official receiver should obtain details of the relevant tax
office together with any reference numbers. The official receiver should send notice
of the winding-up order to the tax office to enable the official receiver’s interest in any
refund to be noted.
33.103 Income tax
HM Revenue and Customs receive electronic notification of all bankruptcy orders.
The tax office dealing with the bankrupt’s tax affairs should note the bankruptcy
order and, where applicable, identify for payment to the official receiver or trustee
any refund of tax.
All bankrupts are requested to complete and sign the TNIDIS form which authorises
the payment to the official receiver (or other trustee) of any income tax refunds
payable for any year up to and including the tax year in which the bankruptcy order
was made to the bankrupt’s estate. HMRC will automatically offer the refund to the
official receiver or other trustee appointed. The official receiver must respond to the
--- PDF page 45 ---
offer and forward a copy of the TNIDIS in order to claim the refund. The letter
claiming the refund should be sent by post but the signed disclosure form (in Word or
pdf format) should be sent separately to the HMRC email account.
33.104 Corporation tax and Schedule D tax
refunds
A company or bankrupt may be entitled to a tax repayment where losses have been
made in the final tax year of trading. To obtain a repayment the company must have
paid some corporation tax in the previous 3 tax years. In bankruptcy the position is a
little more complicated. The bankrupt must have paid some Schedule D (Self
Assessment), PAYE or Capital Gains tax in any of the previous 3 tax years.
Obtaining a refund may be complicated, especially with regard to Schedule D tax
and the official receiver may require the advice of an accountant or tax specialist to
establish whether a repayment is due.
33.105 Obtaining a corporation tax or
Schedule D tax refund
Where a corporation tax or Schedule D income tax refund is not subject to a right of
set-off the official receiver must make an application for repayment to the appropriate
local tax office of HM Revenue and Customs. The application must be supported by
financial statements showing the losses. The official receiver should ensure, before
approaching an accountant or tax specialist, that the expected rebate exceeds the
cost of the advice.
33.106 VAT and refunds
Where a winding-up or bankruptcy order is made against a company or bankrupt
registered for VAT the company or bankrupt will be automatically deregistered
unless the official receiver decides otherwise. Where the company or bankrupt is to
be deregistered the official receiver will be asked to submit a final VAT return. If a
company or bankrupt is due a VAT refund the official receiver should agree the
amount with HM Revenue and Customs.
33.107 Share fisherman: tax budgeting scheme
A share fisherman is self-employed and receives a percentage of the catch as
income. HM Revenue and Customs (HMRC), in cooperation with the fishing industry
introduced a scheme whereby a percentage of a share fisherman’s income would be
placed in a special interest bearing account in the individual’s name (their fishing
--- PDF page 46 ---
account) at Barclays Bank plc, PO Box 13, Lemon Street, Truro, Cornwall, TR1 2YY
to be used to meet tax liabilities and to pay Class 4 national insurance contributions.
HMRC and the Insolvency Service have an arrangement whereby the balance in a
fishing account held by a share fisherman would constitute a vesting asset and can
be claimed by the trustee in bankruptcy by giving notice to Barclays Bank plc On the
closure of the account it is likely that another account would be opened for the
bankrupt to allow continued participation in the scheme.
33.108 Surplus from fixed and floating charges
Where a receiver or insolvency practitioner has been appointed under the terms of a
fixed and floating charge the official receiver should write to the appointed person
asking that the official receiver’s interest in any surplus arising following the sale of
the charged assets be noted.
33.109 Recovering dispositions of property
after the presentation of a winding-up or
bankruptcy petition
Where after a winding-up or bankruptcy petition has been presented the company or
individual makes a disposition of its property without the consent of the court the
official receiver may make an application to set aside the payment or transfer of
assets. For further guidance see chapter 32.
33.110 Monies or proceeds held by an
enforcement agent
Monies held by the county court bailiff or authorised enforcement agents following
the seizure of goods may be recoverable by the liquidator or trustee. For further
details refer to chapter 12.
33.111 Client accounts and monies held by
third parties
A solicitor, accountant, or other third party acting for a company in liquidation or
bankrupt may be holding funds in a client account or elsewhere. If the solicitor,
accountant or third party is a creditor in the proceedings they may claim a lien on the
monies (see chapter 12 for advice on dealing with a lien). If the solicitor, accountant
--- PDF page 47 ---
or third party is not a creditor the official receiver as liquidator or trustee should write
and ask for the monies to be sent to the official receiver.
33.112 Client accounts and a solicitor’s
undertaking
A solicitor may give an undertaking to the court or a third party to pay over funds
held in a client account on behalf of a company in liquidation or bankrupt. Such an
undertaking is enforceable against the solicitor unless the court orders otherwise. It
is likely that such an undertaking will have been provided as a result of litigation and
the issues involved may be complex. In such instances the official receiver should
seek advice as an application to the court for directions may be necessary.
33.113 Monies held by third parties and
investment profits
A third party in possession of monies, which form part of the bankrupt’s estate, is not
entitled to retain the proceeds from profitably investing these monies. The trustee in
bankruptcy is entitled to trace these profits and claim them in an action for “money
had and received”1.
1. Trustee of the property of F.C. Jones and Sons (a firm) v Jones (1996) 3 WLR 703
33.114 Monies paid into court
Where a defendant pays money into court, either voluntarily or following an order,
and subsequently goes into liquidation or becomes bankrupt, the plaintiff becomes a
secured creditor in the insolvency proceedings to the extent of the amount paid in to
court1. The official receiver, in such circumstances, should consent to the money
being released from the court to the plaintiff unless it is greater than the amount
owed to them in the liquidation or bankruptcy. Any balance of funds remaining
should be paid to the official receiver for the benefit of the estate.
1. W A Sherratt Ltd v John Bromley (Church Stretton) Ltd (1985) 1 AELR 216
33.115 Bills of exchange
Essentially a bill of exchange is a document which ensures that one person pays
another person a fixed sum of money on a specified date1. A cheque is a form of a
bill of exchange. Bills of exchange which include a term of credit, i.e. they are
payable in the future, are called “term bills”.
--- PDF page 48 ---
A creditor (or drawer) will draw up a bill of exchange and send it to the debtor (or
drawee). To accept the bill of exchange the debtor signs vertically across it. When
accepting the bill of exchange the debtor may indicate that the bill be presented for
payment at their bank.
A creditor (or drawer) may use a bill of exchange to pay off a debt they owe to a third
party. The bill of exchange would be drawn up indicating payment should be made to
that party. The accepted bill of exchange would be sent to the third party after its
return by the debtor (or drawee).
1. For full definition see Bills of Exchange Act 1882, section 3
33.116 Proof of debt
A bill of exchange may be submitted by a creditor in insolvency proceedings to
support a proof of debt.
33.117 Promissory notes
A promissory note is a formal “I.O.U.”1 A promissory note is an unconditional promise
in writing made by one person to another, signed by the maker, engaging to pay, on
demand or at a fixed or determinable future time, a sum certain in money to, or to the
order of, a specified person, or to a bearer. The writer of a promissory note is called
the “maker”. The note is incomplete until it has been delivered to the payee or
bearer. Promissory notes issued by private individuals are rare.
1. For full definition see Bills of Exchange Act 1882, section 83
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 10 March 2020.
34. Stock, work in progress, plant and
machinery and fixtures and fittings
Chapter content
Frequently asked questions
Background and key actions
Realising stock
Drugs and medicines
Explosives
Farming stock
Food and drink
Pet animals as stock
Flowers
Firearms and other offensive weapons
Fuel
Motor vehicles, collectibles, art and scrap metal
Realising work in progress
Realising plant and machinery, fixtures and fittings and goods on hire
--- PDF page 2 ---
Frequently asked questions
These FAQs are to assist official receivers in understanding the subject and should
be read in conjunction with the more detailed guidance given in the chapter.
How will I know if the company,
partnership or bankrupt has any stock,
work in progress, plant, machinery or
fixtures and fittings?
The official receiver should establish if the company, partnership or bankrupt is
trading shortly after the making of the order. This may be by telephone or by
conducting an inspection. Where the business is still trading or stopped trading
before the order the official receiver should determine whether there is any stock,
work in progress, plant and machinery or fixtures or fittings that form part of the
estate. Additional information may be obtained from the petitioning creditor, the
insolvent’s solicitors and/or accountants and by referring to any accounts.
How will I know if the director, partner or
bankrupt has disclosed all stock, work in
progress, plant, machinery or fixtures and
fittings?
The trading records, for example cash books, purchase ledger, invoices, bank
statements etc., and any previous accounts should provide an indication of
• stock levels
• work in progress
• plant and/or machinery
• fixtures and fittings
--- PDF page 3 ---
What do I do if a third party claims
entitlement to stock, work in progress,
plant, machinery or fixtures and fittings?
A third party may claim entitlement to stock, work in progress, plant, machinery or
fixtures and fittings for a number of reasons, including:
• a fixed and floating charge
• a finance agreement
• retention of title
• a lien
• taking control of a debtor’s goods
The validity of any such claim must be verified, for example by inspecting the charge,
finance agreement or legal papers, and if valid arrange for the “owners” to collect the
property.
What do I do if a bankrupt makes an
exempt property claim?
It is unlikely that a bankrupt would claim stock or work in progress as exempt
property. It is more likely that plant, machinery or fixtures and fittings would be
subject to such a claim. The official receiver should carefully consider any claim for
property to be treated as exempt.
When do I value stock, work in progress,
plant, machinery of fixtures and fittings?
In most cases the official receiver will require a valuation by their agents. Valuations
by a director, partner or bankrupt should be treated with caution. In some cases it
should be obvious the property is worthless, for example, out of date stock or old
office furniture. The books and records may have a reasonably accurate record of
stock, work in progress, plant, machinery or fixtures and fittings and their book
values.
Can I disclaim stock, work in progress,
plant, machinery and fixtures and fittings
--- PDF page 4 ---
that are worth less then the costs of
realisation?
To disclaim stock, work in progress, plant, machinery or fixtures and fittings the
official receiver must also disclaim his/her interest in the land or buildings on or in
which the property is situated. Before doing so the official receiver must ensure the
land or buildings are of no value to the estate.
What are fixtures and are we entitled to
claim them?
Fixtures are usually considered to be part of the land or property and as a
consequence belong to the mortgagee or landlord. If they can be removed without
causing damage to the property they may form part of the estate (unless claimed as
exempt property) and sold by the official receiver’s agents. The official receiver
should take care when deciding to remove fixtures from a property as they may be
subject to a claim by the mortgagee or landlord.
What do I have to consider when selling
stock?
The official receiver must ensure that any stock sold is safe and of a satisfactory
quality, free from faults, matches the description given and is fit for purpose.
Legislation covers the sale of a number of specific items such as controlled drugs,
medicines, firearms, explosives, flowers, food, livestock and pet animals.
Should I use an agent to sell stock?
The official receiver will generally use agents to collect and sell stock. In most cases
these will be his/her usual agents. However in some cases a specialist agent may
need to be employed, for example to sell a painting by a well known artist.
What should I do if a creditor claims
retention of title on some of goods
used/needed for the work in progress?
The official receiver must establish whether the retention of title claim is valid. The
costs of meeting any retention of title claim will need to be taken into account when
deciding to sell or complete work in progress.
--- PDF page 5 ---
What should I do with work in progress?
The official receiver must decide whether work in progress should be completed. The
costs of completing the work (for example, labour, materials, rent, insurances and
utilities) should be compared with the likely value of the completed goods. Where
there is unlikely to be a net benefit to the estate the work in progress should be sold,
abandoned or otherwise disposed of.
What should I do if completing the work in
progress would be of benefit to the estate?
The official receiver should if possible seek the appointment of an insolvency
practitioner as liquidator or trustee. The official receiver should consider whether
sufficient suitable materials are available, the landlord will allow access to the
premises, the former employees will be willing to complete the work and the need for
a special manager. The official receiver should be aware, as far as possible, of any
hidden costs that may arise.
What is plant and machinery?
Generally speaking, plant and machinery is an asset that is used by a business for
the purpose of carrying on the business that is not stock in trade, business premises
or part of the business premises.
What should I do if a third party claims title
to plant and machinery?
The official receiver must establish whether the claim is valid. Third parties which
may have a valid claim include: hire purchase or finance companies, mortgagees
and landlords.
What should I do with plant and machinery
that forms part of the estate?
Before selling any plant and machinery the official receiver should ensure it is not
• claimed as exempt property (bankruptcy only)
• required to continue the business
• required to complete any work in progress
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Where the proceeds exceed the costs of sale the official receiver may use their usual
agents, unless specialist agents are required.
Background and key actions
34.1 General
This chapter gives advice on realising assets commonly encountered when dealing
with a business – stock, plant and machinery, fixtures and fittings and work in
progress.
The chapter does not give substantive advice on protecting the assets – which is
covered by chapter 25, and the chapter should be read in conjunction with chapter
11, which gives advice on matters to be dealt with when dealing with the inspection
of a business premises.
34.2 Dealing with stock, work in progress,
plant and machinery and fixtures and
fittings – General
In most cases it should be possible to easily realise the insolvent’s interest in stock
and plant and machinery, following the guidance in this chapter, with the involvement
of agents – possibly specialist agents.
Dealing with work in progress and fixtures is likely to be more difficult and, in many
cases, it will be necessary to seek the appointment of an insolvency practitioner as
liquidator or trustee. Nevertheless, guidance on those types of assets is given in this
chapter.
34.3 Encountering stock, work in progress,
plant and machinery and fixtures and
fittings
The official receiver is most likely to encounter stock, work in progress, plant and
machinery and fixtures and fittings in the early stages of a case, whether that be
during an inspection or as part of an initial enquiry following the making of an order.
Such initial enquiries should seek to establish the whereabouts of the items, the
extent to which they are safely stored/located and whether they are adequately
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insured. The enquiries should also seek to establish the extent to which there are
third party claims over the items.
34.4 Sources of information regarding
stock, work in progress, plant and
machinery and fixtures and fittings
Information concerning stock, work in progress, plant and machinery and fixtures
and fittings may be available or forthcoming from the petitioning creditor, or other
trade creditors/suppliers.
Reference should also be made to the last set of accounts (draft or otherwise), or
accounting records, which may give an indication of stock/asset levels, and the value
of that property at the time of the preparation of the accounts.
34.5 Valuation of stock, work in progress,
plant and machinery and fixtures and
fittings
Unless the likely value of the stock, work in progress, plant and machinery and
fixtures and fittings is apparent from the accounts/accounting records, the official
receiver is likely to require a valuation from their agents. Many agents will provide
an informal valuation for no charge.
Valuations received from the company directors, bankrupt or parties connected
thereto should be treated with circumspection and the official receiver should
arrange for their own valuation where there is doubt.
In some cases, it will be apparent that the property is worthless (such as old office
furniture or obsolete stock), and the official receiver can use their discretion not to
obtain a formal valuation.
34.6 Disclaimer of stock, work in progress,
plant and machinery and fixtures and
fittings
In some cases it will be necessary to issue a disclaimer of stock, work in progress,
plant and machinery and fixtures and fittings where, for example, the property has no
value and there is an onerous obligation. An example of this may be potentially
dangerous plant requiring public liability insurance.
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The official receiver cannot disclaim such property without also disclaiming the
land/property on/in which the property is situated, so it will be necessary to ensure
that the land/property has no value to the estate.
Specific guidance on disclaiming items of stock is given below.
34.7 Third party claims over stock, work in
progress, plant and machinery and fixtures
and fittings
The official receiver should establish whether any or all of the stock, work in
progress, plant and machinery or fixtures and fittings have valid third party claims
over them – such as a fixed or floating charge, finance agreement, retention of title
or a lien.
The validity of such claims should, of course, be verified and, if valid, the official
receiver should not seek to realise the items. Instead they should arrange for the
‘owners’ of the property to collect (where possible) the property.
34.8 Insurance of stock, work in progress,
plant and machinery or fixtures and fittings
Where the items require insurance, it should be arranged in line with the guidance
in chapter 14. Where the value or existing cover of the items is uncertain, cover
should still be arranged but cancelled if/when the items are discovered to be
worthless or the property of a third party – notifying the third party of the
whereabouts and possibly uninsured status of the property. When the items have
been sold or otherwise disposed of or the case has been handed over to an
insolvency practitioner appointed as liquidator or trustee the official receiver should
cancel the policy.
Where the official receiver is dealing with potentially dangerous stock (such as
explosives, firearms or drugs/medicines), they should inform the insurer that any
insured premises contain these items.
34.9 Realisation of stock, work in progress,
plant and machinery or fixtures and fittings
Assuming there are no valid third party claims (including a claim for the items to be
treated as exempt property) over the stock, plant and machinery or fixtures and
fittings and the guidance in this chapter has been considered, the official receiver’s
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usual agents should be instructed to sell the items. Where the assets are of an
unusual or specialist nature the agents may, instead, suggest a specialist
agent. Any sale price agreed should, of course, take into account the need to
remove the items, as appropriate.
Work in progress is likely to require different treatment – following the guidance later
in this chapter.
34.10 Sale to a connected party
It may be the case that the official receiver’s agents advise that the best price for the
items may be achieved through a sale to a third party connected to the company
officers or bankrupt. Indeed, this may be the most cost-effective method of
realisation when the costs of removal are taken into account – particularly for
specialist equipment.
Where, in such a sale, the purchaser maintains that the items have a low value, the
official receiver should not be averse to seeking the employment of a specialist
valuer, at the expense of the prospective purchaser, with the purchaser to provide
the funds for the valuation in advance.
34.11 Prompt sale required
It may be necessary to realise certain items of stock, work in progress, plant and
machinery or fixtures and fittings promptly. Such circumstances may include:
•
to avoid assets being lost if it is likely a landlord will distrain
•
perishable or seasonal goods
•
assets that would incur large storage costs in relation to their value
•
livestock or other animals where the costs of foodstuffs and care may become
prohibitive
•
assets in premises that cannot be made secure, or where the costs of securing and
insuring the premises would be prohibitive
where a good offer is subject to a time condition
34.12 Stock held in a bonded warehouse
In brief, a bonded warehouse (also known as a customs warehouse) is a warehouse
in which are stored goods that have been imported into this country from outside the
EU and which it is intended will be exported to another country outside the EU
without entering the UK market. The advantage for a trader of using a bonded
warehouse is that duty or import-VAT is not payable on the goods imported to the
UK, unless (until) they enter the UK market.
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Such warehouses are tightly regulated and if the insolvent has goods in one it is
likely that the assistance of the warehouse keeper and/or HMRC will be required to
have the goods released for sale. If the goods are to be sold within the UK it will be
necessary for the official receiver’s agent to deal with the relevant VAT/duty
implications.
Realising stock
34.13 What is stock?
‘Stock’ is generally taken to mean goods kept by a trader for sale to the consumer or
another business, or may be materials to be turned into a product for sale. Materials
to be turned into other products are often referred to as raw materials.
Anything that comes under this general definition may be considered to be stock,
and may even include animals, in the case of a farm, for example. Stock does not
include the equipment used by a business to process material, instead that would be
‘plant and machinery’. Similarly, materials in a partially completed state would be
considered to be work in progress.
34.14 General consumer protection
legislation - Safety
Guidance produced by the Trading Standards Institute states the following:
When goods are sold to customers they must be safe. If goods are unsafe and they
cause death, injury or damage to property, the manufacturer, the retailer and/or
anyone else in the supply chain may need to meet a claim for compensation.
Where goods that are unsafe are supplied and those goods cause injury or death,
the person so injured (or their estate if deceased) has the right to make a claim
against the supplier or the producer of the goods1.
If the injured party wishes to make a claim against the producer of the goods, they
can compel the supplier to provide details of the producer. If that supplier fails to
provide to the claimant, within a reasonable time, details of the producer of the
goods, they are liable to a claim for compensation2.
Where the official receiver has sold goods and subsequently receives a request to
supply the details of the producer, they should do so without delay.
In addition to civil sanctions, there are also criminal sanctions for the supply of
unsafe goods3.
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1. Consumer Protection Act 1987
2. Consumer Protection Act 1987 section 2(3)
3. Consumer Protection Act 1987 section 12
34.15 Agents instructed to check safety of
goods before sale
It is likely that agents used by the official receiver will be aware of the various pieces
of safety legislation. Where there is doubt, the official receiver should ensure that the
general application of the relevant laws is brought to the attention of the agents and
that the agent checks, in so far as is possible, the safety of the goods to be sold, with
regard to the general regulations1 or any regulations specifically applying to the
goods (product safety for manufacturers).
1. General Product Safety Regulations 2005
34.16 General consumer protection
legislation - Quality
Apart from the requirement to supply goods that are safe, a person supplying goods
also has a duty to supply goods that are of satisfactory quality, are free from faults,
match the description given and are fit for purpose1. If goods supplied do not meet
those requirements, the supplier may be liable to take remedial action (such as
replacing the goods or giving a refund), or to pay compensation.
Second hand goods will have a lower expectation as to what is satisfactory than new
goods2.
1. Sale of Goods Act 1979 section 14
2. Bernstein v Pamson Motors Ltd [1987] RTR 384
34.17 Seasonal goods
Unless other regulations are applicable the only thing that the official receiver need
bear in mind as regards seasonal goods is that their value is likely to (significantly)
diminish once the relevant season has ended. In this case it is imperative that the
official receiver act quickly to maximise the return to creditors. Examples of seasonal
goods are as follows:
• greetings cards (Christmas, St Valentine’s day, Mothering Sunday, Fathers’
Day, etc.)
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• Easter Eggs
• decorations for religious or cultural festivals (Christmas, Diwali, Halloween,
Chinese New Year, etc.)
• Christmas gifts
• sun creams or other hot weather related products
• sledges, winter clothes, etc
• bedding plants/turf
• items related to sporting or national celebratory events
Drugs and medicines
34.18 – Drugs and medicines - General
Stocks of drugs may be held by wholesalers or retail pharmacists. In addition, small
stocks of drugs are likely to be found at the premises of doctors, dentists or
veterinary surgeons. Similarly, hospitals, clinics and residential/nursing homes are all
likely to hold some stock of medicines.
The law provides for controls over the sale of medicines, with the level of control or
restriction dependant on the class of the medicine, as follows1:
• general sale list – medicines on this list can be sold by any retail outlet,
provided that the premises at which the medicines are sold can be ‘closed off’
to the public.This would exclude, for example, car boot sales or market stalls.
• pharmacy only medicines – these medicines may only be sold through a
pharmacy, with a pharmacist present
• prescription only medicines – these are subject to the same restrictions as
pharmacy only medicines, with the additional restriction that they may only be
sold in accordance with a prescription from a specified medical professional
1. The Human Medicines Regulations 2012 regulation 5
34.19 Sale of medicines
Following the restrictions outlined above, the official receiver’s agents may only sell
those medicines on the general sale list. A wholesaler may agree to take back a
stock of other types of medicines, in exchange for payment.
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Where it is not possible for the medicines to be sold or returned, the official receiver
should consider issuing a disclaimer of the medicines, served upon the local Primary
Care Trust and the owner of the premises at which the medicines are stored. If the
official receiver is retaining the premises for sale, it will not be possible to disclaim
the medicines (as it will not be possible to disclaim the drugs without also disclaiming
the underlying reversionary interest in the property (thereby losing the value of the
property to the estate) and, instead the guidance below relating to disposal of
medicines.
34.20 Disposal of medicines
Where it is not possible to sell or disclaim the insolvent’s stock of medicines, the
official receiver, as liquidator or trustee, will need to dispose of them.
The (Sanitary Medical Disposal Services Association), contains a list of members
that are authorised to dispose of surplus/waste medicines.
Some of these companies do work on a contract-only basis, so it might be a case of
ringing around to find a company that will do work on a ‘supply and collect’ basis.
The arrangement will generally work on the basis of the company supplying specially
marked tubs (called ‘bins’) into which are placed the drugs; the bins then being
collected by the company.
The official receiver should discuss their requirements with the prospective
company, but one difficulty for them is likely to be in that the drugs/medicines
generally have to be sorted by category into bins for collection. Special procedures
may be required for controlled drugs. It is anticipated that the insolvent may be able
to assist in this.
34.21 Herbal medicines/remedies
From the point of view of the official receiver dealing with herbal medicines or
remedies, the guidance for general list medicines may be followed as regards sale
and disposal1.
1. The Human Medicines Regulations 2012 regulation 5(2)(c)
34.22 Controlled drugs
Dealings in certain types of drugs are controlled by legislation1, 2, with the possession,
supply and production of specified drugs a criminal offence. Some drugs are
controlled only to the extent that records must be kept relating to their storage and
use3, 4 links to notes no longer work, whereas the possession of some drugs is
prohibited entirely, except for research purposes. Those drugs that are controlled are
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specified in the legislation5 and are classified in five groups depending on the level of
control provided for in the legislation.
1. Misuse of Drugs Regulations 2001
2. Misuse of Drugs Act 1971 section 5
3. Misuse of Drugs Regulations 2001 regulation 23
4. Misuse of Drugs Regulations 2001 regulation 24
5. Misuse of Drugs Regulations 2001 regulation schedules 1 to 5
34.23 Storage and recording of controlled
drugs
The legislation provides that certain controlled drugs are stored in a prescribed
manner1, and the movement and use of such drugs recorded2. This may assist the
official receiver is assessing stock levels.
1. Misuse of Drugs (Safe Custody) Regulations 1973
2. Misuse of Drugs (Safe Custody) Regulations 1973 regulations 19 to 24A
34.24 Dealing with controlled drugs -
General
The restrictions on the sale (supply) of controlled drugs would prohibit the official
receiver or their normal agents from selling the drugs. If the value of the drugs
warrants it, the official should seek to appoint a specialist agent but, given that
stocks of controlled drugs encountered by official receivers are likely to be small, it is
more likely that the agent’s costs in dealing with the drugs will exceed the value, and
a disclaimer will be appropriate.
34.25 Dealing with controlled drugs -
Disclaimer
It will not be possible to disclaim the drugs unless the property in which the drugs are
stored is also disclaimed and, of course, the official should not do this if the property
has a value to the estate in excess of the cost of disposing of the drugs. In which
case, the official receiver will have to arrange for the drugs to be disposed of (see
above).
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Where a disclaimer is appropriate, the official receiver should arrange for the drugs
to be disclaimed, serving notice of the disclaimer on the owner of the premises, the
local Primary Care Trust and the local Police drug liaison officer.
Explosives
34.26 Explosives - General
The official receiver may encounter explosives when dealing with businesses that
manufacture, store or sell the following types of goods:
• Christmas crackers
• party poppers
• toy gun caps
• mMarine flares
• car airbags
• car seatbelt tensioners
34.27 Sale of explosives
Strictly speaking, there are actually few restrictions on the sale of explosives, but
there are strict rules regarding storage, which effectively act as controls over the
sale.
The official receiver should confirm with the director or bankrupt that the explosives
are being stored in line with the requirements of the legislation. In all events, it is
likely the advice of the local trading standards department should be sought.
Assuming all is well with the storage of the explosives, the official receiver may
instruct his regular agents to act in the sale – but, necessarily, the sale may only be
from the premises originally used by the business unless the official receiver can be
satisfied that the premises of the agent are equally suitable.
34.28 Licences for the storage of explosives
Licences for the storage of explosives are issued by the local licensing authority
(usually the local authority) or Health & Safety Executive (HSE)1. The licence applies
to the person, rather than the premises at which the explosives are stored, and
‘person’ can mean a company or an individual.
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If a licensee goes into liquidation, or is made bankrupt, the official receiver, as
liquidator or trustee is treated as the licensee2.
1. The Explosives Regulations 2014 regulation 13
2. The Explosives Regulations 2014 regulation 18
34.29 Restrictions on storage of explosives
The regulations relating to the storage of explosives are complex and vary
depending on the nature of the explosive and the amount kept1, 2, 3. Suffice to say that
any person storing explosives for commercial reasons is likely to require a licence or
to be registered with the local authority.
Further information can be found at;
Health & Safety Executive
1. The Explosives Regulations 2014
2. Explosives Act 1875
3. Fireworks Act 2003
34.30 Restrictions on the sale of fireworks
The storage of explosives in quantities of up to 50kg is permitted without licence or
registration. The storage of quantities of over 50kg but up to 250kg requires
registration with the local authority, whilst quantities over 250kg require a licence.
In addition, a licence is required to sell fireworks outside of the following times1, 2:
• on the first day of the Chinese New Year and the three days immediately
preceding it
• on the day of Diwali and the three days immediately preceding it
• during the period beginning on 15 October and ending on 10 November
• during the period beginning on 26 December and ending on 31 December
1. Fireworks Act 2003
2. Fireworks Regulations 2004
34.31 Seasonal nature of some explosives
Some explosives, such as fireworks or party poppers have a demand for them that
will fluctuate seasonally. Where, for example, the official receiver is dealing with a
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stock of fireworks every effort should be made to deal with the sale of the fireworks
before November 5 or, as the case may be, 1 January.
34.32 Explosives with no realisable value
If the explosives have no realisable value, the official receiver should arrange for
them to be disclaimed but only if the underlying reversionary interest in the property
in which they are stored has no value, serving notice of the disclaimer on the owner
of the premises, the Health and Safety Executive, the local authority trading
standards department and the local Police explosives liaison officer (Health and
Safety Executive).
Farming stock
34.33 Livestock – General
Livestock is the term used to describe animals kept in connection with a farming
business, or animals that are of a food-producing species.
Livestock units are often subject to strict biosecurity provisions and therefore advice
should be sought from the Animal and Plant Health Agency prior to entry/action
being taken.
34.34 Sale of livestock
It is unlikely that the official receiver’s normal agents will be able to assist in the sale
of livestock, though they may be able to suggest a specialist agent. Useful points of
contact may be the local livestock market or the local authority animal health team.
Failing that, an internet search for ‘livestock sales’ should uncover agents that might
be willing to assist.
Before formally instructing agents, the official receiver should ask the agent for an
estimate of the value of the animals and their likely fees in dealing with the
sale. Only if there is likely to be a realisable value should the official receiver
proceed with the instruction. In reaching this decision, the official receiver will need
to take into account the costs of housing and feeding the animals in the period
leading up to the sale and the costs of complying with legal requirements. In this, it
is accepted that the official receiver may need to outlay monies to pay for an
inspection of the animals by the agent.
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34.35 Sale of livestock – important legal
considerations
Both the official receiver and the agent must have regard to all legislative
requirements surrounding the movement of livestock including disease control
restriction, welfare in transport and identification/movement reporting requirements. It
would be advisable to contact the Animal or Plant Health Agency or the relevant
local authority in the first instance. Official receivers could potentially commit animal
health and welfare offences if livestock are moved prior to advice being sought.
34.36 Livestock with no realisable value
Where the official receiver is advised that the animals have no realisable value they
should be offered to a reputable animal charity such as the RSPCA (a search of the
internet using the term ‘farm animal rescue’, or similar may lead to details of a local
organisation).
There may be legislative requirements in relation to the disposal of livestock and the
Animal and Plant Health Agency should be contacted in the first instance.
If it is not possible to dispose of the animals through rehoming, advice may be
available through the local authority animal health team or local animal collectors. It
is possible that the official receiver will have to arrange for them to be destroyed at
the expense of the estate, as a disclaimer is unlikely to be appropriate.
34.37 Disclaimer of livestock not
appropriate
Due to the requirements of the animal welfare legislation to, amongst other things,
house, protect and feed animals appropriately1, 2, it is extremely unlikely to ever be
appropriate to disclaim an interest in livestock. In short, the official receiver may be
open to an allegation of animal cruelty as the last owner of the animals.
A disclaimer should be issued if requested by an animal welfare organisation, where
it might be required to allow them to take possession of the animals.
1. Animal Welfare Act 2006
2. Welfare of Farmed Animals (England) Regulations 2007
34.38 Milk as farm stock
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By its very nature as a commodity that is produced and sold on a daily basis, it is
unlikely that a dairy farmer will be carrying a large stock of milk.
Most (if not all) dairy farmers who supply milk are in sole supply contracts, also
termed ‘exclusive contracts’. There are two types of exclusive contract, those that
provide for the farmer to supply all produced milk to the purchaser and the purchaser
is obliged to collect all that is produced (these are called ‘exclusive evergreen
contracts’) and those that ‘cap’ the volume at a certain level. In those second type of
contracts the purchaser will buy the milk produced over the capped level at a
significantly lower price. The ‘capped’ contract is usually used for producers of
organic milk.
Where the farmer is in one of these type of exclusive contracts, it is possible that
monies will be owing to the farmer in respect of milk already supplied. This should be
dealt with as a book debt.
34.39 Sale of milk stock
Due to restrictions on the sale of fresh food and drink, milk should not be sold
directly to suppliers or end users and, instead, the arrangement entered into by the
farmer should be continued with unless the official receiver’s agents advise
otherwise.
34.40 Arable farm produce (grain) as stock
Grain is traded in 29t lorries, and a sales contract will typically be for multiples of a
lorry (typically from one to, perhaps, ten), or for the farmer’s entire produce of a
variety, a crop species or all their crops via a grain pool.
Grain pools are typically where the tonnage harvested/committed before harvest is
marketed by a cooperative. Some combinable crop farmers will be completely loyal
to an individual coop or merchant for all combinable crops they grow.
Straw is not generally marketed by grain companies, but by hay and straw
merchants or straw baling contractors. Some is purchased by power stations. Maize
is almost all grown for forage, the small amount harvested for grain and traded is
done the same way as other combinable crops.
Ideally, the crops should be dealt with as soon as possible. Where necessary, the
official receiver should seek the advice of the company to whom the grain is to be
sold regarding storage of the crops pending sale, to avoid the grain spoiling in the
meantime.
34.41 Sale of grain stock
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So far as the official receiver is concerned, the most effective way to realise a stock
of grain would be to continue with whatever arrangement has been entered into by
the farmer, unless the official receiver’s agents advise otherwise.
34.42 Seed as stock
A seed merchant must hold a British Society of Plant Breeders (BSPB) sub-licence
to be able to produce and trade in seeds of the protected varieties. The licence will
specify the types of protected seed that they are allowed to trade in. In practice, any
seed merchant active in the UK must hold a BSPB sub-licence. The sub-licence
terminates immediately and automatically on insolvency.
It is the case, therefore, that, where an insolvency order is made against a seed
merchant (or similar), no sale can take place of any seed that is held as stock, any
as grown seed or any seed crop that is in the field without the rights holder’s
permission as there is no valid licence in place at that point.
34.43 Sale of seed stock
The official receiver, as liquidator or trustee, should contact the (BSPB) to discuss
the options that are available for the sale of seed stock and the BSPB will liaise with
the relevant rights holder(s). In general, royalties will be payable on any sale of any
of the seed but there will be a range of options that can be agreed as to who can
hold the licence under which the seed will be sold and who will therefore be liable for
the payment of the royalties to BSPB on it.
There have been previous instances in which the liquidator or trustee has been
licensed by the BSPB to sell the seed and pay the royalty, and others in which seed
and crops have been transferred or sold to other merchants who have taken on the
obligation to pay the royalty.
Food and drink
34.44 Food and drink - General
For the purposes of food safety legislation, food is defined as ‘any substance or
product, whether processed, partially processed or unprocessed, intended to be, or
reasonably expected to be ingested by humans’1. Such definition would include drink
and items not intended to be swallowed, such as chewing gum.
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Food does not include animal feed, live animals (except those prepared for
consumption – for example, oysters), plants prior to harvesting, medicines,
cosmetics or tobacco or tobacco products.
1. EC General Food Law Regulation 178/2002 article 2
34.45 Fresh food and drink
For the purposes of this guidance, fresh food can be taken to mean food normally
kept in fridges or freezers, fresh vegetables and/or fruit and food with a ‘use-by’ date.
34.46 Fresh food and drink (including
frozen food) not to be sold or given away
The supply of food for human consumption is regulated by a number of pieces of
legislation1, 2, 3, 4, 5. Of particular note is that it is an offence to sell food that does not
comply with food safety requirements6. As it will be impossible for the official receiver
to be satisfied that the fresh food stock of an insolvent business is safe for human
consumption (for example, a freezer or fridge may have been turned off and turned
back on again), such stock should be disposed of and not sold.
The legislation provides that the supply of food other than by sale is also to be
deemed a sale of food7. In this case, it will not be possible for the official receiver to
arrange for food to be given away.
1. Food Safety Act 1990
2. EC General Food Law Regulation 178/2002 article 2
3. General Food Regulations 2004
4. Food Safety and Hygiene (England) Regulations 2013
5. Food Safety and Hygiene (Wales) Regulations 2013
6. Food Safety Act 1990 section 8
7. Food Safety Act 1990 section (2)(1)(a)
34.47 Disposal of fresh food and drink
It should be possible for food to be disposed of through the normal local authority
refuse collection system used by the business.
If it is not possible to dispose of the food waste through the normal refuse disposal
system, the food should be disclaimed with the notice of disclaimer being served on
the local environmental health department and the landlord. A disclaimer should not
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be issued if the official receiver is retaining the business premises as an asset of the
estate and, instead, a contractor should be employed to dispose of the waste. It is
likely that the local environmental health officer will be able to suggest a suitable
contractor.
34.48 Food and drink – grocery items
Food that is not fresh (as in food that is not intended to be sold as fresh, such as
tinned, food in jars or packaged food – generally, food with a ‘best-before’, rather
than a ‘use-by’ date) is unlikely to have become unfit for consumption due to the
less demanding storage requirements on that type of food. Assuming that the ‘best-
before’ date has not passed and there is no obvious reason to suspect that the food
has become in any way unfit (such as water contamination of broken/damaged
packaging), it should be possible for the official receiver to arrange for their normal
agents to remove and sell the food stock.
34.49 Alcoholic drinks
A stock of alcoholic drinks (beer, lager, wines, spirits, etc.) held as stock by a public
house (often known as ‘wet stock’) is likely to be held on a sale or return basis and
will not be an asset in the insolvent estate.
If the drinks are not held on a sale or return basis, the official receiver may
instruct their normal agents to sell the drinks provided they are licensed to do so1. If
they are not so licensed, they may be able to suggest an agent who is.
1. Licensing Act 2003
Pet animals as stock
34.50 Sale of pet animals by agents
It is possible that the official receiver’s normal agents will be able to assist in the sale
of pet animals. If not, they may be able to suggest a specialist agent.
Before formally instructing agents, the official receiver should ask the agent for an
estimate of the value of the animals and their likely fees in dealing with the sale.
Only if there is likely to be a realisable value should the official receiver proceed with
the instruction. In reaching this decision, the official receiver will need to take into
account the costs of housing and feeding the animals in the period leading up to the
sale. In this, it is accepted that the official receiver may need to outlay monies to pay
for an inspection of the animals by the agent.
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The official receiver should ensure that their agent sells the animals only to a pet
shop, dealer or breeder that has been licensed by the local authority1, 2, 3.
1. The Pet Animals Act 1951
2. Animal Welfare Act 2006
3. Animal Welfare (Licensing of Activities Involving Animals) (England) Regulations 2018
34.51 Pet animals with no realisable value
Where the official receiver is advised that the animals have no realisable value they
should be offered to a reputable animal charity such as the RSPCA, Blue Cross,
PDSA, Dogs Trust. There may also be local or specialist sanctuaries that would be
prepared to take on the animals. Alternatively, another local pet shop may be
prepared to take the animals.
If it is not possible to dispose of the animals in this way, it is possible that he official
receiver will have to arrange for them to be destroyed at the expense of the estate,
as a disclaimer is unlikely to be appropriate.
34.52 Disclaimer of pet animals not
appropriate
Due to the requirements of the animal welfare legislation to, amongst other things,
house, protect and feed animals appropriately1, it is extremely unlikely to ever be
appropriate to disclaim an interest in pet animals.
A disclaimer should however be issued if requested by an animal welfare
organisation, where it might be required to allow them to take possession of the
animals.
1. Animal Welfare Act 2006
34.53 Animal stock other than pets or farm
livestock
The official receiver may encounter stock animals other than pets or farm livestock.
Examples may be breeders of race horses or greyhounds or breeders of animals for
the food of other animals.
Without going into detail here, the general principles as to how these animals should
be dealt with would be the same as for pet animals – that is, they should be sold if
they have a value and, if not, they should be re-homed or destroyed.
--- PDF page 24 ---
Flowers
34.54 – Flowers - General
There are no special regulations regarding the sale of flowers, but the shelf life of
flowers is, naturally, limited. Unless the official receiver’s agents can suggest an
avenue by which the flowers may be disposed of in bulk (perhaps, to a wholesaler),
the official receiver may consider selling the flowers to another florist in the area or,
even, attempting to sell the flowers to members of the public passing the business
premises.
In dealing with flowers, the official receiver should attempt to establish if any of the
flowers are special orders (for funerals or weddings, etc.) that have not yet been paid
for and, if so, attempt to contact the customer to arrange for payment and collection.
Flowers ordered to be made up into wreathes or bouquets, etc. may be considered
to be work in progress and the advice below may be followed.
34.55 Disposal of flowers
It should be possible for flowers to be disposed of through the normal local authority
refuse collection system used by the business.
If it is not possible to dispose of the flowers through the normal refuse disposal
system, the flowers should be disclaimed with the notice of disclaimer being served
on the local environmental health department and the landlord. A disclaimer should
not be issued if the official receiver is retaining the business premises as an asset of
the estate and, instead, a contractor should be employed to dispose of the flowers. It
is likely that the local environmental health officer will be able to suggest a suitable
contractor.
Firearms and other offensive weapons
34.56 Firearms as stock
This paragraph deals only with firearms held as stock. Firearms held personally by
the bankrupt are dealt with in chapter 25.
Advice and information on dealing with firearms (including illegally held firearms)
when first encountered by the official receiver is contained in chapter 11).
--- PDF page 25 ---
It is an offence to be in possession of a firearm without the necessary certificate1 and
the dealing in firearms is controlled by the local police force2. Apart from the
obligation to hold a certificate, there are a number of other regulations surrounding
the transfer of firearms, particularly as regards record keeping3 and the official
receiver should ensure that any agents appointed to sell the firearms are registered
firearms dealers
If there is any doubt when dealing with a firearm, the advice of the local police
firearms liaison officer should be sought.
1. Firearms Act 1968 section 1
2. Firearms Act 1968 section 33
3. Firearms Act 1968 section 40
34.57 Offensive weapons as stock
There are restrictions on the sale of certain items that are, or may be used as,
offensive weapons, such as knives, swords or crossbows1, 2.Such restrictions
generally relate to a minimum age of the buyer of the item.
Some items (such as flick-knives or similar) are banned for sale entirely 3.
The official receiver’s agents are likely to be aware of the various restrictions but,
where there is doubt, this should be confirmed.
1. Criminal Justice Act 1988 section 141A
2. Crossbows Act 1987
3. Restriction of Offensive Weapons Act 1959 section 1
Fuel
34.58 Fuel (petrol/diesel) as stock -
General
Around two-thirds of the 9,500 petrol stations in the UK are independent of either the
major fuel companies or the major supermarkets. Where the official receiver is
dealing with an insolvency order against such a business, the advice in chapter 11
should be followed, with the official receiver’s agents being instructed to liaise with
the supplier over the return of the fuel and any refund for the fuel returned (a typical
station’s tank of fuel being capable of holding around £30,000 worth of fuel at cost
price).
--- PDF page 26 ---
34.59 Fuel where premises rented, etc.
Where the station is licensed, rented, etc. to the insolvent by a third party (probably,
one of the major oil companies), the official receiver (or their agents) should liaise
with the landlord over the return of the fuel or the site – ensuring that payment is
received where the fuel has not been supplied on a sale or return basis. The official
receiver should seek guidance from the fuel supplier in this regard, as it may be
better that the fuel is sold in-situ, for safety reasons.
34.60 Heating fuel as stock
The official receiver may encounter a supplier of heating oil and it is likely that the
original supplier of the fuel will be the best avenue to realise the fuel.
34.61 Fuel not to be sold to end
users/consumers
Due to the various regulations regarding the sale of fuel (relating to health and
safety, licensing, consumer protection and excise1, 2, 3, 4, 5, 6) the official receiver should
not attempt to sell fuel to consumers/end users.
1. Control of Substances Hazardous to Health Regulations 2002
2. Dangerous Substances and Explosive Atmospheres Regulations 2002
3. Petroleum (Consolidation) Regulations 2014
4. Motor Fuel (Composition and Content) Regulations 1999
5. Finance Act 1999
6. Finance Act 2008
Motor vehicles, collectibles, art and
scrap metal
34.62 Motor vehicles as stock
A stock of motor vehicles may be sold by the official receiver’s normal agents, taking
into account the general principles outlined in chapter 27.
--- PDF page 27 ---
34.63 Collectibles, memorabilia, antiques
and works of art
When dealing with a stock of collectibles (such as comics, toys, etc.), antiques or
works of art, the official receiver should consider whether the employment of a
specialist agent may result in a better return to creditors that using their normal
agents.
So far as concerns items of this type (particularly works of art), the official receiver
should ensure that the insolvent is not merely acting as an agent for the owner of the
items(s) in the shop premises.
The following trade associations may be able to assist in locating a specialist agent:
• The British Antique Dealers Association
• London and Provincial Antiques Dealers Association
• The Antiquarian Booksellers Association
• The Society of Fine Art Auctioneer and Valuers
• Collectors Club of Great Britain
34.64 Scrap metal
Scrap metal is a hazardous product and land that has been used for storing or
processing scrap metal may be contaminated land. Any area used for storing scrap
cars is considered contaminated, as battery and engine fluids may be present. Only
a licensed scrap metal dealer can deal with the scrap metal1 so specialist agents
may be required for the disposal of any stock
1. Scrap Metal Dealers Act 2013
Realising work in progress
34.65 Work in progress – general
Work in progress may be described as products and services in intermediate stages
of completion. It is possible that work in progress could be realised without any
further preparation, or it may be that extra costs have to be incurred before the work
is saleable – or saleable at a greater sale price.
The following guidance is to assist official receiver in deciding whether to complete
work in progress but, in most cases of this nature, the appointment of an insolvency
--- PDF page 28 ---
practitioner should be sought who will be able to obtain the necessary skills and
expertise required to complete the work.
34.66 Retention of title on goods used/to
be used in manufacturing process
It is possible that raw materials supplied to the insolvent may be subject to a valid
retention of title clause even after they have entered into a manufacturing process..
The existence of a valid retention of title clause will, obviously, be relevant to the
official receiver’s decision, as liquidator/trustee to complete work in progress.
34.67 Deciding if work in progress should
be completed prior to realisation
When considering whether additional expenditure should be incurred to complete
work in progress, the official receiver, as liquidator/trustee, should take into account
the costs of completing the work (taking into account costs such as labour, materials,
rent, insurances and utilities) and the likely value of the goods in completed form
against the value of the raw materials in unprocessed (or part processed form). It is
likely that specialist agents will need to be employed to advise the official receiver –
a quantity surveyor, for example, in the case of uncompleted building work.
Where there is any doubt that the completion of the work will result in a net benefit to
the estate (or an increased benefit to the estate, as the case may be), the work in
progress should be sold without further processing or abandoned/disposed of as
appropriate.
34.68 Matters to be considered before
completing work in progress
The following matters, in particular, should be considered when deciding whether to
complete work in progress:
•
the availability of raw materials. The raw materials in the insolvent’s possession may
be subject to third-party claims, or of poor quality. Replacement materials may be
costly
•
access to the insolvent’s premises and equipment may not be available
•
the workforce may be unwilling, unable or unavailable to complete the work in
progress. Skilled replacements may be costly and/or difficult to employ
--- PDF page 29 ---
34.69 Work in progress that should not be
completed
In certain cases, it will not be appropriate to complete the work in progress, even if
there may be a financial benefit to the estate in doing so. These include:
•
contract catering, or the preparation of buffets, etc. In such circumstances any
uncompleted contracts should not be fulfilled as it will not be possible for the official
receiver to be certain that the food has been stored properly or prepared
hygienically. An insolvency practitioner may be prepared to take the case as
liquidator or trustee to complete the work if the contract is particularly lucrative
•
where the premises are unsafe, or the equipment dangerous
•
where the insolvent was processing illegal goods – such as counterfeit clothes
34.70 Contract with a penalty clause
Where a contract entered into by an insolvent contains a penalty clause against non-
completion, steps should be taken to disclaim the contract unless it is decided that
the work is worth completing.
34.71 Employing a special manager
Where a business is likely to be sold as a going concern, or to protect work in
progress in the period leading to the appointment of an insolvency practitioner as
liquidator or trustee, it may be necessary to apply to court for the appointment of a
special manager. This is a costly and expensive procedure which should only be
considered if the work in progress is of a high value.
34.72 Accountant client files – work in
progress
Where the accountant has commenced working as instructed by a client and the
work has not been completed, the official receiver should attempt to establish any
amount due by the client, to the insolvent, in respect of the work undertaken and the
book debt contractor should be contacted to deal with the collection of the debt. The
official receiver should retain the file until the amount due has been settled. Once
any outstanding bill has been settled the file should either be returned to the client or
forwarded on request of the client to another accountant. Any papers belonging to
the accountant should first be removed from the file.
34.73 Barrister’s work in progress
--- PDF page 30 ---
If a barrister has commenced working on a matter on which they have been
instructed it will be necessary to establish the value of the work completed up to the
date of the bankruptcy order. The barrister’s clerk usually deals with the settlement
of client bills and should be able to assist the official receiver in establishing any
amounts due, though the fees may not be due to the estate1. Any money recovered
from fees in relation to work completed prior to the bankruptcy will vest in the
bankruptcy estate and the book debt contractor should be instructed to deal with the
collection of the debt1 As it is generally expensive to instruct another barrister to take
on a case it is likely that the barrister will seek to continue to act for the client post
bankruptcy and in such circumstances the file should remain with the barrister.
1. Gwinnutt v George [2018] EWHC 2169 (Ch)
34.74 Solicitor’s client files containing
work in progress
Where a file contains work in progress by the solicitor the official receiver needs to
balance the need to return client files whilst seeking to preserve the estate by
demanding settlement of overdue accounts. The file should remain with the official
receiver as trustee until such time as any outstanding bill in respect of the work
undertaken by the solicitor has been paid.
The accounting records of the solicitor should be examined to establish amounts due
by clients and the book debt contractor should be instructed to deal with the
collection of any outstanding fees.
The official receiver may encounter difficulties where the bankrupt’s accounting
records are incomplete and the amounts due for work undertaken by the solicitor are
not known. Due to client confidentiality the official receiver should not peruse the file,
without the client’s consent, other than to establish whether it contains a time costs
sheet to assist in the calculation of outstanding fees. When the bill for outstanding
fees has been settled the file can then be returned to the client or sent on to another
solicitor at the client’s request to complete the work.
The Solicitor’s Regulation Authority may be able to assist the official receiver, where
there has been an intervention.
34.75 Growing crops as work in progress
Where the official receiver is dealing with an insolvent farming business, it is highly
unlikely that they will have the resources or expertise on hand to care for and
harvest any growing crops.
--- PDF page 31 ---
In these circumstances, the early appointment of an insolvency practitioner as
liquidator or trustee should be sought.
Guidance on dealing with a stock of grain or seed, or livestock is given in above.
Realising plant and machinery, fixtures
and fittings and goods on hire
34.76 – Plant and machinery - General
Generally speaking, plant and machinery is an asset that is used by a business for
the purpose of carrying on the business and is not stock in trade, the business
premises or part of the business premises1. The difference between plant and
machinery is that generally machinery will have moving working parts, and plant will
not (though computers and similar electronic devices are considered to be
machinery, despite have no moving parts). The working parts of a machine are also
considered to be machinery.
A motor vehicle is ‘machinery’, but advice on dealing with motor vehicles is
in chapter 27.
The last prepared accounts of the insolvent may assist the official receiver in
identifying plant and machinery.
1. Wimpy International v Warland, Associated Restaurants Ltd v Warland [1989] STC 273
34.77 Plant and machinery or not?
Much of the case law regarding whether something is plant (machinery is easier to
define) or not1, 2 , 3 concerns tax legislation as there are capital allowances for items of
plant and machinery. By way of an example, it has been held that items of a purely
decorative nature can be considered to be plant if they are a fundamental part of the
business (such as in a pub or hotel) – otherwise, the items would be considered part
of the premises (though not necessarily a fixture)4.
In this regard, the distinction between something being plant and not being plant
(being part of the business premises) is unlikely to be important to the official
receiver as liquidator or trustee, and of more importance (in, for example, deciding if
something is an asset of the insolvent or a third-party) is likely to be the case law
relating to whether something has become a fixture, or not.
1. Yarmouth v France (1887) LR 19 QBD 647
--- PDF page 32 ---
2. Benson (Inspector of Taxes) v Yard Arm Club Ltd [1979] 1 WLR 347
3. J Lyons & Co Lrd v Attorney General [1944] Ch 281
4. Inland Revenue Commissioners v Scottish and Newcastle Breweries Ltd [1982] 1 WLR 322
34.78 Fixtures – General
Generally, a fixture is considered to be an item which has become so attached to the
land or property to form, in law, part of the land or property. For the purpose of
dealing with an insolvent estate it may be necessary for the official receiver to
identify which of the insolvent’s chattels or trade equipment constitute fixtures and
which do not – as an item that has become a fixture may be property of the landlord
or mortgagee.
The last prepared accounts of the insolvent may assist the official receiver in
identifying fixtures.
34.79 Is an item a fixture?
Generally, something brought onto land will fall into one of three categories1:
•
achattel
•
a fixture,
•
something that becomes part of the land itself (such as bricks used to make a
building)
Clearly, something that has become part of the land itself will belong to the owner of
the land (the landlord or a mortgagee in possession, for example), and this would
apply similarly to items which constitute fixtures. Whether an item is a fixture
depends on the purpose of its attachment (or, annexation) to the land (or, more
commonly, building/property), and whether it could be removed without doing
irreparable damage to the property/land2. In respect of a leased property, the terms
of the lease may give details regarding what is to be considered a fixture, and what
is not.
1. Elitestone Ltd v Morris and another [1997] 1 WLR 687
2. Botham v TSB Bank plc (1997) 73 P&CR D1
34.80 Fixtures and mortgages
Where there is a mortgage the general principle is that, subject to any contrary
intention, a mortgage of land comprises – without any express provision referring to
them1 – all fixtures which at the date of the execution of the mortgage were attached
to the land and any that are subsequently annexed to the land2, 3, 4, 5.
--- PDF page 33 ---
1. Simmons v Midford [1969] 2 Ch 415
2. Ellis v Glover and Hobson Ltd [1908] 1 KB 388 CA
3. Law of Property Act 1925 section 62(1)
4. Law of Property Act 195 section 205(1)
5. Botham v TSB Bank plc (1997) 73 P&CR D1
34.81 Tenant’s fixtures
Generally, items intended to be permanently fixed to the fabric of the building (such
as a bathroom suite) are the property of the lessor, or the mortgagee if they are in
possession, unless expressly excluded. Important exceptions to this rule have
however arisen and fixtures which can be removed under these exceptions are
known as ‘tenant’s fixtures’.
Under the principles relating to tenant’s fixtures, a tenant may remove items that
have been affixed for ornament or for the purposes of carrying on business, so long
as there is no contrary provision in the lease, and they are capable of removal
without irreparable damage to the land or property1, 2, 3, 4.
So far as deciding whether something is a tenant’s fixture, or not, each case is likely
to turn on its own merits and it is not possible to give blanket guidance, as each
circumstance is likely to be different. In cases where there is a dispute of a material
nature regarding the definition of fixtures the advice of the Senior Official Receiver’s
Office can be sought.
1. Leschalles v Woolf [1908] 1 Ch 641
2. Bishop v Elliott (1855) 156 ER 766
3. Climie v Wood (1869) LR 4 Exch 328
4. Spyer v Phillipson [1931] 2 Ch 183
34.82 Realising fixtures
Assuming that the fixtures are tenants’ fixtures and are not exempt property, the
official receiver’s usual agents should be able to sell them. Alternatively, they may be
able to suggest a specialist agent.
Any sale price agreed should, of course, take into account the need to remove the
items. In this respect, it is likely to be more appropriate that the items are sold in-situ
– perhaps to the landlord or a subsequent tenant, or disclaimed, as appropriate.
34.83 Goods on hire
--- PDF page 34 ---
Where the insolvent has hired property to others, details of the whereabouts of all
the property, its value and the conditions of the hire should be obtained along with
the contact details of the third party. Where the goods are of sufficient value to merit
sale, they should be dealt with in the usual way, instructing agents if appropriate. If it
is necessary to obtain insurance, the nature and whereabouts of the goods should
be notified to the insurers and it should be made clear that they are not within the
official receiver’s control. This may affect the insurance premium payable and the
likelihood of obtaining cover.
It may be possible to effect a sale of the goods to the hirer, though in this case the
official receiver or their agents should attempt to recover any outstanding hire
charges as part of the sale agreement if possible.
Alternatively, a competitor in the field might be willing to purchase the property and
the benefit of the hire contract.
If the equipment cannot be dealt with by way of sale, it can be disclaimed in situ.
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ATTACHMENT: 35.Income_Payment_Agreements_and_Orders.pdf
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 10 March 2020.
35. Income Payment Agreements and
Orders
Obtaining Income Payments Agreements (IPA) and Income Payments Orders (IPO)
from bankrupts, including the matters to be taken into account when calculating the
sum to be paid
Annexes
Annex A - Calculations and adjustments to be made where the bankrupt is in receipt of
benefit income
Annex B – Calculations and adjustments to be made where the official receiver seeks to
claim a lump sum payment
Income payments calculator (November 2019)
Income payments calculator user guidance (February 2019)
Chapter content
Introduction to Income Payments Agreements and Orders
What is an income payments order (IPO) and an income payments agreement (IPA)?
Income
Expenditure - general
Accommodation costs and council tax
Care and health costs
--- PDF page 2 ---
Transport and travel
School costs
Pensions and insurances
Work costs and tax
Variable outgoings
Communications and leisure
Food, housekeeping and personal costs
Attachment of earnings
Assessment and implementation of an IPA
Income Payments Order (IPO)
Notification of agreement/order
Collection of an IPA/IPO
Review, variation and discharge of IPA/IPO
Enforcing and IPA or IPO following default
Introduction to Income Payments
Agreements and Orders
35.1 General
One consequence of the debt relief afforded by bankruptcy is that the bankrupt, who
is no longer responsible for making payments to creditors, may have a surplus
income beyond that needed to meet their daily living expenses. The legislation
allows the trustee to seek contributions to the bankruptcy estate from this surplus for
a maximum period of 3 years (36 months). This chapter provides guidance on some
--- PDF page 3 ---
of the issues which may arise in calculating surplus income and the process of
obtaining and enforcing income payments agreements (IPA) or income payments
orders (IPO). There is no set formula every case must be considered on its merits,
every bankrupt’s circumstances will be unique to them. The chapter should be read
and applied in conjunction with the SFS IPA Calculator and User Guide available
above and on the Intranet. Income and expenditure should be evidenced and tested
where it is reasonable to do so.
35.2 Standard Financial Statement IPA
Calculator
Since April 2017 the official receivers calculate surplus income using the Standard
Financial Statement (SFS). As a first step in any assessment, surplus income should
be established by completing the bespoke calculator based on the SFS. Information
to complete the calculator will be provided by the bankrupt as part of their bankruptcy
application or preliminary information questionnaire (form PIQB). If the bankrupt has
sought debt advice within six months of the bankruptcy order being made they may
have completed the SFS with a debt advisor as part of that process. If the SFS is
provided to the official receiver the information from the existing SFS may be used to
establish surplus income.
35.3 One agreement per bankrupt
Only one IPA (or IPO) should be in existence per bankruptcy case. Where the
bankrupt has agreed to make higher payments for a short period of time following a
temporary increase in income, for example following the application of an NT (nil tax)
code or council tax holiday, this should be included as a separate element within a
single IPA. This might be referred to as a “stepped IPA” the agreement allowing for
different contributions to be made at different times.
What is an income payments order (IPO)
and an income payments agreement
(IPA)?
35.4 Introduction to an IPO
Provision is made by section 310 for the trustee to apply to the court for an order
requiring the bankrupt, or a third party on behalf of the bankrupt, to make regular
--- PDF page 4 ---
payments of a specified amount or proportion of the bankrupt’s post order income
into the estate for a specified period. The legislative rules governing IPOs can be
found in the Insolvency (England and Wales) Rules 20161
1. Rules 10.108 to 10.114
35.5 Application to court and terms of an IPO
An IPO can only be made on an application submitted to court by the trustee prior to
the bankrupt’s discharge, although an order can be made after discharge on an
application lodged at court before discharge. The period of the order must not be
more than three years (36 months), beginning with the date on which the order was
made. The period of the IPO must be incorporated into the order, and may extend
beyond the date of discharge. An IPO cannot be made if the effect of the order is to
reduce the income of the bankrupt below an amount “necessary for meeting the
reasonable domestic needs of the bankrupt and their family”. In other words the
court might only order payments from surplus income after deduction of all
reasonable household expenses. An IPO can be changed (‘varied’) on application to
the court by the trustee or the bankrupt (before or after discharge) but the period of
the order cannot be extended beyond three years from the date the order was made.
35.6 Introduction to IPAs
The IPA procedure was introduced into the Act1 with effect from 1 April 2004. The
basis of assessment is the same for an IPA as that for an IPO (see above) but the
trustee is able to enter into a binding agreement with the bankrupt to make payments
rather than seek a court order. The rules governing IPAs can be found in the
Insolvency (England and Wales) Rules 2016.2
1. Section 310A
2. Rule 10.115 to 10.117
35.7 The terms of an IPA
An IPA is a contract, the terms of which are enforceable as though it were an IPO1.
The agreement is made between the bankrupt and the official receiver or the trustee,
on terms that the bankrupt will pay an agreed amount of their post bankruptcy order
income to the bankruptcy estate. Once received the monies form part of the
bankruptcy estate.2 An IPA may provide for the payments to be made by a third
party, for example an employer. The period of the agreement must not exceed three
years (36 months), beginning with the date on which the agreement comes into
force, the agreement can extend beyond the date of the bankrupt’s discharge. The
terms of an IPA can be changed (‘varied’) at any time by written agreement of both
--- PDF page 5 ---
parties but the period of the agreement cannot be extended beyond three years from
the date the agreement originally came into force.
1. Section 310A(2)
2. Section 310A(4)(a)
35.8 Approval of IPA
An IPA can only be completed prior to the discharge of the bankrupt and only comes
into force when both parties have authenticated (signed) the agreement. Once the
terms of the IPA have been agreed a copy of the agreement is delivered to the
bankrupt who has 14 days to authenticate (sign) and return the agreement (unless
discharge will occur earlier than the expiry of the 14 days)1. The agreement must
then be authenticated (signed) by the official receiver or assistant official receiver to
bring it into force. The IPA should be authenticated at the earliest opportunity. There
must be no delay in signing the agreement where the bankrupt’s discharge is about
to occur.
1. Rule 10.115(3)
35.9 Failure to provide information and
suspension of discharge
An IPO application must be made or an IPA must be in force before discharge.
Where a bankrupt fails to provide the necessary information to enable an income
payments calculation to be made, or delays agreement of an IPA, an application
should be made for suspension of discharge to ensure that the ability to obtain the
potential asset is not lost. See chapter 19 for information on suspension of
discharge.
35.10 IPAs always to be sought in preference
to IPOs
Where the bankrupt has surplus income available to make a payment to their
bankruptcy estate, an IPA should always be sought in preference to an IPO. An IPO
should only be sought in those cases where an agreement cannot be reached and
the bankrupt fails to consent to the proposed IPA or does not co-operate with the
official receiver in the collection of an IPA.
--- PDF page 6 ---
Income
35.11 Definition of income
For the purposes of an IPA or IPO “income” is widely defined1 as any form of income.
In addition to periodic payments the bankrupt might receive by way of salary or
wages from any employment, business or vocation, pension or state benefits, lump
sum payments might also fall within the definition of income2. For example, a bonus
payment from an employer, arrears of maintenance payments or a lump sum from a
pension. Income received at any point after the making of the bankruptcy order, to
the point of discharge, might be included in an IPA or IPO and therefore can include
income which is already in the hands of the bankrupt3.
1. Section 310(7)
2. Supperstone v Lloyd’s Names Association Working Party [1999] BPIR 832
3. Official Receiver v Baker [2014] BPIR 724
35.12 Salary or wages
Figures for salary or wages from employment should always be the bankrupt’s net
take home pay after deduction of tax, NI and other payments. If the amount is
reduced by any attachment of earnings relating to a provable debt in the bankruptcy,
steps should be taken to vacate the attachment of earnings1. Regular overtime
payments should be included in any calculation of surplus income. Any IPA can be
varied if the overtime comes to an end.
1. Sections 310(4) and 310A(3)
35.13 Bonus payment by employer
Where a lump sum bonus payment or overtime payment is received post bankruptcy,
this should be considered as income and included in any income payments
calculation. If a bonus is paid to the bankrupt whilst an IPA is already in force, the
IPA may be varied to claim the bonus, including where the bonus is received after
discharge. As with all income calculations, the bonus can only be claimed in
circumstances where the bankrupt otherwise has sufficient funds to meet their
reasonable domestic needs.
35.14 Bonus payment from employer paid
under a trust settlement
--- PDF page 7 ---
A bankrupt may be eligible to receive a bonus which is paid under a Trust
Settlement. An example of this is the John Lewis Partnership bonus paid annually to
all partners (employees) as a percentage of salary, the amount of the percentage
being dependent on the business profits made in the previous year. Where the
bankrupt is due to receive a bonus after the date of the bankruptcy order, the official
receiver may encounter the problem that the Trust Settlement precludes the bonus
from being paid to an undischarged bankrupt where it will be claimed by the official
receiver. The trustees of the scheme will seek an unequivocal statement that the
official receiver in bankruptcy will have no claim on the money, either now or in the
future. It is open to the official receiver to decline to make such a statement and the
bankrupt will not receive the bonus payment. In the alternative, the official receiver
may seek, in principle, a voluntary agreement with the bankrupt, that in return for the
undertaking the bankrupt will make a voluntary payment to the official receiver. It is
suggested that a minimum 50% of the bonus received would be an acceptable
compromise.
35.15 Agreeing an IPA where the bankrupt is
self-employed
Where a bankrupt is self-employed, although their income may be a variable amount
each month, it should still be possible for the official receiver to identify whether the
bankrupt will have a surplus of income. This may be done in a number of ways and
may require the trustee to review the bankrupt’s circumstances more frequently than
in cases where the IPA is based on income received as a result of being in receipt of
a regular wage.
35.16 Calculating average income where the
bankrupt is self-employed
The official receiver might consider the average of the bankrupt’s income received
over a given period, through analysis of any records or accounts supplied to the
official receiver. An IPA can be based on a monthly or quarterly payment based on
the average surplus income calculated. An allowance for tax and national insurance
contributions should be included in any calculation.
35.17 Dealing with seasonal, staged, or
commission based self-employed income
In other cases where the bankrupt’s income varies on a seasonal basis, it may be
possible to agree an IPA which covers only the specific period when the bankrupt is
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in receipt of surplus income (e.g. for a six month period in the summer or winter
depending on the nature of the seasonal income). In circumstances where the
bankrupt is in receipt of staged payments (e.g. those received by building
contractors) or is paid on a commission basis their basic salary may provide
insufficient income for an IPA, but in conjunction with staged payments/ commission
income received may provide adequate surplus to agree an IPA. In these
circumstances, if appropriate, the official receiver could propose an agreement with
the bankrupt to pay contributions when the payments are received. In these cases
the official receiver can agree the particular payment terms within the IPA. As
always, the period of the IPA must not exceed three years from the date of
commencement of the agreement or order.
35.18 Income relating to foster care
Where a bankrupt is in receipt of foster care allowance this should be treated as
income and not a state benefit. Where a child or young person has been placed with
an individual by either a local authority or independent fostering provider, that
individual is considered to be self-employed. It is necessary to establish whether the
income is received jointly with another foster carer. All expenses associated with the
care of the children subject to foster care must also be considered in the calculation
where the foster care income is included.
35.19 Income arising from nil tax (NT) coding
Where bankruptcy occurs, HMRC submits a claim in the bankruptcy proceedings for
the whole of the outstanding tax due in that tax year for both employed and self-
employed individuals. The claim submitted in the proceedings by HMRC is dealt with
in the same way as any other unsecured creditor. Where a bankrupt is employed on
a PAYE basis they will have a tax code issued to them which enables their employer
(or pension provider) to calculate the amount of tax to deduct from their salary.
Where a bankrupt is in PAYE employment at the date of bankruptcy, and remains
with the same employer, HMRC applies a nil or no tax (NT) code to the bankrupt’s
salary for the remainder of the tax year in which the bankruptcy order is made. The
NT code is applied to all income earned by the bankrupt after the bankruptcy order
date, either until there is a change in the bankrupt’s source of income (i.e. a new job
with a different employer), or until the end of the tax year in which the bankruptcy
occurs, whichever event is the earliest. This means the bankrupt does not pay any
tax on their income whilst the NT code is in force and so receives additional income
which can be included in the income payments calculation. Notification of the
bankruptcy order will cause the local tax office dealing with the bankrupt taxpayer’s
affairs to identify cases where the nil tax (NT) code will be applied. The application of
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the NT coding is not dependent on any additional notification from the official
receiver to the tax office.
35.20 Effect of NT coding on other income
sources (e.g. benefit income)
As the application of the NT code raises the debtor’s net income, it can affect the
payment of some benefits, which may ultimately lead to a reduction in the amount of
surplus available to make a payment under an IPA. Where the bankrupt’s income is
reduced as a consequence of re-assessment of part of their income (e.g. housing
benefit) or an award in other proceedings (e.g. a CSA payment), then the IPA should
be varied to reflect the change in the available surplus income. HMRC have
confirmed that the application of the NT code to a bankrupt’s income will not have
any impact on a bankrupt’s claim for working tax credits. Tax credits will continue to
be paid at their existing rate as long as the bankrupt remains eligible.
35.21 Claiming extra income arising from NT
coding
Where the NT code is expected to be applied before the end of the tax year, the
additional income arising as a result of the application of the NT coding can be
included when calculating the bankrupt’s surplus income from which contributions
can be collected under an IPA. It is also possible that the increased income available
as a result of the application of the NT coding may provide sufficient surplus to agree
an IPA, even where the bankrupt does not have sufficient surplus from their usual
net income. In this instance an IPA could be agreed based solely on the surplus
income created by the application of the NT coding to the bankrupt’s salary.
35.22 Form TNIDIS, instruction to agents
Where an IPA has been agreed to collect surplus income arising as a result of the
application of an NT coding, and the bankrupt has signed the Tax and National
Insurance Disclosure Authority (form TNIDIS), a copy of form TNIDIS should be
forwarded to HMRC by e-mail to Tnidis.ptopsbankruptcy@hmrc.gov.uk. Form
IRNTMB requesting that HMRC forward notice of the NT coding to the official
receiver’s agents to enable them to commence collection of the NT IPA should be
sent separately by post. A copy of form TNIDIS should be retained by the official
receiver. In deciding whether an IPA is appropriate in order to collect surplus NT
income, consideration should be given to the amount of tax the bankrupt pays each
month and the time the local tax office is likely to take to implement the NT coding. In
practice, it can take some time to implement the NT code and the bankrupt will then
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receive the overpayment of tax as a refund at the end of the tax year. Where such a
tax refund arises due to delays in adjusting the bankrupt’s tax code, it should be
claimed by using the TNIDIS which authorises the payment to the official receiver
/trustee of income tax refunds payable for the tax year in which the bankruptcy order
was made rather than through the IPA process.
35.23 Tax refunds up to and including the year
of bankruptcy
The bankrupt may receive tax refunds for periods both before and after bankruptcy.
Tax refunds paid to a bankrupt for any period prior to the bankruptcy order date and
including the financial year in which the bankruptcy order is made should be claimed
using the authority provided by the bankrupt when they complete the TNIDIS. The
tax refund must not be claimed as after-acquired property or included in an IPA.
35.24 Tax refunds for years subsequent to
year of bankruptcy
Any refund in respect of tax years following the tax year in which the bankruptcy
order was made may be claimed by means of an IPA or an IPO where the bankrupt
remains undischarged or subject to an existing IPA (or IPO).
35.25 Council tax holiday
Where the bankrupt receives a council tax holiday for the remainder of the year of
bankruptcy this should be treated in the same way as additional income under an NT
coding.
35.26 Redundancy, pay in lieu of notice or
compensatory notice pay
Where a bankrupt is due to receive redundancy and/or pay in lieu of notice (PILON),
the payment represents compensation paid for loss of employments and where the
employer elects not to give a statutory period of notice. This payment does not
represent wages either during the notice period or for any period after employment
has ceased. It should be claimed as an asset of the estate if paid to the bankrupt
before the date of the bankruptcy order, and as after acquired property if paid after
the date of the bankruptcy order. PILON may be subject to tax1. Where an employer
is insolvent the Redundancy Payments Service (RPS) will pay a compensatory
notice payment (CNP) to the employee instead of PILON. This payment is limited by
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statute and subject to mitigation; the amount paid is reduced by any earnings or
benefit entitlement during the statutory notice period. A CNP should be claimed in
the same way as PILON.
1. Employment Income Manual (EIM12976))
35.27 Payments received in respect of loss of
earnings
Periodic payments received after the date of the bankruptcy order in respect of loss
of earnings should be included in an IPA calculation. Any wages received whilst an
individual works out a notice period, holiday pay or arrears of wages should also be
included in the calculation.
35.28 State benefits
There is nothing in legislation which excludes state benefits, once paid to the
individual, from falling within the definition of “income”1. As a matter of policy, an IPA
(or IPO) should not be sought where the bankrupt’s only source of income is state
benefits. In this context “state benefits” refers to all forms of income supplement and
support provided by central or local government including payments of a War
Disability Pension (Naval, Military and Air Forces Etc. (Disablement and Death)
Service Pensions Order 2006, where the bankrupt has been injured on active
service, these should be regarded as a state benefit. There is no requirement to
undertake an assessment of surplus income where the only source of the bankrupt’s
income is state benefits. In all other cases an assessment should be made even if
part of the household income is derived from state benefits.
1. Section 310(7)
35.29 Establishing surplus income where
income is partly derived from state benefits
Where a bankrupt is in receipt of benefit income and non-benefit income, the official
receiver should take into account all income sources including any state benefits
which the bankrupt or family members, are entitled to receive. The reasonable
domestic expenses should be deducted from this total income to establish the
surplus income. An assessment can then be made as to whether the bankrupt has
surplus income from which to support an IPA. The amount of any payment under an
IPA must not exceed the income the bankrupt receives from the source other than
state benefits. Examples of calculations and the adjustments to be made where the
bankrupt is in receipt of benefit income can be found at Annex A. It should be
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remembered that whilst the bankrupt’s total income (including state benefits) can be
included in the calculation of surplus income, it is the income from sources other
than the benefit(s) which is providing the payments under the IPA.
35.30 Claiming arrears of benefits received
post bankruptcy
Where the bankrupt receives a payment of benefit arrears post bankruptcy (and is in
receipt of other (earned) income), the official receiver can include the benefit arrears
payment as a source of income to be included in an income payments calculation. If,
by including the benefit income the bankrupt has sufficient surplus income (from non-
benefit income), from which to make an IPA contribution, an IPA can be agreed. It is
suggested when calculating an IPA to include arrears of benefit income, the amount
of the arrears is divided by 12 months (treating it as an “income boost” over the
period of a year) and the corresponding monthly amount included in the calculation
over a 12 month period.
35.31 New IPA agreed for benefit arrears
Where a new IPA is being agreed (including the benefit arrears income) as the
bankrupt did not previously have sufficient surplus income from which to make a
contribution, the IPA should be paid at the assessed rate for 12 months, and then at
a reduced or nil rate (based on an assessment of the bankrupt’s income without the
arrears included) for the months remaining under the IPA (i.e. 24 months). The IPA
contribution must be equivalent to or less than the income derived from non-benefit
sources.
35.32 Existing IPA to be varied to include
benefit arrears
Where there is an existing agreement already in force this can be varied to include
the benefit arrears and vary the agreement to include a temporary 12 month
increase in payments. The payment amount can then revert to the previously agreed
monthly payment amount for the balance of the term of the IPA agreement (to the
end of the maximum possible term of 36 months). In the event that the bankrupt’s
income changes again the IPA can be further reviewed. If an IPA cannot be agreed
with the bankrupt, then the official receiver as trustee can consider applying to court
for an IPO to recover increased surplus income available as a result of the payment
of the benefit arrears.
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35.33 Pension receipts generally
Pension benefits are generally paid in two parts, a tax free lump sum and a monthly
or annual payment following retirement until the individual dies. The recipient can
elect to forego a lump sum payment in favour of a larger monthly payment. Where
the pension fund is less than £30,000 the individual can elect to take the whole of the
fund as a single lump sum payment.
35.34 Pension receipts already in payment at
the date of the bankruptcy order
Where a bankrupt has received their pension prior to the bankruptcy order date, it is
likely they will already be in receipt of the annual/monthly payment at the date of the
bankruptcy order. This income should be included in the income payment calculation
to assess the bankrupt’s surplus income.
See Annex B for guidance on the assessment of surplus income where the official
receiver seeks to claim a lump sum pension payment received after the
commencement of bankruptcy.
35.35 Lump sum pension payments received
before discharge
Where the official receiver becomes aware that the bankrupt is due to receive
payment from a pension, the official receiver may seek to agree or vary an IPA to
recover any lump sum. If this is not possible to agree, the official receiver may apply
to court for an IPO. The lump sum payment might be claimed as a single payment or
final payment under an IPA, but only in circumstances where the bankrupt otherwise
has sufficient funds to meet their reasonable domestic needs. As a consequence
where a lump sum is available the calculation of surplus income is a two-stage
process. Guidance and example calculations on the assessment of surplus income
in circumstances where the official receiver seeks to claim a lump sum payment via
an IPA are included at Annex B.
35.36 Periodic payments received in respect of
personal injury and medical care
Under section 101(4) of the Courts Act 2003, the bankrupt’s right to receive periodic
payments in respect of personal injury will not form part of the bankrupt’s estate and
cannot be subject to the IPA or IPO provisions. The payments should not be
included in the calculation of surplus income but equally the costs associated with
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personal injury care and medical costs covered by the payments should also be
excluded from the calculation.
35.37 Funds arising from capital property
Where the bankrupt has an interest in capital assets as at the date of bankruptcy, for
example bank accounts, a tenanted property, shares etc., these are vested assets
and should be realised within the bankruptcy proceedings. Any income arising from
the ownership of the vested asset (for example, dividend income arising from shares
held) will also be claimed as an asset which vests in the bankruptcy estate. In the
same way if the bankrupt receives a capital asset post bankruptcy (but prior to
discharge) the asset can be claimed as after acquired property and any income or
payments arising from ownership of the asset (such as dividend income) will vest in
the bankruptcy estate. For more detailed information on collecting rental income
when dealing with tenanted properties please refer to the guidance on dealing with
tenanted property.
35.38 Income received from spouse/civil
partner/partner
It is reasonable to expect that within the household of the bankrupt, the income
received by a spouse/civil partner/partner (all referred to as “partner” hereafter) will
be used to contribute to the household expenditure in some way, for example by
purchasing food, clothing, etc. The bankrupt may genuinely not know their partner’s
income and the partner may not be willing to disclose it to the official receiver as they
are not personally subject to the proceedings. It is not a proper use of section 366 to
have a partner privately examined for the purpose of obtaining details of their income
for an assessment of the bankrupt’s surplus income.
35.39 Ascertaining partner’s income where
bankrupt does not co-operate
Where resistance to the disclosure of the partner’s income is encountered, in the
absence of any information to the contrary, it is appropriate for the official receiver to
assume that the partner pays for 50% of all household expenditure. This will enable
an income payments calculation to be completed to ascertain whether there is any
surplus. If the required information concerning the exact amount of the partner’s
income is then received, the official receiver may re-calculate surplus income of the
bankrupt taking in to account this new information.
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35.40 IPA or IPO payments to be equal to or
less than the bankrupt’s surplus income
As with state benefits which supplement earned income, whilst it is acceptable to
include the income of the bankrupt’s partner as part of the total income received into
the household of the bankrupt, an IPA can only be made against the surplus arising
from the bankrupt’s income. Any calculation of surplus income for the purpose of
obtaining an IPA should work out the surplus available having assessed total income
and total expenditure of the household. The extent of any surplus arising should then
be apportioned according to the bankrupt’s share of the total income. The income
payments calculator will automatically calculate the bankrupt’s share of the
household surplus.
35.41 Income from adult children and other
adult members of household
In the same way as it is reasonable to expect that a partner’s income will be included
in covering household expenditure, it is also reasonable to expect other adults living
in the household who have an income make some contribution towards the
outgoings of the household. Any contribution received from them should be included
in income assessed against household expenditure within the IPA calculation.
35.42 Maintenance payments received by the
bankrupt
The bankrupt may be in receipt of maintenance payments paid by the Child Support
Agency (CSA) under the Child Support Act 1991. Any funds received in this way
should be included in any calculation for an IPA.
35.43 Arrears of maintenance payments due to
the bankrupt
Assessments made under the provisions of the Child Support Act 1991 are made
and enforced by the CSA. The parent who requests the assessment does not hold a
right to sue the absent parent for payment, and arrears under an assessment are not
a “book debt” recoverable by the official receiver’s agents. A parent may ask the
CSA to make the assessment and to collect and enforce payments. Where the
parent is in receipt of state benefits they are required to authorise the CSA to make
the assessment and enforce collection. This means any decision on enforcement lies
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with the CSA, and not the individual or their trustee in bankruptcy. Following
recovery of funds by the CSA, any arrears paid to the bankrupt parent post
bankruptcy are classed as income so should be included in any calculation of
surplus income and claimed under an IPA (or IPO).
35.44 Student loan income
Where a bankrupt is in receipt of a student loan this is not income and cannot be
included in any calculation of surplus income1.
1. Teaching and Higher Education Act 1998, section 22.
Expenditure - general
35.45 Assessing expenditure against
reasonable domestic needs
In assessing surplus income each case should always be considered on its own
merits. An assessment should be made as to whether the expenditure claimed is
realistic, relevant and appropriate to the bankrupt’s circumstances. Since April 2017
the official receiver has assessed surplus available income using the Standard
Financial Statement (SFS). The Income Payments Calculator (available on the
intranet) based on the SFS provides a detailed breakdown of expenditure and should
provide an accurate reflection of the bankrupt’s income and outgoings. The examiner
should have an open conversation with the bankrupt about whether they can afford a
payment and challenge amounts which appear excessive, particularly where those
payments are not supported by evidence of the expense. If the bankrupt has
previously obtained debt advice and completed the Standard Financial Statement
with a debt advisor within six months of the order being made, the figures from the
existing SFS calculation can be used and relied upon. Care should be taken where
the bankrupt has been assisted in preparing any statement by a commercial
organisation, as a set of pro-forma outgoings may have been included which are not
expenses actually incurred by the bankrupt on a day-to-day basis, the examiner
should ensure that expenditure being claimed is properly taking place.
35.46 Assessing whether expenditure is
reasonable or excessive
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The SFS contains a set of fixed and flexible expenses. Spending guidelines have
been agreed for the flexible categories, where expenditure is normally elective but
not for the fixed outgoings which generally meet basic domestic needs of any
household. Judgement should be used in deciding whether a fixed expense is
reasonable for the circumstances of the bankrupt and their family. More detailed
guidance on this is provided later. The calculator will highlight if a spending guideline
is exceeded and the bankrupt should be required to evidence and explain the higher
spend.
Accommodation costs and council tax
35.47 Assessing mortgage payments
Mortgage re-payments may be extremely high where the bankrupt is in arrears or
has taken on a mortgage to the maximum extent of their income. Where the
bankrupt is making the entire mortgage payment against a property which is jointly
mortgaged, and no (or minimal) contributions are being made by the joint owner(s)
the official receiver should take this into account when assessing the bankrupt’s
capacity to make payments. A bankrupt who is making mortgage repayments is
protecting their home, but is also repaying a bankruptcy debt. Where the bankrupt
continues to make high mortgage repayments this is likely to be at the expense of
unsecured creditors, and the official receiver should consider whether to should seek
to disallow a fair share of the payments being made in respect of any joint liability.
35.48 Pursuing and IPA or IPO where
mortgage payments appear excessive
The official receiver should not make a bankrupt homeless through the pursuit of an
IPA but should continue to pursue an agreement where mortgage payments appear
excessive. Care should be taken when assessing outgoings to identify any liability
for mortgage obligations in addition to the family home, e.g. if the bankrupt’s income
is being used to supplement mortgage payments for properties owned with or by
other family members. The official receiver should consider whether the support
gives the bankrupt an equitable interest in the relevant property. Payments for a
property the bankrupt does not live in should normally be disallowed when
considering the bankrupt’s expenditure.
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35.49 Requirement to seek alternative rented
accommodation
Where mortgage payments are considered excessive, particularly where the
accommodation is more than the bankrupt appears to reasonably require to
accommodate their family size, the official receiver should consider pursuing an IPO
which disallows excessive mortgage payments1. If the payments are to be disallowed
the bankrupt will likely be forced to find alterative accommodation. Landlords may be
unwilling to offer a tenancy to an undischarged bankrupt without receiving a
significant deposit in advance. It is also not always the case that suitable alternative
accomodation is available to rent at a cost less than maintaining existing mortgage
repayments. The bankrupt may be able to extend the repayment terms of the
mortgage, thus reducing the amount to be paid on a monthly basis. The risk in doing
so is that the lender may take this as an opportunity to make the bankrupt liable for
any mortgage shortfall post bankruptcy.
1. Malcolm v Official Receiver [1999] BPIR 97
35.50 Payments to additional secured
creditors
Where there are additional secured creditors the official receiver should take into
account all payments to be made. Where there is no equity available to secondary
charge holders, the official receiver should consider discounting any payment to
these creditors in an income payments calculation as there is no enforcement action
that can be taken in respect of these debts as the asset is already fully charged, and
as, in effect, the secondary charge holder is an unsecured creditor, any payment to it
could be considered to contravene the provisions of section 285(3) of the Insolvency
Act 1986.
35.51 Rent arrears
The landlord is not entitled to recover any arrears of rent, except by way of dividend
in the bankruptcy but the right of a landlord to recover their property from a defaulting
tenant is not affected by bankruptcy1. Post bankruptcy a possession order might still
be granted and suspended but not on condition of the payment of rent arrears. Any
suspended possession order in force at the date of the bankruptcy order might be
varied to remove any provision for payment of rent arrears. The official receiver
should not make a bankrupt homeless and should take no steps to interfere with the
payments being made. Generally no allowance should be made for payments
relating to bankruptcy debts but where the rent with the addition of arrears payments
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might be considered still reasonable for rent an allowance should be made reflecting
the impact of repossession on the debtor’s ability to make a contribution under an
IPA. If the payments appear to be excessive, the bankrupt should be asked to
attempt to vary the agreement with the landlord.
1. Christina Sharples v Places For People Homes Limited [2011] EWCA Civ 813
35.52 Council tax
Council tax (for the property in which the bankrupt is liable for Council tax at the date
of the bankruptcy order) is a contingent liability provable in bankruptcy, irrespective
of whether payments were in arrears at the date of the bankruptcy order. Where
there is a non-bankrupt joint owner/occupier of the family home they will remain
liable for council tax and it will continue to be a household expense. Where either the
bankrupt is a sole owner/occupier or both joint owners/occupiers are bankrupt the
household expenses will not include council tax for the remainder of that year e.g. to
31 March. However, if the bankrupt moves before 31 March they will be become
liable to pay Council tax2 3 at their new home and it will need to be included as a
household expense and any IPA/IPO will need to be reviewed.
1. Local Government Finance Act 1992, sections 6 and 9]
2. Re Nortel and others [2013] UKSC 52
3. Kaye v South Oxfordshire DC [2013] EWHC 4165
Care and health costs
35.53 Child maintenance or child support
An obligation arising under an order made in family proceedings or under a
maintenance assessment made by the Child Support Agency (CSA) under the Child
Support Act 1991 is not a debt provable in bankruptcy1. It is a continuing obligation,
payable out of income. The amount payable by a bankrupt under a maintenance
order or CSA assessment should be taken into account when calculating surplus
income. The definition of “family” is given as persons living with the bankrupt and
dependent on the bankrupt2. The maintenance assessment is unlikely to have been
made in respect of children living with the bankrupt. Notwithstanding the definition,
the obligation to support children is a reasonable demand on the bankrupt’s income
and should not be excluded from the calculation3. Voluntary payments made to
support non-resident children should also be included provided they are reasonable.
Information concerning the CSA and a calculator for estimating the amount of
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maintenance the bankrupt will be likely to pay, depending on the number of children,
where the bankrupt is the non-resident parent, can be found at the website of the
CSA.
1. Rule 14.2
2. Section 385(1)
3. Re X (A Bankrupt) [1996] B.P.I.R. 494; Albert v Albert (A Bankrupt) [1996] B.P.I.R. 233
35.54 Claims for adult children within the
family unit who are students
Outgoings claimed in relation to a member of the family (aged 18 or over) who is in
full time education will need to be considered in the context of the student as a
dependent member of the bankrupt’s family. Where the student lives away to study
either permanently or during term time and has no other form of income, the official
receiver may consider it reasonable for the parent to make a contribution towards the
basic rental costs of living accommodation whilst the student is away from home.
Matters to be considered when assessing whether the expense claimed is
reasonable include, for example, where the contribution assists the student in
meeting the tenancy terms of a shared house, or the arrangement to pay a
contribution towards the student’s accommodation has already been established
prior to the bankruptcy order against the parent. Generally, the official receiver
should not agree to allow non-specific payments or allowances to adult children who
are students. The student can look to the student loan provisions, grants and/or part-
time employment to assist with financing their education and domestic needs.
35.55 Prescription charges
Where the bankrupt is liable to pay for prescriptions and is claiming for multiple item
monthly prescription charges, the official receiver should assess whether the costs
claimed are in excess of the average monthly prescription costs available under
either a three month or twelve month pre-payment certificate. These prepayment
certificates can provide a considerable reduction in the monthly cost of prescriptions
where an individual has to pay for more than four prescription items on a regular
basis.
35.56 Health care provision, including dentists
and opticians
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NHS healthcare is provided to meet the reasonable needs of the population in
providing healthcare. So, as an essential expense, for example, payment towards
NHS dental care should be included but claims for expenditure for private treatment
or health insurance would not normally be considered. Where the bankrupt can
demonstrate they have no practical alternative but to pay for private healthcare (such
as there being no NHS dental service available to them in the area where they live or
work) an allowance for payment for an annual check-up and basic treatment at a
privately run dental practice may be considered as meeting a reasonable domestic
need. In the same way the costs of paying for eye tests, glasses etc. may be
included as a reasonable outgoing. The official receiver should investigate above
average claims, and, where a cheaper alternative is available (e.g. less expensive
glasses frames) which would still meet the bankrupt’s reasonable needs, only allow
expenditure sufficient to provide the cheaper alternative. Payments claimed for
private healthcare or medical insurance should only be allowed where it can be
demonstrated that there is no practical alternative NHS facility available, or, for
example, that to disallow the payment would have a significant detrimental effect on
the health, wellbeing or future of a dependent child.
35.57 Healthcare entitlements in the UK for
non-UK citizens
Anyone deemed to be ordinarily resident in the UK, or who is working for an
employer based in the UK (including ship workers whose vessel is registered in the
UK and off-shore workers working in a UK sector), or who is a self-employed person
whose principal place of business is the UK, should be entitled to free NHS hospital
treatment in England. This means a bankrupt who comes from a European
Economic Area (EEA) country or EU member state who declares themselves
bankrupt whilst ordinarily resident and working in the UK, and who meets the
designated criteria, should be entitled to free NHS hospital treatment, as will their
family. Any claim for private healthcare costs by a bankrupt whose country of origin
is outside the UK should be investigated and evidence provided as to why the
bankrupt is unable to receive free hospital treatment.
Transport and travel
35.58 Costs of maintaining a vehicle retained
by the bankrupt
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Where the bankrupt retains a vehicle which is exempt property the costs of
maintaining and using the vehicle, including breakdown cover must be included in
the calculation of surplus income. Some vehicles are exempt from road tax, including
vehicles used by a disabled person.
35.59 Allowance for season tickets and other
transport costs
Reasonable expenditure for bus or rail travel (including season tickets or passes) are
part of the normal outgoings of the bankrupt to allow them to get to work and
participate in social occasions. These payments should be included in the calculation
provided they are considered reasonable in the bankrupt’s individual circumstances
and location.
School costs
35.60 After-school clubs, school trips and
extra-curricular activities
An expenditure claim for after-school clubs should be considered where they are
used to provide childcare where parents are working. If the use of the club is simply
a matter of convenience the bankrupt should be informed that the cost of funding the
club cannot be considered as an essential expense. All claims for extra-curricular
activities should be assessed in the context of the individual’s circumstances and the
needs of dependant children. Any excessive claims for multiple extra-curricular
activities should be closely examined and evidenced.
35.61 School fees
Provision for private school fees should not normally be allowed in any calculation of
surplus income. The individual circumstances of each case must be taken into
account but the fact that a bankrupt is unhappy with local state schools, opting
instead for private education, is not sufficient in itself to make the school fees
acceptable as a reasonable domestic need1. Where changing a child’s schooling
arrangements could have a detrimental effect upon the child then the decision may
be different, for example where the child was in their GCSE year at school2.
1. Scott v Davis [2003] B.P.I.R.1009
--- PDF page 23 ---
2. Re: Rayatt (A Bankrupt) [1998] B.P.I.R. 495
Pensions and insurances
35.62 Pension contributions and SAYE scheme
Payments into a pension deducted at source from earnings or made to a private
pension scheme should be included provided they are reasonable and do not
represent additional voluntary contributions. In most cases an individual can elect to
stop or reduce their contributions to a personal pension for a period of time and if the
payments seem to be unusually high the bankrupt should be asked to make this
election for the period of the IPA. Saving for a future pension is acceptable but
excessive contributions should not be made at the expense of creditors. In the same
way where the employer operates a Save As You Earn (SAYE) scheme, where a
proportion of the bankrupt’s income is deducted at source to purchase shares in the
employing company, this expenditure should not be included.
35.63 Life assurance
Life assurance policies taken out prior to bankruptcy vest in the official receiver and
so payments should not be included unless the policy has been bought back. Where
a policy has been sold back to the bankrupt or a new policy has been taken out, then
payments towards a reasonable amount of life cover is an acceptable expense.
Work costs and tax
35.64 Allowances for professional affiliations
or work related clothing or equipment
Certain professions require affiliation to or membership of a particular society or
professional body before a person is allowed to work in that profession. In
considering whether to include this expense consideration should be given to
whether the bankrupt can continue to work without payment for membership of a
professional body. Where clothing or specific equipment is required as a necessity to
carry out a trade or profession enquiries should be made as to whether the bankrupt
receives an allowance for this or whether the clothing is provided and/or paid for by
--- PDF page 24 ---
the bankrupt’s employer, and the necessary adjustments made to reflect this in the
calculation of surplus income.
35.65 Tax where self-employed
Where the bankrupt is self-employed at the date of bankruptcy, HMRC will regard
that self-employment as ceasing on the date of the bankruptcy order and will submit
a claim for outstanding tax to the date of the bankruptcy order. A self-employed
individual who enters bankruptcy still has their tax allowances and is liable to pay tax
on their self-employed earnings where the bankrupt re-commences self-employment
following the bankruptcy, irrespective of the fact that this may include part of the tax
year in which they were declared bankrupt.
Variable outgoings
35.66 General considerations
The purpose of the calculation is to establish the bankrupt’s actual outgoings and to
explore whether the expenditure is reasonable in the bankrupt’s circumstances and
to explore whether the costs could be reduced in areas where expenditure is elective
to maintaining the bankrupt’s lifestyle. This area of expenditure should always be
carefully considered but expenditure above the spending guidelines should always
be challenged and detailed explanation sought by the individual assessing the
calculation. The spending guidelines are simply there as a benchmark and should
not be treated as an allowance.
Communications and leisure
35.67 Home phone, internet, television
packages and mobile phones
Broadband has become an essential utility and is now often packaged with landline
telephone and television services packages. Ensure that the cost allocated to
telephone, mobiles and broadband is not excessive. It should be sufficient to meet
the reasonable domestic needs of the household, but if it appears that they are
paying for excessive TV and telephone packages, it is not unreasonable to ask if
costs can be reduced. Where the bankrupt uses the mobile phone for business calls,
--- PDF page 25 ---
the official receiver should establish whether the bankrupt’s employer provides re-
imbursement for this usage (or if self-employed, whether the bankrupt claims
expenses for this usage from the business in addition to any other drawings/income
they have already declared). The re-imbursement can be included as additional
income to off-set against the total expenditure claimed, or the work-related portion of
the claim for mobile phone usage could simply be disallowed. The same principle
could also be applied where a bankrupt uses their landline home telephone for
business as well as personal calls. Ongoing contracts for the supply of goods and
services which remain in force at the date of bankruptcy vest in the trustee of the
bankruptcy estate and the official receiver should take care not to adopt any ongoing
service contracts.
35.68 Leisure, sport, gifts and charitable
donations
These expenses are part of normal social interaction and allowances should be
made within the overall constraints of the spending guidelines to ensure expenditure
is not excessive in the circumstances of the bankrupt’s family. Where it has been the
practice of a bankrupt to make a regular monthly payments to a charity or a religious
organisation/place of worship (sometimes referred to as tithing), this might continue
provided it does not compromise the bankrupt’s ability to make a contribution to their
creditors. In saying that, the bankrupt should be invited to suspend payments for the
duration of the IPA, the money being used for the benefit of their creditors. In normal
circumstances membership of a sporting club, gym, golf club, stables etc. is not
considered an essential day-to-day living requirement. Where sufficient evidence is
provided to suggest that the expenditure is necessary, the official receiver should
make a decision based on the circumstances relevant to the individual. An example
of individual circumstances affecting this type of expenditure might be where the
bankrupt has evidence from their GP prescribing exercise as an essential health
treatment, which may in turn require the bankrupt to pay for membership of a local
gym to fulfil this treatment.
Food, housekeeping and personal costs
35.69 Assessing claims for family outgoings
Provided the spending guideline for the “Food and housekeeping” and “Personal
costs” categories aren’t exceeded these should generally be accepted by the official
receiver, although high expenditure on smoking and alcohol should be challenged.
--- PDF page 26 ---
Where high expenditure on groceries, laundry or clothing is recorded
explanation/evidence as to why the higher amount is required should be obtained. In
deciding whether an amount which exceeds the spending guidelines should be
allowed the official receiver should consider whether there are extenuating
circumstances. For example, a family member with a medical condition requiring
specialist food or the nature of the bankrupt’s employment and clothing requirements
incurring extra laundry charges.
Attachment of earnings
35.70 Attachment of earnings order in force
Where there is an attachment of earnings order in force against the bankrupt, this is
an order of the court and payments should continue until the order is discharged or
varied. The court may, if it thinks fit, discharge or vary such an order on the
application of the bankrupt, the trustee or the official receiver in order to secure
payments by the bankrupt under the IPA1. When making an application, if
appropriate, the court’s attention may be drawn to the provisions section 285(3) (limit
on creditors’ actions) and section 346 (enforcement procedures) which limit the
ability of a creditor with a provable debt to continue action against the bankrupt. In
such circumstances the official receiver should also seek the refund of any monies
paid to the creditor since the making of the bankruptcy order. Where the trustee is
making application court for an IPO the court may at that time be asked to discharge
the attachment of earnings order in order to secure payments by the bankrupt under
an IPO2.
1. Section 310A(3)
2. Section 310(4)
Assessment and implementation of an
IPA
35.71 Identifying surplus income - initial
information
--- PDF page 27 ---
Details of income and expenditure should be provided by the bankrupt when
completing the bankruptcy application, the bankruptcy preliminary information
questionnaire (form PIQB) or where the bankrupt has been asked to complete an
income payments questionnaire (IPOQ), the bankrupt should answer any questions
regarding income and outgoings, providing full details of monthly income received
from all sources and usual monthly expenditure. These figures should be entered
into the IPA Calculator.
Where the bankrupt has sought debt advice in the six months prior to the bankruptcy
order being made and, within that process completed the Standard Financial
Statement (SFS) with a debt advisor, these figures may be referred to and should
certainly be compared to any submissions to the official receiver.
35.72 State benefits only source of income
There is no requirement to complete the IPA calculator where the bankrupt’s sole
source of income is state benefits.
35.73 Consistency
It is important to maintain a consistent approach when considering expenditure
claimed by the bankrupt, but all individual circumstances will be different. Each case
must be considered on its merits. If a bankrupt’s expenditure appears to equate
exactly with evidenced income, leaving no surplus income, expenditure should be
carefully examined and tested. Particular care should be taken where the debtor
appears to have had assistance from a commercial organisation in the completion of
their bankruptcy application or PIQ. The figures in the calculation may not be based
upon information provided by the bankrupt but rather designed to ensure that the
bankrupt is not considered to be eligible for an IPA. It is important that income and
expenditure is evidenced and independently verified wherever possible.
35.74 Calculation of contribution to be claimed
under a new IPA/IPO
All of the bankrupt’s expenditure should have been accounted for, including an
amount to allow the bankrupt to save for emergencies so the bankrupt should be
asked to pay 100% of the monthly total available for creditors through an IPA (or an
IPO if an IPA cannot be agreed).
35.75 “Stepped” or “staggered” agreement or
order
--- PDF page 28 ---
The agreement or the order can require the bankrupt to begin making payments with
immediate effect but also allow the amount of the payments to be decreased or
increased at a later date. Usually the circumstance in which this would occur would
be where an Nil Tax (‘NT’) code was to be implemented or where the official receiver
considers that part of the mortgage repayments should be disallowed because they
are unusually high or because they include an element of arrears. During the period
where lower payments are made by the bankrupt, they would be expected to come
to an arrangement with the mortgagee to accept lower mortgage repayments or to
find alternative accommodation.
35.76 Obtaining an IPA where IP trustee
appointment pending
The official receiver should continue with the necessary procedure to ensure the IPA
agreement comes into force at the earliest opportunity and should not neglect to
secure the payments under the IPA where the appointment of an insolvency
practitioner is pending.
35.77 Contested IPA
Where a bankrupt does not consider they are able to make payments in the amount
requested, they should be questioned as to why this is the case, the amount having
been calculated from information provided by the bankrupt, and all reasonable
necessary expenditure having been considered when completing the calculator.
There is some room for negotiation and the bankrupt’s concerns should be
addressed wherever possible.
35.78 Consent to an IPA to be pursued in
preference to applying for an IPO
Where the official receiver remains satisfied that on the evidence provided by the
bankrupt there is surplus income, the bankrupt’s consent to an IPA should be
pursued in the first instance rather than making application to court for an IPO.
Where a bankrupt refuses to accept that a surplus exists and/or will not agree to a
reduction or exclusion of expenditure considered unreasonable by the official
receiver, and continues to refuse to agree to an IPA. If the official receiver remains
convinced that the bankrupt has sufficient surplus to make a contribution towards the
official receiver should consider pursuing these repayments by making an application
to court for an IPO.
--- PDF page 29 ---
35.79 Official receiver’s requirement to
present the bankrupt with the IPA
It is the official receiver’s responsibility to provide a draft agreement for consideration
and approval by the bankrupt approval1. Form IPA can be presented at interview for
the bankrupt to sign or it may be sent to the bankrupt for signature under cover of
form IPALET, requesting that it be signed and returned within 14 days. The official
receiver may specify a longer period if it is deemed appropriate, over holiday times
or the Christmas period, for example1. The 14 day period should be shortened where
discharge may occur before the 14-day period has expired.
1. Rule 10.115(2)
2. Rule 10.115(3)
35.80 14-day “cooling off” period following
consent given at a face-to-face interview
Where the bankrupt signs the agreement at a face-to-face interview, the Official
Receiver should give the bankrupt a 14-day “cooling off” period to reflect upon the
agreement before it comes into effect. If after 14 days, the bankrupt has not
contacted the official receiver to withdraw consent to the agreement, the official
receiver should sign and date it and on that signature, the IPA will come into force
and become legally enforceable. This is operational policy, not a legal or statutory
requirement, to ensure consistency with the maximum 14 day period to return an IPA
by post and best practice by following the precedent of 14 days “cooling off” which is
legally required in consumer credit agreements. The proximity of the date of
discharge must be considered, as an IPA only comes into force when it has been
signed by both the bankrupt and the official receiver or trustee prior to the date of
discharge. The official receiver should not delay in signing an IPA where discharge
may occur before the 14-day period has expired.
35.81 Bankrupt required to notify official
receiver of refusal to consent
If the bankrupt decides not to consent to the IPA, they should notify the official
receiver in writing of that decision within the same timescale as specified by the
official receiver for return of the signed form. Where the bankrupt is prevaricating or
refusing to sign the IPA and their discharge is imminent, if the official receiver is
concerned there will be insufficient time to obtain a valid IPA, then the retains the
option to apply for an IPO.
--- PDF page 30 ---
Income Payments Order (IPO)
35.82 Applying to court for an IPO
Where an IPA cannot be agreed, the official receiver may decide to seek an IPO
instead. The application to court must be made before the date of discharge. An IPO
can be made after the date of discharge as long as the application and report to
court (form IPORAC) was submitted to court before the date of discharge. The
official receiver should contact the appropriate court (at least 6 weeks ahead) to fix a
date and time for the court to hear the application (chambers hearing). Where the
court fee (currently £155) is paid this should be included in the amount to be
recovered under the IPO.
35.83 Notice to bankrupt
The official receiver must send notice of the application and of the venue to the
bankrupt (the official receiver using form IPONA) at least 28 days prior to the hearing
date1. A copy of the application and the report to court, setting out the grounds of the
application should also be sent. A ‘certificate of service’2 must be completed in its
entirety by the person sending the forms to the bankrupt. The ‘certificate of service’
should be filed at court within 21 days of service having been effected. The IPONA
includes two consent forms which should be completed if the bankrupt consents to
the making of an order under the terms sought. If the bankrupt consents to the
making of the order one of the consent forms needs to be sent to the court and the
other returned to the official receiver. The consent forms need to be sent by the
bankrupt to the court and the official receiver at least five business days before the
date fixed for the hearing if the bankrupt wishes to consent. If the bankrupt does not
consent to the making of an order, or fails to return the consent forms before the
appropriate deadline the bankrupt is required to attend the court hearing and will be
given an opportunity during the hearing to make representations as to why the order
should not be made or the terms sought varied.
1. Rule 10.109(2)
2. Form N215
35.84 General review prior to obtaining an IPO
If necessary the official receiver may seek to vary the amount sought at the time of
the hearing, if the official receiver becomes aware that the bankrupt’s income has
--- PDF page 31 ---
increased or decreased since the original assessment of the contribution amount
available for an IPO.
Notification of agreement/order
35.85 Copy of agreement or order to be sent to
bankrupt
Once the agreement has been signed and dated by the official receiver, a copy must
be sent to the bankrupt1 under cover of form IPAPAY, which also provides
instructions for the payment of contributions under the IPA. If an IPO has been made
a sealed copy of the order is placed on the bankruptcy file or court file and a further
copy must be sent to the bankrupt2 (form IPO under cover of form IPOSV).
1. Rule 10.116(1)
2. Rule 10.111
35.86 Notice to third party responsible for
making payments under the IPA
Where the agreement or order provides for payments to be deducted and paid over
by a third party, a notice of the agreement must be sent to the third party1. The notice
must contain:
•
the full name and address of the bankrupt
•
a statement that an IPA has been made, the date of it and that it provides for the
payment by the third person of sums owed to the bankrupt to be paid to the official
receiver
•
the full name and address of the third person
•
a statement of the amount of money to be paid to the official receiver/trustee from the
bankrupt’s income, the period over which the payments are to be made, and the
intervals at which the sums are to be paid; and
•
the full name and address of the official receiver and the address or details of where
the sums are to be paid
1. Rule 10.116(2) and 10.111
35.87 Fee payable to third party making
payments under the IPA
--- PDF page 32 ---
When a third party is making payments under an IPA, the third party may deduct the
appropriate fee (from the payment) towards the clerical and administrative costs of
complying with the IPA but must notify the bankrupt in writing of the amount
deducted1. The appropriate fee is currently £12.
1. Rule 10.116(4) and (5)
2. Rule 10.114A applying Attachment of Earnings Act 1971, section 7(4)(a)
Collection of an IPA/IPO
35.88 Instructing collection agents
Once the IPA (or the IPO) is in force, unless there are other assets in the case which
mean that it is likely that the appointment of an IP trustee will be made, the official
receiver should immediately instruct the collection agent employed by the service,
currently Clarke Willmott. This is usually done by uploading a corporate report
(Clarke Willmott IPA/O referral) in a spreadsheet format, along with a scanned copy
of the IPA (or IPO where appropriate). Within two working days Clarke Willmott will
set up on their Debt View website a separate record for each IPA or IPO, which
should be checked by the case officer assigned to the case. This is an online enquiry
facility for Insolvency Service staff which allows originating offices and LTADTs
complete case access to be able to monitor progress, view payments received, all
letters and case history, and receive and send instructions via Debt View The case
officer assigned to the case has a login account and password to allow access.
Information on the service provided by Clarke Willmott and full guidance on using
their Debt View website is available on the Clarke Willmott intranet page. Full
instructions on the procedure to follow and information required by the collection
agent in order to process the collection of IPA or IPO contributions are available on
the intranet.
35.89 Case to be passed to the relevant LTADT
following instruction of collection agent
Following the instruction of the collection agent, the case must then be passed to the
appropriate LTADT to monitor collection. A case should not be transferred to the
LTADT until the first payment has been made.
--- PDF page 33 ---
35.90 Implementing an IPA where an
insolvency practitioner appointment is
pending
Where there are other assets and an insolvency practitioner trustee is likely to be
appointed, the official receiver should still take action to secure the payments under
the IPA or IPO, pending the appointment of the insolvency practitioner. This includes
instructing the collection agent where necessary to ensure payments commence on
the due date as agreed.
35.91 Payments made by bankrupt before
collection agent is instructed
Should any payments be made by the bankrupt prior to instructing the collection
agent, these must be entered on to the ‘payments’ screen of the case on Debt View,
so that they can be taken in to account regarding the completion of the bankrupt’s
obligations under the IPA.
35.92 Nil tax (NT) coding to be notified to
Clarke Willmott
Any payment resulting from an NT coding being applied to the bankrupt’s income will
be identified on the corporate report referral spreadsheet so that collection can
commence as soon as the NT coding is applied by HMRC.
35.93 Additional income notified to Clarke
Willmott
Should Clarke Willmott be informed the bankrupt is in receipt of a bonus payment
from their employer, they will notify the relevant official receiver via the workbook
‘task list’ on Debt View. It will then be the responsibility of the official receiver to take
the matter forward regarding any action to vary the agreement to collect the bonus
payment if it is appropriate to do so. The collection agent will also inform the
bankrupt that the relevant official receiver’s office will contact them regarding any
action arising from this change in circumstance.
--- PDF page 34 ---
Review, variation and discharge of
IPA/IPO
35.94 Review, variation and discharge of an
IPA or IPO
An IPA may be varied by written agreement between the parties1. This can be
achieved by an exchange of letters, where the trustee confirms any reduction or
increase in payments, and the date the new payments will commence. Variation of
the agreement does not require the original IPA to be redrafted, and whilst it is
possible to vary an existing agreement post discharge, it is not possible to enter into
an IPA after the bankrupt has been discharged. The amounts to be collected can be
changed under the agreed variation, but the period of the agreement cannot exceed
three years from the date the original agreement comes into force. An IPO can only
be varied, reviewed or discharged by order of the court on the application of the
trustee or the bankrupt2.
1. Section 310A(6)
2. Rule 10.114
35.95 Application to court required where IPA
variation is disputed
In the event that one of the parties to an IPA wishes to vary it but the other party
does not consent to the variation, application may be made to court for the IPA to be
varied.
35.96 Variation of an IPA by application to
court
Any application to court to vary the IPA does not have to be made before the
discharge from bankruptcy, but it may assist in recovering arrears if any variation is
progressed as soon as possible. Variation of the agreement only modifies the IPA,
any court order made as a result of an application to vary the agreement would
incorporate the terms of the varied agreement, it does not convert it into an IPO. If
the trustee wishes to apply to court for an IPO, this can only be done on an
application filed at court before the bankrupt has been discharged. The application to
court to vary an IPA must be accompanied by a copy of the original agreement (form
IPA)1.
--- PDF page 35 ---
1. Rule 10.117
35.97 Notice of variation application and
venue to be provided by the applicant
Where the bankrupt or the trustee is applying to the court to have the terms of the
IPA or the IPO varied they must send a copy of the application and notice of the
venue to the other party at least 28 days before the date fixed for the hearing1. If the
bankrupt does not comply with the IPO and the trustee seeks to vary the order for
payments to be made by a third party, the trustee is not required to give notice of the
application2.
1. Rule 10.117 and 10.114
2. Rule 10.112(2)
35.98 Application for IPO variation application
may be dismissed by the court
The court may dismiss the application to vary the IPO, if it considers no sufficient
cause is shown for the application. The court can dismiss the application without
giving notice to any party other than the applicant1.
1. Rule 10.114(4)
35.99 Insolvency practitioner trustee in office
when IPA/IPO variation required
Where an insolvency practitioner has been appointed trustee, and variation of an IPA
or IPO is required the official receiver should decline to deal with any application to
the court to vary the agreement or order if requested by the insolvency practitioner
trustee. Such applications form part of the trustee functions.
35.100 Notice where variation requires third
party payments under the IPA/IPO
Where the court orders that the IPA/IPO be varied so that it takes the form of an
agreement that a third party is to make the payments under the IPA/IPO to the
trustee, the trustee must then send notice of the agreement or order to the third
party. When making any such payment under an IPA, the third party may deduct the
--- PDF page 36 ---
appropriate fee towards the clerical and administrative costs of complying but must
notify the bankrupt in writing of the amount deducted.
35.101 Notification to collection agents
Where the Insolvency Service collection agents have been instructed (currently
Clarke Willmott), a copy of the variation letter or order should be uploaded via Debt
View so that they can act on the new terms or close their file.
Enforcing and IPA or IPO following
default
35.102 Objectives when seeking payments
under an IPA/IPO
When considering the action to be taken with regard to an IPA/IPO, the trustee’s aim
is to achieve the maximum payment of the amount due under the IPA/IPO, at the
least expense to the estate. Ideally to do this the trustee will need to know the
whereabouts of the bankrupt, to be able to establish their financial circumstances,
and where money is payable and the bankrupt is deemed capable of paying it,
enforce payment. These principles form the basis for the guidance in this chapter,
where there has been a default in payment of an existing IPA/IPO.
35.103 Recovery action taken by collection
agent following default
Where the bankrupt defaults, the agents will, in the first instance, seek to resolve the
default up to and including seeking payment direct from the employer. If the bankrupt
contacts the agents and advises their circumstances have changed the agent will
issue an IPOQ and refer the matter back to the official receiver for re-assessment. If
the agents are unable to collect payments from the employer they will refer the
matter back to the official receiver.
35.104 Case returned to the official receiver
for re-assessment
--- PDF page 37 ---
The IPA can be varied by agreement between the parties. This can include
increasing or decreasing the payments for the remaining term of the IPA depending
on the bankrupt’s circumstances. If the bankrupt is no longer able to maintain
payments the agreement can be suspended. If the bankrupt’s circumstances change
again payments might recommence (with no penalty) until the agreement reaches its
end date. Instruction to the collection agents will conclude if the agreement is
suspended and a new instruction will need to be issued if payments are
recommenced. Variation of an IPO can be agreed informally but should properly be
set out in an application to the court to ensure the terms of the variation can be
enforced.
35.105 Case returned to the official receiver
for enforcement
In the first instance assessment should be made whether enforcement action is
appropriate. The official receiver will need to consider the amount of the arrears, the
likely costs of seeking to recover the outstanding funds. As the agents will have
made preliminary attempts to collect the funds the official receiver needs to consider
that the enforcement process can be time consuming, involving court hearings and
cost to the estate. If enforcement is not to be pursued the reasons should be noted
on the file.
35.106 Methods of enforcement
If the IPA/IPO is still in force and the bankrupt’s current employment details are
known then application may be made to vary the IPA to an IPO with an attachment
of earnings, or an application made for an attachment of earnings. If the bankrupt’s
current employment status is not known then a private examination should be held
with the option of seeking an attachment of earnings. If the IPA/IPO has concluded
then the official receiver may seek a private examination of the bankrupt with the
option to obtain judgment for the debt which might then be enforced through a
number of routes.
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ATTACHMENT: 36.After_acquired_property.pdf
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--- PDF page 1 ---
This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 10 March 2020.
36. After-acquired property
Dealing with after-acquired property where a bankrupt acquires property during the
period of their bankruptcy
Chapter content
Introduction and key principles
Bankrupt’s duty to notify trustee of after-acquired property
Action to take following receipt of notification of after-acquired property
Claiming after-acquired property
Action to be taken once property claimed
Disposal of after-acquired property by bankrupt
Examples of after-acquired property
Rights of action as after-acquired property
Property which would not normally be claimed as after-acquired
Introduction and key principles
36.1 Scope of the guidance
This chapter gives general advice and guidance relating to after-acquired property,
including an overview of what does, and does not, constitute after-acquired property
and the procedure for laying claim to after-acquired property.
--- PDF page 2 ---
36.2 What is after-acquired property?
In the context of insolvency legislation, after-acquired property refers to property (but
not income) which is acquired by, or devolves upon, the bankrupt after the making of
the bankruptcy order and before they are discharged. This property can be claimed
by the trustee for the benefit of the bankruptcy estate. Even if the trustee only
becomes aware of such property after the bankrupt’s discharge, it may be claimed
providing it was acquired by, or devolved upon, the bankrupt between the date of the
bankruptcy order and the date of discharge.
36.3 Definition of “property” for the purpose of
after-acquired property
The definition of “property” applied by the provisions of the Act relating to after-
acquired property is the same as the definition applied elsewhere in the act, namely
that “property” includes “money, goods, things in action, land and every description
of property wherever situated and also obligations and every description of interest,
whether present or future or vested or contingent, arising out of, or incidental to,
property” 1.
In other words, any property of a type which would have been an asset had it been in
the bankrupt’s possession as at the date of the making of the order would be
considered after-acquired property and could be claimed by the trustee.
1. section 307(2)
36.4 Exempt property and income not after-
acquired property
Assets that would have been treated as exempt had they been in the bankrupt’s
possession as at the date of the making of the order and income would not normally
be considered as after-acquired property over which a trustee could make a claim 1.
1. Supperstone v Lloyd’s Names Association Working Party [1999] BPIR 832
36.5 Disclaimer of after-acquired property
claimed by trustee
Where the trustee lays claim to after-acquired property that is subsequently
considered to be onerous, they will not be able to disclaim the property without leave
of court 1.
--- PDF page 3 ---
The application for leave to disclaim may be made without notice to any other party,
and must be accompanied by a report giving details of the property, setting out the
reasons why the property, having been claimed for the estate, is now to be
considered for disclaimer and specifying the persons (if any) who have been
informed of the trustee’s intention to make the application. If the report states any
person has consented to the disclaimer then the consent must be annexed to the
report 2.
For further information on disclaimers generally see chapter 42.
1. section 315(4)
2. rule 19.8
36.6 After-acquired property - second or
subsequent bankruptcies
Where a subsequent bankruptcy order is made, any after-acquired property from a
former bankruptcy which has not been distributed by the trustee by the date they
receive notice of the subsequent bankruptcy petition will form part of the assets of
the subsequent bankruptcy 1.
1. section 334(3)
36.7 After-acquired property - deceased
insolvents
The provisions in the Act relating to the power of the trustee to claim after-acquired
property are extended to deceased insolvents, with the exception that the period
during which property acquired qualifies as after-acquired for the purpose of the Act
begins not with the making of the bankruptcy order, but with the death of the debtor 1.
Deceased insolvents do not receive a discharge and, therefore, it is theoretically
possible that after-acquired property could devolve on the insolvent some time after
the making of the order. In reality, though, it is unlikely that new assets will come to
light after the deceased’s estate is settled.
1. Administration of Insolvency Estates of Deceased Persons Order 1986 schedule 1 Part II paragraph 22 amending Insolvency Act 1986 section 307
36.8 After acquired property – deceased
bankrupts
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Where a debtor dies after the presentation of a bankruptcy petition the proceedings
will continue as conventional bankruptcy proceedings, and any order made will be a
bankruptcy order note 1. The provisions of the Act regarding after-acquired property
will apply as normal.
36.9 Responsibilities of the personal
representative of the deceased
In cases both where the debtor dies prior to the presentation of a bankruptcy petition
(and is subject to an Insolvency Administration Order), and where the debtor dies
after the presentation of the petition (and is subject to a bankruptcy order), the duty
to co-operate 1 and inform the trustee of the acquisition of property 2 rests with the
deceased’s personal representative.
1. section 291
2. rule 10.125
36.10 Property under a solicitor’s lien
In a bankruptcy a solicitor’s general lien is exercisable only on property passed to
them before the estate vests in the trustee (i.e., the period when bankrupt is still the
legal owner). A solicitor cannot, therefore, claim a lien against after-acquired
property coming into their possession, even where the trustee has yet to claim it, as
the trustee’s title to the property dates back to the date it was acquired by, or
devolved upon, the bankrupt. A lien would, however, be valid if the solicitor was
unaware of the bankruptcy at the time that the property came into their possession 1.
Where the official receiver encounters a solicitor claiming a lien over after-acquired
property, and the property is of sufficient value to justify it, they should consider
seeking legal advice to establish the validity of the lien and explore any means of
challenging it.
1. re Brereton v Nicholls [1993] BCLC 593
Bankrupt’s duty to notify trustee of
after-acquired property
36.11 Bankrupt’s duty to the trustee
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In addition to their general duty to co-operate with the trustee, the Act makes special
provision requiring that the bankrupt give notice to the trustee of the acquisition of
any property during the period of bankruptcy (i.e., between the date of the
bankruptcy order and the date of discharge – even if that discharge has been
suspended) 1.
The duty of the bankrupt to inform the trustee of after-acquired property is outlined in
initial information pack sent to all bankrupts. Where there is a face-to-face meeting or
telephone interview with the bankrupt, it is best practice for the Examiner to go
through the provisions with the bankrupt or, at least, check that they have read and
understood the relevant guidance.
1. section 333(2)
36.12 No duty to notify trustee of property
acquired in the ordinary course of business
The provisions relating to the giving of notice in respect of after-acquired property do
not relate to property acquired by the bankrupt in the normal course of business (i.e.,
the buying and selling of goods and the passing of business monies) 1. In order to
give the trustee some control over this, the Rules do require that the bankrupt
provide the trustee, with information relating to the business showing the total of
goods bought and sold and the profit or loss arising, on the request of the trustee.
The trustee has power to require fuller details (including accounts) where appropriate
2. In this way the trustee can monitor the bankrupt’s business and lay claim to profits,
though this would be claimed as income, not as after-acquired property.
It is possible that an excessive amount of stock being carried by the business could
be claimed as after-acquired property.
1. rule 10.125(4)
2. rule 10.125(5)
36.13 Process for bankrupt to notify trustee of
after-acquired property
As detailed above, the bankrupt is under a duty to notify the trustee when they
acquire property during the period of their bankruptcy. The notice must be given in
writing by the bankrupt to the trustee within 21 days 1 of the bankrupt becoming
aware of the relevant facts 2. The Rules make no special provision regarding the
contents of the notice, though it might be expected that the information contained
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therein would be sufficient to identify the property in question. The notice may be
given by post, electronically, or may be personally delivered 3, 4, 5.
1. rule 10.125(1)
2. rule 1.4
3. rule 1.42
4. rule 1.44
5. rule 1.45
36.14 Notification of after-acquired property –
care to be taken
Whilst the Rules state that the bankrupt must provide the trustee with information in
writing, it is not unknown (indeed, it is more likely) that the first notification will be by
the means of a telephone call by the bankrupt to the official receiver’s office. This
“notification” may even be a passing comment on which the bankrupt will later seek
to rely to argue that the notice claiming the property was out of time (see paragraph
36.20 below regarding the time limit for claiming property). Accurate
contemporaneous notes of contact with the bankrupt are therefore essential.
Where the official receiver receives notification of after-acquired property by
telephone, written confirmation should be requested but they should still immediately
act on the information received, claiming the property without delay if appropriate.
36.15 Bankrupt not to dispose of after-
acquired property
Having served notice on the trustee of the after-acquired property, the bankrupt is
not, without the trustee’s consent in writing, allowed to dispose of the property within
a period of 42 days beginning with the date of the notice 1. This is the period within
which the trustee must make their decision on whether or not to claim the property
for the benefit of the bankrupt’s estate (see further guidance in paragraph 36.18).
Obviously, written consent of disposal should not be given by the official receiver, as
trustee, until a proper assessment of the property has taken place.
1. rule 10.125(2)
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36.16 Consequences of bankrupt’s failure to
co-operate in respect of after-acquired
property
Where a bankrupt fails, without reasonable excuse, to comply with the obligation to
notify the trustee of after-acquired, they are guilty of a contempt of court (see chapter
19 for further information on dealing with a contempt of court). The advantage of
dealing with the matter in this way is that the court can order the bankrupt to provide
the required information as part of the process of purging the contempt.
Alternatively, the official receiver could consider applying for a public examination of
the bankrupt with a joint application for a suspension of the bankrupt’s period of
discharge in the event of non-attendance at the public examination (see chapter 19
for further information on public examinations and suspension of discharge).
36.17 Late notification of after-acquired
property
If the bankrupt notifies the official receiver of the acquisition of property outside the
21 days allowed in the Act, but the property has not been disposed of, or otherwise
devalued, then it would be appropriate for the official receiver to claim the property
and consider whether the delay in notification by the bankrupt was an innocent
oversight or a type of non-co-operation.
If notification of the acquisition of the property comes from a third party outside the
prescribed 21 days and the property has not been disposed of or otherwise devalued
then, again, the official receiver should (if appropriate) claim the property. The
bankrupt’s failure to notify the trustee of the acquisition of the property may
constitute grounds for a possible BRO/BRU and should be considered in that light.
See paragraph 36.30, below, where the property has been devalued or given away
before notification is received.
Action to take following receipt of
notification of after-acquired property
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36.18 Enquiries and action to take following
notification of after-acquired property
Following receipt of information indicating that the bankrupt has come into
possession of after-acquired property, the official receiver, acting as trustee, should
make appropriate (written) enquiries of the bankrupt confirming information given
orally or by third parties, and, as soon as sufficient information is received (but,
certainly within 42 days), claim the property if it is appropriate to do so.
Where appropriate, the official receiver should arrange for the property to be valued
to ascertain whether there will be a net benefit to the estate.
36.19 Official receiver decides not to claim
property
Where the official receiver takes the decision not to lay claim to the property, it would
be good practice to give the bankrupt written notice of this decision.
Obviously, written notice of a decision not to claim the property should not be given
by the official receiver, as trustee, until a proper assessment of the property has
taken place.
Claiming after-acquired property
36.20 Trustee has 42 days to claim after
acquired property
The official receiver, as trustee, has the power to claim, for the benefit of the
bankrupt’s estate, any property acquired by the bankrupt or devolved upon the
bankrupt since the date of the bankruptcy order 1.
The official receiver, as trustee, has 42 days, beginning with the day on which it first
came to their knowledge that the property in question had been acquired by, or had
devolved upon, the bankrupt in which to make the claim in writing 2.
1. section 307(1)
2. section 309(1)(a)
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36.21 42 day period to claim after-acquired
property begins when trustee has ‘knowledge’
of the property
The Act makes no mention that the 42 day time limit for the trustee to claim the
property starts at the day that the bankrupt serves notice on the trustee - it simply
states that the 42 days begins “with the day on which it first came to the knowledge
of the trustee that the property in question had been acquired by, or had devolved
upon, the bankrupt” 1.
Case law 2 provides that the trustee should normally be held to have obtained
‘knowledge’ only when it has become clear to them, on cogent evidence verified to
their reasonable satisfaction, that the property in question:
•
was acquired by the bankrupt
•
was acquired by them after the commencement of bankruptcy, and
•
is capable of being claimed as after-acquired property
1. section 309(1)(a)
2. The Right Honourable Rhodri Viscount St Davids v Lewis [2015] EWHC 2826 (Ch)
36.22 Serving notice of a claim for after-
acquired property
Where the official receiver, as trustee, wishes to lay claim to after-acquired property,
they are required to serve notice in writing on the bankrupt 1, 2. The notice should
generally be served by 1st class post and recorded delivery although, with the
bankrupt’s consent, it can be served by electronic means if in all the circumstances
the official receiver is satisfied that service by this means will be effective. Where
there are any non-cooperation issues or the disclosure of the property came from a
third party the official receiver may decide to use all available methods of service.
The claim may be notified to others, as appropriate (for example a bank holding a
sum of cash or the National Lottery claims department). Where the trustee takes
possession of the property without serving the requisite notice, it is possible to
remedy the situation by serving the notice retrospectively 3.
1. ASTCAA)
2. section 307(1))
3. Pike v Cork Gully [1997] BPIR 723)
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36.23 Notice to be given to bank where after-
acquired property under its control
The legislation 1 provides that a bank cannot be held liable in relation to any
transaction entered into (for example, the removal of funds from a bank account)
where it does so prior to a notice of the claim of after-acquired property being served
on it.
Where, therefore, monies or property that is after-acquired property is held by a
bank, the official receiver should serve upon the bank notice of the claim using the
standard form 2.
1. section 307(4A)
2. ASTCAA
36.24 Time limit for claiming after-acquired
property not extended where trustee
subsequently appointed
It is important to remember that if an insolvency practitioner is appointed trustee of
the estate in succession to the official receiver holding that office, and the notice of
the devolved property was given by the individual to the official receiver, the
insolvency practitioner is deemed to have had knowledge of the asset at the same
time as the official receiver 1 and, therefore, the 42 day period for claiming the
property begins with the date that the official receiver as trustee became aware that
the bankrupt had acquired the property, and not the date of the appointment of the
subsequent trustee.
The official receiver as trustee should consider whether any insolvency practitioner
to be appointed will be able to claim the property in the required 42 day period and if
need be should make the claim themselves so that the after acquired property can
be dealt with by the insolvency practitioner trustee. It is better to act in this way than
to lose the property.
Similarly, if the official receiver in the ‘home’ office cannot be completely sure that a
subsequent official receiver trustee will claim the property in the 42 day period, they
should make the claim, in the knowledge that the realisation will be handled by
someone else. It is better to act in this way than to lose the property.
1. section 309(1)(a)
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36.25 Serving notice of a claim for after-
acquired property out of time
The court may extend the 42 day period for claiming the after-acquired property 1.
The court has viewed that the 42 day period is a substantive provision, rather than a
procedural time limit 2 and, therefore, in order to agree to an extension, it will need to
be persuaded that there has been good cause for the delay. The court will also take
into consideration the effect of the delay on the bankrupt (particularly, where the
bankrupt has already disposed of the property) 3, 4. A simple administrative oversight
is unlikely to be viewed as good cause by the court.
Where a failure on the part the bankrupt has, in some way, been a cause of the
trustee’s failure to serve the notice in time, the court may allow the service of the
notice out of time 5.
1. section 376
2. Franses v Oomerjee [2005] BPIR 1320
3. Solomons v Williams [2001] BPIR 1123
4. Vickers v Mitchell [2004] All ER (D) 414
5. Matthew (a Bankrupt) [1996] CLY 3485
36.26 Claiming property where available
information limited.
Where the information available to the official receiver is limited, and the end of the
42-day period is approaching, the official receiver (as trustee) may have to claim the
property without full information. In the case of inheritances, this may lead the official
receiver to claiming assets that are not valuable or are not economic to realise, but
this is preferable to the alternative – which is the risk of a potentially valuable asset
being lost to the estate. As an alternative, the official receiver may apply to court for
an order extending the period for claiming the property until a certain act has been
carried out (for example, until the bankrupt provides a copy of a will).
It is quite permissible for further enquiries to be made about the property after it has
been claimed and, if necessary, the official receiver can subsequently disclaim the
property – having obtained the requisite leave of court.
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Action to be taken once property
claimed
36.27 Property vests in trustee once claimed
Once notice claiming the after-acquired property has been served on the bankrupt
the property vests in the trustee as part of the bankruptcy estate, and the trustee’s
title to the property goes back to the time that the bankrupt acquired the property 1.
1. section 307(3)
36.28 Property to be protected and dealt with
Once the property has vested, the official receiver should take such action as is
necessary to protect and realise the property including, where appropriate, the issue
of letters to third parties such as a bank or the executor of a will 1. Where
appropriate, the official receiver should seek to insure the property. Where the after-
acquired property is land, the official receiver should register their interest in line with
the advice and information given in chapter 7.
1. NEXE
36.29 Realisation of the property
Essentially, once the property forms part of the estate, the official receiver should
deal with it as they would with any other asset forming part of the estate. From this
point in the process, there are no special procedures for dealing with the asset, and
the information and guidance given elsewhere in the Operational Guidance should
be followed.
Disposal of after-acquired property by
bankrupt
36.30 Identification of person to whom after-
acquired property has passed
If the bankrupt has disposed of the property before giving notice of its acquisition to
the trustee, or in contravention of the rule barring disposal of the property, they are
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under a duty forthwith to disclose to the trustee the name and address of the person
to whom the property has passed, and to provide any other information necessary to
enable the trustee to trace and recover the property 1.
1. 10.125(3)
36.31 Claiming after-acquired property
disposed of by bankrupt
Where property has been disposed of by the bankrupt before, or despite, them
receiving notice of the trustee’s claim, the trustee may serve notice on the person to
whom the property has passed, claiming the property for the estate 1.
Any notice in this respect must be served by the trustee within 28 days of them
becoming aware of the identity and address of the person to whom the property has
passed 2. This period may be extended by the court 3, but the court is unlikely to be
persuaded to extend the period unless it can be shown that there is ‘good cause’ to
do so. An administrative oversight is unlikely to be viewed as sufficient ‘good cause’.
1. rule 10.126(1)
2. rule 10.126(2)
3. section 376
36.32 Third party acquires property in good
faith
Where a third party obtains after-acquired property in good faith, for value and
without notice of the bankruptcy the trustee will have no power to recover the
property 1. In these circumstances the trustee may, of course, lay claim to the funds
received by the bankrupt in respect of the disposition of the property. Where it is not
possible to lay claim to these funds, the official receiver should consider applying for
an order suspending the discharge from bankruptcy until the value of the property
lost has been restored to the estate, if possible 2.
1. section 307(4)(a)
2. section 279(3)(b)
36.33 Misconduct relating to the disposal of
after-acquired property
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Where a bankrupt disposes of after-acquired property before, or despite, them
receiving notice of the trustee’s claim or having failed to notify the trustee that they
have acquired the property, then this may be a matter of misconduct for which the
official receiver should consider making a criminal referral.
Examples of after-acquired property
36.34 National Lottery wins
Where the official receiver receives information to suggest that a bankrupt may have
had a win on the National Lottery, they can make enquiries of the National Lottery. In
order to provide information confirming or denying the win, Camelot will need to have
sight of the bankruptcy order and confirmation of the official receiver’s appointment
as trustee, or an authority completed by the bankrupt.
The National Lottery usually pays out monies relating to wins within two or three
days of the win. Where a payment has yet to be made, Camelot can withhold
payment on the request of the official receiver where the bankruptcy order confirming
the official receiver’s appointment or bankrupt’s authority is provided.
36.35 Inheritances as after-acquired property
One of the most likely circumstances where the official receiver will make use of the
provisions relating to claiming after-acquired property will be where the bankrupt
receives a bequest under a will. The key date in this respect is the date of the death
of the person who made the will. So long as the person dies prior to the bankrupt’s
discharge, the property bequeathed can be claimed even where it is not received by
the bankrupt until after their discharge. Where, however, the property is left to the
bankrupt under a protective trust the trustee will not be able to claim the property. A
protective trust is usually created in relation to real estate property and gives the
beneficiary of the trust a time-bound interest (such as a right to occupy to a certain
date) in the property without having the right to sell it. Where the official receiver
encounters a protective trust, and the property is of sufficient value to justify it, they
should seek legal advice to establish the validity of the trust and explore any means
of challenging it. Where a person dies intestate (that is, without making a will that
covers all, or any, of their property), the portion of their estate not covered by a will is
distributed according to provisions in the Administration of Estates Act 1925. Where
a bankrupt is entitled to property under such a distribution, this entitlement arises on
the death of the person to whom the intestacy process applies. If, therefore, the
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death occurs during the period of bankruptcy any property distributed to the bankrupt
may be claimed as after-acquired property.
36.36 Redundancy payments and payment in
lieu of notice
A redundancy payment represents compensation for loss of a job, rather than loss of
earnings 1, 2. This is easily rationalised when it is considered that the award is made
based on fixed rules (particularly, length of service and past salary) regardless of
whether or not the redundant person secures alternative employment. The level of
the award will be the same even if that alternative employment is immediately
secured and obtained at a higher wage.
A redundancy payment received during the period of bankruptcy would, therefore, be
considered as after-acquired property (rather than income) and should be claimed by
the trustee accordingly
Similarly, a payment in lieu of notice (which is compensation paid where the
employer elects not to give the statutory period of notice) is not considered to be
income and should be claimed as after-acquired property where received during
bankruptcy 3.
Compensation notice pay (CNP) is a form of payment in lieu of notice and would also
be claimed as after-acquired property (rather than income).
1. Hindle v Percival Boats [1969] 1 WLR 174
2. Wilson v National Coal Board [1981] SLT
3. Wadling v Oliphant (1875) 1 QBD 145
36.37 Compensation for change in contract of
employment
Where a bankrupt receives compensation for a change in their contract of
employment (usually, this will be in respect of a reduction in income), this should be
claimed as after-acquired property, even where repayment conditions are attached
to the award.
36.38 Shares
If a bankrupt receives shares from a Save As You Earn scheme (SAYE) during the
period of bankruptcy, the shares may be claimed as after-acquired property. Any
dividends payable in relation to those shares can then be claimed in the normal way
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as the shares will, as a result of the claim, have vested in the estate. There is no
need for a separate after-acquired claim in respect of the dividends. Similarly,
dividends being received in relation to shares held by the bankrupt as at the date of
the making of the bankruptcy order would be automatically due to the trustee as
assets arising from the possession of the shares vesting in the estate.
36.39 Property adjustment under matrimonial
proceedings
Where a property adjustment order (or similar) is made after the date of the
bankruptcy order against a bankrupt’s spouse or civil partner requiring them to settle
property on, or transfer property to, the bankrupt, the official receiver, as trustee,
should claim the awarded property as after-acquired property. This may be subject to
the wording of the order where, for example, there is some element protecting the
interests of children.
The official receiver should ensure that both parties, and the court, are aware of their
interest in any property awarded to the bankrupt.
36.40 Engagement and wedding rings
The general principle in law is that an engagement ring constitutes a gift conditional
on an event taking place 1, 2. In other words, ownership of the ring does not pass to
recipient until the marriage (or, as the case may be, civil partnership) takes place. If
the marriage does not take place then the ring remains the property of the person
who provided it. In the case, therefore, that a bankrupt is given an engagement ring
prior to the making of the order, and the marriage takes place during the period of
bankruptcy then the ring may be claimed as after-acquired property.
The ring should, of course, have sufficient value to warrant the costs of valuation and
sale, and official receivers should not take engagement rings as a matter of course.
Having claimed the ring, it may be possible to effect the sale of the ring to a family
member or other third party introduced by the bankrupt. Weddings rings generally
have little intrinsic financial value tending, as they do, to be simple gold bands.
Consideration has been given to the symbolism of a wedding ring and, given these
circumstances; it is unlikely to be appropriate for the Official Receiver to claim a
wedding ring as after-acquired. In circumstances where the wedding ring is unusual
and has an intrinsic financial value (for example, it may be set with precious stones)
then the official receiver may consider claiming the ring and providing a replacement
gold band.
1. Jacobs v Davis [1917] 2KB 532
2. Cohen v Sellar [1926] 1KB 536
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36.41 Loans as after-acquired property
After-acquired property is not limited to windfalls, and the relevant provision of the
Act can be taken to apply to a commercial transaction – in particular the obtaining of
a loan 1.
Where the official receiver becomes aware that an undischarged bankrupt has
obtained a loan, this should be claimed as after-acquired property in the usual way.
This advice does not apply to Student Loans.
1. Hardy v Pallen [1997] BCC 815
36.42 Capital sums invested in a business
If a capital sum acquired by the bankrupt is invested in their business, the trustee
may claim this or the assets acquired with such monies if they can be traced. There
may be a problem if the investment made in the business had been used to finance
current trading without the acquisition of assets. Where, for this reason, it is not
possible to lay claim to the funds, the official receiver should consider applying for an
order suspending the discharge from bankruptcy until the value of the property lost
has been restored to the estate.
Rights of action as after-acquired
property
36.43 Rights of action
The only circumstance where a right of action itself would be claimable as after-
acquired property would be where the event leading to the action had occurred
during the period of bankruptcy. Depending on the value of any potential claim and
the proximity of discharge, it might be better that the claim is left with the bankrupt for
them to pursue with any payment received by the bankrupt (other than the element
which is personal to the bankrupt) later claimed as after-acquired property. The
official receiver, as trustee, should write and inform the bankrupt that the right of
action will not be claimed for the benefit of the estate. The official receiver should
also inform the bankrupt in the letter that should any payment be made as a
consequence of successfully pursuing the claim the bankrupt must inform the official
receiver within 21 days of receipt of the payment 1.
1. rule 10.25(1)
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36.44 Right of action event post bankruptcy -
payment received after discharge
Where the event leading to the right of action happens during the period of
bankruptcy and the right of action was claimed as after acquired property, any
related (non-personal) award would be due to the estate even if it were awarded or
paid after discharge, as it is the right of action and not the monies, which constitutes
the property.
36.45 Right of action – personal award
payment received pre-discharge
Where damages relating to a personal action are paid to the bankrupt during the
period of bankruptcy they may only be claimed as after-acquired property if they
were to change character during the period of bankruptcy– for example, if they were
invested in property, or used to purchase another asset 1.
1. In re Wilson ex parte Vine (1878) LR 8 Ch D 364
36.46 Damages following assignment of a right
of action
It is open to the official receiver, as trustee, to assign a right of action back to the
bankrupt where it is appropriate to do so. Where a right of action is assigned back to
a bankrupt, the trustee’s rights transfer to the bankrupt under the assignment and it
would, therefore, not be possible, or appropriate, to lay claim to any resultant award.
When undertaking the assignment of a right of action, the trustee might negotiate a
payment to be made at a later date, as part of the assignment. Such a payment
would vest automatically in the trustee, rather than being after-acquired property, as
this would simply relate to the sale of a bankruptcy asset (that is, the right of action).
Property which would not normally be
claimed as after-acquired
36.47 Property not considered being after-
acquired property
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Whilst all property acquired by a bankrupt between the making of the order and
discharge may be described as after-acquired property for the purpose of the
provisions of the bankrupt’s duty to notify the trustee 1, not all property is claimable
by the trustee. In some cases, this is because the ‘property’ is instead income and in
other cases it is because the trustee is in some way prohibited from claiming it.
1. section 333
36.48 Property that would not form part of the
estate cannot be claimed as after-acquired
The trustee may not claim as after-acquired property 1, 2:
•
such tools, books, vehicles and other items of equipment as are necessary to the
bankrupt for use personally by them in their employment
•
such clothing, bedding, furniture, household equipment and provisions as are
necessary for satisfying the basic domestic needs of the bankrupt and their family
•
property held by the bankrupt on trust for any other person
•
the right of nomination to a vacant ecclesiastical benefice
•
a dwelling house which has re-vested in the bankrupt under the “three-year” rule
1. section 283(2)
2. section 283(3)
36.49 Exempt property as after-acquired
property – excess value
Where a bankrupt acquires property which would be exempt had it been in their
possession at the date of bankruptcy (tools of trade, household effects) and it
appears to the trustee that the realisable value of the property exceeds the cost of a
reasonable replacement then the trustee may claim the property on those terms (i.e.,
that the sale proceeds are used to provide the reasonable replacement) 1.
See chapter 24 for matters to be taken into consideration before claiming exempt
property of excess value.
Where property of excess value is claimed, the claim should be under section 308,
rather than section 307 (as for other types of after-acquired property) – though all
other requirements (particularly, the time limit) 2 are equally applicable to this type of
claim. The standard form of claim 3 should be amended to show the section under
which the claim is being made.
1. section 308
2. section 309(1)(b)
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3. ASTCAA
36.50 Claiming surplus proceeds of sale of
exempt property
If the bankrupt sells property that has been treated as exempt, or would have been
treated as exempt had it been in the bankrupt’s possession at the date of
bankruptcy, then such sale proceeds as are not required to provide a suitable
replacement may be claimed as after-acquired property. The official receiver should
claim “such monies as are not required to provide a suitable replacement for [the
item sold]”, monitor the situation to ensure that a replacement item is purchased and
lay claim to any amount not used in the purchase of the replacement item.
36.51 Pensions
It is extremely unlikely that it would be appropriate to claim a payment under a
bankrupt’s pension as after-acquired property, even where a lump sum is paid to the
bankrupt. The vast majority of pension schemes (private and occupational)
encountered by official receivers are excluded from the estate by reason of statute
and, for those that are not (primarily, those relating to bankruptcies where the
petition was presented before 29 May 2000), it is likely that the pension policy or
arrangement existed prior to the making of the bankruptcy order, making the pension
an asset at the time of bankruptcy and automatically vesting any related payments in
the trustee.
This would apply equally to a death benefit due from the pension of a third party.
Pension payments already being received by the bankrupt as at the date of the
making of the bankruptcy order, or which become due to the bankrupt during the
period of bankruptcy, should be considered as income in any IPA/IPO assessment.
36.52 Tax refunds
Where a bankrupt receives a tax refund under the nil tax (NT) coding procedure
operated by HM Revenue and Customs it should not be claimed as after-acquired
property. Instead, it should be claimed based on the authority 1 given by the bankrupt
at the initial stages of the case.
In the unlikely event that the bankrupt receives a tax refund for a period after the
ending of the NT coding period, but before discharge from bankruptcy, this may be
claimed under an IPO or IPA. In reality, this is only likely to occur where the bankrupt
is subject to a suspension of their period of discharge from bankruptcy.
1. TNDIS
--- PDF page 21 ---
36.53 Property transferred to bankrupt by
trustee
Where the legal title to a solely owned property, or beneficial interest to a jointly-
owned property, has been transferred back to the bankrupt under the low-cost
conveyancing scheme (see chapter 28 for more information on this) it would not be
appropriate for the property to be reclaimed by the trustee as after-acquired property.
Once the property has been transferred there is an understanding that, subject to
mortgage commitment, the bankrupt is entitled to enjoy unhindered ownership of the
property without the official receiver, as trustee, making a claim over it.
If, during the negotiation of the transfer, the official receiver becomes aware that the
transfer is to be funded out of property acquired by the bankrupt after the date of the
making of the bankruptcy order then, of course, the official receiver, as trustee, may
lay claim to the funds as after-acquired property – even if this may defeat the
property transfer. If, in these circumstances, the property transfer has already been
completed the official receiver, as trustee, should consider securing an equivalent
interest in the property (see chapter 7).
36.54 Official receiver can not claim a re-
vested property as after-acquired
Where a property re-vests in a bankrupt under the provisions in the Act relating to
the family home, it can not subsequently be claimed as after-acquired property. This
might happen where a property re-vests in a bankrupt following the expiration of the
three-year period in which the trustee must deal with the property and, in the interim,
the bankrupt has been made bankrupt again – remaining bankrupt as at the time of
the re-vesting 1.
The re-vested property would, of course, form part of the estate of any bankruptcy
commencing after the date of re-vesting and the trustee of that bankruptcy would be
free to deal with it in the normal way.
1. section 307(2)(aa)
36.55 Council “right to buy” as after-acquired
property
It is unlikely that a bankrupt will be able to exercise a “right to buy” a council property
during the term of his her bankruptcy, due to restrictions in the relevant legislation 1.
It is, therefore, unlikely that the exercising of this right could give rise to an asset that
may be claimed as after-acquired property.
--- PDF page 22 ---
1. Housing Act 1985 section 121
36.56 Copyright and royalties
Copyright is effective from the date that the work to which it relates is created. If a
bankrupt creates a work during the period of their bankruptcy it is open to the trustee
to lay claim to the copyright as after-acquired property. Where royalties are being
received by a bankrupt in relation to a copyright held as at the date of the making of
the bankruptcy order, or claimed as after-acquired property, such payments should
properly be claimed as assets in the bankruptcy.
36.57 Student loans
No part of a student loan may be claimed as after acquired property 1.
1. The Education (Student Support) Regulations 2008 regulation 94(1)(a)
36.58 Employment bonuses
Where a bankrupt receives a bonus from his employer, this should be claimed by the
trustee under an IPA/IPO, rather than as after-acquired property - as a payment in
this respect comes under the definition of income in the Act 1.
1. section 310(7)
36.59 Claims under the Inheritance (Provision
for Family and Dependants) Act 1975
A claim under the Inheritance (Provision for Family and Dependants) Act 1975 is a
claim to an interest in a deceased estate on the grounds that the disposition of that
estate effected by the deceased’s will or the law relating to intestacy, does not make
reasonable financial provision for the applicant. Such a claim is considered personal
and as such does not form part of the bankrupt’s estate and does not vest in the
official receiver as trustee.
Any financial sum awarded may be claimed when received by the bankrupt as after
acquired property, if the monies change character.
36.60 Awards from the Criminal Injuries
Compensation Authority
--- PDF page 23 ---
Where a person is injured as a result of a violent criminal act they have a right to
seek compensation under the Criminal Injuries Compensation Scheme, which, in
appropriate cases, pays a sum of compensation for the pain and suffering and, also,
for any resultant loss of earnings. It has been ruled that an award under this scheme
does not fall under the definition of property under the Act and it is personal to the
bankrupt and consequently cannot be claimed as after-acquired property 1. Should
the monies awarded ‘change character’ during the period of bankruptcy (by, for
example, the purchase of a capital asset), that purchased item may be claimed.
1. re Campbell (a bankrupt) [1997] Ch 14
36.61 Build up of funds in the bankrupt’s bank
account
Where there has been a gradual build up of funds in the bankrupt’s bank account it is
likely that the source of those funds will have been a from a surplus of income and
the official receiver, as trustee, should consider laying claim to those monies in the
account that are in excess of those necessary to satisfy the basic domestic needs of
the bankrupt and their family. Where the trustee wishes to lay claim to monies of this
nature, the claim should be under an IPA or IPO, rather than as after-acquired
property, and an IPA/IPO to claim the monthly surplus should also be considered.
Where the source of the funds is from some other (non-income) source (for example,
small gambling wins), then the monies can be claimed as after-acquired property.
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ATTACHMENT: 37.Rights_of_action.pdf
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--- PDF page 1 ---
This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 11 March 2020.
37. Rights of action
Annexes
Annex A – Letter requesting information about claim
Annex B – Letter ending arrangement with solicitor
Annex C – Letter asking solicitor to agree position
Annex D – Letter explaining effect of action vesting
Annex E – Letter retaining solicitors
Annex F – Letter asking for funds to pay legal advice
Annex G – Letter circularising creditors
Annex H – Letter asking solicitor to agree position in unfair dismissal claim
Annex I - Letter asking solicitor to agree position in wrongful dismissal claim
Annex J – Letter asking solicitor to agree position in discrimination claim
Annex K – Flowchart too assist in decision whether action vests or not
Chapter content
Table of key right of action cases
Frequently asked questions
Introduction
General points regarding rights of action
Identifying a right of action and gathering information
Dealing with a right of action – The basics
Deciding whether a right of action vests - Bankruptcy only
--- PDF page 2 ---
Vesting of ‘hybrid’ claims
Examples of types of claims to assist in vesting decision
Effect of a right of action vesting
Settlement of a right of action
Assignment of a right of action – General overview
Assignment to be absolute
Equitable assignments
Matters to consider prior to assignment
Litigation of a right of action
Limitation periods
Employment claims - General
Unfair dismissal and wrongful dismissal
Discrimination claims relating to employment
Other employment claims – Redundancy and equal pay
Dealing with the fruits of a right of action
Third-party interest in the fruits of a right of action
Loss of earnings awards
“Negative” options for dealing with a right of action
Table of key right of action cases
Rights of action is an area which has been largely driven by case law. To assist
official receivers in understanding how the law has developed this table lists the key
cases that have had some impact on rights of action. The table is in rough
chronological order and has links to the paragraph within the chapter where the point
made in the case in discussed more fully. The (very) brief summary of the decision in
each case should not be relied on its own but should, instead, be considered
alongside the more detailed information in the chapter.
--- PDF page 3 ---
Case
Held
Howard v Crowther (1841) 8 M&W 601 “Personal” actions do not vest
Rogers v Spence (1846) 8 ER 1586
Example of personal action staying with
bankrupt (personal annoyance).
Beckham v Drake (1849) 2 HL Cas
579
“Personal” actions do not vest
Kitson v Hardwick (1872) LR 7 CP 473
Trustee can assign right of action to
bankrupt
Ex parte James (1874) LR 9 Ch App
609
Obligation on officers of the court to act
honourably and fairly.
Jackson v North Eastern Rly Co (1877)
5 Ch D 844
Trustee must, at least, become co-
claimant on a vesting action. Bankrupt
cannot continue it alone.
Re Wilson ex parte Vine (1878) 8 Ch
364
Cannot intercept personal monies, but
can claim fruits of investment, etc.
Leeming v Lady Murray (1879) 13 ChD
123
Trustee is not precluded from bringing or
defending an action simply because they
have not obtained sanction of committee.
Seear v Lawson (1880) 15 ChD 426,
CA
Trustee can sell a right of action by
assignment – does not constitute
champerty or maintenance
Re Park Gate Waggon Works Co
(1881) 17 Ch D 234
Liquidator can sell a right of action
Metropolitan Bank v Pooley (1885) 10
App Cas 210 HL
Action can be dismissed as frivolous or
vexatious if bankrupt carries it on after
vesting.
Guy v Churchill (1889) 40 ChD 481
Action may be sold by the trustee on the
basis that some part of the fruits may
come back to the estate.
--- PDF page 4 ---
Case
Held
Whitwood Chemical Co v Hardman
[1891] 2 Ch 416, CA
Court will normally award damages
(rather than reinstatement) for a wrongful
dismissal.
Rose v Buckett [1901] 2 KB 449
Claim that gives rise for aggravated
damages would remain with bankrupt
Re White ex parte Nichols (1902) 46
Sol Jo 569
Trustee will lose right to be paid out of
estate if they do not get sanction.
General Billposting Co Ltd v Atkinson
[1909] AC 118
Employee is released from contract in a
wrongful dismissal.
Glegg v Bromley [1912] 3 KB 474
Right of action should be assigned
without any conditions attached (e.g., a
right to interfere in the action).
Bannister v Bannister [1948] 2 All ER
133
Explanation of a constructive trust
Wilson v United Counties Bank [1920]
AC 102
There can be two rights of action from the
same breach of contract. Over-ruled by
Ord v Upton.
Re Kavanagh [1950] 1 All ER 39
If claim settled before court and there has
been no evidence to show the shares in
which the settlement should be
apportioned (between the causes of
action – personal v property) it will be
split equally.
Ramsey v Hartley [1977] 2 All ER 673
Trustee is entitled to assign claim back to
bankrupt for a share of the net proceeds.
Re Papaloizu [1999] BPIR 106 14
December 1980
Trustee should exercise the power to
assign causes of action to bankrupts with
circumspection – where, for example, to
do so would leave the defendant open to
vexatious litigation.
--- PDF page 5 ---
Case
Held
R v East Berkshire Health Authority ex
parte Walsh [1985] QB 152
Correct forum for a wrongful dismissal
claim is Employment Tribunal.
Weddell v Pearce [1988] Ch 26
Since vesting is by operation of law,
trustee does not have to give notice to
potential defendants. Assignment on
terms that trustee is to receive part of the
proceeds requires sanction of creditors’
committee
Re Hans Place [1992] BCC 737
Court will only overturn official receiver’s
decision (e.g., not to assign) if decision
mala fides or perverse.
Heath v Tang; Stevens v Peacock
[1993] 4 All ER 694
Bankrupt has no locus standi to bring a
cause of action that vests in trustee
without consent of trustee or by order of
court. The appeal of any judgement on
which bankruptcy order founded is a
vesting action.
Linden Gardens Trust v Lenesta
Sludge Disposals Ltd [1994] 1AC 85
Action may be non-assignable where
there is an express contractual
prohibition on assignment.
Re Oasis Merchandising Services Ltd
[1995] 2 BCLC 493
Cannot assign rights of action that arise
as a result of the insolvency order
(preferences, transactions at an
undervalue, etc.).
Re Rae [1995] BCC 102
Fishing licence (or similar) is a ‘personal’
asset.
Royal Bank of Scotland v Farley [1996]
BPIR 638
Action seeking to overturn judgment on
which bankruptcy founded is vesting
asset.
Re Campbell [1996] 1 All ER 537
Can’t claim right to criminal injuries
compensation.
--- PDF page 6 ---
Case
Held
Stein v Blake [1996] 1 AC 243
Value of claim is the difference between
the claimed amount and any counter-
claim. Net difference between claim and
counter-claim can be assigned.
Three Rivers DC v Bank of England
[1996] QB 292
Court will usually require that equitable
assignor is joined as a party to the
proceedings before judgment is given.
Re Edennote Ltd [1996] BCC 718
Trustee should not accept first offer (if
there are multiple potential offers) without
first testing the market. Should offer
settlement to defendant.
Citicorp and others v Official Trustee in
Bankruptcy and Another [1996] FCA
1115
Frivolous claim (one that is unlikely to
succeed) should not be assigned.
RBS v Farley [1996] BPIR 638
Bankrupt has no locus standi to
challenge judgment on which order is
based.
Wordsworth v Dixon [1997] BPIR 337
Right of appeal in a vesting action would
also vest.
Griffiths v Civil Aviation Authority
[1997] BPIR 50
Pilot’s licence is ‘personal’ property.
Re Ng (a bankrupt) [1997] BCC 507
Trustee should not be used as a ‘hired
gun’ – as a name in which to bring an
action.
Seven Eight Six Properties v Ghafour
[1997] BPIR 519
Assignment does not give retrospective
right to bring an action if bankrupt had no
previous right to bring action (e.g. where
statute barred, seeking to overturn
judgement on which order based).
Khan v Official Receiver [1997] BPIR
109
Trustee not obliged to assign action
where only offer is derisory and seeking
--- PDF page 7 ---
Case
Held
other offers would be an unjustifiable
expense.
Vickery v Modern Security Systems
Ltd 1997 WL 1104285
Consequences of trustee continuing
claim.
Griffiths v Civil Aviation Authority
[1997] BPIR 50
Aviation licence is non-transferable and is
personal. Right to appeal against
decision to withdraw licence is personal.
OR v Davis [1998] BPIR 771
Trustee can assign action to defendant.
Cummings c Claremont Petroleum
[1998] BPIR 187
Right of appeal in a vesting action would
also vest.
Re Bell [1998] BPIR 26
Lump sum awarded as periodic payment
would simply be considered as lump sum
(not, for example, income).
Vickery v Modern Security Systems
Limited [1998] BPIR 164
Official receiver, as trustee, may be
exposed to costs if they allow bankrupt to
continue claim.
Morris v Morgan [1998] BPIR 754 CA
A right of appeal may constitute a right of
action if it has an economic value in its
own right.
Hamilton v OR [1998] BPIR 602
Bankrupt may request re-assignment of
cause of action where trustee does not
take it on. Assignment should be
absolute. Trustee may remain vulnerable
to an adverse costs order, if they retain
an interest in the outcome – but not if
sold outright.
Re Landau [1998] Ch 223
A provision prohibiting assignment of a
right of action is not infringed by the
vesting in the estate as the action passes
into the estate without assignment
--- PDF page 8 ---
Case
Held
[s306(2)], but is deemed to have been
assigned [311(4)].
Artbuthnot Latham Bank Ltd v
Trafalgar Holdings Ltd [1998] 1 WLR
1426
Court may not allow claim ‘out of time’
where, to do so would allow a ‘second
bite of the cherry’.
Oasis Merchandising Services [1998]
Ch 170
Official receiver, as trustee, may not
assign right of action that arises as a
consequence of insolvency order (e.g. a
preference).
Osborn v Cole [1999] BPIR 251
Bankrupt may appeal, under s303 of the
IA1986, decision not to re-assign. Official
receiver, as trustee, can seek indemnity
(e.g., against costs) from assignee.
Craig v Humberclyde Industrial
Finance [1999] BPIR 53
Trustee can seek direction from court as
to terms in which they can enter into
assignment. If the value of the counter-
claim is higher than the value of the claim
this will, effectively, be a bar on
assignment.
Stock v London Underground Ltd 30
July 1999 CA Times, August 13 1999
One claim can have two heads of
damage – a “hybrid” claim.
Ord v Upton [2000] 1 All ER 193
Hybrid action vests in trustee.
Mulkerrins v Price Waterhouse
Coopers [2001] PNLR 5
It is open to bankrupt to apply for order
that action does not vest.
Edmonds Judd v Official Assignee
CA(NZ) [2001] BPIR 468
Trustee should not ‘traffic’ frivolous or
vexatious claims.
Patel v Jones [2001] EWCA Civ 779
Limit claim for future lost earnings to
three years.
--- PDF page 9 ---
Case
Held
Haq v Singh [2001] 1 WLR 1594
Assignment should be made before the
expiration of the relevant limitation
period.
Cork v Rawlins [2001] BPIR 222
Permanent disability benefit paid under
insurance policies in respect of an
accident suffered by the debtor before
bankruptcy is bankruptcy asset.
Faryab v Smith [2001] BPIR 246
Bankruptcy should not be used as a
means to stifle a claim. Trustee should be
careful to seek advice re merits of
assignment in complex claims.
Quadmost Ltd v Reporotech
(Pebsham) Ltd [2001] BPIR
Action may be non-assignable where
express contractual prohibition.
Hamilton v Official Receiver [2002]
BPIR 582
Trustee should accept offer for
assignment if it is reasonable and does
not prejudice them.
Cummings v OR [2002] BPIR 246
Trustee should see that case has merit
before assigning and if it does have merit
they should seek payment.
Official Receiver v Mulkerrins [2002]
BPIR 582
Loss of future earnings a property claim.
(though see Patel v Jones).
Grady v Prison Service [2003] 3 All ER
745 Particularly, paragraphs 25-27
Unfair dismissal is a claim for
reinstatement, so cannot vest in trustee.
Wrongful dismissal is a claim for breach
of contract for which a compensatory
payment can be made. That action would
vest (i.e. not seeking reinstatement)
Mulkerrins v PricewaterhouseCoopers
[2003] UKHL 41
Bankrupt can apply for an order declaring
that a right of action does not vest, but
only those party to the application would
be bound by its effect.
--- PDF page 10 ---
Case
Held
Shepherd v Legal Services
Commission [2003] BCC 728
Trustee has a duty to consider how best
to deal with a claim, so it would not be
stifled by bankruptcy.
Re Shettar [2003] BPIR 1055
Official receiver, as trustee, should not
carry out an assignment that would leave
defendant open to vexatious litigation.
Official receiver, as trustee, can seek
indemnity (e.g., against costs) from
assignee.
Khan v Trident Safeguards Ltd [2004]
EWCA Civ 624
Claim for racial discrimination will not
vest. Claimant can limit claim to avoid it
vesting – probably only in discrimination
cases.
Ultraframe (UK) Ltd v Rigby and others
(CA) BILD 2001050178 2005
Liquidators should not assign without
proper consideration of the value of the
claim.
Ajahot v Waller [2005] BPIR 82
Tax appeal is a vesting asset.
James v Rutherford-Hodge [2005]
EWCA Civ 1580
Bankrupt’s standing to (not) bring claim is
unaffected by them having been awarded
legal aid.
Skinner v Hood [2005] EWCA Civ
1634
Bankrupt cannot have a vesting order in
disclaimed property.
Allan v Newcastle-upon-Tyne City
Council; Degnan v Redcar and
Cleveland Borough Council [2005] ICR
1170
Compensation for non-economic losses
cannot be awarded in a claim for equal
pay
Shepherd v Official Receiver [2006] All
ER (D) 72 (Nov)
Court will apply “reasonableness” test
when considering a s303 application
against trustee’s decision not to assign.
--- PDF page 11 ---
Case
Held
James v Rutherford-Hodge [2006]
BPIR 973
Inability of bankrupt to bring legal action
unaffected by them having being granted
legal aid.
Horton v Sadler [2007] 1 AC 307
Court can allow claim after expiration of
limitation where there has been, for
example, a technical failure on the part of
the claimant.
Wilson v Specter Partnership [2007]
BPIR 649
Official receiver, as trustee, not obliged to
assign right of action where no
worthwhile offer.
Dadourian Group v Simms [2008]
EWCA Civ 474
Bankrupt has no locus standi even where
trustee has yet to be appointed.
Nomura International plc v Granada
Group Ltd [2008] Bus LR 1
Protective claim may be challenged if it
does not meet procedural requirements.
Calvert v William Hill Credit Limit
Limited [2008] EWCA Civ 1427
Action against bookmaker for allowing
debtor to gamble is likely to be without
merit.
Hellard v Michael [2009] EWHC 2414
(Ch)
Official receiver, as trustee, should be fair
to all parties when negotiating
assignment of right of action.
Gold Shipping Navigation Co SA v
Lulu Maritime Ltd [2009] EWHC 1365
(Admlty)
A poorly worded ‘standstill agreement’
may leave claimant unable to bring claim.
Pickthall v Hill Dickinson LLP [2009]
PNLR 31
Person with no interest in a claim cannot
bring it (which, of course, would include
bankrupt in a vesting claim).
Young v OR (unreported) 23 March
2010
Denial of a bankrupt’s right to bring an
action not contrary to ECHR or HRA.
Stephen Hunt (as trustee in bankruptcy
of Janan George Harb) v Janan
George Harb, HRH Prince Abdul Aziz
Assignment for share of future ‘winnings’
can leave trustee open to adverse costs.
--- PDF page 12 ---
Case
Held
Bin Fahd Abdful Aziz [2011] EWCA Civ
1239
Ward v Official Receiver [2012] BPIR
1073
PPI claim (and similar) would vest in
trustee
Thames Chambers Solicitors v Miah
[2013] EWHC 1245 (QB)
Costs can be awarded against solicitors
who knowingly act in bringing
proceedings on behalf of bankrupt where
the claim vests in trustee
Clark v In Focus Asset Management &
Tax Solutions Ltd [2014] EWCA Civ
118
Claim cannot be litigated once
ombudsman has given an award
Eaton v Mitchells & Butler plc [2015]
All ER
Abuse of process for bankrupt to bring a
claim that has vested in trustee unless
rectified by, for example, assignment.
Sands v Layne [2016] EWCA Civ 1159 Right to appeal the bankruptcy order is
not an action that vests in trustee.
Robert v Woodall [2016] EWHC 538
(Ch)
Right to bring a claim under the
Matrimonial Causes Act can only belong
to spouses.
Frequently asked questions
These FAQs are intended to be a useful introduction to the subject of rights of action,
or to be used as a training tool, but should not be seen as a replacement for the
more detailed advice given in the chapter.
What is a right of action?
A right of action is a claim that, for example, another person has been negligent and
caused bodily, financial or mental harm – for which reparation (usually, in the form of
financial compensation) is sought. The claim may be brought through a formal
process such as a court, but many are settled before reaching that stage.
--- PDF page 13 ---
What about causes of action and things in
action?
These are just alternative names for rights of action. In fact, the Insolvency Act calls
them ‘things in action’ in section 436.
Why does the Insolvency Act mention them?
It lists them as examples of property that would, for example, constitute part of a
bankrupt’s estate.
I’ve heard lots of discussion regarding whether
of not a right of action vests in the trustee or
not. But, if the Act says that they are property
then, surely, they do vest?
Unfortunately, it’s not quite as simple as that. Case law has developed since the 19th
century to establish a position that some rights of action cannot be considered to be
property. If they are not property they can not vest in the trustee.
What sorts of actions would not constitute
property?
In short, it would be actions where the damages sought relate solely to pain felt by
the bankrupt in respect of their mind, body or character. These are often referred to
as ‘personal’ actions.
Can you give some examples of ‘personal’
actions?
Examples of personal examples include defamation, physical injury and battery.
These types of claims would continue to ‘belong’ to the bankrupt.
But, surely, some claims arise as a result of the
bankrupt suffering personal injury and
damage to his property. For example, they
--- PDF page 14 ---
might be in a car crash and suffer a broken
arm and, also, damage to their vehicle. Who
would ‘own’ the claim in these circumstances?
It used to be the case that the court would allow the claim to be split between
‘property’ and ‘personal’ elements and pursued separately. This position was arrived
at in 1919 in a case brought by a soldier returning from the First World War who
sued his bank for mismanagement of his financial affairs whilst they were away
fighting, which mismanagement had caused them both financial losses and
reputational damage.
More recently, in 1999, it was held that this was not the correct way to decide
matters and, in 2001, the court established the principle of a ‘hybrid’ claim and how
such a claim should be dealt with.
What is a hybrid claim?
A hybrid claim is a claim that has both ‘personal’ and ‘property’ elements. The court
held that such a claim would vest in the trustee in bankruptcy with the ‘personal’
element being held on a constructive trust by the trustee for the bankrupt.
What is a constructive trust?
A constructive trust is a trust that is created unintentionally, by accident almost,
where a party comes into possession of property belonging to another by operation
of law.
What does the creation of the constructive
trust mean in practical terms for the official
receiver acting as trustee?
Nothing really. It simply means that monies awarded that relate to ‘personal’
damages would have to be paid to the bankrupt. In reality, the official receiver is
unlikely to come into actual possession of the monies – rather they are likely to
remain with the bankrupt’s (ex) solicitor.
Can’t we claim the monies as after-acquired
property?
--- PDF page 15 ---
This was tried as long ago as 1878 and, in that case, it was held that the monies
may only be claimed if they were to ‘change character’.
What constitutes a ‘change of character’?
The 1878 case ruled out the spending of the monies by the bankrupt on the general
living needs of themselves and their dependants and ruled in the spending of the
monies on a capital asset.
There must be grey areas?
There are. For example, the transferring of the monies from a current account to a
savings account is likely to be considered a change of character (the 1878 case
refers to the ‘investing’ of the monies), but there is no decided case law on the point.
What about ‘personal’ monies awarded before
bankruptcy?
The official receiver, as trustee, should consider the monies to be simply ‘cash at
bank’ and claim them accordingly. There would be no need for the monies to
‘change character’.
Most rights of action are ongoing, in some way
or another, at the date of bankruptcy. What
should be done about those?
In essence, there are five ways that a vesting right of action may be dealt with.
These are to settle, assign, litigate, disclaim or do nothing.
Which is the best option?
‘Best’ would depend on the circumstances of the case. As a general ‘rule of thumb’ it
is true to say that the best option is unlikely to be to litigate the right of action.
If we ‘own’ the claim, why not litigate?
There are two main reasons that it is not normally appropriate to litigate. The first is
that the case may be lost and costs may be awarded against the official receiver, as
trustee, (personally) and the second is that there are usually no funds in the estate
with which to fund the litigation.
--- PDF page 16 ---
There is also the practical consideration that the involvement of the bankrupt may be
required and will not necessarily be forthcoming.
So, if we don’t want to litigate, how should we
deal with the right of action?
The creditors’ best interests are likely to be served by a settlement or assignment of
a right of action.
What are settlement and assignment?
Settlement describes the process whereby the claimant and the defendant (the
person against whom the claim is being brought) decide on compensation without (or
separate from) any formal proceedings.
Assignment is simply the sale of the right of action.
So, which should I use to deal with the right of
action?
That depends on the circumstances of the claim, but an assignment cannot be
undertaken without the defendant first having the opportunity to settle the claim. The
possibility of a settlement will very much depend on the attitude of the defendant. If
this is not a realistic possibility, then the assignment of the claim should be explored.
Can the claim be assigned back to the
bankrupt?
The claim may be assigned (back) to the bankrupt, or to the defendants (as this will,
in effect, bring the claim to an end). In reality, these are the people who are most
likely to be interested in the assignment, though other parties (such as a relative of
the bankrupt) may seek assignment.
What does the official receiver have to
consider before assigning?
There are a number of considerations for the official receiver before deciding that
assignment is the correct way to proceed. They must, for example, establish that the
claim has merit and decide on the value of the claim. They must also consider the
effect of the assignment (for example, the chances of the assignment opening the
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defendant up to vexatious litigation). Legal advice should be sought on these
matters.
Who will pay for this legal advice?
The person who wishes to take the assignment should, in advance of the seeking of
the legal advice, remit the necessary funds to the official receiver.
What if they are without funds?
If the potential assignee cannot pay for the legal advice then the official receiver may
incur a debit balance to obtain the advice.
But if the potential assignee is without funds
to pay for the legal advice, how are they going
to pay for the assignment?
The official receiver is allowed to negotiate a deal whereby they receive payment for
the assignment from the ‘winnings’ of the legal action (a sale ‘on credit’, if you like).
They should only follow this course where the action has a good chance of success,
and following legal advice.
I’ve seen letters discussing assignment marked
‘subject to contract’. What is the significance of
that?
Any letter sent offering the possibility of an assignment should be marked ‘subject to
contact’, to avoid any assertion that the letter constitutes an equitable assignment.
What is equitable assignment?
Equitable assignment occurs where the actions of one party could lead the other
party to believe that they have accrued beneficial ownership of the property. As
regards a right of action, it would lead to the messy situation that the claim may only
be brought by the official receiver (as owner) but to the benefit of the equitable
assignee.
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When would the official receiver, as trustee,
disclaim a right of action?
The most likely circumstance under which a right of action may be considered to be
‘onerous’ by the official receiver (the condition under which property may be
disclaimed) is where they are under pressure to deal with a claim that appears to
have no merit.
In reality it is usually more appropriate to seek an assignment or settlement.
But the bankrupt wants the official receiver to disclaim so that they can apply for a
vesting order – won’t this be a good way to ‘get rid’ of the right of action that lawyers
have told the official receiver has no merit.
Unfortunately, the bankrupt has been badly advised. The only persons who can
apply to court for a vesting order in disclaimed property are those with an interest in
the property. As the effect of a disclaimer is to bring the bankrupt’s interest to an
end, they cannot apply for a vesting order.
Of course, the defendants could apply for a vesting order, which would have the
effect of bringing the claim to an end.
What if the official receiver doesn’t litigate,
settle, assign or disclaim. If they do nothing, in
other words?
If the official receiver does nothing then the claim will expire for want of prosecution.
Without going into too much detail, claims must be brought within a certain period
after the date of the event which led to the claim. The periods are three years for
personal injury, six years for contract claims and 12 years for claims under deed or
statute.
Of course, the official receiver, as trustee, should attempt to deal with any claim that
has merit, in the best of interests of creditors.
What about employment claims – do these
vest in the official receiver as trustee?
Employment claims generally result from the employee being dismissed from their
employment. To decide whether the claim vests of not you have to establish whether
the claim is one for wrongful dismissal or one for unfair dismissal.
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What is the difference between wrongful
dismissal and unfair dismissal?
Wrongful dismissal is a claim that there has been a dismissal in breach of the
contract of employment (where, for example, the correct disciplinary procedures
were not followed). The remedy for a breach of contract is usually financial
compensation.
Unfair dismissal is a claim that it was unfair to dismiss the employee – the measure
of fairness being decided by the tribunal. The prime remedy for a claim for unfair
dismissal is reinstatement – though, unsurprisingly perhaps, the employee usually
refuses this remedy and, instead, a financial award is made.
A claim for wrongful dismissal is a vesting
claim as it relates to a breach of contract, but
what about unfair dismissal?
It has been held that, as the remedy in unfair dismissal in reinstatement, then the
claim must remain personal to the bankrupt. The reason being that the official
receiver, as trustee, cannot be reinstated to the job, so the remedy must be personal
to the bankrupt.
Introduction
37.1 Basic overview
A right of action is essentially a claim, a right that someone believes that they have
against another to enforce a right, to recover money or property etc., often involving
court proceedings. Generally speaking it will be property that the official receiver,
acting as liquidator or trustee, can deal with, giving the opportunity to realise monies
for the estate, but so far as bankruptcy cases are concerned there are exceptions,
on which information and advice is given in this chapter.
The chapter also gives advice on how to deal with a right of action to maximise the
benefit to creditors and includes a Part that deals with employment claims, as some
of the principles are different to those applying to other types of actions.
37.2 Scope of this chapter
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This chapter does not deal with claims against the insolvent, except for
counterclaims and appeals. Advice on claims against the insolvent can be found in
chapter 12.
Neither does this chapter deal with claims arising as a result of the liquidation or
bankruptcy (claims for preferences and transactions at an undervalue, for example).
Advice on those types of claims can be found in chapters 31 and 32.
This is an area which has been largely driven by case law. To assist official receivers
in understanding how the law has developed, the ‘Table of key right of action cases’
lists the key cases that have had some impact on rights of action. The table is in
rough chronological order. The (very) brief summary of the decision in each case
should not be relied on its own but should, instead, be considered alongside the
more detailed information in the chapter.
General points regarding rights of action
37.3 A right of action
In simple terms, a right of action (also called a ‘cause of action’ or a ‘thing in action’)
is a right to claim something from somebody where, for example, that other party has
been negligent or has breached a contract. It is a claim.
37.4 Property status of a right of action –
company
The Act provides that the official receiver, as liquidator, shall take into their custody
all the property and things in action (which would include rights of action1) to which
the company is entitled2).
Unlike in bankruptcy there can be no doubt whether a right of action belonging to a
company in liquidation is one that the official receiver, as liquidator, can deal with.
The official receiver should, in these circumstances, satisfy themselves that the right
is one that belongs to the company and not, for example, to the directors of the
company.
1.Section 436
2.Section 144(1)
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37.5 Property status of a right of action and
the vesting of the action in the official receiver
as trustee - bankruptcy
The Act provides that all property belonging to or vested in the bankrupt at the
commencement of the bankruptcy forms the bankrupt’s estate1. Property is defined
in the Act as including ‘things in action’ (which would include rights of action)2 and
the bankrupt’s estate vests in the official receiver on their appointment as trustee3.
Not all rights of action constitute property and of those that do, not all would form
part of a bankrupt’s estate.
1. Section 283(1)
2. Section 436
3. Section 306
37.6 Not all rights of action form part of the
estate - bankruptcy
Case law has developed principles that certain rights of action do not constitute
property that would form part of the bankrupt’s estate. This concept is explored fully
later in this chapter but, in short, rights of action where damages are solely to be
estimated by immediate reference to pain felt by the bankrupt in respect of their
body, mind or character, and without immediate reference to their rights of property,
would not form part of the bankruptcy estate1, 2.
1. Beckham v Drake (1849) 2 HL Cas 579
2. Ord v Upton [2000] Ch 352
3.7 Difference between claim and counter-
claim is asset
Where there is a counter-claim, the value of a claim is considered to be the
difference between the value of the claim and the value of the counter-claim1, 2, 3.
1. Stein v Blake [1996] 1 AC 243
2. Rule 14.25
3. Section 323
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37.8 Action where right of set-off applies
A prime example of a right of action that is unlikely to be worth pursuing is where the
action is against a creditor of the company or bankrupt and the value of that
creditor’s right of set-off1, 2 exceeds the value of the claim.
Set-off only applies where there are mutual credit and debits as at the date of the
company going into insolvency or the date of bankruptcy so, in cases where a claim
is against a (former) creditor and that debt has been sold on by the creditor prior to
the date of insolvency of the company or bankruptcy of the individual, set-off would
not apply.
The official receiver should note that where right of set-off applies, they may still
pursue claim if the case was likely to pay a dividend and the removal or reduction of
that creditor’s claim through set-off would materially increase the pro-rata payment to
the other creditors.
1. Rule 14.25
2. Section 323
37.9 Forum for deciding a right of action
The vast majority of rights of actions encountered by official receivers will be matters
that will ultimately be decided in court or at an employment tribunal, if they are not
settled outside of legal proceedings.
There are other forums for deciding rights of actions, such as arbitration and a formal
complaints procedure.
37.10 Arbitration
Arbitration is a process similar to that found in a court trial in that both sides present
their case, the matter is considered and a binding judgment is handed down. The
difference is that the person deciding the case is not a judge, rather they are an
adjudicator appointed by the sides in dispute. They may be a specialist in the area of
industry (or similar) in which the dispute arose. The arbitral process may be held
anywhere and at a time to suit the parties and is not a public process.
In bankruptcy, the official receiver, as trustee, may be committed to follow an
arbitration process if this is provided for in the contract in relation to which the right of
action has arisen1.
The terms of an arbitration agreement may make provision for costs to be awarded
against the ‘loser’ of the arbitration and, for this reason, it is unlikely that it will be
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appropriate for the official receiver to continue with an arbitration. Instead settlement
or assignment of the action should be considered.
More information about arbitration can be found on the website of the Chartered
Institute of Arbitrators http://www.ciarb.org/.
1. Section 349A
37.11 Formal complaints to ombudsmen
Many public and private sector organisations have an appointed ombudsman to
decide complaints against themselves (within that sector).
A list of the different ombudsmen is available at the website of the British and Irish
Ombudsman Association www.bioa.org.uk/.
Where a bankrupt is carrying on a complaint in this way, the official receiver may
choose to continue the complaint if they believe that it has merit. In ombudsman’s
cases, adverse costs are not awarded for an unsuccessful complaint and the
procedure ought to be relatively straightforward to follow.
The official receiver would not continue a complaint which is personal to the bankrupt
as such complaints remain vested in the bankrupt personally and do not become
part of the bankruptcy estate. Most complaints to ombudsmen will be based on a
contract for services and will, therefore, vest in the official receiver, as trustee.
37.12 No right of action where matter has
already been litigated
Where a matter has been litigated to judgment there can be no right of action. When
the final judgment is given by the court, the right of action merges with the judgment
and ceases to exist.
This principle does not include appeals (see paragraph 37.43).
37.13 Joint claims
There can be no such thing as a joint claim. Where more than one party is involved
in an incident leading to a claim (a road traffic accident, for example), each party will
have a separate claim for their own loss(es) as a result of the incident. In practice
such actions will be brought together, as in jointly, but strictly speaking there will be
two (or more) separate claims. This point is of importance if one of the two claimants
becomes bankrupt and the other wishes to continue with the/their claim.
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37.14 Class actions
A class action is one where a large (usually) number of people have claims that are
substantially the same and against the same person. The claim is usually brought by
a representative group for the ease of deciding the matter – rather than having
separate hearings (or settlement) for each claim.
An example of a class action might be where a multi national oil company has
caused damage to the livelihood of a large number of individuals (perhaps, following
an oil leak). Each claim, on its own, might be too small to be worth litigating but,
taken together, the sum total of claims is worth pursuing.
Other examples might be damage caused by food contamination on a large scale or
health problems caused by a faulty prescription drug.
Where an insolvent has a claim that is being brought as part of a class action, the
official receiver, as liquidator or trustee, should consider assigning the action back to
the bankrupt, or to the representative group.
Where the company or bankrupt is not part of the representative group, the official
receiver should ensure that their interest in the claim is noted by the solicitors
dealing with the matter in order that they can receive a share of any settlement or
award.
Identifying a right of action and
gathering information
37.15 Identifying a right of action – sources of
information
There is no easy way of identifying a right of action, where the director or bankrupt
has not included details in the preliminary information questionnaire or statement of
affairs. Often it will be a case of putting two and two together from information
provided during the interview – where, for example, the bankrupt provides
information that they have been sacked from a job or involved in an accident.
The insolvent will often have engaged solicitors or other agents who should be
written to using the standard letter1 even if there is no indication of a right of action.
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Sometimes, the existence of the right of action may not come to the attention of the
official receiver until the other side (the defendant) writes asking for a view on the
official receiver, as trustee or liquidator, carrying on the action.
1. NORD2
37.16 Information required from the insolvent
claimant
In order that the official receiver, as liquidator or trustee, can assess which is the
best course of action to take in relation to the right of action, they should attempt to
seek the following information from the claimant:
•
The event which led to the claim.
•
The date of the event that led to the claim
•
For contract claims – the date of the contract and a copy of the contract
•
The identity of the defendant.
•
The monetary value of the claim, including a breakdown of the damages and
losses being claimed.
•
A comment on the merits of the claim.
•
Copies of any legal/counsel’s opinion received in respect of the claim.
•
For employment claims – whether the action is for wrongful or unfair dismissal.
•
Any insurance policy backing the pursuit of the claim.
•
The grounds on which any solicitors are acting (for example, is there a
conditional fee arrangement, or similar?).
•
Any limitation on the claim or advice received regarding the limitation date.
•
Copies of any Claim Forms.
•
Copies of any documents (for example, orders) issued by or to the court,
tribunal or similar.
•
Copies of any responses received from the defendant.
•
Details of costs so far expended, and an estimate of costs required to bring the
matter to a successful conclusion.
•
An estimate of the adverse costs in the event of the claim being ‘lost’.
•
Details of any counter-claim being brought by the (proposed) defendant.
The official receiver may use the letter attached at Annex A for this purpose.
37.17 Getting realistic information regarding
right of action
The official receiver, as liquidator or trustee, should not deal with a right of action
(including selling that right of action), or otherwise dealing with it positively, which is
without merit.
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It is important to get a realistic view of the merits of the claim, including whether it is
statute-barred. The official receiver should not rely solely on the views of the
insolvent, which are liable to be over-optimistic, and should, instead, seek to obtain
independent information from third party sources.
37.18 Assessing the merits of a right of action
In order to assist in the assessment of the merits of a right of action, the official
receiver should consider any (existing) legal advice received by the company or
bankrupt in respect of the action.
Where no such legal advice exists, the official receiver may consider appointing their
own legal advisors to advise them on the merits of the action. If the advice is
required in connection with an assignment, ideally the costs of the advice should be
paid by the potential assignee; otherwise the official receiver may fund the costs
from the estate.
If the payment required is over £2,500, the guidance in chapter 1 regarding the
requirement to obtain permission should be followed before committing to any
expenditure.
Dealing with a right of action – the basics
37.19 Basic principle for official receiver when
dealing with a right of action
The official receiver has a duty, when acting as liquidator or trustee, to realise assets
(of which a right of action is one type) to the maximum benefit of the creditors1. The
maximum benefit of creditors might be served by an early realisation of an asset
even if that means achieving a lower amount in realisation. They should, however,
consider the rights and interests of other parties – for example, the bankrupt or the
defendant (the person against whom the bankrupt has a right of action).
See, particularly, paragraph 37.99 for information on circumstances where the official
receiver may need to take account of the rights and interests of other parties.
1. Shepherd v Legal Services Commission [2003] BCC 728
37.20 Ways of dealing with a vesting right of
action
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There are, essentially, six ways that a right of action may be dealt with by the official
receiver, as trustee or liquidator. Four of these options might be termed ‘positive’:
•
Litigation (take the case to court or tribunal)
•
Assignment (sell the right of action)
•
Settlement (do a deal with the defendant to bring the claim to an end)
•
Complaints
The remaining two options might be termed ‘negative’:
•
Disclaimer
•
Do nothing
Detailed guidance on these options is given later in this chapter.
37.21 Effect on solicitors engaged by insolvent
of winding-up or bankruptcy order
A contract entered into by a company would form part of the liquidation.
Similarly, any contract or arrangement that the bankrupt has entered into for
representation in respect of their claim would form part of the bankruptcy estate –
though not if the underlying right of action were not capable of vesting in the official
receiver as trustee. In either case, it is possible that the contract or arrangement
might be ended by a clause in the document on which it is based.
Where the action vests the official receiver should make it clear to the solicitors that
they do not wish to continue the arrangement (except where solicitors are to be
retained to negotiate a settlement on behalf of the official receiver). The official
receiver may use the letter attached at Annex B for a bankruptcy (or liquidation, with
suitable amendment) for this purpose.
Any debt in respect of fees for work carried out up to the date of the winding up order
or bankruptcy order would be a debt in the proceedings, though any liability for fees
under a new post-bankruptcy arrangement entered into by the bankrupt (for
example, where the bankrupt continued to employ the solicitor to advise them during
or following an assignment or settlement) would, of course, be a post-bankruptcy
debt for which the bankrupt would be liable.
37.22 Dealing with a claim for the recovery of
bank charges
A claim for the recovery of bank charges is restricted to those charges levied as
‘service’ charges against the account(s) of the bankrupt. This is based on the
premise that charges such as ‘default fees’ and/or ‘late payment fees’, which often
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resulted in a levy of in excess of £25, did not reflect the value of the ‘service’
received (that is, it did not cost the sum charged to administer the fee and/or issue
notification of it by post).
The period for which charges can be recovered is limited to six years prior to the
date of the claim.
To successfully pursue a claim, it is usually necessary for the claim to include copy
statements highlighting the ‘excessive’ charges. For this reason, there is generally
no benefit in pursuing such a claim, unless the bankrupt is in possession of
statements which already are, or may easily be, annotated in the required manner.
37.23 Dealing with a complaint for mis-selling
of Payment Protection Insurance
Payment Protection Insurance is an insurance policy typically sold when a personal
loan or some other form of personal credit is granted.
A complaint for mis-selling of PPI, or compensation paid as the consequence of a
PPI mis-selling complain, would vest in the official receiver as trustee of the
bankruptcy estate1. See chapter 38 for guidance on dealing with PPI complaints.
1. Ward v Official Receiver [2012] BPIR 1073
Deciding whether a right of action vests -
bankruptcy only
37.24 Scope of this part
This Part of the chapter provides information and guidance to assist an official
receiver in making a decision as to whether or not a right of action vests in them as
the trustee of a bankrupt’s estate. As explained elsewhere, actions that are purely
‘personal’ do not vest.
This Part of the chapter does not deal with employment claims. Information and
guidance relating to such claims can be found later in this chapter.
37.25 Property status of a right of action and
the vesting of the action in the trustee
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The Act provides that all property belonging to or vested in the bankrupt at the
commencement of the bankruptcy forms the bankrupt’s estate1. Property is defined
in the Act as including ‘things in action’2 and the bankrupt’s estate vests in the official
receiver on their appointment as trustee3. Case law has, however, developed to set
some limits as to the extent that certain types of rights of action constitute property
for this purpose and, therefore, vest in a bankrupt’s trustee.
1. Section 283(1)
2. Section 436
3. Section 306
37.26 Vesting not affected by any restriction
on assignment
A provision prohibiting assignment of a right of action does not affect the vesting of a
right of action in the trustee. The Act provides that property vests in the trustee
without assignment1, 2.
Since the right of action vests by operation of law, the official receiver, as trustee, is
not required to give notice of the vesting to potential defendants3.
1. Section 306(2)
2. Re Landau (a bankrupt) [1998] Ch 223
3. Weddell v JA Pearce & Major (A Firm) [1988] Ch 226
37.27 Actions that are solely ‘personal’ do not
vest
It has long been a principle of bankruptcy law that actions that are solely ‘personal’
do not vest in the trustee and therefore they remain the property of the bankrupt1, 2, 3.
It was held, in 1841, that, ‘Nothing is more clear than that a right of action for an
injury to the property of the bankrupt will pass to his [trustee]; but it is otherwise as to
an injury to his personal comfort. [Trustees] of a bankrupt are not to make a profit of
a man’s wounded feelings.’ This principle still stands today.
1. Howard v Crowther 151 ER 1179
2. Rogers v Spence (1846) 8 ER 1586
3. Beckham v Drake (1849) 2 HL Cas 579
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37.28 Definition of a personal action
A personal right of action has been defined as an action ‘where the damages are to
be estimated by immediate reference to the pain felt by the bankrupt in respect of
their body, mind or character, and without immediate reference to their rights of
property’1.
1. Beckham v Drake (1849) 2 HL Cas 579
37.29 Examples of personal actions
Examples of personal (and therefore non vesting) rights of action are:
•
Defamation
•
Slander (unless the slander was reflected on property – where, for example,
slanderous comments were made against the quality of a person’s goods)
•
Libel (unless the libel was reflected on property – where, for example, libellous
comments were made against the quality of a person’s goods)
•
Battery
•
Physical injury
•
Mental injury (post traumatic stress disorder, for example)
•
Reputational damage
•
Wrongful arrest
37.30 Examples of non-personal (property)
actions
Examples of non-personal (property) actions are:
•
Breach of contract
•
Loss of earnings
•
Incurring additional expenses
•
Trespass or damage to property
•
Forfeiture
•
Fraud
37.31 Special damages and general damages
Often, in correspondence or papers relating to a claim, the official receiver will see
reference to ‘special damages’ and ‘general damages’.
Generally speaking, for the purposes of deciding who owns which part of any claim,
special damages are ‘property’ which vest as part of a bankruptcy estate and general
damages are ‘personal’ and thus remain in the ownership of the bankrupt.
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37.32 Date that right arises relevant when
deciding whether it vests in the trustee
Generally speaking, a right of action arises at the point of the event which leads to
the claim (a vehicle accident, for example), though any action that relates to the
property of the bankrupt (including a contract) would vest by virtue of the underlying
property vesting, regardless of when the event took place (i.e., even after bankruptcy
or after discharge).
Where there is no underlying property, a right of action arising from an event before
the date of the bankruptcy would be an asset vesting in the official receiver, as
trustee (assuming that the claim was not entirely ‘personal’).
Any right arising from an event after the date of bankruptcy, but before discharge,
would be open to be claimed by the official receiver in their capacity as trustee as
after acquired property (again, assuming the claim was not entirely ‘personal’). The
decision to claim should be based on the value of the ‘property’ element of the claim
and the proximity of discharge, though official receivers should be careful not to
claim a right of action that they cannot then deal with. In these circumstances it might
be better that the action is left with the bankrupt and any ‘property’ monies awarded
during bankruptcy claimed as after-acquired.
Unless the right arises in relation to property vested in the official receiver, any right
of action arising after discharge would not vest in the official receiver as trustee and
would not be open to be claimed as after-acquired property.
37.33 Date that right of action arises in
personal injury type claim
Generally speaking, a personal injury type claim (which would normally only concern
the official receiver were it to be a hybrid claim arises at the date of the event leading
to the injury, unless there is a delayed action to the injury – in which case the right
arises at the date that the injury became apparent.
The solicitors acting for the bankrupt should be able to clarify when the right of action
arose, as they will have had to use this date to calculate the limitation date.
37.34 Bankrupt making application for an
order/declaration that action does not vest
It is open to a bankrupt to make an application to court for declaration that a right of
action does not vest in the trustee of the bankruptcy estate. It has been held that
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such an order would have no effect on any person who was not made a party to the
application1.
It would be vitally important, if the official receiver, as trustee, is served with such an
application, that they oppose the application (assuming they were of the view that
the action did vest), seeking legal advice if necessary.
1. Ord v Upton [2000] Ch 352
Flowchart to assist in decision whether a
right of action vests
The flowchart attached at Annex K to this chapter may assist official receivers in
deciding if, and, if so, to what extent, a right of action vests in a trustee. The
flowchart is intended to be a useful overview of the subject, but is not to be used in
isolation, without reference to the more detailed information given in the chapter.
Vesting of ‘hybrid’ claims
37.35 Actions which involve damage to both
the bankrupt’s person and property
Many events lead to damage to the bankrupt’s property and their person. For
example, a typical road accident may lead to an injury to the bankrupt’s body (for
example, whiplash) and, also, damage to the bankrupt’s property (damage to the
car) and/or the need to incur additional (and otherwise unnecessary) expenses
(damage to the financial position – which is a property damage). Following the
relevant case law, this may cause a problem in deciding whether the action vests in
the official receiver, as trustee, or not.
It used to be the case that such an action would be, effectively, ‘split’ between the
personal damage and the property damage, and each claim pursued separately (one
by the bankrupt and the other by their trustee)1. This way of deciding matters is not,
however, now considered good law.
1. Wilson v United Counties Bank [1920] AC 102
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37.36 Approach to actions which involve
damage to both the bankrupt’s person and
property – a ‘hybrid’ claim
It has been held that where a right of action involves damage to both the person and
property of the bankrupt, there is only one cause of action, with different ‘heads’ of
damage1.
This position was confirmed, and somewhat advanced upon, in a later case2, where
such an action (referred to in the judgment as a ‘hybrid’ claim) was held to be an
action that would vest in a bankrupt’s estate, with any damages awarded for the
personal element of the claim being held on a constructive trust for the benefit of the
bankrupt by their trustee.
1. Stock v London Underground 30 July 1999 CA, Times August 13 1999
2. Ord v Upton [2000] Ch 352
37.37 The possibility of ‘splitting’ a hybrid
claim
A claim for race discrimination normally causes more than one type of damage (in
technical terms, this is referred to as having more than one ‘head of damage’).
In the normal way of deciding such matters, such a claim would vest in the trustee in
bankruptcy (as a ‘hybrid’ claim). It has been held, however, that in a claim for race
discrimination the claimant can limit their claim to one for injured feelings making the
claim entirely personal and taking it out of the bankruptcy estate. In the case in point,
the bankrupt was allowed to ‘drop’ the loss of earnings part of the claim and continue
with the claim for ‘injured feelings’1.
It is thought that this approach was taken due to the seriousness of race
discrimination, though it is possible that the principles would be applicable to other
discrimination cases. It is not thought that the principle would be applicable to other
types of ‘hybrid’ claims.
1. Khan v Trident Safeguards Limited [2004] ICR 1591
37.38 Summary of the position regarding
hybrid claims
As explained above, all rights of action arising before the date of a bankruptcy order
which seek to recover property vest in the trustee whether or not they contain claims
--- PDF page 34 ---
for damage that relate to ‘personal’ damages to which the bankrupt is entitled. Only a
right of action that is solely personal would not vest.
In this context, it is irrelevant if the ‘property’ element of the claim is the lesser part.
37.39 Examples of hybrid actions
Examples of hybrid actions are as follows:
•
An assault causing a bodily injury (personal) and damage to spectacles or
clothing (property).
•
A car crash causing a broken ankle (personal) and the resultant need to pay a
third party to carry out household tasks such as shopping/cleaning/gardening
(property)
•
A car crash causing whiplash (personal), damage to a vehicle (property) and
the need to use public transport at additional cost whilst the car was being
repaired (property).
•
A fall causing a strained back (personal), the need to spend money travelling to
the hospital (property) and to pay for a private physiotherapist (property).
•
Medical negligence leading to an arm injury (personal) and loss of earnings
(property).
•
An assault on a taxi driver causing a bodily injury (personal), post traumatic
stress (personal), damage to the taxi (property) and an inability to work (loss of
earnings – property).
•
A fall in the street leading to a broken arm (personal) and damage to a laptop
computer (property).
•
A wrongful arrest (personal) where the bankrupt’s front door was destroyed in
the arrest (property).
An action would be a hybrid action even if the property damages were directly
connected to the personal damages – as in the second and fourth examples above.
37.40 Getting the bankrupt’s advisors to agree
to the position in a hybrid claim
Where the official receiver is dealing with a ‘hybrid’ claim they should, as a first step,
write to the bankrupt or their legal advisors asking them to form a view on whether
the claim vests in the trustee of the bankruptcy estate, or not. Ideally, the position
should be agreed.
The official receiver may use the letter attached at Annex C to this chapter for this
purpose.
It is likely that, having read the cases referred to in the letter, the bankrupt or their
legal advisors will form the view that the actions vests in them as trustee.
--- PDF page 35 ---
Examples of types of claims to assist in
vesting decision
37.41 Certain entitlements do not pass to
trustee
Certain statutory entitlements (such as the entitlement to receive tax credits1 or the
entitlement to receive benefits2) do not pass to a trustee in bankruptcy. A right arising
under such an entitlement cannot, therefore, be property which vests in the official
receiver, as trustee.
1. Tax Credits Act 2002 section 45
2. Social Security Administration Act 1992 section 187
37.42 Insurance claims
A claim under an insurance contract entered into by the bankrupt would vest in the
official receiver as trustee as a contract claim. This would be so even if the property
subject to the claim would have been exempt had it been in the possession of the
bankrupt as at the date of the making of the order (for example, where the bankrupt’s
vehicle was destroyed in a fire, or their tools of the trade stolen).
This is subject to any equitable charge on the monies recovered.
37.43 Right to bring an appeal
Generally the right to appeal is not ordinarily a ‘thing in action’ or, as such, an item of
property falling within the definition of property given in the Act1. If it is not an item of
property it will not form part of the bankrupt’s estate and will not vest in the official
receiver as trustee.2
A right of appeal, however, may constitute a thing in action if the right has an
economic value in its own right in the sense that damages may still be available3.
Certainly a right of appeal relating to a vesting action would vest in the official
receiver as trustee, even if that right arose after discharge4, 5.
A right of appeal against a bankruptcy debt, including the judgement on which the
order is founded, vests in the official receiver, as trustee6. The right to appeal the
making of the bankruptcy order does not vest7.
--- PDF page 36 ---
An appeal against a tax assessment has been held to be a vesting claim and so
would vest in the official receiver, as trustee8.
1. Section 436
2. Re GP Aviation Group International Ltd [2013] EWHC 1447 (Ch)
3. Morris v Morgan [1998] BPIR 754 CA
4. Wordsworth v Dixon [1997] BPIR 337
5. Cummings v Claremont Petroleum NL [1998] BPIR 187
6. Heath v Tang and Another; Stevens v Peacock [1993] 1 WLR 1421
7. Sands v Layne [2016] EWCA Civ 1159
8. Ahajot v Waller [2005] BPIR 82
37.44 Claims held on trust by the bankrupt
It may be the case that the bankrupt is holding a right of action on trust for another.
This may be the case where the contract from which the right of action arose
specified which party had the right to bring an action under the contract, in certain
circumstances.
An example may be where the bankrupt was a party to a mortgage loan to purchase
a property and it later turns out that the property was not as advertised. The right to
sue in relation to any property purchased with the mortgage loan may remain with
the mortgagee (under the terms of the mortgage contract), being held on trust by the
bankrupt for the mortgagee.
Property held on trust by a bankrupt does not form part of their bankruptcy estate1,
and so will not vest in the official receiver, as trustee.
The official receiver should, of course, satisfy themselves of the veracity of the trust.
1. Section 283(3)(a)
37.45 Claim for permanent disability under a
life policy
A claim for permanent disability benefit under a life policy (or similar) would vest in
the official receiver, as trustee, as the claim arises from a contract. It has been held
that it is of no consequence that the claim is conditional on the claimant having
suffered pain and injury. The payment is dependant upon a contractual right to a
sum of money and the policy proceeds do not represent recompense to the bankrupt
--- PDF page 37 ---
for personal loss or damage, but rather payment on satisfaction of a contractual
prospect1.
1. Cork v Rawlins [2001] Ch 792
37.46 Claim for criminal injury compensation
A claim for compensation from the Criminal Injuries Compensation Authority
(http://www.cica.gov.uk/) has been held not to constitute property and cannot,
therefore, vest in the trustee1. In short, it was held that there was no right to claim an
award – the award was at the discretion of the board authority and could not,
therefore, exist as property.
1. Re Campbell [1997] Ch 14
37.47 Actions relating to a right to hold a
licence
A licence or similar, such as a pilot’s licence or a solicitor’s certificate to practice, is
personal to the person to whom the licence was granted. Rights of action arising in
relation to such a licence cannot, therefore, form part of a bankrupt’s estate and
consequently do not vest in the official receiver, as trustee1, 2.
1. Re Rae (a bankrupt) [1995] BCC 102
2. Griffiths v Civil Aviation Authority [1997] BPIR 50
37.48 Actions under the Matrimonial Causes
Act
The Matrimonial Causes Act 1973 (MCA 1973)1 allows a spouse to seek financial
relief following divorce. Such a right does not constitute property (and even if it did, it
would be property personal to the bankrupt) and cannot, therefore, form part of a
bankrupt’s estate or vest in the official receiver, as trustee.
Generally speaking, any right arising from a marriage would not vest in a trustee in
bankruptcy. In short, the trustee is not party to a marriage and cannot, therefore, be
party to any rights arising in relation to the marriage2.
The official receiver, as trustee, might consider claiming any property awarded in a
financial settlement following divorce as after acquired property if such property is
awarded during bankruptcy.
Property awarded under the MCA 1973 prior to the making of the bankruptcy order
would vest in the official receiver as trustee.
--- PDF page 38 ---
1. Matrimonial Causes Act 1973
2. Robert v Woodall [2016] EWHC 538 (Ch)
37.49 Claims against veterinary surgeons
(vets)
A right to claim against a vet (due, for example, to death or injury caused to a pet
negligently during treatment) would vest in the official receiver, as trustee, because
the right to bring a claim arises from the contract between the bankrupt and the vet.
If the bankrupt is also claiming personal distress (or similar) due to the negligent
death or injury (etc.) of the pet, then the claim would be hybrid and would vest in the
official receiver, as trustee.
37.50 Claims against professionals such as
solicitors or accountants
Generally speaking, solicitors, accountants and other professionals are engaged
under a contract for services and thus a claim against that professional would be
based on that contract, and would vest in the official receiver, as trustee,
notwithstanding the substance of the instruction.
37.51 Bankrupt bringing a claim on behalf of a
deceased estate
Where a bankrupt is bringing a claim on behalf of a deceased estate, they would be
doing so in a representative capacity and the claim would not form part of the
bankruptcy estate and consequently would not vest in the official receiver, as trustee.
Any monies awarded as a result of the action may end up vesting if the bankrupt was
also a beneficiary under the will but this point has to be considered separately.
37.52 Claims under the Fatal Accidents Act
1976
Where a death is caused by a wrongful act or neglect such as would (if death had
not ensued) have entitled the deceased to bring an action for damages, the person
liable shall still be liable to an action for damages despite the death of the person1.
Such a action is for the benefit of the dependants of the person whose death was
caused2.
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An action may include (or consist entirely) of a claim for damages for bereavement3.
A claim which is entirely for bereavement is personal to the bankrupt and would not
form part of the bankruptcy estate. Where a claim is partly in respect of bereavement
and partly in respect of a claim for financial losses resulting from the death, it would
be a hybrid claim and would vest in the official receiver, as trustee.
1. Fatal Accidents Act 1976 section 1(1)
2. Fatal Accidents Act 1976 section 1(2)
3. Fatal Accidents Act 1976 section 1A
37.53 Claims under the Inheritance (Provision
for Family and Dependants) Act 1975
A claim under the Inheritance (Provision for Family and Dependants) Act 1975 is a
claim to an interest in a deceased estate on the grounds that the disposition of that
estate does not make reasonable financial provision for the applicant1. Such a claim
is personal and thus does not form part of the bankrupt’s estate.
1. Inheritance (Provision for Family and Dependants) Act 1975 section 1
37.54 Claims arising from a bankrupt’s
pension
Under the relevant legislation1, any rights of the bankrupt under an approved pension
arrangement are excluded from the bankruptcy estate.
A right of action arising under a bankrupt’s pension a scheme would not, therefore,
vest in the official receiver as trustee.
Matters would be different were the pension not approved.
1. Welfare Reform and Pensions Act 1999 section 11
Effect of a right of action vesting
37.55 Bankrupt has no standing to bring or
continue vesting claim
--- PDF page 40 ---
Where a right of action vests, the bankrupt has no standing (locus standi) to bring or
continue the action without the official receiver (as trustee) becoming, at least, the
co-claimant1, 2, 3, 4, 5.
This point should be made clear to the bankrupt and their advisors as soon as the
official receiver becomes aware of a right of action that has vested in them as
trustee.
The official receiver should use the letter attached at Annex D, for this purpose.
1. Jackson v North Eastern Railway Company (1877) LR 5 Ch D 844
2. Metropolitan Bank v Pooley (1884-1885) 10 App Cas 210 HL
3. Heath v Tang and Another; Stevens v Peacock [1993] 1 WLR 1421
4. Pickthall v Hill Dickinson LLP [2009] PNLR 31
5. Eaton v Mitchells & Butler plc [2015] All ER
37.56 Important that official receiver takes
initiative in dealing with a right of action
Despite the general inability of a bankrupt to continue an action once it has vested, it
has been held that a bankrupt may continue to pursue the claim where they are in
ignorance of the appointment of a trustee or of the vesting of their estate (including
the right of action) in the trustee, whether or not they ought to have known of the
appointment and vesting1.
Assuming that the official receiver follows the guidance elsewhere in this chapter and
takes proactive steps in respect of the claim (in particular issuing the letter attached
at Annex D), this situation is unlikely to arise.
1. NNM
37.57 Official receiver should not give
indication that bankrupt or director may
continue with claim
The official receiver should not, under any circumstances, give effective or explicit
consent to a director of a company in liquidation or the bankrupt continuing with the
litigation (including the issuing of proceedings) of any right of action belonging to the
company in liquidation or vesting in them as trustee.
If such action were taken the director or bankrupt, as the case may be, may be
considered to have been appointed as the official receiver’s agent in this matter1.
--- PDF page 41 ---
To do so would leave the official receiver, as trustee, in the position of being, at
least, co-claimant (in a bankruptcy) and possibly exposing the company or
themselves to an adverse costs order.
1. Vickery v Modern Security Systems Limited [1998] BPIR 164
37.58 Court may award costs against solicitor
who conducts proceedings on behalf of a
known bankrupt
It has been held that a wasted costs order can be made against solicitors who
conduct proceedings on behalf of a known bankrupt without the consent of the
trustee in bankruptcy (which consent should generally not be given)1.
1. Thames Chambers Solicitors v Miah [2013] EWHC 1245 (QB)
37.59 Bankrupt’s inability to bring a claim
unaffected by having been awarded legal aid
The inability of a bankrupt to bring or continue a vesting right of action that vests in
the official receiver, as trustee is unaffected by them having been granted legal aid1.
1. James v Rutherford-Hodge [2006] BPIR 973
37.60 Bankrupt’s inability to bring a claim not
contrary to human rights legislation
It has been held that the fact that a bankrupt is unable to bring a vesting action is not
contrary to a bankrupt’s right to access the courts under the human rights
legislation1. Essentially, it was held that the right has not been denied; rather it has
vested in the bankruptcy estate2.
1. Human Rights Act 1998
2. Young v Official Receiver, unreported
37.61 Claim issued when official receiver has
not agreed
Where the bankrupt issues a claim in a vesting right of action without the permission
of the official receiver as trustee, it is likely that the claim will be struck out as an
abuse of process1 or as being frivolous or vexatious2.
--- PDF page 42 ---
The issuing of a claim by a bankrupt’s solicitors in circumstances where the solicitor
is acting contrary to the advice of the official receiver is likely to be a breach of the
standards of professional conduct, for which the official receiver should consider
making a complaint to the Solicitors’ Regulation Authority
(http://www.sra.org.uk/solicitors/solicitors.page).
1. Pickthall v Hill Dickinson LLP [2009] PNLR 31
2. Metropolitan Bank v Pooley (1884-1885) 10 App Cas 210 HL
Settlement of a right of action
37.62 Settlement – general
Settlement of a claim is the process by which the parties to a legal claim (the right of
action) can agree to bring the claim to an end on terms – usually by the payment of a
sum of money. Typically, a settlement is attempted before court proceedings are
issued, though settlement is allowed after issue, subject to certain rules1.
Settlement is likely to be the most cost-effective way to deal with a vesting claim.
1. Civil Procedure Rules part 36
37.63 Settlement to be offered before
assignment
Settlement is one of the ‘positive’ ways that the official receiver can deal with a
vesting right of action, and should generally always be considered before
assignment.
The reason being that the official receiver, as trustee, cannot demonstrate that they
have acted in the best interests of creditors (and achieved the best realisation of the
right of action) if they have not attempted settlement – for which a better price may
be obtained than in an assignment1.
Assignment should not be promised before the defendant has had an opportunity to
settle. Where the offer of settlement is likely to realise less than an assignment then,
of course, the official receiver, as trustee, should explore the assignment in the best
interests of creditors. But on this there is likely to be a timing issue, detrimental to the
creditors. A settlement will, most likely, produce funds quickly whereas under an
assignment, funds may only become available after the conclusion of litigation.
1. Re Edennote Ltd [1996] BCC 718
--- PDF page 43 ---
37.64 Settlement – official receiver may deal
with negotiations
Where the right of action relates to a simple claim, it should be possible for the
official receiver, as trustee, to conduct the settlement negotiations required. The
official receiver should attempt to negotiate a payment close to the stated value of
the claim (which might be apparent from the background papers provided by the
company officers or bankrupt, but it may be appropriate to give a discount to reflect
risk of failure in the case or risk of success in any counterclaim.
Where this is not possible or desirable, the official receiver may appoint their own
legal advisors or retain those engaged by the company or bankrupt to pursue
negotiations for a settlement.
37.65 ‘Ogden Tables’ may assist the official
receiver in negotiating a settlement in
personal injury cases
In personal injury type cases the official receiver, as trustee, may be assisted by the
‘Ogden Tables’ which give guidance on the amounts that should be awarded in
cases of injury and death, including ‘property’ losses such as future medical/care
expenses. But official receivers should be very wary of using such specialist
information in such circumstances. The handling of personal injury claims is a
specialism in its own right and is also likely to involve potentially competing interests
– the trustee in bankruptcy, for the creditors on the one hand, and the bankrupt, for
themselves, on the other.
37.66 Offers of settlement to be marked
‘without prejudice’
Any letter to the defendant offering (or enquiring into the possibility of) a settlement
should be marked ‘without prejudice’.
This will give the official receiver a defence to any assertion that the letter was a
formal offer to settle to which they are bound.
37.67 Settlement – retention of company’s or
bankrupt’s solicitors
--- PDF page 44 ---
Where the official receiver, as liquidator or trustee, is dealing with a claim which is in
the process of being negotiated towards settlement, they may wish to retain the
solicitors engaged by the insolvent to continue to negotiate the settlement on their
behalf. This would be a sensible option in that the solicitors would be aware of the
value and strength of the claim and would be able to easily form a view whether any
offered settlement was fair, although there may be difficulties later with this approach
in ‘hybrid’ claims.
37.68 Conditions where bankrupt’s solicitors
retained
In the circumstances where the insolvent’s solicitors are retained, assuming, of
course, they were minded to be retained, the official receiver, as liquidator or trustee,
should make it clear to the solicitors that they are being retained to negotiate (or
continue to negotiate) an out of court settlement and under no circumstances should
proceedings (including protective claims) be issued (whether in the name of the
official receiver or the bankrupt) without express authority from the official receiver.
The official receiver may use the letter attached at Annex E for this purpose
(modification will be necessary in a company case).
37.69 Payment of solicitor’s costs where
bankrupt’s solicitors retained
Where the official receiver, as liquidator or trustee, chooses to attempt to retain the
insolvent’s solicitors in order to negotiate a settlement, the solicitor’s reasonable
costs may only be paid from the settlement (no funds will be made available from the
estate and nor will the official receiver, as liquidator or trustee, pay the costs). In
‘hybrid’ claims, the costs should be deducted pro-rata from the gross claim - in effect,
from each element of the settlement (and not, for example, just from the portion of
the award due to the bankruptcy estate).
These points should be outlined to the retained solicitor from the outset of the
instruction if they are minded to act in this way (which may benefit both parties).
37.70 Potential difficulties where bankrupt’s
solicitors retained
Where the bankrupt’s solicitors are retained by the official receiver, as trustee, to
negotiate a settlement, there may be difficulties where a settlement is reached in a
--- PDF page 45 ---
‘hybrid’ action and there is no apportionment of the settlement between ‘personal’
and ‘property’ damages (often called a ‘global’ settlement).
The difficulties may arise where, in such a global settlement, there is a dispute as to
how the settlement monies should be apportioned between personal and property
elements of the claim. In effect, the retained solicitor would be acting for both parties
(the official receiver and the bankrupt) in this dispute. This is something to be borne
in mind if, as seems sensible, the solicitors are instructed to act in seeking a
settlement.
37.71 Appointment of the official receiver’s
own solicitors to negotiate a settlement
In claims where it is not possible or proper to retain the bankrupt’s solicitors to
negotiate a settlement, or to continue such a negotiation, the official receiver, as
liquidator or trustee, may appoint their own legal advisors to assist in the negotiation
of a settlement.
When considering this course of action, the official receiver should consider the
costs of such an instruction against the amount of any potential settlement. Where
necessary, the official receiver may incur a debit balance to pay the costs of such
legal representation, seeking permission if necessary (see chapter 1).
37.72 Negotiating a settlement where
limitation date approaching
In circumstances where the limitation date is approaching, it may be necessary for
the official receiver, as liquidator or trustee, to take some action to protect the claim.
This may be by way of a protective claim or a standstill agreement. Neither process
should be undertaken without first seeking legal advice.
37.73 Settlement after issue of proceedings (a
Part 36 settlement)
Whilst most settlement negotiations and settlements occur before the issue of
proceedings, the relevant rules [note 3] do allow the claim to be settled after that
event.
This may occur where the official receiver, as liquidator or trustee, has had to take
action to suspend the running of the limitation period by issuing a Claim Form, or
where proceedings had already been opened by the date of the making of the
bankruptcy order.
--- PDF page 46 ---
It is not envisaged that the official receiver would enter into such a procedure without
legal representation.
37.74 Advance payments during settlement
Sometimes, the defendants to a claim will offer interim payments to assist the
claimant with ongoing expenses, general living costs, etc. Unless there is evidence
to the contrary, these payments should be apportioned pro-rata between ‘personal’
and ‘property’ elements of the claim (and claimed accordingly).
Assignment of a right of action – general
overview
37.75 Assignment – general
In basic terms, the assignment of a right of action simply means the sale of a right of
action.
Assignment is one of the ‘positive’ ways that the official receiver can deal with a
vesting right of action, but such action should not be undertaken ‘automatically’ or
without legal advice.
37.76 Content of this section
In very brief summary, this Part says that the official receiver, as liquidator or trustee,
may assign a right of action but, before doing so, should consider, amongst other
things, the rights of those affected, the price that should be paid for the action and
the form and legality of the assignment.
It is extremely unlikely that it would be appropriate for the official receiver to offer an
assignment without first receiving legal advice.
37.77 Basic principles to be considered before
the assignment of a right of action
There are some basic principles that the official receiver, as liquidator or trustee,
should consider before assigning a cause of action:
•
Assignment should not be made without testing the market – including offering
settlement to the defendant
--- PDF page 47 ---
•
Assignment may be barred by terms in the original contract
•
Assignment should not open the defendant up to vexatious litigation
•
Frivolous claims (ones unlikely to succeed) should not be assigned
•
Assignment should be absolute if the liquidator/trustee is to avoid being made a
party to any/a/the judgment
•
Liquidator/trustee is not required to assign right of action where the only offer
received is derisory
It can be seen that some of these principles require a careful balancing of competing
interests, for which legal advice will be required, to avoid the risk of action being
brought against the official receiver.
37.78 Acting in the best interests of creditors –
dealing with competing interests
The basic principle for the official receiver, as liquidator or trustee, when considering
whether to assign a right of action, is that they do so in the best interests of the
creditors, which means seeking good consideration for the assignment. Most of the
law that has developed supports this principle, but there are some controls to protect
the interests of the bankrupt and the defendant.
These competing considerations will require legal advice, particularly for complex
claims1 and, possibly, exceptionally, an application to court for directions.
1. Faryab v Smith [2001] BPIR 246
37.79 Seeking good consideration for the
assignment if claim has merit
The official receiver, as liquidator or trustee, should see that the claim has merit
before assigning it and if it does have merit they should seek fair payment1. The
official receiver should accept an offer for assignment if it is reasonable and does not
prejudice them but not generally before seeking, or attempting again to seek, a
settlement from the proposed defendant2, 3.
On the other hand, the official receiver is not obliged to assign an action where the
only offer is derisory and seeking other offers would be an unjustifiable expense4, 5.
1. Cummings v Official Receiver [2002] EWHC 2894 (Ch)
2. Hamilton v Official Receiver [2002] BPIR 602
3. Edennote Ltd [1996] BCC 718
4. Khan v Official Receiver [1997] BPIR 109
--- PDF page 48 ---
5. Wilson v Specter Partnership [2007] BPIR 649
37.80 Legal advice required before and during
assignment
The decision to offer an assignment of a right of action should only be taken
following legal advice, particularly in complex claims1.
The official receiver, as trustee, will need advice to distinguish carefully between the
value of the property and personal elements of the claim to properly account to the
bankrupt if they are not the assignee. In short, the official receiver should seek the
following advice from their legal advisors:
•
Whether there is a cause of action.
•
If there is, whether (and, if so, to what extent) it vests in the trustee (bankruptcy
only).
•
What merit there is to the cause of action.
•
What value there is in the cause of action.
•
What action may be taken to recover that value.
•
Whether the proposed defendant might be prepared to settle and, ultimately,
•
What it is in the best interests of creditors to do.
1. Faryab v Smith [2001] BPIR 246
37.81 Legal advice obtained by the company
or bankrupt
It may be the case that the company or bankrupt has obtained its/their own legal
advice regarding the merits of assigning the right of action. It is for the official
receiver, as liquidator or trustee, to consider the source and currency of this advice
before acting upon it. The official receiver should ensure that the advice provided
covers, at least, the first five issues outlined in the paragraph above.
37.82 Legal advice – cost and source
It is likely that the costs of the official receiver obtaining initial legal advice on a claim,
and its possible assignment, will be in the order of [text redacted]. The legal costs of
the actual assignment are likely to be in the region of [text redacted].
37.83 Costs of obtaining legal advice to be met
by potential assignee
--- PDF page 49 ---
The costs of obtaining legal advice should be met by the potential assignee and
remitted to the estate prior to instructing solicitors unless arrangements are made
between any solicitors acting for the potential assignee and the official receiver’s
solicitors. Where there is a solicitor acting for the potential assignee, it is acceptable
to accept a written undertaking to pay the costs (where, for example, time is pressing
due to an imminent expiration of a limitation period).
The official receiver should make it clear that they will expect the assignee to also
pay the legal costs of the assignment if matters were to reach that point.
The official receiver may use the letter attached at Annex F (with suitable
modifications for a company case) for this purpose.
37.84 Costs of obtaining legal advice where
potential assignee is without funds
In exceptional circumstances (where, for example, the assignee wishes to take on a
right of action that the official receiver considers has a good prospect of success, is
without funds, and there is the prospect of funds being paid into the estate from
assignment), the official receiver may incur a debit balance on the estate to seek the
necessary legal advice; the costs of the legal advice being recovered from the
consideration payable in respect of the assignment.
37.85 Challenging the official receiver’s
decision not to assign action
A potential assignee (including the bankrupt) may challenge the official receiver’s
decision, as liquidator or trustee, not to assign a right of action (back) to them1, 2, 3.
The court will look to see that the official receiver’s decision not to assign was
reasonable when deciding such an application4.
The court will only overturn the official receiver’s decision not to assign if that
decision was made in bad faith or was perverse5.
By following the guidance in this section, the official receiver can reduce the
likelihood of being subject to such an application.
1. Section 168(5)
2. Section 303
3. Osborn v Cole [1999] BPIR 251
4. Shepherd v Official Receiver [2006] EWHC 2902 (Ch)
5. Hans Place Ltd [1992] BCC 737
--- PDF page 50 ---
37.86 Seeking directions of court where there
are matters of dispute or doubt
Where the official receiver, as liquidator or trustee, is unable to resolve matters of
dispute or doubt connected with the assignment of a right of action (if, for example,
there are competing offers, dispute as to the value of the claim or the risk of a legal
challenge to the decision to/not to offer assignment), the official receiver may apply
to the court for directions1, 2, 3. This should be considered to be an exceptional course
of action.
1. Rule 13.4
2. Section 168(3)
3. Craig v Humberclyde Industrial Finance Group Ltd [1999] BCC 378
Assignment to be absolute
37.87 Liquidator or trustee permitted to
assign a cause of action
A liquidator is permitted to sell a right of action, as is a trustee in bankruptcy. It has
been held that this does not constitute the illegal trafficking of claims (known as
champerty or maintenance)1, 2, 3, 4.
To avoid any claim of champerty or maintenance, the assignment should be absolute
and the assignor should retain no control over the right of action once assigned5, 6.
1. Re Park Gate Waggon Works Co (1881) 17 Ch D 234
2. Kitson v Hardwick (1871-72) LR 7 CP 473
3. Seear v Lawson (1880) LR 15 Ch D 426
4. Law of Property Act 1925 section 136
5. Glegg v Bromley [1912] 3 KB 474
6. Section 246ZD
37.88 Liquidator or trustee permitted to
assign a right of action for future consideration
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The official receiver, as liquidator or trustee, is permitted to assign a cause of action
for future consideration1. The right of action may be assigned (back) to the bankrupt
on this basis also2.
Assignment for a future share of the winnings should not be considered and, instead,
any assignment for future consideration should be on the terms that the assignee
pays the agreed consideration whether or not the action is successful.
1. Guy v Churchill (1889) 40 ChD 481
2. Ramsey v Hartley [1977] 1 WLR 686
37.89 All assignments of rights of action
should be absolute
In order that the assignment of a right of action is considered proper, it should be an
absolute assignment of every part of the right of action, and no control should be
retained over the action. The assignment should include the transfer of:
•
The legal right to the action;
•
All legal remedies to the action; and
•
The power to bring the action to an end (for example, by settlement) without the
interference of the assignor.
An absolute assignment must be in writing, must be made under the hand of the
assignor and must provide for written notice of the assignment to be given the
person against whom the assignor had the original claim.1, 2, 3
1. Law of Property Act 1925 section 136
2. Glegg v Bromley [1912] 3 KB 474
3. Hamilton v Official Receiver [2002] BPIR 602
37.90 Consequences where assignment is not
absolute – adverse costs
Where the official receiver as liquidator or trustee assigns a right of action on terms
less than absolute (where, for example the action is assigned for a share of the
‘winnings’), they leave the company/themselves open to a claim for adverse costs
from the defendants in the event that the claim is unsuccessful1. The court has had,
for a long period of time, a wide discretion as to whom should pay the costs of an
unsuccessful action.
--- PDF page 52 ---
This should be taken into account when the terms of an assignment for future
consideration are agreed and the official receiver should consider staying on the side
of caution even if it means a lower return to creditors.
1. Stephen Hunt (as trustee in bankruptcy of Janan George Harb) v Janan George Harb, HRH Prince Abdul Aziz Bin Fahd Abdful Aziz [2011] EWCA Civ 1239
Equitable assignments
37.91 Equitable assignments
An equitable assignment can take place when one party makes an outward
expression of its intention to assign or transfer an item1 or where the requirements of
the law are not met2. So far as the official receiver is concerned, this is most likely to
happen in correspondence discussing the possibility of assigning the right of action,
or in correspondence responding to an offer to take an assignment of the action.
1. Finlan v Eyton Morris Winfield (A Firm) [2007] EWHC 914 (Ch)
2. Law of Property Act 1925 section 136
37.92 Adverse consequences of an equitable
assignment
The effect of an equitable assignment is that the benefit of the right of action passes
to the equitable assignee but they cannot commence proceedings on the claim
without joining in the legal owner (the official receiver in this context), as a claimant
or as a defendant if they do not consent to being a claimant.
In this, the risk for the official receiver is that they may find themselves liable for an
adverse costs order as the court will normally require that the official receiver (as
legal ‘owner’ of the claim) is joined as a party to the proceedings before judgment is
given1.
Another risk is that if the document (the letter) on which the other sides seeks to rely
as evidence of an equitable assignment offers the right of action for sale at
consideration that is less that its true value, the official receiver, as liquidator or
trustee, may be held to that offer, leading to a claim for restitution from creditors2, 3
and a payment as compensation or in respect of a loss.
1. Three Rivers District Council v Bank of England (No. 1) [1996] QB 292
2. Section 168(5)
--- PDF page 53 ---
3. Section 304
37.93 Letters discussing assignment to be
marked ‘subject to contract’
To avoid any assertion that an equitable assignment has taken place, the official
receiver, as liquidator or trustee, should mark all letters offering assignment or
discussing the possibility of offering an assignment ‘subject to contract’. This is an
important point not to overlook.
Matters to consider prior to assignment
37.94 Official receiver to test the market prior
to agreeing an assignment
The official receiver, as liquidator or trustee, should not accept an offer of
assignment without first testing the market - that is assessing the value of the claim
and establishing which other parties may be interested in purchasing the right of
action (including the defendant in the form of a settlement)1, 2.
The official receiver should not offer or accept an offer of assignment when the
settlement of the claim is still possible.
1. Edennote Ltd [1996] BCC 718
2. Ultraframe (UK) Ltd v Rigby and others [2005] EWCA Civ 276
37.95 Official receiver to be fair to all parties
The official receiver, as liquidator or trustee, should be fair to all potential assignees
and should not, for example, put conditions on an offer of assignment to one party
which are not put on an offer to another party1.
1. Hellard v Michael [2009] EWHC 2414 (Ch)
37.96 Assessing the value of a claim
The official receiver, as liquidator or trustee, should, as with any other asset, seek
consideration for the assignment that is as close to (or more than) the true value of
the claim as circumstances allow. The value of the right may be ascertainable from
--- PDF page 54 ---
the paperwork provided by the insolvent. In addition the official receiver’s legal
advisors may be requested to advise on the value of the claim.
It has been held that the consideration required to be paid for an assignment might
not be less than £1,0001
Where there is a counter-claim, the value of the claim would be the difference
between the value of the claim and the value of the counter-claim2.
The agreed consideration should be in addition to the provision for the official
receiver’s legal costs.
1. Khan v Official Receiver [1997] BPIR 109
2. Stein v Blake [1996] 1 AC 243
37.97 Assignment to the defendant
The official receiver, as trustee, may assign the action to the defendant (effectively
bring the action to an end)1, but the assignment should not be used as a tool to stifle
the claim2.
If the offer from the defendant is the best offer, then that may be accepted, but not
before the value of any offer from other potential assignees (particularly, the
bankrupt) have been considered.
1. Official Receiver v Davis [1998] BPIR 771
2. Shepherd v Legal Services Commission [2003] BCC 728
37.98 Assignment (back) to the bankrupt
The bankrupt may request the assignment of a cause of action (back) to them where
the official receiver, as trustee, decides not to (or is unable) to take it on (by
settlement or litigation)1.
The official receiver has the power to assign a right of action back to the bankrupt2,
but this should not be an ‘automatic’ action. For one thing, the official receiver should
consider if a better offer may be possible and, for another, the official receiver should
consider the rights of the defendant (even if the offer from the bankrupt is a good
one).
1. Hamilton v Official Receiver [2002] BPIR 602
2. Kitson v Hardwick (1871-72) LR 7 CP 473
37.99 Considering the rights of the defendant
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The official receiver should not assign a frivolous claim (one that is unlikely to
succeed)1, 2 and should exercise their power to assign with circumspection where to
do so would, for example, leave the defendant open to vexatious litigation (in short,
this is litigation brought for the sake of bringing litigation or litigation with no
realistically achievable aim) at the whim of a bankrupt, a person against whom a
successful litigant may have no opportunity to recover their costs)3, 4.
Before putting a bankrupt ‘back in the saddle’, the official receiver, as trustee, should
bear in mind the consequences on the other parties in litigation of doing so.
1. Judd v Official Assignee [2001] BPIR 468
2. Citicorp and others v Official Trustee in Bankruptcy and Another [1996] FCA 1115
3. Re Papaloizu [1999] BPIR 106
4. Re Shettar [2003] BPIR 1055
37.100 Action may be non-assignable due to
contractual prohibition
In actions which are based on a contract (an action for breach of contract), the right
of action may be non-assignable where there is an express contractual prohibition on
assignment1, 2.
Such a provision would not affect the vesting of an action in the trustee in bankruptcy
as the action passes without assignment3, but is deemed to have been assigned4, 5.
The official receiver, as liquidator or trustee, should peruse the contract on which the
action is (to be) based to satisfy themselves that there is no such clause. The legal
advisors appointed by the official receiver can be asked to assess the situation if
there is any doubt.
1. Linden Gardens Trust v Lenesta Sludge Disposals Ltd [1994] 1 AC 85
2. Quadmost Ltd (in liquidation) v Reorotech (Pebsham) Ltd [2001] BPIR
3. Section 306(2)
4. Section 311(4)
5. Re Landau [1998] Ch 223
37.101 Assigning where there is a counter-
claim
--- PDF page 56 ---
The fact that a claim being brought by the insolvent is subject to a counter-claim will
not of itself stop it from being assigned. The counter claim will, though, affect the
value of the claim and, therefore, the value of the consideration that the official
receiver may receive for the assignment.
Where there is a counter-claim, the value of a claim is considered to be the
difference between the value of the claim and the value of the counter-claim1, 2, 3.
Where the counter-claim is higher than the value of the claim this will, in effect, be a
bar to the assignment of the claim4.
1. Stein v Blake [1996] AC 243
2. Section 323
3. Rule 4.90
4. Craig v Humberclyde Industrial Finance Group Ltd [1999] BCC 378
37.102 Assignment does not confer right to
bring an action where none existed previously
The assignment of a cause of action to the bankrupt does not give them right to bring
an action where that right did not exist prior to the assignment1.
Examples of this may be where the bankrupt is seeking to overturn a judgment on
which the bankruptcy order was made2 or where the action was statute barred.
1. Seven Eight Six Properties Ltd v Ghafour [1997] BPIR 519
2. Royal Bank of Scotland plc v Farley [1996] BPIR 638
37.103 Right of action should be assigned
before expiration of limitation period
A right of action should be assigned before the relevant limitation period has
expired1.
In reality, it is unlikely that any parties would be interested in acquiring a right of
action which had become statute barred.
It follows that it is in the best interests of the creditors that the official receiver, as
liquidator or trustee, should seek to deal with the right of action, either by assignment
or settlement, before the expiration of the limitation period.
1. Haq v Singh [2001] WLR 1594
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37.104 Indemnifying the official receiver
against adverse costs following assignment
It is possible, particularly in cases where the right of action was sold ‘on credit’, that
the defendant may seek to join the official receiver, as liquidator or trustee, in any
judgment in the action and seek costs. They may seek do this on the basis that the
official receiver stands to gain from the prosecution of the claim, or that the right of
action ought not to have been assigned in the first place.
The official receiver will protect themselves against this eventuality in two ways:
•
The assignee will provide an indemnity as part of the assignment (the official
receiver’s legal advisors should be instructed to deal with this point). It has been
held that the seeking of such an indemnity by the official receiver is not an
unreasonable one1, 2.
•
By following the procedure that settlement should be offered prior to
assignment, the official receiver will have the defence that this was the
defendant’s opportunity to settle the claim, and avoid assignment and the
bringing/continuation of legal proceedings.
1. Osborn v Cole [1999] BPIR 251
2. Re Shettar [2003] BPIR 1055
37.105 Potential problem where assignment
follows issue of proceedings
Where a protective claim is issued by the liquidator or trustee followed by an
assignment of the right of action, the assignee will have to apply for court to amend
the proceedings to take (transfer) them into their name1, 2. If the court refuses that
request, the claim will be lost unless the official receiver was minded to take it
forward in their own name (which, they should not do, as explained elsewhere).
Issuing the claim in the potential assignee’s name in advance of the assignment
would be likely to be viewed as an abuse of the process of the court and lead to the
claim being struck out3.
1. Civil Procedure Rules part 19.2
2. Civil Procedure Rules part 17.1
3. Pickthall v Hill Dickinson LLP [2009] PNLR 31
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37.106 Deed of assignment signed by deputy
official receiver
It is acceptable for the deed of assignment to be signed by a deputy official receiver
in place of the official receiver, as liquidator or trustee, if required.
Where the official receiver is liquidator or trustee, any assistant official receiver
appointed as a deputy official receiver to that official receiver has the same powers
as the official receiver1, 2 (assistant official receiver is not a term recognised in the
legislation - see also chapter 1).
1. Section 399
2. Section 400
Litigation of a right of action
37.107 Litigation – General
Litigation is one of the ‘positive’ ways that the official receiver can deal with a vesting
right of action.
Litigation, in this context, can be taken to mean the issuing and pursuit of court
action by the official receiver, as liquidator or trustee, as the original owner (the
insolvent) would have done. For the purposes of this section of the chapter, litigation
does not include the negotiation of a settlement (which is covered elsewhere in the
chapter).
37.108 Bankrupt has no standing to bring or
continue vesting claim
Where a right of action vests in the trustee, the bankrupt has no standing to bring or
continue the action without the official receiver (as trustee) becoming, at least, the
co-claimant1, 2, 3, 4.
A similar principle would apply where the right of action forms part of the assets of a
company in liquidation.
The official receiver should put the bankrupt and/or their advisors on notice of this.
The official receiver may use the letter attached at Annex D for this purpose.
1. Jackson v North Eastern Railway Company (1877) LR 5 Ch D 844
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2. The Metropolitan Bank Ltd v Pooley (1885) 10 App Cas 210 HL
3. Heath v Tang and another; Stevens v Peacock 01993] 1 WLR 1421
4. Pickthall v Hill Dickinson LLP [2009] PNLR 31
37.109 Litigation by official receiver not
normally the appropriate way to deal with a
right of action
It is extremely unlikely that it would be appropriate for the official receiver, as
liquidator or trustee, to litigate a right of action.
It is not possible to completely rule out the possibility of litigation, but this course of
action is unlikely to be the correct, or most appropriate, course of action for an official
receiver to take. Settlement or assignment should be considered first.
37.110 Reasons not to litigate a right of action
There are four main reasons that it is not normally appropriate for the official
receiver, as liquidator or trustee, to litigate a right of action:
•
The risk of an adverse costs order against the official receiver personally if they
are trustee1. The official receiver acting as liquidator will normally have no
personal liability for costs unless there has been some impropriety on their part2.
Any adverse costs order may result in the need for a fruitless payment to be
paid by The Insolvency Service to cover the loss to creditors.
•
From a practical point of view, it is difficult to bring an action where the
involvement (to attend hearings, etc.) of a (possibly unwilling) director or
bankrupt is required. This is particularly the case in a personal injury type claim
where it might be required to have the bankrupt (who might have been the
claimant) attend medical examinations, etc.
•
The official receiver, as liquidator or trustee, is, generally, without funds to
pursue an action and, whilst it is possible to incur a debit balance or request
creditors to provide a ‘fighting fund’, the claim would have to have a high
potential value to make this course of action worthwhile.
•
While the litigation may have the possibility of a higher monetary return to
creditors, their interests might be better served by an early realisation (by
settlement or assignment) even if that is likely to realise a lower amount.
1. Vickery v Modern Security Systems Limited [1998] 1 BCLC 428
2. Metalloy Supplies Ltd (in liquidation) v MA (UK) Ltd [1997] 1 WLR 1613
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37.111 Pressure to litigate applied by
solicitors
The official receiver should not allow the insolvent’s solicitors to pressure them into
continuing (or bringing) the claim, unless they have received their own legal advice
that that is the best way to proceed. Often, the solicitor will have been engaged on a
conditional fee (‘no-win no-fee’) arrangement where they will only be paid following a
successful outcome and will, therefore, have a vested interest in pursuing the matter
through to a successful conclusion by way of litigation.
37.112 Insurance backed claims
An insurance policy taken out in the name of the bankrupt to, for example, cover
themselves against an adverse costs order would vest in the official receiver as
trustee. The official receiver would then have the benefit of that policy. This would
apply even if the claim were to be personal to the bankrupt.
This is subject to any clause in the policy terminating it in the event of bankruptcy.
Notwithstanding this, it is unlikely to materially affect the basic principle that the
official receiver, as trustee, should avoid litigating a right of action, for the reasons
given above.
37.113 Official receiver should not allow claim
to be brought in their name on behalf of
original claimant
It has been held that the official receiver should not allow himself/herself to accept
engagement as a ‘hired gun’1. What this means is that the liquidator or trustee should
not accept payment in return for bringing a claim.
1. Re Ng (a bankrupt) [1997] BCC 507
37.114 Legal advice to be obtained before
litigation
No litigation should be considered by the official receiver, as liquidator or trustee,
without first seeking legal advice. Where there are no funds in the estate to pay for
this advice, the official receiver could send a circular to the principal (preferential)
creditors asking them to contribute towards a fighting fund.
--- PDF page 61 ---
Alternatively, the official receiver could make a payment from the estate to obtain
that advice provided that it can be shown that litigation is considered to be the best
course of action – supported by relevant facts and copy documents, with the
decision making process recorded on the relevant ISCIS Note.
If the payment required is over £2,500, the guidance in chapter 1 regarding the
requirement to obtain prior permission should be followed before committing to any
expenditure.
37.115 Information to be obtained and
assessed before taking the decision to litigate a
claim
Where an official receiver is considering bringing or continuing legal proceedings,
they should obtain sufficient information to enable a decision to be made as to
whether or not this is an appropriate course of action. The information should cover,
at least, the following areas and should complement the general information
obtained regarding the claim:
•
Details of the events leading up to the decision to take legal action.
•
Information regarding the potential success of the case (including any legal
opinion obtained in this regard). On what information is this decision based?
•
The estimated costs of bringing the action.
•
The estimated potential costs of losing the action.
•
The balance on the estate and value of potential future realisations.
•
The estimated potential value to the estate of bringing the action.
•
What provisions have been made to pay any adverse costs order (for example,
a creditors’ fighting fund).
A note should be made on the electronic file of the above matters considered and
the conclusion reached.
37.116 Seeking an adjournment
Often, a case will already be going through litigation when it comes to the attention of
the official receiver, and it is not unusual for there to be an imminent (sometimes a
very imminent) hearing. The insolvent’s solicitors will frequently try to encourage the
official receiver to seek an adjournment.
The seeking of an adjournment of an ongoing claim - including written application –
may be considered by the court to be a formal application which, particularly if
opposed, could result in the court refusing to make the adjournment order and
making an adverse costs order against the official receiver.
--- PDF page 62 ---
Seeking an adjournment would constitute the bringing of legal proceedings – for
which permission of the Senior Official Receiver is required unless suitable
indemnities are in place.
In the event that the official receiver is unable to positively deal with the right of
action (for example, by way of settlement or assignment) prior to the next scheduled
hearing, they may, in advance of seeking an adjournment, request that the other side
(the defendants) agree to the adjournment with each side bearing its own costs in
the application.
Alternatively, if the official receiver believes that there is no merit in seeking an
adjournment, they may, instead, write to the court stating that they do not intend to
be present or represented at the hearing as there are no funds in the estate. The
court will then make such order as it sees fit (which may well be an adjournment).
37.117 Consulting creditors
Where there are no funds with which to pursue an action, or to obtain legal advice
regarding the merits of pursuing an action, the official receiver, as liquidator or
trustee, may circulate creditors and ask them to provide the required funding (often
known as a ‘fighting fund’). It is not necessary to circulate all creditors, just the main
creditors with the main financial interest in the outcome, including any creditors
holding security over the relevant right of action.
It is rare for creditors to respond to such a circular in a positive manner, but such a
circular does have the benefit of protecting the official receiver from criticism from
creditors in the event that they subsequently decides not to litigate.
The official receiver may use the letter at Annex G or this purpose (with suitable
modification in a company case).
37.118 Limit on creditors’ involvement in
litigation
The trustee or liquidator does not lose their right to pursue a claim/litigation in the
manner they consider appropriate where creditors have provided a fighting fund. In
other words, the official receiver, as liquidator or trustee, would retain control of the
litigation and the creditors may not interfere1.
1. Re Exchange Travel (Holdings) Ltd (No.3) [1997] BCC 784
37.119 Creditor may apply to carry on action
(companies only)
--- PDF page 63 ---
Where the official receiver, as liquidator, is not prepared to litigate (whether they are
without funds or because they have been legally advised not to), a creditor or
contributory may make an application to the court for leave to carry on the action1. In
these circumstances, the official receiver should attend the hearing and object to the
application unless it is granted on the basis that no costs fall on the company or the
official receiver (which is a condition likely to be imposed by the court).
1. Section 167(3)
37.120 Official receiver to become claimant in
bankruptcy case
In the rare event that the official receiver, as trustee, decides to continue litigation
already begun by a bankrupt they would have to apply to court to be substituted as
claimant1.
In a liquidation, the action would continue in the name of the company.
1. Civil Procedure Rules part 19.2(4)
37.121 Official receiver not to pursue
speculative claim
It would not normally be appropriate for the official receiver, as liquidator or trustee,
to pursue a speculative claim unless the creditors were in favour of that course of
action and had provided appropriate indemnities, etc.1
1. James v Rutherford-Hodge [2006] BPIR 973
37.122 Insurance backed claims
Any insurance policy in the name of the company to cover it against an adverse
costs order would continue to be property of the company in liquidation and the
company would continue to have the benefit of that policy.
An insurance policy taken out in the name of the bankrupt to cover themselves
against an adverse costs order, for example, would vest in the official receiver as
trustee of the bankrupt’s estate. The official receiver, as trustee, would then have the
benefit of that policy.
This is subject to any clause in the policy terminating it in the event of formal
insolvency or any assignment of the insurance to a third party – for example, the
company or legal advisor assisting in the brining of the claim.
--- PDF page 64 ---
Notwithstanding this, it is unlikely to materially affect the basic principle that the
official receiver, as liquidator or trustee, should avoid litigating a right of action.
37.123 Cannot bring claim again
It is not possible to litigate a matter that has already been litigated to a judgment.
The defendant would have an automatic defence as what is known as cause of
action estoppel.
A similar principle applies where an award has been issued following a complaint to
an Ombudsman1
1. Clark v In Focus Asset Management & Tax Solutions Ltd [2014] EWCA Civ 118]
37.124 Prosecution of a frivolous claim
vexatious
A vexatious action is an action that is being brought merely for annoyance or
oppression where no practical remedy is likely. A vexatious claim is likely to be
stopped by the court, using a restraint order1, 2.
It has been held that the prosecution of a frivolous claim (one with no chance of
succeeding) would be vexatious3.
1. Civil Procedure Rules part 3.11
2. Senior Courts Act 1981 section 42
3. Citicorp and others v Official Trustee in Bankruptcy and Another [1996] FCA 1115
37.125 Dealing with/enforcing a judgment
following successful litigation
It is likely that any solicitors engaged by the official receiver, as liquidator or trustee,
to litigate a right of action will be able to provide advice on enforcing a judgment debt
where payment is not made.
Information and guidance on enforcing a judgment debt can be found on GOV.UK.
Limitation periods
37.126 Time limits for bringing claims
--- PDF page 65 ---
The law sets time limits in which a claim must be brought1. It would not be possible to
fully explore all relevant provisions here and, generally speaking, the official receiver
should obtain legal advice on a case-by-case basis. That said, the basic principles
are as follows:
•
Personal injury claims – three years from the date the cause of action accrued;
or the date of knowledge (if later) of the person injured2.
•
Contract claims – six years from the date on which the cause of action accrued3.
•
Claims under deed or statute – twelve years from the date on which the cause
of action accrued4.
1. Limitation Act 1980
2. Limitation Act 1980 section 11
3. Limitation Act 1980 section 5
4. Limitation Act 1980 section 8
37.127 Relevant date for a personal injury
claim
So far as a personal injury claim is concerned, the limitation period begins with the
date of the event leading to the injury1, unless there is a delayed appearance of the
adverse condition (as in some cases of asbestosis, for example), in which case the
right accrues when the condition becomes apparent2.
1. Limitation Act 1980 section 11(4)(a)
2. Limitation Act 1980 section 11(4)(b)
37.128 Relevant date for a professional
negligence claim against a solicitor
Generally speaking, in professional negligence claims, where the claimant became
aware that they had been negligently advised at a date later than the date that the
advice was given, then there is an additional three years to bring a claim from the
date that the claimant first had the knowledge of negligence required for bringing an
action for damages in respect of the relevant damage1.
The defendants may seek to challenge the claimant’s assertion as to the date that
they first had knowledge2.
1. Limitation Act 1980 section 14A(5)
2. Haward v Fawcetts [2006] 1 WLR 682
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37.129 Protective claims where expiration of
limitation date imminent
A protective claim (sometimes known as a protective writ) involves issuing
proceedings but refraining from serving the proceedings on the defendant for a
maximum period of four months1 – during which period a settlement can be
negotiated. No adverse costs order can be made until the claim is served.
There are potential difficulties in bringing a protective claim. The rules for bringing
claims, for example, provide that the claim form shall contain details of the nature of
the claim and the remedy sought2. This information may not be known to the official
receiver, as liquidator or trustee, at the relevant time. A protective claim may be
challenged if it does not meet the requirements of the relevant procedural rules3.
Legal advice should therefore be sought before such a claim is issued.
1. Civil Procedure Rules part 7.5
2. Civil Procedure Rules part 16.2
3. Nomura International plc v Granada Group Ltd [2008] Bus LR 1
37.130 Substitution of a party after the
expiration of the limitation date
The legislation places restrictions on amendments to an issued claim after the
limitation period has expired1. One of these restrictions concerns the substitution of
one party for another (as would be necessary if the official receiver, as trustee, were
to continue an action already started by the bankrupt). The relevant rules2 provide
that, where it is not possible to properly continue the action without substituting or
adding a party, then such substitution or addition may be allowed.
1. Limitation Act 1980 section 35
2. Civil Procedure Rules part 19.5(2)
37.131 Issuing a claim after expiration of
limitation period
It is possible for a claim to be issued after the expiration of the relevant limitation
period where there was a technical defect in an earlier claim (for example, a failure
of service)1 but this possibility should not be taken for granted.
1. Horton v Sadler [2007] 1 AC 307
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37.132 Standstill agreements
A standstill agreement is an agreement between the defendant and the claimant that
the running of the limitation period can be suspended. This course of action may be
followed where the limitation date is approaching and the official receiver, as
liquidator or trustee, needs more time to consider the merits of the claim, or attempt
to reach a settlement.
Such agreements should be avoided without first seeking legal advice, as a poorly
worded agreement might leave the claimant unable to bring the claim when, for
example, settlement negotiations break down1.
The official receiver could make a payment from the estate to obtain that advice
provided that it can be shown that entering into such an agreement is considered to
be the best course of action – supported by relevant facts and copy documents, with
the decision making process recorded on the relevant ISCIS Note.
If the payment required is over £2,500, the guidance in chapter 1 regarding the
requirement to obtain prior permission should be followed before committing to any
expenditure.
1. Gold Shipping Navigation Co SA v Lulu Maritime Ltd EWHC 1365 (Admlty)
Employment claims - general
37.133 Employment claims generally
Employment claims are generally brought before an Employment Tribunal, unlike
other types of claims where the usual forum is the court (though such claim may end
up in the court, ultimately). An employment claim will almost certainly concern the
bankrupt’s leaving of a job, in connection with which they are claiming unfair
dismissal or wrongful dismissal.
Another type of employment claim often encountered is one for discrimination, which
may or may not be connected with a claim for loss of a job.
37.134 Information required from the
claimant
In order that the official receiver, as trustee, can assess which is the best option to
take in respect of a right of action relating to an employment claim, they should, as a
minimum, seek the following information from the claimant bankrupt:
--- PDF page 68 ---
•
The event which led to the claim and the date of that event.
•
The identity of the defendant.
•
The monetary value of the claim, including a breakdown of the damages and
losses being claimed.
•
Whether the action is for wrongful dismissal, unfair dismissal and/or something
else.
•
Any insurance policy that is backing the claim.
•
The grounds on which any solicitors are acting (for example, is it a conditional
fee arrangement, or similar?).
•
Any limitation on the claim.
•
Copies of any claim forms (this will, most likely, be an ET1 form).
•
Copies of any documents (for example, orders) issued by or to the tribunal.
The letter attached at Annex A may be used for this purpose
37.135 Employment Tribunals
Employment Tribunals hear claims to do with employment. They operate in a way
similar to courts in that they receive submissions from both sides before considering
the evidence and making a binding judgment.
More information on Employment Tribunals can be found on GOV.UK.
37.136 Time limit for bringing an employment
claim
A claim relating to dismissal (wrongful or unfair) made to an Employment Tribunal
must normally be made within three months of the dismissal (normally the dismissal
will be the last day worked – regardless of any pay in-lieu of notice, etc.) or last
discriminatory act complained of1. The Employment Tribunal has discretion to extend
this time period2 where the employee was unable to bring the claim or where it would
not have been appropriate to do so (where, for example, the employee was
completing, or believed that they were completing, the (former) employer’s internal
procedures3 or where the employee was seriously ill)4.
Where a claim for wrongful dismissal is brought in a court, the time limit is six years
from the date of dismissal5.
1. Employment Rights Act 1996 section 111(2)(a)
2. Employment Rights Act 1996 section 111(2)(b)
3. Marks and Spencer plc v Williams-Ryan [2005] ICR 1293
4. Employment Rights Act 1996 section 111(2)
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5. Limitation Act 1980 section 5
37.137 General principle regarding
employment claims in bankruptcy
It is a general principle of insolvency legislation that an employment contract (one
that requires the bankrupt to provide their skill and/or labour) cannot vest in the
trustee in bankruptcy. The trustee cannot carry out the role of the bankrupt, nor can
they force the bankrupt to remain in the job and any right of action arising from that
contract must remain personal to the bankrupt1.
Where the contact has ended (whether by termination or conclusion), any right to
claim under that contract would vest in the official receiver, as trustee.
Most employment claims tend to be as a consequence of the bankrupt’s dismissal
from a job and the ending of the contract of employment. Not all claims for dismissal
vest in the official receiver, as trustee and to decide whether a claim for dismissal
vests, it is necessary to decide whether the claim is one for unfair dismissal or
wrongful dismissal. In short, unfair dismissal claims do not vest; wrongful dismissal
claims do.
1. Beckham v Drake (1849) 9 ER 1213
37.138 Settling an employment claim
As with any other sort of claim, an employment claim may be settled before or during
the time it is submitted to the employment tribunal.
It is the normal procedure for the employment tribunal to send a copy of any claim
received to the Advisory, Conciliation and Arbitration Service (ACAS) who will
attempt to assist the parties in reaching a settlement, if that is what they both wish to
do. The official receiver should consider such a facility if the claim is one that vests.
Unfair dismissal and wrongful dismissal
37.139 Unfair dismissal versus wrongful
dismissal
In simple terms, a claim for unfair dismissal is a claim that that the bankrupt ought
not to have been dismissed from their job (it was ‘unfair’ to have done so). The
primary remedy for an unfair dismissal claim is to reinstate the bankrupt to the job
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from which they were unfairly dismissed, or re-engage themselves in an alternative
job. Unfair dismissal is a creation of statute1.
A claim for wrongful dismissal, on the other hand, is a claim that the person was
dismissed in breach of their contract of employment (where, for example, a
contractual notice period was not given or where an inefficiency procedure was not
followed correctly). Fairness (or otherwise) is not at issue – maybe, for example, the
employee was inefficient and it was ‘fair’ to dismiss them, but the correct procedure
(as provided for in the contract) was not followed. The remedy for wrongful dismissal
is normally financial compensation. Wrongful dismissal is a concept of common law.
1. Employment Rights Act 1996
37.140 Constructive dismissal
Constructive dismissal does not, of itself, give rise to a right of action, though it may
lead to a claim for unfair dismissal and/or wrongful dismissal.
In simple terms, constructive dismissal describes a situation where an employee
terminates their own contract of employment by reason of their employer’s conduct.
In the case of a claim for dismissal based on constructive dismissal, the tribunal or
court would first need to establish that the claimed constructive dismissal was, in
fact, a dismissal and not, simply, a resignation.
37.141 Unfair dismissal
Where a person believes that they have been unfairly dismissed, they may make a
claim for unfair dismissal to the employment tribunal1. It is then for the employer to
show that the dismissal was not unfair with regards to such reasons as the
capability, conduct or redundancy of the employee2.
Where the tribunal finds in favour of the employee, it will explain to them what order
it can make as regards reinstatement to the job from which they were unfairly
dismissed, or re-engagement to an alternative job3 and ask if they wish the tribunal to
make such an order4. Perhaps unsurprisingly, it is often the case that the employee
does not wish to be reinstated or re-engaged, in which case the tribunal may make
an award of compensation for the unfair dismissal5, 6.
1. Employment Rights Act 1996 section 111
2. Employment Rights Act 1996 section 98
3. Employment Rights Act 1996 section 113
4. Employment Rights Act 1996 section 112
5. Employment Rights Act 1996 section 112
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6. Employment Rights Act 1996 section 117
37.142 A claim for unfair dismissal does not
vest in the trustee
It has been held that a claim for unfair dismissal is personal and cannot vest in the
trustee of a bankruptcy estate. This is regardless of whether the bankrupt is seeking
reinstatement/re-engagement or simply compensation1.
In simple terms, the reason for this is that the primary remedy for a claim for unfair
dismissal is reinstatement, and this is not something that the official receiver, as
trustee, can be awarded. The trustee cannot carry on the employment.
Any compensation (including for unpaid wages) awarded in connection with a claim
for unfair dismissal will be ‘personal’ to the bankrupt and will not form part of their
estate in bankruptcy.
1. Grady v HM Prison Service [2003] ICR 753
37.143 Dealing with a claim for unfair
dismissal
Where the official receiver, as trustee, has notice of a claim for unfair dismissal, they
should write to the solicitors or advisors acting for the bankrupt (or the bankrupt
themselves if there are no solicitors or advisors), copying in the relevant employment
tribunal and ask them to consider whether they believe that the claim vests.
In the likely situation that they conclude that it does not vest, the claim can then
proceed unhindered by the official receiver, as trustee.
The letter attached at Annex H may be used for this purpose (and includes reference
to the leading case on the subject1).
1. Grady v HM Prison Service [2003] ICR 753
37.144 Wrongful dismissal
A claim for wrongful dismissal is a claim that the dismissal was a dismissal in breach
of a provision of the employment contract. In order to be able to bring an action for
wrongful dismissal, the employee must show that they were engaged for a fixed
period, or a period terminable by notice, and that there were insufficient grounds for
their dismissal.
Apart from in exceptional cases, the correct forum for a claim for wrongful dismissal
is the employment tribunal1.
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Unlike in an unfair dismissal claim, it is not the normal practice of the tribunal to
enforce the employment contract (to seek to reinstate the employee)2. The normal
remedy where the tribunal finds in favour of the employee is to award damages.
1. R v East Berkshire Health Authority ex parte Walsh [1985] QB 152
2. Whitwood Chemical Co v Hardman [1891] 2 Ch 416 CA
37.145 A claim for wrongful dismissal is a
claim that there was a breach of contract and
would normally vest
Where there is a claim for wrongful dismissal, it is clear that the person has been
dismissed and there is, therefore, no ongoing employment contract. The employee is
released from the employment contract by the employer’s actions1. The right to claim
for the breach of contract would, therefore, vest in the official receiver as trustee of
the bankrupt’s estate.
1. General Billposting Co Ltd [1909] AC 118
37.146 Dealing with a claim for wrongful
dismissal – getting agreement that claim vests
Where the official receiver, as trustee, is aware that a bankrupt is bringing a claim for
wrongful dismissal they should write to the solicitors or advisors acting for the
bankrupt (or the bankrupt themselves if there are no solicitors or advisors), copying
in the relevant employment tribunal, and inform them that they believe that the right
of action vests in them as trustee of the bankruptcy estate. they should seek their
agreement to this.
The matter can then proceed on an ‘agreed’ basis and the official receiver can seek
to deal with the right of action in line with the guidance elsewhere in this chapter.
The letter attached at Annex I may be used for this purpose.
37.147 A claim for wrongful dismissal and a
claim for unfair dismissal can arise from the
same dismissal
It is possible that a bankrupt may have a claim for wrongful dismissal and unfair
dismissal based on the same dismissal. Contrary to what might be thought, this
would not be a ‘hybrid’ claim.
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In essence, what the official receiver is dealing with is two, separate, rights of action,
one that arises from statute and one that arises from a breach of contract (the
wrongful dismissal claim). They can be dealt with as two, separate, claims.
Most likely, the appropriate course of action would be to seek to assign the wrongful
dismissal claim back to the bankrupt.
Discrimination claims relating to
employment
37.148 Claims for discrimination
Where an employee feels that they have suffered some disadvantage in connection
with their employment due to their sex, race, disability, religion or belief, sexual
orientation or age, they may make a claim for discrimination against the employer1.
This may be connected to, or separate from, a claim for dismissal and normally
discrimination claims are heard by an Employment Tribunal.
1. Equality Act 2010
37.149 Remedies for a claim for discrimination
The remedies in a claim for discrimination include a declaration of the rights of the
parties and an order for compensation (not limited to an order for compensation to
injury to feelings)1.
The declaration of rights and any compensation for injured feelings would be
‘personal’ to the bankrupt and any compensation for losses (such as wages losses)
would be a ‘property’ claim, vesting in the official receiver, as trustee.
1. Equality Act 2010 section 124
37.150 The possibility of limiting a
discrimination claim to avoid it vesting
In the normal way of deciding such matters, a claim for discrimination (that is, one
with more than one head of damage – a ‘hybrid’ claim) would vest in the official
receiver as trustee of the bankrupt’s estate. It has been held that in a claim for race
discrimination, the claimant can limit their claim to one for a declaration and
compensation for injured feelings, making the claim entirely personal and taking it
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out of the bankruptcy estate. The claimant can limit their claim at any point (even
once it is before the employment tribunal)1.
It is thought that the court took this approach due to the seriousness of race
discrimination, though it is possible that the principles would be applicable to other
discrimination claims. That point has yet to be tested in court. It is not thought that
the principle would be applicable to other ‘hybrid’ claims.
1. Khan v Trident Safeguards Limited [2004] EWCA Civ 624
37.151 Dealing with a claim for discrimination
– getting agreement that claim vests
Where the official receiver, as trustee, is aware that a bankrupt is bringing a claim for
discrimination they should write to the solicitors or advisors acting for the bankrupt
(or the bankrupt themselves if there are no solicitors or advisors), copying in the
relevant employment tribunal and inform them that they believe that the right of
action vests in them as trustee of the bankruptcy estate. They should seek their
agreement to this.
The matter can then proceed on an ‘agreed’ basis and the official receiver can seek
to deal with the right of action in line with guidance elsewhere in this chapter.
The official receiver may use the letter attached at Annex J for this purpose.
37.152 Where claimant bringing a claim for
discrimination and unfair dismissal
Where a claimant is bringing a claim for unfair dismissal (which does not vest) and a
claim for discrimination (which, generally, does vest, it has been held that the
employment tribunal can distinguish between the two claims as separate claims and
not treat the claim as a ‘hybrid’ action1.
The unfair dismissal claim can then proceed unhindered by the official receiver, as
trustee, leaving the discrimination claim to be dealt with as appropriate. That said, it
is likely that the best outcome in this circumstance is to seek an assignment of the
discrimination claim back to the bankrupt. The claims will be inextricably linked and
the bankrupt (and trustee) may find it difficult to litigate each claim separately.
1. Grady v HM Prison Service [2003] ICR 753
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Other employment claims – redundancy
and equal pay
37.153 A claim for redundancy
Assuming that the contract (employment) has ended as at the date of bankruptcy,
the right to claim and receive the redundancy payment vests in the official receiver,
as trustee. This would apply equally to a claim for enhanced redundancy (where a
redundancy payment has been made but the ex-employee is seeking to increase the
amount awarded).
Where the contract (employment) has not ended as at the date of bankruptcy
(where, for example, the offer of redundancy has been made and, perhaps, accepted
but the employment has yet to cease) any redundancy payment made during the
term of bankruptcy should be claimed as after-acquired property1, except for arrears
of pay (including pay in lieu of notice and holiday pay) which should be claimed
under an IPA/IPO2.
1. Section 307
2. Section 310
37.154 Equal pay claims
A claim for equal pay1 is claim that an employee (generally, a woman) has been paid
less than another person of the other sex doing the same job.
Generally speaking a claim for equal pay will be brought whilst the person is still in
the employment to which the claim arises and, that being the case, it would remain
personal to a bankrupt and would not form part of their bankruptcy estate. However,
any compensatory payment made during the term of bankruptcy would be
considered income and should be claimed under a ‘lump sum’ IPO/IPA2, 3.
Similarly, any increase in future pay secured as a result of the action could be
considered for an (increased) monthly IPO/IPA if it is awarded during the period of
bankruptcy. Such a claim brought after the contract (employment) has ended would
vest in the official receiver, as trustee of the bankruptcy estate and the whole amount
of compensation would be due to the estate whenever paid. The bankrupt may not
limit their claim to one for injured feelings (as is allowed in a claim for unfair
dismissal) as compensation for non-economic losses may not be awarded in an
equal pay claim4.
1. Equality Act 2010 section 19
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2. Section 310
3. Section 310A
4. Allan v Newcastle-upon-Tyne City Council; Degnan v Redcar and Cleveland Borough Council [2005] ICR 1170
37.155 Loss of earnings for a period after the
making of the bankruptcy order
Where a court makes an award for the loss of future earnings in a vesting claim
(most likely a wrongful dismissal claim but not an unfair dismissal claim), the money
represents property damages and will therefore vest in the official receiver as
trustee1, 2. This is the case despite the fact that the award was intended to
compensate the bankrupt for lost earnings beyond the date of discharge3. The logic
behind this position is that the creditors rely upon the ability of a borrower to be able
to work and earn money when they decide to give credit.
This view should, however, be balanced against the principle that bankruptcy is
intended to provide a ‘fresh-start’ to the bankrupt. In this regard, it has become
normal practice that the official receiver limit their claim over the future loss of
earnings to those monies representing the lost earnings in the period ending three
years after the commencement of bankruptcy. This brings the official receiver’s claim
to the monies in line with the period that they would have been able to claim the
monies under an IPO/IPA.
1. Beckham v Drake (1849) 2 HL Cas 579
2. Ord v Upton [2000] BPIR 582
3. Official Receiver v Mulkerrins [2002] BPIR 582
Dealing with the fruits of a right of action
37.156 Dealing with the fruits of a right of
action – general
The section of the chapter gives guidance and advice on dealing with the ‘fruits’ of a
right of action. Usually, this will be monies received following the settlement of a
claim, but the monies may have come from the successful litigation of a claim.
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Generally speaking, any dispute as to the distribution of the fruits of a legal action
will arise in a bankruptcy case where the bankrupt has a personal interest in a hybrid
claim and this section concentrates largely on those areas.
The advice in this section of the chapter is given on the basis that the judgment
following a successful litigation has been converted into monies (whether following
enforcement, or not).
Advice on enforcing a judgment is given in paragraph 37.125.
37.157 Dealing with the fruits of a right of
action – ‘non-hybrid’ claims
Where the fruits of the right of action result from a right of action that is not a ‘hybrid’
right of action/claim there will be no need to apportion the funds and the official
receiver should have the funds remitted to the estate, dealing with any agent’s
(solicitor’s) fees and monies due to other third parties such as the DWP in the normal
way.
37.158 Dealing with the fruits of a right of
action – ‘hybrid’ claims
In circumstances where an award is made or settlement reached in respect of a
‘hybrid’ claim, there is the issue of apportioning the monies between ‘personal’
(where the monies are held by the official receiver, as trustee, on trust for the
bankrupt) and ‘property’ elements.
37.159 Apportioning an award in a hybrid
claim following litigation
Where an award is made following litigation, it ought to be possible to establish the
apportionment between ‘personal’ and ‘property’ elements of the claim. Details of the
award can often be found in the judgment or order given by the court or, where there
is a ‘global’ award (with no breakdown), the apportionment may be calculable from
the papers filed in court in respect of the claim.
37.160 Apportioning a settlement in a hybrid
claim where settlement follows the issuing of
proceedings
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Apportioning monies in settlement of a claim may be more difficult than monies
awarded following litigation. Where the settlement follows the bringing of legal
proceedings, the portions into which the monies should be divided should be
calculable from the papers filed in court in respect of the claim.
37.161 Apportioning a settlement in a hybrid
claim where settlement precedes the issuing of
proceedings
In the case that the settlement precedes the issuing of proceedings, the
apportionment of the settlement monies may prove to be more problematic as the
claim may not have been fully made out at the point of settlement.
Where there is evidence to show the division of the claim between ‘personal’ and
‘property’ elements, the official receiver, as trustee, should maintain a position that
the settlement monies should be apportioned pro-rata in the same ratio unless this
obviously looks perverse.
Where there is no such evidence, there is a principle that the monies should be
divided equally between ‘personal’ and ‘property’ elements1. If this point is put to the
solicitors acting for the bankrupt it may encourage them to assist in the formulation of
figures to assist with a more accurate apportionment – particularly given that the
personal element of a hybrid claim is typically greater than the property element.
1. Re Kavanagh [1950] All ER 39
37.162 Special damages and general damages
Often, in correspondence or papers relating to a claim the official receiver will see
reference to ‘special damages’ and ‘general damages’.
Generally speaking, special damages are ‘property’ and general damages are
‘personal’.
37.163 Securing monies where a hybrid claim
is apportioned
The official receiver, as trustee, should request that the monies awarded following
litigation or following a settlement of a hybrid claim should be remitted to them whilst
the apportionment is decided. The monies can be held on a suspense account
pending the agreement of their division. This way, the bankrupt has an incentive to
attend to matters and not to let it them drift.
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37.164 Seeking directions of court where there
are matters of dispute or doubt
Where the official receiver, as trustee, is unable to resolve matters of dispute or
doubt connected with the ascertainment or distribution of ‘personal’ funds held on
constructive trust or the apportionment of a ‘global’ settlement, they may apply to the
court for directions1, 2.
1. Rule 13.4
2. Section 168(3)
37.165 Monies awarded for ‘personal’
elements of a claim may not be claimed
Monies awarded for ‘personal’ elements of a claim following litigation or secured in a
settlement after the making of the bankruptcy order may not be claimed by the
official receiver, as trustee, unless those monies change character during the period
of bankruptcy1.
There is no statutory or precedent definition of a change of character but, typically, it
would be characterised by the purchase of an asset such as a motor vehicle. In that
example, the vehicle may then be claimed as after acquired property. The spending
of the monies on the general living costs of the bankrupt and their family would not
be a change of character2.
There is doubt as to whether the negotiation of the funds (for example, the
movement of funds from a current account to a savings account, or similar) might
constitute a change of character.
Where the action has proceeded to judgment prior to the making of the bankruptcy
order, any monies awarded and paid to the bankrupt (including ‘personal’ monies)
would form part of the bankruptcy estate.
1. Re Wilson ex parte Vine (1878) LR 8 CH D
2. Section 307
37.166 Claiming a ‘personal’ award
It has been held that a part of any award of compensation in respect of a ‘personal’
right might be claimed for the bankruptcy estate. The relevant case1 did not give any
indication when it would be appropriate, or correct, to claim such an award.
--- PDF page 80 ---
Whilst it is possible that the official receiver may seek to claim such an award, the
position that should be taken is that ‘personal’ awards might only be claimed if they
change character.
1. Grady v HM Prison Service [2003] ICR 753
37.167 Advance payments during settlement
Sometimes, the defendants to a claim will offer interim payments to assist the
claimant with ongoing expenses, general living costs, etc. Unless, there is evidence
to the contrary, these payments should be apportioned pro-rata between ‘personal’
and ‘property’ elements of the claim (and claimed accordingly).
37.168 Constructive trusts
Monies awarded to a bankrupt for ‘personal’ damages in a hybrid action do not form
part of the bankrupt’s estate and are, instead, held on constructive trust for the
bankrupt by the official receiver, as trustee of the bankrupt’s estate.
In simple terms, a constructive trust is a trust that is not expressly created and
instead comes into existence to deal with property held by a person where it would
be inequitable for that person to assume full beneficial ownership of that property1.
To relate it to the situation of a hybrid claim, the official receiver, as trustee, comes
into possession of the personal monies as an inadvertent effect of them being the
‘owner’ of the right of action.
1. Bannister v Bannister [1948] 2 All ER 133
37.169 The practical effect of monies being
held by the official receiver in a constructive
trust
The bankruptcy estate cannot benefit from the monies held under a constructive trust
in these circumstances and, therefore, the official receiver, as trustee, should pay
over those monies to the bankrupt at the earliest opportunity.
In many cases, the official receiver will never come into actual possession of the
monies and, in such cases, they should agree to the monies being paid to the
bankrupt by those holding the funds (for example, the bankrupt’s solicitors).
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37.170 A claim settled or concluded and
monies paid prior to the making of the
bankruptcy order
Where a claim is settled or concluded by litigation prior to the making of the
bankruptcy order, the monies, received or awarded, would form part of the estate
simply as ‘cash at bank’, whether or not the damages were ‘personal’1.
1. Ord v Upton [2000] Ch 352 at 360
37.171 A claim settled or concluded prior to
the making of the bankruptcy order but
monies not paid
Where a ‘property’ claim is settled or concluded by litigation prior to the making of
the bankruptcy order, any monies awarded but not paid will form part of the
bankruptcy estate.
The position is less certain where a ‘personal claim is settled or concluded by
litigation prior to the making of the bankruptcy order. Where the official receiver
encounters this situation the advice of the Senior Official Receiver’s Office should be
sought.
37.172 A claim settled or concluded post-
discharge
Assuming that the claim was a vesting claim, or was, unusually, claimed as after-
acquired property, any monies awarded would form part of the bankrupt’s estate
even if they were awarded or paid after discharge (with appropriate division for
‘hybrid’ claims) and consequently should be claimed by the official receiver, as
trustee.
37.173 Monies awarded as periodic payments
A successful claim may result in a judgment or order requiring the defendant to make
payments to the claimant on a periodic basis. Whether, and how, these monies may
form part of the estate (or be claimed for the estate) will largely turn on the facts of
the case.
Where the judgment is simply a lump sum payable by instalments then the lump sum
and the right to receive the instalment payments would form part of the estate and
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should be claimed accordingly (split between ‘personal’ and ‘property’ elements as
appropriate)1.
Where the judgment is an award that provides for the damages to replace lost
income on a periodic basis, it is likely that the payments would constitute income
within the meaning of The Act2 and would, therefore, be available for inclusion of a
calculation for an IPO/IPA3, 4.
In both cases, this would be subject to any monies being ‘personal’ to the bankrupt
(for example, periodic payments being made to enable the bankrupt to have care
relating to a personal injury). Whilst, technically, the income-type claim would not be
affected by the restriction on claiming, it is unlikely that a court would make an IPO
on those terms.
1. Re Bell [1998] BPIR 26
2. Section 310(7)
3. Section 310
4. Section 310A
37.174 A ‘personal’ award intended to provide
medical care
Where the bankrupt receives an award that is intended to allow the purchase of
items to assist with their medical care, it would not be appropriate to claim these
items as after-acquired property, under the ‘change of character’ situation.
37.175 An award for permanent disability
under a life policy
A claim for permanent disability benefit under a life policy (or similar) would vest in
the official receiver, as trustee, as the claim arises from a contract. It has been held
that it is of no consequence that the claim is conditional on the claimant having
suffered pain and injury. The payment is dependant upon a contractual right to a
sum of money and the policy proceeds do not represent recompense to the bankrupt
for personal loss or damage, but rather payment on satisfaction of a contractual
prospect1.
1. Cork v Rawlins [2001] Ch 792
37.176 Award made where defendant in
formal insolvency
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Where an award is made in a vesting right of action and the person against whom
the award is made has entered into formal insolvency, the official receiver should
ensure that the claim is lodged with the relevant office-holder.
Third-party interest in the fruits of a
right of action
37.177 Right of set-off
In cases where the insolvent has a claim against a creditor, any award will be subject
to automatic set-off and the official receiver’s claim, as liquidator or trustee, over the
monies will extend only to any surplus after set-off. Set-off only applies where there
are mutual credit and debits as at the date of the insolvency of the company or date
of bankruptcy so, in cases where a claim is against a creditor and that debt has been
sold on by the creditor prior to that date, set-off would not apply1, 2.
Set-off is mandatory and will normally be automatically applied by the creditor. In
some cases, the creditor may choose to forgo the right of set-off and, in such a case,
the official receiver should claim the monies awarded.
1. Rule 14.25
2. Section 323
37.178 Claims handling fees
It may be the case that the insolvent has engaged a claims-handling company,
particularly in ‘complaint’ type cases such as those for PPI mis-selling.
It is open to the official receiver, as liquidator or trustee, to continue to retain the
services of those agents, but this must be on the clear understanding that any fees
must come from monies the agents secure by their actions. The fees will not be paid
by the official receiver or from the estate without there being an underlying
realisation. The official receiver should also confirm that the fees the agent
charges/intends to charge are reasonable in the circumstances. The decision to
retain the agents should be considered against the value of the service provided
(including the ease with which the official receiver could successfully conduct the
work himself) against the likely return to the estate.
Where the claim has come to fruition before the making of the order (or before the
official receiver had knowledge of the claim), the official receiver may allow the fees
to be paid on the same terms but they are not bound by the terms of the contract
--- PDF page 84 ---
with the bankrupt. Where the fees are considered to be high in relation to the amount
of work carried out consideration should be made to offering a lower fee based on
the work carried out.
37.179 Legal fees in successful settlements
Where the official receiver, as liquidator or trustee, chooses to retain the insolvent’s
solicitors in order to negotiate a settlement, the solicitors’ reasonable costs may only
be paid from the settlement (no funds will be made available from the estate and nor
will the official receiver, as liquidator or trustee, pay the costs). In ‘hybrid’ claims, the
costs should be deducted pro-rata from each element of the settlement (and not, for
example, just from the portion of the award due to the estate).
In the very unlikely event that solicitors for the insolvent have been retained to act in
litigation, the same principles would apply.
37.180 Solicitor claiming lien over funds
Whilst the official receiver, as liquidator or trustee, can agree to the payment of fees
incurred in bringing the right of action to a successful settlement, they should not
allow the monies awarded to be used to pay a debt for fees incurred on an unrelated
matter.
If it comes to it, the official receiver should point out to the solicitor claiming the funds
that they are under an obligation to surrender the funds, the penalty for non-
compliance being contempt of court1, 2, 3, 4.
1. Section 235(2)
2. Section 235(5)
3. Section 312(2)
4. Section 312(2)
37.181 Creditor with an equitable charge over
the award
The official receiver should take care that any monies due to third parties under an
equitable charge are paid over. An example of this may be where the bankrupt has
been granted free use of a replacement vehicle while the loss to a vehicle is subject
to an insurance claim. In such as case, the person who provided the hire vehicle
may have an equitable charge over that portion of the claim.
--- PDF page 85 ---
In such cases, the official receiver should seek proof that the vehicle (or similar) was
provided before agreeing that the claimed amount be deducted from the award.
It is possible that such a claim will have been assigned to the hire company prior to
bankruptcy – possibly by a clause in the hire agreement.
37.182 Recovery of benefits and NHS costs
A person who is unable to work due to illness, injury or similar may receive support
from the Department for Work and Pensions (DWP) in the form of benefits. Where
the person is subsequently awarded monies for loss of income for the period that
they were receiving benefit support, the DWP may recover those benefit monies
(https://www.gov.uk/government/publications/recovery-of-benefits-and-or-lump-sum-
payments-and-nhs-charges-technical-guidance). This scheme operates on the
principle that the person should not be compensated twice for the same loss. The
official receiver, as trustee, should not object to such a recovery.
Loss of earnings awards
37.183 Loss of earnings where the employer
has continued to pay wages
In some circumstances, the bankrupt’s employer may continue to pay the bankrupt’s
wages whilst they are absent from work due to the injury suffered to which the claim
results.
In this context, if matters were to be looked at in the round, the bankrupt has not
incurred a loss in this matter, it is the employer who has incurred the loss. It can only
be fair, therefore, that the official receiver, as trustee, accepts the employer’s claim
over the loss of earnings element of the claim as appropriate. The view to take is that
the bankrupt is an agent for the employer’s claim. The official receiver should check,
though, that the employer is not receiving any monies in excess of those they paid to
the bankrupt. Any surplus would represent an asset in the bankruptcy.
37.184 Loss of earnings for a period after the
making of the bankruptcy order
Where a court makes an award for the loss of future earnings, the money represents
property damages and will therefore vest in the official receiver as trustee1, 2. This is
--- PDF page 86 ---
the case despite the fact that the award was intended to compensate the bankrupt
for lost earnings beyond the date of discharge3. The logic behind this position is that
the creditors rely upon the ability of a borrower to be able to work and earn money
when they decide to give credit.
This view should, however, be balanced against the principle that bankruptcy is
intended to provide a ‘fresh-start’ to the bankrupt. In this regard, it has become
normal practice that the official receiver limit their claim over the future loss of
earnings to those monies representing the lost earnings in the period ending three
years after the commencement of bankruptcy. This brings the official receiver’s claim
to the monies in line with the period that they would have been able to claim the
monies under an IPO/IPA.
1. Beckham v Drake (1849) 2 HL Cas 579
2. Ord v Upton [2000] BPIR 582
3. Official Receiver v Mulkerrins [2002] BPIR 582
37.185 ‘Smith v Manchester’ awards
A ‘Smith v Manchester’ award refers to a type of award made where the claimant’s
injury is not severe enough to prevent them from working, but compromises their
ability to undertake a full range of tasks1. The award is intended to recognise that,
whilst the claimant is still able to carry out their current job (and there is, therefore,
no immediate loss of earnings), they will experience difficulty in obtaining a new job
were the current one to be lost, or a better job, due to their injury-related restricted
ability2.
A ‘Smith v Manchester’ type claim is a ‘property’ claim, vesting in the official receiver
as trustee. As the award is speculative in nature, any such award should be claimed
in full by the official receiver.
1. Smith v Manchester Corp (1974) 17 KIR 1
2. Morgan v UPS Ltd [2008] EWCA Civ 375
“Negative” options for dealing with a
right of action
37.186 ‘Negative’ options – general
--- PDF page 87 ---
As outlined elsewhere in this chapter there are, essentially, six ways of dealing with
a right of action:
•
Settlement
•
Assignment
•
Complaint
•
Litigation
•
Disclaimer
•
Do nothing
Generally speaking, it is best to take one of the first three options as these will
maximise the return to creditors whilst minimising the risk to the official receiver. In
some exceptional cases, the fourth option (litigation) will be appropriate – but only
very rarely.
This section of the chapter concentrates on the two remaining options – to be used
where it is impossible or inappropriate to take one of the four ‘positive’ options.
37.187 Circumstances where it is impossible
or inappropriate to use a ‘positive’ option
The most likely scenarios where it will be impossible to use one of the ‘positive’
options for dealing with a right of action are:
•
Where the official receiver, as liquidator or trustee, is of the view (perhaps, after
having taken legal advice) that the claim is without merit (and cannot, therefore,
be settled, sold or litigated), or
•
Where the claim has merit but the official receiver, as liquidator or trustee, is
without funds and/or indemnity to litigate, there is no offer of settlement, and
any potential purchaser is without funds to provide legal advice or actually pay
for the action.
37.188 Disclaimer of a right of action
A disclaimer is a process that allows the official receiver, as liquidator or trustee, to
disclaim their interest in onerous property (in short, property which comes with an
obligation to pay money or perform an act) which forms part of the estate. The effect
of the disclaimer is to end the interest of the liquidator/trustee and the insolvent in the
property and, also, discharges the liquidator/trustee of any liability in respect of the
property (see chapter 42 for full information on the disclaimer process).
37.189 When to use a disclaimer in a right of
action
--- PDF page 88 ---
Generally speaking, a right of action cannot be described as onerous property unless
it has entered the stage of being litigated when the insolvency order is made. In
those circumstances, it is often the case that the parties to the claim (particularly, the
defendants) will put pressure on the official receiver, as liquidator or trustee, to
decide what their intentions are with regards to the claim (usually, with a hearing
date imminent).
With the assistance of solicitors, it should be possible to negotiate a settlement or
assignment in pretty short order. Where none of the ‘positive’ options are
possible/appropriate, the official receiver may disclaim their interest in the claim
(rather than seeking to discontinue or adjourn the proceedings as that may lead to
an adverse costs order).
37.190 Serving notice of the disclaimer
The notice of the disclaimer should be served on the bankrupt (and their advisors),
the defendants (and their advisors) and the court/tribunal at which the hearing was
taking place.
37.191 Vesting orders
The legislation allows any person with an interest in disclaimed property to apply for
a vesting order (effectively, an order that they become ‘owner’ of the property). The
person most likely to do this is the defendant as this will have the effect of bringing
the claim to an end.
The bankrupt cannot apply for a vesting order as they have no interest in the
property once it has been disclaimed1. This should be made clear to the bankrupt
when discussing the possibility of disclaiming so that they do not get the impression
that they will be able to take ownership of the claim following the disclaimer
(effectively, getting a ‘cheap’ assignment).
1. Skinner v Hood [2005] EWCA Civ 1580
37.192 When to do nothing
If the claim is not in the process of litigation, and none of the ‘positive’ options for
dealing with the right of action are possible or appropriate, then the best course of
action is for the official receiver, as liquidator or trustee, to, effectively, abandon the
claim. The bankrupt cannot bring the claim and it will, eventually, become statute-
barred.
--- PDF page 89 ---
37.193 Creditor may apply to carry on action
(companies only)
Where the official receiver, as liquidator, is not prepared to litigate (whether they are
without funds or because they have been legally advised not to), a creditor or
contributory may make an application to court for leave to carry on the action1. In
these circumstances, the official receiver should attend the hearing and object to the
application unless it is granted on the basis that no costs fall to the company or
official receiver.
1. Section 167(3)
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--- PDF page 1 ---
This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 10 March 2020.
38. Financial mis-selling
Annexes
Annex A - Questionnaire – for completion where there is a PPI complaint relating to a
secured and unsecured loan
Annex B - MP2 Insert
Article on Gov.uk website regarding PPI and bankruptcy - to be include for new guidance
Chapter content
Frequently asked questions
Background
PPI claim as a bankruptcy asset
Consequence of an annulment on PPI claims
Initial action to be taken by the official receiver in relation to PPI – obtaining information
Obtaining information from third parties
Recording information on the file
The LTADT PPI Team
Realising PPI on secured and unsecured borrowing
Time limits for bringing claims
--- PDF page 2 ---
Jointly-held policies
Claims management companies
PPI on secured borrowing
Right of set-off
Frequently asked questions
These FAQs are intended to be a useful introduction to the subject of financial mis-
selling and PPI in particular, or to be used as a training tool, but should not be seen
as a replacement for the more detailed advice given elsewhere in the chapter.
What is PPI?
Payment Protection Insurance (PPI), sometimes called ‘loan protection’, is an
insurance policy typically sold when a personal loan or some other form of personal
credit is granted. The policy is designed to provide monies to meet the repayments
of the loan in the event of the unemployment (or similar) of the borrower.
How is a PPI policy paid for?
PPI is usually a policy paid for in full and up front by the loan company, with the loan
company granting a further loan for payment of the PPI policy.
Therefore the resultant monthly loan payment is actually made up of a proportion of:
•
capital repayment of the main loan;
•
interest on the main loan;
•
capital repayment of the PPI loan;
•
interest on the PPI loan.
The exception to this is where PPI is obtained on a store card or credit card. The PPI
premium is then usually calculated on the outstanding balance on an ongoing basis.
What is PPI mis-selling?
In many cases PPI policies have been sold in circumstances where the individuals to
whom they were sold would not have been able to benefit from the policy. Where, for
--- PDF page 3 ---
example, they were too old to qualify or already insured, or where the policy was not
properly described on sale, or where they did not realise they were buying PPI.
Is a PPI claim a bankruptcy asset?
A PPI claim is a bankruptcy asset provided that the act of mis-selling occurred prior
to the date of bankruptcy.
What should I do if the bankrupt cannot
remember if a PPI policy has been taken out?
If the bankrupt cannot recall whether a PPI policy was purchased, the official
receiver should make enquiries of any secured creditors using the MP2 mortgage
letter.
If the bankrupt suspects that they held a PPI policy in respect of an identified
unsecured debt the questionnaire at Annex A should be sent to the bankrupt to
complete with as much information as possible.
If the bankrupt neither recalls nor suspects that they held a PPI policy in relation to
an unsecured debt, then no further enquiries should be made.
Does the right of set-off affect the official
receiver’s ability to claim PPI monies?
Set-off relates to cross-claims. Where the institution liable to pay compensation to
the bankrupt (their trustee) holds a provable debt in the bankruptcy, the two
competing claims may be set-off against each other to give a net liability/asset.
By way of example, if the financial institution is liable to pay compensation of £2,000
but holds a provable debt of £5,000, the institution’s claim is reduced by means of
set-off to £3,000 (£5,000 - £2,000).
In reality, most financial institutions are not taking advantage of the provisions
relating to set-off.
The bankrupt paid off the loan/credit card
before the bankruptcy, does the official
receiver still have an interest in the PPI policy?
--- PDF page 4 ---
Yes. The PPI mis-selling complaint is a separate matter from the loan/credit card it
was taken out to protect. Provided the mis-selling took place before the date of the
bankruptcy any complaint will vest in the trustee.
Is the entitlement to any PPI mis-selling
payment different where PPI was mis-sold in
relation to a credit card instead of a loan?
No.
Where PPI has been mis-sold in relation to a credit card, the PPI policy is usually
paid for monthly as a percentage of the outstanding card balance.
The date of the mis-selling of the PPI policy is the relevant date for deciding if the
complaint vests in the trustee. Where the account was taken out prior to the
bankruptcy order, the PPI policy will most likely also have been taken out at the
same time.
The bankrupt’s spouse (or other solvent third
party) paid off the loan/credit card after the
bankruptcy. Does the official receiver have an
interest still?
Yes. Where, post-bankruptcy, a third party repays a provable bankruptcy debt in full,
perhaps under a guarantee arrangement, and subsequently a PPI complaint is
accepted, it is possible that some or all of the compensation payment may be due to
the third party. This would be appropriate if the loan creditor could have applied set-
off at the date of the bankruptcy order.
What if the bankrupt or their partner has
already made a claim under the policy and
received payment from the PPI policy?
If the bankrupt or other policy holder has already made a claim on, and received
payment out of, the PPI policy for loss of income (for example), this does not prove
that the policy was validly sold and it is possible that a compensation payment may
still be made. The official receiver should use their discretion on a case-by-case
basis as to whether to pursue such cases beyond the initial questionnaire.
--- PDF page 5 ---
Where can I direct the bankrupt for further
information on PPI and bankruptcy?
The bankrupt may be directed to the guidance on GOV.UK
What are the other types of mis-selling that I
might encounter in dealing with an
insolvency?
Examples of this would be in relation to Interest Rate Hedging Products (IHRP) or in
relation to unfair charges or interest payments.
How are these matters dealt with in practice?
The LTADT PPI Unit will handle all claims once the official receiver has obtained the
initial information.
Background
38.1 Introduction
This chapter provides guidance on dealing with claims for financial mis-selling, which
can be valuable assets in an insolvency. Most claims in this area are in relation to
the mis-selling of Payment Protection Insurance (PPI), but there are others such as
in relation to Interest Rate Hedging Products (IHRP) or in relation to unfair charges
or interest payments.
38.2 Mis-sold PPI policy complaint process
The Financial Services Authority (FSA) receives general complaints regarding the
financial industry, and issues guidance to that sector.
Where an individual believes they have been mis-sold a PPI policy, a specific
complaint is made firstly to the financial institution involved. Where a satisfactory
solution is not found, the individual may then raise the complaint to the Financial
Ombudsman.
The FSA have set a date of the 29th August 2019 as the final date in which a new
claim for the mis-selling of PPI may be made. The banks will only consider new
--- PDF page 6 ---
claims up to this date. Any claims submitted after this date will be deemed out of
time.
38.3 Financial institutions to identify potential
claimants
Guidance from the FSA requires banks to analyse past sales of PPI for the purpose
of identifying and compensating policy holders, without the need for the policy holder
to first commence a complaint.
38.4 Where a payment has already been made
from PPI policy
Even where a successful insurance claim has been made on the policy in the past, it
does not mean that the policy was not mis-sold at the time the loan was taken out.
For example, a complaint of mis-selling may be on the basis that the bankrupt did
not want or know that they were purchasing PPI. However, any payout received
under the policy is likely to be taken into account when calculating any
compensation.
38.5 PPI policy - sold through a broker or
agent
Where a PPI policy has been sold through a broker at the same time as a loan was
obtained (whether secured or unsecured), it is possible that the complaint for mis-
selling will be against the broker rather than the loan provider.
PPI claim as a bankruptcy asset
38.6 Vesting of PPI complaint in trustee
The right to pursue a complaint for a mis-sold PPI policy entered into before the
bankruptcy order and the right to receive related compensation from that complaint,
will vest in the official receiver, as trustee of a bankrupt’s estate1.
An insurance policy (PPI is a type of insurance policy) taken out by a bankrupt prior
to the date of the bankruptcy order, comprises property which forms part of a
bankrupt’s estate2. Case law3 has held that damages in a personal injury claim are
--- PDF page 7 ---
not property but that payment out of an insurance policy which covers the same type
of injury is property. By analogy this will also apply to a PPI policy so that any
payment from the policy will form part of the bankrupt’s estate.
Any complaint arising from the sale of the insurance policy is property, as the right to
make a complaint can be said to be ‘an interest arising out of or incidental to’ that
property4 5. It is, essentially, a right of action.
1. section 306
2. section 436
3. Cork v Rawlins [2001] EWCA Civ 202
4. Re Rae [1995] BCC 102
5. section 436
38.7 Relevant date for deciding if PPI
complaint vests in official receiver as trustee
The relevant date to decide whether any PPI complaint forms part of the bankruptcy
estate is the date that the PPI policy was mis-sold. Provided the date that the mis-
selling of the PPI policy took place pre-dates the bankruptcy order date, any
complaint will form part of the bankruptcy estate.
38.8 Complaint for mis-selling of PPI
commenced prior to date of bankruptcy order
Where a bankrupt has commenced a complaint for mis-selling of a PPI policy prior to
the date of the bankruptcy order, the complaint is one that vests in the official
receiver, as trustee. The official receiver should not agree to the bankrupt continuing
any complaint. The official receiver, as trustee, may choose to continue the
complaint if it is considered that it has merit.
The official receiver should firstly notify the financial institution of the official
receiver’s interest and give consideration to continuing with the complaint, passing
the matter to the PPI unit (see below).
38.9 Lenders to check for bankruptcy prior to
paying out PPI compensation
Financial institutions have been asked to check if an individual has been the subject
of a bankruptcy order before making a compensation payment in respect of a mis-
--- PDF page 8 ---
sold PPI policy. However, this is not always happening in practice. Where a
bankruptcy order has been made, the financial institution should contact the relevant
official receiver to ascertain if the compensation payable under the PPI complaint is
a bankruptcy asset.
38.10 Bankrupt makes post bankruptcy
payments
Where a PPI policy has been sold at the same time as a loan and the bankrupt has
made payments towards a PPI loan after the date of the bankruptcy order, any mis-
selling complaint in relation to the PPI policy will still form part of the bankrupt’s
estate. This is most likely to happen with a secured debt e.g. on a bankrupt’s family
home.
A secured loan is a bankruptcy debt and a bankrupt is released from the loan on
discharge1 2. A bankrupt may choose to continue the secured loan repayments, e.g.
where continuing to reside in the property, but any claim that the bankruptcy estate
has received ‘unjust enrichment’ from the bankrupt’s continued repayments is
incorrect. The bankrupt’s motivation to continue repayments is a desire to retain the
property and they are not forced (to their detriment and the trustee’s benefit) to
continue paying the loan.
1. section 281
2. section 382
The continued repayments also represent a repayment of the loan granted for the
purchase of the PPI policy and not the PPI policy itself.
38.11 Amount of compensation may be set-off
in bankruptcy
Any compensation paid in relation to a mis-sold PPI policy will usually comprise
reimbursement of all PPI premiums paid, together with any interest charged (where
the premium has been added to the loan).
However, where a mis-selling complaint relates to a debt that is still in existence at
the date of the bankruptcy order, the amount due in compensation may be off-set
against outstanding debt owed to the same institution. This is the case even where
the debt that the PPI was taken out to cover has been repaid.
--- PDF page 9 ---
Consequence of an annulment on PPI
claims
38.12 Bankruptcy order annulled
Where a bankrupt has obtained an annulment of the bankruptcy, then any
compensation payable as the result of a PPI mis-selling would be payable to the
former bankrupt and not the bankruptcy estate.
38.13 Annulment – payment in full
It is possible that the payment of PPI compensation might result in sufficient funds
becoming available to meet a bankrupt’s debts in full. If this is the case, the bankrupt
should be informed of this possibility so that they may obtain independent advice and
decide whether to apply for an annulment of the bankruptcy order.
Initial action to be taken by the official
receiver in relation to PPI – obtaining
information
38.14 Information to be obtained from
bankrupt
In order that a PPI complaint can be successfully pursued it is essential that all
relevant information with regards to any PPI policy taken out is obtained from the
bankrupt as soon as possible after the making of the bankruptcy order.
Where it is identified that the bankrupt has a PPI policy with regard to a loan, even if
that loan is now repaid, the bankrupt should be requested to provide an account of
the purchasing of the policy by answering the questions on the appropriate
questionnaire (see below).
38.15 PPI information to be obtained at initial
enquiry stage or vetting interview
--- PDF page 10 ---
The bankrupt should be asked to provide confirmation as to whether or not any PPI
policies have been taken out at the initial enquiry stage or (where initial enquiries are
not made) as part of the vetting interview. Where a PPI policy is identified at the
initial enquiry stage, the official receiver should send the PPI questionnaire (Annex
A) to the bankrupt with the interview pack.
The questionnaire should only be sent out with the interview pack where a PPI policy
has already been identified. PPI questionnaires should not be sent to a bankrupt
speculatively. Where possible the official receiver should complete the PPI
questionnaire at the vetting interview on behalf of the bankrupt to prevent any
misunderstanding about who has the right to any subsequent compensation.
38.16 Separate questionnaire required for
each PPI policy
A separate questionnaire should be completed for each PPI policy held. The
questionnaire is derived from the questionnaire held on the Financial Services
Ombudsman’s website and should not be altered.
38.17 PPI information to be obtained at
interview
Where the bankrupt confirms that they have a PPI policy at the interview stage, the
examiner should note the bankrupt’s response regarding any PPI policies held in the
interview record or preliminary examination. The official receiver should ensure that
either;
a) the completed questionnaire(s) have been returned by the bankrupt (if previously
sent), or
b) the questionnaire(s) is completed during the interview
Where possible, the official receiver should complete the PPI questionnaire at the
vetting interview on behalf of the bankrupt to prevent any misunderstanding about
who has the right to any subsequent compensation.
38.18 Failure of bankrupt to provide
information
Where the official receiver considers that the bankrupt may have a PPI policy prior to
their bankruptcy and the bankrupt fails to complete or sign the PPI questionnaire,
this should be treated in the same way as any other failure by the bankrupt to
--- PDF page 11 ---
provide information, with early discharge not being proceeded with and an
application to the court for suspension of the bankrupt’s discharge being considered.
Each case should be reviewed on its own merits as to the materiality of the failure to
co-operate with the official receiver.
Obtaining information from third parties
38.19 Seeking information from secured
lenders
If the bankrupt cannot recall whether a PPI policy was purchased, the official
receiver should make enquiries of any secured creditors using the document
production mortgage letter1. To obtain information with regards to any PPI policy
taken out by the bankrupt, additional paragraphs should be inserted into this
mortgage letter, see Annex B for the text to insert and guidance on how to insert it.
1. MP2
38.20 Letter to mortgage lender
The letter to the mortgage lender should seek to establish:
a) details of any PPI policy sold in connection with the borrowing
b) details of the PPI provider including their address and policy number
c) if any PPI policy exists, whether any complaint has been commenced with regards
to its potential mis-selling
d) where the lender is the PPI provider, a copy of the policy
38.21 Response to MP2 mortgage enquiry
letter
If the mortgage lender responds to the mortgage enquiry letter confirming that the
bankrupt holds a PPI policy which has not previously been disclosed, arrangements
should be made with the bankrupt for the questionnaire to be completed and the
bankrupt’s consent to the enquiries being made obtained. If the bankrupt cannot
recall the necessary information and that is not possible, the questionnaire should be
issued to the bankrupt for completion with as many details as possible, and the case
file updated). Provided the bankrupt’s consent is obtained on the questionnaire, then
--- PDF page 12 ---
that, along with the details provided by the mortgage lender which may include a
copy of the PPI policy, should be sufficient for the complaint to be progressed.
38.22 Bankrupt cannot recall if PPI policy
obtained – unsecured lender
Where a bankrupt cannot recall whether they took out a PPI policy and there is no
evidence to suggest that they did, e.g. copies of credit agreements, credit card
statements, etc. no further action should be taken.
Recording information on the file
38.23 ISCIS and initial PPI information
Where the bankrupt indicates that they hold a PPI policy and the PPI questionnaire
has been sent/given to the bankrupt for completion, the case file should be updated.
In particular note should be added to the case on the date the questionnaire is sent
in order that it may be chased for return.
38.24 ISCIS recording when PPI asset
confirmed
It is essential that The Service is able to accurately identify PPI compensation
monies received and the source. Consequently the PPI complaint should only be
recorded as an asset on the case file when:
a) confirmation has been received from the official receiver’s agents that a payment
has been received and is to be remitted to The Service
b) when funds are received directly from lenders, a CMC or bankrupt
The asset should then be recorded, in Asset Type ‘Other’ under ‘PPI Compensation
Claims’.
The LTADT PPI Team
38.25 PPI team to deal with all PPI matters
--- PDF page 13 ---
As part of the recommendations from the asset realisation group in late 2013 a
dedicated PPI team was set up to deal with all PPI compensation claim enquiries
and to streamline the process of realising those claims. This has now been
extended to other mis-sold financial products, including interest rate hedging
products.
All initial enquiries need to be completed by the official receiver, such as the
completion of new questionnaires (as outlined above). These should be forwarded to
the relevant bank by the official receiver’s office. Any resultant correspondence may
then be transferred to the PPI team to act.
If correspondence is received from a claims management company (CMC)
the PPI team will deal with these and make payment of their fees. The OR office
should not negotiate with the CMC but pass the matter through to the PPI team.
Upon receipt of the correspondence the PPI team will update ISCIS and take
appropriate action, depending on the case status.
38.26 Contact Details for the LTADT PPI Team
All post (emails and direct correspondence) should be emailed across to the
following email address (RTLU.NorthEast@insolvency.gov.uk)
Alternately a telephone line has been set up through the IEL for the following
telephone numbers
Main Enquiry Line for PPI – 0113 200 6096
Postal Address –
PPI Team
LTADT Manchester
PO Box 16665
Birmingham B2 2JX
38.27 Telephone Calls on PPI
If you receive a telephone call on PPI you should inform them that there is a
specialist team that deal with PPI. The calls can then be passed to the PPI Enquiry
Line.
If they have already spoken to the IEL, can't get through, or they are reluctant to call
again, take their number and let them know that a member of the PPI Team will call
them back. This can be emailed through to the RTLU North east email address
above.
--- PDF page 14 ---
38.28 Ongoing correspondence from the
financial institution, bankrupt or CMC
Banks often send in enquiry letters, reassessment letters and claim forms. They are
also received from the Financial Ombudsman. These are likely to appear in your
DNQ. These can be copied and emailed to the LTADT PPI Team
If the letter has arrived by fax this can be scanned and emailed direct to the RTLU
North East Inbox.
If an email arrives from the bank then this should be forwarded direct to the
RTLU.NorthEast@insolvency.gov.uk to respond.
38.29 What will the LTADT PPI Team do with
the cases?
If post is received on an open case that is still being worked on by an official receiver
command, then the post can be forwarded to the PPI Team to deal with. There is no
need to reassign the case to the LTADT PPI team until all other administration is
concluded. An asset can be opened in ISCIS to allow the PPI Team to monitor the
work. The LTADT PPI Team will also deal with any CMC costs, complaints or
queries regarding the PPI.
If the case is closed on ISCIS, or is reopened due to the PPI, then the case should
be reassigned on ISCIS to the LTADT PPI Team office and an asset opened in
ISCIS
If the PPI realises sufficient funds for a distribution the case will be prepared and
transferred to the LTADT distribution team by LTADT the PPI team. If the case does
not generate sufficient for a distribution the LTADT PPI team will close the case in
the normal manner.
38.30 IRHP (Interest Rate Hedging Products)
In a similar way to PPI claims for the misapplication of interest rates on certain types
of financial product vests in the trustee or is property of the company to be dealt wit
by the liquidator. The most common of these is the compensation being paid against
IRHPs
There are some issues with these cases whereby the Official Receiver may be liable
for the tax on the compensation and where HMRC need to calculate their claim in
the proceedings.
--- PDF page 15 ---
It was decided that whilst the tax situation was being investigated all cases with
IRHP would be gathered under one roof, in this case the LTADT PPI Team to allow
them to liaise with HMRC regarding the tax applicable to the case prior to any
distribution.
38.31 If the company is dissolved
Where compensation is payable to a company and it has been dissolved,
consideration will need to be given to applying to have the company resorted to the
register in order to deal with the potential asset. If the company is dissolved the
Official Receiver will need to make the decision to restore before the case is
transferred to the LTADT PPI Team. It will not be possible to restore a company that
has been dissolved for more than six years.
38.32 Other Miss-sold financial products.
The LTADT PPI Team will deal in a similar manner to PPI and IRHP any notice from
banks, debtors and Claims Management Companies (CMC) that deal with all other
mis-sold financial products.
The LTADT PPI Team is currently in negotiation with the banks to deal with these in
one office location and they are currently dealing with mis-sold bank accounts for a
number of the banks in this way. This includes the mis-selling on
•
secured debts
•
overdrafts
•
Wonga loans
•
Argos overpayments
•
refund of RBS Complex Fees
•
Brighthouse.
If any queries are received on the above miss-sold products these can be forwarded
to the LTADT PPI Team.
Realising PPI on secured and unsecured
borrowing
--- PDF page 16 ---
38.33 Deciding whether to pursue a PPI
complaint relating to a secured or unsecured
debt
The official receiver should consider the net benefit to the estate in pursuing any
potential PPI mis-selling complaint, i.e. the value of any potential compensation that
would be received by the estate.
Set-off should not normally be a deciding factor when considered whether to pursue
a claim, as most financial institutions are not applying the right (see below).
Generally, as outlined above, it will be the PPI Unit that will handle the realisation of
potential PPI claims.
38.34 PPI mis-selling complaint where there
are other assets in the bankrupt’s estate
It may be that the estate has other assets which are sufficient to generate a dividend
to creditors after the payment of bankruptcy expenses, but the PPI complaint is not
estimated to have a net benefit to the bankruptcy estate after set-off is applied.
Recovery should still be pursued on the basis that the respective financial
institution’s provable debt will be reduced by reason of set-off, resulting in an
increased dividend to other creditors. This is also applicable when set-off is applied
to reduce a secured debt, as it may result in a reduction of the monthly mortgage
payments or more equity in the property.
38.35 First stage complaint process – Financial
institutions complaints procedure
Once a PPI questionnaire has been completed and a decision is taken by the official
receiver to pursue the complaint, the questionnaire should be sent to the respective
financial institution with a covering letter requesting that they investigate the
complaint and forward any compensation payable for the benefit of the bankrupt’s
estate.
Most financial institutions have a dedicated email or postal address for PPI queries
detailed under their complaints procedure which is available from the ‘contact us’
section of their website. If there is not a dedicated PPI address, the official receiver’s
letter of complaint enclosing the questionnaire should be addressed to the
complaints department. A list of financial institutions PPI departments can be
accessed by clicking here.
--- PDF page 17 ---
38.36 Response received from financial
institution
The financial institution should respond to the questionnaire generally within eight
weeks, although some institutions have been granted more time by the Financial
Ombudsman to deal with complaints.
Where the financial institution responds accepting the PPI mis-selling complaint,
then the monies should be requested and credited to the bankruptcy estate.
38.37 Second stage complaint process –
forward complaint to Financial Ombudsman
Where the financial institution responds refusing the mis-selling complaint, and the
letter confirms that this is their final response, then the official receiver should
consider whether to forward the matter to the Financial Ombudsman for review. Any
referral to the Financial Ombudsman must be made within six months of the financial
institutions final response.
The Financial Ombudsman will not look at a complaint for mis-selling PPI until after
the complaint has first been addressed by the appropriate financial institution. There
is no minimum amount for which a claim should be pursued.
38.38 Second stage complaint process -
forward complaint to Financial Ombudsman
within 6 months
Where the official receiver wishes to refer a complaint to the Financial Ombudsman
following an unsatisfactory final response from the financial institution, the complaint
must normally be made within 6 months of receiving the final response. The final
response to a PPI mis-selling complaint must specify that if the complainant wishes
to, they can take their complaint to the Financial Ombudsman, and set out the time
limits.
38.39 Sending complaint to the Financial
Ombudsman
If the official receiver, as trustee, decides to send the complaint to the Financial
Ombudsman for review, the official receiver should send a covering letter enclosing
--- PDF page 18 ---
the bankrupt’s completed questionnaire and the response from the financial
institution concerned.
38.40 Financial Ombudsman’s reply
The Financial Ombudsman will review the information sent by the official receiver,
and may write to the financial institution involved requiring them to provide further
information. Once a complaint has been accepted for investigation the official
receiver need not take any further action other than monitoring the case for a
response.
38.41 Outcome of Financial Ombudsman’s
investigation
Where the Financial Ombudsman responds to the official receiver indicating that a
PPI mis-selling complaint for compensation is unsuccessful the official receiver
should take no further action.
However, where the Financial Ombudsman finds that a PPI policy was mis-sold, the
Ombudsman will instruct the financial institution involved to make an appropriate
compensation payment for the benefit of the bankrupt’s estate.
Time limits for bringing claims
38.42 Time limit for bringing action – ability to
claim ends on 29 August 2019
The law sets time limits in which a legal claim or complaint to the Financial
Ombudsman must be brought. Although this matter can be complex, the basic
principle where a complaint is raised for mis-selling by contract, is that the complaint
must be commenced within six years from the date the cause of action accrued i.e.
the date the PPI was mis-sold1, or three years from the knowledge that there is a
cause of action (right to complain)2.
In some circumstances, the Financial Ombudsman may consider a complaint where
the PPI policy was sold more than six years ago.
A final date for the banks to receive complaints has been set by the FSA. Any new
claims received after 29 August 2019 will be deemed out of time.
1. Limitation Act section 5
--- PDF page 19 ---
2. Limitation Act section 14A(4)
38.43 Time limit to complain to Financial
Ombudsman
The Financial Ombudsman follows set rules on complaints handling. Where a
complaint to a financial institution has resulted in an unsatisfactory final response,
the complaint must be referred to the Financial Ombudsman within 6 months.
38.44 Financial Ombudsman – discretion in
relation to time limits
Under the rules, the Financial Ombudsman has the discretion to look at complaints
that fall outside the time limits in “exceptional circumstances”. An example of this
might be if the consumer was incapacitated during the period when they could have
complained.
Jointly-held policies
38.45 Jointly purchased PPI policy
Where there is a potential mis-selling complaint in relation to a single PPI policy
purchased by two or more customer, e.g. a husband and wife, then it is likely both
parties will have their own separate PPI complaints.
When considering the split of compensation payments following a complaint the
following matters should be considered:
a) the rights of each party under a joint PPI cover. If the policy provides for greater
cover for one party, then it may be appropriate that that party receives a larger
proportion of any compensation paid
b) in a jointly held PPI policy whether a separate complaint has been brought by
each party. If so, then any payment would most likely only relate to that party
c) who made the PPI loan repayments. If each party contributed towards the
repayments it would appear that there is an equal right to any mis-selling complaint,
but if evidence can be provided that only one party paid the premiums, it may be
appropriate for that person to benefit from the compensation
--- PDF page 20 ---
The financial institution involved may advise the official receiver of any joint policy
holder entitlement to a PPI compensation payment, although the official receiver
should rely on the accuracy of the information provided by the bankrupt initially.
38.46 Payments made jointly towards PPI
policy held in one party’s name
Where a PPI policy covers a joint loan but is only in the name of one party, it is
possible that any compensation following a complaint will be divided between both
parties. Where the PPI insurance premium is added to the loan taken out, which is a
joint loan, both parties will be liable for the repayments on the total loan, regardless
of who is named on the policy. The issue of who is named on the policy would only
be relevant if a claim is made under the policy. Only the person named on the policy
would be able to make a claim. However redress comprising of a refund of the
premium plus interest following a complaint that the policy was mis-sold would be
split between the two parties who were liable to pay it.
Where the PPI insurance premium in the name of one person on a joint loan has not
been added to the mortgage loan, but is to be paid separately from the loan, any PPI
compensation would be payable to that person alone.
In some instances the banks will make a single payment to the individual who
instigated the claim. The payment will need to be investigated to determine if the
loan and PPI were taken out in joint names as the funds will need to be split.
38.47 Mis-selling complaint vests even where
loan re-paid prior to bankruptcy order
As the PPI policy is a separate product to the debt it was obtained to protect, the
right to compensation for mis-selling will vest in the trustee whether or not the loan
has subsequently been repaid. This would apply even if the loan had been repaid in
full prior to the bankruptcy order1.
1. Ward v Official Receiver [2012] BPIR 1073
Claims management companies
38.48 Claims management companies
--- PDF page 21 ---
In respect of mis-sold PPI, a claims management company (‘CMC’) will offer advice
and/or services in respect of complaints for compensation. They usually operate on a
‘conditional fee’ basis whereby any fee for services provided is payable only if there
is a favourable result and compensation is paid.
38.49 CMC instructed prior to date of
bankruptcy order
The official receiver may discover at the initial enquiry stage or first interview, that a
bankrupt has employed the services of a CMC prior to the date of the bankruptcy
order.
The official receiver should not agree to the bankrupt continuing any complaint via
the CMC, as any right to complain for the mis-selling of a PPI policy vests in the
official receiver as trustee.
Details with respect to the CMC and progress made in relation to the complaint
should be obtained from the bankrupt. Where the complaint has already progressed
to conclusion, i.e. a settlement or adjudication has been obtained, the official
receiver should contact the Financial Institution and attempt to have any
compensation awarded paid directly to the insolvent estate.
38.50 Contacting the CMC
Where the bankrupt has already instructed a CMC prior to the making of the
bankruptcy order, the official receiver, should seek to take control of the complaint
and write to the CMC advising that:
a) the complaint now vests in the official receiver, as trustee of the bankrupt’s estate
b) the bankrupt is without standing to instruct in this matter1
c) the official receiver does not intend to adopt the contract
d) the CMC may wish to submit a claim for any amounts outstanding to them up to
the date of the bankruptcy order
e) any compensation payment should be remitted to the official receiver as trustee of
the bankrupt’s estate
1. Pickthall v Hill Dickinson LLP [2009] PNLR 31
38.51 Complaint to be progressed by official
receiver rather than CMC
--- PDF page 22 ---
There is usually no benefit to retaining the services of a CMC, as in most cases the
only action required is the completion of the questionnaire by the bankrupt and
passing the information to the Financial Institution.
Where a PPI complaint has commenced at the date of the bankruptcy order, any
further action with regards to the complaint should be managed by the official
receiver, as trustee.
38.52 The official receiver and CMC fees
Where a CMC has pursued a PPI mis-selling complaint to the point that
compensation is payable, the official receiver should firstly ensure that any PPI
compensation is collected for the benefit of the insolvent estate.
Having successfully pursued the complaint, the CMC is likely to request payment of
their fees and it is reasonable for the official receiver to allow some payment from the
compensation proceeds realised; the proceeds having resulted, in part, from the
CMC’s efforts. It should be noted however, that the official receiver is not bound by
the terms of the CMC’s contract with the bankrupt, and fees based on a percentage
of the compensation awarded are likely to be excessive in relation to the amount of
work actually undertaken by the CMC (fees claimed may be as high as 25-30%). The
official receiver should, consequently, offer a reasonable remuneration following the
guidance below.
All CMC invoices should be forwarded to the Insolvency Service PPI Team. (see
below)
38.53 Official receiver to exercise discretion
The official receiver, as trustee of the bankrupt’s estate, has discretion in the
negotiation/establishment of what should be paid to a CMC as a fee for work
undertaken. Typically, 10% of the net realisation to the bankruptcy estate, i.e. the
amount received after application of any set-off applied by the financial institution,
should be offered to the CMC from the bankruptcy estate. The 10% offer should be
inclusive of VAT. The payment in all cases should be limited to the amount received
by the estate, i.e. a debit balance can not be incurred to meet CMC charges.
Ultimately the agreed fee to be paid to the CMC is a matter for the official receiver,
as trustee, to decide and the official receiver should always act in the best interests
of the creditors.
38.54 Using a time and rate basis for
calculating CMC fee
--- PDF page 23 ---
Where the CMC claims a fee which is in excess of £600, the official receiver should
consider requesting the CMC to provide a time and rate breakdown of the work they
have undertaken. The sum of £600 does not represent the maximum that may be
paid by the official receiver, as trustee, to a CMC in respect of their fees. The figure
should simply be used as a trigger for approaching the request for payment on a
‘time and rate basis’, instead of arbitrarily offering 10%.
Where 10% of the net realisation is under £600 and the CMC reject the official
receiver fee payment offer, the official receiver should consider requesting the CMC
to provide a time and rate breakdown in support of their fee claim and then use this
breakdown to determine what fee is appropriate taking into consideration the
‘reasonable costs’ of the CMC.
38.55 CMC using contract as evidence of fees
Where a CMC has been required to send in a time and rate breakdown, the CMC
may simply provide the official receiver with a copy of the contract it holds with the
bankrupt as evidence that they are entitled to a certain percentage of the gross
realisation. The official receiver should not accept this as evidence of entitlement to
that fee. As the official receiver, as trustee, did not instruct the CMC, they are not
bound by the contract. The official receiver should reiterate a request for a time and
rate breakdown in order that the ‘reasonable costs’ of the CMC may be calculated.
38.56 Bankrupt employing a CMC post
bankruptcy
The Service is aware that some bankrupts and former bankrupts have used CMCs to
pursue PPI policy mis-selling complaints on their behalf after the date of the
bankruptcy order. If these services are used after the date of the bankruptcy order, it
is possible that the bankrupt will remain responsible for all or part of the CMC fee
charged as a post-bankruptcy debt.
The bankrupt will not receive any direct benefit from the compensation, which is
vested in the official receiver, and, consequently, may be left without any funds with
which to settle the CMC’s fees. In these circumstances, the bankrupt may wish to
seek independent advice on the enforceability of the claim, specifically whether the
CMC should have accepted an instruction when knowing (or failing to enquire) about
the bankruptcy and its effect on the bankrupt’s standing to make a complaint.
In practice where the insolvent estate has benefited from the compensation
payment, the official receiver should agree to pay the reasonable costs of the CMC.
Problems may occur where the PPI provider has exercised a right to set-off. In such
--- PDF page 24 ---
circumstances this may result in no compensation received by the insolvent estate
from which the CMC’s fees could be paid.
38.57 Bankrupt ultimately liable for CMC fees
if instruction post-dates bankruptcy
Ultimately, where the bankrupt’s instruction to the CMC is after the date of the
bankruptcy order, it is the bankrupt who is liable under the contract with the CMC
and, any liability will be a post-bankruptcy debt.
38.58 CMC – assignment of right to make PPI
complaint prior to date of bankruptcy order
Where a CMC is pursuing a PPI mis-selling complaint prior to the date of the
bankruptcy order, the CMC may claim that the right to pursue the complaint was
assigned to them by the bankrupt. It is unlikely that any purported assignment of a
PPI mis-selling complaint to a CMC would be a formal assignment. It is more likely
that the bankrupt has entered into a contract for services offered by the CMC. Any
purported assignment after the presentation of the bankruptcy petition would be
automatically void1.
The official receiver should obtain copies of any written documentation to establish
whether it is a legally binding assignment of the right to make the complaint, seeking
advice as necessary.
1. section 284
PPI on secured borrowing
38.59 PPI and secured loans
A PPI mis-selling complaint in relation to a secured loan is generally anticipated to
have a more positive benefit to insolvent estates than a PPI mis-selling complaint
against an unsecured loan. This is because the size of the loan is likely to be larger
and consequently any potential PPI compensation payout would also be larger.
Additionally as there may be no unsecured element of the debt, the loan creditor will
have no right of set off.
38.60 Re-vesting of bankrupt’s home and PPI
--- PDF page 25 ---
Where the bankrupt’s home has re-vested in the bankrupt, this will not effect any
compensation payments received from a PPI mis-selling complaint, which will still be
payable to the official receiver as trustee of the bankrupt’s estate. This is because
the PPI is a stand alone insurance contract and does not fall within the definition of
‘an interest in a dwelling house’1.
1. section 283A(1)
38.61 Vehicle purchased on hire purchase –
agreement has not been adopted
The adoption or non-adoption of the agreement of a hire purchase agreement,
relates only to the official receiver’s ability to exercise a right of redemption in respect
of the goods subject to the agreement. Consequently, the non-adoption of a hire
purchase agreement does not affect the vesting of a PPI complaint in respect of a
PPI policy taken out in relation to the hire purchase agreement.
38.62 Vehicle purchased on hire purchase –
bankrupt released from liability on discharge
As with other property which comprises part of the bankrupt’s estate, the bankrupt is
released from any liability under the hire purchase agreement on discharge1. The
bankrupt may have chosen to continue paying any amounts due under the hire
purchase loan in order to retain use of the vehicle, not through a legal obligation to
do so.
The monthly hire purchase payments are likely to include an amount towards the
loan obtained for the initial purchase of the PPI policy as often the amounts cannot
be easily separated. By continuing to make payments, the bankrupt is not acquiring
an interest back in the PPI policy. It is a matter between the hire purchase company
and the bankrupt where the bankrupt decides to continue making payments towards
the hire purchase agreement. The official receiver should make it clear to the
bankrupt that any payment received under a successful PPI complaint will be paid in
full to the official receiver, as trustee, for the benefit of the bankrupt’s insolvent estate
and this will apply even where the bankrupt continues to make PPI payments post
bankruptcy as part of the hire purchase loan.
1. section 281
Right of set-off
--- PDF page 26 ---
38.63 Right of set off - overview
There is an automatic right to set-off any compensation in relation to mis-sold PPI
against any provable debt held by the lender at the date of a bankruptcy order1. This
is particularly relevant to an outstanding unsecured debt but will also apply to any
shortfall in respect of secured debts.
1. section 323
38.64 Right of set-off is automatic
Set-off should be automatically applied where at the date of the bankruptcy order,
the financial institution liable to pay compensation also holds a provable debt in the
bankruptcy proceedings.
By way of example, if the financial institution is liable to pay compensation of £2,000
but holds a provable debt of £5,000, the institution’s claim is reduced by means of
set-off to £3,000 (£5,000 - £2,000).
38.65 Compensation received, set-off not
applied
Often a financial institution will pay out or offer compensation in relation to PPI sold
in relation to an unsecured debt, without first having acknowledging their right to
apply set-off.
38.66 Lenders advised by Financial
Ombudsman not to apply set-off
The Financial Ombudsman has generally advised lenders to compensate consumers
to put them back into the position they would have been in had the mis-selling of a
PPI policy not occurred. This means that in a non-insolvency position, financial
institutions are not normally applying set-off with compensation against any
outstanding debts.
38.67 Loan sold on by financial institution
If the lender sells or assigns the debt to a third party prior to the date of the
bankruptcy order, this ends the right of set-off as there is no mutuality at the date of
the bankruptcy order. This is because once the debt is assigned or sold, the debt is
outstanding to a different party (the assignee) to that owing compensation (the
lender).
--- PDF page 27 ---
38.68 Set off can benefit general body of
creditors
Where a compensation payment is set off against part of an unsecured provable
bankruptcy debt, this will result in the creditor having a reduced claim in the
bankruptcy proceedings. Where a bankruptcy estate has other assets and a dividend
payout is possible, the official receiver should consider pursuing the mis-sold PPI
complaint as an increased dividend will result from the reduction of the total provable
debts.
38.69 Right of set-off in relation to secured
debt
Where the financial institution has a secured debt, the statutory right of set-off
applies only to the portion of that debt which is provable in the bankruptcy
proceedings, i.e. the unsecured shortfall.
When a PPI complaint is upheld the secured loan will be rearranged by writing off all
amounts that remain outstanding in relation to the borrowing for the PPI premium,
including any interest and charges, so that in future the number and level of
outstanding repayments against the loan (and any charges and fees) are the same
as if bankrupt taken the original loan sum without the PPI cover.
Additionally, where a PPI complaint is upheld, instead of paying the amount due in
compensation in respect of PPI payments already paid and interest on those
payments to the official receiver as trustee, the secured creditor may elect to apply
statutory set-off by adjusting the outstanding loan balance to account for the
compensation payable. The official receiver as trustee maybe able to object to the
application of set-off if there is no provable debt (shortfall), to set-off against.
The official receiver should consider carrying out a further income and expenditure
assessment of the bankrupt as it is possible that the bankrupt’s monthly payments
on the secured loan may have decreased as a consequence of the successful PPI
complaint, and therefore a new income payments agreement may be appropriate or
it may be possible to increase the payments made by the bankrupt on a current one.
Additionally, as a result of the adjustment of the secured loan, the value of the
bankrupt’s interest in the property will be increased and should be considered for
realisation by the official receiver as trustee of the bankrupt’s estate.
38.70 Adjusting a secured debt to account for
PPI compensation
--- PDF page 28 ---
Where a secured creditor elects to adjust the outstanding loan balance instead of
paying compensation for PPI mis-selling, the loan would be readjusted by:
a) writing off all amounts outstanding in relation to the PPI borrowing, including
interest and charges
b) calculating the amount already paid in relation to the PPI borrowing, including
interest charged (less any premium refunded to the bankrupt or estate when the
policy was cancelled)
c) adding interest to the amount at (b) from the point that payments were made to
the firm by the bankrupt to the point that the firm settled the complaint
d) the amounts at (b) and (c) will then be deducted from the loan balance going
forward; as they were previously paid and credited to a mis-sold PPI policy which
has since been cancelled
38.71 Set-off and brokers
Where the policy was sold by a broker, the right of set-off will not apply, unless the
broker also has a provable debt in the bankruptcy proceedings.
If a bankrupt has obtained a loan and PPI, and that loan was subsequently repaid by
a later loan with the same financial institute, but obtained through a broker, then it is
likely that mutuality still exists sufficiently for set-off to apply1.
1. section 323
38.72 Set off still applies when loans are
consolidated
Where a loan has been taken out and PPI purchased and that first loan is
consolidated, the right of set-off will still apply if the same loan company is a creditor
at the date of bankruptcy order.
38.73 Set off still applies where a break in
mutual dealings
Mutuality in dealings between a bankrupt and a financial institution is likely to exist
throughout any banking related dealings, even if some time goes by without the
bankrupt owing the financial institution, e.g. if a loan is repaid over time then a further
loan is obtained several months later. The PPI policy does not need to have been
purchased in relation to a particular loan outstanding at the date of the bankruptcy
order.
--- PDF page 29 ---
38.74 Compensation payment where
guarantor subsequently repaid loan post
bankruptcy
Where a loan company is owed money at the date of the bankruptcy order, and a
third party (such as a relative) has guaranteed that debt, that third party will remain
liable for the loan despite the bankrupt being released on discharge from that debt1.
Where the third party then repays that debt in full and subsequently PPI
compensation is agreed, it is possible that some or all of that payment may be rightly
made to the third party. This would be appropriate if the loan creditor could have
applied set-off at the date of the bankruptcy. It could be said that if set-off had been
applied by the loan creditor, then the guarantor who repaid that debt has overpaid by
the amount that would have been recoverable under the right of set off.
1. section 281
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--- PDF page 1 ---
This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 10 March 2020.
39. Intellectual property and other
intangible assets
Annexes
Annex A - Template for a written special resolution to be used by the liquidator on
changing the name of a limited company in liquidation and informing Companies House of
the name change
Chapter content
Frequently asked questions – Intellectual property and other intangible assets
Background and overview
Copyright
Registered designs
Unregistered design right
Patents
Plant breeders’ rights
Software
Trade and service marks
Names used by companies and individuals
--- PDF page 2 ---
Domain names
Goodwill
Client, customer and patient databases
Frequently asked questions –
Intellectual property and other
intangible assets
What is intellectual property?
Intellectual property is the legal right associated with creations of the mind, e.g.
artworks, inventions etc. Formal systems exist to protect the legal rights associated
with these creations, e.g. copyright, design right, patent and trade mark. Literary,
dramatic, musical and published works are covered, as are sound recordings, films,
broadcasts and computer programs.
Can the official receiver collect income relating
to copyright, recording or performance rights
owned by an insolvent prior to insolvency?
Yes, copyright is an asset, therefore existing copyright relating to any work created
by an insolvent prior to the making of an insolvency order vests in the estate of the
insolvent.
How do I know if copyright still applies?
In the UK the length of time for which copyright protection is afforded is dependent
on the nature of the work as follows:
•
literary, dramatic, musical or artistic works - protected for 70 years after the death of
the author/composer/artist
•
film works – protected for 70 years after the death of the last survivor of any of the
director, screenplay author or composer of any original soundtrack
•
sound recordings and broadcasts - protected for 50 years after the year of release or
broadcast
--- PDF page 3 ---
•
written works – protected for 25 years after publication
How do I check who owns a copyright on
which royalties are due?
Various different societies and organisations exist to collect royalties on behalf of
people and organisations holding copyrights, according to whether the company or
individual created, performed, recorded or published the work. Full details of all the
relevant organisations and who they represent can be found in the Technical Manual
guidance.
Can a copyright be licensed or assigned, or the
licence sold?
Yes – as copyright is an asset it can be transferred to someone else - either in whole
or in part (e.g. where film rights are sold for a novel). Any assignment must be in
writing and signed by or on behalf of the assignor. Licensing allows a licensee to
carry out specific acts in relation to the copyrighted work, (e.g. produce the DVD for
a cinematically released film).
Can the official receiver disclaim a copyright
where the royalty income is low or nil?
Yes, the official receiver can consider disclaiming copyright where there is no royalty
generated (e.g. the work is unpublished) or the future costs of administering
collections under the copyright are likely to exceed any copyright value or income.
What do I do where a bankrupt is due royalty
payments for a copyright that has been sold
before bankruptcy?
Where a copyright has been sold prior to bankruptcy the copyright and royalty rights
cannot be realised as assets as they do not vest in the trustee. Instead, remaining
royalty payments due to the bankrupt as a condition of sale can be collected as
income, under an IPA or IPO
What is a patent?
--- PDF page 4 ---
Generally patents are a deal or bargain between a state and an inventor – an
intellectual property right granted by the government of a country as a territorial right
for a limited period. The inventor agrees to make public their invention for it to be
freely copied, after the expiry of an agreed period where they had a monopoly over
its manufacture, use and sale. In the UK a patent is granted via the UK Intellectual
Property Office and lasts for 20 years, but must be renewed to keep it in force.
Does a patent have a value?
A patent can be bought and sold like any other property, it can generate royalties or
be subject to a secured loan by way of a mortgage, or the rights to it can be licensed.
Where an insolvent owns a patent (which is in force) at the date of insolvency, it
vests in the estate and can be realised as an asset, once ownership has been
verified. Where a patent has lapsed the official receiver may need to consider
restoring it in order to sell it.
Will an insolvent’s computer software be
realisable as an intellectual asset?
Most computer software used by an insolvent is likely to be a standard package
purchased “off the shelf” so will not be a realisable asset. Where an insolvent is
using “bespoke” software (written specifically for the insolvent’s business) or
software produced within the business (“in house”) the official receiver should
examine any agreements/contracts with the software supplier or in house creator, to
ascertain copyright ownership and any intellectual property rights created, also any
restrictions on assignment.
What about the re-sale of Microsoft volume
software licences?
Where the insolvent company or individual has used a Microsoft volume software
package for their business, it may be possible to realise some value by arranging for
the licence re-sale through specialist agents
Can a “design” have a monetary value?
Design relates to the outward appearance of a product, rather than to the product
itself. Both registered and un-registered designs can be protected, and design rights
are an asset that can vest and may have a value. They can also generate income
from royalties, which can be collected by the official receiver.
--- PDF page 5 ---
What about trade marks and service marks?
Trade or service marks (e.g. a word, logo or graphic which identifies a product or
service) are usually registered (although this is not compulsory) and can vest in an
insolvent’s estate. Where they are vested, they may be sold as an asset. The licence
to a trademark can also be sold as an asset. The insolvent may be in receipt of
royalties as a condition of the sale of a registered trade mark, although the trade
mark will no longer vest. These royalties should be collected by the official receiver
as income, including via an IPA or IPO where appropriate.
Does a company, business or trading name
have a value?
Yes, a company, business or trading name, which might also be a trade mark, can
have a value and can be sold by the official receiver, if there is sufficient interest. If
the insolvent wishes to purchase the name, it should be independently valued by
agents where a satisfactory valuation cannot be agreed.
Can the official receiver as liquidator change a
company’s registered name in order to
facilitate a name sale?
Yes, the official receiver as liquidator can change a liquidated company’s registered
name in order to sell the original name; however they must pass a special resolution
on behalf of the company to change the name, and notify Companies House, for the
name change to be valid.
What does the official receiver have to be
aware of when selling a name?
When transferring the registered or trading name of a company, the implications of
the Insolvency Act 1986 section 216 must be considered, i.e. the name is generally
prohibited from being used for a period of 5 years by a person who is, or has been, a
director or shadow director of the company in liquidation in the 12 months preceding
the date of liquidation.
What else does the official receiver need to be
aware of when selling or transferring names?
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The official receiver must establish before selling or transferring any registered,
business or trading name that they will not become liable under the tort of “passing
off”, where the name or mark is similar to another business or company or infringes
on the goodwill of another company.
What about domain names on the internet –
can they be sold or transferred for a value?
Domain names are word sequences, which allow internet users to search and
navigate to a specific website. Each domain name is assigned to a specific internet
service provider and is registered, and some can be sold for significant amounts of
money. Domain names are not owned by the user or registrant, but are licensed by
the appropriate registrar for use whilst the licence is paid for. Where a domain name
is registered to the insolvent, breaches no trademark and there are no outstanding
fees, it can be dealt with as any other asset.
Is goodwill an asset?
In insolvency cases where a former business has ceased, its goodwill is likely to be
worthless. Goodwill is only likely to have any value where a business is being sold as
a going concern.
Can the official receiver sell a client, customer
or patient database?
Client lists, customer or patient databases are potential assets which can be sold, as
long as certain requirements are met. Specifically, any buyer needs to understand
that the information can only be used for its original intended purpose and its usage
must be within the reasonable expectations of the individual concerned. As part of
the sale the official receiver should obtain an undertaking from the buyers that they
will inform the affected individuals who it is that now holds their information.
What if a buyer cannot be found for the
client/customer database?
Where a purchaser cannot be found for the database, or a sale is not able to be
concluded, the information held should be deleted or destroyed as soon as it is no
longer required, to comply with data protection provisions.
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Background and overview
39.1 Intellectual property – general
background
Intellectual property is the legal rights associated with creations of the mind such as
works of art, inventions, designs or business logos. For a well known national or
international company, intellectual property can be one of its most valuable assets.
Formal systems for the protection of the rights associated with these creations has
developed over time, these being mainly copyright, design right, patents and trade
marks.
39.2 Intangible assets – general background
An intangible asset is, literally, as asset that cannot be touched. It includes
intellectual property, but also other things such as goodwill, customer information or
software, all of which are saleable.
Copyright
39.3 Copyright generally
When an original work is created so, in effect, is the copyright to that work. Its
purpose is to give authors of original creative or artistic works the rights to control
reproduction, distribution, copying or performance of the work. The types of works
that are protected by copyright are many and varied, including original art, literary,
dramatic or musical works, sound and film recordings, broadcasts, directories and
published works. Original computer programs are also protected by copyright.
39.4 Legislation
The legislation defines the types of work that can be copyrighted1. Copyright
protection extends to almost anything that can be called ‘a work’, but under the terms
of the legislation, for the copyright to be protected certain qualifications must be met2.
1. Copyright, Designs and Patents Act 1988 sections 1 to 8
2. Copyright, Designs and Patents Act 1988 sections 153 to 156
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39.5 Independent development of the same
idea
Copyright does not in itself protect an idea, but rather the expression of that idea. If
someone else develops an identical or similar idea on a parallel basis, copyright will
not protect against this. Copyright only offers the copyright holder protection against
the actual copying of their work or idea, or unauthorised use of their idea (e.g.
making copies or extracts from the original work without permission)
39.6 Protection afforded by copyright
Unlike other forms of intellectual property, there is no formal registration procedure
for copyright. Copyright protection is effective from the date that the work is
created and, whilst there are accepted procedures for establishing the originality of
the work (such as the author posting a copy to themselves), or depositing a dated
copy with a bank or solicitor), the final decision may rest with the courts.
39.7 Copyright in existence at date of
bankruptcy order
Any copyrights already in existence form part of the bankruptcy estate. This means
that any income arising under the copyright vests in the estate and can be claimed in
full. Also the bankrupt should be advised that future copyrights may be claimed as
after acquired property. If the author already has an agreement or contract with a
publisher, the publisher should be notified of the bankruptcy order and asked to
provide a copy of the agreement or contract, as well as full details of all anticipated
income due under the copyright.
39.8 Ownership of copyright
The legislation defines the author of the work to be the first owner1. The exception is
where the work is created by an employee during the course of their employment
when, subject to any agreement to the contrary, the ownership passes to the
employer. Similar provisions apply to Crown Servants in respect of works created in
the course of their duties2.
1. Copyright, Designs and Patents Act 1988 section 11
2. Copyright, Designs and Patents Act 1988 section 163
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39.9 International conventions relating to
copyright
There are two main international conventions relating to copyright protection. These
are the Berne Convention for the Protection of Literary and Artistic Works, and the
Universal Copyright Convention. The United Kingdom (UK) is a member of both
conventions and means that copyright protection for works created in the UK is
extended to other countries that are members of the convention.
39.10 Duration of copyright
In the UK the length of time for which copyright protection is afforded is dependent
on the nature of the work. Literary, dramatic, musical or artistic works are protected
under copyright for 70 years after the death of the author1. For films, the protection
lasts for 70 years after the death of the last survivor of the director, author of the
screenplay or composer of any original soundtrack2. Sound recordings3 and
broadcasts4 are protected for 50 years after the year of release or broadcast and for
written works the period is 25 years after publication5.
1. Copyright, Designs and Patents Act 1988 section 12
2. Copyright, Designs and Patents Act 1988 section 13B
3. Copyright, Designs and Patents Act 1988 section 13A
4. Copyright, Designs and Patents Act 1988 section 14
5. Copyright, Designs and Patents Act 1988 section 15
39.11 Ascertaining a copyright owner
As there is no registration process for copyright, it follows that there is no register
available to check or verify the holder of the copyright of a work. In order to ascertain
the owner of a copyright the official receiver may have to contact a number of
different organisations depending on the nature of the work:
•
PRS for music (collecting royalties for composers, songwriters etc)PPLUK ( collection
of royalties in relation to the copyright of a recording or broadcast of a work rather
than the copyright of the work itself)
•
The Authors’ Licensing and Collecting Society – written works
•
Design and Artists Copyright Society – works of art
•
Public Lending Right – library lending
39.12 PRS for Music
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PRS for Music is a membership organisation for composers, songwriters and music
publishers that collects and distributes money (royalties) for the use of musical
compositions and lyrics, on behalf of authors, songwriters, composers and
publishers, relating to music that is heard in public. The majority of copyright holders
whose music has been, or is being, heard in public will be members of the
organisation.
39.13 PPLUK
PPLUK is a membership organisation for holders of copyright that licenses the use of
recorded music played in public, broadcast on radio, TV or on the internet, and
collects royalties relating to recorded music or music videos played in public, on
behalf of record companies and performers. It differs from PRS for Music in that it
collects royalties relating to the copyright on the recording of the work rather than the
copyright of the work itself (for example, the composer would typically be paid by
PRS for Music but the singer or musician would be paid by PPLUK).
39.14 The Authors’ Licensing and Collecting
Society
The Authors’ Licensing Collecting Society collects royalties due to writers for what is
known as “secondary rights”, this is royalties due for the photocopying, broadcasting
or recording of written works such as books, published articles or scripts. Unusually,
in the field of copyright, there is no organisation with responsibility for collecting
royalties relating to “primary rights”, that is the royalties on the initial sale of the book.
This is usually administered under a commercial arrangement between the writer,
publisher and author.
39.15 Design and Artists Copyright Society
The Design and Artists Copyright Society collects royalties relating to the copyright
on works of art such as pictures, paintings, drawings, sculptures, photographs and
ceramics where the work is reproduced or used in, for example, a television
programme or book. The Design Artists Copyright Society also collect royalties
relating to what is known as “Artist’s Resale Right”. This is due on the re-sale of
copyrighted works of art after the initial sale by the artist. Where an interested party
exists (for example, a relative connected to the subject of an artwork which vests in
the insolvent’s estate) the official receiver may consider asking that interested party
to make an offer for the artwork, taking into account any independent valuations as
available. A sale with the consideration payable in instalments may be appropriate
in some cases.
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39.16 Public Lending Right
The Public Lending Right Act 1979 established a system whereby authors,
illustrators, translators, adaptors, ghostwriters and editors are paid a fee in relation to
the number of times their book is borrowed from a public library. At the start of the
“lending year” (July-June) the Government sets aside a sum of money which is to be
used for this purpose and, during the year, a sample is taken of books borrowed
from libraries to allow a calculation to be made for the “pence per loan” to be paid to
the author. The maximum any one author may receive is currently £6,600 in any one
year. The right to receive these monies can be assigned by the author to another
party, for example a publisher. There are rules regarding the eligibility of books and
authors for registration to the scheme and these can be viewed at the scheme
website.
39.17 Copyright as an asset
Copyright is property and therefore the copyright relating to any work created by an
insolvent prior to the making of an insolvency order vests in the liquidation estate or
trustee of the bankruptcy estate subject to the exclusions relating to the creation of
the works in employment as outlined above. Conversely, a company in liquidation or
a bankrupt may hold the benefit of a copyright on the basis of these same
exceptions. The copyright relating to a work created by a person whilst in bankruptcy
may be claimed by the trustee as after-acquired property.
39.18 Sale of a copyright
Where the copyright of an insolvent’s work (or a copyright assigned to a company in
liquidation or a bankrupt) has vested in the liquidation estate or trustee, the copyright
may be sold with the assignment being signed by the liquidator or trustee of the
bankruptcy estate as assignor. If the insolvent owes outstanding royalties to the
author, the liquidator or trustee may still, subject to the terms of the original
assignment, sell the copyright with the outstanding royalties being a provable debt in
the insolvency.
39.19 Realising royalties where the insolvent
owns a copyright
Royalties may be paid by a publisher or other organisation to the owner of a
copyright in exchange for exploiting that copyright. The royalties may be payable
under the terms of a licence, with the owner retaining the copyright. In circumstances
where a bankruptcy or winding-up order is made against the owner of a copyright,
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the official receiver should make contact with the publisher or other organisation
paying the royalties and ask them to pay any royalties due to the liquidator/trustee.
39.20 Realising royalties paid as a condition of
the sale of a copyright
It may be the case that a bankrupt is in receipt of royalties as a condition of the sale
of a copyright. In this case the royalties cannot be claimed as an asset as the
copyright does not vest in the estate. Instead, the royalties should be treated as
income and can be claimed under an income payments agreement or an income
payments order. Royalties are treated as income for corporation or income tax
purposes.
39.21 Assignment of copyright
As with any other asset copyright can be freely transferred, either as a whole or for a
particular field (for example, the film rights to a novel). Copyright is transmissible by
assignment, testamentary disposition (under a will) or by operation of law as
personal property1. An assignment must be made in writing and signed by, or on
behalf of, the assignor2.
A copyright owner who does not wish to transfer the copyright outright may instead
choose to licence its use3, that is, grant someone else the right to do acts which
would normally infringe copyright.
1. Copyright, Designs and Patents Act 1988 section 90(1)
2. Copyright, Designs and Patents Act 1988 section 90(3)
3. Copyright, Designs and Patents Act 1988 section 92
39.22 Licensing of copyright
The copyright, or part thereof, relating to a work may be subject to a licence granting
permission to the licensee to carry out certain acts (for example, to produce copies
or publicly perform) a work subject to copyright. The licence may be exclusive in that
it allows only the licensee to carry out those certain acts (for example, the right to
produce the DVD of a cinema released film) or non-exclusive in that a number of
parties have similar rights to carry out the act (for example, a number of radio
stations with a right to play the same song).
There is no requirement for the licence to be in writing, but an exclusive licensee will
have no right to sue infringers unless the licence is in writing and signed by the
copyright owner.
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Should a licensing agreement be signed or entered into after the date of the
insolvency order, the licence is null and void, and the person who was interested in
buying the licence should be asked to make an offer to purchase the copyright from
the insolvent’s estate.
39.23 Sale of a copyright licence
A company in liquidation or a bankrupt may hold a licence in respect of a work
subject to copyright. In theory it may be possible to sell the licence as an asset in the
insolvency. Often though, the licensee may have been chosen specifically for
their personal skill or reputation and this may make the licence agreement one of a
personal nature, which cannot be transferred or sold.
It has been decided that an author may have a personal contract with a company
notwithstanding that the constitution of the company or its directors may change1.
Where an author is to be remunerated either by a share of profits or by royalties, it is
usually assumed that a contract is of a personal nature and not assignable.
Alternatively, if the author was paid a fixed sum, it is probable that the publisher
would have the right to assign the agreement.
In the circumstances where the official receiver wishes to effect the sale of a licence
they should obtain a copy of the original agreement in order to establish the nature of
the licence and whether or not it is realisable. Licenses which are not of a personal
nature may be assigned. It is very likely that legal advice of a specialist nature will be
required.
1. Griffith v Tower Publishing Co Ltd (1897) 1 Ch 21
39.24 Disclaimer of copyright
Returns relating to copyright licensing or exploitation can be very low, and
unpublished works generate no royalties at all. Unless the work is a bestseller the
returns are likely to be low. In these circumstances where there are no interested
parties willing to purchase the copyright or licence, it may be appropriate for the
official receiver to consider disclaiming their interest in the copyright, particularly
when it is considered that copyright can continue for 70 years after the death of the
author, requiring potential administration over a long period.
As an alternative an unsaleable copyright relating to films (fiction and non-fiction)
and television programmes, and particularly any physical film stock, may be offered
to the British Film Institute who maintain and preserve an archive of moving images.
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Registered designs
39.25 Registration of design rights
A design relates to the outward appearance of a product or part of a product (such
as a component), rather than the product itself. Design does not relate to the way a
product works – which would normally be subject to a patent.
The majority of registered design rights effective in the UK are registered through the
Trade Marks and Designs Registration Office with the EU Intellectual Property
Office, rather than directly with the UK Intellectual Property Office (UKIPO) Designs
Registry.
39.26 Registered design
A registered design right provides a legal monopoly right for the outward appearance
of an article or a set of articles of manufacture to which the design is applied by any
industrial process, provided the design(s) is novel or original (“of individual
character”).
39.27 Eligibility for registration of a design
In order for a design to be eligible for registration in the UK it must meet the definition
of design set out in the legislation1, be novel and have individual character2. Designs
which are dictated by technical function3, are contrary to accepted moral standards4,
have to be reproduced to exact form and dimensions, are not a visible part of the
product, or the design is protected (such as a royal emblems, flags or a hallmark),
are not able to be registered designs.
1. Registered Design Act 1949 section 1
2. Registered Design Act 1949 section 1B
3. Registered Design Act 1949 section 1C
4. Registered Design Act 1949 section 1D
39.28 First proprietor of a design
The person creating the design is considered to be the first proprietor of the design
except in cases where the design was created under a commission or by an
employee in the course of employment, in which case the commissioner or employer
would be the first proprietor1.
1. Registered Design Act 1949 section 2
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39.29 Protection afforded by a registered
design right
A registered design right gives the designer exclusive right to use the design and any
similar design. Use of the product constitutes the making, offering, selling, importing,
exporting, stocking or licensing of the design1.
1. Registered Design Act 1949 section 7
39.30 Duration of a registered design
The initial protection afforded by a UK registered design is for a period of five years.
Thereafter the registration can be renewed every five years to a maximum
registration period of 25 years. The renewal fees (which are payable to the UKIPO)
can be paid in the three month period before the due date. If the renewal fee is not
paid within six months of the due date then the design registration will lapse and the
design will not be protected1. This loss of protection means that the monopoly rights
to the design are lost, and anyone can use the design whilst the registration is
lapsed without having to pay any royalties.
1. Registered Design Act 1949 section 8
39.31 Restoring a design registration
Where a design registration has lapsed due to failure to pay the renewal fee on time,
it is possible to restore the design registration by application to the UKIPO. It is
necessary for the applicant to satisfy the UKIPO that theyintended to pay the
renewal fee on time. Restoration is not available for designs which were applied for
before 1 August 19891.
If the official receiver is considering making an application to restore a registered
design in order to sell it, the UKIPO should be asked to confirm that the time limit for
restoration has not expired, though they cannot give any indication of the likely
success of such an application. The costs of the application should be taken into
account in the negotiations relating to the sale and should not exceed the potential
sale proceeds.
1. Registered Design Act 1949 section 8A
39.32 Ascertaining the owner of a registered
design
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The UKIPO maintains a register of designs that have been granted the protection of
registration. The register is available here (https://www.gov.uk/search-registered-
design) and gives details of the owner of the design, its renewal date and details of
others with an interest in the design.
39.33 Dealing with a registered design as an
asset
Once a design is registered it may be bought and sold like any other property,
provided the disposition is made in writing and signed by all parties to the
transaction. A registered design may also be subject to a secured loan by way of a
mortgage. A registered design owned by a company subject to a winding-up order
would belong to the liquidation estate. Similarly, a registered design owned by a
bankrupt would vest in the trustee of a bankruptcy estate. Where the owner of an
unregistered design right (see below) is also the owner of a registered design, it is
assumed that any assignment of the design right also includes an assignment of the
registered design, unless a contrary intention is shown.
The official receiver should establish ownership of a registered design from the
insolvent’s records and/or by carrying out a search of the information held at the
UKIPO.
Where a registered design (or a registered design assigned to a bankrupt or a
company in liquidation) has vested in the liquidation estate or trustee, the registered
design may be sold with the assignment being signed by the trustee of the
bankruptcy estate or liquidator of the liquidation estate as assignor. The UKIPO
should be informed of the change in ownership1.
1. Registered Design Act 1949 section 19
39.34 Collecting royalties due to the insolvent
owner of a registered design
Royalties may be paid by a third-party to the owner of a registered design in
exchange for exploiting that registered design. The royalties may be payable under
the terms of a licence, with the owner retaining the registered design. In
circumstances where a winding-up or bankruptcy order is made against the owner of
a registered design, the official receiver should make contact with the third party
paying the royalties and ask them to pay any outstanding or further royalties due to
the liquidator or trustee.
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39.35 Royalties due as a condition of sale of a
registered design (collecting income)
It may be the case that a bankrupt is in receipt of royalties as a condition of the sale
of a registered design. In this case the royalties cannot be claimed as an asset as
the registered design does not vest in the estate. Instead, the royalties should be
treated as income and can be claimed under an income payments agreement or an
income payments order.
39.36 Sale of a licence to use a registered
design
A licence of a registered design may also be sold. The assignment should be in
writing and signed by the parties. The UKIPO should be informed of the transfer.
39.37 Protecting the official receiver’s interest
in a registered design
Where an insolvent owns a registered design, the UKIPO should be informed of the
winding-up or bankruptcy order and asked to note the official receiver’s interest in
the design. The UKIPO should also be asked to provide details of the remaining “life”
of the registration – as this could materially affect the value and details of any
renewal fees outstanding. Enquiries should be made to establish whether there are
any licensees or mortgages of the patent in order that they can be informed of the
making of the insolvency order and asked to note the official receiver’s interest.
39.38 Valuation of a registered design
The valuation of intellectual property is a complicated and sometimes controversial
area and the value will very much depend on circumstances. It is unlikely that the
official receiver’s local agents will have experience in this field and the official
receiver should exercise discretion as to whether or not to employ specialist agents.
A specialist in designs may be contacted through The Chartered Institute of Patent
Attorneys.
39.39 Jointly owned registered designs
Joint entitlement to ownership of a registered design can arise where there are co-
designers or if a share of the design is sold. Where a design is registered to two or
more persons they are entitled, unless there is agreement to the contrary, to equal
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undivided shares. The interest of each would survive his death as part of his estate.
Joint owners may not sell their interest to a third party without the consent of the co-
owners.
39.40 European Community registered
designs
The rules governing the procedures, processes and requirements for EC design
registration are largely the same as those relating to the UK registration process.
The guidance given above can be followed in respect of an insolvent that owns an
EC design registration. The registration authority in this case is the European Union
Intellectual Property Office (EUIPO).
The EUIPO maintains a searchable on-line register.
Unregistered design right
39.41 General information, eligibility and
duration of design right
Unregistered design right is a hybrid displaying characteristics of both registered
design and copyright. It is similar to copyright in that the protection afforded is
automatic and does not require registration. It shares characteristics of registered
designs in that it relates to designs, but it differs in that it does not give a total right of
design ownership, rather it gives protection against copying. The right lasts for 10
years after the date that an item made to the design is first marketed, up to a limit of
15 years from the creation of the design. Design right is exclusive for the first five
years but thereafter anyone is entitled to a licence of the right to make and sell
articles copying the design1.
1. Copyright, Designs and Patents Act 1988 section 216
39.42 Exception to design right protection
Design right does not extend to “must fit” designs (for example, a component such
as a spark plug for a car where the design of the shape of the plug is dictated by the
need for it to fit in a certain type of engine)1. This is to ensure that competitors cannot
be prevented from copying the features of a design to allow them to connect their
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own design to existing equipment designed by someone else. Competitors must not
copy elements of the design which are not essential to the fitting.
1. Copyright, Designs and Patents Act 1988 section 213(3)(b)
39.43 Ownership of design right
The designer is the first owner of the design right except in the circumstances that
the design is created under a commission or in the course of employment, in which
case the commissioner or employer is the first owner1.
1. Copyright, Designs and Patents Act 1988 section 215
39.44 Design right as an asset
Design right is property1 and it may be bought and sold like any other property,
provided the disposition is made in writing and signed by all parties to the
transaction. A design right may also be subject to a secured loan by way of a
mortgage. A design right vests by operation of law in the same way as any other
personal property. A design right owned by a company subject to a winding-up order
would belong to the liquidation estate. Similarly, a design right owned by a bankrupt
would vest in the trustee of a bankruptcy estate2.
In the case that the owner of a design right is also the owner or a registered design it
is assumed that any assignment of the design right also includes an assignment of
the registered design, unless a contrary intention is shown.
1. Copyright, Designs and Patents Act 1988 section 213(1)
2. Copyright, Designs and Patents Act 1988 section 222
39.45 Royalties an asset where the bankrupt
owns a design right
Royalties may be paid by a third-party to the owner of a design right in exchange for
exploiting that right. Royalties may be payable under the terms of a licence, with the
owner retaining the registered design. In circumstances where a winding-up order or
a bankruptcy is made against the owner of a design right, the official receiver should
make contact with the third party paying the royalties and ask them to pay any
royalties due to the trustee.
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39.46 Royalties as income received by the
bankrupt as a condition of sale of a design
right
It may be the case that a bankrupt is in receipt of royalties as a condition of the sale
of a design right. In this case the royalties cannot be claimed as an asset as the
design right does not vest in the estate. Instead, the royalties should be treated as
income and can be claimed under an income payments agreement or an income
payments order. A licence of a design right may also be sold. The assignment
should be in writing and signed by the parties.
Patents
39.47 General information as to what
constitutes a patent
A patent is essentially a deal, a bargain, between a state and an inventor. It is an
intellectual property right granted by a country’s government as a territorial right for a
limited period. Patents protect new and inventive techniques or technical aspects of
products or processes, in return for a monopoly on the manufacture, use, importing
or sale of an invention for a given period; by obtaining a patent the inventor makes
public their invention (potentially to their competitors) and agrees that it can be freely
copied once the term of the monopoly expires.
Patent rights make it illegal for anyone except the owner or someone with the
owner’s permission to make, use, import or sell the invention in the country where
the patent was granted.
39.48 Eligibility for granting of a patent
Patents typically cover new technical or functional aspects to products or processes
and are to do with how things work, how they are made or what they are made from.
Not every invention is entitled to the grant of a patent. As well as being new, the
invention must be inventive and capable of practical application in an industrial
sense. Theories, discoveries, rules, methods or artistic works cannot be patented1,
and the invention must not be in the public domain prior to the granting of the patent.
1. Patents Act 1977 section 1
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39.49 Identity of person to whom patent is
granted
A patent may be granted to the inventor or co-inventors1, and in the case of an
invention created in the course of employment, the applicant may be the inventor’s
employer2.
1. Patents Act 1977 section 7
2. Patents Act 1977 section 39
39.50 International conventions relating to
patents
A UK granted patent gives protection only in the UK and the Isle of Man. To get
protection in other countries would normally require separate applications to be
made in each of the countries that protection is required. However, there is an
international convention, the Patent Co-operation Treaty (PCT) which allows an
application to be filed in one country and protection can be extended to a number of
countries which are members of the World Intellectual Property Organisation
(WIPO). Additionally, an application may be made to the European Patent Office
(EPO) under the European Patent Convention. Similar to the Patent Co-operation
Treaty this allows protection to countries which are members of the European Patent
Convention.
39.51 Duration of a patent
In the UK a patent is fully effective from the date that the specification of the
invention is published by the UK Intellectual Property Office (UKIPO) and this is
usually some 18 months after the filing date. In the UK a patent lasts for 20 years,
but the patent must be renewed to keep it in force. The first renewal date is the end
of the calendar month of the fourth anniversary of the date of the application was
filed (not granted). Renewal fees are then due every year for the remaining 15 years
that the patent may be in force1.
1. Patents Act 1977 section 25
39.52 Lapse of patent and restoration
The renewal fees (which are payable to the UKIPO) can be paid in the three month
period before the due date or one month after that due date without attracting
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penalty charges for late payment. If the renewal fee is not paid within six months of
the due date then the patent will lapse and the invention will not be protected1.
In these circumstances it is possible to restore the patent rights by application to the
UKIPO. It is necessary for the applicant to satisfy the UKIPO that they intended to
pay the renewal fee on time and they must provide a witness statement or other form
of statutory declaration, accompanied by evidence, setting out the circumstances in
which the renewal fee was not paid. Such an application must be made within 19
months of the due date of the missed renewal payment2.
If the official receiver is considering making an application to restore a patent in order
to sell it, the UKIPO should be asked to confirm that the time limit for restoration has
not expired, though they cannot give any indication on the likely success of such an
application. The costs of the application should be taken into account in the
negotiations relating to the sale and should not exceed the potential sale proceeds.
1. Patents Act 1977 section 25
2. Patents Act 1977 section 28
39.53 Ascertaining a patent owner
The UKIPO maintains an online patent information and document inspection service,
called Ipsum. This service provides free access to check the status of a patent, the
most up-to-date information on a patent and access to some documents from
published patent applications.
The European patent register is also available via the UKIPO website which also
offers another service called Worldwide Espacenet. This gives details of patents filed
with, or granted, by, the EPO, the WIPO and over 100 national EPOs.
39.54 Patent as an asset
Once a patent is granted it may be bought and sold like any other property, provided
the disposition is made in writing and signed by all parties to the transaction. A
patent may also be subject to a secured loan by way of a mortgage. A patent vests
in the same way as any other personal property, so where it is owned by a company
subject to a winding-up order it can be realised as an asset in the liquidation.
Similarly, a patent owned by a bankrupt would vest in the trustee of a bankruptcy
estate1 The official receiver should verify ownership of a patent through the
insolvent’s accounting records and/or by searching the sources outlined above.
1. Patents Act 1977 section 30(1) to (3)
39.55 Sale of a patent or patent licence
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Where a patent (or a patent assigned to a company in liquidation or a bankrupt) has
vested in the trustee or liquidation estate, the patent may be sold with the
assignment being signed by the liquidator of the liquidation estate or the trustee of
the bankruptcy estate as assignor. The UKIPO should be informed of the change in
ownership1. In the same way, a licence to a patent may also be sold, and any
assignment of this licence should be in writing and signed by all parties. The transfer
of the licence should be notified to the UKIPO.
1. Patents Act 1977 section 30(6)
39.56 Royalties due to the liquidator or trustee
Royalties may be paid by a third-party to the owner of a patent in exchange for
exploiting that patent. The royalties may be payable under the terms of a licence,
with the owner retaining the patent1. In circumstances where a bankruptcy or
winding-up order is made against the owner of a patent, the official receiver should
make contact with the third party paying the royalties and ask them to pay any
royalties due to the trustee.
1. Patents Act 1977 section 30(4)
39.57 Royalties due as income as a result of
the sale of a patent
It may be the case that a bankrupt is in receipt of royalties as a condition of the sale
of a patent. In this case the royalties cannot be claimed as an asset as the patent
does not vest in the estate. Instead, the royalties should be treated as income and
can be claimed under an income payments agreement or an income payments
order.
39.58 Protecting a patent
Where an insolvent owns a patent, the UKIPO or other relevant registry (see above)
should be informed of the winding-up or bankruptcy order and asked to note the
official receiver’s interest in the patent. The UKIPO should also be asked to provide
details of the remaining “life” of the patent – as this could materially affect the value
and details of any renewal fees outstanding. Enquiries should be made to establish
whether there are any licensees or mortgages of the patent in order that they can be
informed of the making of the insolvency order and asked to note the official
receiver’s interest.
39.59 Valuation of a patent
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The valuation of intellectual property is a complicated and sometimes controversial
area and the value will very much depend on circumstances. It is unlikely that the
official receiver’s local agents will have experience in this field and consideration
should be given to the employment of specialist agents. A specialist in patents may
be contacted through The Chartered Institute of Patent Attorneys.
39.60 Jointly owned patents
Joint entitlement to ownership of a patent can arise where there are co-inventors or if
a share of the patent is sold. Where a patent is granted to two or more persons they
are entitled, unless there is agreement to the contrary, to equal undivided shares.
The interest of each would survive their death as part of their estate. Joint owners
may not sell their interest to a third party without the consent of the co-owners1.
1. Patents Act 1977 section 36
Plant breeders’ rights
39.61 Plant breeders' rights
New varieties of plants may be registered with the Controller of Plant Variety Rights1
to protect against any person other than the right-holder from producing, selling,
importing or exporting the plant variety. The duration of the protection is usually 25
years, but this is extended to 30 years in the case of trees, vines or potatoes2. The
right can be transferred like any other form of property3. The Plant Varieties Rights
Office is required to maintain a public register of protected plant varieties4 5, and this
is searchable by application to the Plant Variety Rights Office.
1. Plant Varieties Act 1997 section 3(1)
2. Plant Varieties Act 1997 section 11
3. Plant Varieties Act 1997 section 12
4. The Seeds (National List of Varieties) Regulations 2001
5. The Plant Breeders’ Rights Regulations 1998
39.62 Plant variety rights as assets
Farmers usually buy the seed as “certified seed” for which the plant breeder will
receive a premium to take account of the intellectual investment in the development
of the plant variety. Farmers may collect what is known as “farm-saved” seed from a
subsequent harvest of the initial planting. Use of this farm-saved seed is subject to a
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royalty payment and the British Society of Plant Breeders Limited administers
collection of these payments on a registration basis. In circumstances where an
insolvent holds a plant breeders’ right the official receiver should inform the British
Society of Plant Breeders of their interest in outstanding royalty payments.
Software
39.63 Software
Computer software is commonly used in an insolvent’s everyday business. It is
frequently leased and so is not available for assignment by the official receiver as
liquidator or trustee. If the software has been purchased “off the shelf” then it is likely
to be under license to the insolvent and that license will not be transferable, unless it
consists of Microsoft open software licences (see below). Where the insolvent is
using bespoke software (i.e. uniquely tailored or designed for their business), the
official receiver should examine the agreement entered into with the supplier both for
restrictions on assignments and the ownership of copyright. If a software supplier
has 'invented' the software for the insolvent’s use it is likely that the supplier will
retain ownership, rather than it being transferred to the ownership of the insolvent
business or individual.
39.64 Software written ‘in house’
If the software has been written 'in house' i.e. within the business, this may be
problematic. Individuals dealing with software are usually contractors rather than
employees and in such case the agreements by which they are engaged should be
examined carefully by the official receiver to determine who owns any intellectual
property rights created.
There is a source code for every piece of software and the software cannot be sold
without this. This code enables the software to be revised and maintained and
access to the code will only be permitted subject to the agreement with the insolvent.
Computer programs may be protected with copyright, which is a saleable asset in its
own right.
39.65 Re-sale of used Microsoft volume
software licences
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When dealing with an insolvent company or individual which has used a Microsoft
software package for their business, it is possible in some circumstances to realise
some value from this software by arranging for its re-sale. Only specific types of
Microsoft volume software programs can be realised in this way, the ‘Open’ licence’
(designed for small businesses with as little as five desktop personal computers
(PCs), the ‘Select’ and the ‘Enterprise’ licences, which are used by corporate,
government and academic institutions needing 250 or more desktop PCs. Domestic
software licences held by individuals (e.g. for a home computer) could not be re-sold
in this way.
39.66 Use of specialist sales agent to re-sell
Microsoft volume licences
Due to the unique nature of the re-sale requirements for such licences, in particular
the requirement to comply with Microsoft’s specified terms and conditions, The
Service has established a working relationship with a company called Discount-
Licensing.com Ltd in order to effect a realisation of such licences; its webpage and
full details are available at Discount-Licensing.com. Having identified the disused
Microsoft 'volume' software licences, Disclic then brokers a sale or sells or transfers
them to businesses which are migrating or experiencing a licence shortfall. The
company provides proof of ownership for every purchase and sale and also ensures
that Microsoft’s terms and conditions are met in relation to the transfer of ownership
of the Licence Agreement and Product Use Rights.
The company can deal with a range of Microsoft application and server products,
including Office, Microsoft SQL Server, Exchange and Windows server products and
more specialised applications such as Project, Visio, Biztalk and CRM. They can
also work with other software manufacturers such as SAP and Blackberry.
39.67 Action by official receiver when dealing
with Microsoft volume licences
The official receiver should ascertain at the earliest opportunity the type of software
used by the insolvent and whether there is a possibility it can be dealt with by the
company.
Where it appears the licence may have a re-sale value, the official receiver should
arrange for a letter of authority to be issued to the company, providing it with the
authority to make the necessary enquiries concerning the licence information
applicable to the licence agreements purchased by the specific insolvent company or
partnership. The authority should be limited solely to obtaining details of the licences
and does not cover negotiating any sale or transfer of licences, although the
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information obtained may eventually assist in the realisation of the value of the used
licence through sale or transfer.
Trade and service marks
39.68 General
Trade marks and service marks are signs, graphics (logos), words or shapes which
are used to distinguish one trader’s goods or services from those of another trader.
Trade marks are applied to tangible goods (e.g. a particular shape such as the Jif
Lemon bottle) whereas service marks are applied to services such as banking or
retailing where there is not always a physical product that can carry the trade mark.
39.69 Unregistered trade marks
A business or individual does not have to register a trade mark, however
enforcement of a right to use an unregistered trademark can only be protected under
the common law legal action of passing off1, where someone else uses your trade
mark or represents the goods or services as their own. This action is usually difficult
to prove and expensive to defend, as “passing off” relies on factual evidence proving:
•
the wronged party has a prior claim to the mark e.g. an established reputation and/or
goodwill in relation to the use of the unregistered trade mark
•
there has been financial or reputational loss or damage due misrepresentation to the
public as a result of the mark being used by someone else
•
the offending trademark has been confused with the establishing trademark
(confusing the public as to who/what is represented by the trade mark)
These issues would be difficult to prove where a new business has created a new
trade mark for example, so generally, registration of a trade mark is recommended.
1. Trade Marks Act 1994 section 5(4)(a)
39.70 Trade mark registration
In the UK, trade marks can be registered at the Trade Marks Registry, which is a
branch of the Intellectual Property Office.
39.71 Eligibility for trade mark registration
The Trade Marks Act 19941 defines a trade mark as any sign capable of being
represented graphically which is capable of distinguishing goods or services of one
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undertaking from those of other undertakings. A trade mark may, in particular,
consist of words (including personal names), designs, letters, numerals or the shape
of goods or their packaging. Marks which are capable of graphical representation
can be registered even if the mark itself is not a graphic or a word. This may include
tunes, packaging shapes or, in some very limited cases, smells. A specific colour
might also be considered a trade mark and can be registered as such2.
1. Trade Marks Act 1994 section 1
2. Societe des Produits Nestle SA v Cadbury UK Ltd [2012] EWHC 2637 (Ch)
39.72 Trade marks which cannot be registered
Certain marks are not eligible for registration on absolute grounds1. These include
marks which do not meet the legislative definition (see above) or marks which are
not distinctive, or considered to be contrary to public policy or accepted principles of
morality (e.g. in bad taste). Trade marks which consist exclusively of a sign which, in
trade, designates specific characteristics of that trade are also not eligible, nor are
trademarks which consist exclusively of the shape of the goods or which represent
signs or indications common to the business (although there are some exceptions to
this).
Marks which are protected emblems (such as flags or state arms) cannot be
registered2, nor can marks which are deceptive (for example, suggesting that a
product is from a particular geographical location when, in fact, it is not). If the use of
a mark is prohibited by UK or EU law it also cannot be registered. Other marks are
not eligible for registration on relative grounds such as conflict or potential conflict
with an existing mark – even if it is not a registered mark3.
1. Trade Marks Act 1994 section 3
2. Trade Marks Act 1994 section 4
3. Trade Marks Act 1994 section 5
39.73 Trade mark classifications
Trade marks are registered under a classification system1. Goods and services are
numbered using 45 differently numbered classes, with goods being registered under
classes 1 to 34 and services under classes 35 to 45. A full list of all the trade mark
classifications and the goods or services they relate to can be accessed on the
intellectual property office website.
It is possible for the same mark to be registered to the same owners for different
products, or different owners in different classes, as long as there is no risk of
confusion (for example, Puma for both cars and sporting equipment).
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1. Trade Marks Act 1994 section 34
39.74 Protection afforded by trade mark
registration
The proprietor, or owner, of a registered trade mark has exclusive rights to use the
trade mark in the United Kingdom and their right is infringed if it is used without their
consent1.
1. Trade Marks Act 1994 section 9
39.75 International conventions and
protection relating to trade marks
Registration of a trade mark with the UK Intellectual Property Office affords
protection only in the UK. Apart from making separate applications in each country in
which protection is required, there are two methods by which a trader can protect a
mark in more than one country using a single application:
•
apply for a European Community trade mark with the European Intellectual Property
Office which gives protection in all European Union countries
•
apply for registration in countries that have signed the Madrid Protocol through the
World Intellectual Property Office (WIPO). This can be effectively joined with an
application to the OHIM and extended to other nominated countries
Applications to the OHIM or the WIPO can be channeled through the UK Intellectual
Property Office.
39.76 Duration of registered trade mark
The initial period of registration is for a period of 10 years, and can be renewed every
ten years thereafter indefinitely1. The first ever registered trade mark, the Bass red
triangle, was registered in 1875 and is still a live registration. If the mark is not
renewed it will lapse and the protection will cease. If a mark is mistakenly allowed to
lapse it can be renewed, for an additional fee, within six months of the date that it
lapsed.
1. Trade Marks Act 1994 section 42(1)
39.77 Considerations when seeking to restore
and sell a trademark
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If the official receiver is considering making an application to restore a trade mark
registration in order to sell it, the Intellectual Property Office should be asked to
confirm that the time-limit for restoration of the trade-mark has not expired. They are
unable, though, to give advice on the likely success of such an application. The costs
of the application should be taken into account in the negotiations relating to the sale
and should not exceed the potential sale proceeds.
39.78 Revocation of a trade mark registration
A trade mark can be revoked (removed from the register) where it has not been put
to genuine use within five years of being registered, or has become the generic
name (that commonly used for a product or service in a particular trade) in
consequence of the activity or inactivity of the trade mark owner. It can also be
removed where its usage is likely to mislead the public as to the nature, quality or
geographical origin of the goods or service with which it is associated. A third party
can apply for a registered trade mark to be revoked if it can be demonstrated that
any of these revocation criteria apply1.
1. Trade Marks Act 1994 section 46
39.79 Ascertaining a trade mark owner
The owner of a trade mark is known as a proprietor for the purposes of the
registration process. The Intellectual Property Office maintains a searchable
database of trade marks which covers marks for which an application for registration
has been made, are currently registered or where registration has ceased
(https://www.gov.uk/search-for-trademark). The information available includes a
reproduction of the mark, the status of the mark (registered, lapsed, etc.) the classes
of goods for which it is registered, relevant dates (application, renewal, etc.), the
name and address of the proprietor and details of any agents acting.
39.80 Trade marks as assets
A registered trade mark is an item of personal property1 2 as is an application for a
trade mark. Trade marks can be assigned, pass under a will or by operation of law
as property separate from the goodwill of the business. A registered trade mark may
be used as security for a loan or other finance by way of a charge or other
mortgage3. A registered trade mark or application for a registered trade mark held by
an insolvent forms part of the estate of a company in liquidation and also vests in the
trustee of a bankruptcy estate.
1. Trade Marks Act 1994 section 2(1)
2. Trade Marks Act 1994 section 22
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3. Trade Marks Act 1994 section 24
39.81 Sale of a registered trade mark
Where a registered trade mark (including a trade mark assigned to a company in
liquidation or a bankrupt ) has vested in the liquidation estate or bankruptcy trustee,
the trade mark registration may be sold, with any assignment being signed by the
liquidator or trustee of the bankruptcy estate as assignor. The Intellectual Property
Office must be informed of the assignment for it to be valid1.
1. Trade Marks Act 1994 section 24
39.82 Royalties due for use of trade mark by a
third party
In addition, royalties may be paid by a third party to the owner of a registered trade in
exchange for exploiting that trade mark. The royalties may be payable under the
terms of a licence, with the owner retaining the trade mark1. In circumstances where
a winding-up order or bankruptcy order is made against the owner of a trade mark,
the Official Receiver should make contact with the third party paying the royalties
and ask them to pay any royalties due to the liquidator or trustee.
1. Trade Marks Act 1994 section 28
39.83 Royalties due to a bankrupt following
sale of the trade mark
It may be the case that a bankrupt is in receipt of royalties as a condition of the sale
of a registered trade mark. In this case the royalties cannot be claimed as an asset
as the trade mark does not vest in the estate. Instead, the royalties should be treated
as income and can be claimed under an income payments agreement or an income
payments order.
A licence of a trade mark may also be sold. The assignment should be in writing and
signed by the parties. The Intellectual Property Office should be informed of the
transfer1.
1. Trade Marks Act 1994 section 25
39.84 Protecting a registered trade mark
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Any person who becomes entitled to a trade mark by virtue of the making of a court
order (including winding-up and bankruptcy orders) is obliged to inform the
Intellectual Property Office of their interest in the mark1.
Where an insolvent owns a registered trade mark, the Intellectual Property Office
should be informed of the winding-up order or bankruptcy order and asked to note
the Official Receiver’s interest in the trade mark. Enquiries should be made to
establish whether there are any licensees or mortgages of the patent in order that
they can be informed of the making of the insolvency order and asked to note the
Official Receiver’s interest.
1. Trade Marks Act 1994 section 25
39.85 Valuation of trade marks
The valuation of intellectual property is a complicated and sometimes controversial
area and the value will very much depend on circumstances. It is unlikely that the
official receiver’s local agents will have experience in this field and consideration
should be given to the employment of specialist agents. A specialist in trade marks
may be contacted through The Chartered Institute of Trade Mark Attorneys.
39.86 Joint ownership of a trade mark
A registered trade mark may be granted to two or more persons jointly and, subject
to agreement to the contrary, each of them is entitled to an equal, undivided share in
the mark. Each proprietor is allowed to use the mark without the consent of any of
the joint owners, but the mark may not be licensed or assigned without the consent
of the joint owner(s)1.
1. Trade Marks Act 1994 section 23
Names used by companies and
individuals
39.87 Introduction to names
This part provides information concerning business, trading, registered and domain
names and trade marks, primarily in relation to companies. It outlines the procedures
required to enable a company to change its name, to enable a sale of the “old” name
and also, highlights areas where the official receiver may need to take action. This
could be where a company’s name is changed immediately before liquidation, or
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where the name has a possible re-sale value. In both cases the official receiver may
need to consider the implications and restrictions arising, particularly with regard to
section 216 of the Insolvency Act 1986 regarding company name re-use. It also
examines the tort of “passing off” in relation to the re-use or re-sale of a name or
trade mark. Further, actions the official receiver needs to take when dealing with
domain names are examined, these include dealing with possible disputes and the
valuation and sale of the domain name.
39.88 Business, trading and registered names
used by companies and sole traders
A business usually has (at least) one name by which it is publicly identifiable. A
limited company is also required to have a legal, registered name, which may or may
not be the name under which it generally trades. In the case of a sole trader, the
business trading name may be simply the trader’s own name, or a close variation of
it. Alternatively, a trading style relevant to their business may be used. In addition,
many limited company and sole trader businesses now also use a domain name to
give access to a website through which their business can be advertised or goods
and services sold online. This name will often have a close connection or similarity to
the business’ trading name.
39.89 Trade or service marks as a business
name
Trade marks (see above) are usually attached to the products or services offered by
a business rather than to the business itself. However, particularly in the case of
service marks (which are trade marks used to advertise a service rather than a
product), there may be an overlap between the trading name and the service or
product (e.g. The Post Office). Section 216 restrictions (see below) should also be
considered where the trade or service mark is also the name of the company’s
business.
39.90 The tort of “passing off”
Where the official receiver is considering selling a registered, business or trading
name they must establish before any sale is agreed, whether a claim for the tort of
“passing off” is likely should the name sale go ahead, as the potential time and
monetary costs involved in defending a claim may negate any value in selling the
name. The three key elements for there to be a valid action for the tort of “passing
off” are:
--- PDF page 34 ---
•
that the claimant’s goods or services have acquired goodwill in the market and are
known by some distinct name, distinguishing mark or other indicator;
•
there is a misrepresentation by the defendant (even where it was unintentional)
leading, or likely to lead, to the public believing that the goods or services offered by
the defendant are goods and services offered by the claimant; and
•
that the claimant has suffered or is likely to suffer damage as a result of the
defendant’s misrepresentation1
1. Reckitt & Colman Products Ltd v Borden Inc (No. 3) [1990] 1 All ER 873
39.91 Initial name searches required to
prevent potential “passing off” claims
The official receiver should undertake a variety of searches to establish any similar
business or trading names, including:
•
The Companies House register.
•
The Intellectual Property Office’s website which provides a facility to search for
registered trade marks (see above)
Other factors which should be considered by the official receiver are:
•
whether the other business is in the same geographical area;
•
whether they are in the same trade or business; and
•
whether there is any likelihood that the other business would suffer if the business or
trading name was sold.
39.92 Changing a company name prior to
winding-up
A company may change its name1, and (prior to liquidation) this will usually be either
by a special resolution of its shareholders2, or less commonly, by the use of a
suitable provision in its articles of association3. Neither Table A nor the model articles
for private companies limited by shares4 automatically contain such a clause, so it is
not likely the official receiver will often encounter a company having this provision in
its articles.
Directors may call a general meeting of the shareholders to enable the resolution for
a change of name to be passed, however a director’s power to act in the company’s
affairs ceases upon the making of a winding-up order, therefore they are not in a
position to call a meeting of shareholders following liquidation. In some cases where
a company’s registered name has been changed either shortly before or after the
winding-up order, the official receiver may have been consulted or have been aware
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of the change of name, which could have been effected as part of the sale of all or
part of the company’s business by e.g. an administrative receiver.
1. Companies Act 2006 section 77(1)
2. Companies Act 2006 section 78
3. Companies Act 2006 section 79
4. Companies (Model Articles) Regulations 2008 schedule 1
39.93 Registration of change of name and
effective date of change
Whilst a resolution may have been passed for the name of a company to be
changed, for the change to be effective it must be registered by Companies House
and a new certificate of incorporation issued1 2.
1. Companies Act 2006 section 80
2. Companies Act 2006 section 81
39.94 Shareholder resolution to change a
company name without reference to the
liquidator
Official receivers have encountered problems where the company name is changed
after the winding up proceedings have commenced. Members of a company may
seek to transfer the registered name without advising the official receiver or liquidator
or obtaining their consent, and thus avoid paying any consideration for the goodwill
attached to the company’s registered name. The shareholders achieve this by
passing a resolution to change the name of the company in liquidation, and then use
the name vacated by the company in liquidation for another limited company.
Shareholders in a company acting unanimously have at common law the ability to
waive irregularities to achieve informally a result which would otherwise require the
observance of a specified procedure. This means that, where all other requirements
are met in full, there may be nothing the official receiver can do to stop or amend the
change, as it has been lawfully made.
39.95 Companies House registration of a
change of company name
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Companies House has confirmed that where a request to register a change of the
name of a company in compulsory liquidation is received, its practice is to contact
the liquidator. This is to establish, before the application is registered, whether the
liquidator approves of the change of name and whether the resolution is valid. Once
Companies House is satisfied the resolution is valid, it registers the change of name
and issues a certificate of incorporation in the company’s new name (the company’s
registration number remains unchanged). An application can then be made to court
to change the title of the liquidation proceedings.
39.96 Applying to court to amend the title of
the insolvency proceedings
In the event that the official receiver becomes aware that the registered name of a
company in liquidation has been changed, the official receiver should make an
application to court to change the title of the insolvency proceedings, including a
direction that this new title be used in future. The new title should follow the format
below:
XYZ Limited formerly known as ABC Limited
(company number 1234567) (IN
LIQUIDATION).
The application can be made without notice and should be supported by a short
report explaining how the change of name came to be effected and including, as
exhibits, a record of the resolution (if any) and certificate of incorporation showing
the change of name.
39.97 Consequences of failing to apply to
change title of insolvency proceedings
Failure to apply to change the title of the insolvency proceedings following a
company name change may leave the official receiver open to allegations of
defamation as in the course of the liquidation, they would be referring to the wrong
company. It is important that the electronic case record is updated as soon as
possible after the official receiver is made aware of the new registered name, and
from then on only the new name of the company should be used.
If the change is not made it may cause difficulties for the official receiver when
applying for release, as the application for release will refer to a company that is not
in liquidation. It could also potentially lead to the wrong company (the company
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which is now known by the old company name) being dissolved in error, following
the conclusion of the liquidation.
39.98 Insolvency Act provisions to be
considered by the official receiver following
the change of a company name
The official receiver should consider the following provisions where a company’s
name has been changed:
•
Section 207 (transactions in fraud of creditors). This section might be relevant if there
is a value attaching to a company name and the shareholders who effect the change
of name are also officers of the company
•
Section 208 (misconduct in the course of winding up). This section might be relevant
if an officer of the company, having knowledge of the passing of a resolution, does
not disclose such information to the official receiver
•
Section 216 (restrictions on the re-use of a company’s name) – see below
39.99 Restrictions to be considered by the
official receiver when selling or transferring a
registered, business or trading name
A registered, business or trading name used by a limited company may have a
value, and the official receiver may seek to sell or transfer one or all of these names
following liquidation. They should be aware that certain restrictions need to be
considered, e.g. a limited company may not have a registered name which is the
same as or very similar to a name already appearing in the registrar’s index of
company names1 2.
Before offering the company’s name for sale the official receiver should also ensure
that the name has not been registered by a third party as a trade mark or that they
are likely to be sued under the tort of passing off.
1. Companies Act 2006 section 66(1)
2. Companies Act 2006 section 67(1)
39.100 Section 216 restrictions
Section 216 prohibits a person who is, or has been in the 12 months prior to the
date of liquidation, a director or shadow director of the company in liquidation, from
--- PDF page 38 ---
using (for a period of five years) a name which is the same or similar to the name
(registered or trading) of the company in liquidation.
These restrictions should obviously be considered where the directors or shadow
directors of the company in liquidation are to be involved in the management of the
new company purchasing the name of the old company.
39.101 Notice required of name sale
The purchaser, prior to acting in circumstances which would otherwise contravene
the section 216 prohibition, must give notice to every creditor whose name and
address is known to them (or is ascertainable on the making of reasonable
enquiries) and also publish the notice in the Gazette. The purchaser may give and
publish such notice prior to the sale of the business, but the notice must be given
and published no later than 28 days after that sale is completed.
The notice must specify the following:
•
the name and registered number of the insolvent company
•
the name of the person (subject to the prohibition)
•
that it is their intention to act in all or any of the ways which would otherwise be
subject to prohibition in connection with, or for the purposes of, the carrying on of the
whole or substantially the whole of the business of the insolvent company
•
the prohibited name1
1. rule 22.4
39.102 Removal of requirement to obtain
leave of the court
If the name of the company represents the whole or substantially the whole of the
business of the company in liquidation, or if the sale of the name is part of a sale of
the whole of the business, then the purchaser must follow the procedure outlined in
the Rules1 in order to avoid contravening the section 216 prohibition.
Any person who correctly follows this procedure may then act without the leave of
court required under the legislation2. The notice is seen as being prospective in that
its effect is from the date of the notice, and is not retrospective. Any actions carried
out by the directors of the successor company prior to the issue of the notice may
leave them open to an allegation that they have contravened section 216 and to
personal liability for debts incurred3 4.
Any sale of the name in this respect should be conditional on the requirements of the
legislation5 being followed and a note to that effect should be included in the sale
contract.
--- PDF page 39 ---
1. rule 22.4
2. section 216(3)
3. section 217
4. Churchill & Churchill and First Independent Factors and Finance Ltd [2006] EWCA Civ 1623
5. rule 22.5
39.103 Leave of court required - name not
representing the whole of the business
If the name of the company does not represent the whole or substantially the whole
of the business then the exemption offered in the legislation does not apply and an
application for leave of court to use the name will be required1. In these
circumstances, the prospective purchasers should produce evidence to the official
receiver that such application has been made and no sale of the name should be
concluded until leave has been obtained.
Please see the section 216 guidance for further details.
1. section 216(3)
39.104 Liquidator’s authority following a
winding-up order
A company’s liquidator (following the making of the winding-up order) assumes all
decision making authority on behalf of the company, including that held previously by
shareholders, such as the power to pass a resolution.
The legislation provides the liquidator with substantial powers to sell the company’s
property in a winding up and to wind up its affairs and distribute its assets. No
reference is made to the obtaining of shareholder approval1.
Further, for example there is no need following the winding-up order for shareholder
approval to be obtained to enable the liquidator to effect substantial property
transactions, something ordinarily requiring shareholder approval2 3 4.
1. schedule 4 Part III
2. section 191
3. section 192
4. section 193
--- PDF page 40 ---
39.105 Use of agents to value a company’s
registered name
Whether the sale is to be made to the former directors of the company in liquidation
or to an un-connected party, and the name appears to have a considerable value
(perhaps, because it is well known), or a valuation cannot be agreed between the
parties, agents should then be engaged to provide an independent valuation. The
potential purchasers should meet the costs of the valuation and agents should not be
instructed until the official receiver is in receipt of funds, or a written undertaking to
provide funds to cover the costs. A chartered surveyor or an accountant may carry
out the valuation.
39.106 Procedure to allow the official receiver
as liquidator to change the registered name
Where the official receiver is seeking to realise the value in the registered name of
the company in liquidation by sale or transfer to a third party (having taken into
consideration any potential restrictions regarding the re-use of the name as detailed
above, they will need to draw up a special resolution to change the name. Annex A
to this chapter provides a template with suggested wording for the liquidator to use.
The liquidator has the authority to sign the special resolution without the consent of
the contributories (shareholders) or any need to call a shareholders’ meeting to pass
a resolution for the name change.
The official receiver as liquidator should sign the resolution and complete and sign
Companies House form NM01. This form, together with the signed resolution and
appropriate fee should be sent to the Registrar of Companies. The Registrar will then
agree the company’s name change, releasing the old name which can then be sold
for the agreed consideration.
39.107 Bankruptcy - business (or trading)
names
A trading name used by a sole-trader in bankruptcy may be sold to a third party as
part of a sale of the whole of the business or in its own right. When considering this,
official receivers should consider whether there is any possibility of a likely action
under the tort of “passing off” (see above) if they intend to sell the business or
trading name to a third party, especially where they are aware of any other business
with a similar name (. It is considered inappropriate to seek any payment from the
--- PDF page 41 ---
bankrupt for the re-use of a trading name as they are under an obligation to trade
using or disclosing the name under which they were made bankrupt1.
1. section 360
Domain names
39.108 Domain names and their use
A domain name is a word sequence or “string” which can be entered into an internet
search engine to gain access to a specific web site. A domain name represents an
internet protocol (IP) resource (the name of every organisation, individual, personal
computer, server computer, website or any other service connected to the Internet. It
has to be uniquely defined (identified) so that others wishing to make contact can do
so without the risk of communications being misdirected. Each domain name is
assigned to a specific internet service provider (ISP). The domain system is used to
translate the address of the ISP into words. Domain name registration is now big
business and nearly every domain name is registered, and some change hands for a
significant amount of money.
The Internet Corporation for Assigned Names and Numbers ICANN is responsible
for awarding contracts to registries to operate top-level domain names.
39.109 Top level domain names
A top-level domain is the last part of an internet domain name, that is, the letters
which follow the final dot of any domain name. Each country has its own two-letter
top domain name.
The .uk top-level domain was first used in the 1980's and at that time a voluntary
group managed the .uk domain names. By the early 1990s commercial companies
started to sell domain names to companies. As demand for domain names
registration grew the voluntary group could not cope and Nominet UK (a private, not
for profit company limited by guarantee) was set up to manage the .uk top-level
domain.
39.110 Realising domain names held under
licence
Domain names are not actually owned by the user or registrant. They are effectively
a licence from the appropriate registrar to use the domain name during the period
--- PDF page 42 ---
paid for with title for the domain name always belonging to the registrar. Details of
the registrant’s rights to use and transfer the domain name will be provided in the
appropriate registrar's terms and conditions.
If the domain name is registered to the insolvent, breaches no trademarks and has
no outstanding fees it can be dealt with as any other asset. The name has little
intrinsic value but there are various auction sites on the web which can give an
indication as to the value of the name and deal with its transfer for value if the official
receiver considers it would benefit the creditors of the insolvent estate.
39.111 Verification of the registration of
domain name.
A registration certificate is issued by the internet service provider ISP in respect of
each domain name registered. This certificate should verify proper registration to a
named person. The official receiver should endeavor to recover this certificate from
the insolvent’s records and if this certificate cannot be found enquiries should be
made from the relevant internet service provided. The ownership of a domain name
may be established by reference to the web-site www.who.is.
39.112 Verify the domain name value
Certain firms will provide a professional valuation of a domain name over the internet
and these can be used to test the value. Depending on the costs involved and the
value of the domain name the official receiver should consider seeking more than
one valuation.
39.113 Sell or transfer the domain name
If the domain name has a value the official receiver should arrange for its transfer.
Some local agents used by official receivers have experience in transferring domain
names. In addition there are numerous auction sites brokering domain names on the
internet. The amount of commission charged and the buyer reach varies between
sites. In order to transfer the name to the purchaser the registration certificate is
required. If this cannot be found Nominet UK should be contacted for guidance on
transferring domain names without the registration certificate.
39.114 Action where domain name has no
value
--- PDF page 43 ---
Where a domain name has no value, the registration may be cancelled subject to the
registrar's terms and conditions or left to lapse at the end of the registration period.
Goodwill
39.115 Definition of goodwill
A key definition of the term “goodwill” was given in the House of Lords on 20 May
19011:
"What is goodwill? It is a thing very easy to describe, very difficult to define. It is the
benefit and disadvantage of the good name, reputation and connection of a
business. It is the attractive force which brings in custom. It is the one good thing
which distinguishes an old-established business from a new business at its first
start.".
1. IRC v Muller & Co Margarine Ltd (1901) AC 217
39.116 Types of goodwill
The three primary types of goodwill have been generally established as:
•
inherent goodwill - generated by the location of the property rather than the carrying
on of a particular business. This may be because of the attractiveness of the address
(such as in a well regarded part of town) or the strategic location (next to a main road
or in the town centre)
•
personal goodwill - which is generated by the personality, special skills or reputation
of the person carrying on the business
•
free goodwill - which relates to the success of the business generated by historical
reputation, the quality of staff or existing contracts
39.117 Goodwill - value unlikely following
insolvency
Goodwill is valued based on the advantage or reputation a business has acquired
due to the quality of its product and/or service and/or the holding of a respected
brand name. Where a business has ceased to trade, its goodwill will usually be
worthless. If a director, partner or bankrupt includes goodwill in a statement of affairs
or other document the official receiver should seek an explanation as to its inclusion
as an asset.
--- PDF page 44 ---
39.118 Valuation and sale of goodwill
The valuation of goodwill is difficult because of its vague nature. The value is very
much dependent on the particular circumstances of the business and is only likely to
be an issue where an insolvent's business is being sold as a going concern and the
goodwill will only have a value if the purchaser is willing to pay an additional sum for
goodwill.
The costs associated with the sale of the goodwill (and the business as a whole)
should be provided by the potential purchaser, and it is recommended that at least
one independent valuation be provided by the purchaser at their own expense.
Client, customer and patient databases
39.119 Confidential information as an asset
Confidential information can be intellectual property but it is covered by informal
protection, under the general legal right to confidentiality and by confidentiality
protection provisions in contracts as well. Three tests are required to satisfy whether
information is subject to confidentiality protection:
•
must by nature be confidential;
•
must have been told or conveyed to the recipient in circumstances in which an
obligation of confidence arose (e.g. it must be obvious what was being imparted was
confidential)
•
its unauthorised use would be detrimental to the owner
39.120 Client, customer or patient databases
Some businesses, particularly those providing a service requiring periodic repetition
such as private clinics, dentists, opticians or vets, will be in possession of a list of
clients or patients, often held in the form of a computerised database. Whilst the
client information held on the database may well be confidential, this database is
also a potential asset, which may be sold for the benefit of the insolvent estate.
39.121 Information must only be used for its
original purpose
When personal information covered by the DPA is collected from individuals initially
it should be clear to them what it will be used for. When a database is sold, the seller
--- PDF page 45 ---
must make sure that the buyer understands that they can only use the information
for the purposes for which it was originally collected. Any use of this personal
information should be within the reasonable expectations of the individuals
concerned. So, when a database is sold, its use should stay the same or similar e.g.
if a database contains information obtained for the provision of dental treatment, the
database should only be sold to another dentist providing similar dental treatments.
Selling it to a business for a different use is likely to be incompatible with the original
purpose and likely to go beyond the expectations of the individuals.
39.122 Database purchaser must be made
aware of its original purpose
The buyer of any database should be made aware that they can only use the
personal information on it in line with the purposes for which it was originally
collected. The official receiver will need to inform any buyer what these purposes
were when they buy the database. If the buyer wants to use the personal information
for a new purpose, they will have to get consent for this from the individuals
concerned. As the original collector of the information, the seller, in this instance the
official receiver, has a responsibility to ensure that the personal information is used
properly. The official receiver can achieve this by making it clear to the buyer what
the information can or cannot be used for.
39.123 Individuals on database to be informed
of change of ownership
If a database is sold affected individuals must be told who now has their information.
This should be done as soon as practicable, giving contact details for the new
owners and confirming that the personal information obtained will only be used for
the same purposes as before. If the buyer wants to use the information in a new way
then this will also provide an opportunity to ask individuals for their consent. Before
selling the database the official receiver will need to ensure that buyer undertakes to
inform all individuals that they now hold the information.
39.124 Length of time information on database
may be held
The DPA requires that any personal information held should be adequate, relevant
and not excessive, and that it should not be kept for longer than is necessary1. The
official receiver should inform the new owner of a database that they will be required
to decide how much of the information supplied on the database they need to keep.
--- PDF page 46 ---
Any unnecessary personal information should be deleted. Personal information
should not be held simply on the basis that it might become useful one day.
1. General Data Protection Regulation article 4
39.125 Sale of a database – specialist advice
may be required
Although most of the obligations relating to the sale of a database fall on the buyer,
the official receiver should not enter into any sale lightly, and certainly not without
ensuring that the buyer understands their obligations and that these are covered in
the sale documentation. It is likely that specialist/legal assistance will be required to
protect the official receiver’s position and this should ideally be funded by the
prospective purchaser.
39.126 Action required where database cannot
be sold on
If no potential buyers can be found for a database or if the official receiver decides
not to proceed with its sale the information held should be deleted or destroyed as
soon as it is no longer required.
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 10 March 2020.
4. Publication of insolvency information
Publication of information relating to insolvencies, including advertisement in the
London Gazette and local newspapers
Annexes
Flowchart 1 – How to issue a gazette notice on the making of a winding-up order
Flowchart 2 – How to issue a gazette on the making of a bankruptcy order
Flowchart 3 – How to issue gazette notices after publication of the winding-up order
gazette
Flowchart 4 – How to issue gazette notices after publication of the bankruptcy order
gazette
Chapter content
Introduction
Gazette notices
When to gazette and contents
Suspension of duty to gazette
Checking orders, notices and variations
Other gazettes notices that may be issued
Method and timing of publication
--- PDF page 2 ---
Errors and retractions
Other matters
Non- gazette notices
Summary of notices that must or may be gazetted or advertised
Introduction
4.1 General
The insolvency legislation, and in particular the Insolvency (England and Wales)
Rules 2016 requires that certain events and information are publicised. For example,
the publication of the making of an insolvency order to allow creditors of an insolvent
the opportunity to claim in the proceedings, or the publication of the venue (that is,
the time, date and place) of a meeting of creditors to allow interested parties an
opportunity to attend.
Gazette notices
4.2 The Gazette
The London Gazette (“the Gazette”) came into existence as the official newspaper of
the court of King Charles II. At that time it was known as the Oxford Gazette as that
was the location of the King’s court, which had moved from London to escape the
Great Plague of 1665. The publication of news at this time was closely controlled
and censored by the Crown, and the Gazette became the authoritative source of
news and information. Over time, with the relaxing of control and censorship, and the
consequent development of other newspapers, the Gazette has largely lost its role of
reporting news and has evolved into a specialist newspaper for the publication of
legal notices and official (government) information.
Insolvency notices placed in the Gazette are accessed and relied upon as a source
of information by financial institutions, credit reference agencies, government
departments and other interested parties. They can be viewed at the Gazette
--- PDF page 3 ---
website. The London Gazette is printed each working day, and will contain notices
published online the day before.
4.3 References in the Insolvency Act and Rules
“the Gazette” means –
•
in respect of companies registered in England and Wales – the London Gazette
•
in respect of companies registered in Scotland – the Edinburgh Gazette
“Gazette notice” - means a notice which is, has been, or is to be gazetted; “to
gazette” means to advertise once in the Gazette.
4.4 Standard contents of gazette notices - All
Where the Act or Rules require or permit a notice to be gazetted the notice must
contain the following1;
•
identify the proceedings and office holder
•
the office holders contact details
•
the name of any person other than the office holder who can be contacted about the
proceedings
•
the date of the office holder’s appointment
1. Rule 1.11
4.5 Standard contents of gazette notices –
Additional information for a company
As well as the standard contents the notice must contain1;
•
the registered office
•
any principle trading address if different to the registered office
•
any name in which it was registered in the period of 12 months before the date of
commencement of the proceedings
•
any other name or style not being a registered name under which the company
carried on business and in which any debt to a creditor was incurred
1. Rule 1.12 (1)
4.6 Standard contents of gazette notices –
Additional information for an unregistered
company
--- PDF page 4 ---
As well as the standard contents the notice must contain information to identify the
company and specify any name or style under which the company carried on
business and in which any debt owed to a creditor was incurred.1
1. Rule 1.12 (2)
4.7 Standard contents of gazette notices –
Additional information for a bankruptcy
As well as the standard contents the notice must1;
•
identify the bankrupt
•
any other address which the bankrupt has lived at in the12 months before the making
of the bankruptcy order
•
any principal trading address if different to the residential address
•
the bankrupts date of birth
•
the bankrupt’s occupation
•
any other name by which the bankrupt has been known
•
any name or style other than the bankrupt’s own name under which they have carried
on business and in which any debt to a creditor was incurred
1. Rule 1.13
4.8 Omissions
Where it is not reasonably practical to obtain the information for the standard
contents of the notices as prescribed by the Rules, then it may be omitted.1
1. Rule 1.10
When to gazette and contents
4.9 Provisional liquidator – When to gazette
The provisional liquidator must, as soon as reasonably practicable, gazette notice of
their appointment unless the court directs otherwise. Where the provisional
liquidation does not result in a winding up the provisional liquidator must gazette
notice of the termination.1
1. Rules 7.36 & 7.39
4.10 Winding-Up Orders – When to gazette
--- PDF page 5 ---
Where a winding up order is made by the court the official receiver must cause a
notice of the order to be gazetted as soon as reasonably practicable.1
It is the petitioning creditor’s duty to give notice of the dismissal of a petition either by
gazetting or advertising.2
1. Rule 7.22(4)
2. Rule 7.23
4.11 Winding-up orders – Gazette contents
In addition to the standard contents the notice must state:
•
that a winding-up order has been made in relation to the company
•
the date of the order
4.12 Creditors petitions – When to gazette
Where a bankruptcy order is made on the petition of a creditor, it is the duty of the
official receiver to cause the notice to be gazetted as soon as reasonably
practicable.1
1. Rule 10.32
4.13 Creditors petitions – Gazette contents
In addition to the standard contents the notice must state1;
•
that a bankruptcy order has been made against the bankrupt
•
the date and time of the making of the bankruptcy order
•
the name and address of the petitioning creditor
•
the date of presentation of the petition
1. Rule 10.32(4)
4.14 Creditors petitions – Stay, rescission or
annulment
The official receiver must stop the publication of the gazette notice on receipt of an
order staying the proceedings if it has not already been published.
There is no requirement on the official receiver to gazette notice of a stay, rescission
or annulment.
4.15 Adjudicator cases – When to gazette
--- PDF page 6 ---
Where a bankruptcy order is made by the Adjudicator on a debtor’s own petition it is
the duty of the official receiver to cause notice to be gazetted as soon as reasonably
practicable.1
1. Rule 10.45
4.16 Adjudicator cases – Gazette contents
In addition to the standard contents the notice must state1;
•
that a bankruptcy order has been made against the bankrupt
•
the date of the bankruptcy order
•
that the bankruptcy order was made on the debtor’s own bankruptcy application
•
the date of delivery of the bankruptcy application
1. Rule 10.45
4.17 Gazette notice – A meeting
In a winding up by the court or a bankruptcy where a decision is being sought by a
meeting the convener must gazette a notice of the procedure as soon as reasonably
practicable after notice of the meeting is delivered.
The notice should contain1;
•
that a meeting of creditors or contributories is to take place
•
the venue of the meeting
•
the purpose of the meeting
•
time and date by which proofs and proxies must be delivered and where in order to
be able to vote
•
the convener
•
if the procedure is from the request of one or more creditors and the section of the
Act under which it was summoned
1. Rule 15.13
4.18 Gazette notice – First dividend or
distribution
Where the office-holder intends to declare a first dividend or distribution they must
gazette a notice containing1;
•
a statement that the office-holder intends to declare a first dividend or distribution;
•
the date by which and place to which proofs must be delivered; and
--- PDF page 7 ---
•
in the case of a members’ voluntary winding up, where the dividend or distribution is
to be a sole or final distribution, a statement that the distribution may be made
without regard to the claim of any person in respect of a debt not proved.
The office holder has discretion over whether to advertise if the dividend is only to
preferential creditors.
1. Rule 14.28
Suspension of duty to gazette
4.19 Court order to suspend action
The court can, on the application of the bankrupt or a creditor, order the official
receiver to suspend action including causing the notice to be gazetted on the making
of the bankruptcy order. Any such application must be supported by a witness
statement stating the grounds on which it is made and the applicant must deliver a
copy of the order to the official receiver as soon as reasonably practicable.1
1. Rule 10.32(5)-(7) & Rule 10.45 (5)-(7)
4.20 Gazette - Persons at risk of violence
(PARV)
Where the disclosure or continuing disclosure to other persons of the bankrupt’s
current address or whereabouts might lead to violence against the bankrupt or a
family member who resides with them1, the court may, on the application of the
bankrupt, the official receiver, the trustee or the Secretary of State, order that the
bankrupt’s current address be omitted from any notice to be gazetted or otherwise
advertised. The order may provide that the bankrupt’s previous residential or
business addresses are to be included in the description2. This would enable
creditors to identify the bankrupt but avoid the disclosure of the bankrupt’s current
address where they or their family may be at risk of violence.
Where a bankrupt has obtained a PARV but address details are inadvertently
published then official receiver staff must take urgent action to have the address
details removed - please see paragraph 4.35.
1. Rule 20.1
2. Rule 20.6
--- PDF page 8 ---
4.21 Gazette - Person in prison
Particular care should be taken to ensure that where a bankrupt is in prison at the
date the petition is presented no reference to the prison address is included in the
bankruptcy order description. The court should remove the address to prevent the
gazetted order including the prison address. If this has not been done prior to the
official receiver receiving the bankruptcy order, the official receiver should refer the
order back to the court to consider amending the order. Depending on the views of
the court, the phrases “address withheld” or “of no fixed abode” may be used as an
alternative to publishing the actual or prison address.
Checking orders, notices and variations
4.22 General checks to be undertaken
Where an order or notice of order is received from the court, it should be carefully
checked prior to any required publication. The official receiver must also ensure that
the names on the ISCIS case and the order are the same.
If there is any doubt as to whether the order ought to have been issued (for example,
where there is a stay of proceedings in force), or if there are inaccuracies in the
order, the official receiver should refer the matter back to the court before taking any
further action. It is better to act in this way, rather than causing the publication of a
notice which may contain inaccurate information (see paragraph 4.33).
4.23 Variations to the gazette
Where the order of the court or the adjudicator has been varied or is incorrect or
inaccurate it must be amended by the person whose responsibility it was to gazette
the order1, generally the official receiver.
Any amendments should be regarded as a matter of urgency as the purpose of the
gazette is to give notice to creditors and the business community.
1. Rule 1.14(3)
Other gazettes notices that may be
issued
--- PDF page 9 ---
4.24 Individual Voluntary Arrangements
following a bankruptcy order
Where a bankruptcy order is annulled under sections 261(2)(a) and (b) because an
individual voluntary arrangement is agreed, the former bankrupt may require the
official receiver to gazette a notice. The request must be in writing and within 28
days of the order. Such a request must be complied with as soon as reasonably
practicable. The notice must state1;
•
the name of the former bankrupt
•
the date on which the bankruptcy order was made
•
that the bankruptcy order has been annulled
•
the date of the annulment order and
•
the grounds of the annulment
1. Rule 8.36
4.25 Annulment
Where a bankruptcy order is annulled under section 282 the former bankrupt may
require the official receiver to publish a notice of the making of the order by
publishing a notice of the order in the gazette. This request should be made within
28 days of the making of the order.
It must state1;
•
the name of the former bankrupt
•
the date on which the bankruptcy order was made
•
that the bankruptcy order has been annulled under section 282(1)
•
the date of the annulment
1. Rule 10.140
4.26 Other decision procedures or deemed
consent procedure
The convener must gazette where a decision is being sought by a meeting in a
winding up by the court or a bankruptcy. They may gazette other decision
procedures or the deemed consent procedure.
This should contain1;
•
that a meeting of creditors or contributories is to take place
•
the venue of the meeting
•
the purpose of the meeting
--- PDF page 10 ---
•
time and date by which proofs and proxies must be delivered and where in order to
be able to vote
•
the convener
•
if the procedure is from the request of one or more creditors and the section of the
Act under which it was summoned.
1. Rule 15.13
4.27 Public examination of company officers
and others
Where the official receiver has obtained an order for public examination of company
officers and others who may have information, such as past managers, they may
give additional notice of the order by gazetting the notice. At least 5 business days
need to have elapsed for service of the order on the examinee. It is expected that
this will be done very rarely by the official receiver.
4.28 Public examination of bankrupt
Where the official receiver has obtained an order for public examination of a
bankrupt they may give additional notice of the order by gazetting the notice. It must
be gazetted not less than 14 days before the day fixed for the hearing.
4.29 Discharge where the bankruptcy order
was made by the court
A bankrupt may apply to the court for a certificate of discharge unless the bankruptcy
order was made on their own application to the adjudicator. The certificate is issued
by the court and must contain the following information;
•
the name of the former bankrupt
•
the date of the bankruptcy order
•
the statement that the certificate of discharge has been delivered to the former
bankrupt
•
the date of the certificate
•
the date from which the discharge is effective
The notice should also state that;
•
that the former bankrupt may request in writing notice of the discharge to be gazetted
and advertised in the same manner as the bankruptcy order; and
•
that such a request must be delivered to the official receiver within 28 days of the
making of the certificate of discharge.
--- PDF page 11 ---
If the official receiver is required to gazette or advertise they should do this as soon
as reasonably practicable.1
1. Rule 10.144
4.30 Discharge where the bankruptcy order
was made by the adjudicator
The bankrupt may apply to the official receiver for a certificate of discharge where
the bankruptcy order was made on a bankruptcy application. The bankrupt may
request in writing that notice of the discharge be gazetted and this must be done
within 28 days of the making of the certificate. The official receiver must do this as
soon as reasonably practicable and the notice must contain1;
•
the name of the former bankrupt
•
the date of the bankruptcy order
•
the statement that a certificate of discharge has been delivered to the former
bankrupt
•
the date of the certificate
•
the date from which the discharge is effective
1. Rule 10.145
Method and timing of publication
4.31 Method of publication
The most commonly used gazette notices (the making of an insolvency order and
the amendment of a bankruptcy description) are automatically generated when the
official receiver completes the ISCIS gazette screens. Publication of the gazette
notice is arranged by Estate Accounts and Scanning (EAS).
For other events the gazette notice is prepared using a word template and the
completed form is sent as an e-mail attachment to london.gazette@tso.co.uk The
subject line of the email should contain the account number and the name of the
office submitting the gazette.
4.32 Timing of publication
Standard publication of notices is two working days (instruction given before
11:30am) or three working days (after 11:30am). Publication of a notice can be
expedited to the next working day where the instruction is given before 11:30am.
--- PDF page 12 ---
This service requires the payment of a late advertisement fee in addition to the
publication fee.
Errors and retractions
4.33 General
As at paragraph 4.22, on receipt of an order, the official receiver should check the
order or notice of order before the order is gazetted. However, where an order has
been gazetted, or the gazette instruction has been given (see paragraph 4.31), in
error then immediate steps should be taken to withdraw the notice (pre publication)
or issue a retraction (post publication). Guidance is also provided in chapter 8 (Stay
of Proceedings).
4.34 Withdrawing a notice – pre publication
It is possible to withdraw a notice prior to publication by emailing
CustomerServices.EAS and heading the email ‘URGENT - GAZETTES - Gazette to
be WITHHELD – case reference – case name’. There is a small fee payable.
4.35 – Withdrawing a notice – post publication
It is not possible to withdraw a notice once it has been published, although in
bankruptcy cases it is possible to redact addresses where there is a threat of
violence. Where a bankrupt has obtained a PARV (see paragraph 4.20) and address
information has been inadvertently published then immediate steps must be taken by
official receiver staff to have any such address details removed
immediately. Staff must contact the London gazette by telephone without delay to
request the removal and take instruction from the London gazette team. Telephone
contact details are available on the Gazette website.
4.36 Retraction
Where an order has been gazetted in error and it has not been possible to withdraw
the notice prior to publication, then the official receiver will have to issue a retraction
notice (see paragraph 4.23) which, on publication, will be linked to the original
gazette notice. A fee will be payable.
4.37 Fees and contact
--- PDF page 13 ---
A full list of fees and charges are available on the Gazette website and if due to
urgency an office needs to deal directly with the London gazette, they can be
contacted by email at London@thegazette.co.uk.
Other matters
4.38 Gazette notice as evidence
Where the legislation requires an order to be gazetted it is evidence of the facts
stated in the notice and a copy of the gazette containing the notice may be produced
in any proceedings as conclusive evidence that the order was made on the date
specified in the notice.1
1. Rule 1.14 (1)-(2)
4.39 Debt Relief Orders
There is no requirement to gazette a debt relief order.
4.40 Responsibility where case transferred
between official receivers
Where a case is transferred to another official receiver at the initial stage, it is the
responsibility of the receiving official receiver to ensure that the relevant insolvency
event is published.
Non- gazette notices
4.41 Local advertisement
There is no requirement on the official receiver to advertise the making of a winding-
up order or bankruptcy order in local newspapers in every case. The official receiver
may choose to do so where there is, or suspected to be, a failure on the part of the
director or bankrupt to make a full disclosure of the relevant financial affairs.
Typically this will occur in non-surrender, non-trace or non-co-operation cases. The
advertisement may also result in the absent director or bankrupt becoming aware of
the proceedings and contacting the official receiver.
--- PDF page 14 ---
The rules allow for certain matters to be advertised in addition to a gazette notice but
these are at the discretion of the official receiver or office holder.
4.42 Advertisement – When to advertise
Before advertising the official receiver should consider whether the advertisement is
likely to be of benefit to the administration of the affairs of the insolvent. Other means
of obtaining information should be considered first including the employment of
tracing agents and enquiries of third parties.
4.43 Advertisement - Standard contents
Where the Act or Rules provide that a notice may be advertised other than in the
gazette the notice must identify the office holder and specify the office holder’s
contact details1. In addition for a company, the notice must identify the proceedings
and include2;
•
the principle trading address
•
any name under which the company was registered in the 12 months before the date
of the commencement of the proceedings which aren’t subject of the notice
•
any name or style other than a registered name under which the company carried on
business and any debt owed to a creditor was incurred.
For a bankruptcy, the notice must identify the proceedings and the bankrupt and
include3;
•
any other address at which the bankrupt has resided in the period of 12 months
before the making of the bankruptcy order
•
any principal trading address if different from the residential address
•
the bankrupt’s date of birth
•
the bankrupt’s occupation
•
any other name by which the bankrupt has been known
•
any name or style other than their own name under which they carried on business or
any debt to a creditor was incurred
The notice must ensure that the information is clear and comprehensible4.
1. Rule 1.15
2. Rule 1.16
3. Rule 1.17
4. Rule 1.18
--- PDF page 15 ---
4.44 Advertisement – Public examination of
company officers and third parties with
information
Where the official receiver has obtained an order for public examination of company
officers and others who may have information, such as past managers, they may
advertise the notice is such a manner as the official receiver sees fit. The notice
must state the purpose of the examination hearing and the venue1.
1. Rule 7.103
4.45 Advertisement – Public examination of a
bankrupt
Where the official receiver has obtained an order for the public examination of a
bankrupt they may advertise the notice is such a manner as the official receiver sees
fit. The notice must state the purpose of the examination hearing and the venue1.
1. Rule 10.100
4.46 Advertisement – Annulment where
known creditors have not proved or debts are
disputed
Where a bankrupt makes an annulment application on the grounds of payment in full
and either the trustee or official receiver has reported to the court that there are
known creditors who have not proved, the court may direct the trustee or official
receiver to advertise the fact that the annulment application has been made so that
possible creditors may submit their claims within a specified time1.
Similarly where, in an annulment application, a debt is disputed or a creditor who has
proved can no longer be traced and the bankrupt has been required to give security
for such sum as may be proved to be due the court may direct that particulars of the
alleged debt and security be advertised in such manner as it thinks fit2.
1. Rule 10.136
2. Rule 10.138(4)
4.47 Advertisement – Annulment of
bankruptcy order under Section 282
--- PDF page 16 ---
Where a bankruptcy order is annulled under section 282 the former bankrupt may
require the official receiver to publish a notice of the making of the order by
advertising in the same manner as the bankruptcy order to which it relates was
advertised. This request should be made within 28 days of the making of the order.
The notice, which must be advertised as soon as reasonably practicable, must state;
•
the name of the former bankrupt
•
the date on which the bankruptcy order was made
•
that the bankruptcy order has been annulled under section 282(1)
•
the date of the annulment1
1. Rule 10.140
4.48 Advertisement – Discharge where the
order was made by the court
A bankrupt may apply to the court for a certificate of discharge unless the bankruptcy
order was made on their own application to the adjudicator. The certificate is issued
by the court and must contain the following information;
•
the name of the former bankrupt
•
the date of the bankruptcy order
•
the statement that the certificate of discharge has been delivered to the former
bankrupt
•
the date of the certificate
•
the date from which the discharge is effective
The notice should also state that;
•
that the former bankrupt may request in writing notice of the discharge to be gazetted
and advertised in the same manner as the bankruptcy order; and
•
that such a request must be delivered to the official receiver within 28 days of the
making of the certificate of discharge
If the official receiver is required to gazette or advertise they should do this as soon
as reasonably practicable1.
1. Rule 10.144
4.49 Advertisement – Discharge where the
order was made by the adjudicator
The bankrupt may apply to the official receiver for a certificate of discharge where
the bankruptcy order was made on a bankruptcy application. The bankrupt may
request in writing that notice of the discharge be advertised and this must be done
--- PDF page 17 ---
within 28 days of the making of the certificate. The official receiver must do this as
soon as reasonably practicable and the notice must contain1;
•
the name of the former bankrupt
•
the date of the bankruptcy order
•
the statement that a certificate of discharge has been delivered to the former
bankrupt
•
the date of the certificate
•
the date from which the discharge is effective
1. Rule 10.145
4.50 Service’s advertising agents
The Service has a Service Level Agreement for its advertising with TMPW. Contact
with TMPW should be made by email to insolvencyservice@tmpw.co.uk, or by
telephone on 020 8501 9730. The services account coordinators are-
Peter Robson 020 8501 9706
Sue Flockton 020 8501 9737
John Watson 020 8501 9701
The account coordinators will handle any day to day enquiries.
4.51 Preparation and placement of a
newspaper advertisement
A newspaper advertisement is created by completing the relevant forms and then
forwarding them electronically to the relevant contact at The Service’s agents,
TMPW along with a covering letter. Requests for publication should be made to
TMPW by Thursday 5 pm for publication in the following week’s issue.
4.52 Amendment of title of proceedings
If the official receiver, having amended the title of proceedings, decides to gazette
the amendment, then advertisement of the amendment may be given as the official
receiver sees fit1.
1. Rule 10.165
4.53 Advertisement – First dividend
--- PDF page 18 ---
The office-holder must gazette a notice if they intend to declare a first dividend or
distribution and may in addition advertise such notice in such other manner (if any)
as the office holder thinks fit1.
1. Rule 14.28(3)
4.54 Advertisement – A meeting
In a winding up by the court or a bankruptcy where a decision is being sought by a
meeting the convener may advertise in a manner they think fit1. Such notice should
contain2;
•
that a meeting of creditors or contributories is to take place
•
the venue of the meeting
•
the purpose of the meeting
•
time and date by which proofs and proxies must be delivered and where in order to
be able to vote
•
the convener
•
if the procedure is from the request of one or more creditors and the section of the
Act under which it was summoned
1. Rule 15.13(4)
2. Rule 15.13 (1) & (2)
4.55 Advertisement – Decision procedure
Notices are sent to individual creditors of a decision procedure. There may be cases
where to do so would be onerous, for example where there are hundreds of small
creditors as in a ticketed event that is cancelled. Any decision not to advertise can
only be made by the court and the court must consider the cost of the advertisement
against the giving of individual notices, the available assets and the extent of the
interest of creditors, members and contributories. In practice the office-holder will
need to make an application to the court.
The advertisement must meet the standard requirements for a notice under rule
15.8(3) and must also state;
•
that the court ordered that notice of the decision procedure be given by
advertisement only
•
the date of the court order1
1. Rule 15.12
--- PDF page 19 ---
Summary of notices that must or may be
gazetted or advertised
4.56 Notices that must be gazetted and
advertised
Matters that have to be gazetted:
•
Making of a BO by the court
•
Making of a BO by the adjudicator on a debtor petition
•
Making of a WUO
•
In a winding up by the court or a bankruptcy where a decision is being sought by a
convener of a meeting
•
Annulment order if bankrupt requests
•
Notice of annulment application under 282(1) if directed by the court
•
Discharge if bankrupt requests
•
Appointment of OR as provisional liquidator
•
Termination of appointment of OR as provisional liquidator where no winding-up
order made following appointment
•
Notice of intent to declare a first dividend or distribution
•
Calls on contributories (if court orders)
•
Where gazetted order has been varied or mistake made
Matters that have to be advertised:
•
Annulment order if bankrupt requests and original order was advertised
•
Notice of annulment application under 282(1) if directed by the court
•
Discharge if bankrupt requests and original order was advertised
4.57 Matters that may be gazetted and
advertised
•
Amended title of proceedings
•
Public examination
•
IVA following a BO
•
Decision procedures or deemed consent procedure
Matters that may be advertised:
•
All of the above
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ATTACHMENT: 40.Sundry_assets.pdf
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--- PDF page 1 ---
This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 11 March 2020
40. Sundry assets
Chapter content
Frequently asked questions - Household and personal effects
Frequently asked questions - Aircraft and boats
Introduction
Aircraft
Clothing and jewellery
Ships and boats
Miscellaneous – animals, firearms and correspondence
Assets from other insolvency proceedings
Unsaleable assets
These FAQs aim to assist official receivers in giving a brief overview of the subject,
but for full information they must be read in conjunction with the more detailed
guidance given in the main body of the guidance.
Frequently asked questions - Household
and personal effects
Can a bankrupt’s personal pet animal be
realised as an asset?
The official receiver is able to arrange for a bankrupt’s pet animal to be sold but is
unlikely do so unless it would benefit the estate. It is highly unlikely that selling a pet
would benefit the estate, unless it has a good pedigree.
What is the first stage in selling a pet animal?
--- PDF page 2 ---
In the unlikely event that the official receiver decides a bankrupt’s pet does have a
realisable value, as a first step enquiries should be made to establish whether the
bankrupt wishes to introduce a third party to make an offer to buy the animal.
Can a bankrupt’s wedding ring be realised?
Yes, if the bankrupt no longer wishes to retain the ring or where its value is
significantly higher than most simple gold bands. In most cases it is unlikely that it
will be appropriate for the official receiver to claim a wedding ring as an asset in the
bankruptcy. Where a ring is of a high enough value to be sold, the bankrupt should
be given sufficient funds from the sale proceeds to purchase a simple gold band as a
replacement.
Can the official receiver realise an engagement
ring given by the bankrupt to their fiancé(e)?
Yes, although the ring must be of sufficient value to warrant the costs involved in any
sale and the official receiver should not take engagement rings as a matter of
course. In principle an engagement ring constitutes a gift conditional on the marriage
or civil partnership taking place, so the ring does not pass as property to the recipient
until the marriage has taken place. If the ring is of sufficient value to realise, it may
be possible to effect a sale of the ring to a family member or other third party
introduced by the bankrupt.
Can the official receiver realise an engagement
ring received by the bankrupt?
Yes, however the ring must be of sufficient value to warrant its sale costs. Official
receivers should not take engagement rings as a matter of course. The general
principle is that an engagement ring constitutes a gift conditional on the marriage or
civil partnership taking place – therefore the ring does not pass as property to the
recipient (the bankrupt) until the marriage/civil partnership has taken place, so
cannot be realised where they remain engaged only. The date of the marriage/civil
partnership is key as follows:
•
where the marriage/civil partnership occurs before the date of the bankruptcy
order the ring will form part of the estate and can be realised by the official
receiver
•
where the marriage/civil partnership takes place after the bankruptcy order date
(and during the period of bankruptcy), the ring can be claimed as after acquired
property
--- PDF page 3 ---
It may be most cost effective to sell the ring to a family member or other third party
introduced by the bankrupt.
What happens if the bankrupt’s fiancé(e)
bought the engagement ring?
Before the marriage/civil partnership the engagement ring will belong to the
fiancé(e)/proposed civil partner, where they can prove they provided the funds to
purchase the ring, so it cannot be realised as an asset in the bankruptcy. After the
marriage/civil partnership the ring then belongs to the recipient of the ring (i.e.
Bride/Groom/Civil Partner). The ring can be realised where it is of sufficient value to
warrant the costs of sale, but official receivers should not take engagement rings as
a matter of course. It may be possible to effect a sale of the ring to a family member
or other third party introduced by the bankrupt.
What do I need to do when I take possession of
any jewellery/high value item(s)?
Where jewellery or any personal/high value item(s) are delivered into the official
receiver’s possession, a written receipt must be issued to the person delivering up
the item(s), detailing all item(s) collected. It is accepted that the collecting
examiner/officer may be unable to verify the exact material or quality of the item
received, so the description should be phrased in general terms e.g. “Yellow metal
ring, said by X to be gold, set with three clear stones, said by X to be diamonds”.
Can the official receiver realise personal or
household items claimed by the bankrupt as a
domestic requirement?
Whilst generally furniture and provisions required to satisfy the bankrupt’s domestic
needs would not be claimed in the bankruptcy, valuable items, such as antique
furniture, might be claimed by the trustee as exempt property of excess value. In
considering whether a realisation of such items is viable, the cost of providing a
reasonable replacement should be factored in.
Can the official receiver realise the bankrupt’s
personal correspondence?
--- PDF page 4 ---
No. Although it would appear that personal correspondence falls within the definition
of property this point was considered in the case of Haig v Aitken [2000] 3 WLR 1117
where it was ruled that personal correspondence, whatever the subject matter, does
not form part of the bankrupt’s estate within the definitions of the Insolvency Act
1986.
What if the personal correspondence relates to
affairs relevant to the administration of the
bankruptcy estate?
Even if the personal correspondence is relevant to the insolvency proceedings the
ruling in Haig v Aitken [2000] 3 WLR1117 still applies, it does not form part of the
bankrupt’s estate.
What happens if the official receiver is unable
to sell an asset belonging to a company in
liquidation or vesting in them as trustee?
Generally, where an asset is considered to be unsaleable it should be disclaimed as
soon as possible. An alternative is to sell the item to the directors of a company in
liquidation or a relative of the bankrupt for a nominal sum.
Frequently asked questions - Aircraft
and boats
Where can I check if a bankrupt is the owner of
an aircraft?
The CAA (Civil Aviation Authority) maintains a register of aircraft registered in the
United Kingdom, which is available for anyone to inspect.
Can I sell an aircraft registration mark (like a
personalised car number plate)?
--- PDF page 5 ---
No, an aircraft registration mark can only be used once and cannot be applied to any
other aircraft.
Who needs to be informed where the official
receiver decides to sell an aircraft?
The CAA must be informed of any change in the ownership of an aircraft, and
notification of registration must be completed within 28 days of the change. The
original Certificate of Registration must be returned to the CAA or the CAA should be
notified using the Address Change Form available on their website.
Where can I check if an insolvent is the owner
of a sea-going ship or boat?
The UK Ship Register (maintained by the MCA – Maritime and Coastguard Agency)
may assist the official receiver in ascertaining the owner of a particular ship or boat.
An application to search the register can be submitted to the relevant MCA office.
How do I sell a sea-going ship/boat or shares
in a ship/boat?
To sell a ship or boat, or shares in a ship or boat, a bill of sale will need to be
produced to the Registry of Shipping and Seamen in the prescribed format available
on the Registry’s website.
Where can I check if an insolvent is the owner
of a vessel held on a UK inland waterway?
The Environment Agency operates a registration scheme for boats using inland
waterways over which it has responsibility. This includes most of the UK’s navigable
rivers.
What about boats on canals in England, Wales
and Scotland?
The Canal and River Trust (England and Wales) and Scottish Canals administer and
maintain canals in England, Wales and Scotland. They are responsible for issuing
licences, detailing boat owners and registering changes of ownership.
--- PDF page 6 ---
What do I do if the insolvent owns a boat in the
Lake District or on the Norfolk Broads?
Where a boat on Lake Windermere is to be transferred, sold or otherwise disposed
of, the official receiver (acting in place of the registered owner) has a legal obligation
to notify the Lake Windermere registrar within 14 days of the change. Any boat kept
within the Norfolk Broads Authority’s navigation area for more than 28 days must be
registered with the Broads Authority. Any change of ownership must be notified to
the Broads Authority by the buyer and seller.
Introduction
40.1 Explanation, chapter contents and
abbreviations
This chapter is not intended to be an exhaustive list of every type of asset, instead it
provides information relating to assets most likely to be encountered by the official
receiver but that are not covered elsewhere in the guidance, together with
information regarding how best to protect and realise these assets.
Aircraft
40.2 Definition of aircraft
For the purpose of this chapter and the guidance given therein the term aircraft can
be taken to cover aeroplanes, helicopters, hot-air balloons, airships and gliders.
40.3 Aircraft registration
With very limited exceptions, all civil aircraft using the skies of the United Kingdom
are required to carry a unique mark. Exceptions include historic aircraft with historic
or military markings - which are authorised by the Ministry of Defence. Usually, the
unique mark is a group of five letters of which the first identifies the country in which
the aircraft is registered (for example, G for the United Kingdom) and the other four
letters are allocated by the Civil Aviation Authority (CAA) on registration of the
aircraft. A particular registration mark can be reserved in advance of its application to
--- PDF page 7 ---
an aircraft but there is no market in transferring these marks (in the same way as
“personalised” car registration numbers are bought and sold) as a mark can only
ever be applied to one airframe.
40.4 Searchable record of aircraft registration
The Civil Aviation Authority (CAA) maintains a register of aircraft registered in the
United Kingdom which is available for inspection by any person (after payment of the
requisite charge where applicable). The CAA register lists the registration mark,
aircraft type, serial number and owner. In addition, it gives details of the previous
identity (if any) of the aircraft, whether it is currently registered or not, the date of
registration, manufacturer, class of aircraft, number of engines, maximum take-off
weight, total hours flown, year built and date of issue of certificate of airworthiness.
The UK register of Civil Aircraft is not a register of legal ownership and the details on
the register do not confirm legal title and the official receiver will need to confirm
ownership by reference to other documentation. No changes
40.5 “Personalised” aircraft registration marks
A registration mark may only be used once and cannot be applied to another aircraft
even in circumstances where the original aircraft is destroyed or exported. This being
the case there is no market for unusual or “personalised” registration marks.
40.6 Aircraft mortgages
An aircraft registered in the UK register may be made security for a loan or other
valuable consideration1. The Civil Aviation Authority (CAA) maintains a register of
aircraft mortgages into which a mortgagee may apply to have a mortgage registered.
The mortgage may relate to a stock of spare parts kept for the aircraft but does not
otherwise include a mortgage created as a floating charge2. A registered charge
does not construe priority over a possessory lien in respect of work done on the
aircraft (whether before or after the registration of the mortgage) on the express or
implied authority of any persons lawfully entitled to possession of the aircraft or over
any right to detain the aircraft under any Act of Parliament3.
1. Mortgaging of Aircraft Order 1972 article 3
2. Mortgaging of Aircraft Order 1972 article 2
3. Mortgaging of Aircraft Order 1972 article 14(2)
--- PDF page 8 ---
40.7 Conducting a search of the UK aircraft
register
The UK aircraft register is available for public search on application to the following:
Aircraft Registration Section, CAA House, 45-59 Kingsway, London, WC2B 6TE
Telephone: 0330 022 1917
Fax: 020 7453 6670
Email: aircraft.reg@caa.co.uk
The current prescribed form to use when applying to search the register is CA350,
which can be downloaded from the CAA website
The fee payable is currently £30
The form once downloaded can be completed and returned by post or scanned and
emailed to the address above, although for email submissions, payment
authorisation form CA02 must be returned at the same time. If a certified copy is
required this can also be provided for a further fee of £30.
40.8 Airport charges and the detention and
sale of aircraft
Fees are charged by airport operating companies to individual aircraft relating to the
aircraft’s use of the airport. Charges vary depending on factors such as the type of
aircraft and the time of the departure or arrival. An airport operator may detain an
aircraft that is in default relating to airport charges whether or not the charges were
incurred by the person who is the operator of the aircraft at the time of detention1.
The power to detain extends to equipment and stores carried by the aircraft, and
allows the aircraft to be detained at any other airport owned by the same operating
company. The aircraft operator is allowed 56 days to pay the outstanding charges, or
provide sufficient security, after which the airport operator may apply for leave of
Court to sell the aircraft.
1. Civil Aviation Act 1982 section 88
40.9 Action to take where insolvent’s aircraft
has been or might be detained
In the event that the official receiver becomes aware that an aircraft owned by an
insolvent has been, or is likely to be, detained due to unpaid charges consideration
should be given to paying the outstanding charges if they are less than the value of
--- PDF page 9 ---
the aircraft. The official receiver will need to obtain a specialist valuation of the
aircraft and a search of the internet should assist in locating details of an agent that
specialises in the valuation and sale of aircraft.
If, after a prescribed 56 days, the charges for which an aircraft has been detained
remain outstanding, the detainer may apply to court for an order to sell the aircraft. In
advance of making the application to court the detainer must serve notice on
interested parties and give them the opportunity to be joined in the proceedings1. On
becoming aware that an aircraft belonging to an insolvent has been, or is likely to be,
detained, the official receiver should immediately inform the detainer of their interest
in the aircraft. The order of payment from any subsequent sale of the aircraft is set
out in the legislation, and the official receiver should monitor the sale and distribution
to ensure that any payment due is received.
1. Civil Aviation (Airport Charges) (Sale of Detained Aircraft) Regulations 1971 regulation 3
40.10 Navigation charges
In the UK the CAA levies charges against aircraft operators for the provision of air
navigation (air traffic control) services1. Regulations relating to the procedures for the
detention of aircraft whose operators have outstanding payments in this respect are
largely the same as those relating to outstanding airport charges, and the guidance
outlined in above should be followed. The CAA has the power to detain aircraft in
respect of outstanding air navigation charges. Where the official receiver is aware
they have an interest in a detained aircraft, notice of this interest should be sent to
the CAA.
1. Transport Act 2000 section 73
40.11 Sale of an aircraft
The CAA must be informed of any change in the ownership of an aircraft1. The
notification of registration must be completed within 28 days checked no change of
the change in ownership. The original Certificate of Registration must be returned to
the CAA for amendment where the aircraft is transferred to a new owner or the
owner’s address changes. If the original certificate is not available (or has been lost
or destroyed) the CAA should be notified using the Address Change Form available
on the website, to allow the CAA to issue a new Certificate. There is no charge for
the re-issue of a Certificate of Registration for an address change.
1. Air Navigation Order 2009 article 7
--- PDF page 10 ---
Clothing and jewellery
40.12 Clothing
Clothing, unless it has a designer label or is a collectors’ item such as pop
memorabilia or a unique antique item, is unlikely to be of sufficient value to be sold.
In cases of doubt advice may be obtained from an agent or a specialist second-hand
shop. Antique or other collectable clothing should be valued and sold by specialist
agents.
40.13 Jewellery
In circumstances where a bankrupt is in possession of jewellery it may be
appropriate to deal with the jewellery as an asset in the proceedings. This would
depend on the value of the item and the likely costs of sale and, in this respect,
agents (possibly a local jewellery shop) should be engaged to carry out a valuation.
40.14 Taking possession of jewellery
In a case where the official receiver is taking possession of jewellery from a bankrupt
or director, either at an inspection or during interview, a detailed receipt should be
issued which should, in so far as is possible, describe the items collected. It is
accepted that the collecting officer will be unable to verify the material from which the
jewellery is made, or the quality or grade thereof and, therefore, the description
should be phrased in general terms, such as:
“Yellow metal ring, said by X to be gold, with three clear stones, said by X to be
diamonds.”
The receipt should be signed by the collecting officer and the person from whom the
items are collected. Ideally, a copy should be left with the person giving up
possession of the item.
40.15 Storage and sale of jewellery
Items collected should be passed to the official receiver’s agents for sale as soon as
possible. When jewellery is collected outside the operational hours of the official
receiver’s agents, it should be stored in the office safe pending collection by the
agents. Adequate insurance should be obtained for items of high value.
Specialist agents should be employed to deal with the sale of antique jewellery or
jewellery pieces of high value. The official receiver’s agents may be able to suggest
a suitable firm or alternatively local jewellers may be able to assist.
--- PDF page 11 ---
In all cases the jewellery should, of course, be of sufficient value to warrant the costs
of sale, and official receivers should not take jewellery as a matter of course. Where
possible the best course of action may be to effect a sale of the item to a family
member or other third party introduced by the bankrupt for an agreed sum, according
to the value of the item as at the date of sale.
40.16 Engagement Rings
The general principle is that an engagement ring constitutes a gift conditional on an
event taking place (for example the marriage or civil partnership) and the ring does
not pass as property to the recipient until the marriage has taken place1 2.
Where the bankrupt is the party with the ring, and the bankrupt’s fiancé(e) can prove
that the funds to purchase the ring came from their own funds (rather than those of
the bankrupt) then the ring will not form part of the estate. If they cannot prove this,
or the marriage/civil ceremony took place before or during the period of bankruptcy,
then the official receiver may claim an engagement ring held by the bankrupt as an
asset or after-acquired asset – whichever is appropriate according to the date of the
marriage/civil ceremony.
It follows that an engagement ring given by a bankrupt to their fiancé(e) may also be
recoverable as an asset where the wedding or civil partnership has not taken place
before the date of the bankruptcy order. Section 339(3)(b) also allows for a
transaction given in consideration of marriage or the formation of a civil partnership
to be claimed as a transaction at undervalue, as long as the transaction takes place
within the relevant time as detailed at section 341. The transfer of an engagement
ring by a bankrupt to their fiancé(e) or proposed civil partner might also be recovered
as a disposition of property under section 284, where the transaction occurs between
the date of the presentation of the petition and the vesting of the bankrupt’s estate in
the trustee.
1. Jacobs v Davis [1917] 2KB 532
2. Cohen v Sellar [1926] 1KB 541
40.17 Wedding rings
Weddings rings constituting a simple gold band will generally have a low financial
value. Consideration has been given to the symbolism of a wedding ring and, taking
into account the circumstances in which a wedding ring is given; in most cases it is
unlikely that it will be appropriate for the Official Receiver to claim a wedding ring as
an asset in the bankruptcy.
In circumstances where the wedding ring appears to be considerably more intricate
or unusual and may possess a high financial value (e.g. where it is set with precious
--- PDF page 12 ---
stones) then the official receiver may consider obtaining a valuation of the wedding
ring, and if of high value, selling the ring and providing sufficient funds to the
bankrupt to purchase a replacement simple gold band.
Where the bankrupt does not wish to retain a wedding ring (possibly where they are
divorced or their civil partnership has been dissolved) the official receiver can realise
the wedding ring as appropriate.
Ships and boats
40.18 Definition of ships and boats
For the purpose of this chapter and the guidance given therein the terms ships and
boats can be taken to include merchant shipping, pleasure craft, fishing boats,
yachts and small craft, and can be taken to include both sea and ocean going
vessels and vessels used on inland waterways.
40.19 Ship and boat registration
Ships and boats with a connection to Britain (usually through British, European
Economic Area (EEA) or European Union (EU) ownership) may be registered with
the UK Ship Register1. Registration is voluntary, but brings with it benefits such as
easier passage through foreign ports, assistance with seafarers’ travel costs, threat
level information and the protection of the Royal Navy.
Fishing boats (with the exception of salmon cobles, boats which are 10 metres or
less in length without an engine, or boats which are 10 metres or less in length which
are used to catch only common eels)2 3 are not allowed to fish for profit unless they
are on the UK register or the register of another country. A mortgage may not be
registered against a vessel unless the vessel is recorded on the register.
At registration, the ship is given a port of choice, which is the port from which the
vessel usually operates. This is chosen by the person applying for registration.
A registered ship may be owned outright by one person or divided into a maximum of
64 shares checked no change. A share may be owned by up to five people or
companies. Joint owners of a share are considered to be one person4.
1. Merchant Shipping (Registration of Ships) Regulations 1993 regulation 2
2. Merchant Shipping Act 1995 section 15
3. Merchant Shipping (Registration of Ships) Regulations 1993 regulation 17
--- PDF page 13 ---
4. Merchant Shipping (Registration of Ships) Regulations 1993 regulation 2(5)
40.20 Official number and name
Following registration of the boat or ship it is allocated a registration number (known
as the official number)1, which is then carved on the main beam or, if there is no
main beam, another readily accessible part of the vessel2. On commercial ships this
is normally found on the aft side of the forward beam of the main hatch and a note of
the tonnage will be found in the same place.
A registered ship must also have a name, in roman letters, which is different from
any other ship in the same part of the register. In addition, fishing boats must have a
different name from any other boat or ship that operates from the same port of
choice3.
1. Merchant Shipping (Registration of Ships) Regulations 1993 regulation 31(2)(a)
2. Merchant Shipping (Registration of Ships) Regulations 1993 regulation schedule 3 paragraph 4(a)
3. Merchant Shipping (Registration of Ships) Regulations 1993 regulation schedule 1
40.21 Mortgaging
A registered ship or a share in a registered ship may be made security for the
repayment of a loan1. The mortgagee may apply to have the mortgage registered
with the Registry of Shipping and Seamen2.
1. Merchant Shipping Act 1995 schedule 1 paragraph 7
2. Merchant Shipping (Registration of Ships) Regulations 1993 regulation 58
40.22 Searching the UK Ship Register
Whilst the UK Ship Register does not constitute proof of ownership of a ship, the
details available on the register may assist the official receiver in ascertaining
ownership where this is unclear. The UK Ship Register is part of the Maritime and
Coastguard Agency (MCA). A search of the register may be made by contacting the
MCA and making an application to search the register. You will need to provide the
name and official number of the vessel to conduct a search.
Extracts from the register are known as transcripts and the current prescribed fees
for the issue of a transcript are £21 for a current transcript or £32 for a historical
transcript. The register contains details of the ship’s name and number, its owners,
and of any mortgage against the vessel.
--- PDF page 14 ---
40.23 Detention
A ship may be detained by a number of different authorities (such as the Royal Navy
or the Coast Guard) for a number of different reasons (such as unsafe working
practices, being a dangerous vessel or breach of pollution controls). In the event that
the official receiver becomes aware that a ship belonging to an insolvent has been,
or is likely to be, detained an attempt should be made to identify the location of the
ship and the identity of the detaining authority. Consideration can then be given to
the costs of having the ship released against the likely value to the estate. Due to the
varied nature of the law in this regard, official receivers may wish to seek the advice
of ORS Advice before proceeding.
40.24 Selling a ship
To sell a ship or share(s) in a ship, a bill of sale under the prescribed format should
be produced to the registrar1. The current prescribed form to use is the MSF4705.
When completed this form should be sent, together with the appropriate fee
(currently £80) and supporting documents (if required) to:
Registry of Shipping & Seamen,
Anchor Court,
Keen Road,
Cardiff CF24 5JW
1. Merchant Shipping Act schedule 1 paragraph 2
40.25 Windermere boat registration scheme
Windermere in the Lake District in Cumbria has a parallel registration system for all
boats with engines or outboard motors using the lake, be they boats available for
hire on the lake, boats kept on the lake or boats brought to the lake to use. All such
boats must be registered before use with the Windermere Registration Scheme,
even those with a Small Ships Register number, which since April 2011 does not
provide any exemption from the Windermere Registration Scheme. The other lakes
in the Lake District do not operate similar schemes. The reason for this is that the
Windermere scheme is primarily in place to allow the enforcement of speed limits
relating to powered craft and, historically, there have been fewer powered boats
using other Lake District lakes.
40.26 Sale of a vessel registered under the
Windermere Registration Scheme
--- PDF page 15 ---
Where a boat registered under the Windermere Registration Scheme is to be
disposed of or sold to new owners, registered owners have a legal obligation to
notify the registrar within 14 days of disposal or sale of the vessel. There is a form
available, which should be completed and emailed to
windermere.registration@lakedistrict.gov.uk with an electronic payment of £20.
Further details of the scheme are available on the Lake District website.
40.27 Norfolk Broads
Any boat which is kept within the Broads Authority’s navigation area for more than
28 days must be registered with the authority (registration is free). The boat is then
issued with an adhesive registration number which must be displayed on each side
of the bow and on the stern. Any change in ownership of the boat is to be notified to
the authority by both the buyer and seller. The registration number is not changed
when the owners change. There are also short and annual visit tolls due respectively
for periods up to and beyond 28 days within the toll year running 1 April to 40 March.
Further details can be obtained from the Broads Authority website.
40.28 Environment Agency
The Environment Agency operates a registration scheme for boats using waterways
over which it has responsibility. They record details of the owner of the boat and
changes in ownership are notified to them. The scheme is administered from a
number of centres, depending on which waterway is used by the vessel.
40.29 Canal & River Trust and Scottish Canals
(formerly British Waterways)
The Canal & River Trust administers and cares for historic waterways in England
and Wales, and Scottish Canals administers and maintains the historic waterways of
Scotland. They issue licences for boats to use the United Kingdom’s canal system.
They record, amongst other things, details of the owner of a boat and are notified of
changes in ownership.
Miscellaneous – animals, firearms and
correspondence
--- PDF page 16 ---
40.30 Bankrupt’s own pet animal
It is highly unlikely that the bankrupt’s own pet animal will have any realisable value,
unless it has a good pedigree.
If so, the official receiver should, in the first instance, establish if the bankrupt wishes
to introduce a third party to purchase the animal from the estate. The third party
should arrange for the valuation, conducted by a registered breeder or other
specialist, on which the sale price should be based.
Guidance on dealing with pet animals held as stock is provided in chapter 34.
40.31 Firearms held by a bankrupt personally
This paragraph deals only with firearms held by the bankrupt personally. Firearms
held as stock are dealt with in chapter 34.
Advice and information on dealing with firearms (including illegally held firearms)
when first encountered by the official receiver is contained in chapter 11).
It is an offence to be in possession of a firearm without the necessary certificate1 and
dealing in firearms is controlled by the local police force. Apart from the obligation to
hold a certificate, there are a number of other regulations surrounding the transfer of
firearms, particularly as regards record keeping. Where it is beneficial to the estate to
realise the firearms, the official receiver should ensure that any agents appointed to
deal with the sale are registered firearms dealers. The website of The Gun Trade
Association Ltd carries a list of registered firearms dealers, searchable by name and
location.
If there is any doubt when dealing with a firearm, the advice of the local police
firearms liaison officer should be sought.
1. Firearms Act 1968 section 1
40.32 A bankrupt’s personal correspondence
as an asset
The possibility of a bankrupt’s personal correspondence having a monetary value is
most likely to occur in public interest cases, but the principles outlined in this section
may be relevant to bankruptcies in general.
It has been held that personal correspondence, whatever the subject matter, does
not form part of the bankrupt’s estate within the definitions of the Insolvency Act
1986. It was further ruled that while some of the correspondence may relate to affairs
relevant to the administration of the bankrupt’s estate that does not bring it within the
--- PDF page 17 ---
definition of estate. The judgment equated a bankrupt’s personal correspondence to
a right of action for damages for libel as being peculiarly personal to them and their
life as a human being1.
It is also possible that the removal and sale of a bankrupt’s personal correspondence
may contravene the Convention for the Protection of Human Rights and
Fundamental Freedoms (1953) article 8 which provides a right to respect for one’s
“private and family life, his[her] home and his[her] correspondence.” This was
considered in the case referred to above, but did not form part of the judgment. This
aspect has not, otherwise, been considered in a court.
1. Haig v Aitken [2000] 3 WLR 1117
Assets from other insolvency
proceedings
40.33 Assets from a creditors’ voluntary
liquidation (CVL) or members’ voluntary
liquidation (MVL)
Where a compulsory winding-up order is made against a company in a voluntary
liquidation, the voluntary liquidator has a duty to deliver any remaining assets to the
official receiver or liquidator if not the official receiver1. The voluntary liquidator
should be advised of the making of the compulsory winding-up order using standard
letter2 and arrangements should be made for the handing over of the company’s
assets, including any funds which have not been paid into the Insolvency Services
Account (ISA).
The voluntary liquidator’s remuneration and expenses should be detailed in the
report to creditors, as these may affect the amount of any distribution to creditors.
The official receiver, as liquidator, should deal with assets unrealised by the
voluntary liquidator in the usual way.
1. Rule 7.73
2. NTVL
40.34 Assets remaining after an administrative
receivership
--- PDF page 18 ---
A receiver’s powers conferred under section 42 of the Insolvency Act 1986 and
schedule 1 of the same act, including the right to realise assets covered by the
charge and convey property in the company’s name, are unaffected by the making of
a winding-up order.
Where a winding-up order is made against a company in an administrative
receivership, the official receiver should make contact with the administrative
receiver to advise them of the making of the order and to ask him to provide
information regarding charged assets not yet realised and an estimate of anticipated
realisations. A standard letter and form1 is available is available for this purpose. The
standard letter also asks the administrative receiver to provide information relating to
the charge in respect of which they were appointed. Reference to the information
provided by the administrative receiver in this respect should allow the official
receiver to make a calculation regarding any surplus available to the liquidation
estate and, if appropriate, report this to creditors.
It may be the case that there are assets belonging to the company which were not
covered by the charge and, therefore, not being dealt with by the administrative
receiver. Those assets should be protected and realised by the official receiver as
liquidator in the usual way.
1. ADMREC
40.35 Assets from administration proceedings
The assets of a company in administration are charged in favour of:
•
liabilities arising out of a contract entered into by the former administrator (or a
predecessor)
•
liabilities arising under a contract of employment which was adopted by the
former administrator (or a predecessor)
•
the former administrator’s debts and expenses1
The official receiver, as liquidator, should establish from the former administrator the
value of any remaining assets and the level of the outstanding liabilities
(administration creditors) charged against those remaining assets, using the
standard form2. If it is the case that the level of outstanding liabilities exceeds the
value of the assets then the liquidator has no interest in the assets and action to
realise them should not be taken. In these circumstances, the official receiver, as
liquidator, should inform administration creditors and the former administrator that
they intend to take no action regarding the assets and that the former administrator
should deal with them. An explanation of the situation should be included in the
report to creditors so that pre-administration creditors are made aware of the
position.
--- PDF page 19 ---
If the assets are of a greater value than the amounts outstanding to the administrator
and the administration creditors the official receiver, as liquidator, should ask the
former administrator to deliver up the assets and deal with them in the usual way.
1. Schedule B1 paragraph 99
2. ADMLTR
40.36 Partnerships subject to administration
orders
Partnerships may also be subject to administration orders1 and, in this respect, the
information and advice given above should be followed.
1. The Insolvent Partnerships Order 1994 Part III article 6
40.37 Assets from a failed company voluntary
arrangement
Where a winding-up order is made against a company which is in a company
voluntary arrangement (CVA) the effect of the order is to terminate the CVA.
Following this, the status of CVA assets or monies is dependent on the terms of the
arrangement. The assets held by the supervisor may be held on trust, or subject to a
charge, in favour of creditors who are bound by the CVA1.
In the event that the assets are not held on trust or the way in which they are to be
dealt with is not provided for in the terms of the CVA, and there is a surplus in the
value of the assets over the expenses of the supervisor, the official receiver should
take control of the assets and deal with them in the usual way.
1. NT Gallagher & Son [2002] 3 ALL ER 474
40.38 Assets from a failed partnership
voluntary arrangement
A partnership may be subject to a partnership voluntary arrangement1,2 the rules for
which are in line with the rules regarding CVAs. The information and guidance in
respect of CVAs should be followed in this respect.
The individual members of the partnership may be subject to an IVA and the
guidance and information given below should be followed in this respect.
1. The Insolvent Partnerships Order 1994 Part II article 4
2. The Insolvent Partnerships (Amendment) (No.2) Order 2002 article 4
--- PDF page 20 ---
40.39 Assets from a failed individual voluntary
arrangement
The effect of a bankruptcy order on an existing individual voluntary arrangement
(IVA) is dependent on the terms of the IVA, in particular any trust clause1. The assets
held by the supervisor may be held on trust, or subject to a charge, in favour of
creditors who are bound by the IVA.
If the supervisor has unpaid costs when a voluntary arrangement fails and a
bankruptcy order is subsequently made the unpaid expenses will be a first charge on
the bankruptcy estate – even though the underlying asset from which they are paid
may not have been included in the IVA2. If the unpaid costs are greater than the
value of the assets the official receiver, as trustee, should take no steps to realise
the charged assets. The supervisor’s unpaid costs should be shown in the report to
creditors.
In the event that the assets are not held in trust or the way in which they are to be
dealt with is not provided for in the terms of the IVA, and there is a surplus in the
value of the assets over the expenses of the supervisor the official receiver, as
trustee, should take control of the assets and deal with them in the usual way.
Official receivers should also be aware that certain assets (most commonly the
matrimonial home) may have been excluded from the IVA and, subject to any charge
in favour of the supervisor; these should be dealt with in the usual way.
1. Re AJW Bradley-Hole, ex parte Knight [1995] BCC 418
2. Section 276(2)
40.40 Assets from a previous bankruptcy
In circumstances where a bankruptcy order is made against an undischarged
bankrupt any assets (including income) acquired by them after the date of the earlier
bankruptcy and not yet distributed by the trustee are to be transferred to the later
bankruptcy1 2. Any such money or property will then form part of the estate in the later
bankruptcy but subject to a first charge in favour of the earlier trustee for any
expenses they may have incurred in dealing with those assets3.
Where, on receiving notice of a bankruptcy petition, a trustee has any after-acquired
property they should hold and protect the property until the petition is disposed of.
Any disposal after receipt of notice is void unless the consent or ratification of the
court dealing with the earlier bankruptcy is obtained4.
Assets belonging to a subsequent bankrupt who is discharged from an earlier
bankruptcy would vest in the subsequent bankruptcy estate and should be dealt with
--- PDF page 21 ---
in the usual way. The official receiver should be aware that, particularly with
properties, the trustee of the earlier bankruptcy may have transferred the bankrupt’s
beneficial interest to a third party.
1. Section 334(3)
2. Section 335(1)
3. Section 335(3)
4. Section 334(2)
Unsaleable assets
40.41 Unsaleable assets
Generally, where an asset is considered to be unsaleable it should be disclaimed as
soon as possible (see chapter 42), or abandoned, as appropriate. An alternative is
to transfer the item to the directors of a company in liquidation or a relative of the
bankrupt for a nominal sum.
Where goods remain unsold after an auction, the official receiver should take their
agent’s advice as to whether it would be worthwhile to enter the items into another
sale or otherwise arrange for their disposal.
In bankruptcy cases the official receiver as trustee may, with the sanction of the
Secretary of State (see chapter 1), divide the asset between the creditors in
circumstances where it cannot otherwise be sold1. It is unlikely that this course of
action will be the most appropriate to follow, as being practically difficult to
administer.
1. Section 326(1)
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ATTACHMENT: 42.Disclaimers.pdf
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--- PDF page 1 ---
This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 11 March 2020
42. Disclaimers
Disclaiming property of the insolvency where that property is onerous, including the
process to be followed for an effective disclaimer
Annexes
Annex A - Flowchart – How to issue a disclaimer
Annex B - Document explaining purpose of disclaimer in German
Annex C - Document explaining purpose of disclaimer in French
Annex D - Document explaining purpose of disclaimer in Spanish
Annex E - English translation of Annexes B, C and D
Chapter content
Frequently asked questions
Introduction
Considering a disclaimer
Notice to elect / notice requiring disclaimer decision
Procedure for disclaiming
Effect of a disclaimer
Vesting orders
Frequently asked questions
What is a disclaimer?
--- PDF page 2 ---
In the general legal sense, a disclaimer is an act of renouncing a claim over property.
In the more specific sense of insolvency legislation, a disclaimer is an act provided
for in the legislation allowing a liquidator or trustee to renounce their claim over
property vested in the insolvent’s estate, but only where the property brings with it
some onerous obligation.
Why issue a disclaimer?
Whilst many assets with no value may simply be abandoned (as often happens with
jewellery), this is simply not an option for those assets where ownership of the asset
brings with it an obligation to perform a specific act; for example, an obligation to
maintain a leasehold property or pay rent. If the ability to issue a disclaimer was not
available the only option available to the liquidator or trustee would be to bring the
obligation to an end by dealing with the property by way of transfer or sale thereby
unnecessarily prolonging the administration of the estate, and adding costs and
reducing the amount available to return to creditors.
Additionally, in a bankruptcy estate the property (and, therefore, the obligation) vests
in the trustee personally; leaving the possibility of the trustee being personally liable
for financial penalties relating to ownership of the asset.
How is a disclaimer issued?
A disclaimer is issued by describing the property to be disclaimed on a statutory
form, having the liquidator or trustee authenticate and date the form and serving the
form on parties with an interest in the property.
See ‘Procedure for disclaiming’ for further information.
When should a disclaimer be issued?
A disclaimer should be issued where the official receiver, as liquidator or trustee
becomes aware of property in the estate that has no value, and to which there is an
obligation to perform some onerous task. Whilst, in these circumstances, a
disclaimer should be issued as soon as possible, care should be taken not to
disclaim an interest in property having a value to the estate which, instead, should be
dealt with as any other asset.
See ‘Matters to consider prior to the issue of a disclaimer’, particularly paragraph
42.3 for further information.
What is an onerous task?
--- PDF page 3 ---
This is described in the legislation as “onerous property”; being an unprofitable
contract, or any other property comprised in the insolvency estate which is
unsaleable or not readily saleable, or is such that it may give rise to a liability to pay
money or perform any other onerous act.
Who may issue a disclaimer?
The official receiver, when acting as liquidator or trustee, may issue a disclaimer at
any time.
See ‘Matters to consider prior to the issue of a disclaimer’, particularly paragraph
42.4 for further information.
Who should receive notice of a disclaimer?
Notice of the disclaimer, including a copy of the disclaimer once authenticated and
dated by the liquidator or trustee, should be served on any party having, or
appearing to have, an interest in the disclaimed property. Notice should be given to
the Land Registry where solely owned registered property is being disclaimed.
See ‘Procedure for disclaiming’, particularly paragraph 42.54, for further information.
What may be disclaimed?
Effectively, there is no limit to the type of property that may be disclaimed. Typically,
disclaimers are issued in respect of leased property, but may also be issued in
relation to freehold or leasehold property, rights of actions, property licences or
shares, to give a few examples.
See ‘Matters to consider prior to the issue of a disclaimer’, particularly paragraph
42.6, for further information.
What is a notice to elect / notice requiring
disclaimer decision?
A party with an interest in a property forming part of an insolvency estate may
require the official receiver as liquidator or trustee to make a decision as to whether
or not the property in question is to be disclaimed. This request will be made in
writing and was previously required to be in a prescribed form known as ‘notice to
elect’ (the prescribed form is no longer required). The official receiver must issue a
disclaimer (where it is appropriate to do so) within 28 calendar days of receiving the
request to make a decision; otherwise, the official receiver will be considered to have
adopted the property and the obligations (for example, to pay rent) attaching to it.
--- PDF page 4 ---
See ‘Notice to elect/notice requiring disclaimer decision’ for further information.
What is a vesting order?
Where a liquidator or trustee has disclaimed their interest in property, it is open to
certain persons to make application to court for the property to be vested in them.
There should normally be no need for the official receiver to be party to, or otherwise
involved in, an application for a vesting order.
What happens to the property once the official
receiver’s interest has been disclaimed?
The effect of a disclaimer is to end, as from the date of the disclaimer, the rights,
interests and liabilities of the insolvent in relation to the property. This might result in
the property passing to a joint owner or, even, to the Crown. A person with an
interest in the property may apply to court for an order to take possession of the
property. This is known as a vesting order.
Introduction
42.1 General
This chapter gives general advice and guidance relating to disclaimers, including
matters to be taken into consideration before issuing a disclaimer, the effect of a
disclaimer and the procedure for issuing a disclaimer.
42.2 Background
In the general legal sense, a disclaimer is an act of renouncing one’s claim over
property. In the more specific sense of insolvency legislation, a disclaimer is an act
provided for in the legislation allowing a liquidator or trustee to renounce their claim
over property vested in the insolvent’s estate, but only where the property brings with
it some onerous obligation.
Whilst many assets with no value may simply be abandoned (as often happens with
jewellery), this is simply not an option for those assets where ownership of the asset
brings with it an onerous obligation; for example, an obligation to maintain a
leasehold property or pay rent, or perform any other specific act. If the ability to issue
a disclaimer were not available the only option for the liquidator or trustee would be
--- PDF page 5 ---
to bring the obligation to an end by dealing with the property by way of transfer or
sale thereby unnecessarily prolonging the administration of the estate and adding
costs and reducing the amount available to return to creditors.
Additionally, in a bankruptcy estate the property (and, therefore, the obligation) vests
in the trustee personally; leaving the possibility of the trustee being personally liable
for financial penalties relating to ownership of the asset.
The chapter contains a section of frequently asked questions (FAQs), which give an
overview of the subject of disclaimers. The FAQs are intended to be a useful
introduction to the subject, or to be used as a training tool, but should not be seen as
a replacement for the more detailed advice given in the chapter.
Considering a disclaimer
42.3 General
A disclaimer should be considered where the official receiver, as liquidator or trustee
becomes aware of property in the estate that has no value, and to which there is an
obligation to perform some onerous task. This is described in the legislation as
“onerous property”; being an unprofitable contract, or any other property comprised
in the insolvency estate which is unsaleable or not readily saleable, or is such that it
may give rise to a liability to pay money or perform any other onerous act1, 2.
Whilst, in these circumstances, a disclaimer should be issued as soon as possible,
care should be taken not to disclaim an interest in property having a value to the
estate which, instead, should be dealt with as any other asset.
1. Section 178(3)
2. Section 315(2)
42.4 Power to disclaim
The official receiver can disclaim only when they are acting as liquidator or trustee1, 2.
They have no power to disclaim when acting as interim receiver.
1. Section 178
2. Section 315
42.5 Timing of a disclaimer
--- PDF page 6 ---
Ideally, the official receiver when acting a liquidator or trustee should disclaim
onerous property as soon as possible in order to minimise the exposure to a liability1,
2. See paragraph 42.9 for a circumstance in which it may be appropriate to delay the
issue of a disclaimer.
1. Section 178
2. Section 315
42.6 Definition of property
As a disclaimer can only be issued in respect of property, it is important to
understand what is meant by this term in the context of insolvency proceedings. The
Act defines property as including “money, goods, things in action, land and every
description of property wherever situated and also obligations and every description
of interest, whether present or future or vested or contingent, arising out of, or
incidental to, property.”1.
The fact that the property held may be of no value to the creditors is irrelevant; it is
the general nature of the property or property right and not its value in particular
circumstances which determines the issue2.
Property must involve some element of benefit or entitlement for the person holding
it3.
1. Section 436
2. De Rothschild v Bell (A Bankrupt) [2000] 32 HLR 274
3. In re SSSL Realisations (2002) Ltd (in liquidation) In re Save Group plc [2006] EWCA Civ 7]
42.7 Types of property over which a
disclaimer may be issued
Typically, most disclaimers will be issued in respect of leased property. Having said
this, there is no limit to the type of property that may be subject to a disclaimer
(though see paragraph 42.25 regarding disclaimers and motor vehicles). Apart from
leased property, common examples of property in relation to which a disclaimer may
be issued include freehold property, contracts, licences, shares or rights of action.
Where the insolvent is tenant of only part of a premises demised by a tenancy, the
power to disclaim is exercisable only in relation to the part of the premises of which
the insolvent is tenant1.
Property excluded from the bankruptcy estate cannot be disclaimed, for example, the
legal estate in a lease held on trust by a bankrupt and her co-tenant on behalf of
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themselves was “property held on trust for any other person” within the Insolvency
Act 1986 section 283(3) and so was excluded from the bankrupt’s estate. A
disclaimer served by the trustee in bankruptcy therefore did not end the legal estate
in the lease or the bankrupt’s liability to pay rent2.
1. Landlord and Tenant (Covenants) Act 1995 section 21(1)(a)
2. Abdulla v Whelan [2017] EWHC 605 (Ch)
42.8 Obtaining information regarding property
When the official receiver is undertaking an inspection or preliminary interview,
sufficient information should be obtained to allow for an effective decision to be
made regarding whether or not the property should be disclaimed; and to obtain
sufficient information for the completion of the relevant statutory form (see paragraph
42.49) if that is the decision taken.
Where the official receiver is dealing with property subject to a lease, they should
consider obtaining the following:
•
copy of lease
•
any sub lease
•
any assignments
•
Land Registry search on property
•
guarantors
•
details of solicitors or property management agents acting
•
any authorised guarantee agreement (see paragraph 42.13)
•
other interested parties
•
charge holder details
•
arrears of rent
The official receiver’s enquiries should not be limited to property in which the
insolvent has a current interest, but should extend to leases in which the insolvent
has had an interest (see paragraphs 42.12 and 42.13).
Where the property in question is a dwelling house, the bankrupt should be asked to
identify all persons who occupy, or who have a legal right to occupy, the property,
together with their addresses (if they live elsewhere), as these persons will need to
be served with a notice of disclaimer (see paragraphs 42.54 and 42.56).
42.9 Valuation prior to disclaimer
Property should not be disclaimed where it has a value in excess of any obligations
attached to it and is readily saleable. Consideration should be given to the effect of
any forfeiture clause in the case of the insolvency of a party in relation to property
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such as a lease or a contract. In cases of doubt the official receiver should instruct
agents to carry out a formal valuation of the property.
See also paragraph 42.16 regarding tenant’s rights when considering the value of
property.
42.10 Valuation of leasehold property
When in doubt a valuation should always be obtained. However, where the official
receiver’s experience in dealing with a lease suggests that the lease is unlikely to
have any value, or the existence of a forfeiture clause (see chapter 28) on an
insolvency event would suggest the official receiver is unlikely to be able to sell the
lease, then funds should not be used in obtaining a valuation simply to confirm the
official receiver’s view.
See also paragraph 42.16
42.11 Disclaimer of property held under a
lease
The vast majority of disclaimers issued by official receivers will be in respect of
property held under a lease. Where an insolvent is the current lessee of property at
the time of the insolvency order, the insolvent’s interest in that property should be
disclaimed if it is unsaleable or not readily saleable, or is burdened with any liability
to pay money (for example, rent or maintenance charges), or gives rise to any other
liability to pay money or to perform any other onerous act (for example, to maintain
or upkeep the property).
See also paragraphs 42.12 to 42.13 regarding actual or contingent liability (under a
lease assigned from the insolvent prior to the insolvency order) and paragraph 42.15
regarding tenancies excluded from the bankrupt’s estate.
Where an insolvent is a joint lessee, only the insolvent’s interest in the lease can be
disclaimed.
See paragraph 42.79 for information on the disclaimer of fixtures.
See paragraphs 42.29 and 42.76 where property held under a lease has a sitting
sub-tenant.
42.12 Continuing obligations under leases
Where a tenancy was created before 1 January 1996, an insolvent may have
obligations under the lease (this is referred to as “privity of contract”) despite the fact
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that they have assigned it to a third party1. The obligation may be after an
assignment where the original lessee may remain liable under covenants2.
Whether or not the tenancy was created before 1 January 1996 the insolvent may
have a liability under the lease where a guarantee was given to the landlord.
See the following paragraph for further information on privity of contract.
1. Hindcastle Limited v Barbara Attenborough Associates Limited [1996] 2 WLR 262
2. Warnford Investments Ltd v. Duckworth [1979] 1 Ch 127
42.13 Authorised guarantee agreements
For tenancies created after 1 January 1996, the concept of liability under privity of
contract was discontinued1. A landlord may require a tenant who assigns a lease to
enter into an “authorised guarantee agreement”, under which the tenant who assigns
the lease or tenancy may guarantee performance of the tenant’s covenants by the
assignee, but not any subsequent assignee2.
In the case that the insolvent is party to an authorised guarantee agreement the
disclaimer wording (see paragraph 42.50) should reflect this (for example “the
authorised guarantee agreement dated [date] and related lease…….”).
1. Landlord and Tenant (Covenants) Act 1995 section 3
2. Landlord and Tenant (Covenants) Act 1995 section 16
42.14 Disclaimer of a tenancy
The majority of tenancies encountered by official receivers will be in connection with
the bankrupt’s residence. Many tenancies are excluded from the bankruptcy estate
by operation of law and therefore a disclaimer would not be appropriate. From the
point of view of considering a disclaimer, official receivers should treat those
tenancies not excluded (including those in a liquidation) as leases and follow the
information and guidance in paragraph 42.11.
42.15 Exclusion of certain types of tenancies
The following types of tenancies do not form part of the bankrupt’s estate1 (unless
actively claimed by the trustee2) and, therefore, a disclaimer would not be
appropriate:
Assured tenancy or assured agricultural occupancy within the meaning of Part I of
the Housing Act 1988, and the terms of which inhibit an assignment.
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A protected tenancy, within the meaning of the Rent Act 1977 in respect of which no
premium can lawfully be required as a condition of assignment.
A tenancy of a dwelling house by virtue of which the bankrupt is, within the meaning
of the Rent (Agriculture) Act 1976, a protected occupier of the dwelling house, and
the terms of which inhibit an assignment.
A secure tenancy, within the meaning of Part IV of the Housing Act 1985, which is
not capable of being assigned.
In practice many council, housing association and private landlord tenancies in
respect of dwelling houses will fall under one of the categories listed above. In cases
of doubt, the official receiver should inspect the tenancy agreement before ruling out
a disclaimer.
1. Section 283(3A)
2. Section 308A
42.16 Tenant rights
Certain leases or tenancies may include what are known as “tenant’s rights”, such as
the right to grow and harvest crops, graze livestock or hunt animals. These rights will
be lost to the liquidator or trustee if a disclaimer is issued in respect of the lease or
tenancy.
As the rights themselves may have a value in excess of any liabilities due under the
lease or tenancy, the official receiver should assess the benefits likely to be achieved
by retention of the property against any obligations which will have to be performed
while the property is retained. It is likely that the official receiver will need to employ
agents to assist with the valuation. Property should not be retained without adequate
indemnities from creditors as regards payments to be made.
42.17 Disclaimer of licence to assign
Where the insolvent’s interest in the lease is by way of a licence to assign, the
description of the property on the notice of disclaimer (see paragraph 42.49) should
cover both the interest in the licence to assign and the original lease. Having said
this, it has been held that a disclaimer of a licence to assign is effective as a
disclaimer of a lease1.
1. MEPC plc v Scottish Amicable Life Assurance Society, Neville Richard Eckley (Third Party) (1993) The Times, 6 April
42.18 Surrender of a lease
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A lease or tenancy may be surrendered by operation of law where the actions of
both parties to the lease or tenancy make it clear that they intend the lease or
tenancy to come to an end (see paragraph 42.49 and chapter 28 for more
information on this). Alternatively it may be relinquished by exchange of letters
(sometimes referred to by the official receiver as an ‘informal surrender’ although in
legal terms this is incorrect). Neither of these two options should be adopted by the
official receiver, even with legal advice, because of the difficulties that can arise if all
relevant matters (not just the liability for future rent) are not resolved prior to the
ending of the lease or tenancy. If it is not beneficial to the estate to disclaim the lease
or tenancy, the guidance in paragraph 42.49 for formal surrender may be followed –
though this is appropriate only for company cases and, even then, only in
exceptional circumstances.
Ideally, the official receiver should issue a disclaimer even when the landlord is
prepared to accept possession by way of a surrender of premises. A disclaimer will
result in a “clean-break” of the estate’s interest in the property and will avoid any
future problems in relation to contingent liabilities.
42.19 Disclaimer of a lease that has been
terminated
A lease may be disclaimed even if it has been terminated – whether by expiration of
the period of the lease or by forfeiture1, 2. The reasons why this may be necessary are
explained at paragraph 42.12 concerning contingent and continuing liabilities.
1. Ex parte Sir W Hart Dyke. In re Morrish 22 Ch.D. 410
2. Ex parte Paterson. In re Throckmorton 11 Ch.D 908
42.20 Lease held in trust for another
A lease held in trust for another person by an insolvent may form part of the
company’s estate or vest in the trustee in bankruptcy1. It is, therefore, appropriate
that, where a company in liquidation or a bankrupt has an interest in a lease as
trustee, a disclaimer is issued (assuming a disclaimer is otherwise appropriate).
1. The Governors of St Thomas’ Hospital v Richardson [1910] 1 KD 271
42.21 A disclaimer of property overseas or
outside of the jurisdiction
Occasionally, it will be necessary for the official receiver to disclaim property situated
overseas or outside of the jurisdiction. The effect of the disclaimer, especially where
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the property is outside the EU, is open to question and the disclaimer may not be
recognised in the country in which it is issued, depending on the law of that country1.
Where, however, action is taken, in the foreign jurisdiction, against the official
receiver, as liquidator or trustee, in relation to the disclaimed foreign property, the
enforcement of any judgment against the official receiver would have to be taken in,
or recognised by, the English/Welsh court which would, in turn, recognise or
consider the effects of the disclaimer, thereby affording the official receiver some
measure of protection.
Annexes B, C and D are documents that explain the effects of a disclaimer in
German, French and Spanish respectively. Annex E is an English translation of
those documents.
1. Joint Liquidators of the Scottish Coal Co Ltd (2014) SLT 259 [1]
42.22 Disclaimer of a licences or permits for
dealing with waste
In order for a business to deal in controlled waste it must hold a permit or a licence
issued by the Environment Agency. Formerly, businesses were issued with Waste
Management Licences, but these are gradually being replaced by Pollution
Prevention and Control Permits.
It has been held that Waste Management Licences are property as defined by the
Act1 and can, therefore, be disclaimed as onerous property2.
On this basis, the official receiver should disclaim, where appropriate, their interest in
a Waste Management Licence or Pollution Prevention and Control Permit. It should
be noted, however, that a disclaimer of a Pollution Prevention Control Permit has yet
to be tested in court, and the Environment Agency has indicated that it would
challenge such a disclaimer.
Where the official receiver is disclaiming an interest in a Waste Management Licence
or a Pollution Prevention and Control Permit they should ensure that both the
Environment Agency and the local authority Environmental Health Department are
sent notice of the disclaimer (see paragraph 42.49).
See also paragraph 42.23 regarding disclaiming waste.
1. Insolvency Act 1986 section 436
2. Re Celtic Extraction Ltd (In Liquidation) [2001] Ch 475
42.23 Disclaiming waste
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Where waste is disclaimed the official receiver should serve notice of the disclaimer
on the Environment Agency and the local authority Environmental Health
Department. Waste should not be disclaimed where it is on land which is part of the
insolvent’s estate (i.e. a vesting lease or a solely-owned freehold property, but not a
non-vesting tenancy (see paragraph 42.15) or a jointly-owned freehold property),
unless the land or tenancy to the land is also disclaimed as, to do so, may result in
the official receiver being considered to be keeping waste, which is an offence
without the appropriate permit.
The official receiver will, therefore, need to consider the value of the land or tenancy
against the costs of dealing with the waste before deciding if a disclaimer is
appropriate.
42.24 Disclaiming a mine
Where a mine is abandoned the person abandoning the mine is required to carry out
various duties such as issuing a notice to interested parties.
Where a disclaimer is issued in respect of a mine, it will not be deemed to be an
abandonment of the mine and, therefore, any duties as required by the relevant
legislation need not be carried out. Notice of the disclaimer (see paragraph 42.49)
should, however, be sent to the Environment Agency.
42.25 Disclaimer of motor vehicles
Motor vehicles are subject to strict rules regarding disposal and any person
(including the official receiver where a motor vehicle vests) not complying with those
regulations may leave themselves open to financial sanctions, even where a
disclaimer has been issued. For this reason, the Insolvency Service has taken a
decision that the issuing of a disclaimer is respect of a motor vehicle would be
appropriate in only limited circumstances (see chapter 27).
It is, in any case, extremely unlikely that the official receiver would have cause to
issue a disclaimer in respect of a motor vehicle. If the motor vehicle has an inherent
value then it will either be realised (see chapter 27) or treated as exempt property
(see chapter 24). If, on the other hand, the vehicle has no realisable value (and
cannot be treated as exempt property) then it will be dealt with under the procedures
for dealing with “end of life” vehicles (see chapter 27).
Where a disclaimer is issued in respect of a motor vehicle, and the vehicle is
registered in the UK, notice of the disclaimer should be served on the Driver and
Vehicle Licensing Agency (DVLA)
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42.26 Disclaimer of a lease relating to an
Islamic mortgage
Where a person has entered into an agreement to purchase a property under an
Ijara or Diminishing Musharaka scheme the property is held in trust with the trustees
granting a lease to the person covering the term over which it has been agreed that
they will purchase the property.
With an Ijara payments made towards the purchase price of the property at the date
of the bankruptcy order may give rise to a beneficial interest in the property which
would form part of the bankruptcy estate, or be a debt payable by the bank to the
bankruptcy estate (the contract of sale having been uncompleted). With a
Diminishing Musharaka the bank’s beneficial interest transfers to the borrower once
agreed payment stages are completed. By the end of the rental period, the borrower
will hold a 100% beneficial interest in the property and will require the trustees to
transfer legal title.
With both the Ijara and Diminishing Musharaka, at the date of the bankruptcy order
the property would not vest in the bankruptcy estate, as the legal and beneficial
owner is the bank. Any agreement to purchase the property is a contract capable of
vesting in the trustee in bankruptcy as is the lease agreement. Forfeiture or
disclaimer of the lease might defeat any interest the trustee in bankruptcy holds in
the property. Where a disclaimer is considered in this respect, care should be taken
that the beneficial interest in the property is not lost through a carelessly worded
disclaimer aimed at the lease agreement.
Further information on Islamic mortgages is contained in chapter 28.
42.27 Disclaimer of a right of action
As with any other property, it is open to the trustee to disclaim a right of action where
it is considered to be onerous property1. Once disclaimed it is not possible for the
right of action to be vested back to the bankrupt2. Consequently when considering a
disclaimer the official receiver should be careful to avoid giving the impression to the
bankrupt that they would be able to regain control of the action by way of a vesting
order. The reasons for this are discussed in detail in paragraph 42.92.
Whilst the Act3 makes it clear that a disclaimer operates to bring the interest of a
bankrupt and their estate in the disclaimed property to an end, it does not follow from
this that the property itself ceases to exist. In view of the effect of a disclaimer on the
interest of the bankruptcy estate, it may in some cases be preferable to refrain from
disclaiming the right of action, where it is not possible to assign or settle it at that
time, so that the matter may be revisited in the future, subject to the expiry of the
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limitation period. However, different considerations would apply if proceedings had
been issued and the official receiver was being put under pressure by the parties to
the proceedings (or the court) to deal with the matter. In this case, it may be possible
to settle the matter by way of a consent order (known as a “Tomlin Order”), with each
party responsible for their own costs.
A right to defend an action cannot be subject to a disclaimer4 and it is not considered
to be property, but merely a liability5.
More information regarding rights of action can be found in chapter 37.
1. Insolvency Act 1986 section 315(2)(b)
2. Skinner v Hood [2005] EWCA Civ 1634
3. Section 315(3)(a)
4. Zakharov v White (Appeal against Order) (Ch D) Chancery Division 2004 EWHC 2829
5. Heath v Tang [1993] 1WLR 1421
42.28 Disclaimer of freehold property
The disclaimer of mortgaged or unsaleable freehold property may be necessary
where such property has some onerous condition or liability attached. Examples of
this may be where a local authority has made a demolition order, or there is a
responsibility to pay for the upkeep of the property. This would not include property
that cannot be disposed of only because there appears to be no available equity –
for which, the guidance in chapter 28 should be followed.
As an alternative to issuing a disclaimer, the official receiver could consider issuing a
notice for the property to re-vest in the bankrupt1 (see chapter 28)
Please see paragraphs 42.77 and 42.78 for the effect on jointly-owned and solely
owned property, respectively.
1. Rule 10.170
42.29 Disclaimer and the Landlord and Tenant
Act 1987
The Landlord and Tenant Act 1987 gives tenants the right to acquire a property
where the landlord is disposing of it. The Landlord and Tenant Act 1987 is
comprehensively discussed in chapter 28 and reference should be made to the
information contained therein before issuing a disclaimer in respect of a freehold or
leasehold property with sitting tenants.
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See paragraph 42.76 for information on the effect of a disclaimer on a leasehold
property with a sitting sub-tenant.
42.30 Disclaimer of shares
A disclaimer should be issued in respect of shares that may burden the estate with a
liability in excess of their value. For example, in the case of partly paid shares, or
where a tax liability may accrue on sale.
See chapter 33 for information on dealing with shares with value, in particular the
circumstances where it may be appropriate to issue a disclaimer in respect of shares
with minimal value.
In any case where a disclaimer is issued in respect of shares, the notice of
disclaimer should be sent to the company’s registrar of shares.
42.31 Disclaimer of a contract for sale
Where a bankrupt has entered into a contract for the sale of a property held under a
lease, the trustee cannot disclaim the contract without also disclaiming the lease1.
1. Pearce v Bastable’s Trustee in Bankruptcy Chancery Division [1900] P.2593
42.32 Additional notices disclaimer
There is no longer a requirement in the Insolvency (England and Wales) Rules 2016
for a liquidator or trustee in bankruptcy to require persons to declare their interest in
any property which they are considering disclaiming. However, the Official Receiver
as trustee or liquidator who is disclaiming property may at any time deliver a copy of
the notice of the disclaimer to any other person whom the Official Receiver thinks
ought, in the public interest or otherwise, to be informed of the disclaimer1.
1. Rule 19.6
42.33 Property claimed by trustee
Where, in a bankruptcy, the official receiver, as trustee, lays claim to after acquired
property1, exempt property exceeding the value of a reasonable replacement2 or a
certain type of tenancy3 they will not be able to subsequently disclaim that property
without the court’s permission4, 5.
The application may be made without notice to any other party, and must be
accompanied by a report giving details of the property, setting out the reasons why
the property – having been claimed for the estate – is now to be considered for
disclaimer and specifying the persons (if any) who have been informed of the
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trustee’s intention to make the application. If the report states any person’s consent
to the disclaimer then the consent must be annexed to the report6.
1. Section 307
2. Section 308
3. Section 308A
4. Section 315(4)
5. Rule 19.8
6. Scmlla Properties Ltd v Gesso Properties (BVI) Ltd [1995] EGCS 52
42.34 Property (including leasehold property)
subject to a charge
A disclaimer ought not to affect a mortgagee’s position in relation to the property
disclaimed due to provisions in the Act protecting the rights of third parties (see
paragraph 42.67)1.
That said, where the official receiver is considering issuing a disclaimer in respect of
property subject to a charge, they should first contact the charge-holder and bring
this intention to their attention to afford them the earliest opportunity to consider
making application for a vesting order or to exercise their right to dispose of the
property.
A Land Registry search of a property should be carried out to obtain details of
chargeholders.
1. Re Gee ex p Official Receiver [1889] 24 QBD 65
42.35 Disclaimer of an attornment clause
A lease may contain a clause (usually created by a mortgage) whereby the tenant
agrees to become the tenant of a successor landlord, for example where a
mortgagee has taken possession of the property.
Where there is an attornment clause in a lease, the trustee would remain liable for
rent accruing after the property vested in them, unless the mortgage is for the whole
residue of the term of the lease, as this property would not then vest in the trustee1.
It is unlikely that official receivers will encounter leases with attornment clauses, as
they are rarely used. They were, however, more common in the past and, therefore,
are more likely to be encountered in older mortgaged property.
1. Re Gee ex p Official Receiver [1889] 24 QBD 65
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42.36 Review of the official receiver’s
disclaimer decision
Any person aggrieved by an act or decision of the liquidator may make application
for a review of that act or decision. That way, an aggrieved person can seek a review
of the official receiver’s decision to, or not to, issue a disclaimer1, 2. Unless the
decision to disclaim was in bad faith, or perverse, the court would not intervene to
set aside the disclaimer.
Similarly, it is open to a bankrupt, or any creditor of a bankrupt, to make application
to the court for a review of any act, omission or decision of a trustee3.
1. Insolvency Act 1986 section 168(5)
2. Re Hans Place Ltd [1992] BCC 237
3. Section 303
Notice to elect / notice requiring
disclaimer decision
42.37 Notice to official receiver requiring a
disclaimer decision – general
The official receiver, as liquidator or trustee, may receive an application from an
interested party requiring a decision as to whether or not property is to be
disclaimed1, 2. Prior to 6 April 2010 this request had to be in a prescribed form known
as a ‘Notice to Elect’. Whilst the notice to elect form is still available and may be
used, the application can be made in any written format.
The liquidator or trustee then has 28 calendar days from the date that the application
was made to give notice of disclaimer if they decide that a disclaimer is appropriate.
Failure to disclaim constitutes adoption of the agreement and brings with it all the
liabilities and obligations relating to the property. The trustee or liquidator, having
chosen not to disclaim, cannot change their mind.
Additionally, failure to deal properly with an application may constitute negligence,
leading to a personal liability on the liquidator3 or trustee4.
It is, therefore, vitally important that, having received an application requiring a
disclaimer decision or a notice to elect, the official receiver makes the decision
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regarding whether or not to issue a disclaimer as soon as practical after the receipt
of the notice, and certainly within the 28 day period (see also paragraph 42.48).
Details of the matters to be taken into account when considering a disclaimer are
included earlier in this chapter.
The bankrupt cannot be an interested party in the property as a result of automatic
vesting5.
1. Section 178(5)
2. Section 316
3. Section 212(1)(b)
4. Section 304(1)(b)
5. Frosdick v Fox [2017] EWHC 1737 (Ch)
42.38 Format and delivery of a notice
requiring disclaimer decision
The Insolvency (England and Wales) Rules 2016 provide that the application must
be delivered to the office-holder and the applicant must provide proof of delivery if
requested1, 2.
Prior to 6 April 2010 an application to the official receiver as trustee or liquidator
under section 178(5) or 316 requiring a decision on a disclaimer had to be made on
the ‘Notice to Elect’ prescribed by the Rules, or on a substantially similar form, and
had to be delivered personally or sent by registered post. Following amendment to
the Rules in 2010, although this format could still be used, those provisions no longer
applied. Instead it was required that the application was to be delivered to the
liquidator or trustee personally, by electronic means, or by any other means of
delivery which enabled proof of receipt of the application to be provided if requested3.
.
1. Rule 19.9
2. Rule 1.52
2. Rule 1.45
42.39 Persons who may serve a notice
requiring a disclaimer decision
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The Act states that an application requiring the trustee or liquidator to decide
whether to issue a disclaimer or not may be made by “a person interested in the
property”1, 2. There is no definition of ‘a person interested’ in the Act.
Previously, local authorities have served notices to elect on official receivers in order
to accelerate the disclaimer process with, perhaps, the intention that a party other
than the insolvent could be looked to as the new rateable occupant of the property.
Legal advice has been received which suggests that, for the purposes of the
provisions relating to notices to elect, a local authority cannot be considered a
“person interested” as it has no rights which are exercisable in respect of the
property. A local authority only has powers to recover unpaid rates by bringing
proceedings for recovery against the owner or occupier of the property (as opposed,
for example, to a mortgagee or landlord, who have the right to take possession of the
property itself)3.
Similarly, a bankrupt cannot be considered to have an interest in property formed in
their estate as it would, following the making of the bankruptcy order, become vested
in the trustee4, thereby ending the bankrupt’s interest.
1. Section 178(5)(a)
2. Section 316(1)(a)sub>
3. London Borough of Hackney v Crown Estate Commissioners (1996) BPIR 428
4. Section 306
42.40 Action to be taken where official
receiver receives a notice requiring a
disclaimer decision from a local authority
In the circumstances that the official receiver receives an application under section
178(5) or section 316 requiring a decision on a disclaimer from a local authority
acting as a rating authority (or any other party whom the official receiver considers
not to be an interested party), they should respond by stating that they will not accept
the application as they do not consider the person who served it to be a person with
an interest in the property. If the authority disagrees with this view, then ORS advice
may be consulted, as it is possible that court proceedings will result.
Of course, if the official receiver is in the position to issue a disclaimer and this is,
otherwise, the correct course of action, there would be no need to challenge the
validity of the application. In these circumstances, the official receiver should still
inform them that they are not considered to be an interested party but that they have
concluded anyway that a disclaimer is appropriate
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42.41 Notice served on official receiver where
another party is liquidator or trustee
Where the official receiver receives an application under section 178(5) or section
316 at a time where another person is acting as liquidator as trustee, they should
ensure that the communication is forwarded to the acting insolvency practitioner as a
matter of urgency. It would be prudent to telephone the practitioner to bring the
matter to their attention at the earliest possible opportunity.
42.42 Consultation with potential appointee
following receipt of a notice requiring a
disclaimer decision
Where the official receiver is liquidator or trustee and it is likely that an insolvency
practitioner whose identity is known will be appointed in their place, the official
receiver should make immediate contact with them to ascertain whether they, when
appointed, would disclaim the property.
42.43 Potential appointee agrees to disclaimer
following receipt of notice
If the potential liquidator or trustee is of the opinion that the property should be
disclaimed then the notice can be issued in the usual way by the official receiver. In
these circumstances, the insolvency practitioner’s views should be obtained in
writing.
42.44 Potential appointee not able to agree to
disclaimer following notice
If, on the other hand, the potential liquidator or trustee feels that a disclaimer is not
appropriate, the official receiver should inform the person who has made the
application requiring a disclaimer decision of the position and ask that they agree to
the withdrawal of their request pending the appointment of the insolvency
practitioner. Any withdrawal of notice should be in writing. The view of the potential
liquidator or trustee in this matter should be obtained in writing.
If the person who served the notice or application does not agree to withdraw it then
the advice and information in the following paragraph should be followed.
--- PDF page 22 ---
42.45 Extension of time to issue disclaimer
following receipt of application requiring
disclaimer decision
It is possible for the liquidator or trustee to seek an extension of the 28-day limit
allowed for dealing with an application under section 178(5) or section 316 by
application to court - even if the 28-day period has already expired1, 2, 3.
For such an application to be successful the court would wish to be satisfied that
there was a good cause for the extension to be granted. In reaching its decision, the
court is likely to consider the length of the delay (if the application is out of time); the
merits of the application having regard to the overall position of the bankruptcy and
any prejudice caused to interested parties4.
1. Section 178(5)(b)
2. Section 376
3. Rule 1.3 sch. 5
4. Solomons v Williams [2001] BPIR 112
42.46 Circumstances where extension of
period allowed following receipt of a notice
requiring disclaimer decision is appropriate
An example of a circumstance where an extension of the period allowed to issue a
disclaimer following receipt of an application requiring a decision on a disclaimer
would be appropriate is given in paragraph 42.44. Another reason may be where the
official receiver was unable, for reasons outside their control to obtain sufficient
information to allow for a decision to be made regarding whether or not a disclaimer
should be issued.
Where the circumstances described in paragraph 42.44 apply, an application for an
extension of time, should be accompanied by a request for alternative directions in
the event that no extension of time is allowed1, 2.
1. Section 168(3)
2. Section 303(2)
--- PDF page 23 ---
42.47 Extension of time where claimed
property subject to notice requiring disclaimer
decision.
If a trustee has claimed exempt or after acquired property, any disclaimer of that
property requires the court’s permission (see paragraph 42.33). Where an
application requiring a disclaimer decision is received in respect of that property it is
likely that an extension of the 28-day period will be required to allow for an
application for permission to disclaim to be heard by the court. In the circumstances
where an application for permission to disclaim is made within the 28-day period the
court must extend the time allowed to the date fixed for the hearing of the application
for permission1.
1. Rule 19.9
42.48 Consequences of failure to disclaim
following an application requiring a disclaimer
decision
The consequences of the failure to disclaim by the official receiver are discussed in
paragraph 42.37. The official receiver will normally be unable to issue a disclaimer if
he has not done so within the 28 day period or extended period, although an
application for extension or further extension of time after the original period has
lapsed is possible (see preceding paragraph).
Procedure for disclaiming
42.49 Procedure for disclaiming – statutory
notice of disclaimer
A disclaimer of onerous property is effected by the service of a statutory form,
referred to as a notice of disclaimer,1 on interested parties (see paragraph 42.54),
once authenticated and dated by the liquidator or trustee2. There is no longer the
requirement to have the notice sealed by the court prior to service on interested
parties.
1. Form NODIS
--- PDF page 24 ---
2. Rule 19.2
42.50 Description of property
The notice of disclaimer should contain a description of the property sufficiently
detailed to ensure that there can be no doubt as to the property being disclaimed1.
For example, in relation to a lease a suitable wording would be:
“…..the [type of lease, e.g., counterpart] lease dated [date of lease] of the premises
known as and situated at [address of property] comprising [e.g., a two-storey
terraced house] which was let to the [company/bankrupt] from [date of
commencement of lease] at an [annual/monthly] rent of [£].”
A suitable description for a right of action might be:
“……the claim numbered [claim number] in the [court] between [insolvent] and [other
side] which was issued on [date].”
Where the property concerned consists of land or buildings the nature of the interest
should be stated (e.g. leasehold or freehold) and if registered land the title number
should be included.
1. Rule 19.2
42.51 Description of property where there is
doubt
Where there is some uncertainty whether or not the insolvent has an interest in the
property in question, or as to the nature of the interest, the official receiver may
preface the description with the following:
“…..all the interest (if any) of [the company/bankrupt] in the……”
Similarly, where the official receiver is unable to obtain full information regarding the
property (for example, where the director or bankrupt has failed to co-operate) they
may describe the property in terms containing that information which is known. It is
generally better to issue such a disclaimer based on incomplete information than not
issue one at all.
42.52 Power to disclaim
The power to disclaim is given to the liquidator or trustee1, 2. Where the official
receiver is liquidator or trustee, this power is extended to any assistant official
receiver appointed as a deputy official receiver to that official receiver3, 4. It is likely
that an assistant official receiver in a standard official receiver’s office will have been
--- PDF page 25 ---
appointed as a deputy5 but, where there is doubt, reference should be made to the
relevant certificate of appointment provided by the Secretary of State.
1. Section 178
2. Section 315
3. Section 399
4. Section 401
5. Section 401(2)
42.53 Disclaimer to be authenticated and
dated by the official receiver
The notice of disclaimer must be authenticated and dated by the official receiver as
liquidator or trustee1.
A document in electronic form is sufficiently authenticated –
a) if the identify of the sender is confirmed in a manner specified by the recipient; or
b) where the recipient has not so specified, if the communication contains or is
accompanied by a statement of the identity of the sender and the recipient has no
reason to doubt the truth of that statement
A document in hard-copy form is sufficiently authenticated if it is signed.2
There are no specific provisions for partnership winding up cases but it has been
agreed that official receivers will file a copy of the disclaimer notice with the court in
such cases.
In all cases, where the disclaimer is of registered land, a copy of the notice must be
sent to the Chief Land Registrar, as soon as reasonably practicable3 (for further
details see paragraphs 42.62 to 42.63).
1. Rule 19.9
2. Rule 1.5(2)
3. Rule 19.2(3)
42.54 Service on interested parties
Within seven business days1 of the official receiver authenticating and dating the
notice of disclaimer, they must serve copies2 on all, or any, of the following:
•
for leasehold property, every person who (to the official receiver’s knowledge)
claims as underlessee or mortgagee3
--- PDF page 26 ---
•
any person who claims an interest in the property4
•
any person who is under a liability in respect of the property, not being a liability
discharged by the disclaimer5
•
for unprofitable contracts, all such persons as to their knowledge are parties to,
or have an interest, in the contract6
•
for dwelling houses (leased, leasehold or freehold), every person who (to the
official receiver’s knowledge) is in occupation of, or claims a right to occupy the
house. This may include the bankrupt, who is likely to be in occupation7, 8
The notice to interested parties need not be signed (by the official receiver or any
other officer) and can be issued by anybody acting for the official receiver.
See also paragraph 42.65 for additional notices that should be sent.
1. Rule 19.3(1)
2. Rule 19.9
3. Rule 19.4
4. Rule 19.3(1)(a)
5. Rule 19.3(1)(b)
6. Rule 19.3(1)(c)
7. Rule 19.3
8. Rule19.5
42.55 Disclaimer in German, French, Spanish
speaking country
Where the official receiver is issuing a disclaimer to an interested party based in a
German-speaking, French-speaking or Spanish-speaking country they may issue the
documents attached at Annex B, Annex C or Annex D respectively.
42.56 Identification of further interested
parties
If, after the end of the seven business day period, the official receiver becomes
aware of any other interested party, they must send or give them a copy of the notice
of disclaimer as soon as reasonably practicable. This is not required if the official
receiver is satisfied that the person has already been made aware of the disclaimer
and its date or the court has ordered that compliance is not required1, 2.
1. Rule 19.3(2)
--- PDF page 27 ---
2. Rule 19.3(3)
42.57 Service of notice of a disclaimer of a
firearm
Where the official receiver issues a disclaimer in respect of a firearm, they should
serve notice of the disclaimer on the firearms licensing section of the local police
force.
See chapter 34 for further information on dealing with firearms.
42.58 Record of service of notice
The official receiver is no longer required to notify the court of all persons upon
whom notice of the disclaimer has been served. Instead the official receiver must
maintain a record on their own file of the following1.
In practice, this record should be maintained by ensuring that copies of all of the
following forms are placed on the office file:
•
NODIS – notice of disclaimer to be served on each interested party
•
NDISC – notice of disclaimer under S178 of the Insolvency Act 1986 to
Companies House. (The NDISC is not an ISCIS form but a Companies House
form. A copy for completion can be found on Gov.uk
•
DISCRT1 – Letter requesting a copy of the notice of disclaimer be filed with the
court (bankruptcy and partnership winding up)
1. Rule 19.7
42.59 No delay to service on interested parties
The official receiver is required to give notice to interested parties1 within seven
business days and, therefore, delayed notice cannot be used as a tool to delay the
effectiveness of the disclaimer. Where, between the sealing of the disclaimer and its
return to the official receiver, another liquidator or trustee is appointed then the
official receiver should bring the outstanding service to the notice of the practitioner
appointed as a matter of urgency in order that they can effect timely service.
1. Rule 19.3(1)
42.60 Notice of disclaimer served on minors
Persons under the age of 18 in occupation of, or claiming a right to occupy, a
dwelling house have a right to receive notice of the disclaimer. Service of the notice
--- PDF page 28 ---
on those persons may, though, be effected by service on the parent or guardian of
that person1.
1. Rule 19.5(3)
42.61 Disclaimer of solely owned freehold
property
Where it is necessary to disclaim an interest in a solely owned freehold property, the
property will escheat (pass at common law to the crown). See paragraph 42.78 for
further information on escheat. Where the property is located within the County
Palatine of Lancaster* or the County of Cornwall the property will fall to be dealt with
by the Duchies. In all other cases the properties will fall to be dealt with by the Crown
Estates Commissioners. Notice of the disclaimer should be served on either the
Crown Estate Commissioners solicitors or the Duchies solicitors.
The address for service on the Crown Estates Commissioners is:
Crown Estates Commissioners
Burgess Salmon LLP
One Glass Wharf
Bristol
BS2 0ZX
The Crown Estate Commissioners have advised that they prefer to receive notices
by post, but if there is a need to serve by e-mail, it should be addressed to
Conal.McLoughlin@burges-salmon.com
The address for service on the Duchies is:
Farrer & Co
66 Lincoln’s Inn Fields
London
WC2A 3LH
*The County Palatine of Lancaster includes the County of Lancashire and parts of
Merseyside, Greater Manchester, Cheshire and Cumbria.
42.62 Noting the disclaimer at HM Land
Registry – freehold property
--- PDF page 29 ---
Where there is a disclaimer of a solely owned freehold property the official receiver
as liquidator or trustee must arrange for a copy of the notice of disclaimer to be sent
to HM Land Registry to enter notice of the disclaimer against the property1. Sending
a copy of the notice of disclaimer is not necessary where the disclaimer was issued
in respect of a jointly owned property as this has no effect on the legal title to the
property – which would remain with the joint owner.
A covering letter seeking confirmation that the disclaimer will be noted should
accompany the documents. It is likely that the Registrar will refrain from registering
the disclaimer until the period allowed for applying for a vesting order has expired
(see paragraph 42.85).
See paragraphs 42.77 and 42.78 for more information of the effect of a disclaimer on
freehold property.
The procedure detailed above may also be followed in the very unlikely event that
the official receiver, as liquidator, has property vested in them2. In such
circumstances a copy of the court order vesting the property in the official receiver
should also be sent to Land Registry.
1. Rule 19.2(3)
2. Section 145(1)
42.63 Noting of the disclaimer at HM Land
Registry – leased property
As explained in chapter 7 certain leases are subject to compulsory registration at the
land registry, whilst some others can be registered on a voluntary basis. If the official
receiver is disclaiming a solely-held registered lease then a copy of the notice of
disclaimer should be sent to HM Land Registry in line with the guidance in the
preceding paragraph.
This would not be necessary where the lease is held in the joint names of the
insolvent and a third party (see preceding paragraph for an explanation).
42.64 Land Registry certificate – suggested
form of wording
Occasionally, (usually in connection with an application to determine a lease) the
Land Registry may require a certificate to be provided in connection with the
registration of a disclaimer.
If required, a suggested form of wording for the certificate required to ensure that a
disclaimer is registered at the Land Registry (see paragraph 42.62) would be:
--- PDF page 30 ---
“I, [official receiver’s full name and address] certify:-
On [date of bankruptcy order] a bankruptcy order was made against [bankrupt’s
name] in the [name of court]. I am trustee of the bankrupt’s estate.
The bankrupt is the registered proprietor of the land in title number [title number] and
at the date of the bankruptcy order the bankrupt had a legal title to the property.
The bankrupt’s legal title to the property forms part of the bankrupt’s estate and has
been vested in me under section 306 of the Insolvency Act 1986.
On [date] I disclaimed my interest in the above title pursuant to sections 315 and
[317(leasehold)/318(dwelling house)] of the Insolvency Act 1986. Notice of the
disclaimer was served pursuant to rules 19.3, 19.4 and 19.5 of the Insolvency
(England and Wales) Rules 2016 on [date]. I am not aware of any application to the
court for a vesting order pursuant to section 320 of the Insolvency Act 1986.
Signed: [official receiver] Date: [date]”
42.65 Additional notices
The official receiver is not limited to serving notice on those persons mentioned at
paragraph 42.56. Notice may be served on any person where the official receiver
considers this to be appropriate. An example of this may be where notice is served
on the bankrupt in respect of a disclaimer of a right of action to avoid any
continuation of the claim1 (see paragraph 42.27).
Where a solicitor has been acting for any of the parties mentioned in paragraph
42.56 a copy of the notice should be also sent to the solicitors.
1. Rule 19.6
Effect of a disclaimer
42.66 Disclaimer presumed valid/effective
Any disclaimer of property by the official receiver as liquidator/trustee is presumed
valid and effective, unless it can be shown that they are in breach of their duty in
respect of giving notice of disclaimer (see paragraphs 42.54 to 42.56).1, 2, 3
1. Rule 19.10
2. Section 315
3. Insolvency Act 1986 section 319
--- PDF page 31 ---
42.67 Effect of disclaimer – general
A disclaimer operates so at to determine, as from the date of the disclaimer, the
rights, interests and liabilities of the insolvent in or in respect of the property
disclaimed (in this context “determine” means “to bring to an end”) and discharges
the trustee from any personal liability in respect of that property as from the
commencement of their trusteeship. The rights and liabilities of any other person are
not affected, except so far as is necessary to release the insolvent estate, the
insolvent and the trustee from any liability1, 2. When the disclaimer becomes effective
the official receiver should cancel any insurance policy they have obtained in
accordance with the advice in chapter 14.
1. Section 178(4)
2. Section 315(3)
42.68 Effective date of a disclaimer – general
rule
The disclaimer will generally be effective from the date the notice is authenticated by
the official receiver1.
There are, though, exceptions to this general rule.
1. Rule 19.2(7)
42.69 Effective date of disclaimer – exceptions
to general rule
Where the disclaimer is in respect of a property held under a lease, or of any
dwelling house1, the disclaimer will not take effect unless every person who is a
mortgagee or underlessee (for leased properties)2, 3 and/or every person in
occupation of or claiming a right to occupy the property (for dwelling houses)4 has
been served with the notice of disclaimer.
Further, in these circumstances, the disclaimer will not take effect until 14 days after
the day on which the last notice of disclaimer was served on an interested person,
unless an application is made for a vesting order (see paragraph 42.86)5, 6, 7. In the
circumstances where an application is made for a vesting order, the effective date of
the disclaimer will be decided by the court when dealing with that application8, 9.
An application for a vesting order made after the 14-day period referred to above
does not act to suspend the disclaimer.
1. Section 385(1)
--- PDF page 32 ---
2. Section 179
3. Section 317
4. Section 318
5. Section 179(1)(a)
6. Section 317(1)(a)
7. Section 318(1)(a)
8. Section 317(1)(b)
9. Section 318(1)(b)
42.70 Purpose of delay in effective date of
disclaimer
The reason for the delay between the date of the service of the notice of disclaimer
and the date that it takes effect is to ensure that those who may have an interest in
the property have an opportunity to takes steps to protect that interest. An example
of this would be where a fellow occupier of a leased property may be adversely
affected by the early termination of the insolvent’s interest in that property. In these
circumstances, the occupier would have the opportunity to take over the lease and,
perhaps, avoid an eviction.
42.71 Effective date where delay
Where the effect of the disclaimer is delayed and there has been no application for a
vesting order within the 14 day period the disclaimer will retrospectively take effect
from the date that it is authenticated by the official receiver.
42.72 Loss or damage resulting from the issue
of a disclaimer
Any person suffering loss or damage in consequence of the operation of a disclaimer
is deemed to be a creditor of the insolvent estate to the extent of the loss or damage
suffered and may prove in the estate for the resultant loss. Examples of this would
be for outstanding and/or future rent under a lease or the cost of disposing of
disclaimed hazardous waste1, 2.
1. Section 178(6)
2. Section 315(5)
--- PDF page 33 ---
42.73 Valuation of loss or damage resulting
from the issue
The court has held1 that the appropriate basis on which to calculate the amount due
to the landlord would be to calculate the value of any sums payable by the tenant to
which the landlord would have been entitled during the residue of the term of the
lease (allowing for a reduction for accelerated payment), then to give credit to the
landlord for the value of what was left to them after the disclaimer (for example, the
market value of the residue of the lease) and, finally, add or subtract an amount
depending on the state in which the tenant had left the property. Additionally, some
consideration must be given to the effect of any vesting order2, 3.
1. Re Park Air Services plc [ChD [1996] WLR 649
2. Section 181(5)
3. Section 320(5)
42.74 Liability of sureties or previous tenants
Where a landlord has suffered a loss as a consequence of the operation of a
disclaimer, this loss may be claimable from sureties of the insolvent or former
tenants of the property1. This may be of particular concern where the official receiver
is dealing with the affairs of an insolvent that is a surety or former tenant in relation to
a property subject to a disclaimer (see paragraph 42.12).
1. Hindcastle v Barbara Attenborough Associates Ltd [1996] 1 All ER 737
42.75 Effect of disclaimer on leased property
Where an original lease held in the sole name of the insolvent is disclaimed, the
effect is to determine (end) the lease, whereas if an assigned lease is disclaimed, it
reverts to the assignor (see paragraph 42.12). Where the lease is jointly-held then
the legal title to the lease would remain with the joint tenant.
42.76 Effect of a disclaimer on a leasehold with
sitting sub-tenants
As previously explained, the effect of a disclaimer is to end the insolvent’s interest in
the disclaimed property and, therefore, any sub-leases created as a result of the
insolvent’s interest in the lease would also be ended. However, despite what may be
thought, this does not end the sub-tenant’s right to remain in possession during the
term granted by the sub-lease, so long as the terms of the head-lease are complied
--- PDF page 34 ---
with. The landlord does, though, have a right to re-enter the property if the terms of
the head-lease are not complied with1.
1. AE Realisations [1987] 3 All ER 83
42.77 Effect of disclaimer on freehold property
- jointly owned
The liquidator’s/trustee’s interest in a jointly-owned freehold property is in the
beneficial interest in the property, rather than in the legal title to the property itself
(see chapter 28). As explained earlier the effect of a disclaimer is to determine (end)
the insolvent’s interest in the property – thereby, effectively leaving the interest
without an owner. Assuming no vesting order is made, the interest would become
bona vacantia (see chapter 54) and would vest in the Crown. Property that is bona
vacantia is dealt with by the Bona Vacantia division of the Government Legal
department. They are not required, as a matter of law, to assert a claim to the
property, which is, or may be, bona vacantia.
Both bona vacantia property and property under escheat (see paragraph 42.78) in
the Duchies of Cornwall (which covers the modern county of Cornwall) and
Lancaster (which covers the modern county of Lancashire and parts of Merseyside,
Greater Manchester, Cheshire and Cumbria) falls to the respective Duchy. The
solicitor to these Duchies is Farrer & Co.
42.78 Effect of disclaimer on freehold property
– solely owned
interest is in the legal title to the property itself. The effect of a disclaimer ending this
interest would leave the property without an owner. Where freehold property is left
without an owner it passes at common law, by escheat (a law dating back to feudal
times making ownerless land the property of the Lord holding the superior interest,
which, in modern times, tends to be the Sovereign), to the Crown1. The solicitors who
deal with these matters on behalf of the Crown are Burgess Salmon.
Both bona vacantia property and property under escheat in the Duchies of Cornwall
(which covers the modern county of Cornwall) and Lancaster (which covers the
modern county of Lancashire and parts of Merseyside, Greater Manchester,
Cheshire and Cumbria) falls to the respective Duchy. The solicitor to these Duchies
is Farrer & Co.
1. Scmlla Properties v Gesso Properties [1995] BCC p793
--- PDF page 35 ---
42.79 Effect of disclaimer on fixtures
As regards fixtures, the general principle in law is that fixtures that are permanently
attached to the building pass with the lease. An exception to this general rule would
be in respect of trade fixtures (those fixtures that have been fixed for the purpose of
trade or manufacture). Trade fixtures, and all loose fittings, pass too the estate.
Therefore, a disclaimer of a lease would also cover those fixtures that pass with the
lease.
The court may, however, make a special order as to fixtures, tenant’s improvements
and other relevant matters where there has been an application for a vesting order
(see paragraph 42.86)1, 2.
Further details regarding fixtures can be found in chapter 40.
1. Section 179(2)
2. Section 317(2)
42.80 Effect of disclaimer on shares
Where the official receiver issues a disclaimer on partly paid shares, it may be
necessary to admit a proof for the amount of any unpaid calls, and for an estimated
amount in respect of the contingent liability for uncalled capital.
42.81 Effect of disclaimer on surplus in a lease
or other property
Generally, the ending of the insolvent’s interest in property by virtue of a disclaimer
would also, obviously, end any interest in the realisable value, or surplus realisable
value of the property.
It has been held, however, that the court may make an order vesting surplus
proceeds in the estate where a vesting order is made. See paragraph 42.89 for
further information; if no application for a vesting order has been made see
paragraph 42.93.
42.82 Rent deposits
It is likely that any rent deposit held by a landlord following the disclaimer will be
used to off-set outstanding rent. If not, the question of ownership of the deposit may
rest in the wording of the lease – for example, the lease may state that the deposit is
forfeit in the event of the issue of a disclaimer, or the insolvency of the tenant.
--- PDF page 36 ---
Assuming neither of these options settle the matter, then the deposit would become
bona vacantia.
Vesting orders
42.83 Vesting orders – general
Where a liquidator or trustee has disclaimed their interest in property, it is open to
certain persons to make application to court for the property to be vested in them1, 2.
There should normally be no need for the official receiver to be party to, or otherwise
involved in, an application for a vesting order. However, see paragraph 42.89 where
the Official Receiver may consider claiming an interest in surplus proceeds.
1. Section 181(3)
2. Section 320(3)
42.84 Persons who may apply for a vesting
order
Persons who may apply for a vesting order are as follows:
•
any person who claims an interest in the disclaimed property1, 2 or
•
any person who is under a liability in respect of the disclaimed property, not
being a liability discharged by the bankruptcy3, 4, and
•
(in respect of bankruptcy only and where the disclaimed property is property in
a dwelling house) any person who at the time when the bankruptcy petition was
presented was in occupation of or entitled to occupy the dwelling house, even if
only part of the disclaimed property is a dwelling house5, 6
1. Section 181(2)(a)
2. Section 320(2)(a)
3. Section 181(2)(b)
4. Section 320(2)(b)
5. Section 320(2)(c)
6. Hunt v Conwy CBC [2013] EWHC 1154 (Ch) [1]
--- PDF page 37 ---
42.85 Time limit for an application for a
vesting order
An application for a vesting order must be made within three months of the applicant
becoming aware of the disclaimer, or of them receiving a copy of the
liquidator’s/trustee’s notice of disclaimer1. This time limit is not explained in the notice
of disclaimer or the letter2 that accompanies it when served on the interested party.
Where the official receiver is aware that a party has indicated an intention to apply
for a vesting order, it would be appropriate to bring the time limit to their attention.
The period of three months may be extended at the discretion of the court3.
1. Rule 19.11(2)
2. NODIS
3. W H Smith Ltd v Wyndham Investments Ltd [1994] BCC 699
42.86 Application for a vesting order
The application for a vesting order must be accompanied by a witness statement
that:
•
sets out the type of the application (i.e., whether it is as a claim on the property,
an undischarged liability or occupation of a dwelling house)1
•
specifies the date on which the notice of disclaimer was received, or otherwise
the date on which the applicant became aware of the disclaimer1, and
•
specifies the grounds for the application and the order desired1
1. Rule 19.11(3)
42.87 Notice of hearing to be given to
liquidator or trustee
On receiving the application for a vesting order, the court will set a hearing date and
venue. The applicant is required to give the liquidator or trustee notice of the date,
time and venue for the hearing, accompanied by copies of the application and
related witness statement, no later than 5 business days before the date fixed1.
1. Rule 19.11(4) (5)
42.88 Making of a vesting order
The court, on hearing the application, may make an order vesting the disclaimed
property in, or for its delivery, to:
--- PDF page 38 ---
•
a person entitled to it or a trustee for such person1, 2
•
a person subject to a liability in respect of the disclaimed property1, 2 (where it
would be just to do so for the purpose of compensating that person in relation to
their liability3, 4, or
•
(in a bankruptcy) where the disclaimed property is a dwelling house, any person
who at the time when the bankruptcy petition was presented was in occupation
of or entitled to occupy the dwelling house5
A conveyance, assignment or transfer is not needed to complete a vesting order6, 7, 8,
9.
See also paragraph 42.91 in respect of vesting orders made in respect of properties
held under a lease.
1. Section 181(3)(a)(b)
2. Section 320(3)(a)(b)
3. Section 181(4)
4. Section 320(4)
5. Section 320(3)(c)
6. Section 181(6)
7. Section 320(6)
8. Law of Property Act 1925 section 52
9. Law of Property Act 1925 section 42
42.89 Vesting order to be made on terms court
thinks fit
On considering an application for a vesting order, the court has discretion to make
the vesting order on such terms as it thinks fit1, 2. When making a vesting order, the
court has the power to order that any surplus, in which no other person had claimed
an interest, resulting from the sale of the disclaimed property should be given back to
the liquidator or trustee for the benefit of creditors3.
This situation may arise where the property turns out to have a value in excess of
that originally assessed by the official receiver, or where charges against the
property are lower than anticipated. If, on receiving notice of an application for a
vesting order, the official receiver forms the opinion that there may be a value to the
estate of the asset they should bring this to the attention of the court so that an order
can be made as to how to deal with any surplus.
1. Section 181(3)
--- PDF page 39 ---
2. Section 320(3)
3. Lee v Lee [1998] 2 BCLC 219
42.90 Vesting order can apply to part of the
property
It has been held that a vesting order can apply to part of the property disclaimed,
where, for example, only part of the property is a dwelling house (see paragraph
42.84)1.
1. Hunt v Conwy CBC [2013] EWHC 1154 (Ch) [1]
42.91 Vesting orders relating to leasehold
property
Where the court makes a vesting order in respect of property held under a lease, it
must be on the terms of making that person:
•
subject to the same liabilities as the insolvent was under at the date of the
commencement of the winding-up or presentation of the bankruptcy petition1, 2,
or
•
if the court thinks fit, subject to the same liabilities and obligations as that
person would be subject to if the lease had been assigned to them at the date
of the commencement of the winding-up or presentation of the bankruptcy
petition3, 4
Where persons decline to accept an order made under these terms, the court may
make adjustments to interests in the property concerned5, 6.
1. Section 181(1)(a)
2. Section 321(1)(a)
3. Section 182(2)(b)
4. Section 321(1)(b)
5. Section 182(3) and (4)
6. Section 321(3) and (4)
42.92 Bankrupt applying for vesting order
A vesting order cannot be made in favour of a bankrupt, except in the circumstances
where the property is a dwelling house and the bankrupt was in occupation of or
entitled to occupy the dwelling house (see paragraph 42.54). For the purpose of a
--- PDF page 40 ---
disclaimer, the term “dwelling house” can be taken to include leased, as well as
freehold property.
Apart from where the disclaimed property is a dwelling house (see above), and as
explained at paragraph 42.84 the only persons who can be the beneficiaries of a
vesting order are those entitled to the property, or those subject to a liability under
the property – neither of which would apply to the bankrupt.
Obviously, the bankrupt would have no liability under the property by virtue of the
making of the bankruptcy order.
As regards whether the bankrupt can claim an entitlement to the property, it has
been viewed that any entitlement that the bankrupt may have had would be ended
by the operation of the disclaimer, as the effect of the disclaimer is to bring to an end
the interest of the bankrupt and their estate in the property1, 2.
1. Section 315(3)(a)
2. Skinner v Hood [2005] EWCA Civ 1634
42.93 Official Receiver claiming surplus
proceeds of sale following disclaimer
The case of Lee v Lee [1998] 2 BCLC 219 provided that where a disclaimed lease
had vested in a mortgagee and, after realisation and payment of the mortgage debt
and other charges, a surplus resulted, the trustee was entitled to recover that surplus
for the benefit of the bankrupt's estate.
Accordingly, where the Official Receiver is made aware of a surplus following an
earlier disclaimer they should consider making an application1 to the Court, based on
the decision in the Lee case, for an order for the surplus funds to be paid to the
Official Receiver for the benefit of the bankruptcy estate. Prior to making any
application the Official Receiver will need to consider the circumstances of the case
and of the disclaimer.
Where such an application is to be made then the Official Receiver should liaise with
the Government Legal Department (Bona Vacantia) and any other parties they
consider may have a claim on the surplus funds.
Where an application is to be made or is pending then the Official Receiver should
take steps to ensure the funds are secured until the application is determined either
by way of a solicitor’s undertaking to hold them or by having the funds paid into
Court.
1. Section 363(1)
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 11 March 2020
43. Creditors and liabilities
Annexes
Annex A
Chapter content
Frequently asked questions
Introduction and overview
Non-provable debts
Debts not released on discharge (bankruptcy only)
Guarantee and warranty debts
Tax, duty and VAT debts
Penalty charges
Wages and benefits
Domestic and personal debts
Council tax and business rates
Debts to landlords
Debts relating to litigation and court proceedings
Business debts
Debts due under family and domestic proceedings including debts to CSA
Student loans
Preferential debts
Secured creditors
Mortgages and charges
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Other forms of security – liens, pledges and bills of sale
Finance agreements
Interest
Right of set-off
Creditors’ and contributories' rights
Frequently asked questions
These FAQs are to assist official receivers in understanding the subject and should
be read in conjunction with the more detailed guidance given in the main body of the
chapter.
What is the difference between a creditor and
a liability?
A liability is a sum of money (a debt) or some other indirectly financial obligation
which is due to another person. That person is generally referred to as a creditor.
Is creditor defined in the legislation?
There is no statutory definition of a creditor in relation to the winding up of a
company, but in relation to bankruptcy it is defined as a person to whom any of the
bankruptcy debts is owed.
What is covered by the definition of debt in
respect of a company?
A ‘debt’ in relation to the winding up of a company means any of the following:
•
any debt or liability to which the company is subject at the relevant date
•
any debt or liability to which the company may become subject after that date
by reason of any obligation incurred before that date; and
•
any interest provable.
You mention ‘relevant date’ in respect of
company debts, what is this date?
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The relevant date for the purposes of the definition of a company debt is the date the
company goes into liquidation unless the petition was presented on or after 6 April
2010, and the company was in administration immediately prior to the date of
liquidation, in which case the relevant date is the date that the company entered
administration.
What are the debts of a bankruptcy?
The main categories of bankruptcy debts are:
•
any debt or liability to which the bankrupt is subject at the commencement of
the bankruptcy (being the date of the bankruptcy order),
•
any debt or liability to which the bankrupt may become subject after the
commencement of bankruptcy, including after discharge from bankruptcy, by
reason of any obligation incurred before the commencement of bankruptcy (a
contingent liability),
•
any interest provable.
What if a fixed amount cannot be put on the
debts of an insolvent – would they still be
debts in the insolvency?
A debt in a winding up or a bankruptcy is a debt whether the debt or liability is
present or future or whether it is certain or contingent.
In this regard, there has recently been case-law that has changed the position
regarding overpayments of state benefits and a potential liability under a costs order.
In short, this means that those types of debts would be included in an insolvency.
Are there any types of debts that would not be
included in an insolvency?
There are. These are known as non-provable debts. The main ones are:
•
fines
•
student loan debts
•
arrears of a debt due in family proceedings
•
confiscation orders
Of course, debts incurred after the date of insolvency would also not be provable
debts in the insolvency, nor would debts that are legally unenforceable.
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I see that fines are not a provable debt. Does
this include penalties imposed by authorities?
A number of authorities have the power to impose penalties for minor transgressions
of the law, such as illegal parking, littering, disorder and rail fare evasion.
Such penalties are not considered to be fines and would be provable debts.
If the debts are not provable, does that mean
that the bankrupt will not be released from the
obligation to pay the debt on discharge?
Yes, and in addition to those debts that are non-provable not being released on
discharge there is a category of debts that are provable (meaning that the creditor
can participate in the bankruptcy) but are not released on discharge. The main
categories of these debts are:
•
debts incurred through fraud.
•
a debt in respect of personal injury damages.
•
a debt to the Social Fund (a crisis loan, for example).
What are preferential debts?
The general rule in formal insolvency is that all unsecured creditors are paid in fair
proportions of the debt that they are owed. For example, 40p for every £ owed.
Preferential debts are however, as the name suggests, those debts paid in
preference to the general body of unsecured creditors. The types of creditors that
qualified to have debts considered as preferential was significantly reduced in 2003
and they generally consist now of only outstanding contributions to occupational
pension schemes and outstanding remuneration of employees. Both of these are
subject to limits as regards the period of arrears that can be considered preferential.
I thought that secured creditors also have
priority in insolvency?
They do, but only in respect of the assets over which they hold security. Take, for
example, a bankrupt’s property worth £200,000 with a mortgage outstanding of
£125,000. The mortgagee may sell the property and repay the mortgage, but the
surplus of around £75,000 (depending on costs) must be paid into the bankruptcy
estate for distribution to the unsecured creditors.
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If, in that example, the mortgagee was owed £250,000 they would still be able to sell
the property and repay as much of the mortgage as possible from the sale proceeds,
with the amount then outstanding (known as a ‘shortfall’) joining the other unsecured
creditors for repayment from any other assets in the bankrupt’s estate.
A secured creditor can give up their security, allowing the asset to form part of the
estate, and participate in the insolvency as an unsecured creditor, but this rarely
happens.
Can any other parties ‘jump the queue’, as it
were?
Where, before a company goes into liquidation or a bankruptcy order is made, there
have been mutual credits, mutual debts or other mutual dealings between the
insolvent and any creditor of the insolvent the sums due from one party to the other
must be set-off. The balance, if any, is provable as a debt in the bankruptcy.
By way of summary example, therefore, if a creditor owes an insolvent £1,000 and
the insolvent owes that same creditor £1,500, the two amounts will be set-off and the
provable debt would be £500, being the difference between £1,500 and £1,000.
Can a creditor claim interest on their debt?
They can, depending on the nature of their agreement with the debtor. Generally,
the interest payable will be as was agreed prior to insolvency, but normally capped at
8%.
What about post-order interest?
Any surplus remaining on the estate after the payment of preferential debts and
ordinary unsecured creditors must be applied in paying interest on those debts that
have been outstanding since the date that the company went into liquidation or the
date of the bankruptcy order. Post-insolvency interest ranks equally whether it
applies to preferential or non-preferential creditors.
Introduction and overview
43.1 General overview
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Where a winding-up order or a bankruptcy order is made against an insolvent, the
creditors of that insolvent lose, in essence, the right to pursue that insolvent or the
insolvent’s property in respect of the debts due1 2. In return, creditors acquire a right
to a share in any divided payable from the administration of the insolvent estate.
1. Section 130(3)
2. Section 285(3)
43.2 Definition of a creditor
There is no statutory definition of a creditor in relation to the winding up of a
company, but in relation to bankruptcy it is defined as a person to whom any of the
bankruptcy debts is owed1.
‘Creditor’ is generally defined as ‘one to whom another person owes money’2.
1. Section 383(1)
2. Mozley Whiteley’s Law Dictionary Tenth Edition 1988
43.3 Unsecured creditors, secured creditors
and preferential debts
Unsecured creditors are creditors who do not have security for the debt. Secured
creditors have security over property of the borrower. A creditor may be both
secured and unsecured where the security does not cover the whole amount due.
Creditors may have preferential status (meaning they are paid in preference to the
general body of unsecured creditors). Unsecured creditors whose debts do not have
preferential status and are not postponed rank equally for dividends in accordance
with their admitted claims1 2. This is one of the basic principles of the insolvency
legislation to ensure an orderly distribution of assets.
In respect of a company, or a trading bankrupt, the main creditors are likely to be for
trade debts and debts to the crown and for non-trading bankrupts the bulk of the debt
is likely to be in respect of consumer credit and utilities.
1. Rule 14.12
2. Section 328
43.4 Company debts
A ‘debt’ in relation to the winding up of a company means any of the following1:
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•
any debt or liability to which the company is subject at the relevant date (see
below)
•
any debt or liability to which the company may become subject after that date
by reason of any obligation incurred before that date; and
•
any interest provable.
1. Rule 14.1
43.5 ‘Relevant date’ for the purposes of the
definition of company debt
The relevant date for the purposes of the definition of a company debt is the date the
company goes into liquidation unless the company was in administration immediately
prior to the date of liquidation, in which case the relevant date is the date that the
company entered administration1.
1. Rule 14.1(3)
43.6 Partnership debts
There is no special definition of debts in relation to a partnership insolvency and the
definition applied to companies or bankruptcy (see above) would apply, depending
on the type of order to which the insolvent was subject.
43.7 Bankruptcy debts
Bankruptcy debts are defined as1:
•
any debt or liability to which the bankrupt is subject at the commencement of
the bankruptcy (being the date of the bankruptcy order),
•
any debt or liability to which the bankrupt may become subject after the
commencement of bankruptcy, including after discharge from bankruptcy, by
reason of any obligation incurred before the commencement of bankruptcy (a
contingent liability),
•
any amount specified in any criminal bankruptcy order made prior to the
commencement of the bankruptcy (criminal bankruptcy orders were abolished
in 1988 so official receivers are will rarely to encounter such debts), and
•
any interest provable.
1. Section 382(2)
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43.8 Broad scope of definition of debt or
liability includes uncertain and contingent
liabilities
A debt in a winding up or a bankruptcy is a debt whether the debt or liability is
present or future, whether it is certain or contingent or whether its amount is fixed or
liquidated, or is capable of being ascertained by fixed rules or as a matter of opinion1
2.
Liability is defined as a liability to pay or money’s worth, including any liability under
an enactment, any liability for breach of trust, any liability in contract, tort or bailment
and any liability arising out of an obligation to make restitution3.
1. Rule 14.1(5)
2. Section 383(2)
3. Rule 14.1(6)
43.9 Opted-out creditors
It is possible for a creditor of the insolvency to opt out of, for example, receiving
notices from the office-holder1 2.
1. Section 248A
2. Section 383A
43.10 Statute-barred debts (limitation)
The legislation1 provides for time limits beyond which action cannot be taken in order
to, for example, recover debts.
It should also be noted that a limitation period will continue to run through the period
of bankruptcy. This is likely to be of importance in relation to those debts that are not
released on discharge, such as debts incurred through fraud2 and in particular where
the official receiver is considering a suspension of the bankrupt’s discharge as this
may prevent the possibility of recovery of those debts.
1. Limitation Act 1980
2. Anglo Manx Group Ltd v Aitken [2002] BPIR 215
43.11 Assigned debts
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A debt or right to make a claim can be assigned (sold) and, if that happens, the
assignee has the same rights as the original owner – to present a winding-up
petition, for example.
Assignments can be by deed or by operation of law. To be valid, an assignment
under deed (which is the manner in which a debt would normally be assigned) must
be in writing1.
Once a creditor has sold a debt to another party, the assignee should thereafter be
considered the creditor for dividend purposes and any proof of debt submitted by the
original creditor should be ignored unless the assignee has not submitted a proof of
debt, in which case the original proof of debt can be considered to be on behalf of
the assignee.
Assignment should not be confused with the appointment of a collection agent, who
do not adopt the debt as their own but, instead, attempt to collect the debt for a fee.
1. Law of Property Act 1925 section 136
43.12 Foreign debts
Following the provisions of European law1 and UK law2, foreign creditors have equal
right to participate in insolvency proceedings on-going in England and Wales.
A claim from outside the EU may be resisted on the basis that the claim is in whole
or part a penalty3 or that it would not be a provable debt under British insolvency
law4.
1. EC Regulation on Insolvency Proceedings 2015
2. Cross-Border Insolvency Regulation 2006
3. Cross-Border Insolvency Regulations 2006 schedule 1 article 13(3)(a)
4. Cross-Border Insolvency Regulations 2006 schedule 1 article 13(3)(b)
43.13 Conversion of foreign debts
Foreign debts are to be converted into sterling at the exchange rate prevailing at the
date of liquidation or bankruptcy order1. Daily currency exchange rates can be
obtained from the Financial Times web-site.
The Bank of England maintains a record of historical exchange rates:
1. Rule 14.21
43.14 Valuation of the claim – general
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Any liability must have a value, including contingent liabilities. The official receiver as
liquidator or trustee must estimate the value of any debt which, by reason of it being
subject to any contingency for any reason, does not bear a certain value. The
estimated amount, subject to any revision if circumstances change, is the amount
provable1 2 and should be included in any statement of affairs prepared.
The official receiver as liquidator or trustee cannot withhold money from the estate
as an investment or in a suspense account to answer contingent claims as they
arise.
The official receiver, as liquidator, must advise the creditor of their estimate of the
valuation of the claim3.
If the creditor is dissatisfied with the liquidator’s or trustee’s estimate or revision of an
estimate, they may apply for it to be determined by the court4 5.
1. Section 322
2. Rule 14.14
3. Rule 14.14(3)
4. Section 167(3)
5. Section 303
43.15 Valuation of the claim - guidance
There is no statutory guidance as to the basis on which contingent liabilities should
be valued. The responsibility for estimating the value of the claim is, in the first
instance, placed on the convener of a decision making process for voting purposes,
and then the liquidator or trustee for dividend purposes1 2. It may save protracted
correspondence if the official receiver in such circumstances seeks to have the
creditor provide their own calculation of the claim, together with supporting evidence,
and this calculation can then be assessed by the official receiver.
1. Rule 15.33
2. Rule 14.7
43.16 Subrogation of claims to Secretary of
State where debts paid from National
Insurance Fund
--- PDF page 11 ---
If an employer becomes insolvent, certain debts owing to employees may be paid by
the Secretary of State from the National Insurance Fund. The most common of these
debts are arrears of pay, holiday pay and pay in lieu of notice.
When such payments have been made to employees, the Secretary of State
assumes the rights of each employee for the debt paid and becomes a single
creditor of the insolvent employer, enjoying preferential status as appropriate, and
the employee’s participation in the insolvency in respect of the debt paid is ended1 2.
The Secretary of State is, in relation to the claims to which there is subrogation,
entitled to priority over other preferential claims of the employee in respect of
wages/holiday pay.
1. Employment Rights Act 1996 section 189
2. Employment Rights Act 1996 section 167(3)
43.17 Subrogation of claims to third-party
Where a creditor’s claim includes amounts advanced to the company or bankrupt for
the purposes of paying employees’ remuneration and holiday pay, the right to be
treated preferentially that the employee would have had had their debt not been paid
by the creditor would pass to the creditor.
Such advances are often made by banks through the operation of an overdraft
facility. For subrogation to apply, it is not necessary for the person making the
advance to know a particular advance was made for the purpose of paying
remuneration, provided they were aware that some of the advances they were
making were for that purpose. In the case of a bank, this will nearly always be the
case and it will then be necessary to identify which parts of the overdraft were
applied to remuneration when calculating the preferential element1.
The maximum that the creditor can claim as preferential is the lower of:
•
the amount advanced for the purpose of paying the employee’s remuneration
and actually used for that purpose; and
•
the maximum preferential claim for remuneration less the employee’s actual
preferential claim for remuneration.
1. Re James R Rutherford & Sons [1964] 1 WLR 1211
43.18 Post-insolvency debts
Where a debt is incurred after the commencement of the insolvency proceedings
(which is more likely in a bankruptcy case), it is not a provable debt1 2. If it is to be
paid at all by the liquidator or trustee, it is either as an expense properly incurred in
--- PDF page 12 ---
the insolvency proceedings or payable out of any surplus remaining after the
provable debts have been paid in full3.
Where the debt is not considered a properly incurred expense, in bankruptcy it will
usually fall to the bankrupt to pay out of future income, but in a winding up the
creditor will have no remedy. The liquidator may pay the debt (to facilitate the sale of
a property, for example), but is not compelled to do so.
1. Rule 14.1
2. Section 382(1)
3. Section 328
Non-provable debts
43.19 Meaning of ‘prove’
Where a company is being wound up, or a bankruptcy order has been made, a
person claiming to be a creditor and wishing to recover their debt in whole or in part
must, subject to any order of the court], submit their claim in writing (which can
include in electronic form), to the liquidator, official receiver as receiver and
manager, or trustee1.
A person who lodges a claim is referred to as ‘proving’ for their debt and the
document by which they seek to establish there claim is referred to as the ‘proof’2.
A summary of the Rules relating to proving can be found in chapter 44.
1. Rule 14.3
2. Rule 1.2
43.20 Debts that are not provable
The legislation provides a wide definition of debts that are considered provable. It
has been held that the notion that all possible liabilities within reason should be
provable helps achieve equal justice to all creditors and potential creditors in any
insolvency, and, in bankruptcy proceedings, helps ensure that the former bankrupt
can in due course start afresh1.
There are, however, exceptions to this general principle, as follows:
•
In bankruptcy, any fine imposed for an offence2,
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•
In bankruptcy, any obligation (other than an obligation to a lump sum or to pay
costs) arising under an order made in the family proceedings or any obligation
arising under a maintenance assessment under the Child Support Act 19913,
•
In administration, winding-up or bankruptcy, any obligation arising under certain
drug trafficking and proceeds of crime legislation4,
•
In administration, winding-up or bankruptcy, any obligation arising from a
payment made out of the social fund by way of crisis loan or budgeting loan5
1. Re Nortel and others [2013] UKSC 52
2. Rule 14.2(2)(c)(i)
3. Rule 14.2(2)(c)(ii) and (iii)
4. Rule 14.2(2)(a)
5. Rule 14.2(2)(b)
43.21 Categories of debts often wrongly
considered not provable
Certain categories of debts are often wrongly considered to be not provable, as
follows:
•
Penalty charge notices in relation to motoring
•
Penalty notice under immigration laws
•
Overpayment of state benefits
•
Lump sum payments in respect of family proceedings
43.22 Categories of debts not provable in some
circumstances
Certain debts are not provable in some circumstances. Guidance relating to the main
categories of these is in this Part, as follows:
•
Social Fund loans
•
Certain student loan debts,
•
Postponed debts,
•
Debts owed by minors
43.23 Categories of debts not provable by
virtue of being unenforceable
--- PDF page 14 ---
Certain debts are not provable by virtue of being unenforceable debts. Guidance
relating to the main categories of these is in this Part, as follows:
•
Gambling debts incurred prior to 1 September 2007
•
Statute-barred debts
•
Debts owed by minors
43.24 Creditor pursuing a non-provable debt
Any claim against a bankrupt which is a non-provable debt in the bankruptcy
proceedings may be pursued by the creditor obtaining judgment at any time between
the bankruptcy order and the bankrupt’s discharge, but only with the sanction of the
court1.
The official receiver, if satisfied that the debt is a non-provable debt, should inform
the court in which the proceedings are taking place of the bankruptcy order and seek
to ensure that judgment is given only in respect of the non-provable debt.
Except where there are arrears of maintenance payments due to the bankrupt’s
former spouse, the pursuit of a non-provable debt is most likely to occur after
discharge when the permission of the court is not required.
1. Section 285(1)
43.25 Bankruptcy petition founded on a non-
provable debt
The definition of bankruptcy debt makes no distinction between a provable and a
non-provable debt. The court therefore has jurisdiction to make an order on a petition
based on a non-provable debt, but the court’s discretion has been restricted in that it
will only grant a bankruptcy order on the basis of a non-provable debt in exceptional
circumstances1 2.
1. Levy v Legal Services Commission [2001] 1 FLR 435 CA
2. Wehmeyer v Weymeyer [2001] BPIR 548
43.26 Postponed debts
Postponed debts are not provable until all other claims of creditors, and interest
payable thereon, have been settled in full1.
Postponed debts are:
--- PDF page 15 ---
•
claims where profit has been made or one or more investors have suffered a
loss as a result of a person contravening a relevant requirement of the financial
services and markets act 2000.
•
any other claim postponed by the act or any other enactment, for example
o certain partnership debts2
o debts in relation to terrorism forfeiture orders3
1. Rule 14.2(4)
2. Partnership Act 1890 section 3
3. Terrorism Act 2000 schedule 4 paragraph 50
Debts not released on discharge
(bankruptcy only)
43.27 Debts not released on discharge -
general
The bankrupt’s liability to repay bankruptcy debts (except out of assets of the
bankruptcy) is released on their discharge from bankruptcy1.
Certain categories of debts are however not released on discharge. In effect, this
means that the bankrupt becomes liable, once again, for the debt on their discharge
from bankruptcy.
1. Section 281(1)
43.28 Categories of debts not released on
discharge
The following categories of debts are not released on discharge1:
•
a debt incurred in respect of, or the payment of which was avoided by, any
fraud or fraudulent breach of trust to which the bankrupt was a party.
•
any liability in respect of a fine, or a security entered into before a court,
including one imposed for a public revenue offence.
•
a liability in respect of a confiscation order.
•
a liability to pay damages for negligence, nuisance or breach of a statutory,
contractual or other duty, or to pay damages under consumer protection law] in
respect of personal injuries.
--- PDF page 16 ---
•
a liability arising under any order made in family proceedings or under a
maintenance calculation made under the child support legislation.
•
an obligation in respect of a budgeting loan or a crisis loan from the social fund
where the bankruptcy petition was presented on or after 19 march 2012.
•
a debt due in relation to a student loan.
•
generally, any non-provable debt (which includes many of the aforesaid
categories).
1. Section 281(3) to (7)
43.29 Debt for fraud not released on discharge
A debt incurred by fraud is not released on discharge1.
It has been held that fraud in the context of these provisions has simply to be proved
in the common law sense, and is intended to refer to debts tainted by actual
dishonesty2, or where the act (breach of trust, for example) was both deliberate and
involving dishonesty3 4.
A fraud would not be present simply on the basis of a foreign judgment on an action
for fraud5 nor would an obligation to repay money obtained under undue influence
automatically be fraud for these purposes6.
The most common fraudulently incurred debt encountered by the official receiver is
likely to be a payment of social security benefits where the benefits were obtained
fraudulently.
1. section 281(3)
2. Templeton Insurance v Brunswick [2012] EWHC 1522 (Ch)
3. Woodland Ferrari v UCL Group Retirement Benefits Scheme [2002] Ch 115
4. Soutzos v Asombang [2010] EWHC 842 (Ch)
5. Masters v Leaver [2000] BPIR 28
6. Mander v Evans [2001] 1 WLR 2378
43.30 Official receiver’s role where discharge
of a liability is in question
It is not uncommon for a dispute to arise between a creditor and a (former) bankrupt
over whether the debtor has been released from the liability to pay a particular debt
by virtue of the relevant provisions outlined above.
Whilst an official receiver can provide information relating to the position of the law (if
so asked), it is not for them to arbitrate the dispute and, ultimately, if the parties
--- PDF page 17 ---
cannot agree a position it is likely that the matter will have to be dealt with at court by
one or other of the parties referring it there.
Guarantee and warranty debts
43.31 Debts in relation to guarantee given by
insolvent
When a proof of debt is submitted in respect of a guarantee given by the insolvent
for the debt of a third party, the official receiver should obtain a copy of the
guarantee and, if it was given within the two years preceding the insolvency
proceedings, satisfy themselves that it does not constitute a transaction at an
undervalue. Where it would appear that the debt is a transaction at an undervalue
the proof may be rejected.
The liability under the guarantee will normally be dependant on the principal debtor’s
failure to pay the debt. That being the case, the principal creditor must take into
account all sums paid by the principal debtor up to the time they submits their proof,
but need not adjust the claim if they receives further sums (subject to them not
receiving more that 100p in the £ of the debt owed from the principal and guarantor).
Any proof submitted in the proceedings cannot exceed any limit in the guaranteed
amount.
43.32 ‘All sums due’ guarantees given by
insolvent
If a guarantee given by an insolvent is ‘for all sums due’ from the principal debtor to
the principal creditor, the liabilities will also extend to any guarantees given by the
principal debtor to the principal creditor (in other words, the insolvent will have
guaranteed the guarantees)1.
1. Bank of Scotland v Wright [1990] BCC 663
43.33 Co-guarantors
Where a number of parties have co-guaranteed the debts of a third party, the
principal creditor may in the event of default, and subject to any prior agreement,
seek payment from any of the guarantors as they see fit. The guarantors must
however share the burden of the liability equally.
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Where, therefore, one guarantor has, for example, discharged the whole amount due
to the principal creditor, they may claim a contribution from the other guarantors. A
co-guarantor with the insolvent who has discharged the insolvent’s ‘share’ of the
debt may therefore prove in the proceedings for:
•
the insolvent’s share of the debt discharged, and
•
a proportionate share of those amounts due from the other co-guarantors which
cannot be recovered due to their own insolvency.
43.34 Guarantee given by third party for debts
of insolvent – liability of guarantor
A person who has guaranteed a debt due from the insolvent, and paid it in full, may
submit a proof in the proceedings for the amount paid. That person will also gain the
rights that the principal creditor may have had against the insolvent in respect of their
debt, including any rights to security or to preferential treatment for dividend
purposes1 2 3.
The liability of the guarantor, who has not paid, or been called upon to pay, the debt
due under the guarantee is a contingent liquidation/bankruptcy debt4 but if the
creditor is still in a position to prove, the guarantor may not prove5 2.
1. Re Oriental Commercial Bank, ex parte European Bank (1871) 7 Ch App 99
2. Re Fenton Ltd, ex parte Fenton Textile Association Ltd [1931] 1 Ch 85
3. Re Lamplugh Iron Ore Co Ltd [1927] 1 Ch 308
4. Re Paine [1897] 1 QB 122
5. Re Whitehouse (1887) 37 Ch D 683
43.35 Guarantee given by third party for debts
of the insolvent – liability of creditor
Where a guarantor has not fully paid the debt due under the guarantee, the principle
creditor may lodge a proof. Generally, before doing so, the creditor must give credit
for any amount received from the guarantor1 or from any security realised2.
Where the guarantee was limited to a fixed sum, the creditor has the right to prove
for the whole of the debt, until 100p/£ is received, even if monies have been received
from the guarantor, but only where the guarantor is liable for a fixed sum element of
any balance remaining under the guarantee (when all other potential repayment
sources have been applied to the debt) and not where they are liable for a fixed-sum
element of the overall debt3.
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The principle creditor cannot be obliged to proceed only against the guarantor, rather
than proving4.
1. Burnand v Rodocanachi, Sons & Co (1882) 7 App Cas 333 at 339
2. Aylwin v Witty (1861) 30 LJCh 860
3. Re Sass ex parte National Provincial Bank of England [1896] 2 QB 12
4. Re Rees (1881) 17 Ch D98 CA
43.36 Warranties
A product or service guarantee given by the insolvent can give rise to a contingent
unsecured claim in the proceedings. It could also be an unsecured claim at the date
of the proceedings. Where contingent, it is unlikely that a proof will be lodged unless
the customer is dissatisfied with the product or service, where, for example, it
requires replacement or repair. In the case of insolvency of the product or service
provider, it is likely that a dissatisfied customer will prove for the cost of repair or
replacement sourced elsewhere.
Where a trade association or insurance company has guaranteed the insolvent’s
obligations, their claims in respect of the costs of settling customer claims should be
dealt with as a guarantee.
Tax, duty and VAT debts
43.37 Excise duty (tobacco, alcohol, fuel and
gambling)
Excise duty is a tax on certain goods such as alcohol and tobacco products and is
collected by the retailer. The duty payable on alcohol products is based on their
alcohol content and volume and on tobacco products the rate chargeable relates to
weight, amount or retail price. The duty on fuel is a flat rate per litre.
Excise duty is also payable on gambling activities such as fruit machines, bingo,
lotteries and gaming.
Where the insolvent sold such goods or provided gambling services they may have a
debt in respect of duty collected but not paid over to HMRC.
43.38 Air passenger duty
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Air passenger duty is payable by airlines in relation to the carriage of passengers.
The amount due relates to the final destination of the passenger based on the
distance between London and the capital city of the destination country, and the type
of aircraft used.
Where the insolvent operated as an airline, there may be a debt due in respect of
unpaid air passenger duty.
43.39 Foreign revenue debts
Generally, foreign creditors are allowed full participation in insolvency proceedings in
England/Wales (see above).
Within the EU, the revenue collection authority of one Member State may request the
revenue collection authority of another Member State enforce the collection of
revenue debts within that other Member State. Subject to some limited exceptions,
the collection authority is then obliged to comply with that request.
The relevant provisions1 extend to all taxes and duties of any kind, including those
arising from local authorities, but do not include compulsory social security
contributions or monies due of a contractual nature. The provisions also include
penalties, fines, fees, interest, costs and surcharges.
It follows therefore that the official receiver may receive a claim from HMRC on
behalf of a revenue collection authority in another Member State of the EU.
1. Council Directive 2010/24/EU of 16 March 2010 concerning mutual assistance for the recovery of claims relating to taxes, duties and other measures
43.40 VAT group registration
Where two or more corporate entities are treated as a group for VAT purposes, all
members of the group are liable jointly and severally for any tax due from the
representative member1.
Where therefore a company is in liquidation and there is a group VAT debt, this
liability may met by another part of the group with that group company then possibly
having a claim against company in liquidation.
1. Re Nadler Enterprises [1981] 1 WLR 23
Penalty charges
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43.41 Penalty charge notices relating to
parking, etc
Enforcement of certain traffic regulations, for example those relating to parking,
driving in bus lanes and disregard of a congestion charge, is a civil (rather than
criminal) matter, for which responsibility lies with the relevant local authority or, in
some cases, Transport for London.
Enforcement of contraventions are generally by way of a Penalty Charge Notice
imposing a financial penalty issued on the spot or by post (where the contravention
is evidenced through CCTV, for example) by the relevant authority.
Although such charges are often colloquially called ‘fines’, they do not meet the
definition of a fine given in the legislation and are therefore provable debts.
The Police retain the power to enforce parking and other regulations in certain
circumstances and in relation to certain local authority areas. Any contravention that
is enforced by the police under the criminal law will be considered to be a ‘fine’ and
will not, therefore, be provable.
43.42 Penalties for contraventions of road
traffic licensing rules
The Driver and Vehicle Licensing Agency have the power to issue penalties where a
person does not correctly declare an uninsured or un-taxed vehicle as off the public
road, by completing a statutory of road notice (SORN). Such a penalty would be a
provable debt.
Where the person has been fined by the court for a related offence1, the debt would
not be provable, and would not be released on discharge.
1. Vehicle Excise and Registration Act 1994 section 29
43.43 Fixed penalties for road traffic offences
Certain road traffic offences may be dealt with by way of a fixed penalty1. Payment of
the fixed penalty removes any liability to conviction for the offence to which the
penalty relates2. Such a penalty would not be considered a fine but is also unlikely to
be considered a debt as, if not paid, it simply means that the liability to conviction
would remain.
Where the person has been fined by the court for a motoring offence, the debt would
not be provable, and would not be released on discharge.
1. Road Traffic Offenders Act 1988 section 54
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2. Road Traffic Offenders Act 1988 section 55
43.44 Penalty fares for railway fare evasion
Where an individual travels on a train without a valid ticket the rail operator can
charge a penalty fare, which is generally £20, on top of the fare that ought to have
been paid.
A penalty fare is a civil liability and is therefore a provable debt1.
If the railway operator can prove an intent to avoid payment (such as using a forged
ticket, deliberately avoiding a ticket inspector or using another person’s ticket), then it
might refer the matter to a magistrate’s court for prosecution. Similarly, a passenger
can be reported for a failure to provide their details on the request of a ticket
inspector2. Any fine imposed by the court as a result of such a contravention would
not be a provable debt and would not be released on discharge.
1. Railways Act 1993 section 130(8)
2. Regulation of the Railways Act 1889 section 5(2) and (3)
43.44 Penalty charge notices under
immigration law
Where an employer is found with illegal migrant workers in their workforce, they may
be served with a Notice of Liability for a Civil Penalty by the Border Agency of the
Home Office. This financial penalty is a civil (rather than criminal) sanction and is
intended to penalise the employer for having acted without due care and diligence in
operating recruitment and employment practices1.
Such a penalty does not meet the definition of ‘fine’ given in the legislation and is
therefore a provable debt.
1. Immigration, Asylum and Nationality Act 2006
43.45 Penalty charges for disorder
Certain low level nuisance offences, such as littering, making graffiti or disorderly
conduct, can be dealt with by the imposition, by a police officer, of a penalty notice
on the offender1. An agreement to pay the penalty removes any liability to conviction,
but cannot be taken to be an admission of guilt. If the offender agrees to pay, but
subsequently does not do so, the penalty becomes a fine and is, therefore, not
provable and the debt is not released on discharge.
1. Criminal Justice and Police Act 2001
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Wages and benefits
43.46 Advances of salary
Most individuals are paid an annual salary under their contracts of employment and
the employer pays this by making (usually) monthly payments through the year.
Where an advance of salary has been given to the employee, they have simply been
paid in uneven instalments, receiving a larger proportion at the time of the advance
and a reduced sum thereafter. Consequently, if the employment continues it can be
regarded that there is no debt as the employee will provide the services for which
they have been (pre)paid.
If, however, the employment ceases before the employee has provided all the labour
for which they have been paid this then gives rise to a debt which is provable in the
bankruptcy as the advance cannot then be recovered from the salary. This arises
even if the employment terminates post-bankruptcy as there would be a contingent
liability.
43.47 Advances of benefits (payments on
account)
An advance of benefit available is under the Universal Credit system (known as a
Payment on Account).
When a payment is made, Universal Credit payments are subsequently reduced for
a period of time until the Payment on Account is accounted for, typically over 6 or 12
months. Universal Credit payments then resume normal levels.
Following a bankruptcy any sums due in relation to a Payment on Account would be
considered to be a provable debt and the DWP should not recover the outstanding
sums from the bankrupt, including by way of reduced benefit payments.
43.48 Overpayment of state benefits
Overpayment of state benefit, such as housing benefits, jobseekers allowance or tax
credits may be made as a result of mistakes, change of circumstances or fraud.
It has been held by the Supreme Court1 that overpayments of benefits are contingent
liabilities and, as such, are provable debts.
Such a debt incurred through fraud would not however be released upon discharge.
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1. Re Nortel and others [2013] UKSC 52
43.49 Social Fund loans
The Social Fund provides a pot of money that can be used to provide interest free
loans to people in receipt of social security benefits to assist them in dealing with
unexpected emergency expenses.
An obligation in respect of a loan from the Social Fund is not a provable debt1.
An obligation in respect of a budgeting loan or a crisis loan from the Social Fund
where the bankruptcy petition or application was presented on or after 19 March
2012 will not be released on discharge2.
1. Rule 14.2(2)(b)
2. Section 281(8)
43.50 Post-bankruptcy benefit overpayments
It is considered that overpayments which are made after the date of the bankruptcy
order are a post bankruptcy liability, for which the bankrupt would be liable to repay,
even if they arose following an error (the decision to overpay) which occurred before
the order.
43.51 Statute-barred debts – recovery of social
security and tax credit debts
The legislation1 provides that the definition of ‘action’ as regards the steps that are
barred for recovery of debts incurred under the social security or tax credit legislation
when the limitation period expires applies only to actions in a court of law and not, for
example, to recovery from future benefits or future income.
Recovery would, however, be prohibited by the making of a bankruptcy order.
1. Welfare Reform Act 2012 section 108
Domestic and personal debts
43.52 Water rates
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Most unmetered water rates will be charged annually (generally on 1 April), payable
in advance. In the majority of cases, the agreement between the supplier and the
consumer will contain a provision, or ‘insolvency clause’ for the annual charge to be
apportioned in the event of liquidation or bankruptcy and, where such a clause
exists, the supplier will only be entitled to prove for apportioned usage and arrears
up to the date of the insolvency order.
Where there is no insolvency clause the total of the unpaid annual charge will be a
provable debt and will not be recoverable from the insolvent.
Where the water usage is metered, the provable debt is simply for the usage and
arrears up to the date of the insolvency order.
A water company cannot disconnect for unpaid charges if the debt relates to an
individual’s principle home1.
1. Water Industry Act 1991 section 61
43.53 Gambling debts
A gambling contract can be defined as a contract by which two parties or more agree
that a certain sum of money, or other thing, shall be paid or delivered to one of them,
on the happening or not of a certain event. Gambling contracts entered into after 1
September 2007 are treated in a similar manner to other contracts in law1.
It would be rare for the official receiver to encounter a case with a large element of
debt for unpaid gambling debts as the provision of credit facilities by licensed
providers of gambling is tightly restricted2.
1. Gambling Act 2005 section 335
2. Gambling Act 2005 section 81
43.54 Spread-betting debts
In relation to spread-betting, it is possible to lose more than the initial stake.
Spread-betting is not covered by the gambling legislation and is, instead, a regulated
activity under the oversight of the Financial Conduct Authority.
Where the insolvent has entered into a spread-betting contract any debt due under
that contract is a provable debt1.
1. Financial Services and Markets Act 2000 section 412
43.55 Debts to spouse or civil partner
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Where a person is married to, or is in a civil partnership with, the bankrupt at the
date of bankruptcy, and that person provided credit to the bankrupt, the debt,
although not a postponed debt, ranks behind all other categories of debt1. This would
include any interest payable on the debt. Whether or not the parties were married/in
a civil partnership at the date that the credit was provided is irrelevant so far as the
effect of this provision is concerned.
Where divorce or dissolution proceedings are concluded prior to the bankruptcy
order being made, the former spouse/civil partner’s claim ranks equally with the
other unsecured creditors.
1. Section 329
43.56 Motor Insurers Bureau
The Motor Insurers Bureau (‘MIB’) can provide compensation to victims of negligent
uninsured and untraced drivers. Every motor insurer is required to be a member of
MIB1 and contribute to its funding.
Where the MIB has a claim in the proceedings it will usually arise by virtue of them
having paid compensation to a third party where the bankrupt was the negligent
uninsured driver and is now pursuing the bankrupt for the compensation paid.
Such a debt is a provable debt, but any element of the debt that relates to
compensation paid for personal injuries may not be released on discharge. It is open
to the MIB to consider whether and to what extent they wish to pursue the bankrupt
post-bankruptcy and the official receiver need not get involved.
1. Road Traffic Act 1988 section 145(6)
43.57 Television licence fee
It is possible to pay for a TV licence in monthly or quarterly instalments and, in all
cases, payment is made in advance of the period to be covered by the licence. If an
individual misses a payment, then there is no valid licence and continued use of TV
receiving equipment would be an offence1.
It is not possible, therefore, to have a debt to the TV licensing authorities. An
individual has either paid for a licence and has one, or has not paid and does not
have one.
Where a person has been prosecuted for not having a TV licence, and a fine has
been issued, such a fine is a non-provable debt not released on discharge.
1. Communications Act 2003 section 363
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43.58 Debts owed by minors
Under common law, a contract involving a minor (that is, someone under the age of
181) is voidable at the minor’s option. A debt or debts owed by a minor are only
provable where they are legally enforceable.
Enforceable contracts are those that are for ‘necessaries’, which are goods suitable
to the condition of life of the minor, such as food, drink, clothing or lodging, and to
their actual requirements at the time of sale and delivery, such as education2.
It follows therefore that a minor may be made bankrupt, but only in respect of debts
incurred in respect of necessaries.
1. Family Law Reform Act 1969 section 1
2. Proform Sports Management Ltd v Proactive Sports Management Ltd [2006] EWHC 2903 (Ch)
Council tax and business rates
43.59 Council tax
Council tax is a tax levied by local authorities on domestic properties to pay for the
expenses of the authority and other authorities (such as Police and fire services)1.
The amount payable depends on the rateable value of the property as assessed2,
subject to various exemptions and discounts.
Liability to pay the council tax falls jointly and severally on the resident and owner of
the property3 or, in the case of a liability due to residency, that individual’s spouse or
civil partner if they are also so resident4.
1. Local Government Finance Act 1992
2. Local Government Finance Act 1992 section 5
3. Local Government Finance Act 1992 section 6
3. Local Government Finance Act 1992 section 9
43.60 Council tax – unoccupied premises
Where premises are unoccupied and the liable council taxpayer is the trustee, the
premises are exempt from council tax1. This exemption applies even if the
unoccupied property remains furnished.
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Unoccupied premises are also exempt from council tax where the mortgagee is in
possession under the terms of the mortgage.
1. Council Tax (Exempt Dwellings) Order 1992 article 3
43.61 Council tax – billing and arrears
At the beginning of the financial year a local authority will issue a demand notice in
respect of a relevant property1. This notice is an estimate of the council tax due
based on the assumption that the residency of the occupier will continue for the
entire billing period. The notice usually requires that this amount is paid in 10
instalments.
1. Council Tax (Administration and Enforcement) Regulations 1992
43.62 Council tax – provable debts
All outstanding liabilities (that is, all arrears and future instalment payments) for
council tax for the year in which the insolvency commences are provable debts
unless the debtor moves during that year, in which case any liability due for the new
property would not be provable1 2.
This applies whether or not the company/bankrupt was in arrears at the date of
insolvency.
1. Re Nortel and others [2013] UKSC 52
2. Kaye v South Oxfordshire DC [2013] EWHC 4165
43.63 Non-domestic rates (business rates)
Non-domestic rates are similar to council tax, but are chargeable in relation to
business premises (sometimes called ‘hereditaments’). The amount due is
calculated by multiplying the rateable value of the property by the business rates
multiplier set by central government1.
The amount payable depends on the rateable value of the property as assessed,
subject to various exemptions and discounts2.
Liability to pay the council tax falls jointly and severally on the occupiers of the
property. If the property is empty, the owner (or the person entitled to possession)
will be liable after the property has been empty for a period three months (or six
months for an industrial property), though a liquidator or trustee in bankruptcy is
exempt3 4.
1. Local Government Finance Act part III
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2. Local Government Finance Act 1988 sections 43 to 49
3. Local Government Finance Act 1988 sections 45 and 65
4. The Non-Domestic Rating (Unoccupied Property) Regulations 2008 regulation 4
43.64 Non-domestic rates (business rates) –
collection and recovery
The amount estimated as due for non-domestic rates will be billed for the start of the
financial year1.
The local authority will allow the payment to be made in instalments, on a monthly
basis2.
1. The Non-Domestic Rating (Collection and Enforcement) (Local Lists) Regulations 1989 regulations 4 and 5
2. The Non-Domestic Rating (Collection and Enforcement) (Local Lists) Regulations 1989 schedule 1
43.65 Non-domestic rates – provable debts
All outstanding liabilities (that is, all arrears and future instalment payments) for non-
domestic rates for the year in which the insolvency commences are provable debts1
2.
This applies whether or not the company/bankrupt was in arrears at the date of
insolvency.
1. Re Nortel and others [2013] UKSC 52
2. Kaye v South Oxfordshire DC [2013] EWHC 4165
Debts to landlords
43.66 Arrears of rent and related debts
Many insolvents will be in arrears to their landlords in respect of rent - especially in
relation to commercial premises. Arrears of rent are a provable debt in liquidation
and bankruptcy proceedings and may be calculated pro-rata where the insolvency
order is between payment dates1, though landlords do retain certain rights against
the property of the insolvent.
A landlord may also have a claim in respect of loss or damage as the result of the
issue of a disclaimer in respect of the leased property.
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The landlord might also submit a claim for forfeiture or dilapidations.
1. Rule 14.22
43.67 Continuing obligations under leases
Where a tenancy was created before 1 January 1996, an insolvent may have
obligations under the lease (this is referred to as ‘privity of contract’) despite the fact
that they have assigned it to a third party1. The obligation may be after an
assignment where the original lessee may remain liable under covenants2.
Even if the tenancy was granted after 1 January 1996 the insolvent may have a
liability under the lease where a guarantee was given to the landlord.
1. Hindcastle Limited v Barbara Attenborough Associates Limited [1996] 2 WLR 262
2. Warnford Investments Ltd v Duckworth [1979] 1 Ch 127
43.68 Authorised guarantee agreements
For tenancies created after 1 January 1996, the concept of liability under privity of
contract was discontinued1. A landlord may require a tenant who assigns a lease to
enter into an ‘authorised guarantee agreement’, under which the tenant who assigns
the lease or tenancy may guarantee performance of the tenant’s covenants by the
assignee, but not any subsequent assignee2.
1. Landlord and Tenant (Covenants) Act 1995 section 3
2. Landlord and Tenant (Covenants) Act 1995 section 5
43.69 Assured or secure tenancy rent arrears –
possession orders
An assured or secure tenancy may be subject to a suspended possession order
requiring the bankrupt to repay rent arrears under threat of the termination of the
tenancy and the right of a landlord to recover their property from a defaulting tenant
is not affected by bankruptcy. It has been held that a possession order is not a
remedy against the property or person of the bankrupt and therefore is not
restricted1.
The landlord is not entitled to recover any arrears of rent, except by way of dividend
in the bankruptcy. A possession order granted might still be suspended but not on
condition of the payment of rent arrears. Any suspended possession order in force at
the date of the bankruptcy order might be varied to remove any provision for
payment of rent arrears.
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The consequence of this is, in assessing a bankrupt for an income payments
agreement, or order, official receivers should not include any amounts payable in
respect of rent arrears under a suspended possession order. Commencement of the
agreement should be deferred or stepped allowing the bankrupt time to seek a
variation of the suspended possession order. Under no circumstances should the
bankrupt be advised to cease making payments under the terms of the suspended
possession order before it has been varied by the court.
No allowance should be made in respect of an informal agreement to make
payments of rent arrears to avoid possession proceedings. Such payments should
stop immediately, even if this might trigger an application for possession.
1. Christina Sharples v Places for People Homes Ltd [2012] Ch 382
Debts relating to litigation and court
proceedings
43.70 Costs
It has been held that costs are contingent liabilities for the purpose of proving in
insolvency proceedings.
Where a bankrupt is involved in any claim before the court, whether as claimant or
respondent, and proceedings have been issued prior to the date of the bankruptcy
order, any order for costs made against the bankrupt, whether made before or after
the date of the bankruptcy order, is a provable debt in the bankruptcy on the basis
that it is a contingent liability, the contingency being a risk of adverse costs arising
when the court proceedings are issued1.
1. Re Nortel and others [2013] UKSC 52
43.71 Fines and other court penalties and
liabilities
Any fine (defined as ‘any pecuniary penalty or pecuniary forfeiture or pecuniary
compensation payable under a conviction) is not a provable debt1 2.
Such a definition would not include penalty charges imposed by local authorities or
the police.
A liability under a recognisance (which is a security entered into before a court with a
condition to perform some act required by law) is not released on discharge. A
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penalty imposed for an offence relating to public finance is not released without the
consent of the Treasury3.
1. Magistrates Court Act 1980 section 150
2. Rule 14.2(3)
3. Section 281(4)
43.72 Creditor’s costs of execution
A judgment creditor is entitled to prove in the insolvency for any unrecovered costs
of their execution. The creditor cannot do so where the insolvency intervened in the
execution so that the costs are a charge on the proceeds of sale or if the officer
charged with the execution has deducted their costs before accounting to the
liquidator or trustee for the proceeds of sale.
If execution was levied after the commencement of the winding up, the judgment
creditor is unable to claim in the winding-up proceedings for the costs of the
execution. The officer charged with the execution is not entitled to claim in the
proceedings but must look to the judgment creditor to discharge any shortfall in their
costs, and the creditor may make a claim for those costs.
43.73 Confiscation orders
The courts have the power to make a confiscation order against a person who has
been shown to have benefitted from the proceeds of crime, and similar. Any liability
in respect of such an order under the following legislation is not a provable debt1:
•
proceeds of crime act 2002
•
drug trafficking offences act 1986
•
criminal justice (scotland) act 1987
•
criminal Justice Act 1988
Such debts under the Proceeds of Crime Act 2002 are also not released on
discharge2.
1. Rule 14.2(a)
2. Section 281(4A)(b)
43.74 A liability in respect of personal
damages not released on discharge
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The liability of a bankrupt to pay damages to a third party in respect of a personal
injury claim is a provable debt in the bankruptcy but the bankrupt is not released
from the debt on discharge unless the court so directs1.
1. Section 281(5)(a)
43.75 Liability in tort (including unliquidated
damages)
Liability in tort is a liability arising out of a civil wrong, where the victim of the wrong is
entitled to bring a claim (or complaint) to claim damages. It would include actions
such as libel, assault or trespass.
The legislation makes specific provision that such liabilities in tort, including those for
unliquidated damages, are provable debts in a winding up or bankruptcy so long as
the event which leads to the claim occurs prior to the date that the company went
into liquidation (unless the petition was presented on or after 6 April 2010, and the
company was in administration immediately prior to the date of liquidation, in which
case the relevant date is the date that the company entered administration) or the
individual was made bankrupt1 2 3.
1. Rule 14.2(1)
2. Section 382(1)
3. Re Dollar Land Holdings [1993] BCC 823
43.76 Liability in tort where harm yet to
happen
In the case of a company, the legislation provides that, for cases where the date of
liquidation (or an earlier preceding administration) was on or after 1 June 2006, the
liability in tort will be a provable debt (requiring some estimation where there is a pre-
insolvency actionable claim, even if the harm to the victim has not yet materialised1.
An example may be where the victim has been exposed to asbestos but has not yet
developed the symptoms of asbestosis.
Such a claim would also be provable in bankruptcy, but the bankrupt would not be
discharged from the debt, so the potential claimant would be free to pursue the
bankrupt post-bankruptcy.
1. Rule 14.2(1)
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Business debts
43.77 Deficiency in pension scheme
A deficiency in a pension scheme operated by the insolvent for the benefit of
employees can be a debt in insolvency proceedings.
43.78 Insurance claims
An insurance company, by the nature of its business, has numerous contingent
liabilities. Special rules, including in respect of the order of payment, apply to the
winding-up of insurance companies.
43.79 Contributories
A contributory is a person liable to contribute to the assets of a company in the event
of it being wound up. Any present and past member1 is a contributory, subject to
certain qualifications as to liability2 3.
Where a contributory has made such a contribution, he she will be a creditor in the
insolvency for the amount contributed.
1. Section 79
2. Companies Act 2006 section 112
3. Section 74(1)
Debts due under family and domestic
proceedings including debts to CSA
43.80 Debts due under family and domestic
proceedings
Certain debts in respect of family and domestic proceedings are not provable. The
definition of such proceedings is broad and can be taken to include any court
proceedings involving the settling of family business, such as the setting of
maintenance orders1.
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The court may make an order for maintenance. Maintenance awarded to a civil
partner is for their own benefit while maintenance awarded to an unmarried parent is
for the benefit of their child. However, maintenance can be awarded to a spouse for
their own benefit and/or for the benefit of a child who is under the age of 18, or 23 if
the child is in full-time education.
A liability in relation to an order arising under family proceedings is not released on
discharge unless the court so directs2.
1. Rule 14.2(2)(c) and (3)
2. Section 281(5)(b)
43.81 Debts due in respect of an obligation to
make a lump sum payment or to pay costs in
respect of family proceedings is provable
An obligation to make a lump sum payment or pay costs in respect of family
proceedings is, however, a provable debt1, but is not released on discharge2.
1. Rule 14.2(c)(ii)
2. Section 281(5)(b)
43.82 Debts due in respect of an obligation to
the Child Support Agency
The Child Support Agency (CSA) has the power to make sure that adults who live
apart from their children contribute financially to their upkeep by paying maintenance
where the parties concerned are unable or unwilling to reach an agreement on
maintenance.
Any obligation under a maintenance assessment made under the legislation is not a
provable debt1, and would not be released on discharge2.
1. Rule 14.2(c)(iii)
2. Section 281(5)(b)
43.83 EU child maintenance arrears not a
provable debt; lump sum debts provable but
not released on discharge
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The general principle under the EC Regulation is that the law of the State of the
opening of the proceedings is the law that is used to decide matters. There are
exceptions to this general principle, but none of them cover debts made under
matrimonial proceedings.
Any obligation (other than an obligation to pay a lump sum or to pay costs) arising
under an order made in family proceedings is not a provable debt. The Act defines
"family proceedings" as having the same meaning as that given in the Magistrates
Court Act 1980. The Magistrates Court Act 1980, as amended, refer to European
Directives on the jurisdiction, and the recognition and enforcement, of judgements in
civil and commercial matrimonial matters and matters of parental responsibility1.
This being the case, it is likely that an order of an EU court in matrimonial
proceedings would be recognised by the English court and fall within the definition of
"family proceedings" in the Rules.
In summary therefore, arrears of child maintenance under an EU order are not a
provable debt in an English bankruptcy2. A debt following an EU order for a lump
sum maintenance payment is a provable debt, but is not released on discharge.
1. Magistrates Court Act 1980 section 65
2. Wehmeyer v Wehmeyer [2001] BPIR 548
Student loans
43.84 Student loans are generally non-
provable debts
Student loans are granted to eligible students to assist with the costs of higher
education under a number of pieces of legislation.
The position of student loans as provable debts has changed over the years as the
legislation has developed. In summary, the position is as follows1:
Date of order
Loan made
under
Status of debt
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Before 1 July
2004
Education (Student
Loans) Act 1990, or
Teaching and Higher
Education Act 1988
Provable
Between 1
July 2004 and
31 August
2004
Education (Student
Loans) Act 1990
Not provable
Teaching and Higher
Education Act 1988
Provable
On or after 1
September
2004
Education (Student
Loans) Act 1990, or
Teaching and Higher
Education Act 1988
Not provable
1. Education (Student Loans) (Repayment) Regulations 2009 regulation 80(2)(b)
43.85 A debt in respect of a student loan not
released on discharge
A debt in respect of a student loan is not released on discharge where the
bankruptcy order was made on or after 1 September 2004. This is provided for in
legislation1 other than the insolvency legislation.
1. Education (Student Loans) (Repayment) Regulations 2009 regulation 80(2)(b)
Preferential debts
43.86 Preferential debts - general
Preferential debts are debts which are to be paid in preference to other unsecured
debts and also in preference to the holder of a floating charge (see below)1 2 3.
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Following changes to the law in September 2003 the categories of debt that are
considered to be preferential were significantly reduced with the Crown losing most
of its preferential status.
Since the majority of those cases to which the pre-September 2003 rules applied will
now have been dealt with, this Part does not discuss in detail those debts that were
formerly preferential but, in summary, they are debts due to HMRC such as PAYE
deductions, duty and VAT (see Annex A below).
1. schedule 6
2. Section 176
3. Section 386
43.87 Definition of relevant date
The categories of preferential debts are defined to the extent that they are owed at,
or leading up to, the ‘relevant date’1. So far as concerns compulsory liquidation and
bankruptcy the relevant date is defined as:
•
in relation to a winding up, the date of the winding-up unless that was preceded
by administration (in which case the relevant date is the date that the company
entered administration), or the earlier date of the appointment of a provisional
liquidator2.
•
in relation to bankruptcy, the date of the making of the bankruptcy order, or the
earlier date of the appointment of an interim receiver3.
1. Section 387
2. Section 387(3)
3. Section 387(6)
43.88 Contributions to occupational pension
schemes as a preferential debt
A debt in respect of a sum due by the insolvent in respect of an employer’s
contributions to an occupational pension scheme in the 12 months prior to the
relevant date or in respect of an employee’s contributions deducted but not paid into
the scheme in the four months prior to the relevant date is a preferential debt1 2.
1. schedule 6, paragraph 8
2. Pension Schemes Act 1993 schedule 4
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43.89 Claims by National Insurance Fund in
respect of pension contributions
The trustee of a pension scheme can make a claim to the National Insurance Fund
for outstanding pension contributions. Where such a claim is made, the National
Insurance Fund, in the person of the Secretary of State for BIS will have a
subrogated claim in the insolvency for the payment, part or all of which may be
preferential.
43.90 Remuneration of employees as
preferential debts – wages
Any amount which is owed by the insolvent to a person who is or has been an
employee of the debtor and is payable by way of remuneration in respect of the
whole or any part of the period of four months before the relevant date is a
preferential debt. This is subject to a limit of £8001 2.
The legislation provides further qualification of the types of debts that would be
considered preferential under this provision, such as relating it to statutory
employment rights claims3 and the dismissal of the employee4.
1. Insolvency Proceedings (Monetary Limits) Order 1986 article 4
2. schedule 6, paragraph 9
3. schedule 6, paragraph 13
4. schedule 6, paragraph 14(1)
43.91 Remuneration of employees as
preferential debts – holiday pay
An amount owed by way of accrued holiday pay, in respect of any period before the
relevant date, to a person whose employment has been terminated by the insolvent
(whether before, on or after that date) is a preferential debt1 2 3.
1. schedule 6, paragraph 10
2. schedule 6, paragraph 14
3. schedule 6, paragraph 15
43.92 Protective awards
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Where an employer fails to consult properly prior to dismissing employees as
redundant, an Employment Tribunal may make a financial award in favour of the
dismissed employees. Such an award is known as a protective award and should be
treated as provable debt which is preferential1. This is the case even if the award is
not made until after the insolvency order2.
1. schedule 6, paragraph 13(2)
2. Haine v Day [2008] BCC 845
Secured creditors
43.93 Secured creditors – general
The concept of a creditor holding security, being a secured creditor, is an important
one in insolvency as a secured creditor retains rights against the property of the
insolvent which are not available to an unsecured creditor1 2.
In particular, the secured creditor retains rights to take possession of, and sell, such
property of the insolvent against which their debt is secured, with their responsibility
to the insolvency estate being limited to a requirement to pay over any surplus funds
to the liquidator/trustee for the benefit of the estate following the sale of the secured
asset3.
1. Section 285(4)
2. Flightline Limited v Edwards and another [2003] 1 WLR 1200
3. Evans v Finance-U-Ltd [2013] ECC 26
43.94 General definition of security
Security has been held to be defined in the following terms; ‘security is created
where a person (‘the creditor’) to whom an obligation is owed by another (‘the
debtor’) by statute or contract, in addition to the personal promise of the debtor to
discharge the obligation, obtains rights exercisable against some property in which
the debtor has an interest in order to enforce the discharge of the debtor’s
obligations to the creditor’1.
1. Re Paramount Airways Ltd [1990] BCC 130
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43.95 Definition of a secured creditor –
company
A secured creditor, in relation to a company, means a creditor of the company who
holds in respect of their debt a security over property of the company. Security
means, in relation to England and Wales, any mortgage charge, lien or other
security1.
1. Section 248(1)
43.96 Landlord’s right of entry not security
It has been held that a landlord’s right of re-entry is not a form of security1.
1. Razzaq v Pala [1998] BCC 66
43.97 Money advanced for the benefit of the
company
The creation of a charge should be for the benefit of the company. If the monies
advanced were for the benefit of another party, and the lender was aware of the
purpose for which the moneys were to be used, the validity of the charge may be
challenged1.
1. Re Destone Fabrics Ltd [1941] Ch 319
43.98 Definition of a secured creditor –
bankruptcy
In bankruptcy, a debt is secured to the extent that the person to whom the debt is
owed holds any security for the debt (whether a mortgage, charge, lien or other
security) over any property of the person by whom the debt is owned1.
1. Section 383(2)
43.99 Proofs of debts of secured creditors
In relation to an insolvent estate, a secured creditor can:
•
rely entirely on their security and not submit a proof of debt;
•
surrender their security and prove for the whole amount of the debt1 2; or
•
place a value on their security and prove for the balance of their debt3.
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Where a creditor puts a value on their security and that security is subsequently
realised, the net amount realised shall be substituted for the value previously placed
on the security and the creditor will be entitled to prove for the adjusted balance4.
1. Rule 14.19
2. Rule 14.41
3. Rule 15.28
4. Rule 14.19
43.100 Proving for interest in relation to
secured debts
In all cases a creditor is not entitled to include within their proof a claim for interest
falling due after the insolvency order date1 2.
1. In re London, Windsor and Greenwhich Hotels, Quatermaine’s Case [1892] 1 Ch 639
2. Section 322(2)
43.101 Redemption of security by liquidator
or trustee
The official receiver, as liquidator or trustee, may give notice to a creditor whose debt
is secured that they propose, at the expiration of 28 days from the date of the notice,
to redeem the security at the value put upon it in the creditor’s proof1.
1. Rule 14.17
43.102 Valuation of security
Where the liquidator or trustee serves notice of an intention to redeem the security,
the creditor has 21 days (or such longer period as the liquidator or trustee may allow)
to exercise their right to re-value the security. If the creditor re-values their security,
the trustee may only redeem at the new value1.
1. Rule 14.17(2)
43.103 Liquidator or trustee dissatisfied with
secured creditor valuation
The liquidator or trustee, if dissatisfied with the value which a secured creditor puts
on their security (whether in their proof or by way of re-valuation) may require the
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property comprised in the security to be offered for sale. The exception to this is
where the security has been re-valued and the re-valuation has been approved by
the court1.
1. Rule 14.18
43.104 Re-valuation of security where secured
creditor is petitioning creditor
Where the petitioning creditor is a secured creditor and has, being the petitioner, put
a value on their security, or has voted in respect of the unsecured value of the debt,
they may re-value the security held only with the permission of the court1.
1. Rule 14.15
43.105 Surrender of security on failure to
disclose
Where a secured creditor submits a proof of debt but fails to disclose a security held,
they can be required to surrender the security for the benefit of the general body of
creditors unless the court is satisfied that the omission was inadvertent or the result
of an honest mistake1.
1. Rule 14.16
Mortgages and charges
43.106 Priority of charges
As a general rule, a charge created earlier would rank in priority over one created
later. The exception to this would be that, in relation to a company, a fixed charge
ranks over a floating charge even if created later1 though, in reality, this rarely occurs
in practice, as the floating chargeholder will generally require that the person giving
the charge undertake not to further charge the assets.
The priority of the charges may be changed by a ‘deed of priority’ agreed between
the borrower and the holders of the charges affected by the change in priority. The
deed of priority would be effective even where it resulted in a floating charge taking
priority to an earlier fixed charge2.
1. Companies Act 2006 section 754
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2. Re Portbase Clothing Ltd [1993] BCC 96
43.107 Marshalling
Marshalling, or marshalling of securities, is the term to describe the equitable remedy
available to secured creditors where they have security over the same assets of a
debtor. Without going into detail, it describes the process of sharing the assets
between the creditors.
43.108 Remedies for a chargeholder
The usual remedy in respect of company fixed charges is the appointment of a
receiver to realise the security.
Otherwise, the chargeholder may simply seek the repossession and sale of the
charged property.
The proceeds of sale may be applied to the repayment of the capital sum and
interest accrued prior to the date of the insolvency order. The creditor cannot include
the post insolvency order interest in calculating the amount to be claimed in
submitting a proof of debt1.
1. In re London, Windsor and Greenwich Hotels, Quatermaine’s Case [1892] 1 Ch 639
43.109 Shortfall following repossession
Often, following repossession, there will be a shortfall in the monies required to
repay the debt due under the charge.
The chargeholder would, in this circumstance, become an unsecured creditor for the
amount of the shortfall.
43.110 Re-scheduling of debt and deeds of
acknowledgement
A mortgagee or other secured chargeholder may request the bankrupt to sign a
document acknowledging the level of debt, shortfall or similar. Such a document is
generally known as a deed of acknowledgement. This might be in connection with an
arrears repayment plan or a re-mortgage.
If the bankrupt completes such a deed, a new debt might be created on which
recovery action might be based at any time within the limitation limit. It is not for the
official receiver to influence the bankrupt about how to proceed in this matter. The
bankrupt should simply be advised to seek independent legal advice.
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Whilst a post bankruptcy debt can be created by rescheduling and deed, the
underlying debt it is still a bankruptcy debt.
43.111 Official receiver to check receipt of
monies where security given
The official receiver should check that monies secured by a charge against the
insolvent’s property were received by the insolvent before or at the time the charge
was created. If not, the transaction may be a preference.
43.112 Legal mortgages
A mortgage is the conveyance, assignment or demise of any land or estate in it as
security for the repayment of money borrowed. The owner of the land (mortgagor)
signs a deed (mortgage) that gives the lender (mortgagee) an interest in the
property. The term mortgage (from the French ‘death pledge’) is applied to the
transaction itself, the deeds and the rights of the mortgagee.
Mortgages are governed by statute1, and the terms will be set out in the deed.
1. Law of Property Act 1925
43.113 Equitable mortgages
An equitable mortgage is one that is considered to be a mortgage under equity (in
the interests of justice), but does not qualify as a legal mortgage1.
This may be because of a defect in the paperwork or because the borrower lacked
capacity to properly grant the mortgage to the borrower (where they were only a joint
owner, for example).
If registered, an equitable mortgage can take priority as usual.
1. Downsview Nominees Ltd v First City Corpn Ltd [1993] AC 295
43.114 Mortgages and charges in land must be
in writing
Any contract for a disposition in land, which would include a mortgage or a charge, is
not valid unless it is writing, incorporates all the terms agreed by the parties and is
signed by all the parties1.
1. Law of Property (Miscellaneous Provisions) Act 1989 section 2
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43.115 Registration of charges - general
Where the charged property comprises unregistered land and the mortgage is
capable of registration, then it should be registered at the Land Charges Registry1 in
order to bind purchasers.
Where the property comprises registered land the charge should be registered with
the Land Registry; again this is to bind purchasers.
It is not necessary for a charging order obtained against a company to be registered
with the Registrar of Companies2.
1. Land Charges Act 1972
2. Re Overseas Aviation Engineering (GB) Ltd [1962] 3 All ER 12
43.116 Registration of charges – companies
Where a charge was created before 6 April 2013, the company must send details of
the charge to the Registrar of Companies1. Where the charge was created on or after
6 April 2013 the Registrar must register the charge where it is filed within the period
allowed2, but there is no requirement on the company to effect registration. Failure to
register the charge will however render it void against a liquidator, administrator or
creditor of the company3.
1. Companies Act 2006 section 860
2. Companies Act 2006 section 859A
3. Companies Act 2006 section 859H(3)
43.117 Bankrupt continuing to reside in
charged property
Providing the secured creditor is content, there is nothing to prevent the bankrupt or
joint-owner continuing to reside in the charged property.
Where payments continue to be made to the secured creditor, the creditor would, in
these circumstances, and subject to the terms of the mortgage arrangement, use
these sums in the first instance to discharge the continuing accrual of interest under
the mortgage. The creditor is otherwise unable to pursue the bankrupt for interest
falling due after the order date.
43.118 Charging orders
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Where a creditor obtains a judgment it may be followed up by a charging order in
execution of the judgment.
A charging order may be made either absolutely or subject to conditions as to
notifying the debtor or as to the time when the charge is to become enforceable, or
as to other matters. The court by which a charging order was made may at any time,
on the application of the debtor or of any person interested in any property to which
the order relates, make an order discharging or varying the charging order1.
A charging order may be granted by the court over any interest held by the debtor
beneficially in property, certain securities, funds in court or under any trust. The court
making the order may provide for the charge to extend to any interest or dividend
payable to the debtor in respect of the asset2.
1. Charging Orders Act 1979 section 3
2. Charging Orders Act 1979 section 2
43.119 Power of a company to create a charge
The legislation provides that a company has unrestricted capacity to borrow unless
that power is restricted in the objects of the company in its memorandum of
association.
Similarly, unless restricted by the objects, the directors have power to give security
for the company’s borrowings on such terms as they see fit1.
Technically, borrowing or the giving of a charge in contravention of the objects of the
company is void at common law2, though the decision of the directors is binding on
the company where the creditor acted in good faith3 4.
1. Companies Act 2006 section 31(1)
2. Commercial Bank of Canada v Great Western Railway of Canada (1865) 16 ER 112
3. Ashbury Railway Carriage and Iron Co v Richie (1875) LR 7 HL 653
4. Companies Act 2006 sections 39 and 40
43.120 Fixed charges
The right of a creditor to recover their capital sum and interest from definite and
ascertainable assets is termed a fixed charge.
A fixed charge fastens from the moment of its creation to the particular property in
question (machinery or buildings, for example), and gives the holder of the charge an
immediate security over that property so that the debtor may not sell or otherwise
deal with the charged property without the consent of the chargeholder.
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Unlike a mortgage, a charge does not give the chargeholder a proprietary interest in,
or possession of, the property.
43.121 Floating charges (companies only)
A floating charge is defined in the Act as a charge which, as created, was a floating
charge1.
It has been further defined in case law2 as follows:
‘A floating charge is ambulatory [movable] and shifting in its nature, hovering over
and, so to speak, floating with the property which it is intended to affect until some
event occurs, or some act is done, which causes it to settle and fasten on the subject
of the charge within its reach and grasp (also known as crystallisation).’
1. Section 251
2. Illingworth v Houldsworth [1904] AC 355
43.122 Deciding whether a charge is fixed or
floating (companies only)
Deciding whether a charge is a fixed charge or a floating charge is a matter of
establishing the intentions of the parties in creating the charge and also
characterising the charge by reference to law1. Even though the parties consider the
charge to be of one variety that does not prevent the court from declaring it
otherwise2, taking into account the substance not the form of the charge3.
1. Agnew and another v Inland Revenue Commissioners (Brumark) [2001] 2 AC 710
2. Keenan Bros Ltd [1986] BCC 98970
3. Re Brightlife Ltd [1987] Ch 200
43.123 Crystallisation of floating charges -
automatic (companies only)
Certain events cause a floating charge to become a fixed charge, meaning that the
company can no longer sell the charged property without the consent of the
chargeholder. This is known as crystallisation of the charge. Those events are:
•
The winding up of the company or the appointment of a receiver1 but not the
application for a receiver2; or
•
The cessation of the company’s business3.
Crystallisation will happen on these events even if the debenture states otherwise4.
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1. Woodroffes (Musical Instruments) Ltd 1986 Ch 366
2. Re Hubbard & Co Ltd, Hubbard v Hubbard & Co Ltd (1898) 68 LJ Ch 54
3. Governments Stock and Other Securities Investment Co Ltd v Manila Railway Co [1897] AC 81
4. SAW (SW) 2010 Ltd v Wilson [2018] Ch 213
43.124 Crystallisation of floating charges -
automatic (companies only)
In addition to the automatic crystallisation of a floating charge, the parties may also
agree contractually that a floating charge, created by a debenture, may be
crystallised into a fixed charge by intervention of the debenture holder1. Generally,
this intervention will be by way of the appointment of a receiver out of court, by may
be by service of a notice.
1. Re Brightlife Ltd [1987] Ch 200
43.125 Equitable charges
An equitable charge arises where a chargee is entitled to look to an asset or class of
assets to discharge a liability1.
It differs from an equitable mortgage in that there is no agreement to create a charge
or mortgage and the property may only be sold by order of the court.
If registered, an equitable charge can take priority as usual.
1. Re Cosslett (Contractors) Ltd [1998] Ch 495
43.126 Charging orders obtained by solicitors
for costs
Subject to limitation, a solicitor may apply to court for a charging order in respect of
costs in relation to a matter for which they were acting in bringing proceedings1.
1. Solicitors Act 1974 section 73
43.127 Debentures (companies only)
A debenture is a written acknowledgement of a debt by a company, usually under
seal1, containing provisions as to the payment of interest and repayment of principal
(the original loan sum). A debenture does not necessarily provide for security in the
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form of a charge over the company’s assets, but debentures are usually secured by
a floating charge or a fixed and floating charge.
A company can create more than one debenture, in which case, unless specified
otherwise, they would rank in order of priority according to the dates on which they
were created.
1. British India Steam Navigation Co v Inland Revenue Commissioners (1881) 7 QBD 165
Other forms of security – liens, pledges
and bills of sale
43.128 Liens
A lien is a right to retain possession of another’s property pending the discharge of
the indebtedness. A creditor with a lien would generally be treated as a secured
creditor in insolvency proceedings1 2.
A lien over book and records is not however enforceable against the official receiver3
4.
1. Section 248
2. Section 383(2)
3. Section 246
4. Section 383(4)
43.129 Pledges (pawnbroker)
A pledge is the term to describe the item given to a pawnbroker in return for a loan. If
the loan is not repaid within a certain time period, the pawnbroker has the right to sell
the goods.
43.130 Security bills of sale
A security bill of sale is a bill given to secure payment of monies. Generally it is given
over personal assets/chattels.
The legislation provides that an applicable bill of sale must be registered within
seven clear days of its making, and must be renewed at least once every five years.
The method of registering the bill of sale is to send, to the High Court, the original bill
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of sale, together with a witness statement attested in front of a solicitor stating that
the effect of the bill of sale has been explained to the person granting the
assignment.
Failure to register the bill of sale properly will mean that it is ineffective against a
trustee in bankruptcy. This would mean that the debt would be considered to be
unsecured and the goods purportedly covered by the bill would be free to be realised
by the official receiver, as appropriate1.
1. Bills of Sale Act 1878 sections 8 to 11
43.131 Searching the register of bills of sale
Where there is doubt as to whether a bill of sale is properly registered the official
receiver may conduct a search of the register by issuing a letter to the High Court of
Justice Enforcement Section. The letter should give details of the persons who may
have been party to the assignment, and also such details as are known of the
assignment itself (such as the date and the property concerned). The request should
be accompanied by a payment of £40 made payable to “HMCS” and should be sent
to:
Judgments and Orders Section
Room E15-17
Royal Courts of Justice
Strand
LONDON
WC2A 2LL
Tel no: 020 7947 6221
This office will provide a certificate showing details of the registration (if any) and for
a further fee of £5 will provide an office copy of the documents provided in support of
the application of registration.
Finance agreements
43.132 Leasing debts
The rights of an insolvent under a leasing agreement are generally to a right to
possess and use the leased item while the lease/rental payments are up to date. On
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the making of the insolvency order the lessor will normally take back possession of
the item and claim in the insolvency proceedings for outstanding sums due under the
agreement.
43.133 Debts under credit agreements
Where the insolvent has entered into a simple credit agreement, it will be the case
that ownership of the goods to which the agreement relates will have passed to the
insolvent at the time that the agreement was entered into, with the balance of monies
due being a debt in the insolvency proceedings.
43.134 Agreements where the finance
company has rights over property
A finance agreement where the lender retains ownership or repossession rights over
the vehicle until a specific date or when certain conditions (such as the amount of
repayment made) have been met is usually known as a ‘conditional sale agreement’
or ‘hire-purchase agreement’.
Subject to any express clause in the agreement, the rights of the insolvent under the
agreement will pass to the official receiver as liquidator or trustee.
Where there is doubt, the official receiver should peruse the terms of the agreement
to confirm the extent to which the finance company retains ownership rights.
43.135 Difference between ‘conditional sale’
and hire-purchase’ agreements
The key difference between a conditional sale agreement and a hire purchase
agreement is that under a hire-purchase agreement the hirer acquires an option to
purchase the goods after complying with the terms of the agreement (to make 24
monthly payments, for example), whereas under a conditional sale agreement there
is no such condition: property passes only on the payment of all instalments.
43.136 Termination of a ‘conditional sale’ type
agreement
In practice an agreement where the finance company retains an interest in the
property will usually contain a clause giving the finance company the right to
terminate the agreement in certain circumstances, such as default on repayment or
the making of an insolvency order against the borrower.
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Where the finance company exercises such a right in relation to an agreement that
relates to property of an insolvent, the potential benefit to the official receiver as
liquidator or trustee will be restricted to the rights of the insolvent on termination of
the agreement. The key right that the insolvent would hold in this regard is that the
vehicle may not be repossessed without a court order if more than two thirds of the
total price of the vehicle has been paid1.
In deciding whether to consent to such an order, the official receiver should consider
the value of the property to the estate were it to be sold (taking into account the need
to settle the finance and any arrears).
1. Consumer Credit Act 1974 section 90
43.137 Action to take in respect of property
subject to finance agreement
Where the official receiver is dealing with property subject to a finance agreement,
they should send the standard letter1 to establish the type of agreement (that is,
whether it is a simple credit agreement or a conditional sale-type agreement) and the
amount required to settle the agreement.
The official receiver as liquidator or trustee may pay the amount required to complete
the agreement and obtain title to the asset2 if it is beneficial to do so, subject to any
consolidation clause. In many cases there is no benefit in taking such action as the
amount outstanding on a finance agreement, taking into account interest and
charges, is in excess of the value of the item, taking into account depreciation.
Where the finance is a simple credit agreement, the official receiver may deal with
the property as an asset in the proceedings.
1. NHP
2. Re Piggin (1962) 112 LJ 424
43.138 Standard consolidation clauses in
relation to finance agreements
The standard agreements of most finance companies contain consolidation clauses
which require the hirer to treat all agreements with the company as one for
completion purposes. In this case the official receiver will not be able to complete
one agreement without completing them all.
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43.139 Claims for damages for early
termination
The early termination of a finance agreement as a result of insolvency may give rise
to the finance company making a claim for damages for breach of contract. In such a
case the official receiver will have to decide whether the claim relates to genuine
liquidated damages (which should be admitted) or a penalty (which should not)1.
Where the finance agreement is expressed to terminate on insolvency it should be
remembered that the insolvency is not a breach of contract (unless specifically
provided for) but simply an event on which the parties agree that the agreement
should end. No question of damages therefore arises, although the agreement may
provide for a contractual payment as compensation for early termination. This
payment may be reduced or off-set by a discount for early settlement.
1. Graynor Finance v Liquidator of Eastore 1975 SLT 296
43.140 Repayment to finance company on
behalf of the insolvent
The payment of instalments by a person other than the party to the agreement does
not result in the transfer of any rights (such as a right to take ownership of the
property) to that third-party1.
Any such payments should be treated as a loan and the person that made them may
claim in the proceedings as an unsecured creditor.
1. Bennett v Griffin Finance [1967] 2 WLR 561
43.141 ‘Logbook loans’
A ‘logbook loan’ is a type of loan that is granted generally to individuals in severe
financial difficulty where other sources of borrowing are not available. Typically, the
loan will have a very high APR (rates of up to 500% are not unknown) and, with
punitive charges for missing payments, etc., the amount required to be repaid is
often well in excess of the original loan. The loan is secured on the borrower’s
vehicle through a bill of sale transferring ownership of the vehicle to the lender.
Where the official receiver encounters a logbook loan, or similar, they should check
that the bill of sale on which the transfer is registered with the court. If it is not, the
lender will have no security over the vehicle and it may be dealt with normally. If the
bill of sale is registered, the official receiver should treat the vehicle as one with hire
purchase.
--- PDF page 55 ---
Depending on the nature of the arrangement entered into by the bankrupt, or the
manner in which the account was managed by the lender, the official receiver should
also consider whether the agreement might be challenged as an extortionate credit
transaction.
43.142 Retention of title
A retention of title clause, also referred to as a ‘reservation of title’ or ‘Romalpa’
clause, is a form of security used by a supplier of goods to afford protection against
the possibility of the buyer default or insolvency. Where a valid retention of title
clause exists the supplier may retain title to the goods until payment is received, and
this will be valid against any subsequently appointed liquidator or trustee.
Interest
43.143 Interest on debts
Where a debt proved in the liquidation bears interest, that interest is provable as part
of the debt except in so far as it is payable in respect of any period after the date that
the company went into liquidation (or the date of administration where that
immediately preceded the liquidation)1.
Where interest on the debt was not previously reserved or agreed and where the
debt was due by virtue of a written instrument and payable at a certain time, interest
may be claimed from that date to the date of liquidation (or the date of administration
where that immediately preceded the liquidation)2.
Where the debt is due otherwise, interest may only be claimed if, before the date of
the liquidation, a demand for payment of the debt was made in writing and notice
given that interest would be payable from the date of demand3. In that case, interest
may only be claimed for the period from the date of demand to the date of liquidation
(or the date of administration where that immediately preceded the liquidation)4.
Unless where previously agreed, the interest rate chargeable can be no more than
that set in the legislation, currently 8% per annum5 6.
1. Rule 14.23(1)
2. Rule 14.23(2) and (3)
3. Rule 14.23(4)
4. Rule 14.23(5)
--- PDF page 56 ---
5. Rule 14.23(6)
6. Judgments Act 1838 section 17
43.144 Interest on petition costs
The legislation provides a wide discretion to the court in the making of costs,
including in relation to the hearing of a winding up or bankruptcy petition. Where
such a costs order is made on hearing the petition there is an entitlement to interest
on those costs1.
1. Judgments Act 1838 sections 17 and 18
43.145 Interest on trade debts
The legislation provides a right to claim interest on commercial (trade) debts for
goods and services when payment is made after the agreed period, or after 30 days
if no credit period has been agreed1.
The interest rate currently chargeable is set at 8% above the Bank of England base
rate2.
Where the parties agree a contractual remedy for late payment of the debt, statutory
interest is not applicable to the debt unless agreed otherwise3.
1. Late Payment of Commercial Debts (Interest) Act 1998 section 2
2. Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002 article 4
3. Late Payment of Commercial Debts (Interest) Act 1998 section 8(2)
43.146 Post-insolvency interest
Any surplus remaining on the estate after the payment of preferential debts and
ordinary unsecured creditors must be applied in paying interest on those debts that
have been outstanding since the date that the company went into liquidation or the
date of the bankruptcy order. Post-insolvency interest ranks equally whether it
applies to preferential or non-preferential creditors1 2.
1. Section 189(2) and (3)
2. Section 328(4)
43.147 Interest rate for post-insolvency period
The rate of interest to be applied for the post-insolvency period is whichever is
greater of the following1 2:
--- PDF page 57 ---
•
the rate specified in the legislation (currently 8%)3, and
•
the pre-agreed/contractual rate applicable to that debt.
1. Section 189(4)
2. Section 328(5)
3. Judgments Act 1838 section 17
43.148 Date that post-insolvency interest runs
from
For trade debts and other similar expenses, post-insolvency interest would apply
from the date of the insolvency order.
For debts with a fixed re-payment date that is post-insolvency, the interest would
apply from the date that the debt was due1 2.
For contingent liabilities it is suggested that the date that debt is due (and interest
therefore applies) is the date of the insolvency order unless the event triggering
payment has occurred in which case the relevant date would the date of that
occurrence.
1. Section 189(2)
2. Section 328(4)
Right of set-off
43.149 Right of set-off – general
Where, before a company goes into liquidation1 or a bankruptcy order is made, there
have been mutual credits, mutual debts or other mutual dealings between the
insolvent and any creditor of the insolvent proving or claiming to prove for a debt, an
account must be taken by the official receiver, as liquidator or trustee, of what is due
from each party to the other in respect of the mutual dealings and the sums due from
one party to the other must be set-off2 3.
The balance, if any, once the account has been taken, is provable as a debt in the
bankruptcy4 5.
By way of summary example, therefore, if a creditor owes an insolvent £1,000 and
the insolvent owes that same creditor £1,500, the two amounts will be set-off and the
provable debt would be £500, being the difference between £1,500 and £1,000.
--- PDF page 58 ---
1. Section 247
2. Rule 14.25
3. Section 323
4. Rule 14.25(2) to (4)
5. Section 323(4)
43.150 Right of set-off – balance due to the
estate
It is possible for the provisions relating to the right of set-off to operate to reduce a
book debtor’s liability to an insolvent estate.
43.151 Right of set-off – purpose of the
provisions
The purpose of the provisions relating to insolvency set-off are to do substantial
justice between the insolvent and their creditors1. It would be unjust if the creditor
had to discharge their debt to the insolvent in full while being left only with the right to
prove and perhaps eventually receive a dividend in respect of the debt due to them.
1. Forster v Wilson 152 ER 1165
43.152 Set-off is mandatory
Insolvency set-off is mandatory and cannot be excluded by agreement between the
parties1.
1. National Westminster Bank Ltd v Halesowen Presswork and Assemblies [1972] AC 785
43.153 Mutual credits, mutual debts or other
mutual dealings
The legislation requires that, for set-off to take effect there have to have been mutual
credits, mutual debts or other mutual dealings between the parties.
Mutual credits arise where one or both parties to a transaction allow the other party
to pay the sum due at a later date or on the occurrence of an agreed event1.
Mutual debts arise where the insolvent and the other party owe each other a sum
due payable now or in the future2.
--- PDF page 59 ---
1. Ex parte Charles Prescot (1753) 26 ER 147
2. Clark v Cort (1840) 41 ER 449
43.154 Mutual credits, mutual debts or other
mutual dealings – exceptions in companies
The legislation provides that in a liquidation mutual credits, mutual debts and mutual
dealings shall not include, amongst other things1:
•
any debt arising out of an obligation where the liquidation was immediately
preceded by an administration and at the time the obligation was incurred the
creditor had notice that an application for an administration order was pending
or a person had given notice of intention to appoint an administrator;
•
any debt arising out of an obligation incurred during an administration which
immediately preceded the liquidation;
•
any debt arising at a time a petition for winding-up was pending
1. Rule 14.25(6)
43.155 Mutual credits, mutual debts or other
mutual dealings – exceptions in bankruptcies
The legislation provides that in a bankruptcy mutual credits, mutual debts and mutual
dealings shall not include sums where the sum became due in knowledge that
proceedings in respect of a bankruptcy application were ongoing or that a
bankruptcy petition had been presented1.
1. Section 323(4)
43.156 No set-off where debt assigned with
prior notice of ‘insolvency’ – company only
There can be no right of set-off, in liquidation, in respect of any debt which has been
acquired by a creditor by assignment or otherwise, pursuant to an agreement
between the creditor and any other party where that agreement was entered into1:
•
after the company went into liquidation;
•
at a time when the creditor had notice that a winding up petition was pending;
•
where the liquidation was immediately preceded by an administration, at a time
when the creditor had notice that an application for an administration order was
pending or a person had given notice of intention to appoint an administrator’ or
•
during an administration which immediately preceded the liquidation.
--- PDF page 60 ---
1. Rule 14.25(6)(d)
43.157 No mutuality where a debt has been
assigned
In addition to the company restrictions (see above), where a debt owing by or to the
insolvent has been assigned to a third party, and that third party has no other
dealings with the insolvent, there can be no mutuality and, therefore, no right of set-
off1.
1. Turner v Thomas (1871) LR 6 CP 610
43.158 Requirement for mutual dealings in the
same capacity
In order for the provisions relating to insolvency set-off to apply, the dealings
between the insolvent and the creditor must have been in the same capacity1. For
example, where a bankrupt that is a builder did work for a florist, any sum due to the
builder by the florist for that work would be off-set against monies owed by the
builder to the florist for the provision of flowers, as they were both acting in a
personal capacity.
If, however, the florist were acting as an executor of a will in relation to which the
builder was a beneficiary and the builder did work on the florist’s property, the debt
for the work carried out would not be off-set against the monies due under the will as
the florist does not owe those monies personally, but in their capacity as executor2.
1. National Westminster Bank Ltd v Halesowen Presswork and Assemblies [1972] AC 785
2. Bishop v Church (1748) 26 ER 1197
43.159 Right of set-off cannot apply to third
parties
The debts of third parties cannot be set-off, even with their consent, as to do so
would be to allow the parties, by agreement, to subvert the fundamental principle of
pari passu distribution of an insolvent’s assets1.
For example, where a bankrupt had work carried out by a builder, any sum due to
the builder by the bankrupt for that work could not be off-set against monies owed to
the bankrupt by the builder’s wife, even with the builder’s agreement.
1. Re MS Fashions Ltd v Bank of Credit and Commerce International SA [1993] BCC 70
--- PDF page 61 ---
43.160 Mutual rights must exist at date of
order
For insolvency set-off to apply there must have been mutuality of obligation at the
date of the insolvency order.
A debt owed to the bankrupt by a bankruptcy creditor arising after bankruptcy cannot
therefore be off-set against a bankruptcy debt owed by the bankrupt to that creditor1.
1. Dickson v Evans (1794) 101 ER 433
43.161 Contingent claims and unliquidated
claims
Contingent claims and unliquidated claims can be included in a right of set-off1 2. The
official receiver, as liquidator or trustee will be required to put a value to such claims
in order that an account can be taken of them for the purposes of set-off.
Where, after calculation of the set-off account, an amount is owed to the insolvent
arising from a contingent debt or sum payable at a future time, the amount due only
has to be paid if and when it becomes due and payable3.
1. Rule 14.25(7)
2. re Charge Card Services Ltd [1987] Ch 150
3. Rule 14.25(5)
43.162 Crown set-off
For the purposes of the insolvency set-off provisions, the Crown is considered a
single entity, even though various aspects of its affairs may be handled through
different departments of the Government1.
Crown set-off would apply to all provable debts due to or from the Crown, whether
they arise through legislation (tax liabilities, for example), or contract (through a
Government procurement, for example).
Amounts due to the Secretary of State in respect of payments made to employees
out of the National Insurance Fund can be subject to set-off notwithstanding that the
debt was not due and payable to the Secretary of State at the date of the insolvency.
This is because the debt is considered to be contingent2.
1. DH Curtis (Builders) Ltd [1978] Ch 162
2. Secretary of State v Frid [2004] UKHL 24
--- PDF page 62 ---
43.163 Set-off where preferential and non-
preferential debts
Where set-off applies in respect of a creditor that has both a preferential claim and a
non-preferential claim, the amount due to the creditor must be applied pro-rata to the
different categories of debt to arrive at the provable amount1.
1. Re Unit 2 Windows Ltd [1985] 1 WLR 1383
43.164 Set-off and rule regarding double
proofs
The rule regarding double proof would apply in respect of insolvency set-off. A
guarantee creditor cannot therefore apply set-off unless they have discharged the
principal creditor’s liability1.
Where, for example a director of a company in liquidation owed the company
£100,000, they could not claim right of set-off in respect of a guarantee for £100,000
given to the bank for the company’s indebtedness unless they had discharged the
debt due under the guarantee.
1. Glen Express Limited [2000] BPIR 456
Creditors’ and contributories' rights
43.165 Creditors’ rights – general
In addition to having the right to participate in a dividend from the estate (assuming
the debt is provable), creditors have certain other rights in relation to insolvency
proceedings, as follows:
•
to present a winding up/bankruptcy petition.
•
to a copy of the petition.
•
to inspect proofs of debt.
•
to inspect the court file.
•
to inspect records of the insolvent.
•
to receive a list of creditors (creditors only)
•
to receive a report on the insolvent’s affairs.
•
to request a meeting or decision making process (creditors only)
•
in relation to a liquidation or creditors’ committee
--- PDF page 63 ---
•
to request a public examination.
•
to receive a copy of the official receiver’s intention to apply for release as
liquidator or trustee.
•
to apply to court regarding the acts of the liquidator or trustee.
43.166 Right to present a petition - company
A creditor, or creditors, contributory or contributories, may petition the court for the
winding up of a company1, on the grounds that it is just and equitable that the
company be would up2 3.
1. Section 124(1)
2. Section 122(1)(g)
3. Re A Company (No 003028 of 1987) (1987) 3 BCC 575
43.167 Right to present a petition - bankruptcy
A petition for a bankruptcy order against an individual may be presented by a
creditor or jointly by more than one creditor1. The petitioning creditor or each of the
petitioning creditors must be a person to whom the debt or (as the case may be) at
least one of the debts is owed2.
1. Section 264(1)(a)
2. Section 267(1)
43.168 Right to a copy of the petition –
company only
Every creditor or contributory of the company is entitled to be furnished by the
solicitor for the petitioner (or by the petitioner themselves, if acting in person) with a
copy of the petition within two business days after requesting if, on payment of the
appropriate fee1.
There is no equivalent provision in bankruptcy.
1. Rule 7.11
43.169 Right to inspect proofs
The liquidator or trustee is under a duty, so long as the lodged proofs of debt are in
their hands, to allow them to be inspected, at all reasonable times on any business
--- PDF page 64 ---
day, by any creditor who has submitted a valid proof, or any contributory, or any
person acting for such a party1.
1. Rule 14.6
43.170 Right to inspect court file
Any person stating in writing to be a creditor of the insolvent may inspect the court
file of the proceedings and may also obtain from the court a copy of any documents
on the court file1.
Such a right is also exercisable by contributories of the company2 and by any
authorised representative of either a creditor or a contributory3.
The court can direct that certain documents are not open to inspection without the
permission of the court4.
An application for the court to exercise such redaction of the file can be made by the
official receiver, the office-holder or any person appearing to the court to have an
interest5.
1. Rule 12.39(3)(c)
2. Rule 12.39(4)(a)(ii)
3. Rule 12.39(5)
4. Rule 12.39(9)
5. Rule 12.39(10)
43.171 Right to inspect records – company
only
The court may, at any time after the making of a winding-up order, make an order,
that it thinks just, that the books and records of the company may be inspected by a
creditor or contributory1 (but the official receiver has discretion to provide access to
the records without permission of the court).
Permission of the court to inspect the records is not required where a government
department (or a person acting under that authority), being a creditor, has a separate
statutory right to inspect the records2.
There is no equivalent provision in bankruptcy. Should a creditor in a bankruptcy
case request inspection of the bankrupt’s records, the official receiver should seek
the bankrupt’s written consent to the creditor’s inspection.
1. Section 155(1)
--- PDF page 65 ---
2. Section 155(2)
43.172 Creditor’s right to receive a list of
creditors
A creditor has the right to require an office-holder to provide a list of creditors and the
amounts of their respective debts unless a statement of affairs has been delivered to
Companies House (in liquidation) or filed with the court (in bankruptcy)1.
Where required, the office-holder must as soon as reasonably practicable send it to
the person requiring the list and may charge an appropriate fee for doing so2.
Simply because the rules allow the official receiver, as office-holder, to direct the
creditor to another source of the information does not mean (by expression or
implication) that they are prohibited from providing a list to the creditor (or their
properly authorised representative) and, in the interest of customer care the official
receiver should endeavour to comply with any valid requests.
1. Rule 1.57(2)
2. Rule 1.57(3)
43.173 Power to omit details from a list of
creditors
The official receiver may omit the name and address of any creditor from a list of
creditors if of the view that its disclosure would be prejudicial to the conduct of
proceedings or might reasonably be expected to lead to violence against any person,
provided that the amount of the debt in question is still shown in the list and a
statement is included that the name and address of the creditor has been omitted in
respect of that debt1.
1. Rule 1.57(4)
43.174 Right to receive a report of the
insolvent’s affairs
The official receiver is required at least once after the making of a winding-up order
or bankruptcy order to report to creditors and contributories on the proceedings and
on the position of the insolvent’s affairs1 2.
1. Rule 7.48
2. Rule 10.66
--- PDF page 66 ---
43.175 Provision of a list of creditors or report
to creditors to insolvency practitioners
Insolvency practitioners should be provided with a list of creditors and/or a report to
creditors where they can show that they act for a creditor in the insolvency. This can
be done by specific authority from the creditor, the submission of a claim on behalf of
the creditor, or by a ‘blanket’ authority – the details of which can be verified on the
intranet
43.176 Right to request a public examination
A public examination may be requested by creditors whose claims comprise at least
half the total value of known claims (which includes the claims of secured creditors
without regard to the value of their security)1 2.
Similarly, a public examination may be requested by three-quarters, in value, of a
company’s contributories3.
1. Section 133(2)(a)
2. Section 290(2)
3. Section 133(2)(b)
43.177 Right to receive a notice of the official
receiver’s intention to apply for release as
liquidator or trustee
A creditor has the right to receive a notice of the official receiver’s intention to apply
for release as liquidator/trustee and may, following receipt, object to the release
within 21 days of the date of the notice.
43.178 Right to apply to court in respect of
acts of the liquidator
A creditor or contributory aggrieved by an act or decision of the liquidator may apply
to the court, and the court may confirm, reverse or modify the act or decision
complained of, and make such order as it thinks just1 2.
In practice, the court will only interfere with a decision of a liquidator if it was taken in
bad faith or if it was so perverse as to demonstrate that no liquidator properly
advised could have taken it3 4.
--- PDF page 67 ---
1. Section 168(5)
2. Re ACLI Metals (London) Ltd (AML Holdings Inc v Auger) (1989) 5 BCC 749
3. Re Hamilton v Official Receiver [1998] BPIR 602
4. Re Abbey Forwarding Ltd v Hone [2010] EWHC 1644 Ch
43.179 Right to apply to court in respect of
acts of the trustee
A creditor dissatisfied by any act, omission or decision of a trustee of the bankrupt’s
estate may apply to the court; and on such an application the court may confirm,
reverse or modify any act or decision of the trustee, may give them directions or
make such order as it thinks just1.
For such an application to succeed, it will be necessary for the creditor to show that
trustee was acting in a manner in which no reasonable trustee would act2.
1. Section 303
2. Osborn v Cole [1999] BPIR 251
43.180 Right to object to decision on proof
A creditor, if dissatisfied with the liquidator or trustee’s decision with respect to their
proof, may make application to the court for the decision to be reversed or varied1.
Any application under these rules must be made within 21 days of the creditor
receiving the liquidator or trustee’s written statement of his reasons for rejecting the
proof.
Any other creditor, if dissatisfied with the liquidator or trustee’s decision in admitting
or rejecting the whole or any part of a proof, may also apply to the court2. Any
application under theses rules must be made within 21 days of the creditor becoming
aware of the liquidator or trustee’s decision.
1. Rule 14.8(1)
2. Rule 14.8(3)
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ATTACHMENT: 44.Decision_procedures.pdf
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 11 March 2020
44. Decision procedures
This chapter gives advice to official receivers on carrying out a decision-making
process under the insolvency legislation, in particular the process to effect the
appointment of an insolvency practitioner as liquidator or trustee in place of the
official receiver.
Chapter content
Introduction
Decision procedures generally and notice to creditors
Requisitioned decision procedures
Starting a decision procedure – Companies and partnerships subject to a winding-
up order
Starting a decision procedure – Bankruptcies, partnerships with authority to wind-
up and deceased insolvents
Request for a physical meeting of creditors
The decision date – Conduct of decision procedure
Conduct of meetings - Virtual and physical
Proofs of debt and proxies
Liquidation or creditors' committee
Introduction
44.1 General
Under the Insolvency Act 1986 a liquidator or trustee has powers to seek decisions
from creditors. These powers can be exercised at the discretion of the liquidator or
trustee or in circumstances where the liquidator or trustee is compelled to do so by
the creditors.
--- PDF page 2 ---
This chapter deals with decision procedures convened by the official receivers for
the purpose of choosing an insolvency practitioner to be liquidator or trustee in place
of the official receiver. The circumstances where the official receiver will seek a
decision on another matter using the general provisions to seek a decision will be
very rare.
Decision procedures generally and
notice to creditors
44.2 Background
Historically, where a liquidator or trustee wished, or was required, to seek a decision
from creditors a physical meeting of creditors (or contributories) was arranged. From
20101 provisions were introduced whereby an office-holder could convene a meeting
on a remote basis or creditors (or contributories) could attend remotely. This
removed the necessity for everyone to be present together in the same place. The
facility was not widely used.
One of the policy objectives of the Insolvency (England and Wales) Rules 2016 was
to inhibit and reduce the number of physical meetings of creditors held in insolvency
cases. The Rules now provide five qualifying decision procedures by which creditors
can be asked to make decisions. One of those procedures is a physical meeting of
creditors. The liquidator or trustee cannot choose for the decision to be made at a
physical meeting but might only convene a physical meeting of creditors if requested
to do so by the creditors.
1. The Legislative Reform (Insolvency)(Miscellaneous Provisions) Order 2010
44.3 Decision procedures
The five qualifying decision procedures are1:
a) correspondence
b) electronic voting (any electronic system which enables a person to vote at any
time without the need to attend at a particular location, for example Outlook voting
buttons)
c) virtual meeting (a meeting where participants are not physically present at the
same location but may participate and communicate directly with all the other
participants in the meeting, for example, a telephone conference)
--- PDF page 3 ---
d) physical meeting
e) any other decision making procedure which enables all creditors who are entitled
to participate to participate equally in making the decision
The official receivers will, by default, use the correspondence procedure but have
discretion to choose any of the other options (except a physical meeting).
1. Rule 15.3
44.4 Deemed consent
A decision can also be made by deemed consent1. The deemed consent process
cannot be used to make a decision on the liquidator’s or trustee’s remuneration or
where any provision in legislation, or the court, requires a decision to be made by a
qualifying decision procedure. Under the deemed consent procedure relevant
creditors are given notice of the matter they are being asked to make a decision on,
the proposed decision and the procedure for objecting to the proposed decision.
Unless the appropriate number of relevant creditors object by the decision date, the
decision is deemed to have been made.
The relevant creditors are those creditors who are entitled to vote in a decision
procedure (generally, the unsecured creditors). If 10% in value of those creditors
object the procedure stops and the proposal fails. The convener of the process (e.g.
the official receiver (but see later) must then decide whether to use a qualifying
decision procedure instead.
When seeking the appointment of an insolvency practitioner to replace the official
receiver as liquidator or trustee, the official receiver can, at any time, ask the
Secretary of State to make the appointment (see chapter 45). Consequently It is not
anticipated that the official receiver will use the deemed consent provisions.
1. Section 246ZF or Section 379ZB
44.5 Criteria for starting a decision procedure
Where the official receiver considers the case requires the skills of an insolvency
practitioner, in the first instance, or where the appointment is urgent, the official
receiver should consider whether the appointment might be achieved by application
to the Secretary of State (see chapter 45).
If there is the possibility of contention, dispute or conflict, a decision procedure
should be commenced. This allows the creditors (and contributories) an opportunity
to express their views. The outcome of the decision procedure may be appealed to
the court1.
--- PDF page 4 ---
In any case where a decision procedure is correctly requisitioned by creditors it must
be started.
1. Rule 15.35
44.6 Companies – active decision whether to
be replaced
The official receiver is required within 12 weeks of the date of the winding-up order to
decide whether or not to seek nominations to be replaced in office as liquidator of the
company1. The official receiver must give notice of that decision to creditors and
contributories2. These provisions also apply where the official receiver is the
responsible insolvency practitioner (liquidator) of a partnership and any insolvent
member (liquidator or trustee) where the petitions were presented concurrently under
article 8 of the Insolvent Partnerships Order 1994.
If, for any reason, the statutory time limit cannot be adhered to application must be
made to the court for an extension of time3.
1. Section 136(4) and ISCIS form ORCREDFN
2. Section 136(5)
3. Section 376
44.7 Bankruptcy – no decision whether to be
replaced
There are no provisions in the legislation which compel the official receiver to decide
in every case whether or not to be replaced in office as trustee of the bankruptcy
estate or to notify the creditors of that decision. The official receiver can begin a
decision procedure for the purpose of being removed and replaced in office1. These
provisions also apply where the official receiver is the trustee of a partnership and
insolvent members where the petition was presented under article 11 of the Insolvent
Partnerships Order 1994 or where the official receiver is acting under the
Administration of the Insolvent Estates of Deceased Persons Order 1986.
1. Section 298(4)
44.8 Notices to creditors (and contributories)
Where creditors (or contributories) have given actual or deemed consent, notices
from the official receiver can be delivered to them electronically (e.g. by email)1.
--- PDF page 5 ---
Official receivers should, as far as possible, seek to use email in the decision
process.
A creditor, or contributory, is deemed to have consented to electronic delivery if they
usually communicated with the company, partnership or bankrupt electronically prior
to the date of the insolvency order2.
1. Rule 1.45
2. Rule 1.45(4)
Requisitioned decision procedures
44.9 Creditors right to requisition a decision to
replace the official receiver
The official receiver has no discretion over starting a decision procedure where at
least 25% of the creditors in value require the official receiver to seek nominations
for the purpose of choosing a person to be liquidator in place of the official receiver1
or seek a decision on the removal of the official receiver as trustee2.
The provisions setting out the 25% threshold, refer to 25% of all creditors (including
secured creditors). The official receivers will, as a matter of operational policy, regard
the threshold as having being reached provided the requisition is supported by 25%
in value of the unsecured creditors3.
In bankruptcy, where the official receiver is trustee as a result of a vacancy4 the
creditors may requisition a decision to appoint a trustee with the support of only 10%
of creditors in value5. The same operational policy considerations as above will apply
to the calculation of this threshold.
1. Section 136(5)
2. Section 298(4)
3. Dear IP issue 77, June 2017
4. Section 300(2)
5. Section 300(3)
44.10 Requisition in partnership cases
In partnership cases where there is a winding-up order1 the requisition can be made
by 25% in value of either the partnership’s creditors, or the creditors of any insolvent
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member against whom an insolvency order has been made 2. The same operational
policy considerations set out in paragraph 44.9 will apply to the calculation of this
threshold.
Where the partnership is only subject to a bankruptcy order against all of the
members of a partnership, with authority to wind-up the partnership, made on the
joint petition of all the members3, the requisition can be made by 25% in value of the
combined body of creditors 4.
1. Insolvent Partnerships Order 1994, article 8
2. Insolvent Partnerships Order schedule 4 part 2 paragraph 12 as it amends the Insolvency Act 1986 section 136]
3. Insolvent Partnerships Order 1994, article 11
4. Insolvent Partnerships Order schedule 7 paragraph 15 as it amends the Insolvency Act 1986 section 298
44.11 Contributories rights to requisition
There is no provision enabling contributories to requisition a decision procedure for
the purpose of replacing the official receiver as liquidator. Where the official receiver
seeks nominations for the purpose of choosing a person to be liquidator of the
company in place of the official receiver, including a case where the official receiver
has been requisitioned to do so, nominations are sought from the contributories1.
The contributories will only be invited to participate in a decision procedure on any
nomination made by the contributories2.
1. Section 136(4)
2. Rule 7.52(6)
44.12 General provisions do not apply
The general provisions of the Act under which creditors can require a liquidator or
trustee to seek a decision1 do not apply where the decision requested is the removal
/ replacement of the official receiver as liquidator or trustee. The Act has separate
provision for these decisions2 and the required majority to requisition these decisions
is set out above (see also paragraph 44.9).
1. Section 168(2) or section 314(7)
2. Section 136(4) and section 172, or section 298(4)
44.13 Form of requisition
The request for a requisitioned decision must include a statement of the purpose of
the proposed decision. The request must also include a statement that either
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confirms the requisitioning creditor’s debt alone is sufficient or a list of the creditors
concurring with the request, details of their claim(s) and written confirmation of
concurrence from those creditors 1. A template form of requisition is available on
www.gov.uk.
1. Rule 15.18(3)
44.14 Withdrawal of any notice that the official
receiver has decided not to seek nominations
(companies only)
If the official receiver has issued notice of a decision not to seek nominations1 and
subsequently receives a valid requisition2, the official receiver must withdraw those
notices and proceed as if the official receiver had decided to seek nominations3.
1. Section 136(5)(b)
2. Section 136(5)(c)
3. Rule 15.18(6)
44.15 Expenses of requisitioned decision
There is provision for the expenses of a requisitioned decision to be met by the
requisitioning creditor1. The official receiver’s administration fee2 is expected to cover
the time and postal costs involved in dealing with the requisitioned decision.
Therefore no deposit will be required by the official receiver from the requisitioning
creditor. There is no provision to require a deposit where a creditor asks for a
decision to be made by physical meeting after the decision notice has been issued.
Where the request for the decision to be made by physical meeting is made
concurrently with a requisition of the decision procedure the official receiver may ask
for a deposit where additional costs will be incurred. Those costs may include the
hire of a venue and the cost of the Gazette notices, for example. The official receiver
does not have to begin the decision procedure until any deposit requested is
received3.
1. Rule 15.19
2. Insolvency Proceedings (Fees) Order 2016
3. Rule 15.19(2)
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Starting a decision procedure –
companies and partnerships subject to a
winding-up order
Note: Amendments have not been made to the Limited Liability Partnership
Regulations 2001, therefore decisions in those cases might only be made through a
meeting of creditors convened in accordance with the unamended provisions of the
Insolvency Act 1986.
44.16 Seeking nominations
If the official receiver decides to seek nominations, or is requisitioned to do so by the
creditors, the official receiver must deliver to the creditors and contributories a notice
inviting proposals for a liquidator1. Where the official receiver decides to seek
nominations the notice inviting nominations will be issued with the first notice to
creditors2. The first notice to creditors will always state whether or not the official
receiver has decided to seek nominations.
1. Rule 7.52(2), ORNOMLQD
2. ORCREDFN
44.17 Nominations
Any nominations (proposals) from creditors or contributories must be received by the
official receiver within 5 business days of the date of the notice inviting nominations.
The proposal submitted should include a statement that the proposed liquidator is a
qualified insolvency practitioner and has consented to act1.
Where a creditor has requisitioned nominations be sought, they are not obliged to,
but are likely at the same time to, have nominated an insolvency practitioner to be
liquidator (the template to requisition a decision available on www.gov.uk provides
for this). The official receiver should regard any nomination delivered with the
requisition as valid provided it includes confirmation that the insolvency practitioner
has consented to act. The requisitioning creditor is not required to re-submit their
nomination during the five days available to respond to the invitation for nominations.
The official receiver cannot be a nominee2 and any nominations for the official
receiver to continue in office should be ignored. This does not prevent creditors later
voting against a resolution to replace the official receiver in office.
1. Rule 7.52(4) and (5)
2. Rule 13.5
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44.18 No nominations received
Only if any nominations are received by the end of the 5 day period can the official
receiver begin a decision procedure. If no nominations are received the process
stops1. The official receiver should then consider an application to the Secretary of
State if the official receiver considers the case requires the skills of an insolvency
practitioner2 (see also chapter 45).
1. Rule 7.52(12)
2. Section 137(2)
44.19 Nominations received, application to the
Secretary of State
If the nominations received indicate that an insolvency practitioner (or joint
nominees) has the support of more than 50% in value of the creditors, the official
receiver can apply to the Secretary of State for the appointment1 (see also chapter
45). A successful application to the Secretary of State would end the process; there
would be no decision procedure.
1. Rule 7.52(13)
44.20 Seeking a decision on nominations
If any nominations are received, and there is no majority support enabling the official
receiver to seek a Secretary of State appointment, the official receiver must decide
on the qualifying decision procedure to use and set a decision date. Unless the
official receiver holds a valid request that the decision be made by a physical
meeting of creditors (see paragraph 44.29) the official receiver should default to a
decision by correspondence.
If any nominations are received from creditors, the creditors are asked to vote on
those creditor nominations. If any nominations are received from contributories, the
contributories are separately asked to vote on those contributory nominations. If
nominations are received from creditors but no nominations from contributories then
only a decision procedure for creditors is undertaken, and vice versa. For example
the contributories are not asked to vote on the nominations of the creditors.
Where the creditors and contributories resolve to appoint different insolvency
practitioners to be liquidator, see paragraph 45.39.
44.21 The decision date
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The decision date must be no later than 21 calendar days after the date for receiving
nominations has passed. The creditors, or contributories, must be given at least 14
days notice of the decision date.
A decision procedure calculator is available to assist calculate the timeline in an
individual case.
Once the decision date is chosen the official receiver should issue notice of the
decision to be made and the decision date (ORNDEC) together with forms to vote
(ORCREDVOTE).
Starting a decision procedure –
bankruptcies, partnerships with
authority to wind-up and deceased
insolvents
44.22 Replacing the official receiver as trustee.
The official receiver can decide at any time, or be requisitioned to do so by the
creditors, to instigate a decision procedure the purpose of which is to remove the
official receiver from office as trustee1.
1. Section 298(4)
44.23 The decision date
The creditors must be given at least 14 calendar days notice of the decision date.
Where the creditors have requisitioned the decision the decision date must be no
later than 42 days after the requisition.
Even if the creditors vote to remove the official receiver as trustee, the resolution
cannot take effect until the official receiver is replaced in office as trustee1. Subject to
the official receiver holding a valid request that the decision be made by a physical
meeting of creditors (see paragraph 44.29) the official receivers will combine the
decision on removing the official receiver and voting on nominations for a
replacement. This affects the time periods involved in calculating the decision date
(see paragraph 44.24)
1. Section 298(4B)
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44.24 The combined decision date and seeking
nominations
A decision procedure calculator is available to assist calculate the timeline in an
individual case.
Before issuing any notices the calculator should be used to calculate the range of
dates from which a combined decision date can be chosen.
Once the decision date is chosen the official receiver should issue notice of the
decision required on removal of the official receiver as trustee. This notice is
combined with the invitation to nominate an insolvency practitioner to replace the
official receiver in office if a decision is made to remove the official receiver
(ORNOMTRUSTEE).
44.25 Nominations
Any nominations (proposals) from creditors must be received by the official receiver
within 5 business days of the date of the notice inviting nominations. The proposal
submitted should include a statement that the proposed trustee is a qualified
insolvency practitioner and has consented to act1.
Where a creditor has requisitioned the decision procedure they are not obliged to,
but are likely to, have nominated an insolvency practitioner to be trustee (the
template available on GOV.UK provides for this). The official receiver should regard
any nomination delivered with the requisition as valid provided it includes the
insolvency practitioner’s consent to act. The requisitioning creditor is not required to
re-submit that nomination during the five days available to respond to the invitation
for nominations.
1. Rule 10.67(5) and (6)
44.26 No nominations received
Even if no nominations are received the official receiver will need to proceed with the
decision procedure seeking a decision on whether or not the official receiver should
be removed as trustee. Where the resolution is to remove the official receiver but no
insolvency practitioner has been nominated as trustee the official receiver remains in
office. The official receiver should consider whether to seek the appointment of the
next insolvency practitioner on the rota but can elect to stay in office if the creditors
make no nominations.
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44.27 Nominations received, application to the
Secretary of State
If the nominations received indicate that an insolvency practitioner (or joint
nominees) has the support of more than 50% in value of the creditors, the official
receiver can apply to the Secretary of State for the appointment1 (see also chapter
45). A successful application to the Secretary of State would end the process. There
would be no decision procedure. In these circumstances the official receiver will
need to notify the creditors that the decision procedure has been discontinued and
give details of the insolvency practitioner appointed by the Secretary of State with
the support of the majority of creditors.
1. Rule 10.67(13)
44.28 Seeking a decision on nominations
Where nominations are received and there is no majority support to seek a Secretary
of State appointment (unless the official receiver holds a valid request that the
decision be made by a physical meeting of creditors (see paragraph 44.29), the
official receiver must issue a further notice which reconfirms the decision date (see
paragraph 44.23)(ORNDEC). This notice is issued together with the forms to vote
(ORCREDVOTE).
Request for a physical meeting of
creditors
44.29 Restriction on calling a physical meeting
Where the official receiver seeks a decision about any matter from the creditors, or
contributories, the decision may be made by any qualifying decision procedure the
official receiver thinks fit, except a physical meeting of creditors, or contributories1.
Only if at least the minimum number of creditors, or contributories, request in writing
that the decision be made by a creditors’, or contributories’, meeting can a physical
meeting be held2.
1. Section 246ZE or section 379ZA
2. Section 246ZE(3) or section 379ZA(3)
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44.30 The minimum number
The minimum number of creditors or contributories is any of: 10% in value; 10% in
number or 10 creditors1. In partnership cases the minimum number of creditors is
calculated on the value of the combined body of creditors2. The threshold for the
10% in value is based upon the creditors and contributories voting rights3. Therefore
10% in value of creditors is 10% in value of the unsecured creditors, whether or not
they have lodged a proof of debt.
1. Section 246ZE(7) or section 379ZA(7)
2. Insolvent Partnerships Order schedule 7A as it amends the Insolvency Act 1986 sections 246ZE or 379ZA
3. Rules 15.6(8) and 15.39
44.31 Time limit on making request for a
physical meeting
A written request for a decision to be made by a physical meeting can be made at
any time before or after the official receiver has issued notice of the decision
procedure (ORCREDDEC). Once notice of the decision procedure has been issued,
the request must be made within five business days after the notice was delivered,
therefore the deemed delivery time must be taken into account1. The decision
procedure calculator can assist as it will calculate the last date for receiving a
request for a physical meeting based upon the notice of the decision procedure
being sent by first class post. Where there is a mix of methods in delivery of the
notice, the last date for all creditors to lodge a request for a physical meeting will be
based upon the slowest used method (first class post).
It is the responsibility of the convenor of the decision procedure, the official receiver,
to check whether a valid request for a physical meeting has been submitted before
the deadline2.
1. Rules 1.42 – 1.45
2. Rule 15.6(2)
44.32 Issuing notice of a physical meeting
Once a valid request for a physical meeting has been received the official receiver
must send notice of the meeting within three business days1.
Where the request for a physical meeting is received before the official receiver has
issued notice of, or started, an alternative decision procedure the official receiver
should simply give notice of the meeting of creditors.
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If notice of an alternative decision procedure has been issued the notice of the
meeting must state that the original decision procedure is suspended2.
1. Rule 15.6(5)
2. Rule 15.6(4)
44.33 Notice to company officers, bankrupts,
etc.
Notice to participate in a creditors’ meeting must be delivered to every present or
former officer of the company whose presence the official receiver thinks is required
at the meeting1.
Notice of the meeting must be sent to the bankrupt. The notice must state whether or
not the bankrupt is required to attend the meeting. If the bankrupt is not required to
attend the notice must inform the bankrupt that if they wish to attend they should
inform the official receiver as soon as practicable. Attendance at the meeting is at
the discretion of the chair (see paragraph 44.42)2.
1. Rule 15.14(1)
2. Rule 15.14(2)(3)
44.34 Remote attendance
Creditors, or contributories, may be permitted to attend a physical meeting of
creditors remotely. “Remote” simply means they would not be a physical presence at
the meeting but would participate via a video or telephone link. Remote attendance
is at the discretion of the convenor of the meeting. This is different from attending the
meeting by proxy.
The decision date – conduct of decision
procedure
44.35 Participation in the decision
Where the decision is to be made by correspondence, or by any process other than
a meeting, the decision is to be treated as if it was made at 23:59 on the decision
date1.
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To participate in a decision procedure, other than a meeting, a creditor’s vote must
have been received by the official receiver on or before the decision date. Any vote
must be accompanied by a proof of debt, unless a proof of debt has already been
provided to the official receiver2. Any vote must be discounted if a proof of debt has
not been received on the decision date.
1. Rule 15.2
2. Rule 15.9(1)
44.36 Making the decision
For a decision to be made the official receiver must receive at least one valid vote on
or before the decision date1.
Votes are calculated in accordance with creditor’s claim admitted for voting
purposes. An appointment is made on a simple majority of creditors by value (or
contributories) voting for the appointment.
1. Rule 15.9(1)
44.37 Bankruptcy cases – decision to remove
the OR
In bankruptcy the creditors are first asked to vote on the resolution to remove the
official receiver from office as trustee. Only if a simply majority of creditors by value
participating in the vote passes the resolution to remove the official receiver would
the votes then be considered on the decision of the insolvency practitioner who is to
replace the official receiver in office.
44.38 No clear majority
If there are three or more nominees and none has a clear majority over the
combined others, further rounds of voting must occur. This is easily achieved in a
meeting where the nominee with the least votes drops out and the creditors are
asked to vote again on the remaining nominees (see paragraph 44.50).
When using another decision procedure this is not easily achieved. The voting form
to be used by official receivers (ORCREDVOTE) in a decision by correspondence
asks the creditors to rank the nominees in order of preference. In a round of voting
the nominee with the least support would drop out. The votes would then be
recounted with the removed nominees’ votes being passed to the creditor’s second
preference on the voting paper, and so on.
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If a creditor has not expressed a second choice and their nominee is eliminated the
creditor is removed from participating in further rounds of voting. The creditor is
deemed to have abstained and the value of the claim need not be included for the
purposes of the next round of voting1.
1. Rule 15.34(1)
44.39 Effective date of appointment
The effective date of appointment of the insolvency practitioner as liquidator or
trustee is the date the convener (the official receiver) certifies the appointment, i.e.
the date is entered on the certificate of appointment (IPCAM)1. This will normally be
the first working day after the decision date provided the insolvency practitioner has
supplied their consent to act.
1. Rule 10.68(3)
44.40 Record of decision
The convener must make a record of the decision procedure. This must include a list
of the creditors who participated and their claims (or a list of contributories who
participated if it is a decision of contributories) together with a record of the decisions
made and how the creditors voted1.
1. Rule 15.40
Conduct of meetings - virtual and
physical
44.41 Chair at meetings
The chair of a meeting must either be the convener (the official receiver) or a person
appointed by the official receiver1. The chair has various responsibilities associated
with the conduct of meetings, including decisions as to who will be in attendance at
the meeting; which proofs of debt will be admitted for voting purposes; which proxies
are valid; which resolutions will be put to the meeting and which questions, if any,
may be asked of the company personnel or the bankrupt2.
If no one attends to act as chair within 30 minutes of the time fixed for the meeting to
start, the meeting is automatically adjourned to the same time and place in the
following week, or if that is not a business day, to the business day immediately
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following. If no one attends to act as chair within 30 minutes of the time fixed for the
adjourned meeting to start the meeting ends3.
1. Rule 15.21; MAC
2. Rule 15.22
3. Rule 15.25
44.42 Attendance
The chair may allow any person who has given reasonable notice of wishing to
attend to participate in a virtual or physical meeting. It is for the chair to decide what
intervention, if any, the person may make if they are not a creditor or contributory or
proxy-holder1.
1. Rule 15.22
44.43 Participation in meetings
Proposing nominations for liquidator or trustee and participation in any vote may only
be exercised by creditors who have lodged a proof of debt which has been admitted
for voting purposes or their proxy-holders. Proofs of debt should be received not later
than 4.00pm on the business day before the meeting. Proofs of debt may be
accepted and admitted after that time where the chair is content to accept the proof1.
1. Rule 15.28
44.44 Quorum at meetings
A quorum is established at a meeting of creditors where at least one creditor entitled
to vote is in attendance1.
A quorum is established at a meeting of contributories where at least two
contributories entitled to vote are in attendance, or all the contributories, if their
number does not exceed two1.
Attendance includes anyone present or represented by proxy by any person,
including the chair.
Where the quorum is established by the attendance of the chair alone, or the chair
and one other person, the chair should consider whether there are any others not in
attendance who would be entitled to vote if they did attend (i.e. creditors who have
submitted a proof of debt admitted for voting purposes or their proxy-holders). If so,
the chair must delay the start of the meeting by at least 15 minutes.
1. Rule 15.20
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44.45 Adjournment
The chair may adjourn a meeting for any purpose and must do so if the meeting
passes a resolution to adjourn. Adjournment(s) of the meeting cannot be for more
than a total of 14 days after the date on which the meeting was originally held,
subject to any direction of the court1.
If the meeting is to consider a resolution to remove the official receiver as trustee the
chair can only adjourn the meeting with the consent of at least 50% in value of the
creditors attending and entitled to vote2.
The chair should adjourn a meeting if the chair is aware a creditor whose vote could
be decisive wishes to nominate a practitioner to act as liquidator or trustee, but the
creditor has not complied with all of the necessary formalities3.
A proof or proxy given for a meeting may be used at any adjournment of that
meeting. Any proofs and proxies to be used at the adjourned meeting must be
received by 4.00pm on the business day immediately before the adjourned meeting,
or later than that time where the chair is content to accept the proof4.
1. Rule 15.23
2. Rule 15.24
3. Mardas v Official Receiver (unreported) also known as Alcom Ltd transcript is in Westlaw
4. Rule 15.26
44.46 Notice of adjourned meeting
There is no statutory requirement to give notice of or advertise an adjourned
meeting.
If it is considered that lack of notice would tend to defeat the purpose of the
adjourned meeting, such as where there was no quorum at the first meeting, notice
should be given when the length of the adjournment permits. Notice of the adjourned
meeting should be sent to the company personnel or bankrupt, where they were not
at the meeting, only if the chair sees fit.
44.47 Opening the meeting
Before opening the meeting the chair should be satisfied that the persons present at
a meeting are entitled to be there, or that the chair has properly exercised discretion
in allowing others to attend. It is usually desirable to start the proceedings by stating
the purpose of the meeting and providing those present with a brief summary of the
information in the report to creditors, if this has been issued. It is usual in company
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cases for most of the information held to have been provided by the officers, who are
often contributories. The chair may therefore not need to spend so much time
providing information to the contributories’ meeting, as they will have done at the
creditors’ meeting.
44.48 Allowing questions
It is not unusual for persons attending meetings to ask questions and, although the
chair has a discretion as to which questions or interventions are allowed, the chair
should exercise this discretion with caution.
Questions permitted should be limited so far as possible to matters material to the
purposes of the meeting and the chair should make a note of the questions and
answers in the minute of the meeting. Where any matter is raised which cannot be
dealt with at the meeting, the chair should seek to deal with the point in
correspondence or outside of the meeting.
44.49 Making the decision
For a decision to be made the meeting must be quorate (see paragraph 44.43).
Votes are calculated in accordance with creditor’s claim admitted for voting
purposes. An appointment is made on a simple majority of creditors by value (or
contributories) voting for the resolution.
44.50 Bankruptcy cases – decision to remove
the OR
In bankruptcy the creditors are first asked to vote on the resolution to remove the
official receiver from office as trustee. Only if a simply majority by value of creditors
voting pass the resolution would nominations be taken, and voted upon, for an
insolvency practitioner to replace the official receiver in office.
44.51 No clear majority
In bankruptcy if the resolution is passed to remove the official receiver from office
those entitled to vote are invited to support their favoured candidate, rather than
voting for or against each one. In a vote in respect of a resolution to replace the
official receiver as liquidator creditors can simply vote against the resolution. If the
majority is in favour of replacing the official receiver then votes must be considered
for support of the candidates to take the appointment. If one nominee has a clear
majority in value, over both, or all of the others together, that nominee will be
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appointed. If after the first round of voting, no one nominee has more support in
value than all the others put together, the candidate with the least support is
eliminated from the next round of voting (unless one of the other candidates
withdraws, in which case the nominee with least support has another chance).
Depending on the number of original candidates, further rounds of voting on the
same basis take place, with one candidate being eliminated each time, until either
one nominee has more support than all the others remaining put together, or there
are only two candidates left and one has more support than the other.
44.52 Effective date of appointment
The effective date of appointment of the insolvency practitioner as liquidator or
trustee is the date the chair certifies the appointment. The date entered on the
certificate of appointment (IPCAM)1. This will normally be the same date as the
meeting provided the insolvency practitioner has supplied their consent to act.
1. Rule 7.53(5) or rule 10.68(3)
44.53 Record of decision
The chair must make a record of the decision procedure. This must include a list of
the creditors who participated and their claims (or a list of contributories who
participated if it is a decision of contributories) together with a record of the decisions
made and how the creditors voted1.
1. Rule 15.40
44.54 Handover at meeting
Where the chair is aware, in advance of the meeting, of the likely outcome of the
meeting, it is possible to arrange for the handover to take place on the day of the
meeting. From the date of appointment, not handover, the insolvency practitioner
has responsibility for the assets. There is no reason why all the papers cannot be
prepared for handing over to the insolvency practitioner immediately after the
conclusion of the meeting provided the insolvency practitioner has given their
consent to act. (See also chapter 45).
44.55 Exclusion from meeting
If a person seeking to attend a virtual meeting or participate remotely in a physical
meeting is unable to do so for the whole or part of the meeting they are an “excluded
person” within the meaning of the Rules1. A person is excluded only if they have
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taken all the steps necessary to attend but have been unable to do so or have lost
contact during the meeting.
Where the chair of the meeting becomes aware during the course of the meeting that
there is an excluded person the chair must decide whether to continue the meeting;
declare the meeting void and convene another meeting; or declare the meeting valid
to the point the person was excluded and adjourn the meeting2.
The chair has the discretion to suspend the meeting for any period up to an hour
without a formal adjournment. A suspension may enable the excluded person to
(re)join the meeting.
A meeting the chair decides to continue in the knowledge that there is an excluded
person continues is valid unless a complaint is upheld and the meeting declared
void3.
1. Rule 15.36(3)
2. Rule 15.36(2)
3. Rule 15.36(3)
44.56 Complaint that a person is excluded
An excluded person has until 4.00pm on the business day following the day of the
meeting to request an indication of what occurred at the meeting during their
absence. The request is made to the chair, if made in the course of the meeting or
the convener once the meeting is concluded. The convener or chair must respond by
4.00pm in the business day following the request1.
An excluded person may lodge a complaint if they consider they have been
adversely affected by the exclusion. The person has until 4.00pm on the business
day following the day of the meeting or, where they asked for an indication of what
occurred at the meeting during their absence, until 4.00pm on the business day after
they received the indication, to lodge the complaint2.
The complaint is made to the appropriate person, i.e. chair, if made in the course of
the meeting or the convener once the meeting is concluded. If the complaint is
upheld the appropriate person must take action to remedy the prejudice suffered.
Where the complainant was excluded during the vote on a resolution and gives an
indication of how they would have voted, the vote must be recounted to include the
excluded person. The appropriate person must amend the record of the result of the
resolution and give notice of the change and the reason for it to everyone entitled to
attend the meeting3.
1. Rule 15.37
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2. Rule 15.38
3. Rule 15.38(6)
Proofs of debt and proxies
Guidance on creditors and liabilities is found in chapter 43
44.57 Meaning of prove
A creditor who wishes to recover their debt, subject to any order of the court, or to
participate in a decision making process must submit a proof of their debt to the
official receiver1.
1. Rule 14.3 and rule 15.28
44.58 Contents of proof
The requirements for a proof of debt are set out in the Rules1. There are no statutory
forms associated with the Rules but as with all prescribed content the proof must
contain all the prescribed information in the same order as the Rule prescribing the
content, state the nature of the document, identify the proceedings, state the Rule
under which it is given2. Consequently, a petition for winding-up or bankruptcy cannot
be used as a proof of debt.
1. Rule 14.4
2. Rule 1.8(2)
44.59 Authentication of proofs
A proof of debt must be dated and authenticated1. A proof of debt in hard copy is
authenticated if it is signed.
A proof of debt in an electronic form is authenticated if the identity of the sender is
confirmed in a way specified by the recipient. If the recipient has not specified how
the sender’s identity should be confirmed, the proof of debt must be accompanied by
a statement of the identity of the sender and the recipient have no reason to doubt
the truth of that statement2.
If the proof of debt is signed on behalf of an organisation or company the position of
the individual in relation to the organisation must be given on the proof of debt.
--- PDF page 23 ---
Where the proof of debt is not authenticated by the creditor, the proof of debt must
state the name, postal address and authority of the person authenticating the proof3.
In practice, a scanned proof of debt containing an original signature and submitted to
the official receiver by email can be accepted provided that the official receiver has
no reason to doubt its authenticity. Similarly, a proof received electronically from the
creditor or their intermediary, and containing an electronic signature, may be
accepted if the named individual can be traced to the originating organisation and is
a known party within that organisation.
The authentication may be made by an insolvency practitioner given authority by the
creditor to act for them in relation to a specific case or through a general authority to
act in all insolvency cases in which the creditor has a claim. See paragraph 45.16
regarding blanket authorities.
1. Rule 14.4(1)(j)
2. Rule 1.5
3. Rule 14.4(1)(k)
44.60 Documents submitted in addition to the
proof
Within the proof of debt, a creditor should specify any documents by reference to
which the debt can be substantiated. It is not essential that a creditor attach such
documents to the proof of debt1.
The official receiver may call for the creditor to produce any document or other
evidence deemed necessary to substantiate the whole or part of the claim made in
the proof2.
Any costs associated with proving a debt are the responsibility of the creditor3.
1. Rule 14.4(2)
2. Rule 14.4(3)
3. Rule 14.5
44.61 Use of proofs from administration
Where a winding-up order is immediately preceded by an administration, a creditor
proving in the administration is deemed to have proved in the winding up
proceedings1.
1. Rule 14.3(2)
--- PDF page 24 ---
44.62 Checking and admitting proofs of debt
Proofs of debt received by the official receiver should be compared with the list of
creditors. The amount of the debt per the list of creditors and the amount per the
proof of debt should both be entered on ISCIS.
It is the role of the convener or chair to establish the creditors’ entitlement to vote.
The convener or chair may admit or reject a claim in whole or part1.
Where the convener or chair is in any doubt whether to admit or reject a claim, the
proof of debt should be marked as objected to but be admitted for the purpose of
voting. If the objection is later upheld the vote would be declared invalid2.
The convener or chair is not expected to undertake a thorough investigation into the
debt claimed. If it is plain or obvious that the claim is good it should be admitted. If it
is plain or obvious that it is bad it should be rejected. If there is a question, a doubt,
the proof should be admitted but marked as objected to3.
A decision to accept a creditor’s proof for voting purposes is not binding for other
purposes, such as payment of a dividend and further evidence may subsequently be
requested in this regard4.
1. Rule 14.7
2. Rule 15.33
3. Re a Debtor (No 222 of 1990) ex parte the Bank of Ireland [1992] BCLC 137
4. Assico Engineering Ltd [2002] BCC 481
44.63 Conflict of interest
The convener or chair has no power to exclude from the process a creditor who has
lodged a valid proof of debt and whose claim has been admitted for voting purposes.
Matters of any conflict of interest are for the insolvency practitioner to consider
before they provide any consent to act.
All insolvency practitioners are subject to their regulatory body’s Code of Ethics and
should be satisfied that they act with impartiality and balance between all parties
interested in the outcome of the insolvency.
Official receivers may be directed to cases where the court has commented in the
past that it is undesirable to allow the appointment of a liquidator nominated by a
former director of the company, as a creditor, against whom the company has a
hostile claim or whose conduct in relation to company is under investigation (e.g. a
wrongful trading claim)1. Under the Insolvency (England and Wales) Rules 2016
there is now provision in administrations, company voluntary arrangements and
--- PDF page 25 ---
individual voluntary arrangements which prevents a decision from being made where
more than half of the total unconnected creditors vote against the decision2. Similarly
connected creditors cannot be included in any calculation of the value of creditors
requisitioning a decision procedure to remove a liquidator in a voluntary liquidation3.
As Parliament has not given legislative support to the comments in case law the
official receiver must allow all creditors who have submitted valid proofs of debt to
participate in the decision procedure. Any objection to the appointment of a liquidator
nominated by a connected person should be referred to the court4.
1. Fielding v Seery [2004] BCC 315]; Power v Petrus Estates Limited and others [2008] EWHC 2607 (Ch)
2. Rule 15.33
3. Rule 15.18
4. Section 168
44.64 Non-provable debts
No proof should be admitted for voting purposes in relation to a non-provable debt1.
1. Rule 14.2
44.65 Debts of uncertain value
A creditor with a claim for an unliquidated amount or whose value is not ascertained
may not vote, except where the chairman agrees to put an estimated minimum value
upon the debt for the purposes of entitlement to vote and admits the proof for that
purpose. In any event, the liquidator or trustee must estimate or revise its value for
dividend purposes1,2.
A claim is not to be considered as unliquidated or unascertainable for voting
purposes solely by virtue of the fact it is either disputed or subject to a counterclaim
by the company or the debtor3.
The gravity of the decision made by the convener or chair will be compounded where
the value put on the debt directly impacts upon the outcome of any resolution put to
the meeting, although the decision should remain independent and not be swayed by
this. The convener or chair should be equally wary of undervaluing or overvaluing a
claim for voting purposes and should exercise care in evaluating evidence put
forward by the creditor or others in support or dispute of the claim4.
1. Rule 14.14
2. Section 322
3. Re a debtor (No 222 of 1990), ex parte Bank of Ireland [1992] BCLC 137
--- PDF page 26 ---
4. Andrew Fender v The Commissioners of Inland Revenue [2003] EWHC 3543 (Ch)
44.66 Foreign debts
Any proof of debt submitted for a debt incurred, or payable, in a currency other than
GBPounds must state the amount of the debt in that currency. The official receiver
should convert the debt into GBPounds by reference to the exchange rates
prevailing on the date of the insolvency order or where a liquidation was immediately
preceded by an administration, the rate prevailing on the date that the company
entered administration1 or on the date of death where the order is made under the
AIEDPO2.
1. Rule 14.21
2. Administration of Insolvent Estates of Deceased Persons Order 1986 schedule 1 part II paragraph 31
44.67 Interest
Where a debt bears interest, the interest is only provable as part of the debt for any
period prior to the commencement of the proceedings or if a liquidation was
immediately preceded by an administration, after the date that the company entered
administration1 or on the date of death where the order is made under the AIEDPO2.
1. Rule 14.23
2. Administration of Insolvent Estates of Deceased Persons Order 1986 schedule 1 part II paragraph 31
44.68 Discounts
All discounts that would have been available but for the insolvency proceedings
should be deducted from a claim prior to admission for voting purposes, except
where such a discount relates to immediate or early settlement1.
1. Rule 14.20
44.69 Set off
Any set off applicable as a result of mutual debts, mutual credits or other mutual
dealings should be taken into account prior to admission of a creditor’s claim for
voting purposes, the proof of debt being admitted for the balance due1.
1. Rule 14.25
44.70 Double proofs
--- PDF page 27 ---
There cannot be two proofs in respect of the same debt, where this appears to be
the case, steps should be taken to verify the true position prior to the decision
procedure and the admission of the proofs for voting purposes.
44.71 Defective proofs
Any proof, which is defective, should normally be returned to the creditor for
amendment. If there is insufficient time to return a proof for amendment before the
decision date, consideration should be given to whether the claim will materially
affect the outcome. The convener or chair may be able to rectify a formal error and
admit the proof for voting purposes, marking it as objected to clearly recording the
formal error noted in admitting the claim1.
1. Rule 14.25
44.72 Amendment to proof
A proof may, with the agreement of the liquidator or trustee and the creditor, be
withdrawn or varied as to the amount claimed1. Where an agreement cannot be
reached between the liquidator or trustee and the creditor, either party may apply to
the court. The court may as a result of such an application expunge the proof or
reduce the amount claimed2.
1. Rule 14.10
2. Rule 14.11
44.73 Appeal of decision to admit or reject
proofs
A decision of the convener or the chair in relation to admission or rejection of a proof
of debt (either wholly or in part) may be subject to an appeal to the court by any
creditor, contributory, or the bankrupt. The appeal must be made not later than 21
days after the date of the decision date. The person who made the decision is not
personally liable for costs in respect of the application1.
The court is not restricted, in considering whether the convener or chair was right to
admit or reject a proof for voting purposes, by the evidence available at the time and
may consider any subsequent evidence that comes to light2.
Where on appeal the decision is reversed or varied, or a creditor’s vote is declared
invalid, the court may order that a further decision procedure is initiated, or make any
such other order as it thinks just. The court may only make an order where it
--- PDF page 28 ---
considers that the circumstances which led to the appeal mean unfair prejudice has
been suffered or there were material irregularities.
1. Rule 15.35
2. Re a Company No.004539 of 1993 [1995] BCC 116
44.74 Proxies generally
A proxy is an authority given by a creditor, member or contributory to individual, “the
proxy-holder”, to attend a meeting of creditors (or contributories), speak and vote on
their behalf. Creditors attending the meeting in person, as a company representative
and HM Revenue and Customs commission holders do not require proxies in order
to vote at meetings. Proxies are only required for meetings, virtual or physical, and
not for any other decision procedure.
A proxy may be either specific, relating to a specific meeting, or continuing for the
duration of the insolvency proceedings. A specific proxy will direct and/or authorise
the proxy-holder how to act at the meeting. For example it may direct the proxy-
holder to nominate and vote for a specific insolvency practitioner but in further
rounds of voting where that insolvency practitioner has been eliminated to vote at
their own discretion.
A proxy is treated as a specific proxy unless it states it is a continuing proxy. A
continuing proxy may not give specific instruction1.
1. Rule 16.2
44.75 Blank proxies
When issuing proxy forms to creditors for use at a meeting the office-holder must
provide a form which complies with the Rules1. The proxy must be a blank proxy the
template must not be issued with the name or description of any person as proxy-
holder or with any instructions or directions as to how the proxy holder is to act2.
1. Rule 15.8(5)
2. Rule 16.3
44.76 Authentication of proxies
There is no requirement in the Rules that a proxy should be authenticated but unless
the proxy is submitted with a proof of debt, it is preferable the proxy should be
authenticated in the same manner as a proof of debt (see paragraph 44.59).
--- PDF page 29 ---
44.77 Company representation in a liquidation
A company which is a creditor, or contributory of another company, may pass a
resolution authorising an individual or individuals to represent it at meetings of
creditors, or contributories1.
A copy of the resolution must be produced to the chair. The copy must be either
under the seal of the company which is the creditor or contributory, or certified by the
secretary or a director of that company to be a true copy2.
If it is in order, the individual represents the company as if it were a creditor present
in person and may vote accordingly. No proxy is required in these circumstances.
1. Section 434B; Rule 16.8
2. Rule 16.9
44.78 Receipt of proxies
A proxy for a specific meeting must be delivered to the chair before the meeting. A
continuing proxy may be used at any meeting which begins after the proxy is
delivered. A proxy used at an adjourned meeting may be used at the resumed
meeting but if a different proxy is to be used it must be delivered to the chair before
the resumed meeting1.
1. Rule 16.4
44.79 Chair’s use of proxies
The creditor may give a specific or continuing proxy to the chair, however they are
described in the proxy (i.e. “the official receiver”). The chair cannot decline to be the
proxy-holder and must act in accordance with the terms of the proxy1.
Where a creditor has given the chair a proxy requiring that the chair vote for a
particular resolution, the chair must propose the resolution if no-one else does,
unless there is good reason for not doing so. If the chair does not propose the
required resolution the chair must immediately after the meeting inform the principal
of the reason why the resolution was not proposed.
If the chair may vote with their own discretion on a particular resolution, the chair
may support nominations from others, or, vote for or against any resolution, when
the chair believes that in so doing they are securing the best interests of the majority
of the creditors. Unless specific instruction is given in the proxy, the chair should
avoid nominating a liquidator or trustee, unless there is no other nomination leading
to an appointment. The chair may in those circumstances use the proxy to nominate
an insolvency practitioner by reference to the rota (see chapter 45)
--- PDF page 30 ---
The chair’s decision to exercise discretion should be recorded in the minute of the
meeting with the reasons for acting.
1. Rule 16.5
44.80 Specific proxy and further rounds of
votes
If a proxy-holder is entitled by the proxy to vote for only one particular insolvency
practitioner and the terms of the proxy preclude them from voting in any other way, if
that insolvency practitioner is eliminated in a round of voting, the proxy-holder will not
be entitled to vote in the next round. The value of the proxy-holder’s principal’s claim
need not be counted as being entitled to vote for the purposes of the next round of
voting1.
1. Rule 15.34(1)
44.81 Multiple proxies from same creditor
A creditor can at any time withdraw or amend their proxy1. Only one proxy should be
submitted for a meeting. It is possible for more than one proxy-holder may be named
on the proxy as an alternative attendee2.
The chair should not be in the position of having two proxies on behalf of the same
creditor. If this occurs, the chairman will need to contact the creditor in order to
establish the correct position and the circumstances surrounding the error. Where
the chair has been unable to establish the correct position both proxies should be
regarded as having been withdrawn.
1. Re Cardona [1997] BCC 697
2. Rule 16.2(7)
44.82 Amendment of proxies given to nominee
Caution should be applied in cases where amendments are made to proxies, which
instruct an insolvency practitioner, or their representative, proxy-holder, to vote for a
resolution, which would lead to the appointment of that insolvency practitioner as
liquidator or trustee.
Where shortly before the meeting a letter is received from the insolvency practitioner
proxy-holder stating that their clients (the principal) wish to withdraw their nomination
for the associated insolvency practitioner and vote for another, this should be
considered as the creditor seeking to withdraw their proxy. Where a new proxy is not
--- PDF page 31 ---
received by the meeting, set out in the same format as the original proxy, the creditor
has no vote at the meeting unless they attend to vote in person.
44.83 Inspection of proofs and proxies
As long as the official receiver is in possession of the proofs of debt they must be
made available for inspection at all reasonable times on any business day. The
proofs of debt may only be inspected by: any creditor who has delivered a proof; any
member or contributory of the company; the bankrupt; or any person acting on behalf
of the aforementioned1.
Any person attending a meeting in insolvency proceedings is entitled to inspect the
proxies and associated documents (which includes proofs) either immediately
before, or in the course of the meeting at which they are used2.
The official receiver may decline to allow the inspection of a proof of debt if the
official receiver considers the document should be treated as confidential, is of such
a nature that its disclosure would be prejudicial to the conduct of the proceedings, or
that the contents of the document might reasonably be expected to lead to violence
against any person. Decisions of this nature made by an official receiver may be
challenged upon an application to the court by the anyone wishing to inspect the
proof3.
1. Rule 14.6
2. Rule 16.6
3. Rule 1.58
44.84 Proofs lodged with insolvency
practitioner
When an insolvency practitioner is appointed in place of the official receiver as
liquidator or trustee all proofs of debt should be handed over to the insolvency
practitioner. Any further proofs received by the official receiver after appointment
should also be forwarded to the insolvency practitioner1.
The official receiver has authority to require details, or sight, of any proofs lodged
directly with an insolvency practitioner acting as liquidator or trustee2.
Where it is expected that the official receiver will need to act as liquidator or trustee
upon vacation of office of the former trustee or liquidator, any proofs held by the
insolvency practitioner should be provided to the official receiver.
1. Rule 7.60(7) and 7.73(1)(b) or rule 10.75(7) and 10.90
--- PDF page 32 ---
2. Section 143(2) and or section 305(3)
Liquidation or creditors’ committee
44.85 Function of a liquidation or creditors’
committee
A committee can be appointed to protect and promote the creditors’ interests. The
liquidator or trustee must report to the committee and is accountable to the
committee for their costs and expenses. It is unlikely that the official receiver will
become involved in any resolution to form a committee but a resolution to appoint a
committee may be proposed at a meeting of creditors.
44.86 Appointment of committee where
official receiver is liquidator/trustee
Where the official receiver is liquidator or trustee, a liquidation or creditors’
committee is not required and is not able to act. The functions of the committee are
vested in the Secretary of State1. When no committee has been formed and the
liquidator/trustee is an insolvency practitioner, the functions of a committee vest in
the Secretary of State2. Where the Secretary of State is required to carry out any of
the functions of a liquidation or creditors’ committee, authority is delegated to the
Senior Official Receiver’s team for official receivers and Estate Accounts and
Scanning for insolvency practitioners.
1. Section 141(4) or section 302(1)
2. Section 141(5) or section 302(2)
44.87 Appointment of committee at meeting of
creditors
When a resolution has been passed for the appointment of an insolvency practitioner
as liquidator or trustee, the appointment of a committee may also be considered. The
chair of a meeting therefore needs to be aware that they may need to deal with such
a resolution.
--- PDF page 33 ---
In practice where the decision is made other than by meeting the official receiver is
unlikely to ask the creditors to make a decision on whether to form a committee,
leaving that to the insolvency practitioner appointed.
If a meeting is constituted only by the chair holding proxies, a resolution appointing a
committee should only be passed on the basis of instructions in the proxies.
The chair of the meeting may properly use any proxies, which are held to vote for or
against the persons nominated for membership of the committee, although the chair
should only intervene in this way in exceptional circumstances (e.g. a committee
consisting substantially of creditors who are associates of the bankrupt or directors).
44.88 Membership of the committee
A liquidation or creditors’ committee must be formed of between three and five
members1. It is better to elect either three or five, rather than four, so as to avoid the
risk of deadlocks in voting by the committee.
A creditor who has proved their debt and that proof of debt has been admitted for
voting or dividend may be elected as a member of the committee2.
A person elected to act as a member of the committee must consent to act3.
A company may be a member of a committee, but cannot act as such, other than via
a representative4. Any member of the committee may be represented by another
person holding a letter of authority. The representative may not be another member
of the committee or a person who at the same time is representing another
committee member; an undischarged bankrupt or person subject to a bankruptcy
restriction.
A creditor does not need to be present or represented at a meeting to be nominated
as a member of a committee.
1. Rule 17.3
2. Rule 17.4
3. Rule 17.5(2)
4. Rule 17.4(4)
44.89 Suitability of nominees
The chairman may suggest to the meeting that of the persons eligible to serve on the
committee, those who possess the largest claims may be the most appropriate to be
elected. There are exceptions to this general rule, it is for instance, usually
undesirable that family creditors or directors, should serve on the committee. Similar
objections may apply to creditors who are in partnership with the liquidator or trustee,
--- PDF page 34 ---
(or employed by them) in addition to those who have interests adverse to those of
the general body of creditors, or whose proofs, or claims, are likely to be subjected to
further investigation. It is important that the position of the members of the committee
should be such as to enable them to exercise an independent and impartial view of
matters arising in the administration on which their views may be sought.
44.90 Notification to insolvency practitioner
The establishment of the committee and the formalities associated with it are matters
entirely for the liquidator or trustee. The committee is not established, and cannot
act, until the liquidator / trustee has delivered notice of the membership. The notice is
issued as soon as reasonably practical after the minimum number of members have
consented to act1. The official receiver should provide the liquidator/trustee on the
conclusion of the meeting with details of the nominations for the committee.
1. Rule 17.5
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 11 March 2020
45. Appointment of liquidators and
trustees
Annexes
Annex A - Form of wording for a general ‘blanket’ authority
Annex B - Initial Information Sheet to offer cases to Insolvency Practitioners -
Bankruptcy
Annex C - Initial Information Sheet to offer cases to Insolvency Practitioners -
Company
Annex D - Guidance on use of blanket authorities
Annex E - Blanket Authority Details
Annex F - Flowchart - How to apply to the Secretary of State for an Insolvency
Practitioner appointment
Annex G - Flowchart - How to handover to an Insolvency Practitioner
Annex H - SoS application template – Standard rota appointment unless primary
asset is protracted interest in family home
Chapter content
Frequently asked questions - Secretary of State appointments
Frequently asked questions - Handover to an Insolvency Practitioner
Forms to use - Handover to an insolvency practitioner
Introduction
Appointment of liquidators and trustees when a winding-up order or bankruptcy
order is made
Requests for appointment by creditors
Appointment by the Secretary of State
--- PDF page 2 ---
Appointment by a decision procedure
Vacancies in office
Handovers
The official receiver’s rotas
Frequently asked questions – Secretary
of State Insolvency Practitioner (IP)
appointments
What is a Secretary of State appointment?
The Secretary of State can appoint an IP in place of the official receiver to act as
liquidator or trustee as an alternative to commencing a decision procedure in certain
circumstances. This power has been delegated to the Senior Official Receiver’s
Office.
What is the role of the Senior Official
Receiver’s Office in relation to SoS
appointments?
The Senior Official Receiver’s Office carries out a number of Secretary of State
functions including considering applications from official receivers for the
appointment of IPs as liquidators and trustees.
When is a Secretary of State IP appointment
appropriate?
The Secretary of State’s power to make an appointment must only be used in certain
circumstances and should not be exercised simply for the convenience of the official
receiver. If there is a possibility of contention, dispute or conflict then a decision
procedure should be commenced
--- PDF page 3 ---
How do I find out if an SOS IP appointment is
appropriate?
Firstly, the views of creditors must have been sought. Some will have given blanket
authorities to the official receiver and details are held on the External Organisation
Database. File notes should be kept detailing discussions with the creditors.
HMRC have indicated that where they are a creditor in a bankruptcy, their
preference is for an SoS IP appointment. However, in some cases they may be
pursuing recoveries more actively than usual and if this is the case it will be indicated
on the petition information provided.
A creditor may ask for a specific IP to be appointed. The official receiver must
exercise discretion and follow the guidance as to whether to seek an SoS
appointment.
When can the official receiver make an
application for an SOS appointment?
The official receiver, as liquidator or trustee, may apply at any time to the Secretary
of State for the appointment of an insolvency practitioner to replace the official
receiver in office.
How do I find out who is on the SoS IP rota for
my office?
The IP Rota for your office is saved to Wisdom under ORS. When discussing a
possible appointment with an IP, the official receiver should never suggest that the
appointment is a foregone conclusion as the Secretary of State may decline to make
the appointment.
How does the rota operate?
Each time the rota is consulted, the next named individual on the list must be
approached. The strict order of "next in turn" must always be followed unless there is
a particular reason why the "next" practitioner is not suitable, e.g. the IP has acted
for the insolvent previously. The details of why an IP has "missed a turn" should be
recorded in the comments column of the rota.
The official receiver in each office has the authority to check and add or delete IP’s
from their own rota. It is up to the official receiver to check that the IP is licensed and
has a bond.
--- PDF page 4 ---
What is the process for appointing an IP from
the SoS rota?
Please follow the guidance How to apply to the SoS for an insolvency practitioner
appointment as liquidator/trustee.
It is possible, in some cases, for two IPs to act as joint office holders. They must
specify on the certificate of appointment whether they are acting jointly or separately
in respect of certain matters and explain their duties when acting jointly.
What is the date of the SoS IP appointment?
The effective date of appointment will be the date that Senior Official Receiver’s
Office process the certificate of appointment, unless an earlier date was agreed in an
urgent application.
Why is the date of the IP’s appointment
important?
This is when they become personally responsible for the assets of the estate. The
official receiver must ensure that the trustee/liquidator is promptly informed of the
date of their appointment so that the IP may take appropriate action to deal with any
assets.
Once the case is handed over to an IP, does the
official receiver need to do anything more?
Yes, the administration of the non-asset related matters in the case are still the
responsibility of the official receiver.
Frequently asked questions - Handover to
an Insolvency Practitioner
These FAQs are to assist official receivers in understanding the subject and should
be read in conjunction with the more detailed guidance given in the main body of the
chapter.
--- PDF page 5 ---
What is an insolvency practitioner?
A person who is both authorised and has the necessary security to act as an
insolvency practitioner may be appointed in place of the official receiver as trustee or
liquidator of an insolvent estate. They must be authorised by the Secretary of State
or a recognised professional body.
How is an insolvency practitioner appointed?
They are appointed as a result of a decision procedure or by the Secretary of State
on the application of the official receiver.
An insolvency practitioner can also be appointed by the court on the making of a
bankruptcy or winding-up order.
When does the insolvency practitioner become
responsible for the case?
They are responsible for the administration of a case from the date their appointment
as trustee or liquidator becomes effective.
What is the effective date of appointment?
The effective date of an insolvency practitioner's appointment as trustee or liquidator
is important, as this is when they become personally responsible for the assets of the
estate. Generally this is taken to be the date the consent to act is received by the
official receiver.
Does the official receiver need consent to act
in Secretary of State appointments?
Yes. Strictly speaking, a formal consent to act is only required in cases where an
insolvency practitioner is appointed at a meeting of creditors. However, seeking a
consent to act from the nominated insolvency practitioner in a Secretary of State
appointment should assist in ensuring that insolvency practitioners are not appointed
in error or through misunderstanding.
When should the official receiver handover the
case to the insolvency practitioner?
--- PDF page 6 ---
They should aim to handover immediately upon appointment of an insolvency
practitioner via a meeting, Secretary of State appointment or court order, but in any
event handover must be effected within 8 working days of the appointment.
What should be handed over?
Form IPHBP produces a pro-forma list of most of the documents to be handed
over. This can be edited according to the circumstances of the case.
In every case, where available, the following documents must be handed over and
noted on the IPHBP.
•Certificate of appointment (option to enclose)
•The Insolvency Practitioner Handover form
•Trustee/Liquidator Record Book (IPROH)
•A copy of the petition
•Proofs of debt (listed)
•Report to Creditors
•Preliminary information Questionnaire
•Narrative Statement
•Copies of relevant correspondence, listed by name.
Copies of all letters and forms handed over should be retained on the case file.
What do I do with post/letters/information
received after the handover?
Any items, requiring the attention of the trustee/liquidator, received after the
handover of the estate, should be forwarded to the insolvency practitioner without
delay. What has been sent and when should be recorded in general notes for the
case.
Why do I no longer need to send the estate
cash book?
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This is due to the estate ledger being kept electronically in a format that insolvency
practitioners can access and continue to use.
Forms to use - Handover to an insolvency
practitioner
IPCAM - Certificate of appointment of
trustee/liquidator at a meeting:
If appointment of insolvency practitioner is via meeting of creditors the case clerk will
produce this certificate.
IPSSC - Certificate of appointment by Secretary
of State:
If appointment of Insolvency practitioner is via Secretary of State appointment IPU
will produce this certificate.
IPUND - Trustee’s/Liquidator’s undertaking:
By signing form IPUND, the trustee/liquidator is formally acknowledging that the
official receiver’s fees, costs and expenses must be paid first out of any realisations.
This form must also be completed in cases where a credit balance is being handed
over. Once signed, this form should be placed on the office file.
IPROH - Trustee's/Liquidator's record book:
This must be prepared in every case that is to be handed over. The record book
must include details of the assets comprised in the estate and their expected
realisable values, details of any potential civil claims such as preferences,
transactions at undervalue or wrongful trading. Include details of any employment
and payment of any agents, solicitors etc. retained by the official receiver prior to
handover, ensuring that they are aware that the liquidator or trustee is responsible
for post appointment charges.).
Ensure that the exempt property is drawn to the insolvency practitioner’s attention on
handover
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Details of any insurance effected by the official receiver should be included in the
record book and the insolvency practitioner should be given details of any premium
payments made.
The examiner should provide a note for inclusion in the record book of any other
matters of concern for the trustee/liquidator not already covered.
IPIB/D - letter to bankrupt/director informing
them details of IP appointment:
A copy of this should be included in the documents handed over to the insolvency
practitioner.
IPHBP - Official receivers letter to insolvency
practitioner forwarding certificate and
including a full list of all documents handed
over:
This form is completed by case clerk by editing the list that appears as standard on
the second page of this document according to the documents that are being handed
over to the IP. Documents should be put in the order of this list when handing over
to insolvency practitioner. The insolvency practitioner will check the documents
against the list and sign and return the second page to confirm receipt.
NACT
The official receiver should inform by letter all agents who have been instructed that
an insolvency practitioner has been appointed. Send/give copy in handover
documents to insolvency practitioner.
The insolvency practitioner handover document - Annex B and Annex C
Should be completed in every case. A copy should be saved to the case file.
The form will have been completed where the insolvency practitioner liquidator or
trustee was approached by the official receiver in relation to a Secretary of State
appointment. The form should be updated if there have been any changes between
the case being offered to the insolvency practitioner and the handover occurring.
When the case is handed over to an insolvency practitioner a final version of the
document should be included in the handover papers.
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Introduction
45.1 General
This chapter gives general advice and guidance on the appointment of insolvency
practitioners as liquidators and trustees in place of the official receivers. The chapter
includes the various methods of effecting their appointment and the procedures to
follow once an appointment has been made. Full details of decision procedures and
their operation are found in chapter 44.
45.2 Insolvency practitioners qualifications
and authority to act
Apart from the official receiver, only an individual who is authorised to act as an
insolvency practitioner1 and has the necessary security bonding2 can be appointed
as a liquidator or trustee.
It is an offence for a person who is not qualified to act as an insolvency practitioner
to do so3, but their actions as liquidator or trustee remain valid even if there is any
defect in the individual’s appointment or qualification4.
1. Section 388 and 230(3) or 292(2)
2. Section 390(3)
3. Section 389
4. Section 232 or section 377
Appointment of liquidators and trustees
when a winding-up order or bankruptcy
order is made
45.3 Appointment on the making of an order
On the making of a winding-up order or bankruptcy order the official receiver is
appointed liquidator of the company or trustee of the bankrupt’s estate1.
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The court may appoint an insolvency practitioner on the making of a winding-up
order or bankruptcy order but only where:
•
the winding-up order immediately follows the termination of an administration or
a company voluntary arrangement, or
•
the bankruptcy order immediately follows the termination of an individual
voluntary arrangement
In those circumstances the court may appoint the administrator or supervisor who
held office immediately before the order2.
Where an insolvency practitioner is appointed on the making of the order the official
receiver does not become liquidator or trustee (see also paragraph 45.65).
1. Section 136(2) or section 291A(1)
2. Section 140(1) or (2) or section 291A(2)
45.4 Appointment of the responsible
insolvency practitioner in a partnership
Where the insolvency order is made under the Insolvent Partnerships Order 1994
the term “responsible insolvency practitioner” refers to either the official receiver or
an insolvency practitioner acting as liquidator of the partnership (or a corporate
member) and/or trustee of the estate of an individual member. Where a bankruptcy
order is made against all individual members on a joint petition1 the responsible
insolvency practitioner is trustee of the partnership. As with winding-up and
bankruptcy the official receiver is appointed on the making of an order unless the
Court appoints a former administrator or supervisor.
1. Insolvent Partnerships Order 1994, article 11
45.5 The official receiver as liquidator or
trustee
The role of the liquidator or trustee is to secure, recover and realise the assets and
ensure the best return for creditors. The official receiver is expected to remain in
office and fulfil the role of liquidator or trustee unless either the majority of creditors
resolve to replace the official receiver or the official receiver considers the case
requires the skills of an insolvency practitioner.
45.6 Action on assets before handover
All steps should be taken to realise assets promptly, even in cases where there is a
prospect of the appointment of an insolvency practitioner.
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Where the official receiver realises assets, the proceeds of sale should be paid into
the estate account and any relevant fees charged1.
Once an insolvency practitioner is appointed the official receiver will remain
responsible for the security and protection of all unrealised assets until the estate is
handed over to the insolvency practitioner. The estate should be handed over as
quickly as possible following the appointment of the insolvency practitioner.
1. Insolvency Proceedings (Fees) Order 2016
45.7 Appointment following the making of an
order
The official receiver may be replaced as liquidator or trustee by
•
the Secretary of State on the application of the official receiver (see later
guidance in this chapter)
•
the creditors (and/or contributories) by a decision procedure commenced for
that purpose (see later guidance and chapter 44)
•
the court (see paragraph 45.8)
45.8 Contentious issues, disputes or
controversy
An application to the Secretary of State must not be made in high profile cases
where there is increased interest from the public, creditors, etc or cases where there
is the possibility of contention, dispute, controversy or subsequent complaints
relating to the appointment of the liquidator or trustee. Instead a decision procedure
should be commenced (see chapter 44). This allows the creditors (and
contributories) an opportunity to express their views. The outcome of the decision
procedure may be appealed to the court1.
If there are exceptional circumstances which make an application to the Secretary of
State appropriate despite the increased interest or controversy in the case, full
details should be included in the application.
If the OR considers there is any possibility of a conflict of interest on the part of the
proposed IP, this should be drawn to the IP’s attention. If the IP, having considered
the matter, still wishes to proceed with the appointment, reliance can reasonably be
placed on their professional assessment of the circumstances of the case.
If the creditors and contributories resolve to appoint different insolvency practitioners
to be liquidator of the company, the liquidator is the person nominated by the
creditors. If the creditors have failed to appoint, or not yet appointed, the person
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nominated by the contributories will take office. Where there is dispute over who
should hold office application can be made to the court within 7 days of the creditors
resolution to determine who should be liquidator of the company2.
1. Rule 15.33
2. Section 139(3) and (4)
Requests for appointment by creditors
45.9 Request for the appointment of an
insolvency practitioner by creditors
Creditors and/or individual insolvency practitioners acting on behalf of creditors may
make a request for an insolvency practitioner’s appointment. All such requests
should be dealt with in the following manner to ensure consistency.
45.10 Timing of the request
The official receiver can decline the request or give effect to the request either by
application to the Secretary of State or commencing a decision procedure. The
decision on how to proceed will depend upon the creditor support (by value) for the
nomination.
Where the request is made at a very early stage in the case the official receiver may
not be in a position to verify the full extent of the creditors. A petitioning creditor
does not constitute 100% of the known creditors where
•
they are the only known creditor, and
•
no time has been allowed for the official receiver to establish who the general
body of creditors might be.
In such cases the creditor should be advised their request will be considered within
the next 14 days.
45.11 Non-surrender / no co-operation cases
There will be some cases in which the directors or bankrupt fail to co-operate and
the official receiver is generally left with little creditor information. In circumstances
such as this, particularly where information is provided which indicates that assets
are in jeopardy, the official receiver is entitled to rely on the information available at
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the time to seek a Secretary of State appointment for the insolvency practitioner
nominated by the petitioning creditor.
45.12 Insolvent’s interests to be considered
Where the bankrupt appears to be solvent the official receiver should draw their
attention to the alternatives to bankruptcy and the options for annulment1. The official
receiver cannot offer advice but the bankrupt should be encouraged to seek
independent advice on their financial position. Before considering the appointment of
an insolvency practitioner the debtor should be given a reasonable amount of time,
but no more than 28 days from the issue of the letter, to begin the process for an
individual voluntary arrangement or application for annulment before appointing the
insolvency practitioner as trustee.
1. Standard letter for annulment
45.13 Request made by more than 50% of
creditors (by value)
If a request comes from 50% or more of creditors (by value) who are eligible to lodge
a proof of debt and participate in a decision procedure1, the official receiver should
generally make an application to appoint the nominated insolvency practitioner
without delay.
The official receiver should carefully and independently check the information
provided by the creditor, or insolvency practitioner, against existing creditor
information and record in the ISCIS notes the calculation showing that the support
was over 50%.
The interests of a bankrupt whose estate will likely produce a surplus should be
considered (see paragraph 45.12). Where sufficient assets have been realised or are
held by a solicitor to enable the debts and costs to be paid in full the creditor should
be informed of the likely date of dividend and asked if they still wish the insolvency
practitioner to be appointed.
1. Rule 15.28
45.14 Request made by at least 25% but less
than 50% of creditors (by value)
If the request is made by creditors who total at least 25% but less than 50% (by
value) the official receiver should consider this request as a valid request to
requisition a decision procedure (see chapter 44).
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Where the request is made by an insolvency practitioner acting on behalf of a
creditor, they should be asked if they wish to be provided with a list of creditors for
an opportunity to refer back to the creditor who proposed the appointment to seek
the support of other creditors to obtain a majority.
45.15 Request made by less than 25% of
creditors (by value)
A request for an appointment by less than 25% of creditors (by value) should
generally be refused. The insolvency practitioner should be provided with a list of
creditors and advised to refer back to the creditor who proposed the appointment to
seek the support of other creditors.
If the official receiver considers that the case requires the skills of an insolvency
practitioner the official receiver should start a decision procedure (see chapter 44).
45.16 General authority for an insolvency
practitioner to act on behalf of a creditor.
An insolvency practitioner or a firm may hold an authority to act on behalf of a
creditor in all aspects of insolvencies (this is often referred to as a “blanket
authority”), it is important that the scope of the authority is clear. Annex A contains a
form of wording that is recommended as acceptable to official receivers. The
authority must:
•
be authenticated and dated
•
clearly state the creditor’s name, address and registration details, if applicable.
(Ideally the authority would be on the headed notepaper of the creditor)
•
include a statement that the person authenticating the authority is authorised to
give the authority
•
clearly set out the scope of the authority
45.17 Using a general authority
The guidance at Annex A provides creditors a ‘menu’ of what specific authorities
they might give to the insolvency practitioner. If one of the items, for example
“requesting a list of creditors”, is not included, then, in the absence of further
instructions from the creditor, the official receiver should decline such a request from
the insolvency practitioner.
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Where the official receiver receives a later dated authority from the creditor for
another insolvency practitioner, it will be assumed that the creditor has withdrawn the
earlier authority. The official receiver will be under no obligation to make enquiries.
The authority should be renewed after two years. In cases where the authority is
over two years old, the insolvency practitioner should be encouraged to submit new
authorities. In the absence of a new authority the official receiver should contact the
creditor each time the insolvency practitioner attempts to rely on the old authority.
45.18 Authorities submitted to local offices
Where insolvency practitioners do not have a national agreement but wish to submit
an authority to local official receiver(s), staff should request that any new authorities
address the issues raised in the guidance contained in paragraph 45.16 and Annex
A. The official receiver should in all cases send a copy of the blanket authority to the
Senior Official Receiver’s Office and note the existence of the authority on their local
rota.
Appointment by the Secretary of State
45.19 Power of the Secretary of State to
appoint
The official receiver, as liquidator or trustee, may apply at any time to the Secretary
of State for the appointment of an insolvency practitioner to replace the official
receiver in office1.
The functions of the Secretary of State in dealing with applications from official
receivers for the appointment of insolvency practitioners are delegated to members
of the Senior Official Receiver’s Office.
1. Section 137 or section 296
45.20 Reasons for a Secretary of State
appointment
The official receiver should seek an appointment by the Secretary of State where:
a) The majority of creditors (more than 50% in value of the creditors who are capable
of lodging a proof of debt and voting in a decision procedure1 are known to support
the appointment, or
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b) The official receiver considers that the skills of an insolvency practitioner are
required and
•
the appointment is urgent, or
•
the creditors have not nominated an insolvency practitioner, or
•
the official receiver considers the insolvency practitioner appointed as
provisional liquidator or interim trustee should continue in office, or
•
the insolvency practitioner who previously held office as liquidator or trustee
should be re-appointed
The official receiver should record in the ISCIS notes their reasons for seeking the
appointment of an insolvency practitioner.
1. Rule 15.28)
45.21 Urgent appointments
An appointment is urgent when the official receiver decides that the matters which
the official receiver cannot deal with as liquidator or trustee cannot wait a period of
consultation with the creditors. The official receiver should seek to appoint the
insolvency practitioner who is next on the rota unless there is good reason to seek
the appointment of a particular insolvency practitioner (see paragraphs 45.23 and
45.24).
If there is a known single majority creditor (other than HMRC) that creditor must be
contacted and given an opportunity to nominate their choice of insolvency
practitioner rather than accept a rota appointment. If the creditor has lodged a
general (blanket) authority which specifies actions in the event the official receiver
applies to the Secretary of State, then this should be followed (see paragraph 45.17).
If there is no clear majority creditor, the official receiver may apply to the Secretary of
State for the appointment of an insolvency practitioner from the rota without
obtaining the consent of creditors.
45.22 No creditor nomination
Where the appointment is not urgent, the creditors should be given an opportunity to
nominate an insolvency practitioner. If there are no nominations the official receiver
should generally seek to appoint the insolvency practitioner who is next on the rota
unless there is good reason to seek the appointment of a particular insolvency
practitioner (see following paragraphs).
45.23 Connected cases
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The official receiver may apply for an insolvency practitioner to be appointed who is
connected to the case. This will include an insolvency practitioner who held office as
provisional liquidator or interim trustee immediately before the order, or an
insolvency practitioner who previously held office as liquidator or trustee. Further
examples may include a liquidator of a connected company or the trustee in
bankruptcy for a spouse/partner or a business partner.
In considering these appointments care should be taken to ensure the issues
highlighted in paragraph 45.8 are considered and creditors’ views are sought in
cases which are not straightforward.
The appointment must be made for administrative efficiency. Where the connected
company, spouse or partner have different majority creditors those creditors should
be asked to confirm they do not wish to nominate another insolvency practitioner.
45.24 Specialist knowledge required
Very occasionally, the next insolvency practitioner on the rota will not have the skills
required to administer the estate. On these rare occasions the official receiver may
seek the appointment of another insolvency practitioner with the necessary specialist
skills, from the rota out of turn or otherwise. This should be explained in the
application notes, with reference to the special skills held by the prospective
appointee.
Official receivers should bear in mind that the insolvency practitioners Ethics Code
would require them to refuse an appointment if they did not consider they had the
necessary skills and resources to administer.
45.25 HMRC preference for rota appointment
HMRC’s preference is for a Secretary of State appointment to be made from the
official receiver’s rota unless:
•
specific instruction is given in the petition information, where HMRC are the
petitioning creditor, or
•
by notice/request to the official receiver
In some cases where HMRC are pursuing recoveries more actively than usual or in
which they have a special interest, HMRC’s interest as a creditor may be affected by
a rota appointment. Where this is the case this will be notified in the information
provided by HMRC to the official receiver.
Where HMRC request the appointment of a particular insolvency practitioner see
guidance from paragraph 45.9.
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45.26 Late appointment of an IP over an
interest in the family home
An appointment may be sought without consulting creditors provided the following
paragraph appeared in the report to creditors:
‘The principal asset in this case is the dwelling house referred to above. At this stage
it is envisaged that the bankrupt’s interest may be realised without the need for
possession proceedings. However, if this is not possible action will be taken that may
include the official receiver seeking the appointment as trustee of the next insolvency
practitioner from their rota without further reference to creditors.’
There are likely to be two situations in which such an appointment will be necessary.
The first is where the official receiver had intended to keep the case as a reasonably
achievable realisation (e.g. the co-owner buying out the bankrupt’s interest) but this
changes. The second is where no action with regard to the property was being taken
at the time the report to creditors was issued and the case was passed to the LTADT
and they assess that a trustee appointment is required.
45.27 Informing the insolvency practitioner of
the case details
The information in this paragraph and paragraph 45.28 does not apply where the IP
acting on behalf of creditor has contacted the official receiver seeking appointment.
The official receiver should provide all the relevant information to the insolvency
practitioner to enable an informed decision to be made on whether to accept the
appointment. To assist official receivers in the provision of information to an
insolvency practitioner, the Initial Information Sheet (see Annex B for bankruptcies
and Annex C for companies should be used in all cases when offering a case to an
insolvency practitioner. The appropriate Initial Information Sheet should be emailed
to the insolvency practitioner during or after the initial telephone call offering the
case. A copy should be saved to the electronic case file.
45.28 Confirming the insolvency practitioner’s
agreement to take the case
Once the relevant information has been provided, the insolvency practitioner should
be asked whether they will accept the case. Where the Initial Information Sheet is
sent after the insolvency practitioner has verbally accepted the case, the official
receiver should ensure the insolvency practitioner is still willing to accept the case.
Where the circumstances of the case change after the agreement, the Initial
--- PDF page 19 ---
Information Sheet should be updated and included in the handover of documents to
the appointed IP.
45.29 Official receiver should not imply the
appointment a foregone conclusion
In discussing a possible Secretary of State appointment with an insolvency
practitioner, the official receiver should not suggest that the appointment is a
foregone conclusion. The Secretary of State may refuse the application1.
1. Section 137(3) or section 296(2)
45.30 Official receiver to check the insolvency
practitioner is on the IP database
The official receiver must ensure that the proposed office holder is on the IP
database in ISCIS. If the insolvency practitioner is not recorded, the official receiver
must ensure that the proposed office holder is authorised to act as an insolvency
practitioner and contact CustomerServices.EAS to have the insolvency practitioner’s
details added to the database.
45.31 Consent to act
The official receiver must obtain the insolvency practitioner’s written consent to act
as soon as they agree to accept the case. This will ensure an insolvency practitioner
is not appointed by mistake or following a misunderstanding.
When obtaining consent to act the official receiver should confirm the full details of
the case are included on the consent. The official receiver should check that the
name(s) of the correct insolvency practitioner(s) have been entered and match the
information on the IP database in ISCIS. For joint appointments all insolvency
practitioners nominated should be included on the consent to act. Separate consents
to act for each nominee are acceptable. The consent(s) to act should be saved to the
electronic case file under the tab “Closing papers, IP handover”.
45.32 Partnerships - general
Under the Insolvent Partnerships Order 1994, where the official receiver is appointed
as the responsible insolvency practitioner on the making of the order, an insolvency
practitioner may be appointed by the Secretary of State at the request of the official
receiver1. In articles 8 and 11 cases the insolvency practitioner appointed
automatically becomes the responsible insolvency practitioner in relation to any other
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member of the partnership where a subsequent order is made under the same
article2. Official receivers need to be aware of the exception in paragraph 45.33.
1. Insolvent Partnerships Order 1994, articles 7, 8 and 11 applying the provisions of the Insolvency Act 1986 with modifications
2. Insolvent Partnerships Order 1994, schedule 4, part II, article 13 or schedule 7, article 13
45.33 Partnerships – article 8 cases
In article 8 partnership cases the official receiver does not have the power to make
an application to the Secretary of State to appoint an insolvency practitioner in any of
the estates until an order has been made against the partnership (winding-up order)
and at least one of the members (usually a bankruptcy order).
If no orders have been made against the members of the partnership within 28 days
of the winding-up order against the partnership, the proceedings are treated as if a
winding-up order had been made under article 7 and a Secretary of State application
may then be made.
Where petitions against the individual members subsequently result in insolvency
orders, the insolvency practitioner acting as liquidator of the partnership will not
automatically become liquidator/trustee of the member unless the court directs at the
hearing that the provisions of article 8 apply, or directions are sought to apply the
provisions of article 8 to the proceedings. For further information on partnerships,
see chapter 52.
45.34 How to make an application for a
Secretary of State appointment
For details on how to make an application to the Secretary of State, refer to the
flowchart “How to apply to the Secretary of State for an Insolvency Practitioner
appointment”
Company cases – before making application to the Secretary of State the official
receiver must check the company is not dissolved, or pending dissolution because
the official receiver has filed notice with the Registrar of Companies the winding-up is
complete1. The official receiver must apply for restoration of the company or to defer
the dissolution before making application for the appointment (see chapter 54).
1. Section 205(2)
45.35 Migrated cases only
It is not possible for the official receiver to make a Secretary of State application in a
migrated case on ISCIS. The official receiver should send an email to IP.Requests
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with the heading ‘SoS appointment request – [case name]’ in the subject box. The
body of the e-mail should only state the following:
•
BKT or LQD number
•
case name
•
full name and address of IP(s) to be appointed
•
reason why the case could not be submitted through workflow
45.36 Refusal to appoint
Where the Secretary of State refuses to appoint a liquidator or trustee1 the official
receiver will be notified. Where the official receiver is aware an insolvency
practitioner is expecting to be appointed they should be informed that an
appointment will not be made. Where the official receiver considers specialist skills
are required to administer the estate the possibility of appointing a special manager
should be considered (see chapter 41).
1. Section 137(3) or section 296(2)
45.37 Effective date of appointment
The effective date of appointment will generally be the date that the Senior Official
Receiver’s Office process the certificate of appointment. This will appear on the
ISCIS case record and on the certificate of appointment.
1. Rule 7.57(3) or rule 10.72(3)
45.38 Action to take regarding certificate of
appointment
The official receiver should provide a copy of the certificate to the liquidator/trustee
as part of the handover of the estate, or earlier in urgent cases1.
1. Rule 7.57(2) or rule 10.72(2)
45.39 Creditors requisition a meeting after the
appointment of an insolvency practitioner by
the Secretary of State
A requisition of a decision to replace the official receiver in office as liquidator or
trustee is not valid once an insolvency practitioner is appointed1. Instead the
creditors have the ability to require the insolvency practitioner to start a decision
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procedure to remove the insolvency practitioner from office as liquidator or trustee2.
The official receiver should suggest that the requisition is made to the liquidator or
trustee. For further details on requisitioned decision procedures see chapter 44.
1. Section 136(5)(c) or section 298(4)
2. Section 172(20 or section 298(1)
Appointment by a decision procedure
45.40 General
Details of the conduct of decision procedures can be found in chapter 44. The official
receiver will start a decision procedure for the sole purpose of being removed from
office as liquidator or trustee and replaced by an insolvency practitioner1. Creditors
and insolvency practitioners who wish to requisition a decision procedure might be
reminded that the process may be easier if they can secure the support of a majority
of creditors and enable the official receiver to request an appointment by the
Secretary of State.
1. Section 136(4) or section 298(4)
45.41 Choice of liquidator (companies only)
The creditors and contributories may nominate different people to be liquidator. The
creditors’ nominee takes precedence over any nomination made by the
contributories. If the creditors have not passed a resolution for an appointment but
the contributories have, the appointment made at the contributories’ meeting will take
effect1.
If the creditors and contributories nominated different practitioners, either a creditor
or a contributory may, within 7 days of the creditors’ decision, apply to the court for
the appointment of the contributories’ nominee to be liquidator instead of or jointly
with the creditors’ nominee, or for another practitioner to be appointed in place of the
creditors’ nominee2. The convener of the decision procedure should certify any
appointment, notwithstanding that an application may be made to the court3.
Immediately after the official receiver knows the outcome of any hearing the official
receiver should notify any liquidator whose appointment is effectively terminated by
the making of the court order4.
1. Section139(3)
2. Section139(4)
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3. Rule 7.53
4. Rule 7.56
45.42 Effective date of appointment
Where a decision procedure has resolved to appoint a liquidator or trustee, the
liquidator’s or trustee’s appointment is effective from the date on which the convener
certifies the appointment and that date must be endorsed on the certificate1.
1. Rule 7.53(5) or section 10.68(3)
45.43 Consent to act and certification
An appointment of a liquidator or trustee should only be certified when the insolvency
practitioner has provided a written consent to act1.
When obtaining consent to act the official receiver should confirm the full details of
the case are included on the consent. The official receiver should check that the
name(s) of the correct insolvency practitioner(s) have been entered and match the
information on the IP database in ISCIS. For joint appointments all insolvency
practitioners nominated should be included on the consent to act. Separate consents
to act for each nominee are acceptable. The consent(s) to act should be saved to the
electronic case file under the tab “Closing papers, IP handover”.
The official receiver should provide a copy of the certificate to the liquidator/trustee
as part of the handover of the estate, or earlier in urgent cases2.
1. Rule 7.53(5) or section 10.68(3)
2. Rule 7.53(7) or rule 10.68(8)
45.44 No appointment
If the decision procedure does not result in the appointment of a replacement
liquidator or trustee, the official receiver must decide whether to seek an
appointment by the Secretary of State1sup.
1. Section 137(2) or rule 10.67
45.45 Appointment, resignation and removal
of insolvency practitioners as liquidator or
trustee
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An insolvency practitioner may resign or be removed as liquidator or trustee1. The
official receiver will fill any vacancy which arises upon the insolvency practitioner
vacating office2.
If the insolvency practitioner intends to resign, creditors must be invited by a decision
procedure or deemed consent to consider whether a replacement should be
appointed unless the resignation simply reduces the number of joint appointees3. A
resigning liquidator who will not be replaced in office must give the official receiver
notice of their intention to resign and details of outstanding matters to be dealt with in
the liquidation4. A resigning trustee must give notice of the decision procedure to the
official receiver5. The resignation is effective 21 days after the insolvency practitioner
files notice of their resignation with the court or, in a bankruptcy based upon a
debtor’s application, delivers notice to the official receiver6.
If there has been a resolution for the removal of the liquidator or trustee the convener
of the decision procedure must, within three days, deliver a certificate of removal to
the official receiver7. The official receiver must file the certificate of removal in court
(in a winding-up or bankruptcy based on a petition to court) as soon as reasonably
practical. A copy of the certificate must be sent to the removed liquidator / trustee
and, in a winding-up, notice of removal sent to Companies House8.
The removal of the liquidator or trustee is effective from the date of the certificate of
removal9.
If the creditors appoint a new liquidator or trustee, the convener will also send the
certificate of appointment to the official receiver10. The appointment is effective from
the date on which the convener certifies the appointment and that date must be
endorsed on the certificate11. The official receiver must deliver a copy of the
certificate of appointment to the new liquidator or trustee12.
The official receiver will be the liquidator or trustee if there is a vacancy13.
1. Section 172 or section 298
2. Section 136(3) or section 300
3. Rule 7.61 or rule 10.77
4. Rule 7.62
5. Rule 10.77(7)
6. Rule 7.61(7) or rule 10.77(8)
7. Rule 7.63 or rule 10.78
8. Rule 7.64 or rule 10.79
9. Rule 7.63(5) or rule 10.78(4)
--- PDF page 25 ---
10. Rule 7.63(3) or rule 10.78](2)
11. Rule 7.53(5) or section 10.68(3)
12. Rule 7.53(5) or section 10.68(8)
13. Section 136(3) or section 300)
Vacancies in office
45.46 Official receiver the liquidator or trustee
in a vacancy
The official receiver will become liquidator or trustee in the event of any vacancy in
office (e.g. after an insolvency practitioner’s release or death)1. A vacancy includes
cases where it is necessary to revive the trusteeship of a bankrupt’s estate after the
trustee has been released2.
If the official receiver considers the case requires the skills of an insolvency
practitioner, the official receiver should take immediate steps to secure the
appointment, normally by applying to the Secretary of State. Where an insolvency
practitioner has died or resigned for health reasons, it will often be convenient for
another partner in the firm to be appointed to secure continuity and minimise
expense.
1. Section 136(4) or section 300
2. Section 299
45.47 Referral to Secretary of State
(bankruptcy cases only)
The official receiver must, at the end of 28 days beginning with the date on which the
vacancy first came to the official receiver’s attention, refer the need for an
appointment to the Secretary of State, unless the official receiver has decided, or
has been required, to ask the creditors to appoint a trustee by a decision procedure1.
It is not practical for the official receiver to make this referral where the official
receiver will remain as trustee. Failure to refer the need for an appointment to the
Secretary of State will not undermine the official receiver’s ability to deal with an
asset or invalidate any of the official receiver’s actions as trustee. If, at a later, date
--- PDF page 26 ---
the official receiver finds that their appointment is appropriate, the official receiver
may apply to the Secretary of State in the usual way2.
1. Section 300(3),(3A)(4)
2. Section 296
Handovers
45.48 Immediate handover
It is important to handover the case on or shortly after the effective date of
appointment (see paragraphs 45.37 and 45.42). In any event, the case must be
offered for handover within eight working days following the date of appointment.
From the date of appointment, not handover, the insolvency practitioner has a
personal responsibility for the assets. The insolvency practitioner must notify their
insurers of the appointment, assets, and other details within 15 days of the end of
the month in which the appointment took place. Retrospective bonding is prohibited
and the insolvency practitioner can face financial and other penalties because of
delayed handovers. If it appears likely in advance of a decision date that an
insolvency practitioner will be appointed, there is no reason why all the papers
cannot be prepared for handing over to the insolvency practitioner immediately the
appointment is certified.
45.49 Handover by post
Handovers may be effected by post. The insolvency practitioner must acknowledge
receipt of articles handed over by returning the handover list, liquidator/trustee’s
undertaking and any other specific receipt duly signed1.
1. Form IPHBP: Insolvency practitioner - handover by post
45.50 Handover after the official receiver has
given notice the administration is complete.
If a case is being handed over to a liquidator after the official receiver has given
notice to the Registrar of Companies the winding-up is complete1, the record book
(IPROH) must contain a note of the date on which the notice was sent. The notes in
the record book (IPROH) must confirm whether the official receiver has made any
application to defer the dissolution of the company.
--- PDF page 27 ---
If the official receiver has not made application to defer the dissolution, the Secretary
of State may, on application of any other person who appears to be interested, make
an order deferring the dissolution for such a period as the Secretary of State thinks
fit2.
1. Section 205(1)
2. Section 205(3)
45.51 Collection agents
Where collection agents have been appointed the appointment of the agents should
be drawn to the attention of the insolvency practitioner in the record book (IPROH).
The official receiver should inform all agents instructed, that an insolvency
practitioner has been appointed as liquidator or trustee (NACT). The official receiver
will be responsible for pre-appointment charges if the insolvency practitioner has
insufficient funds to pay these costs. A copy of this correspondence should be given
to the insolvency practitioner.
The collection agent will then seek to renegotiate their employment with the
insolvency practitioner.
Where agents have been instructed through a conditional fee arrangement the
following wording should be used or adapted in the record book (IPROH),
‘[name of agent] have been appointed under a conditional fee arrangement to pursue
[details of asset]. The costs of engagement on behalf of the liquidator / trustee falls
within rule 7.108(4)(a)(ii) / rule 10.149(a)(i) of the Insolvency (England and Wales)
Rules 2016 as an expense of the estate. If the arrangement is terminated, their fees
immediately become payable by the liquidator / trustee from the estate, plus a
success fee if the claim is subsequently won.’
45.52 Official receiver’s duty of care
The official receiver owes the insolvency practitioner a common law duty of care
when providing information and the official receiver should take care to supply
proper, complete and accurate information about the insolvent’s estate. In particular
the official receiver should ensure that information which is not readily apparent from
the documents being supplied - for example, details of telephone conversations or
meetings the subject of which affects the estate - is provided.
This advice should be applied from the first time any approach to an insolvency
practitioner to take a case is made. If this is not done, and the insolvency practitioner
can show that the official receiver has been negligent causing loss to the insolvency
--- PDF page 28 ---
practitioner, an action may lie against the official receiver for damages for breach of
that common law duty of care.
It is also important that the information provided assists the insolvency practitioner in
obtaining specific penalty cover for the correct amount1. The amount of the specific
penalty equals the value of the insolvent’s unsecured assets at the date of
appointment.
1. Insolvency Practitioners Regulations 2005, schedule 2 paragraph 4
45.53 Duty of care – Initial Information Sheet
To assist the official receiver in the provision of information to the insolvency
practitioner the Initial Information Sheet should be completed in all cases (see Annex
B for bankruptcies and Annex C for companies).
The form should be updated if there are any changes between the case being
offered to the insolvency practitioner and the handover taking place. When the case
is handed over to an insolvency practitioner a final version of the document should
be included in the handover. A copy should be saved to the electronic case file.
45.54 Fees and expenses
The insolvency practitioner should be notified of any known or probable expenses,
relating to the security or realisation of assets, which remain outstanding at the date
of the handover.
Any invoices received after handover, e.g. relating to the payment of insurance
premiums due, will be charged to the estate and the debit balance transferred to the
insolvency practitioner.
Further information on fees, expenses and the estate account can be found in
chapter 48.
45.55 Handover of books and records
The insolvency practitioner is entitled to receive from the official receiver all the
insolvent’s books, papers and other records. Only in exceptional cases should the
official receiver consider retaining any of these, e.g. because of a pending
prosecution or disqualification.
Where proceedings are pending, the official receiver should have regard to chapter
16. If books and records are handed over it is essential that the insolvency
practitioner is made aware of the requirement to preserve the documents. The
--- PDF page 29 ---
official receiver will be able to recover records and documents from the insolvency
practitioner if they are required at a later date.
Where the books, records and papers are retained, the practitioner should be invited
to attend at the official receiver’s office to inspect the records as required. Any
relevant documentation may be copied on request.
For guidance on ensuring all books and records are handed over in a timely and cost
efficient manner, see chapter 16.
45.56 Items that should not be included in the
handover
The official receiver is required to provide the insolvency practitioner with all
information held which is reasonably required by the insolvency practitioner to
effectively discharge their duties as liquidator or trustee1. This is primarily documents
relating to the assets and liabilities. It does not include information relating to the
official receiver’s investigations (unless they relate to the recovery of assets) or
complaints received by or about the official receiver’s administration.
Where any document (for example, a narrative statement or a letter from a director
or bankrupt) contains information that should be disclosed but also information that
should not be disclosed, the official receiver should extract the disclosable
information into a separate document or letter to include in the handover or redact
the original document to hide the ‘un-disclosable’ elements.
Statements made voluntarily by third parties where the third-party may be identified
from the statement should not be disclosed without the written consent of the third
party. Typically, this will be letters or statements providing information to the official
receiver, for example, about un-disclosed assets. Any request for consent should be
specific to the party to whom the information is to be disclosed and the purpose.
1. Rule 7.60(7) or 10.75(7)
45.57 Handover of PIQs and narrative
statements
The insolvency practitioner should normally be provided with copies of the
preliminary information questionnaires (PIQs) and narrative statements, particularly
those taken in the early stages of the case, which contain information on potential
asset recoveries. Care should be taken to redact any ‘un-disclosable’ information
(see paragraph 45.55).
--- PDF page 30 ---
It is important to obtain the specific consent of the director or bankrupt to disclose the
PIQ and/or narrative statement. The PIQs contain a statement below the signature
box which acknowledges that if an insolvency practitioner is appointed as
liquidator/trustee in place of the official receiver, the liquidator/trustee will have
separate powers to require information. A copy of the booklet will be given to the
insolvency practitioner. A note in similar terms with positive consent to disclosure
should be included in any narrative statement taken which contains information
which would assist the liquidator or trustee.
45.58 Formal request for statements not
handed over
The insolvency practitioner may formally request copies of PIQs or statements not
handed over or serve a witness summons on the official receiver. The official
receiver should give due consideration to the contents of the document and the
guidance in chapter 22.
45.59 Handover of information received from
the Serious Fraud Office (SFO)
The official receiver can disclose information provided by the SFO, to an insolvency
practitioner appointed as liquidator or trustee1. If the official receiver thinks disclosure
would be appropriate or is requested to disclose, the official receiver should first
consult the SFO. If the SFO objects to disclosure, then the official receiver should
consider making an application to the court for directions<sup2</sup>.
1. Morris v Director of the Serious Fraud Office [1993] Ch 372
2. Rule 13.3
45.60 Handover of information received from
criminal investigators
Information obtained by criminal investigators or associated parties, e.g. the Police
or Crown Prosecution Service should not be disclosed to an insolvency practitioner.
Material seized in the course of a criminal investigation should only be disclosed
under a court order1. The insolvency practitioner may apply for disclosure on that
basis if appropriate.
By contrast, material obtained by other means during a criminal investigation, for
example a witness statement, can be disclosed if the witness consents. Any request
should be referred to the relevant criminal investigator.
--- PDF page 31 ---
1. Marcel v Commissioner of the Police of the Metropolis [1992] Ch 225
45.61 Items for handover
The following items should be included in the hand-over of the estate:
•
Initial Information Sheet, updated as required (see paragraph 45.27)
•
certificate of appointment (IPCAM or IPSSC), if not already sent
•
record book (IPROH)
•
liquidator or trustee’s undertaking (IPUND)
•
all proofs of debt received (the insolvency practitioner or their representative
should be asked to sign a specific receipt for these)
•
copies of the petition to the court, the winding-up or bankruptcy order and notice
of any amendment to the bankruptcy description
•
copies of any PIQ(s) and narrative statement(s) where the official receiver
considers that that information is reasonably required by the liquidator or trustee
•
copies of any statement of affairs or the relevant pages from the PIQ or
bankruptcy application which detail assets and liabilities (unless disclosed in
full)
•
official receiver’s report to creditors
•
copies of correspondence which relates to the administration of the estate, for
example, in relation to the employment of agents or solicitors, assets, bank
accounts. See paragraph 45.56 regarding disclosure of information provided by
identifiable third parties
•
details and all relevant paperwork of claims under the Employment Rights Act
1996
•
trading records and other books and papers of the company or bankrupt. A
detailed schedule of these records must be prepared by the official receiver and
signed by or on behalf of the insolvency practitioner. If the records are subject
to a lien, the existence of the lien should be drawn to the attention of the
insolvency practitioner. The official receiver may retain the insolvent’s records
where an investigation is in progress or where there is a prosecution,
disqualification or bankruptcy restriction hearing pending
•
any assets or items physically held by the official receiver and items or
documents relating to assets (e.g. keys, leases, bank or building society pass
books, vehicle registration documents, etc)
•
details of any insurance policies held by the official receiver and confirmation
that they will be cancelled within 5 working days of the handover
•
in company cases; details regarding dissolution (please see paragraph 45.50)
including details of any notice of deferral of dissolution filed by the official
receiver
--- PDF page 32 ---
45.62 Receipt (IPHBP)
In addition to any specific receipts obtained for any item, a general list of all
documents handed over must be prepared. The IPHBP is prepared by editing the list
that appears as standard on the second page of this document according to the
documents that are being handed over to the insolvency practitioner. Documents
should be put in the order of this list when handing over. The insolvency practitioner
will check the documents against the list and sign and return the second page to
confirm receipt. The receipt is retained within the electronic case file under the tab
“Closing papers, IP handover”.
45.63 Items received after handover
If after the handover, the official receiver becomes aware of additional information,
which is relevant to the insolvency practitioner’s duties as liquidator or trustee, the
official receiver should pass these to the insolvency practitioner as soon as possible.
45.64 Notification to
directors/partners/bankrupt of the
appointment (IPID/IPIB)
Where a liquidator or trustee is appointed, the official receiver should inform the
directors, partners or bankrupt of the appointment. Notice should also be given to the
former bankrupt in cases which are reopened and where appointments are made
after discharge.
45.65 Court appointment
Where there has been a direct appointment by the court, the official receiver should
ask the insolvency practitioner what records have been recovered, so the official
receiver can decide whether there is a need to inspect them1. In these cases there
will be no handover of the estate and no undertaking from the insolvency practitioner
to discharge the official receiver’s debit balance. Any current or future debit balance
on the account will still have to be discharged by the insolvency practitioner out of
any realisations; the official receiver should remind the insolvency practitioner of this
by letter and preferably obtain a signed form of undertaking.
1. Section 143(2) or section 305(3)
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The official receiver’s rotas
45.66 General
The official receivers maintain rotas of qualifying and willing local insolvency
practitioners for use in selecting an insolvency practitioner to be appointed liquidator
or trustee where there is no nomination from the creditors.
The rules relating to the operation of rotas are set by the Senior Official Receiver.
45.67 Purpose of the rota
The use of a rota ensures a fair distribution of cases for which the official receiver
decides there is a need for a Secretary of State appointment and there is no majority
creditor nomination. Additionally the use of a rota ensures that in making those
appointments the director(s), bankrupt or creditors are not inconvenienced by the
location of the insolvency practitioner.
45.68 Geographical extent of rotas
The official receiver should operate a rota for each office location within their
command, and the rota should extend to the geographical area covered by the areas
of the County Court hearing centre with bankruptcy jurisdiction for which the official
receiver has responsibility.
45.69 One entry on the rota per firm
The rota will contain all local insolvency practitioner firms willing and qualified for
inclusion, but the firm will appear only once on the rota regardless of the number of
qualified insolvency practitioners employed by the firm at the relevant location(s).
45.70 Use of the rota in debtor application
cases and by LTADT
In debtor application cases where the case is administered outside the geographical
location of the debtor’s residential address or in a case is with the LTADT, any
Secretary of State appointment will be made from the rota for the geographical area
(see paragraph 45.68) of the official receiver’s office in which the debtor’s residential
address is located or, in company cases, the official receiver’s office which had
conduct of the case immediately prior to its transfer to the LTADT.
--- PDF page 34 ---
45.71 Certification for inclusion in the rota
Inclusion on the rota is regulated by a system of self-certification. A named
insolvency practitioner in each firm has responsibility for the certification that the
relevant insolvency practitioners in that firm are duly authorised and qualified to act
and that the firm meets the criteria for inclusion on the rota. Annex E is a proforma
Certificate of Compliance and Annex F is the standard letter to be issued by official
receivers inviting firms to apply for re-certification.
Universal re-certification is carried out on a two year cycle.
45.72 Criteria for inclusion on a rota
The criteria which must apply before a firm can be included in the rota are:
•
the firm must operate within the area covered by the official receiver and have a
genuine local presence (see paragraph 45.73)
•
the firm’s local (rota) office must be permanently staffed within normal office
hours (see paragraph 45.74)
•
the insolvency practitioner with conduct of the case must exercise supervision
of the day to day casework and be available for meetings at the firm’s local
(rota) office during normal office hours
•
where the day to day administration of the case is not carried out at the firm’s
local (rota) office, staff at that office must have access to files and be able to
respond to all enquiries within a reasonable amount of time
45.73 Evidence of a local presence
For an insolvency practitioner to have a local presence, the firm’s office must occupy
and operate from an office within the boundaries of the County Court hearing centre
for which the official receiver has responsibility. A PO Box address (or similar) is not
sufficient to demonstrate evidence of a local presence.
45.74 Permanent staffing of the local office
For an office to be considered permanently staffed it must be staffed during normal
office hours by either the insolvency practitioner personally or by at least one directly
employed member of staff who is experienced in insolvency matters. It is not
sufficient for there to be an agency or retainer relationship with the employee at the
location.
45.75 Inspections to ensure compliance
--- PDF page 35 ---
Official receivers may carry out periodic visits to the premises of local (rota) offices to
ensure compliance with the criteria. The decision to make such a visit, and the scope
of the related enquiries, will be at the discretion of the official receiver, seeking
guidance from the Senior Official Receiver, as appropriate.
45.76 Sanction where firm found to be
operating outside criteria
Where, perhaps following an inspection, the IP firm is found to be operating outside
the required criteria, the official receiver should give the firm one month to remedy
the defect(s) and, if not remedied, that firm should be removed from the rota.
The official receiver should write to the firm to inform them of the removal, setting out
the reasons.
If appropriate, and subject to any representations from the firm, the responsible
insolvency practitioner(s) may be reported to their recognised professional body.
This will be appropriate, in particular, if the official receiver is of the opinion that the
firm has provided deliberately misleading information in an attempt (successful or
otherwise) to be placed on the rota. The decision to report an insolvency practitioner
in these circumstances is at the discretion of the official receiver, but the Senior
Official Receiver should be provided with a copy of the complaint.
45.77 Practical operation of the rota
The rota should sequentially list all qualified firms, including contact details.
The rota should be used to record details of the cases offered, accepted and
rejected by a firm. Where appropriate, any special circumstances regarding the case
or the reason for refusal should be noted against the relevant entry.
In general, the next firm on the list should be offered the case. If that firm turns down
the case, it should be offered to the next firm on the rota, and so on. Where a firm
turns down a case in circumstances where another firm subsequently accepts the
case, they will not be offered another case until the rota returns to that firm. The firm
would not lose their slot if the case is turned down for a valid reason such as a
conflict of interest.
45.78 Periodic audits of the operation of the
rota
Official receivers should undertake periodic reviews of the IP rota to ensure
compliance with the standard operational policies.
--- PDF page 36 ---
45.79 Transparency relating to the rota
To ensure that all matters relating to the operation of the rotas are open and
transparent, rotas will be published on the internet, including a quarterly publication
showing how cases have been offered, accepted and rejected.
45.80 Complaints relating to the operation of
the rota
Complaints relating to the operation of the rota should be addressed to the relevant
official receiver in the first instance, under the standard complaints process.
45.81 Dealing with applications to be put on
the rota
Where the official receiver is approached by an IP firm asking to be put on the rota
outside of the normal re-certification period, they may do so but must first ensure that
the Certificate of Compliance is completed and submitted (see paragraph 45.71).
45.82 Temporary removal from the rota due to
restriction on IP
From time to time a Recognised Professional Body may issue a restriction order
against an insolvency practitioner which will restrict them from taking any new
appointments for a given period of time. Any restrictions will be included on the
insolvency practitioner details on the IP Database on ISCIS. The official receiver
should ensure that insolvency practitioners are not offered new appointments during
the period of any restriction.
45.83 Removal due to repeated refusal to
accept cases
Unreasonable and repeated declining of cases can be considered a ground for the
official receiver to exclude an IP firm from the rota.
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ATTACHMENT: 47.Discharge.pdf
TEXT_FILE: 47.Discharge.pdf.txt
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--- PDF page 1 ---
This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 11 March 2020
47. Discharge
Discharge from bankruptcy, including suspending a bankrupt's period of discharge in
cases of non-cooperation
Annexes
Annex A - Transitional provisions on discharge from bankruptcy (under the
Enterprise Act 2002 which applies to all cases where the bankruptcy order was
made before 1 April 2004
Annex B - Criminal Bankruptcy order: Application for discharge
Chapter content
General (including automatic discharge)
Suspension of discharge
Compliance
Application by bankrupt for lifting of suspension order
Fees
Post discharge
General (including automatic discharge)
47.1 Duration of bankruptcy
A bankrupt is automatically discharged from bankruptcy one year from the date of
the bankruptcy order except where1;
a) the official receiver or the trustee applies to the court to suspend the discharge
and the court orders that discharge shall be suspended
--- PDF page 2 ---
b) the bankrupt was subject to a criminal bankruptcy order and therefore an
application for discharge is required (see Annex A and B); A bankrupt subject to the
automatic discharge provisions cannot apply to the court for discharge
1. Section 279
47.2 Second time bankrupts
Where a bankruptcy order is made against an individual on or after 1 April 2004, they
are discharged, and a subsequent bankruptcy order is made against them, they will
be automatically discharged from the second/subsequent bankruptcy one year from
the date of the bankruptcy order.
47.3 Bankruptcy restrictions orders before
second time bankrupt is discharged
If the official receiver makes application for a bankruptcy restrictions order (BRO) or
accepts a bankruptcy restrictions undertaking (BRU) then the second time bankrupt;
will still be discharged one year after the bankruptcy order; however, they will be
subject to the restrictions imposed under the terms of the BRO/BRU.
In determining whether an application for a BRO is appropriate, the court will
consider whether the bankrupt was an undischarged bankrupt at some time during
the period of 6 years prior to the current bankruptcy order. Similarly, in determining
whether to accept a BRU the official receiver should have regard to whether the
individual was an undischarged bankrupt in the previous 6 years.
A previous failure is not listed in the grounds for a BRO application1 but is a matter
for consideration when making an application. The official receiver cannot therefore
make application for a BRO solely as a result of the bankrupt having a previous
failure. There needs to have been unfit conduct in respect of the current bankruptcy
before an application is made. If, however, it can be shown that a bankrupt has failed
to learn from previous mistakes, the court may take this into account when making a
BRO and make it for a higher period.
For further information on second or subsequent bankruptcies see chapter 55. For
further information on BROs see the Enforcement Investigation Guide
1. Schedule 4A para 2(3)
47.4 Investigation not compulsory
The official receiver is not under a duty to investigate the conduct and affairs of a
bankrupt in a case where they consider it unnecessary1.
--- PDF page 3 ---
1. Section 289(2)
47.5 BROs/BRUs and discharge
If the official receiver makes application for a bankruptcy restrictions order (BRO) or
accepts a bankruptcy restrictions undertaking (BRU) then the bankrupt will still be
discharged one year from the date of the bankruptcy order but will be subject to the
restrictions imposed under the terms of the BRO/BRU.
47.6 No application for discharge where
bankrupt subject to automatic discharge
provisions
A bankrupt subject to the automatic discharge provisions cannot apply to the court
for discharge. If they wish to have an earlier release from the disabilities of
bankruptcy, their only course of action is to apply to have the bankruptcy order
annulled1.
1. Sections 261, 282(1)(a) & (b) and 263D(3)
47.7 Request by former bankrupt for a
certificate of discharge
Where a bankrupt obtains an automatic discharge by expiration of time, no order of
discharge is made by the court.
If evidence of discharge is requested by a former bankrupt, whether the request is
for a certificate or letter, the debtor should be provided with the telephone number
(0300 6780015) or email address for the Insolvency Enquiry Line (IEL)
(discharge.queries@insolvency.gov.uk). If the local office receives a written request,
it should be forwarded to the IEL inbox as detailed previously.
The IEL will deal with the request with an electronic response where possible. If no
email address is provided, the letter will be posted 2nd class. The discharge letter
emailed out is a Pdf copy, as this format prevents electronic amendments being
made. A copy of the letter will be filed in the case file in Wisdom.
There is no fee payable for a letter or certificate. The IEL will require the following
information from the debtor when making their request:
•
their full name
•
their date of birth
•
their National Insurance number
--- PDF page 4 ---
•
their postal address at the time of the bankruptcy
•
their current postal address
•
their current email address
However, the IEL are unable to deal with the following requests:
•
where the bankrupt is deceased
•
there is no information on ISCIS
•
gazetting of a discharge certificate
•
where the discharge is still suspended
In the above scenarios, the caller will be referred back to the local office. If the
bankruptcy order was made on a creditor’s petition, the IEL is unable to issue a
certificate of discharge (these should be obtained from the court in which the order
was made, for which a fee of £70 is payable). A letter of discharge can still be issued
by the IEL.
47.8 Certificate of discharge required from the
court
In cases where the bankruptcy order was made on or after 1 April 2004 the official
receiver will not usually be required to provide confirmation of the date of discharge
to the court. The court file will usually contain sufficient information to enable the
court to issue certificates of discharge where appropriate without recourse to the
official receiver. Where the bankrupt is subject to a bankruptcy restrictions
order/undertaking and the official receiver receives a request from the court, for
confirmation of the date of discharge in relation to the issue of a certificate of
discharge, the OR should write to the bankrupt using form DISBR. This form reminds
the bankrupt that discharge from bankruptcy does not release them from the conduct
restrictions imposed by the bankruptcy restrictions order/undertaking, for the period
specified within the order/undertaking. The official receiver should also inform the
court that such a reminder has been given.
47.9 Individual Insolvency Register
Individual Insolvency Register picks up information from ISCIS and may be accessed
on the internet.
An individual will remain on the Individual Insolvency Register for 3 months after the
date of discharge. The entry will then be removed1.
1. Rule 11.17
47.10 Repeal of early discharge
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This was introduced with the bankruptcy provisions of the Enterprise Act 2002 which
came into force on 1 April 2004.
The Enterprise and Regulatory Reform Act 2013 (specifically s73 Schedule 21 part
3) came into effect on 1 October 2013 and repealed the early discharge provisions
introduced by the Enterprise Act 2002; consequently, there is no statute which
permits early discharge.
Suspension of discharge
47.11 Suspension of discharge
Where a bankrupt has failed or is failing to comply with the obligations imposed on
them by the Act or Rules, particularly where there are any circumstances of non-
attendance, obstruction, misinformation, failure to provide required information, delay
or other serious misbehaviour on the part of the bankrupt, the official receiver or
trustee should consider applying to the court for the running of the automatic
discharge period to be suspended1, thus extending the date of discharge beyond the
normal period, pending the bankrupt’s full co-operation.
An application for suspension of discharge may be made by the official receiver or
the insolvency practitioner trustee. The court shall fix a date and venue for the
hearing and give notice to the official receiver, the trustee (other than the official
receiver) and the bankrupt2.
1. Section 279(3)
2. Rule 10.142(3).
47.12 Effect of suspension of discharge on the
limitation period
When considering whether or not to apply for a suspension of discharge, the position
of creditors with claims in bankruptcy which are provable, but which are not released
upon discharge, may need to be considered by the official receiver.
Discharge does not release the bankrupt from their liability to repay certain creditors,
such as those with personal injury claims against the bankrupt, or the appropriate
benefits provider, where benefit overpayments were made as a result of benefit fraud
on the part of the bankrupt (see chapter 43).
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Upon the making of a bankruptcy order section 285 of the Insolvency Act 1986
imposes restrictions on creditors with provable claims, from taking recovery action
against the bankrupt without the permission of the court. These creditors are
therefore usually restricted from continuing any action to recover sums due until after
discharge from bankruptcy has taken place.
However, in the case of Anglo Manx Group Ltd v Aitken [2002] BPIR 215, it was held
that the limitation period on an action for a debt which is not discharged under
section 281, continues to run throughout the bankruptcy period. The overall effect of
this judgment being that the actions of the official receiver in obtaining a suspension
of discharge may ultimately prevent creditors with claims in bankruptcy which are
provable, but which are not released upon discharge, from being able to recover
sums due to them (see chapter 43).
47.13 Report to court by official receiver
If the official receiver makes an application for suspension of discharge, it should be
accompanied by evidence in support setting out the reasons why it appears that
such an order should be made1. Where there is an insolvency practitioner acting as
trustee the official receiver should seek additional information and evidence from the
trustee in support of the application.
Copies of the official receiver’s report must be sent to any insolvency practitioner
trustee appointed and to the bankrupt to reach them at least 21 days before the
hearing2. A template letter is available on ISCIS ‘Docs’ tab for serving the report on
the bankrupt [LCRTB], and any trustee in office [LCRTR]. A Certificate of Service will
need to be completed for each of the parties who have been sent a copy of the
official receiver’s report. The insolvency practitioner trustee may attend the hearing
and make representations in person.
1. Rule 10.142(2)
2. Rule 10.142(4)
47.14 Where an Insolvency Practitioner
trustee is in office
It has been agreed with the Association of Business Recovery Professionals (R3)
that from 1 January 2012 the official receiver will, in certain circumstances, apply to
the court for the suspension of the bankrupt’s automatic discharge at the request of
an insolvency practitioner (IP) trustee.
Provided that the official receiver is in agreement that an application suspending the
bankrupt’s automatic discharge ought to be made the official receiver will make the
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application where there are no available funds in the insolvent estate and the IP
trustee has taken all other appropriate steps to seek the bankrupt’s compliance. For
the official receiver to make the application to court the IP trustee will need to:
•
prepare a witness statement that complies with the requirements of the
Insolvency (England and Wales) Rules 2016 setting out the evidence in support
of an application to suspend the automatic discharge of the bankrupt1
•
submit the signed and dated witness statement to the official receiver (OR)
relevant to the case at least one calendar month before the date of the
bankrupt’s automatic discharge
Within three business days of the witness statement being received the official
receiver will respond to the IP trustee and confirm whether or not they agree that
there are sufficient grounds to make the application. If the official receiver does not
agree that there are sufficient grounds then the response should summarise why
they are not in agreement.
Where the official receiver is in agreement that an order suspending the bankrupt’s
automatic discharge should be sought the official receiver will make application to
court, attend court and present the application. The IP (or an appropriate member of
the IP’s staff) will attend court to give evidence if so required by the official receiver.
1. Rule 10.142
47.15 Report to court by IP trustee
Where the insolvency practitioner trustee is making the application they may seek
supporting information and evidence from the official receiver.
The IP trustee will send a copy of their report to the official receiver to be received at
least 21 days before the hearing1. The official receiver will consider whether there
are any additional matters that should be reported to the court. Where there are such
matters the official receiver should attend the hearing.
1. Rule 10.142(2) & (5)
47.16 Bankrupt’s notice denying or disputing
official receiver’s/trustee’s evidence
The bankrupt may file a notice in court specifying any statements in the official
receiver or insolvency practitioner trustee’s evidence which they intend to deny or
dispute at the hearing1.
The bankrupt must file such notice no later than 5 days before the hearing1 and
must send copies of it to the official receiver and any insolvency practitioner trustee
no later than 3 days before the hearing2.
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1. Rule 10.142(6)
2. Rule 10.142(7)
47.17 Only conduct in the proceedings
relevant
Consideration of an application for suspension1 should only be influenced by the
bankrupt’s adverse conduct in the proceedings or with regard to their statutory duty
to co-operate with the official receiver2 or trustee3 e.g. to deliver up property, notify
after-acquired property3, 4 answer questions, particularly at a public examination etc.
or to provide information or to supply co-operation. Certain such matters may also
represent an offence for which a prosecution report may be considered (e.g. section
358). However, matters of misconduct which do not directly involve failure to co-
operate with the office-holder, such as credit offences under section 360, should not
form the basis of an application for the suspension of the running of the discharge
period. Such matters, together with adverse matters arising before the bankruptcy,
should only be considered with a view to the possible institution of criminal
proceedings.
1. Section 279(3),
2. Section 291,
3. Section 333
4. Section 307
47.18 Application is made on adjournment of
public examination
The official receiver is not required to submit a report to court1 when an application to
suspend discharge is made orally on a public examination being adjourned2, either
because of the bankrupt’s non-attendance or on other grounds, such as blatant non
co-operation, either at the hearing or in the proceedings generally.
In cases where the bankruptcy petition was presented before 6 April 2010 such an
application can only be made where a public examination is adjourned generally. For
cases where the bankruptcy petition was presented on or after 6 April 2010, an
application to suspend the bankrupt’s discharge can be made following any
adjournment of a public examination and not just when it is adjourned generally.
The bankrupt should be warned in the letter sent reminding them about the public
examination (see chapter 20) that an application for the suspension of their
discharge may be made if they fails to attend the examination.
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1. Rule 10.142(1)
2. Rule 10.104(5)
47.19 Period of suspension
Section 279(3) of the Insolvency Act 1986 provides: On the application of the official
receiver or IP trustee of a bankrupt’s estate, the court may order that the period
specified in section 279(1) shall cease to run until:
(a) the end of a specified period; or
(b) the fulfilment of a specified condition
Usually when the official receiver is making the application they would wish to seek
suspension of the running of the discharge period for an indeterminate period;
however, in Weir (as trustee in bankruptcy of Claire Elizabeth Hilsdon) v Hilsdon
[2017] EWHV 983 (Ch) the court held that Mawer v Bland type orders, where it was
held that the suspension period would last until the trustee confirmed that the
bankrupt had properly co-operated, are likely to be reserved for only those cases
where:
a) the relevant bankrupts are guilty of significant non co-operation, obstruction or
dishonesty; and
b) the OR or IP trustee is unable, because of the bankrupt’s conduct, to state with
any confidence at the hearing of the application what specific information is required
to constitute full compliance
The Judge went on to state that it was not only in the interests of bankrupts but also
in accordance with the Enterprise Act 2002 that a bankrupt should be able to tell with
some precision when their discharge will take place, so that they can move on with
their financial lives. He went on:
“If the case merits a suspension under section 279(3), a suspension for a fixed
period, or until some specifically identified condition has been fulfilled, satisfies that
desirable aim.”
Neither the act, nor the rules specifies a minimum or maximum period of suspension
for the purposes of section 279(3)(a).
Where a bankrupt’s conduct has been unsatisfactory but the official receiver forms
the opinion that they are genuinely not, and is never likely to be, in a position to
provide proper explanations, accounts, etc. the court may feel that a fixed term of
suspension is more appropriate. A fixed term may also be appropriate where the
bankrupt’s non co-operation has caused a considerable amount of extra work for the
official receiver (e.g. deliberately misleading information or non-disclosure of assets),
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even though subsequent inquiries may have led to the discovery of all relevant facts,
so that suspension until proper disclosure by the bankrupt is not a viable proposition.
47.20 Wording of order
The suspension order should either specify a period of time for which the running of
the discharge period will be suspended or one or more conditions to be fulfilled
before the running of the discharge period can be resumed1. The undischarged
bankrupt should not be put into the position of not knowing what they have to do to
reinstate the running of their discharge period, if the suspension is not for a
determined period of time.
In cases of complete non co-operation the official receiver should ask for the
suspension to apply until such time as the official receiver is of the opinion that the
bankrupt has complied with their obligations under section(s) 291 and/or 333, (as
evidenced by a report filed by the official receiver). (Mawer v Bland2)
Following judgment in the Weir v Hilsdon3 case the court should always consider
whether an order in Mawer v Bland form is really justified on the facts of the case,
rather than treating it as the default option. Accordingly, in cases where there has
been some cooperation the official receiver must consider tailoring the wording of the
suspension order to the particular circumstances of the case. So rather than simply
referring to compliance with sections 291 and/or 333, the order would specify what
the bankrupt is required to do, or provide, in order for the suspension to be lifted.
1. Section 279(3)
2. Mawer v Bland [2015] BPIR 66
3. Weir v Hilsdon [2017] EWHC 983 (Ch)
47.21 Hearing
The Insolvency (England & Wales) Rules 2016 state that all applications to court
must be heard in open court unless the court directs otherwise1. This brings
insolvency proceedings in line with the Civil Procedure Rules (CPR) which also state
that the requirement for a hearing to be in public does not require the court to make
special arrangements for accommodating members of the public2. CPR Part 39
provides guidance as to the circumstances when a court may consider that a hearing
should be held in private. See also chapter 10.
1. Rule 12.2(3),
2. Civil Procedure Rules 39.2
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47.22 Copies of order
If the court makes an order suspending discharge it must send copies to the official
receiver, any trustee who is not the official receiver and the bankrupt.
There have been some cases where the Individual Insolvency Register (see chapter
5) has not been updated following the suspension of discharge where an insolvency
practitioner has made the application but the official receiver has not been notified of
either the hearing or the order being made. Although the trustee has made the
application, rule 10.142(8) provides that is for the court, not the trustee, to give notice
of the hearing to the official receiver. Where the official receiver has not received
notification of the hearing and/or order the matter should be taken up with the
relevant court manager.
Compliance
47.23 Report to court of bankrupt’s
compliance
As soon as the official receiver has formed the opinion that the bankrupt has
complied with their obligations, they should report that opinion and the date the
official receiver formed it to the court. The official receiver may also wish to provide
to the court a draft order lifting the suspension of discharge. The official receiver
should evidence the sending of the report to the court by completing a Certificate of
Service. If the court discharges the order it will issue to the bankrupt a certificate to
that effect (see paragraph 47.27).
The submission of a report by the official receiver in cases where the discharge has
been suspended under Rule 10.104(5) (upon the adjournment of a public
examination) will avoid the need for further attendance at court to conclude the
public examination. In cases where the bankruptcy order was made prior to 1 April
2004 and the suspension order was obtained before, or after, 1 April 2004 see
Annex A.
Application by bankrupt for lifting of
suspension order
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47.24 Application by bankrupt
Where an order suspending a discharge period is made and the official receiver has
not asked for the suspension of discharge to be lifted, the bankrupt can apply to the
court to discharge the order1. When the court fixes a hearing date for such an
application the bankrupt must give at least 28 days notice of it to the official receiver
and any trustee appointed, accompanied by a copy of the application2.
1. Rule 10.143(1)
2. Rule 10.143(3)
47.25 Official receiver or trustee’s evidence
The official receiver and any insolvency practitioner trustee may appear on the
bankrupt’s application1. If they wish to they may, either in addition to or instead of
appearing, file in court evidence in support of any matters which they consider ought
to be drawn to the court’s attention2. Where there is any continuing lack of co-
operation or misconduct on the part of the bankrupt, the official receiver or trustee
should file a report and attend the hearing. If the discharge was suspended pending
the fulfilment of certain conditions, the court will expect the official receiver or trustee
to report as to whether those conditions have been fulfilled.
1. Rule 10.143(4)
2. Rule 10.143(5)
47.26 Copies of report
If a report is filed, copies must be sent by the official receiver to the bankrupt and to
any insolvency practitioner trustee not later than 14 days before the hearing1. The
official receiver should evidence the sending of the report to the bankrupt and any
Insolvency Practitioner trustee by completing a Certificate of Service, once
completed a copy of the Certificate of Service should be filed at court. If the bankrupt
intends to dispute any statements in the report they must, not later than 5 business
days (in cases where the bankruptcy petition was presented on or after 6 April 2010)
or 7 days (in cases where the petition was presented before 6 April 2010) before the
hearing, file in court a notice specifying any statements in the official receiver or
trustee’s report which they intend to deny or dispute2.
The bankrupt must send copies of the notice not less than 3 business days3 where
the petition was presented on or after 6 April 2010 (4 days where the petition was
presented before 6 April 2010) before the date of the hearing to the official receiver
and to any insolvency practitioner trustee.
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1. Rule 10.143(6)
2. Rule 10.143(8)
3. Rule 10.143(9)
47.27 Certificate of order
If the court discharges the order it will issue a certificate to that effect, indicating the
date when the discharge period begins to run again. The court will send a copy of
the discharge certificate to the bankrupt, official receiver and to any insolvency
practitioner trustee1.
1. Rule 10.143(10)
Fees
47.28 Fees on applications relating to
discharge
The Insolvency Proceedings (Fees) Order 2004 came into force on 1 April 2004 and
provides that The Insolvency Fees Order 1986 (as amended) shall be revoked,
except in relation to cases where the bankruptcy order was made before 1 April
2004. Consequently in cases where the bankruptcy order was made on or after 1
April 2004, no court fee is payable to the official receiver following any application to
court relating to the discharge of a bankrupt where the official receiver attends or
makes a report to court. The costs of the official receiver attending court are covered
by the new case administration fee.
The Insolvency Proceedings (Fees) Order 2016 revoked The Insolvency
Proceedings (Fees) Order 2004, however there is still no court fee payable and costs
as detailed above continue to be covered in the new case administration fee for all
orders made on or after 1 April 2004.
If there is an application to court in a case where the bankruptcy order was made
before 1 April 2004 (see Annex A), the hearing is held on or after 1 April 2004 and
the official receiver attends or makes a report to court, there will be no fee payable
by the bankrupt as the previous court fee has been abolished following the
introduction of the Insolvency Proceeding (Fees) Order 2004.
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47.29 No deposit for fees on discharge
application
When a bankrupt wishes to apply for their discharge he must give notice of the
application to the official receiver. The bankrupt is not required to deposit funds with
the official receiver to cover the costs of the application1. In no case do any costs or
expenses relating to a discharge application fall on the Official Receiver personally.
1. Rule 10.160 and 10.164
Post discharge
47.30 Debts not released on discharge
With limited exceptions, on discharge a bankrupt is released from all their bankruptcy
debts1 and those creditors will no longer be their creditors. With regard to the debts
from which the bankrupt is or is not released on obtaining their discharge2, reference
should be made to chapter 43.
1. Section 281
2. Rule 10.146
47.31 Post discharge Individual Voluntary
Arrangement
Following their discharge1 a bankrupt cannot propose an Individual Voluntary
Arrangement2 in respect of the bankruptcy debts as an application can only be made
where the debtor is an undischarged bankrupt or had debts which would enable
them to petition for their own bankruptcy3.
1. Section 281(1)
2. Section 253(1)
3. Ravichandran [2004] B.P.I.R. 814
47.32 Gazetting and advertising discharge
A discharged bankrupt is entitled, upon receiving a certificate of discharge, to
request that the Secretary of State give notice of the discharge in the Gazette and in
the same manner as the bankruptcy order was originally advertised1 (assuming it
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was, in fact, advertised originally). In practice this is dealt with by the official receiver
on behalf of the Secretary of State. The request should be in writing addressed to
the Secretary of State. The costs of such publication are met from the administration
fee. The notice must contain:
a) the name of the bankrupt
b) the date of the bankruptcy order
c) the statement that a certificate of discharge has been delivered to the former
bankrupt
d) the date of the certificate
e) the date from which the discharge is effective
For cases with petitions presented on or after 6 April 2010, the request should be
made by the former bankrupt within 28 days from the date of their certificate of
discharge. Requests for gazetting will be referred by the Insolvency Enquiry Line to
the local office to deal with.
1. Rule 10.144(5)
47.33 Income payments orders/agreements
post discharge
An IPO or IPA may remain in force and be varied after discharge1. (Further guidance
is given in chapter 35)
1. Sections 310 & 310A
47.34 Private examination post discharge
The power of the court to summon the bankrupt to attend for private examination1
can apply post discharge. (Oakes v Simms [1997] BPIR 499)
1. Section 366
47.35 Court’s power to cause warrant of arrest
to be issued post discharge
The power of the court to cause an arrest warrant to be issued can extend beyond
discharge. (Oakes v Simms [1997] BPIR 499)
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47.36 General control of the trustee by the
court post discharge
If the bankrupt, any creditor or any other person is dissatisfied by any act, omission
or decision of the official receiver they may make application to court. The court may
confirm, reverse or modify any act or decision of the trustee or may give them
directions or may make such other order as it thinks just1. The power to make such
application extends beyond discharge (Osborn v Cole [1999] BPIR 251). In practice
such applications rarely succeed (Cork Committee Report, paragraph 779)
1. Section 303
47.37 General control of court post discharge
In Engel v Peri [2002] BPIR 961, it was held that an application made under section
363 was valid subsequent to a bankrupt’s annulment. It is likely that the power to
make such application also extends beyond discharge.
47.38 Duties of bankrupt in relation to trustee
post discharge
The bankrupt’s duties in relation to the trustee under section 333 to:
a) give to the trustee such information as to their affairs
b) attend on the trustee at such times; and
c) do all such other things
as the trustee may reasonably require for the purposes of carrying out their functions
continue to apply after discharge.
Annex A
Transitional provisions on discharge from
bankruptcy (under the Enterprise Act 2002
which applies to all cases where the
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bankruptcy order was made before 1 April
2004
47.39 When transitional provisions are
applicable
The provisions in this Annex should be applied to those cases where the individual
had a bankruptcy order made against them before 1 April 2004 and they remained
undischarged from the bankruptcy at that date.
If the bankruptcy order was made on or after 1 April 2004 the provisions of section
279 of the Insolvency Act 1986 (as amended by section 256 of the Enterprise Act
2002) should be applied.
Commencement – this term refers to the commencement of the new discharge
provisions introduced under section 256 of the Enterprise Act 2002 and the
transitional provisions under schedule 19 to that Act on 1 April 2004.
Pre-commencement bankrupt – this term applies where an individual had a
bankruptcy order made against them before 1 April 2004 and they remained
undischarged from the bankruptcy at that date.
47.40 Duration of bankruptcy - transitional
provisions
Prior to the commencement of the new provisions, section 279 of the Insolvency Act
1986 stated that, except where an individual was subject to a criminal bankruptcy
order or was a second time bankrupt, a bankrupt would be discharged after the
relevant period, as follows:
a) where a certificate for the summary administration of the bankrupt’s estate has
been issued and is not revoked before the bankrupt’s discharge, the period of 2
years beginning with the commencement of the bankruptcy, and
b) in any other case, the period of 3 years beginning with the commencement of the
bankruptcy
Following the commencement of the new provisions on 1 April 2004, the relevant
periods above disappeared, except insofar as the period was required for calculating
the correct date of discharge under the transitional provisions in paragraph 4 of
schedule 19 of the Enterprise Act 2002.
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The transitional provisions provide that, subject to the exclusions detailed in the
paragraph below, a pre-commencement bankrupt was discharged from bankruptcy
at the
a) the end of one year beginning with the commencement (i.e. discharge occurred
on 1 April 2005)
b) the end of the relevant period applicable to the bankrupt under section 279(1)(b)
of the Insolvency Act 1986 as it had effect immediately before commencement. If the
individual’s automatic discharge would have occurred before 1 April 2005, discharge
would occur on that earlier date
47.41 Exceptions to transitional provisions
applying
The provisions detailed in paragraph 47.39 do not apply where the individual is not
entitled to an automatic discharge because;
•
the court ordered a suspension of discharge prior to 1 April 2004 (see
paragraph 47.41)
•
an order for suspension of discharge was obtained on application made on or
after 1 April 2004 (by either the official receiver or an insolvency practitioner if
he is trustee) (see paragraph 47.43)
•
a criminal bankruptcy order was made against the individual on a petition
presented under section 264 (1)(d) (see paragraph 47.48)
Historically, the provisions did not apply where
•
the individual was a second-time bankrupt (see paragraphs 47.46 to 47.47)
47.42 Order suspending discharge obtained
prior to 1 April 2004
When a pre-commencement bankrupt is subject to an order suspending their
discharge from bankruptcy and the order was obtained prior to 1 April 2004 the order
continues to have effect after commencement. The order may be varied or revoked
after 1 April 2004 under section 279(3) of the Insolvency Act 1986, as amended1.
Where the suspension of discharge was lifted before 1 April 2005, the bankrupt
would have obtained their discharge on 1 April 2005 at the latest. An earlier
discharge date may be applicable to bankrupts who, at the date the order of
suspension was imposed, had less than 12 months remaining of their original pre-
commencement discharge period. If the balance of time remaining was less than the
period from the lifting of the suspension to 1 April 2005, discharge would take effect
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at an earlier date when the balance of the original period expired after the
suspension was lifted.
Where a pre-commencement bankrupt subsequently cooperates and obtains a lifting
of the suspension of discharge at any time after 1 April 2005, the bankrupt will be
discharged a maximum of one year after the suspension is lifted. An earlier
discharge date is applicable to bankrupts who, at the date the order of suspension
was imposed, had less than 12 months remaining of their original discharge period.
In those cases, the shorter (remaining) period to discharge is preserved. When the
suspension order is lifted, discharge will take effect after the balance of the original
period has expired2. (See examples 1 and 2 below).
1. Enterprise Act 2002 schedule 19, paragraph 4(2)
2. Enterprise Act 2002 schedule 19, paragraph 4(3)
47.43 Examples - suspension of discharge
obtained prior to 1 April 2004
Example 1:
Where suspension of discharge was obtained after 34 months, the relevant period,
under section 279(1)(b) of the Insolvency Act 1986 as it had effect immediately prior
to commencement, is 2 months. The period to discharge is preserved.
Bankruptcy order: 1 February 2000
Suspension of discharge: 1 December 2002
Lifting of the suspension: 1 June 2008
Discharge date: 1 August 2008
Example 2:
Where suspension of discharge was obtained after 10 months, the relevant period,
under section 279(1)(b) of the Insolvency Act 1986 as it had effect immediately prior
to commencement, is 26 months and the shorter 12 month period to discharge is
therefore applicable.
Bankruptcy order: 1 February 2000
Suspension of discharge: 1 December 2000
Lifting of the suspension: 1 May 2008
Discharge date: 1 May 2009
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47.44 Suspension of discharge obtained after 1
April 2004
When a pre-commencement bankrupt is subject to an order suspending their
discharge from bankruptcy and that order was obtained on or after 1 April 2004, as
at paragraph 47.39 the transitional provisions for discharge do not apply. The
appropriate transitional period as set out below should thereafter be used in
calculating the date of discharge1.
Where at 1 April 2004 a pre-commencement bankrupt had less than one year
remaining under their original discharge period, a suspension of discharge obtained
after 1 April 2004 will suspend the running of this period. When the suspension order
is lifted, discharge will take effect after the balance of the original period has expired.
(See example 1 below).
Where at 1 April 2004 a pre-commencement bankrupt had more than one year
remaining under their original discharge period, the transitional provisions provide
that the bankrupt is discharged from bankruptcy after one year. When the
suspension order is lifted, discharge will take effect after the balance of the one year
period since 1 April 2004 expires. (See example 2 below).
1. Enterprise Act 2002, schedule 19, paragraph 4
47.45 Examples - suspension of discharge
obtained after 1 April 2004
Example 1:
Where the relevant period applicable to the bankrupt, under section 279(1)(b) of the
Insolvency Act 1986 as it had effect immediately before commencement, is less than
one year.
Bankruptcy order: 1 June 2001
Suspension of discharge: 1 May 2004
Lifting of the suspension: 1 January 2008
Discharge date: 1 February 2008
Explanation: at 1 April 2004 there were only two months remaining until discharge,
under section 279(1)(b) of the Insolvency Act 1986 as it had effect immediately
before commencement, which is less than the alternative transitional provision of
one year and it is therefore the appropriate period until discharge.
--- PDF page 21 ---
When the order suspending discharge was obtained on 1 May 2004 one month had
already expired since commencement on 1 April 2004, therefore upon lifting of the
suspension, only one month remains until discharge.
Example 2:
Where the relevant period applicable to the bankrupt, under section 279(1)(b) of the
Insolvency Act 1986 as it had effect immediately before commencement, is more
than one year.
Bankruptcy order: 1 December 2003
Suspension of discharge: 1 November 2004
Lifting of the suspension: 1 January 2008
Discharge date: 1 June 2008
Explanation: at 1 April 2004 there were twenty two months remaining until discharge,
under section 279(1)(b) of the Insolvency Act 1986 as it had effect immediately
before commencement, which is more than the transitional provision of one year. It is
therefore appropriate to use the shorter transitional period of one year until
discharge.
When the order suspending discharge was obtained on 1 November 2004, seven
months had already expired since commencement on 1 April 2004 therefore, upon
lifting of the suspension only five months remain until discharge.
47.46 Application to lift suspension of
discharge
Where the bankrupt is subject to an order suspending their discharge from
bankruptcy, they may apply at any time for the order to be lifted1.
1. Rule 10.143
47.47 Second time bankrupts - general
Where an individual (who was adjudged bankrupt before 1 April 2004 and remained
undischarged on that date) was also an undischarged bankrupt at any time during
the 15 years before the second or subsequent bankruptcy order was made, the
transitional provisions did not apply. A pre-commencement second time bankrupt
who had not been discharged (either absolutely or conditionally) from the second
bankruptcy before 1 April 2004 was discharged under the transitional provisions1;
a) at the end of the period of five years from 1 April 2004, or
--- PDF page 22 ---
b) earlier if the court made an order under section 280 of the Insolvency Act 1986
after 1 April 2004
1. Enterprise Act 2002 schedule 19, paragraph 5
47.48 Second time bankrupts – suspension of
discharge period
Under section 279 of the Insolvency Act 1986, as it had effect immediately before
commencement, the official receiver was unable to obtain a suspension of discharge
against a pre-commencement second time bankrupt. The reason for this was that
before commencement, a second time bankrupt was not entitled to an automatic
discharge and only received discharge from the second bankruptcy order following
an application made under section 280 of the Insolvency Act 1986. In such cases,
the official receiver was required to file a report and discharge could be denied
where conduct warranted it.
As the transitional provisions introduced automatic discharge for pre-commencement
second time bankruptcies1, the provisions also enabled the official receiver or
trustee, in the period between commencement on 1 April 2004 and automatic
discharge on 1 April 2009, to apply to the court for an order under section 279(3) to
suspend discharge.
1. Enterprise Act 2002 schedule 19, paragraph 5(5)
47.49 Criminal bankruptcy orders
A pre-commencement bankrupt, who was adjudged bankrupt on a petition under
section 264(1) (d) of the Act, was not discharged under the transitional provisions.
Instead the bankrupt would have to apply to the court for their discharge1.
The power to make criminal bankruptcy orders was abolished on 3 April 1989,
however there are still a few such cases where discharge has not yet been obtained.
1. Enterprise Act 2002 schedule 19 and Section 280
Annex B
Criminal Bankruptcy order: Application for
discharge
--- PDF page 23 ---
47.50 Application by bankrupt and official
receiver’s report
Where a bankrupt is subject to a criminal bankruptcy order, they can apply for
discharge under Section 280. Where such an application is made, the official
receiver is required to file and serve a report in Court1 and on the trustee and
creditors in compliance with the Rules2. Where the bankrupt wishes to dispute the
statements in the report, then they must file a notice in Court in accordance with the
Rules3.
1. Section 289(3)
2. Rule 10.160
3. Rule 10.161
47.51 Terms of discharge order
The court has discretion to grant an absolute order of discharge or to refuse an
order, or to grant an order of discharge subject to certain conditions. While the
official receiver’s report itself should not suggest in any way the terms on which the
discharge should be granted, the official receiver may, if invited by the court to do so,
be able to indicate a form of conditional order (beneficial to the creditors)1. The date
of effect, content and delivery of the order are provided for in the Rules2. The official
receiver or trustee should ensure the bankrupt complies with the order3.
1. Section 280(2)
2. Rule 10.162
3. Section 291(5)
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 11 March 2020
48. Insolvency accounting and financial
transactions
Annexes
Annex A - Table of fees
Annex B - Insolvent Partnerships Order 1994
Chapter content
Introduction
Fees payable in relation to winding-up and bankruptcy proceedings
Which costs are covered by the administration fee and which are paid by the
estate?
Fees on recall, rescission, stay or annulment of insolvency proceedings
Expenses in insolvency proceedings
Petition deposit and costs (excluding partnerships)
Partnership fees, costs and expenses
Debit balances
Fees and expenses in IVAs
Investment of funds by liquidator and trustee
Introduction
48.1 Content of this chapter
--- PDF page 2 ---
This chapter contains information to assist the official receiver in understanding how
the accounting systems in relation to insolvent estates operate and the legislative
basis for the accounting for fees and expenses relating to the work of the official
receiver.
Guidance on distributions is provided in chapter 49.
48.2 Abbreviations used in this chapter
The following legislative abbreviations may appear throughout this chapter:
Abbreviation Legislation
EA2002
The Enterprise Act 2002
FO1986
The Insolvency Fees Order 1986
FO2004
The Insolvency Proceedings (Fees) Order 2004
FO2016
FAO2007
The Insolvency Proceedings (Fees) Order 2016
Insolvency Proceedings (Fees) (Amendment) Order
2007
IA86
The Insolvency Act 1986
IR86
The Insolvency Rules 1986
IR2016
IAR2004
The Insolvency (England and Wales) Rules 2016
The Insolvency (Amendment) Rules 2004
IAR2009
The Insolvency (Amendment) Rules 2009
IAR2010
The Insolvency (Amendment) Rules 2010
IRegs 94
The Insolvency Regulations 1994
IARegs 2004
The Insolvency (Amendment) Regulations 2004
IARegs 2009
The Insolvency (Amendment) Regulations 2009
IPO94
The Insolvent Partnerships Order 1994
--- PDF page 3 ---
48.3 Current and historical legislation
governing the official receiver’s fees and
expenses
The fees and expenses charged in both company winding up and bankruptcy
proceedings in respect of the performance by the official receiver of their functions
and duties under IA86, or the performance of functions of the Secretary of State, are
laid down in:
•
the Insolvency Proceedings (Fees) Order 2004 where petition was presented
prior to 21 July 2016
•
the Insolvency Proceedings (Fees) Order 2016 where petition was presented on
or after the 21 July 2016
•
the Insolvency Regulations 1994
•
the Insolvency Proceedings (Monetary Limits) Order 1986
•
the Insolvency Practitioners and Insolvency Services Account (Fees) Order
2009
48.4 Application of current and previous fees
orders
The Insolvency Proceedings (Fees) Order 20016 (FO2016) came into force on 21
July 2017. FO2016 revoked FO2004 and it applies to all cases where the order was
made on a petition or application submitted on or after 21 July 2016.
The FO2004 revoked previous fees orders except in relation to ‘saved fees’ (the
Secretary of State fees), which continued to be applicable to cases that were
commenced under the Bankruptcy Act 1914 or the Companies Act 1985, before 29
December 1986 when the Insolvency Act 1986 came into force.
In the case of the Insolvency Fees Order 1986, the saved fees (which were the
Secretary of State fees) continued to be applicable to cases that were commenced
under the Insolvency Act 1986 after 29 December 1986 but in respect of which a
winding-up order or bankruptcy order was made before 1 April 2004 (described as
the “old cases”). All fees relating to “old cases” were abolished on 1 April 2007
following the implementation of the Insolvency Proceedings (Fees) (Amendment)
Order 2007.
48.5 Legislation relating to the calculation of
time and rate charges
--- PDF page 4 ---
Regulations 33 and 48 of the Insolvency Regulations 1994, dealing with the time and
rate fee apply with reference to calculating the official receiver's remuneration.
48.6 Debt relief orders (DROs) - fees payable
DROs do not generate an “estate”, however fees are charged to cover administrative
costs. All DRO applications are entered into an automated computer system by
approved intermediaries such as the Citizen’s Advice Bureau. A successful
application for a DRO requires the individual concerned to pay a fixed, non-
refundable £90 fee (fee DR01), which is both an administration fee for the
performance by the official receiver of their functions and payment of the costs (to a
maximum of £10) of the intermediary. The fee must be received by The Insolvency
Service Finance Section within 10 days of the submission of the DRO application by
an intermediary; otherwise the application is automatically rejected.
Fees payable in relation to winding-up
and bankruptcy proceedings
48.7 Summary of fees to be paid under the
Insolvency Proceedings (Fees) Order 2016
(FO2016)
The fees charged under FO2016 will only be charged in cases where a petition is
presented on or after the 21 July 2016. In cases where a petition is presented before
this date but an order is made on or after the 21st July 2016, the fees will be charged
in accordance with the fees order in place at the time of the petition being presented
For a bankruptcy or winding up order made on or after 1 April 2004 and petition
presented before 21 July 2016 FO2004 applies. No new fees are to be levied in
relation to cases made on petitions presented prior to 1 April 2004.
In summary, the fees charged under FO2016 are as follows:-
Name of fee
Current fee
Official Receiver's general fee
£6,000
--- PDF page 5 ---
Trustee / Liquidator fee
15% of asset value
realised by the Official
Receiver
Income Payment Agreement/Order set up fee
£150
Dismissed / withdrawn petition refund fee
£50
Debtor bankruptcy administration fee
£1,990
Creditor bankruptcy administration fee
£2,775
Company winding up administration fee
£5,000
Public interest Company winding up administration fee
£7,500
A summary of the fees chargeable where date of petition is pre 21 July 2016 under
the FO2004 (Schedule 2) (as amended) is given at Annex A. The application of
these fees when dealing with partnership cases is set out in a table format at Annex
B.
48.8 Official Receiver’s administration fees
The official receiver’s administration fee is payable to the official receiver on the
making of a bankruptcy or winding up order out of the chargeable receipts of the
estate of the bankrupt or, as the case may be, the assets of the insolvent company.
It is for the performance of the official receiver’s functions under the IA86. This
includes the duty of the official receiver to investigate and report upon the affairs of
companies in liquidation and bankrupts. It does not include anything done by the
official receiver:
(i) in connection with the appointment of agents for the purposes of, or in connection
with, the realisation of assets or;
(ii) anything done in connection with or, for the purposes of, distributing assets to
creditors;
(iii) the realisation of assets on behalf of the holder of a fixed and/or floating charge;
or
(iv) the supervision of a special manager
“chargeable receipts” means the sums which are paid into the Insolvency Services
Account after deducting any amounts which are paid out to secured creditors or paid
out in carrying on the business of the bankrupt or the company.
--- PDF page 6 ---
48.9 Official Receiver’s general fee
The official receiver’s general fee is a fixed single fee of £6,000 charged to the estate
on making of bankruptcy or winding up order where the date of petition or application
is 21 July 2016 or later. It is for administration costs not covered by the official
receiver’s administration fee.
It replaced the Secretary of State’s administration fee (see B2 and W2 in FO2004
schedule 2) which operated on a sliding scale related to the value of asset
realisation. The current fee structure allows creditors to know the maximum amount
that will be charged for a case to be administered.
48.10 Trustee / Liquidator fee
The trustee/liquidator fee is charged in cases where the official receiver acts as
trustee or liquidator and realises assets in a case where the date of petition or
application is 21 July 2016 or later. The fee is set at a level to cover the costs of
undertaking this work, currently 15% of asset value realised by the Official Receiver.
In practice the fee is automatically charged to the estate when EAS post the asset
funds paid into the Insolvency Service Account (ISA) in Official Receiver cases.
There is no maximum amount that can be charged under this fee.
48.11 The Income payments agreement (IPA)
/ Income payments order (IPO) set up fee
This fee is charged in all bankruptcy cases where an IPA or IPO is set up and the
date of petition or application is 21 July 2016 or later. It is a single fixed fee of £150
and covers the specific costs incurred by the official receiver of arranging and setting
up the IPA / IPO and will be collected from the first payments made by the debtor
into the arrangement.
This fee will only be charged once on a case. If a debtor defaults on their payments
under an IPA, and the official receiver makes application to Court to enforce
payments via an IPO, in these circumstances no further fee will be payable.
48.12 The dismissed /withdrawn petition
refund fee
A single fee of £50 applies to cover the costs of the official receiver’s administration
work when the petition is withdrawn or dismissed by the court and the deposit paid
on petition, less this fee, is refunded back to the petitioner.
--- PDF page 7 ---
48.13 Secretary of State Fee (Fees W2 and B2)
- Insolvency order dated 1 April 2004 to 31
March 2005
For all insolvency cases for the performance of general duties under the insolvency
legislation in relation to the administration of the estate of each company or
bankruptcy by the Secretary of State, there is a fee payable, limited to a maximum of
£80,000. This is calculated as a percentage of total chargeable receipts relating to
the company or bankruptcy (fee W2 and B2).
For chargeable receipts dated on or after 6 April 2009 where the insolvency order
date is 1 April 2004 to 31 March 2005 (company and bankruptcy cases) the
Secretary of State fee no longer applies.
48.14 Secretary of State Fee (Fees W2 and B2)
- Insolvency order date on or after 1 April
2005 but before 6 April 2010
For all insolvency cases for the performance of general duties under the insolvency
legislation in relation to the administration of the estate of each company or
bankruptcy by the Secretary of State, there is a fee payable, currently limited to a
maximum of £80,000. This is calculated as a percentage of total chargeable receipts
relating to the company or bankruptcy (fee W2 and B2).
For both company and bankruptcy cases where the insolvency order date is after 1
April 2005 but before 6 April 2010, the first £2,000 of chargeable receipts is not
subject to the Secretary of State fee (0% applies) and the rate to be charged for
chargeable receipts above this amount is 17%.
48.15 Secretary of State Fee (Fees W2 and B2)
– where the insolvency order date is on or
after 6 April 2010 and before 16 November
2015
In cases where the insolvency order date is on or after 6 April 2010 and before 16
November 2015, the Secretary of State fee for the administration of the estate is also
payable as for pre 6 April 2010 cases, but it is calculated at different rates as a
percentage of total chargeable receipts, depending on the amount of those
chargeable receipts, as follows:
--- PDF page 8 ---
(a) Company cases (Fee W2)
•
first £2,500 of chargeable receipts - not subject to the Secretary of State fee
(0% fee applies)
•
next £1,700 of chargeable receipts - 100% fee applies
•
next £1,500 of chargeable receipts – 75% fee applies
•
next £396,000 of chargeable receipts – 15% fee applies
•
remaining amount of chargeable receipts - 1% fee applies (to a maximum total
fee of £80,000)
(b) Bankruptcy cases (Fee B2)
•
first £2,000 of chargeable receipts - not subject to the Secretary of State fee
(0% fee applies)
•
next £1,700 of chargeable receipts - 100% fee applies
•
next £1,500 of chargeable receipts - 75% fee applies
•
next £396,000 of chargeable receipts – 15% fee applies
•
remaining amount of chargeable receipts - 1% fee applies (to a maximum total
fee of £80,000)
48.16 Secretary of State Fee (Fees W2 and B2)
– where the insolvency order date is on or
after 16 November 2015 and presentation of
bankruptcy or winding up petition is before 21
July 2016
In cases where the insolvency order date is 16 November 2015 or later and the
bankruptcy or winding up petition is presented before 21 July 2016, the Secretary of
State fee for the administration of the estate is also payable as for 6 April 2010
cases, but it is calculated at different rates as a percentage of total chargeable
receipts, as follows:-
(a) Company cases (Fee W2)
•
first £2,500 of chargeable receipts - not subject to the Secretary of State fee
(0% fee applies).
•
next £1,700 of chargeable receipts - 75% fee applies.
•
next £1,500 of chargeable receipts – 50% fee applies.
•
next £396,000 of chargeable receipts – 15% fee applies.
•
remaining amount of chargeable receipts - 1% fee applies (to a maximum total
fee of £80,000)
(b) Bankruptcy cases (Fee B2)
--- PDF page 9 ---
•
first £2,000 of chargeable receipts - not subject to the Secretary of State fee
(0% fee applies).
•
next £1,700 of chargeable receipts - 75% fee applies.
•
next £1,500 of chargeable receipts - 50% fee applies.
•
next £396,000 of chargeable receipts – 15% fee applies.
•
remaining amount of chargeable receipts - 1% fee applies (to a maximum total
fee of £80,000)
48.17 Bankruptcy ceiling – where bankruptcy
petition presented before 21 July 2016
In addition to the percentage and maximum amount restrictions on charging the
Secretary of State fee in bankruptcy estates only no Secretary of State fee is
charged on that part of the total receipts which exceeds the bankruptcy ceiling. The
Secretary of State fee and bankruptcy ceiling does not apply in cases where
bankruptcy petition is presented on or after 21 July 2016. The FO2004 describes the
bankruptcy ceiling as the sum arrived at by adding together:
•
the bankruptcy debts required to be paid under the Rules;
•
any interest payable by virtue of section 328(4); and
•
the expenses of the bankruptcy as set out in rule 6.224) other than;
•
any sums spent out of money received in carrying on the business of the
bankrupt; and
•
fee B2 (the Secretary of State fee)
Existing fees charged properly should remain as charged.
Where known creditors have not proved their debts and therefore it is not possible to
pay all debts listed in the bankruptcy, there is authority1 to the effect that for the
purposes of section 330(5), creditors means creditors who have proved in the
bankruptcy. Where creditors remain unproved and the trustee is calculating the
bankruptcy ceiling, the trustee is permitted to include only the proved creditors and
the statutory interest paid to them as the bankruptcy debts required to be paid under
the Rules.
1. Re Ward, Ex parte Hammond and Son v The Official Receiver and the Debtor [1942] Ch 294)
48.18 Official receiver's remuneration (Time
and Rate Fee)
Regulation 35 of the IRegs 1994 provides that the official receiver is entitled to
remuneration calculated in accordance with the applicable hourly rate for services
provided by themselves in relation to:
--- PDF page 10 ---
•
a distribution made by themselves when acting as liquidator or trustee to
creditors (including preferential or secured creditors or both such classes of
creditors);
•
the realisation of assets on behalf of the holder or a fixed or floating charge or
both types of those charges;
•
the supervision of a special manager;
•
the performance by themselves of any functions where they act as provisional
liquidator; or
•
the performance by themselves of any functions where they acts as an interim
receiver
In other words, where the official receiver makes a distribution or performs a task for
which there is no fee applicable, they should charge the time and rate fee for their
remuneration. The time spent in carrying out the duty should be recorded and the fee
is based on an hourly rate depending on the number of creditors and the expected
time spent by each grade, using the appropriate tables as detailed in the legislation.
48.19 VAT payable on fees
Where VAT is chargeable in respect of a service for which a fee is prescribed by
virtue of the provisions of the FO2004, VAT is payable in addition to that fee, e.g.
VAT is chargeable on the time and rate fee charged when making a distribution to
creditors. The VAT must be charged regardless of whether the estate is registered
for VAT1. No VAT is charged on the administration fee or where time and rate is
used to calculate the reduced administration fee.
1. Insolvency Proceedings (Fees) Order 2004, article 9
Which costs are covered by the
administration fee and which are paid by
the estate?
48.20 Official receiver’s (non asset recovery)
actions covered by the administration fee
Costs for work carried out by the official receiver which relates to their duties as
official receiver (for example enquiries into the insolvent’s affairs to support an
investigation or the compilation of the report to creditors) are covered by the
administration fee, regardless of whether the official receiver does it directly
--- PDF page 11 ---
themselves or if they instruct someone else to carry out the work on their behalf. It
follows therefore that if there are any expenses incurred by the official receiver in
undertaking the work covered by the administration fee they should not be charged
to the insolvency estate but should be paid from the Vote account, where the
administration fee income is cumulatively held, in effect.
48.21 Costs incurred in realising assets
Costs incurred by the official receiver as trustee or liquidator in respect of the
protection and realisation of assets are charged to the estate as disbursements. This
does not include any time and rate costs which are not charged in practice.
48.22 Treatment of disbursements
The following table summarises the treatment of disbursements in official receiver’s
insolvency cases post 1 April 2004:
Description of
disbursement
Administration
fee applicable?
Charge
to
estate?
Advertisement (for everything
except a distribution)
Yes
No
Advertisement for distributions
No
Yes
Gazette Notice (other than
provisional liquidations and
dividends)
Yes
No
Gazette Notice (provisional
liquidations and dividends)
No
Yes
Court fees – relating to the official
receiver’s general duties
Yes
No
Court fees – relating to trustee
functions
No
Yes
--- PDF page 12 ---
Land Registry search fees
Yes
No
Land Registry – Form J restrictions Yes
No
Redirection of mail
Yes
No
Travel and subsistence (non asset
related)
Yes
No
Travel and subsistence (asset
related)
No
Yes
Collection of books and records
Yes
No
Experian searches
Yes
No
Insurance
No
Yes
48.23 Payments of advertising costs (non-
Gazette)
The Insolvency Service has a SLA with Tribal, as its agent responsible for dealing
with the issue of all statutory advertising carried out by the official receiver, for
publication where newspaper advertising is required.
Tribal raises invoices for the adverts placed, only after it has received proof of
publication of the advertisement, which will generally be within 21 days of
publication.
Payment of these invoices is dealt with by direct payment, administered centrally.
The cost of an advertisement is covered by the administration fee except for
advertisements relating to distributions and where required need to be charged to
the estate.
48.24 Gazette Notices post 6 April 2009
Payment of the invoices relating to Gazette notices are dealt with centrally. The
exceptions to this are the payment of Gazette notices relating to provisional
liquidations and dividends, which will be dealt with separately by Public Interest Units
and the National Dividends Units respectively, as the costs of these notices are not
part of the administration fee.
--- PDF page 13 ---
48.25 Court fees payable by the official
receiver
The administration fee covers applications that relate to the performance by the
official receiver of his general duties as official receiver on the making of a
bankruptcy order or a winding-up order. In the majority of applications in this
category however no fee will arise as no fee is payable on a request or on an
application to the court (County Court or High Court) by the official receiver, when
applying only in the capacity of official receiver to the case (and not as liquidator or
trustee)1.
The administration fee will not cover applications that are associated with the
realisation of assets, where the official receiver is likely to be making application as
liquidator or trustee (e.g. an IPO application).
1. Civil Proceedings (Fees) Order 2008, schedule 1, paragraph 1(3)
48.26 Land Registry charges
HM Land Registry fees are paid by the Service through a variable direct debit. The
fees will be added to the variable direct debit (VDD) automatically where the Land
Registry Portal is used but where a paper based application is made (for example an
RX1) the option to pay through a “direct debit, under an agreement with Land
Registry” should be selected. It is important that the Service’s key number is entered
correctly on the form. The key number can be found in the template RX1.
As the lodging of a Form J restriction is related to the realisation of assets, the cost
of obtaining the restriction is not covered by the administration fee and should
therefore be charged against the estate. EAS will check the invoices from the Land
Registry and arrange for them to be paid. It is very important that staff use a
reference that refers to the office making the application and the particular case to
which the application relates in the format “BKT Number-Office” e.g. BKT00000001-
LTADT. If the Form being used forms part of a joint application the reference should
be prefixed with the letters “JNT”.
When assigning the payments EAS will charge general searches to the
administration fee and Form J restrictions to the estate. If you complete a transaction
that needs to be allocated in an alternative manner, please contact EAS.Enquiries.
48.27 Travel and subsistence
A travel and subsistence claim relating to the protection of assets (a trading
inspection) is not payable from the administration fee and should be paid by the
--- PDF page 14 ---
estate. If, however, the inspection was also for the purpose of collecting or
protecting accounting records in relation to a possible investigation, it may be
necessary to apportion the cost between the estate account and the Vote account.
A claim entirely in connection with enforcement to cooperate or further investigation
work would be covered by the administration fee and should be paid from the Vote
account.
48.28 Apportioning costs where agents
recover assets and accounting records on
behalf of the official receiver
Where an agent is employed by the official receiver to recover assets, they will
usually account to the official receiver for the proceeds of the assets they
hav recovered net of their fees and expenses, as a direct cost to the estate account.
Where the official receiver has instructed their agent to recover accounting books
and records, the cost of this activity is covered under the official receiver’s
administration fee.
Where the agent has been instructed to recover both assets and records on behalf of
the official receiver, they should be asked to identify in their invoice which costs
relate to which activity, to enable the official receiver to apportion the expenses
accordingly.
48.29 Public Interest Unit (PIU) cases
Where an order appointing a provisional liquidator/interim receiver has been made,
any disbursements up to the date of the winding-up order or bankruptcy order are
charged to the estate. The decision on whether further disbursements on a PIU case
should be charged to the estate will be determined on exactly the same basis as any
other insolvency case which the official receiver administers – as set out in
paragraphs above.
Fees on recall, rescission, stay or
annulment of insolvency proceedings
--- PDF page 15 ---
48.30 Full administration and general fees to
be charged unless annulment on the grounds
of ‘ought not to have been made’
The legislation does not allow any discretion over whether the administration and
general fees are charged. Consequently, where an annulment is on the grounds that
the debts are paid in full or following the agreement of an IVA, both fees should be
paid in full before the official receiver can agree to the annulment.
If the annulment is on the grounds that the order ought not to have been made the
official receiver should instead ask for costs based on actual disbursements and a
fee based on a time and rate calculation (limited to the maximum administration
fee). In these cases an annulment order will have a similar effect as if the
bankruptcy order had been cancelled and therefore the application of the statutory
fees order will not be brought into effect.
48.31 Seeking official receiver’s costs where
annulment occurs without notice
Where a (former) bankrupt has failed to follow proper procedure in making an
annulment application, for example, by not advising the official receiver of the
hearing thereby denying the official receiver the opportunity to seek their costs in the
proceedings, the official receiver may seek a review of the annulment order. Unless
the petition has been adjourned and not dismissed, following annulment the
bankruptcy proceedings are in effect “closed” as far as the court is concerned, which
means it will not be possible to make an application for a costs order, unless an
application is made to court to review the annulment order.
The official receiver should also consider the following options to recover costs and
fees in the proceedings:
•
using the petition deposit to discharge the outstanding fees, to the extent that
assets recovered are not sufficient
•
where funds are held from the realisation of assets these could be retained to
recover the official receiver’s costs
•
writing to the (former) bankrupt to seek payment of costs, informing them that if
agreement cannot be reached, the official receiver will seek a review of the
annulment and this could result in the individual being declared bankrupt again
--- PDF page 16 ---
Expenses in insolvency proceedings
48.32 Payment of expenses or costs from the
insolvent estate assets
In liquidation proceedings any fees, costs, charges and other expenses incurred in
the course of the liquidation are to be regarded as expenses of the liquidation and
are payable out of the assets of the company (including property comprised in or
subject to a floating charge), prior to any distribution to creditors or contributories. In
bankruptcy proceedings the expenses of the bankruptcy are payable out of the
assets of the bankrupt’s estate prior to any distribution to creditors.
48.33 Order of priority of payment
The priority for payment of costs and expenses must be followed in order, as set out
in the Insolvency (England and Wales) Rules 2016 at Rule 7.108 (company
liquidations) and Rule 10.149 (bankruptcies). Rule 7.108 is subject to the provisions
of rules 7.111 to 7.116, which deal with litigation expenses and property subject to a
floating charge.
48.34 Expenses where there is a floating
charge account in a liquidation case.
Section 176ZA applies to all compulsory liquidation cases where the winding-up
order is made on or after 6 April 2008, except where the winding-up order is made
following a resolution for a voluntary winding up, passed by that company before the
commencement date (6 April 2008).
The effect of this section is to allow unpaid general liquidation expenses to be
recovered from the floating charge account as well as the general estate account.
48.35 Expenses of previous voluntary
liquidation
If a creditors’ or members’ voluntary winding up precedes a winding up by the court,
the remuneration of the voluntary liquidator and the costs and expenses of the
voluntary liquidation that may be allowed by the court, rank in priority with those of
the provisional liquidator, official receiver or liquidator referred to in the Insolvency
(England and Wales) Rules 2016 Rule 7.108(4)(a) Rule 7.109 refers.
--- PDF page 17 ---
48.36 Expenses of provisional liquidator
Where a provisional liquidator causes a company to continue trading until the
business of the company is sold as a going concern, and has collected VAT and
deducted PAYE income tax and national insurance contributions from staff wages,
these expenses are given superior priority1. In the relevant precedent case case, the
High Court also ordered that other expenses incurred by the provisional liquidator in
preserving, realising or getting in any of the assets should be paid in priority to the
expenses of the official receiver or liquidator in undertaking the same type of work,
but after the payment of the tax liabilities.
1. Grey Marlin Limited [1999] All ER (D)
48.37 Expenses incurred in an existing
voluntary arrangement
If a winding-up order is made when there is at the date of the presentation of the
petition a company voluntary arrangement (CVA) in force, the expenses properly
incurred as expenses of the administration of the CVA should be paid in priority to
any expenses of the liquidation.
In the same way, if a bankruptcy order is made on a debtor’s petition, and at the time
the petition is presented the debtor is subject to an individual voluntary arrangement
(IVA) which is in force, any expenses properly incurred as expenses of the
administration of the IVA become a first charge on the bankrupt’s estate.
48.38 Payment of administrator’s
remuneration and expenses upon vacating
office
Where a person ceases to be the administrator of a company, which could be as a
result of resignation, death, removal from office or cessation of appointment (for
example where a winding-up order is made), the former administrator holds a first
charge in respect of their remuneration and expenses incurred during their
appointment, on any assets over which they had custody or control immediately
before the cessation of the administration1. This also applies to any assets held by
the administrator which are subject to a floating charge2, 3.
In practice this means the former administrator is likely to transfer to the liquidator
any assets they are holding net of their remuneration and expenses. For details of
the priority of payment of administration expenses see rule 3.51.
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1. Insolvency Act 1986, schedule B1, paragraph 99(3)(a)
2. Insolvency Act 1986, schedule B1, paragraph 99(3)(b)
3. Insolvency Act 1986, schedule B1, paragraph 70
48.39 Administrator’s charge over assets held
immediately prior to cessation of appointment
Any sum payable in respect of a debt or liability arising out of a contract entered into
by the former administrator is also a first charge on assets over which they had
custody immediately prior to the cessation of their appointment1. This includes any
liability arising under a contract of employment adopted by the former administrator
(or a predecessor)2. The charge on the assets in respect of these debts arising out of
contracts entered into, takes priority over any charge in respect of the former
administrator’s remuneration and expenses.
1. Insolvency Act 1986, schedule B1, paragraph 99(4)
2. Insolvency Act 1986, schedule B1, paragraph 99(5)
48.40 Assets received by liquidator following
prior administration
Where an administrator was in office prior to the liquidation of the company, any
remuneration and expenses owing to the administrator are charged on and payable
out of assets of which the administrator had custody or control immediately before
cessation of appointment. However, there may be instances of funds refundable to
the company prior to cessation but paid after cessation that do not fall within this as
they cannot be said to have been within the custody or control of the administrator.
An example of this would be a refund of business rates due prior to cessation but
paid after cessation.
48.41 Payment of expenses of winding up
proceedings
In the event of assets being insufficient to satisfy the liabilities, the court may make
an order as to the payment out of the assets of the expenses incurred in the winding
up, in such order of priority as it thinks just1. In a normal case, the priorities laid down
by IR2016 rules 7.108 and 7.109 will apply. The court will only in exceptional
circumstances exercise its jurisdiction under IA86 section 156 to confer on the
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liquidator’s remuneration, or any part of it, priority over liquidation expenses which
would normally rank before it2.
1. Section 156
2. Re Linda Marie (In liquidation) (1988) 4 B.C.C. 463
48.42 Payment of former liquidator or
trustee’s costs (official receiver acting ex-
officio)
Where an insolvency practitioner vacates office following appointment as liquidator
or trustee, they may have unbilled costs still to be charged to the estate. If the official
receiver, acting in an ex-officio capacity, realises further assets, the former liquidator
or trustee’s unbilled costs can be paid from these further realisations following the
usual order of priority1, 2.
1. Rule 7.108
2. Rule 10.149
Petition deposit and costs (excluding
partnerships)
48.43 Petition deposit
A winding-up or bankruptcy petition cannot be presented to court unless a deposit
has been paid to the court and receipt produced or the Secretary of State has given
written notice to the court, that the petitioner has made suitable alternative
arrangements to pay the deposit1, 2, 3. An exception to this requirement to pay a
deposit is where the court, on hearing an application for an administration order in
respect of a company, decides instead to treat the application as a winding-up
petition and make any order which the court could normally make under section 125
of the IA86 (powers of court on hearing of petition)4. Courts must transmit the
deposit paid, with the details of the petition, to The Insolvency Service, Estate
Accounts and Scanning (EAS)5.
1. Rule 7.7
2. Rule 10.12
3. Rule 10.39
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4. Schedule B1, paragraph 13(1)(e)
5. Insolvency Proceedings (Fees) Order, article 6(3)
48.44 Deposit and Adjudicator’s
administration fee for bankruptcy application
Bankruptcy debtor petitions were removed from the courts and replaced by the new
online bankruptcy application service from April 2016. The digital applications go to
the Adjudicator’s Office who consider and make the decision for bankruptcy. The
debtor must pay a total sum of £680 in full before their bankruptcy application can be
submitted. This comprises £130 for the Adjudicator’s administration fee, for the
performance of the Adjudicator functions, and £550 deposit as security for the
payment of the Official Receiver’s fee.
After a bankruptcy application is submitted the Adjudicator’s fee (£130) is not
returned regardless of the outcome decision. The deposit amount will be repaid to
the debtor where the Adjudicator has refused to make a bankruptcy order, 14 days
have elapsed since notice of refusal and no request made to review the decision.
48.45 Amount of Petition deposits
The Insolvency Proceedings (Fees) Order 2016, article 4, makes provision for the
payment of deposits as security for the payment of fees in insolvency proceedings.
Article 2 provides that the appropriate deposits to pay are as follows (with effect from
21 July 2016):
(a) in relation to a winding-up petition, other than a petition presented under section
124A (petition on grounds of public interest), the sum of £1,600;
(b) in relation to making a bankruptcy application by the debtor , the sum of £550;
(c) in relation to all other cases (including creditor petition bankruptcy cases)1, the
sum of £990
1. Section 264(1)
48.46 Deposit repayment (including following
annulment or rescission)
The deposit paid by the petitioner on presentation of a winding-up or bankruptcy
petition, or by the debtor on making a bankruptcy application, is security for the
payment of the Official Receiver’s administration fee. Where an order is made
(including any case where the order is made and subsequently annulled, rescinded
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or recalled), the deposit will be returned to the person who paid it, save to the extent
that the assets comprised in the estate of the bankrupt, or the assets of the
company, are insufficient to discharge the Official Receiver’s fee, unless the court
orders otherwise. This means that if there were no or insufficient assets realised but
for example the Official Receiver’s administration fee was charged in a bankruptcy
case, the deposit can be retained to pay part of that fee.
48.47 Repayment of deposit where petition
dismissed or withdrawn
Where a petition is dismissed or withdrawn before an insolvency order is made,
generally the deposit will be repaid to the person who paid it1, less an administration
fee of £50.
1. Insolvency Proceedings (Fees) Order, article 6(4)
48.48 Deposit amount changed after petition
presented
A petition can only be filed on the production of a receipt for the deposit payable. The
petition deposit will be the appropriate amount due as at the date that it is paid to the
court. If the amount required for the deposit has changed before the making of the
insolvency order (as a result of updated fees amendment legislation coming in to
force in the interim period), the deposit paid is still valid and the official receiver will
continue the administration of the case using the original deposit as security for
payment of the fees.
Where in a bankruptcy case there is an annulment hearing and the petition is re-
listed for hearing, it is open to the official receiver to seek an order of the court that,
where the deposit amount increased after the original petition was filed, the
difference required to reach the increased deposit amount is paid, as a condition of
the petition being re-listed. Without such a court order the official receiver will have
no grounds to recoup the difference from the petitioner.
48.49 Frequent petitioner accounts
The Insolvency (England and Wales) Rules 2016 allow creditors to make alternative
arrangements for the payment of deposits. The amendment provides that a deposit
must be paid to the court before a petition can be filed unless the Secretary of State
has given written notice to the court that the petitioner has made suitable alternative
arrangements to pay the deposit1, 2. Petitioners may set up an account with EAS
which will fund only the deposits on any petitions presented which result in orders
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being made. This means that those petitioners with approved accounts are not
required to pay a deposit to the court upon filing a petition. This provision benefits
those creditors who issue large numbers of petitions that are subsequently
dismissed/withdrawn, as funds are only taken when the order is made. EAS will
notify the HM Courts and Tribunals Service with the particulars of creditors who open
a frequent petitioner account with The Service.
1. Rule 7.7(2)
2. Rule 10.12(2)
48.50 Dealing with the deposit in frequent
petitioner cases
In practice, when a frequent petitioner presents a petition, they will not have to pay
the deposit to the court. If the petition is subsequently dismissed or withdrawn, the
dismissed / withdrawn petition administration fee of £50, is charged and this amount
is paid/recovered from HMRC’s Frequent Petitioner Account funds. This is done
automatically when the date of dismissal or withdrawal is updated into the case
management system.
If the order is made, the financial system will automatically post the amount of
deposit onto the case’s General Fund and equally, debit the frequent petitioner’s
account which holds the funds received in advance for the expected volume of
orders. Any subsequent refund of deposit, following an annulment or where there is
a credit balance etc., will be processed as per current practice by a cheque payment
made to the petitioner. Twice monthly the frequent petitioner is invoiced to top-up
their account to a pre-agreed limit. The account is carefully monitored by EAS to
ensure that they do not become overdrawn.
EAS have responsibility for managing the Frequent Petitioner account and are also
responsible for giving notice to the HM Courts and Tribunals Service when frequent
petitioner status is granted or revoked.
48.51 Deposit to be returned where
petitioner’s costs forfeited
Where the liquidator or trustee proceeds with a distribution to creditors, should
sufficient funds exist following payment of expenses ranked as a higher priority1, 2,
they are required to repay the costs of the petitioner and of any person appearing on
the petition whose costs are allowed by the court. Where the office-holder requires
the petitioning creditor to decide their costs by detailed assessment3 and the
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petitioner fails to commence proceedings to decide these costs within 3 months of
the requirement, they forfeit their claim to those4.
The instruction requiring the repayment to the petitioner of any amount repayable
from the deposit lodged as security for the payment of fees appears higher in the
order of priority of expenses5, 6 than payment of the petitioner’s costs. This means
that irrespective of the forfeiture of the petitioner’s costs, the petition deposit should
be repaid to the petitioner to the extent that it is not required to pay fees where the
insolvent’s assets are insufficient.
1. Rule 7.108
2. Rule 10.149
3. Rule 12.42
4. Rule 12.43
5. Rule 7.108
6. Rule 10.149
48.52 Detailed Assessment of costs
As a general guide, a bill for petition costs up to £2,200 in companies and £1,700 in
bankruptcies can be approved by the official receiver (or their deputy) for immediate
payment. Depending on the circumstances of the case it may be that a higher
amount is justified where, for example, service of the petition has been resisted.
Where the costs are considered excessive, the petitioning creditor’s solicitor should
be informed and asked to reduce their bill to an acceptable level or submit the bill for
assessment and provide a costs certificate for payment. Detailed assessment should
only be requested where there are sufficient funds to enable the petition costs to be
paid in full or where it is known that funds will become available shortly.
Partnership fees, costs and expenses
48.53 Introduction
This part deals with the administration of partnership cases, including fees, costs,
expenses and assets. The provisions in this regard are provided under the IA86 with
modifications under the Insolvent Partnerships Order 1994 (IPO94).
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48.54 Winding up procedures for partnership
businesses
The IPO94 provides five routes via which a partnership business may be wound up:
(a) “Ordinary” partnerships:
•
winding up as an unregistered company without any petitions against the
members or former members. The petitioner is any person other than a member
•
winding up as an unregistered company with petitions against one or more of
the members or former members. Petitioner is either a creditor, liquidator or
temporary administrator
•
winding up as an unregistered company without any petitions against the
members where the petitioner is a member of the partnership
•
winding up as an unregistered company with petitions against all the members.
Petitioner is a member
(b) Article 11 partnerships:
•
joint bankruptcy petition by the members without the winding up of the
partnership as an unregistered company; although the order gives the trustee of
the bankruptcy estates authority to wind up the affairs of the partnership
See Annex B to this chapter for details of the different accounting conventions for the
deposit and administration fee applied to “Ordinary” and “Article 11” partnerships.
48.55 Deposit received in partnership winding
up proceedings (Article 7 or 9 of the IPO94)
If a deposit is received for the winding up of a partnership under Articles 7 or 9 of the
Insolvent Partnerships Order 1994 (IPO94) (where there is no concurrent petition
against any member), the case should be treated as if it were an unregistered
company and the deposit credited to the partnership’s estate account.
48.56 Deposit received in partnership winding
up proceedings (Articles 8 or 10 of the IPO94)
If a deposit is received for the winding up of a partnership (as an unregistered
company) and also concurrent petitions are presented against one or more members
of the partnership (under Article 8 or 10 of the IPO94), one deposit is paid and
credited to the partnership estate account. Proof of payment of this deposit is
sufficient to enable a petition to be presented against any member, but the deposit is
only credited to the partnership estate account1.
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1. Insolvent Partnerships Order 1994, article 13
48.57 Petitioner’s costs in abortive
partnership winding up proceedings not
claimable from bankruptcy estate
Where a petition is presented against a partnership business and an individual
partner under Article 8 of the IPO94, and the winding-up petition against the
partnership is subsequently dismissed, the petitioner cannot claim expenses related
to the winding up of the partnership from the partner’s bankruptcy estate. If the
winding-up petition is withdrawn (i.e. as a consequence of the petition debt being
paid) or dismissed, it is open to the petitioning creditor to seek an order for costs in
those proceedings. Without an order of costs in the winding-up proceedings, the
petitioning creditor must bear their own costs.
48.58 Joint bankruptcy petition under Article
11 of the IPO94
If a joint bankruptcy petition is presented under Article 11 (Insolvency proceedings
not involving the winding up of the insolvent partnership as an unregistered company
where individual members present joint bankruptcy petition), then only one deposit
will be received. In such cases only one joint bankruptcy order is drawn up showing
each description separately and appointing the trustee of the bankrupts' estates to
be trustee of the partnership estate and to wind up the affairs of the partnership and
administer the partnership property. An estate account should be opened for the
partnership and separate estate accounts for each partner. The petition deposit
should only be apportioned equally between the separate estates and not the joint
estate.
1. Insolvent Partnerships Order 1994, article 11
48.59 Partnership administration fees
(a) Joint bankruptcy petition (Article 11)
Where the members of an insolvent partnership jointly present a petition to the court
for bankruptcy orders to be made against each of them in their capacity as a
member of the partnership, and the winding up of the partnership business and
administration of its property without the partnership being wound up as an
unregistered company, the bankruptcy provisions of the IA86 Part IX (except
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sections 273, 274 and 287) and Parts X to XIX apply. Each individual partner’s
estate will attract an administration fee (fee B1) but no administration fee is charged
against the joint estate.
(b) Winding-up order against partnership plus
concurrent insolvency orders against
member(s)
Where a winding-up order is made against a partnership and there are concurrent
insolvency orders against some, or all, members, the partnership itself is treated as
an unregistered company and the official receiver’s administration fee will be
charged to the partnership estate, and charged in each individual member’s estate.
In addition to the partnership estate, there will be a separate estate for each member
against whom an insolvency order is made1, 2.
1. Insolvent Partnerships Order 1994, article 8
2. Insolvent Partnerships Order 1994, article 10
48.60 Consolidation of partnerships – dealing
with administration fee
Where two or more bankrupts in partnership jointly declare themselves bankrupt on
a debtors’ petition, this should be completed under an Article 11 IPO94 partnership
application. The court will make individual insolvency orders against each individual
member, and the official receiver will be authorised to wind up the affairs of the
partnership under one court number, but without the making of a winding-up order
against the partnership. Each member’s estate will have an administration fee
charged against it, but an administration fee will not be charged against the
partnership estate.
Occasionally, where individual partners have filed separate applications for
bankruptcy, the court makes separately numbered bankruptcy orders against the
individual members (instead of filing the orders under Article 11 under one court
number). Subsequently the official receiver can apply to court under Article 14 of the
IPO94 to have the orders consolidated under the earliest court number and for the
relevant provisions to apply to the insolvency costs. Each of the estates against
which an insolvency order has been made should have an administration fee
charged to it (but not the partnership estate as this does not have an insolvency
order made against it).
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48.61 Official Receiver’s General Fee in
partnership estates
The Official Receiver’s general fee is charged in full to each partnership estate
regardless, this includes joint, members, parent and child cases within the
partnership.
48.62 Winding up of insolvent partnership as
unregistered company on petition of creditor
etc., or member, where no concurrent petition
presented against member
The provisions of the Insolvency Act 1986 and the Companies Act 2006 apply to the
winding up of an insolvent partnership as an unregistered company. This means the
usual rules regarding the administration and application of assets in winding up
proceedings are applied where an insolvent partnership is wound up as an
unregistered company and there is no concurrent petition presented against any
member of the partnership.
48.63 Winding up of insolvent partnership as
an unregistered company on creditor’s
petition where concurrent petitions presented
against one or more members
Article 8 and Schedule 4 of the IPO94 apply the provisions of Part V IA86 (winding
up of unregistered companies, (other than sections 223 and 224), as modified, to the
winding up of an insolvent partnership as an unregistered company on a creditor’s
petition where concurrent petitions are presented against one or more members1, 2. In
the case of the winding up of a corporate member or former corporate member of an
insolvent partnership being wound up under this regime, Parts IV, VI, VII and XII to
XIX IA86 apply and, in the case of the bankruptcy of an individual or former
individual member of an insolvent partnership, Part IX (other than sections 269, 270,
287 and 297) and parts X to XIX IA86 apply. Modifications to IA86 are contained in
Schedule 4 IPO94. The principal modifications having a bearing on the distribution of
partnership assets relate to sections 175 and 328 IA86 which deal with the priority of
expenses and debts.
1. Insolvent Partnerships Order 1994, article 8
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2. Insolvent Partnerships Order 1994, schedule 3
48.64 Priority of expenses
Sections 175 and 328 as modified by the Insolvent Partnerships Order 1994
Schedule 4(23) apply in a case where Article 8 or Article 10 of IPO94 apply, as
regards priority of expenses incurred by a responsible insolvency practitioner of an
insolvent partnership (which includes the official receiver), and of any insolvent
member of that partnership against whom an insolvency order has been made.
Section 328 as modified by the Insolvent Partnerships Order 1994 Schedule 7(21),
applies in a case where an Article 11 order has been made.
The priority of expenses is as follows:
i. Firstly the assets of the partnership estate are applied in payment of the
partnership estate expenses.
ii. Also the assets of the separate estate of each insolvent member are first applied
to the payment of the separate expenses relating to that member’s estate.
iii. Where insufficient funds are available in the joint estate to pay the joint expenses
in full, any unpaid balance is apportioned equally between the separate estates of
insolvent members (against whom insolvency orders have been made) and shall
form part of the expenses to be paid out of those estates.
iv. If any separate estate of an insolvent member has insufficient funds to pay in full
the separate expenses relating to that estate, then the unpaid balance shall form part
of the expenses to be paid out of the joint estate.
v. If once an unpaid balance has either been apportioned between the separate
estates or transferred to the joint estate, as the case may be, the balance remaining
unpaid shall be apportioned equally between the other estates.
vi. If there are still insufficient funds to pay in full, then the unpaid balance will be
apportioned equally between the other estates. After this, where one or more estate
is carrying a debit balance, the total of the unpaid expenses to be paid out of those
estates shall continue to be apportioned equally between the other estates until the
expenses are paid in full or there are no funds available to meet the unpaid
expenses, in which case the unpaid balance is apportioned equally between all
estates.
48.65 Payment of expenses from any estate,
with the leave of the court or sanction of the
creditors’ committee
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Without prejudice to the guidance above, the responsible insolvency practitioner,
with the sanction of the creditors’ committee or with the leave of court, may;
a. pay out of the joint estate as part of the expenses to be paid out of that estate any
expenses incurred for any separate estate of an insolvent member; or
b. pay out of any separate estate of an insolvent member any part of the expenses
incurred for the joint estate which affects the separate estate1
1. Insolvent Partnerships Order 1994, schedule 4, paragraph 23
Debit balances
48.66 Incurring a debit balance
Authority is not required to increase a debit balance by £2,500 or less. Before the
official receiver incurs any exceptional costs that may result in the creation or
increase of a debit balance above £2,500, the prior approval of the Senior Official
Receiver must be obtained before the costs are incurred, unless specific authority is
given in the operational guidance. Consideration should be given to the net effect of
the transaction to which the proposed expenditure relates. Where an agent is
instructed to deal with an asset matter and the amount to be realised by the agent
will be in excess of the agent’s fees the Senior Official Receiver’s authority would not
be required.
Guidance on seeking and obtaining the approval of the Senior Official Receiver can
be found in chapter 1.
48.67 Debit balance write offs and subsequent
asset realisation
The principle of the legislative framework set out by the Insolvency Act 1986 and the
Enterprise Act 2002 is that the costs of the liquidation or bankruptcy must be met
from the insolvent estate. The order of payment of costs from an insolvent’s estate is
set out in the IR2016 at Rule 7.108 for companies and at Rule 10.149 for bankruptcy
estates. There is no provision in the legislation to write off the expenses of the
liquidation or bankruptcy. If unsecured assets are realised they must be applied by
reference to the priority of payment regardless of the date of realisation, and the
case will be re-opened should assets become realisable after the case has been
closed for administration purposes. The writing off of debts is an administrative
policy/process. It is carried out for accounting and administrative purposes only.
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Fees and expenses in IVAs
48.68 Expenses following default in individual
voluntary arrangement
In a bankruptcy case, if a bankruptcy order is made on a petition presented by the
supervisor as a result of the bankrupt’s failure to fulfil their obligations under a
voluntary arrangement1, the expenses properly incurred as expenses of the
administration of the voluntary arrangement become a first charge on the bankrupt’s
estate2.
1. Section 264(1)(c)
2. Section 276(2)
48.69 Debtor’s petition when voluntary
arrangement in force
Under rule 4.21A of the Insolvency Rules 1986, where a bankruptcy order is made
when, at the time the petition was presented there was in force a voluntary
arrangement for the individual, any unpaid expenses of the arrangement properly
incurred in the arrangement shall be paid in priority to any expense of the
administration or shall be a first charge on the bankruptcy estate (as the case may
be). This provision is in respect of cases where the bankruptcy petition was
presented or bankruptcy application made before 6 April 2017, when The Insolvency
(England and Wales) Rules 2016 came into force, but not thereafter.
Investment of funds by liquidator and
trustee
48.70 Payments into the Insolvency Services
Account (ISA)
The Insolvency Regulations 1994 (as amended) require the liquidator of a company
wound up by the court or trustee in bankruptcy to pay all money received by
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themselves in the course of carrying out their functions as such, without any
deduction, into the Insolvency Services Account (ISA) kept by the Secretary of State.
The money is required to be paid into the account to the credit of the company or
bankrupt once every 14 days or forthwith if £5,000 or more has been received1, 2, 3.
1. Insolvency Regulations 1994, regulation 5(1)
2. Insolvency Regulations 1994, regulation 20(1)
3. Section 403
48.71 Cash received locally
Where the official receiver receives cash, e.g. recovered on inspection, they should
pay the monies into the ISA by banking at a local branch using a paying in book
issued by EAS and email a copy of any general receipt issued in respect of cash
taken together with details of the paying-in slip reference to
CustomerServices.EAS@Insolvency.gov.uk.
All other monies remitted to the official receiver should be forwarded to EAS for
processing and banking. Details of general receipts and remittances should be
emailed to CustomerServices.EAS@Insolvency.gov.uk prior to dispatch.
48.72 Dealing with receipts where a liquidator
or trustee continues a business
An exception to the requirement to pay all monies into the ISA is where the
liquidator or trustee is exercising their power to carry on the business of the company
or bankrupt and the Secretary of State has authorised operation of a local bank
account1. In this circumstance the official receiver as liquidator or trustee may apply
to the Secretary of State (Senior Official Receiver’s Office ) for authorisation to open
a local bank account. The Secretary of State may then authorise the official
receiver to make payments into and out of a specified bank, subject to a limit,
instead of the ISA2, 3. Authorisation will only be given where Senior Official Receiver’s
Office acting on behalf of the Secretary of State is satisfied that an administrative
advantage will be gained from having such an account. The liquidator or trustee shall
pay without deduction any surplus over any limit imposed by the Secretary of State
into the ISA. The official receiver should exercise extreme care to ensure that only
money belonging to the estate is paid into the ISA. Third party monies should not be
paid in but held in a separate account.
1. Insolvency Regulations 1994, regulation 21(1)
2. Insolvency Regulations 1994, regulation 6
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3. Insolvency Regulations 1994, regulation 21
48.73 Payment of interest to estate
Whenever there are monies standing to the credit of the company or the estate of
the bankrupt in the ISA, the company or bankruptcy estate shall be entitled to
interest on those monies. The interest rate applied to estate balances in the
Insolvency Service Account is set to match the Bank of England base interest rate.
The Secretary of State may, by notice published in the London Gazette, vary the rate
of interest, and such variation shall have effect from the day after the date of
publication of the notice in the London Gazette1, 2.
1. Insolvency Regulations 1994, regulation 9(6B)
2. Insolvency Regulations 1994, regulation 23A(6B)
48.74 Cessation of interest accrual
Interest shall cease to accrue when the liquidator or trustee gives written notice to
the Secretary of State that in their opinion it is expedient or necessary, in order to
facilitate the conclusion of the winding up or bankruptcy, that the interest should
cease to accrue. Interest shall start to accrue again where the liquidator or trustee
gives a further notice in writing to the Secretary of State requesting that interest
should start to accrue again1, 2.
1. Insolvency Regulations 1994, regulation 9(6A)
2. Insolvency Regulations 1994, regulation 23A(6A)
48.75 Automatic calculation and payment of
interest and tax
All bankruptcy and company estate funds are interest bearing by default unless EAS
are instructed otherwise by liquidator or trustee. Interest and tax is automatically
calculated and posted to all financially open estate funds bi-annually in April and
October.
Trustees and liquidators may instruct EAS to cease and capitalise interest for an
individual case, e.g. Insolvency Practitioner’s preparation to bring case to a close
and report final receipts and payments with final interest. When actioned by EAS
ISCIS Financials will calculate and post the final interest overnight to the case.
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48.76 Payments into the ISA by liquidator
following company dissolution
Following the amendment of the Insolvency Regulations 1994 on 6 April 2008,
monies which are still held by the former liquidator, administrator or administrative
receiver of a dissolved company and which are either unclaimed dividends due to
creditors (where for example creditors cannot be traced), and/or sums held by the
company in trust in respect of dividends or other sums due to any person as a
member or former member of the company1, may in the case of a voluntary winding
up, administration or administrative receiver be paid into the ISA. In the case of a
winding up by the court these monies must be paid into the ISA2.
(Former) liquidators of companies in members' voluntary liquidations are still likely,
upon the dissolution of those companies, to pay the monies so held into the ISA,
unless, for example, the monies were to be held by a trust company or corporation
which had had some involvement in the processing of the distribution of the monies.
1. Insolvency Regulations 1994, regulation 18(1)
2. Insolvency Regulations 1994, regulation 18(2)
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 11 March 2020
49. Distributions
Annexes
Annex A - Summary detailing how to account for assets realised and payments to
be made
Annex B - Example of a distribution from joint and separate estates under the
Insolvent Partnerships Order 1994
Annex C - Guidance showing expected hours and The Insolvency Regulations
1994 current charge out rates required in making case distributions
Chapter content
Introduction
Distribution costs
Dividend Process
Dividend payments
Distribution of funds by liquidator
Distribution of funds by liquidator
Priority of debts
Interest
Postponed debts in bankruptcy cases
Priority of debts in joint estate
Interest on debts
Return of capital to the contributories of a company
Return of surplus to bankrupt
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Introduction
49.1 Distribution by means of a dividend or
division of property
Whenever the liquidator or trustee has sufficient funds in hand for the purpose they
shall, subject to the retention of such sums as may be necessary to meet the
expenses of the winding up/bankruptcy, declare and distribute dividends among the
creditors in respect of the debts for which they have proved.
In bankruptcies the trustee may deal with matters by the division of property amongst
creditors, where, due to the specific nature or special circumstances of that property,
it cannot easily or advantageously be sold.
49.2 Distributions where sufficient funds
available
Distributions and interim distributions in those cases where sufficient funds are in
hand for that purpose are carried out by dedicated teams within the Long-term Asset
and Distribution teams.
49.3 Abbreviations
Where commonly referred to throughout the chapter the following abbreviations have
been used:
Legislative
abbreviations
CA2006
The Companies Act 2006
EA2002
The Enterprise Act 2002
FO1986
The Insolvency Fees Order 1986 (as
amended)
FO2004
The Insolvency Proceedings (Fees) Order
2004 (as amended)
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IA86
The Insolvency Act 1986
IR86
The Insolvency Rules 1986
IR2016
The Insolvency Rules (England and Wales)
2016
IAR2009
The Insolvency (Amendment)Rules
2009/642
IAR2010
The Insolvency (Amendment)Rules
2010/686
IRegs 94
The Insolvency Regulations 1994 (as
amended)
IPO94
The Insolvent Partnerships Order 1994
JA1838
The Judgments Act 1838
PA1890
The Partnership Act 1890
Other abbreviations
CVA
Company Voluntary Arrangement
EAS
Estate Accounts Services
FSA
Financial Services Authority
FSCS
Financial Services Compensation Scheme
HMRC
HM Revenue & Customs
ISA
Insolvency Service Account
RPS
Redundancy Payments Service
LTADTs
Long Term Asset and Distribution Team
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Distribution costs
49.4 Time and rate charging mechanism for
distributions
The financial regime introduced from 1 April 2004 provides that the official receiver
may charge time and rate, for the activity of distributing funds to creditors1. VAT is
chargeable on this fee. Previously the official receiver charged a distribution fee but
this was revoked by the Insolvency Proceedings (Fees) Order 2004 (as amended)
(FO2004) for all cases, including those where the insolvency order was made before
1 April 2004.
1. Insolvency Regulations 1994 (as amended) Regulation 35
49.5 Standardisation of distribution costs
Actual time spent on dealing with distributions is not to be used. Instead, to achieve
standardisation of costs associated with distributions, a charge should be made
based on the tables provided at Annex C, except in exceptional circumstances.
These tables avoid the need to complete a time recording sheet detailing time spent
on distributions in each case, by providing guidance using the hourly rates as
recorded in the legislation1 and the anticipated time that will be spent in making a
distribution, depending on the number of creditors.
Where there are more than 50 creditors, the official receiver, in practice now LTADT,
should charge the highest cost as per the tables at Annex C.
1. Insolvency Regulations 1994 (as amended) Schedule 2, Tables 2 & 3
49.6 Calculating creditor numbers where
set-off applied
When banks or similar organisations have submitted a proof of debt combining
several debts such as a credit card, loan, overdraft etc, or where set-off has been
applied, the balance of the debt as per the submitted proof should be counted as a
separate creditor in respect of each account for calculating the number of creditors
on a case when charging a time and rate fee.
49.7 Transfer of cases to the LTADT
The LTADT is located on 4 sites and contains teams dedicated to the distribution of
money to creditors. These teams are located in Manchester, Cardiff, Ipswich and
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Chatham. The Manchester team specialises in distributions arising from Payment
Protection Insurance recoveries, the Cardiff team in distributions from the realisation
of legacy pensions, whilst the teams in Chatham and Ipswich deal with all other
distributions. The LTADT will accept cases from official receiver’s offices that have a
credit balance on the estate account and on which a dividend, either full or interim,
can be declared and paid.
49.8 Level of time and rate fee to be
charged according to IRegs 1994
The IRegs 1994 provide for a distinction between the official receiver of the London
insolvency district and the official receiver of any other insolvency district for the
purposes of charging the time and rate fee. The London insolvency district is defined
by section 374 of the IA86. With regard to cases currently administered by the
LTADT the non-London rates apply. Otherwise it will be the (original) last official
receiver for the case who will remain as the official receiver in charge, so if the
underlying case is based in a London court then the London rates will apply.
49.9 Distribution activity
The time and rate fee for distribution activity should be charged at the point at which
the dividend payment is requested from EAS through ISCIS and should be applied to
the total number of creditors to be paid out. The fee includes the distribution of funds
to both preferential and non-preferential creditors and returns of capital to
contributories. It does not include payment of expenses such as the return of the
petition deposit or the payment of the petitioning creditor's costs (for which there is
no charge). There is a standard block of activity which is performed in relation to all
preferential payments or dividends, regardless of the number of creditors, which
includes:
•
issuing a notice of intended dividend
•
preparing the advertisement although this is not mandatory where only a
preferential distribution is being paid
•
ensuring that the deposit has been posted to the account, any Indivisible
Balances and/or Reserved Funds have been transferred back to the estate and
all fees and disbursements have been charged correctly on the ISCIS
Financials ledger (‘Funds’ tab)
•
making a distribution calculation using the Dividend Probability Calculators
which establishes if there are sufficient funds to make a distribution.
•
consider transferring the case to the LTADT where the criteria for transfer are
met.
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49.10 Recording distribution activity on
ISCIS.
The LTADT record in the data store on ISCIS (section 6 for liquidations and section 9
for bankruptcies) the following:
•
that there is to be a distribution
•
the date by which claims are to be submitted (last date to prove)
•
the date the distribution has been gazetted.
49.11 Time and rate fees charged to be
input on ISCIS Financials
The time and rate fees will need to be input on ISCIS Financials. They should be
charged at the point at which the dividend payment is requested from EAS and
should be applied to the total number of creditors to be paid out. VAT is charged on
this fee. The LTADT arrange for the entries to be made on the ISCIS Financials
estate ledger via a spreadsheet return to EAS.
49.12 Cost of advertising dividends
Advertisements for dividends are not covered by the administration fee (as they
relate to distributions) and therefore need to be charged to the estate. This will also
include advertisements of returns of capital to contributories in liquidations. Where a
public notice or advertisement of a dividend payment is required, this is now dealt
with by TMPW, the agent acting on behalf of the Service.
49.13 No distribution fees in cases
administered under a previous insolvency
regime
Where the official receiver is dealing with historic cases that are administered under
a previous insolvency regime (such as the Companies Act 1985 or the Bankruptcy
Act 1914) the official receiver must be aware that, should assets come to light in
such cases requiring realisation (e.g. unpaid royalties), no fees can be charged in
connection with action taken to recover or distribute the asset, following the
revocation of the Bankruptcy Fees Order 1984, the Companies (Department of
Trade and Industry) Fees Order 1985 and the Insolvency Fees Order 1986
(FO1986). In the case of the FO1986, there were saved fees (the Secretary of State
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fees) which continued to be applicable to cases that were commenced under the
IA86 after 29 December 1986 but in respect of which, a winding-up order or
bankruptcy order was made before 1 April 2004 (described as the “old cases”). All
fees relating to “old cases” were abolished on 1 April 2007 following the
implementation of the Insolvency Proceedings (Fees) (Amendment) Order 2007.
Regulations 33 and 36 of the IRegs94, dealing with the time and rate fee, continue to
apply with reference to calculating the official receiver's remuneration in dealing with
assets subject to a fixed or floating charge, where both the winding-up order and the
realisation and distribution (if any) preceded 1 April 2004.
Dividend Process
49.14 Notice of intended dividend
Before declaring a dividend, the liquidator or trustee (office-holder) must give notice
of their intention to do so using form DVDL1, 2, 3. This notice is to be sent to all the
creditors whose addresses are known to office-holder, who have not proved their
debts, and who have not previously been invited by notice to prove their debts4. This
includes creditors owed “small debts” and who are not deemed to have proved under
rule 14.3.
Where a member State liquidator has been appointed in relation to the insolvent,
notice must also be given to that person using form DVDL.
1. Rule 14.27
2. Rule 14.28
3. Section 324
4. Rule 14.29
49.15 Small debts
The Insolvency (England and Wales) Rules 2016 introduced the concept of a “small
debt” in insolvency proceedings. A small debt is defined as “a debt (being the total
amount owed to a creditor) which does not exceed £1,000 (which amount is
prescribed for the purposes of paragraph 13A of Schedule 8 to the Act and
paragraph 18A of schedule 9 to the Act1.
Where a debt is a “small debt” according to the accounting records or the statement
of affairs of the company or bankrupt, the office-holder may treat that debt as if it
were proved for the purposes of paying a dividend2.
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Where the office-holder intends to treat a small debt as proved the notice of intended
dividend under Rule 14.29 must:
•
state the amount of the debt which the office-holder believes to be owed to the
creditor according to the accounting records or statement of affairs of the
company or the bankrupt (as the case may be);
•
state that the office-holder will treat the debt which is stated in notice, being for
£1,000 or less, as proved for the purposes of paying a dividend unless the
creditor advises the office-holder that the amount of the debt is incorrect or that
no debt is owed;
•
require the creditor to notify the office-holder by the last date for proving if the
amount of the debt is incorrect or if no debt is owed; and
•
inform the creditor that where the creditor advises the office-holder that the
amount of the debt is incorrect the creditor must also submit a proof in order to
receive a dividend3.
The information required by the above may take the form of a list of small debts
which the office-holder intends to treat as proved which includes that owed to the
particular creditor to whom the notice is being delivered4.
1. Rule 14.1
2. Rule 14.31(1)
3. Rule 14.31(2)
4. Rule 14.31(3)
49.16 Member State liquidator
The EC Council Regulation on Insolvency Proceedings (1346/2000) gives a
liquidator appointed in insolvency proceedings in another member State the right to
participate (i.e. lodge claims) in other insolvency proceedings in relation to a debtor,
on the same basis as a creditor. Where a creditor has proved, and a member State
liquidator has proved in relation to the same debt, payment of a dividend can only be
made to the creditor1.
1. Rule 14.43
49.17 Public advertisement of notice
of intended dividend
Following the changes to the IR2016, the requirement to advertise an intention to
declare a dividend by notice in a local paper is now discretionary1.
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IR2016 requires that where the office-holder intends to declare a first dividend or
distribution the office-holder must gazette a notice containing:
•
a statement that the office-holder intends to declare a first dividend or
distribution;
•
the date by which and place to which proofs must be delivered;
There is no requirement to gazette or advertise where the office-holder has
previously, by notice which has been gazetted, invited creditors to prove their debts.
Where the intended dividend is only to preferential creditors the office-holder need
only gazette a notice if the office-holder thinks fit.
1. Rule 14.28 (3)
49.18 Definition of terms “responsible
insolvency practitioner” and “office holder”
Rule 1.2 replaces previous definitions and the only term used is office-holder who is
now defined as “a person who under the Act or these Rules holds an office in
relation to insolvency proceedings and includes a nominee.”
Previously under rule 13.9 for cases where the petition was presented before 6 April
2010 the term “responsible insolvency practitioner” is defined as the person acting:
•
in a company insolvency, as the supervisor of a company voluntary
arrangement; as an administrator; as an administrative receiver; as liquidator; or
as provisional liquidator.
•
in an individual insolvency, as the supervisor of a voluntary arrangement; as
trustee; as interim receiver, or the official receiver acting as receiver and
manager of a bankrupt’s estate
This includes the official receiver when acting in the relevant capacity as liquidator,
as provisional liquidator, as trustee or as interim receiver
The term “office-holder” was introduced by The Insolvency (Amendment) Rules 2010
SI 686/2010 (IAR2010) with effect from 6 April 2010, as a general replacement for
the terms “responsible insolvency practitioner” and “insolvency practitioner”, with
regard to rules 11.1 to 11.12.
For cases where the petition was presented on or after 6 April 2010 (subject to
transitional provision exceptions), the term “responsible insolvency practitioner” was
defined as a person acting as any of the following:
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•
in a company insolvency the person (other than the official receiver) acting as
supervisor of a voluntary arrangement under Part I of the Act, or as
administrator, administrative receiver, liquidator or provisional liquidator;
•
in an individual insolvency the person (other than the official receiver) acting as
the supervisor of a voluntary arrangement under Part VIII of the Act, or as
trustee or interim receiver.
49.19 Dividend declared for preferential
creditors
Where a dividend is to be declared for preferential creditors only, the notice required
under rule 14.29 (form DVDL) need only be given to those creditors who the office-
holder believes may have a preferential claim. Advertisement of the intended
dividend to preferential creditors by gazette need only be given if the insolvency
practitioner thought fit1. This is applicable to all cases. The likelihood of there being
preferential creditors in a case entitled to payment of a dividend ahead of ordinary
unsecured creditors, is significantly less following the amendment of Schedule 6 of
the IA86 (by the EA2002). In cases where the petition was presented on or after 15
September 2003, the most likely preferential creditors in a case will be the
Redundancy Payments Service (RPS) for remuneration to employees and/or
pension scheme contributions and the subrogation of their claims to the RPS.
1. Rule 14.28(2)
49.20 Last date for proving and time period
within which a dividend must be declared
The notice before declaring a dividend or first dividend (form DVDL) is required to
specify a date ("the last date for proving") up to which the proofs may be lodged. The
date shall be the same for all creditors, and not less than 21 days from the date of
that notice1. The office-holder must also state in the notice their intention to declare a
dividend (specified as interim or final, as the case may be) within a given time period
from the last date for proving. For all cases irrespective of the date of the petition this
will be within the period of 2 months from the last date for proving2.
1. Rule14.30(c)
2. Rule14.30(a)
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49.21 Admission and rejection of proofs for
dividend (including where received after
the date for proving)
Unless the office-holder has already dealt with them, the office-holder must within 14
days of the last date for proving deal with the proofs by:
•
admitting or rejecting them, either in whole or in part, or
•
making such provision as they think fit in respect of them1.
“Making provision“ may involve setting aside such funds as they consider
appropriate to cover the payment of the dividend on the proof should it be admitted.
Proofs received after the date for proving may be accepted at the discretion of the
office-holder2. A proof may be admitted for dividend either for the whole amount or
for part of the amount claimed by the creditor3.
1. Rule 14.32(1)
2. Rule 14.32(2)
3. Rule 14.7
49.22 Faxed and emailed proofs for
dividend purposes
A proof sent by fax or email can be accepted for dividend purposes, in the same way
as for meeting purposes, provided the proof is signed (either by the creditor or by a
person authorised in that regard) and the fax or email is received within the time
limits set for the acceptance of proofs of debt. In the case of Inland Revenue
Commissioners v Conbeer ([1996] BCC 189) it was held that a faxed proxy form was
validly signed because when a creditor faxes a proxy to the chairman of a meeting,
they transmit both the contents of the proxy and their signature applied to it. This is
similarly applicable to proofs.
The proof will still be considered valid if it is faxed or emailed via an intermediary
such as an insolvency practitioner, who does not hold an original proof of debt
having been instructed by fax or email, as long as that intermediary is duly
authorised by the creditor.
49.23 Rejected proofs
Where the office-holder has concerns regarding the admission of a proof, for
example where they suspect miscalculation or misrepresentation of a debt and,
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following enquiry of the creditor no satisfactory explanation is forthcoming, the proof
should be rejected. The liquidator or trustee should prepare a written statement
explaining their reasons for rejecting the proof, and send this statement to the
creditor as soon as reasonably practicable1. The creditor who has submitted the
proof then has 21 days in which to object to this rejection (via a court application
under rule 14.8 IR2016. If a creditor does lodge an application to challenge the
rejection of their proof, the /office-holder may postpone or cancel payment of the
dividend2.
1. Rule14.7
2. Rule14.33(1)
49.24 Withdrawal, variation or expunging
of a proof
Where the creditor wishes to withdraw their proof or vary the amount claimed, this
can be achieved by agreement between them and the liquidator or trustee1.
The liquidator or trustee or a creditor may apply to the court for a proof to be
expunged (erased) or for the amount of the proof to be reduced, where they have
sufficient concerns that a proof has been improperly admitted or the amount ought to
be reduced2. This applies where the liquidator or trustee suspects the proof has been
admitted in error. Where following such an application the proof can be shown to
have been improperly rejected, the court may decide to direct the trustee of liquidator
to accept it under IR2016 rule 14.8.
1. Rule 14.10
2. Rule 14.11
49.25 Postponement or cancellation of
dividend
Where the office-holder has rejected a proof, if a creditor is dissatisfied with this
decision they may apply to the court for the decision to be reversed or varied within
21 days of receiving the written statement rejecting their proof1. A contributory or any
other creditor or a bankrupt may also make such an application within 21 days of
becoming aware of the decision to reject a proof1.
Except with the permission of the court, the office-holder may not declare the
dividend so long as there is a pending application to the court to reverse or vary a
decision on a proof of debt, or to expunge a proof, or to reduce the amount claimed2.
Where the court does give permission for the dividend to be declared, the office-
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holder is required to make such provision in respect of the disputed proof as the
court directs.
Where such an application is made to the court within the two months from the last
date for proving, the office-holder may postpone or cancel the dividend3.
Where a dividend is postponed or cancelled a new notice under rule 14.29 IR 2016
will be required if the dividend is paid subsequently.
1. Rule 14.8
2. Rule 14.34(2)
3. Rule 14.33(1)
49.26 Decision to declare dividend
If no application has been made to the court to reverse or vary the decision of the
office-holder in respect of any proof, the dividend of which they gave notice must be
declared within the period of two months from the last date for proving1 (which is the
date specified in any Gazette notice and any advertisement of intended dividend2.
The declaration of the dividend is the notice given under rule 14.35 which contains
the particulars set out therein. Usual practice is to issue the declaration and payment
simultaneously3.
Sufficient funds should therefore be allocated from those available for distribution, to
cover the potential payment of the disputed or delayed claims.
49.27 Calculation of dividend
In calculating and distributing a dividend the liquidator/trustee must make provision:
•
for any debtswhich appear to them to be due to persons who, by reason of the
distance of their place of residence, may not have had sufficient time to tender
and establish their proofs;
•
for any debts that have not been determined, and;
•
for disputed proofs and claims1, 2
Sufficient funds should therefore be allocated from those available for distribution, to
cover the potential payment of the disputed or delayed claims.
1. Rule 14.28
2. Rule 14.39
49.28 Notice of declaration of dividend
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Notice of the dividend must be sent to all creditors who have proved their debts1 or
just to preferential creditors if there is only sufficient to pay a dividend to that class of
creditor2. The notice must contain the following particulars:
•
amounts realised from the sale of assets, indicating (so far as practicable)
amounts raised by the sale of particular assets;
•
payments made by the insolvency practitioner in the administration of the
insolvent estate;
•
provision (if any) made for unsettled claims and funds (if any) retained for
particular purposes;
•
the total amount to be distributed and the rate of dividend; and
•
whether and, if so, when, any further dividend is expected to be declared.
This ensures that creditors receive full information relating to the payment of
dividends.
1. Rule 14.35
2. Rule 14.35(5)
49.29 Payment of dividend including where
the debt is assigned
The dividend is distributed simultaneously (by post) with the notice declaring it1.
Arrangements may be made for any creditor to be paid in another way or for
payment to be held for their collection. The dividend may be paid to an assignee of a
creditor if the creditor has given notice of the assignment along with the name and
address of the assignee. When a debt is sold by one creditor to another creditor, the
assignee creditor should be considered to be ‘the’ creditor for dividend purposes and
any proof of debt lodged by the original creditor should be ignored, unless the
assignee creditor has not submitted a proof of debt in which case the original proof
of debt can be dealt with. However, the dividend should still be paid to the assignee2.
It is important that proofs of debt submitted by the original creditors and the assignee
are not both admitted for dividend purposes.
1. Rule 14.35(2)
2. Rule 14.43
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49.30 Notice of no, or no further,
distribution
When all the estate has been realised (or as much as can be realised without
protracting the liquidation or bankruptcy) notice must be given that either no funds
have been realised, or the funds realised have already been distributed or used or
allocated for defraying the expenses of the insolvency1.
1. Rule14.37
Dividend payments
49.31 Proof submitted after dividend
declared
Where a creditor has not proved their debt before the declaration of the dividend,
they are not entitled to delay or interrupt the distribution of that dividend or any other
(further) dividend declared before their debt is proved1.
After the creditor has proved for the debt, they are entitled to be paid the dividend
which they had failed to receive, out of any money available for payment of further
dividends at the time when their debt is proved. The payment of these unpaid
dividends to the previously unproved creditor must be made from the available funds
before any further dividends are paid. This would also apply, for example, where a
late preferential creditor came to the fore when a dividend to ordinary unsecured
creditors was being considered.
1. Rule 14.40(1)
49.32 Amendment of dividend cheque
There may be occasions when the name of the payee on a dividend cheque is
incorrect (e.g. a company has changed its name or a creditor has died and the
dividend is now payable to their executor). Before complying with a request for
amendment, the official receiver should ensure that the reason given for wanting the
amendment is valid and the new payee is entitled to payment, (e.g. certificate of
change of name, looking at the information at Companies House, or a copy of the
will provided). The original cheque must be cancelled.
49.33 Unclaimed dividends
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Where a dividend cheque is not required (as the debt is satisfied or has been
withdrawn) any unclaimed dividend cheque must be destroyed by the
liquidator/trustee six months after the last day in the month in which they were
issued. If a dividend is returned where, for example, the creditor’s address is no
longer current, enquiries should be made to attempt to trace the creditor’s current
address. If this cannot be found, the monies should be transferred to the Unclaimed
Dividends Account.
Whilst it is usual banking convention to refuse to honour cheques presented for
payment more than 6 months from the date of issue, there is no legal obligation on
the bank to dishonour a cheque where it is presented for payment outside of this
time.
To avoid any problems which may arise where a cheque is presented to the bank for
payment outside of 6 months from the date of issue and the possibility that both
original and re-issued cheques are presented and paid, Estate Accounts Services
(EAS) will not pay any cheques which remain uncashed after 6 months. Expired
dividend cheques will be automatically posted by EAS to the general Unclaimed
Dividends Account applicable to the year in which the cheque expired
49.34 Distribution where a surplus arises
and creditors’ details are unknown
following destruction of the official
receiver’s file and court file
In a limited number of cases a credit balance may occur where the official receiver’s
file and the court file have been destroyed and the creditors are not recorded on
ISCIS. The official receiver should consider contacting the bankrupt to ask for
information concerning the petition and their creditors. It should be possible to
ascertain whether the case was a debtor’s or creditor’s petition from the amount of
the deposit paid and/or whether the date of the petition and order were the same,
where this information is available.
49.35 Unclaimed dividends (payment into
the Consolidated Fund)
The Secretary of State shall from time to time pay into the Consolidated Fund out of
the Insolvency Service Account (ISA) unclaimed dividends1. Where unclaimed
dividends and undistributed balances have been held for a full seven years, the
Secretary of State is required to pay them into the Consolidated Fund. EAS will also
pass details of unclaimed dividends to firms of tracing agents (who have been vetted
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and accredited by The Insolvency Service). Where the recipient of the dividend is
located, they will be contacted by the tracing agent who, for a commission deducted
from the payment will arrange for payment of the dividend.
1. Section 407
49.36 Returned dividend cheques (queries)
Where a cheque is returned because of a query, the recipient LTADT office will
attempt to deal with the problem (which may be a missing reference etc). If the
matter still cannot be resolved (e.g. the payee cannot be located), then the cheque
will be cancelled and the funds transferred to reserve funds. The funds cannot be re-
credited to the estate as the payee may come to light and if re-credited to the estate,
the funds could be lost or reduced if a further dividend is paid.
49.37 Cases with a small credit balance -
indivisible balances account
When a case has a credit balance after all known expenses, fees and disbursements
have been dealt with in due order of priority (including the payment of VAT),
consideration should be given as to whether it is actually worthwhile making a
distribution first to preferential creditors (if any) and then to ordinary unsecured
creditors. Account should be taken of:
•
the official receiver's time and rate fees in making a distribution (plus VAT);
•
other costs of a distribution: local advertisement of the intended dividend and, if
the official receiver decides it is necessary, local advertisement of payment on
account of preferential creditors;
•
the maximum amount payable to the largest creditor; and
•
the number of claims and the number of contested claims.
A dividend need not be declared if none of the creditors will receive £5 or more,
unless total funds available to creditors for a distribution after the anticipated cost of
the advertisement of intended dividend and the official receiver's anticipated
remuneration exceed £100. Notice of the dividend (form NORAD) must be sent to all
those creditors who have proved their debt, other than where the distribution is to
preferential creditors only, whereby only that class of creditors needs to be notified.
A dividend of less than £1 should not be paid to any individual creditor unless they
specifically request it, although the claim should be included when calculating the
dividend. If it is not worthwhile to make a dividend payment, then the funds are
transferred to the Indivisible Balances Account without going through the dividend
process/procedure.
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49.38 Bona vacantia payments where
amount of surplus too small for a
distribution and company dissolved
When a company is dissolved, all property and rights vested in or held on trust for
the company immediately before its dissolution (excluding property held by the
company on trust or for any other person) are deemed to be bona vacantia (meaning
“goods without an apparent owner") and accordingly belong to the Crown, or to the
Duchy of Lancaster or to the Duke of Cornwall1. Where a company is dissolved and
there is a balance left in a company estate which is too small to make a meaningful
distribution, it should not be paid into the ISA. Instead, the balance should instead be
paid to The Treasury Solicitor (BV) as bona vacantia. Where any monies are held by
the liquidator where the company has not been dissolved, even though the surplus
may be too small to make a distribution, these monies continue to be in the
ownership of the company, therefore cannot be declared bona vacantia and should
be paid in to or remain in the ISA.
1. Companies Act 2006, section 1012.
49.39 Undistributed balances to be paid in
to the Consolidated Fund
The Secretary of State can from time to time pay balances, previously ascertained to
be too small to be divided, from the Insolvency Services Account into the
Consolidated Fund1.
1. Section 407
49.40 Proof altered after payment of a
dividend
If, after payment of a dividend, the amount claimed by a creditor in their proof is
increased, the creditor is not entitled to disturb the distribution of the dividend but
they are entitled to be paid, out of any money for the time being available for the
payment of any further dividend, any dividend or dividends which they have failed to
receive1]. If, after a creditor’s proof has been admitted, the proof is withdrawn or
expunged, or the amount of it is reduced, the creditor is liable to repay to the office-
holder, for the credit of the insolvent estate, any amount overpaid by way of a
dividend2
1. Rule 14.40(2)
--- PDF page 19 ---
2. Rule 14.40(4)
49.41 Secured creditors and partly secured
claims following declaration of a dividend
Where a secured creditor re-values their security at a time when a dividend has been
declared, the following matters need to be considered by the liquidator or trustee:
•
If the revaluation results in a reduction of the amount of any unsecured element
of the claim ranking for dividend, the creditor is required to repay to the office-
holder for the credit of the insolvent estate (as soon as is reasonably practical),
any amount received by them as a dividend, which is in excess of that to which
they are entitled, following the revaluation of their security1.
•
Equally, if the revaluation results in an increase of the creditor’s unsecured
claim, the creditor is entitled to receive payment of any dividend shortfall arising
as a result of the revaluation of their security, from the money available for the
payment of a further dividend (before any such further dividend is paid)2.
The creditor is not entitled to disturb any dividend declared (whether or not
distributed) before the date of the revaluation.
1. Rule 14.41(2)
2. Rule 14.40(3)
49.42 Debt payable in the future
A creditor may prove for a debt where payment would have become due at a date
later than the insolvency proceedings1, and it is only because the company or
individual has entered into insolvency proceedings that the debt is claimed by the
creditor in advance of its due payment date. Where this occurs, the creditor is
entitled to the dividend equally with others but, solely for the purpose of the dividend,
the amount of the creditor’s proof (or, if a distribution has been made to them, the
amount outstanding in respect of their admitted proof) shall be reduced by applying
the following formula:
X divided by 1.05n
Where X is the value of the admitted proof and "n" is the period beginning with the
relevant insolvency date and ending with the date on which payment of the creditors
debt would otherwise be due expressed in years and months in a decimalised form2.
An example of this calculation is as follows:
--- PDF page 20 ---
1. Mr A purchases a suite of furniture costing £3,500 on 1 September 2009, for
immediate delivery. He pays a £500 deposit and signs a contract requiring him to
make no further payments for two years.
2. The contract states the remaining £3,000 becomes due and payable on 1
September 2011, and can be paid interest free as a lump sum at that date or via 10
monthly payment instalments of £300 commencing on that date.
3. Subsequent to signing this contract Mr A is declared bankrupt on 1 February
2010, over a year before his contracted future payment of £3,000 becomes due.
4. To calculate the amount by which the creditor’s proof should be reduced for
dividend purposes using the above formula, firstly the period should be worked out
between 1 February 2010 (the insolvency date) and 1 September 2011 (the future
payment date).
5. In this example this constitutes 1 year and 7 months. This should be turned into
decimalised form (19 months divided by 12 months), which is 1.58.
6. 1.05 to the power of 1.58 = 1.0801
7. The calculation would then be:
£3,000 divided by 1.0801 = £2,777.52.
The creditor is therefore entitled to prove for dividend purposes for a reduced
amount of £2,916.40 against their future debt, following this calculation.
1. Rule 14.44
49.43 Creditors’ entitlement to interest
(a) Statutory interest
Creditors who are due interest on their debts are not entitled to interest from any
surplus funds (interest which accrues on debts outstanding since the date of the
winding-up order or bankruptcy order until the date the debts are paid1, 2), until any
creditor who has a debt payable at a future time has been paid the full amount of
their debt.
The rate of interest payable is whichever is the greater of:
•
The rate specified in section 17 of the Judgments Act 1838 (JA1838) on the day
the order was made (currently this stands at 8%)
•
The rate applicable to that debt apart from the winding up or bankruptcy
(contractual interest)3, 4
(b) Interest due on debts for periods up to the date of the insolvency order
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In certain circumstances creditors may include interest accumulated on their debt for
periods prior to the insolvency order although not previously reserved or agreed5,
where a debt is due by written instrument and payable at a certain time. Interest may
be claimed for the period from that specified time to the date of the insolvency order6.
For all other claims, interest may only be claimed if, prior to the presentation of the
petition a written demand for payment was made by or on behalf of the creditor,
giving notice that interest would be payable from the date of the demand to the date
of payment7. Interest claimed for periods up to the date of the insolvency order can
only be claimed for the period between the date of the demand and the date of the
insolvency order8, and the maximum rate of interest chargeable is the rate specified
in section 17 of JA1838 at the date of the insolvency order (currently 8%)9.
1. Section 189(2)
2. Section 328(4)
3. Section 328(5)
4. Section 189(5)
5. Rule14.23(2)
6. Rule 14.23(3)
7. Rule14.23(4)
8. Rule14.23(5)
9. Rule14.23(6)
49.44 Payment of statutory interest (no
deferred creditors)
Where the official receiver is handling a case with substantial assets and there are
no deferred creditors, after the payment in full of all the known proved creditors,
statutory interest may then be paid to those creditors1 2]. If there is a surplus
remaining in liquidations, with the court’s sanction3 it may then be distributed to the
members of the company according to their adjusted entitlement4. Where there is a
surplus in bankruptcy cases it is paid to the (former) bankrupt5.
1. Section 189(2)
2. Section 328(4)
3. Section 154
4. Section 330(5)
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49.45 Payment of statutory interest
(deferred creditors)
Where there are deferred creditors, following payment in full of ordinary unsecured
(proved) creditors, including statutory interest, remaining funds should be used to
pay (proved) deferred creditors (if any) and statutory interest on those claims. After
this, any surplus funds may be paid to the members of the company in liquidation or
the (former) bankrupt, as appropriate.
49.46 Defining payment in full to allow
final distribution of surplus funds
The decision in the case of Gill v Quinn [2005] BPIR 129 hinders a bankrupt in
obtaining an annulment of the bankruptcy order on the payment in full grounds when
not all of the creditors can be paid. Following this decision this means that a handful
of known but unproved creditors’ claims can not only prevent the payment of
statutory interest to proved creditors but also prevent the members of the liquidated
company from receiving the distribution to which they are entitled or the (former)
bankrupt from receiving a surplus. Creditors cannot be made to prove, they may
choose to take no part in the insolvency proceedings (on economic grounds or for
other reasons). This can have the adverse effect that creditors will be treated unfairly
in not receiving statutory interest. The members of the company or bankrupt will also
be affected by not receiving a surplus.
There is authority in the case of In Re Ward, Ex parte Hammond and Son v The
Official Receiver and the Debtor [1942] Ch 294 to the effect that for the purposes of
section 330(5), in the current legislation “creditors” means creditors who have proved
in the bankruptcy. This case may be used as the authority to overcome the problem
of defining when payment in full has occurred, to enable payment of statutory
interest to creditors and repayment of any surplus.
49.47 Treatment of creditors not proving in
surplus bankruptcy cases
Where the official receiver is dealing with a distribution of surplus funds and is
experiencing difficulty with creditors who have not proved, they should ensure that
these creditors are included in all steps up to and including the issue of the notice of
intended dividend (form DVDL). Where a dividend of 100p in the £ is expected, and
prior to the declaration of a dividend, the appropriate steps to include the unproved
creditors in the distribution have been taken correctly by issuing individual notices to
unproved creditors to prove their claims, and gazetting the intended dividend
--- PDF page 23 ---
payment (further advertising is discretionary), the official receiver should consider
that as being a payment in full and meeting the pre-condition to pay statutory
interest1, 2. Where the official receiver expects the rate of dividend to reach 100p in
the £, by issuing the notice of intended dividend (form DVDL), they are informing
creditors who have not proved that continued failure to do so will mean they do not
participate in the dividend. Form DVDL also advises that any remaining funds will be
used to pay statutory interest to those creditors who have proved, and any surplus
then remaining will be paid to the members of the company in liquidation or (former)
bankrupt, as appropriate.
1. Section 189(2)
2. Section 328(4)
49.48 Distribution of property in specie
(division of unsaleable property)
When dealing with property which, because of its peculiar nature or other special
circumstances, cannot readily or advantageously be sold, the trustee may make a
distribution in specie (in its existing form and essence and not in its equivalent)
amongst the bankrupt’s creditors, according to the estimated value of the property.
The prior permission of the creditors’ committee is required1 . Any permission must
relate to a specific proposed exercise of power and must not be given generally2 .
The official receiver, when acting as trustee in such cases, will need to obtain the
prior consent by emailing ORS.Advice (acting on behalf of the Secretary of State)
before acting in this way – see chapter 1.
Where prior permission was not obtained and the property has been distributed,
subsequent ratification may be granted by the creditors’ committee if it appears that
the circumstances were urgent and that the trustee did not delay unduly in seeking
ratification3. This is unlikely to apply in cases administered by the official receiver.
1. Section 326(1)
2. Section 326(2)
3. Section 326(3)
Distribution of funds by liquidator
49.49 Introduction
--- PDF page 24 ---
When the liquidator has complied with the necessary procedural steps to declare a
dividend, they must distribute the funds (after providing for liquidation expenses).
Secured creditors at this point will have either realised their charged assets in part
or full satisfaction of their debts or, if the liquidator has realised the assets, will have
been paid out of the proceeds.
49.50 Floating charge secured creditors
and the prescribed part
In cases where a floating charge was created on or after 15 September 2003, the
payment to the holder of a floating charge (who is a type of secured creditor) will be
made, subject to the share of assets secured by that floating charge being made
available to ordinary unsecured creditors under the prescribed part.
49.51 Priority of payment of unsecured
creditors’ debts
After all expenses have been paid in full in a winding up, the company’s unsecured
preferential debts are paid in priority to all other debts1.
Preferential debts rank equally among themselves after the payment of the
liquidation expenses and are required to be paid in full, unless the assets are
insufficient to meet them, in which case they share the assets between themselves
in proportion to their debts2.
When admitting a claim as preferential, or partly preferential, that fact should be
noted on the proof. Non-preferential unsecured debts rank equally between
themselves in the winding up and are entitled to be paid in full after the preferential
debts where there are sufficient assets; otherwise they share the assets between
themselves in proportion to their debts3, 4]. Each class of creditor is paid in full before
any distribution can be made to the next class.
1. Insolvency Act 1986 section 175(1)
2. Section 175
3. Rule14.12
4. Insolvency Act section 328
49.52 Abolition of Crown Preference
The implementation of the EA2002 reduced the creditors who were previously
entitled to preferential ordinary unsecured status. The majority of unsecured
--- PDF page 25 ---
creditors now rank equally as non-preferential ordinary secured creditors. This
applies to most cases where the petition was presented on or after 15 September
2003.
49.53 Debts ranking as preferential where
petition presented before 15 September
2003
For those cases where the petition was presented before 15 September 2003,
Schedule 6 IA86 (prior to amendment by the EA2002) defined the different
categories of preferential debts. These included debts due to HM Revenue and
Customs and social security contributions. Whilst these categories of preferential
debt will not be applicable in cases where the petition was presented on or after 15
September 2003, there may still be cases where the petition was presented before
15 September 2003 and where a distribution is to be made after this date, where the
preferential status of these creditors will still need to be considered.
49.54 Debts ranking as preferential where
petition presented on or after 15
September 2003
Following the abolition of Crown preference, in cases where the petition was
presented on or after 15 September 2003, Schedule 6 to the IA86 (as amended by
the EA2002 details the remaining categories of preferential debt, which are
applicable in all types of liquidations and administrative receiverships, voluntary
arrangements and bankruptcy, as follows:
•
any sums owed by the company which are subject to Schedule 4 of the Pension
Schemes Act 1993; these constitute contributions to occupational pension
schemes and state scheme premiums;
•
remuneration etc. of employees (where they have been an employee of the
company), as defined by Schedule 6 to the Insolvency Act 1986, paragraphs 13
to 15, and limited to amounts payable for the whole or any part of the 4 month
period immediately prior to the relevant date (as defined by IA86 section 387).
In a compulsory winding up where there have been no prior insolvency
proceedings, the relevant date is the date of appointment of a provisional
liquidator or, where no provisional liquidator has been appointed, the date of the
winding-up order1. The claim cannot exceed £8002
•
levies on coal and steel production.
--- PDF page 26 ---
1. Section 387(b)
2. Insolvency Proceedings Monetary Limits Order 1986 (SI 1986/1996)
49.55 HM Revenue and Customs not a
preferential creditor
Following the implementation of EA2002 HM Revenue and Customs (HMRC) is not
a preferential creditor and its debt(s) (irrespective of the nature of the tax owed), will
rank with all other unsecured creditors.
49.56 Exceptions where the change to
preferential status introduced by EA2002
does not apply in company cases
The change introduced by the EA2002 does not apply in the following cases where
prior to 15 September 2003:
•
A petition for an administration order had been presented;
•
A company voluntary arrangement (CVA) had effect;
•
A receiver or administrative receiver was appointed under the terms of a floating
charge;
•
A resolution for the winding up of the company was passed; or
•
A petition for a winding-up order was presented1.
It will also not apply to a company where a CVA has effect after 15 September 2003
which follows a "pre-commencement" liquidation or administration. This applies to a
CVA proposal made either before or after 15 September 2003, by a liquidator
(following a winding-up order), where the winding-up petition was presented or,
where the resolution for winding up was passed, before the 15 September 2003. The
same applies where a CVA proposal is made, either before or after 15 September
2003, following an administration order made on a petition presented before 15
September 20032.
For cases where the winding-up petition was presented before 15 September 2003,
Schedule 6 of the IA86 (prior to amendment by the EA2002) defined the different
categories of preferential debts. These included debts due to HMRC and social
security contributions. There may still be cases where the petition was presented
before 15 September 2003 and where a distribution is to be made after this date,
where the preferential status of these creditors will still need to be considered.
--- PDF page 27 ---
1. Enterprise Act 2002 (Commencement No. 4 and Transitional Provisions and Savings) Order 2003/2093, Article 4
2. Enterprise Act 2002 (Commencement No. 4 and Transitional Provisions and Savings) Order 2003/2093, Article 4(2)
49.57 Preferential debts arising from
contingent liability for employees’
protective awards (Haine and Secretary of
State v Day)
The Court of Appeal in the case of Haine and Secretary of State v Day ([2008]
EWCA Civ 626) held that the entitlement of employees to remuneration under a
protective award made by an Employment Tribunal is a contingent liability and as
such1 is provable in the liquidation. The contingent liability for the remuneration
constitutes a preferential debt in the proceedings.
1. Rule14.1.
49.58 Preferential charge on goods
distrained
Where any person has distrained upon the goods or effects of the company in the 3
month period before the date of the winding-up order, those goods or effects, or the
proceeds of sale, are charged for the benefit of the company’s estate for payment of
preferential debts. The effect is to make the claims of the preferential creditors a first
charge on the distrained goods/proceeds, but only to the extent that the other
property of the company’s estate is insufficient to meet them1. Any person
surrendering goods distrained, to the priority of preferential creditors in this way, is
entitled to share in any dividend to preferential creditors payable out of the other
assets but not the surrendered assets. The following example illustrates this:
Preferential charge on goods distrained
£
Distraint assets
10,000
Other assets
10,000
Preferential creditors
40,000
--- PDF page 28 ---
Preferential charge on goods distrained
Distraint creditor
15,000
The preferential creditors will receive 25p in the £, (10,000 /40,000 x 100) from the
distraint assets. The balance of the remaining preferential creditors i.e. (£30,000)
and the distraint creditors (£15,000) will receive 22.2p in the £ (10,000/(40,000 -
10,000 +15,000) x 100) from the other assets. The distraining creditor is entitled to
include distraint costs in their claim.
1. Section 176(2)
49.59 Source of funds available to
preferential creditors including claims
over floating charge assets
The claims of preferential creditors are payable first out of the assets (if any) that are
not subject to the floating charge (the insolvent's general assets). If such assets are
insufficient to meet the claims in full, where a company has created a floating
charge, recourse is made to the assets subject to a floating charge in priority to the
holder of that floating charge. Preferential creditors’ claims take priority over the
claims of the holder(s) of the floating charge, or debenture holder whose claim is
secured by the floating charge1. This includes where a floating charge has
subsequently crystallised to become a fixed charge. Monies should only be
recovered in this way for the benefit of preferential creditors if no other, or
insufficient, assets are available and there are preferential claims to pay. This
recovery should not be undertaken as an academic exercise. In practice, in view of
the nature and extent of a floating charge, it is likely that recourse to floating charge
assets will be necessary to pay the preferential creditors.
1. Section 175(2)(b)
49.60 Reversal of Leyland Daf ruling by
IA86 section 176ZA
In March 2004 the House of Lords gave their judgment in the case of Re Leyland Daf
Ltd, Buchler v Talbot [2004] UKHL 9;[2004] 2 A.C. 298;[2004] B.C.C 214 (known as
the Leyland DAF case). The question raised by the case was whether the liquidation
costs and expenses could be paid from the monies realised from the sale of assets
secured by the floating charges. The judgment overruled existing case law governing
the way in which liquidators dealing with companies whose assets were subject to a
--- PDF page 29 ---
floating charge, could attempt to recover the payment of the liquidation expenses
and pay the (liquidation) preferential creditors. It was held that the liquidator was not
entitled to claim their expenses in priority to the rights of the holder of a floating
charge, and that it was immaterial whether or not the charge had crystallised before
the commencement of the liquidation.
The insertion of section 176ZA into the IA86 by the Companies Act 2006 (CA2006)
section 1282, reverses the Leyland Daf ruling with effect from 6 April 2008. This
section provides for the expenses of the liquidator to be paid in priority to the claims
of the floating charge holder or debenture holder whose claim is secured by the
floating charge, to the extent that the assets of the company available to general
estate creditors are insufficient to pay those expenses.
49.61 Payment of expenses from floating
charge assets
The expenses of the winding up have priority over any claims of the floating charge-
holder, or of the debenture holder whose claim is secured by the floating charge, to
the extent that the assets of the company available to general estate creditors are
insufficient to pay those expenses1 2. This does not include the assets which have
been set aside for the prescribed part available for the payment of unsecured debts3.
1. Rule 6.42
2. Rule 7.108
3. Section 176A(2)
49.62 Charging the official receiver’s
administration and the secretary of state’s
administration fee against floating charge
assets
Where the deposit is insufficient to satisfy the official receiver’s administration fee in
full, since 6 April 2008 the balance of the administration fee can be recovered from
the property comprised in or subject to a floating charge.
The payment of monies into the Insolvency Services Account (ISA) as a result of the
realisation of floating charge assets will cause the Secretary of State's administration
fee to be charged to the general estate account.
--- PDF page 30 ---
49.63 Limitation of section 176ZA limited
by Insolvency Rules 1986
The IR2016 rules 6.44 to 6.48 and 7.111 to 7.116 limit section 176ZA, by requiring
the liquidator to obtain advance authorisation or subsequent approval from the
floating charge-holder and any preferential creditor, for the incurring of expenses in
certain categories of litigation (as detailed in those rules). Failure to obtain this
authorisation will result in the loss of entitlement to the priority provided by section
176ZA over any claims to property comprising or subject to a floating charge created
by the company, and payment for unauthorised litigation expenses cannot be paid
out of any such property. The exception to this is where the actual or anticipated
litigation expenses do not exceed £5,0001, 2 .
1. Rule 6.44
2. Rule7.111 and 7.112
49.64 Company subject to a fixed and
floating charge
If the assets of a company are subject to a standard clearing bank security in the
form of a fixed and floating charge, it is likely that the official receiver, as liquidator, in
the absence of the appointment of an administrative receiver, will have to use three
accounts through which to account for the assets realised. They are a secured
creditor’s or fixed charge account, a floating charge or debenture account and the
(general) estate account.
49.65 Floating charge created before 15
September 2003
Where the floating charge was created before 15 September 2003, the three
accounts will be sufficient to separate out the proceeds received in the liquidation.
49.66 Floating charge created after 15
September 2003 (separate account for the
prescribed part)
Where the floating charge was created after 15 September 2003, then an additional
fourth account may be required to those detailed in 68. This fourth account is the
--- PDF page 31 ---
prescribed part account, to deal with the funds so prescribed under section 176A(2)
of the IA86.
49.67 Secured creditor’s or fixed charge
account
The secured creditor's or fixed charge account may be used to receive the
realisation proceeds of assets subject to fixed charges. Expenses paid from this
account can include the costs of preserving and realising the asset(s) and the official
receiver’s remuneration. Any balance remaining on the account may be remitted to
the holder of the fixed charge under the terms of the fixed part of its charge until its
debt is paid in full. The Secretary of State’s administration fee should not be charged
to this account as this is not provided for by the FO2004. Where assets are held by
more than one secured creditor, separate accounts should be used for each creditor.
49.68 Floating charge or debenture account
The floating charge or debenture account may be used to receive the proceeds of
assets subject to the floating charge. Expenses paid from this account can also
include the costs of realising and preserving the assets, the official receiver’s
remuneration. Following the insertion of Section 176ZA into the Insolvency Act 1986
(with effect from 6 April 2008), the general expenses of the winding up can also be
paid from this account in priority to the floating charge holder and any preferential
creditors. After payment of the expenses any balance may be used to pay the
preferential creditors, but only in so far as they cannot be paid from the general
estate account, and then the debenture holder until its debt is paid in full.
49.69 When to calculate the prescribed
part
Once the preferential creditors have been paid in full, or if there are no preferential
creditors, the balance of the money held in the floating charge/debenture account
may be subjected to the calculation of the prescribed part. The sum of money to use
for this purpose is the sum of money which would otherwise be paid to the debenture
holder under the terms of its floating charge. If, in paying the preferential creditors,
expenses have been incurred, those expenses should be deducted from the floating
charge/debenture account before the calculation of the prescribed part is made.
Once the prescribed part calculation is made, the liquidator can transfer the
prescribed part monies in to the prescribed part account.
--- PDF page 32 ---
The monies remaining in the floating charge/debenture account may be remitted to
the debenture holder, although only to the extent that the debenture holder remains
a creditor.
49.70 Prescribed part account
Following the calculation of the prescribed part, the monies set aside in the
prescribed part account are then distributed by way of a dividend to the ordinary
unsecured creditors, discounting the preferential creditors (as they have already
been paid), and any balance owed to the debenture holder, who is excluded from a
claim against this money until the unsecured debts are paid in full1. The usual
distribution expenses may be charged to the prescribed part account.
1. Section 176A(2)
49.71 General estate account
The general estate account may be used to receive the realisation proceeds of any
assets not subject to a fixed or floating charge, this could include a fruitless payment
(which is treated as an asset), paid into the main estate account. In addition, the
general estate account may receive any surplus arising from the realisation of an
asset subject to a fixed charge not caught by the floating part of the charge, or from
the assets secured by the floating charge. Expenses paid from this account include
all other liquidation fees, costs and charges, including the costs of realising and
preserving the assets credited to the account, and the official receiver’s
remuneration. A Secretary of State fee should be charged to this account including
any charge transferred from the floating charge or debenture account.
Thereafter this account may be used to pay the preferential creditors, the holder of a
floating charge to the extent that preferential debts have been paid out of the assets
subject to the floating charge, and then the general body of creditors. It is important
to note that on a distribution from this account, the holder of a floating charge will
only have priority as described above. There will be no general floating charge-
holder's priority. The reason for this is that if the floating charge-holder held security
over an asset, it would be accounted for separately.
49.72 Rates of judgment interest
The appropriate rates of judgment interest are dependent on the rate prevailing at
the date of the insolvency order, and are applicable in both liquidation and
bankruptcy. Recent rates are:
--- PDF page 33 ---
Statutory Instrument
Date
Interest
rate
Judgment Debts (Rate of Interest) Order
1985 [SI 1985/437]
16 April 1985 - 31
March 1993
15%
Judgment Debts (Rate of Interest) Order
1993 [SI 1993/564]
1 April 1993 to date
8%
Where a creditor is claiming a higher contractual rate, they should be asked to
supply documentation detailing their rates, contract terms and conditions etc. Where
the contractual interest rate is higher, that rate should be used, unless such a rate is
considered extortionate1. Where no contractual rate is supplied, the statutory rate
according to section 17 of the JA1838 on the date the company went into liquidation
should be applied.
1. Section 343
49.73 Statutory interest and its application
Statutory interest is applicable on proved debts, from the date of the winding-up
order, even where the debt as proved includes interest already charged as part of
the repayment terms of a loan. Statutory interest runs from the date of the winding-
up order until a final dividend is declared or all the proved debts have been paid in
full. The rate of statutory interest is limited to the greater of either the rate specified in
section 17 of the JA1838 at the date of liquidation, or the contractual interest rate
applicable had the company not entered into liquidation.. All statutory interest ranks
equally for payment, whether or not the debts on which it is payable rank equally1.
1. Section 189(3)
49.74 Payment of interest from surplus
funds after payment of proved creditors
If all secured, preferential and unsecured creditors have been paid in full, including
any creditors whose debts only become due after dividends have been paid (i.e.
debts payable at some future time), any surplus funds then remaining become
available for the payment of interest on all classes of debts proved, before any
money is returned to contributories. Interest is calculated on trade debts from the
date of the liquidation and on other debts with a fixed payment date (such as loans,
bills of exchange and tax liabilities), from the date payment is due, where this occurs
after the date of liquidation. Where the fixed payment date occurs before the date of
--- PDF page 34 ---
liquidation, interest may be claimed for the period from that specified time to the date
when the company went into liquidation.
49.75 Creditors’ right to waive statutory
interest
Where the liquidator has been able to pay creditors in full, and the estate holds
sufficient funds to pay statutory interest to the creditors, in some circumstances it
may be that the proved creditors decide to waive their right to statutory interest.
Where a creditor cannot be traced at the date of the distribution, the liquidator cannot
waive the right of the untraced creditor to statutory interest, without their consent.
The liquidator should reserve the amount of the debt plus statutory interest at the
appropriate rate for the period until the dividend is paid, pending a claim being made
on the monies by the untraced creditor at a later date.
49.76 Postponed claims
The following debts are not provable until all other claims of creditors, and the
interest due on those claims (including statutory interest), have been paid in full:
•
claims under s382(1) of the Financial Services and Markets Act 2000 (where
profit has been made or one or more investors have suffered a loss as a result
of a person contravening a relevant requirement of the Financial Services and
Markets Act 2000); and
•
any other claim which is postponed by the Insolvency Act 1986 or any other
enactment.
Priority of debts
49.77 Priority of debts
After all expenses in the bankruptcy have been paid in full, payments are made to
creditors in the following order of priority1
1. Section 328
49.78 Specially preferred debts –
apprenticeships1
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This section applies where a bankruptcy order is made in respect of an individual to
whom another was an apprentice or articled clerk at the time when the petition on
which the order was made was presented and the bankrupt or apprentice gives
notice to the trustee terminating the apprenticeship or articles. Where an articled
clerk or apprentice has paid a fee, the trustee may pay a sum in respect of the
unexpired period of their training (as at the date of the bankruptcy order), in which
case the sum ranks as a pre-preferential debt. In calculating the sum to be repaid the
trustee will take into consideration the duration of the apprenticeship unexpired and
the general circumstances of the case. It is unlikely this situation will be encountered
in practice.
1. Section 348
49.79 Specially preferred debts – trustee
expenses from a previous (undischarged)
bankruptcy
Where a bankrupt is adjudicated bankrupt again following an earlier bankruptcy, and
where they remain undischarged from the earlier bankruptcy1, any expenses incurred
by the trustee as part of their asset recovery duties in the earlier bankruptcy
(including dealing with an income payments agreement or income payments order),
shall be a first charge on the assets recovered in the later bankruptcy2.
1. Section 334(1)(b)
2. Section 335(3)
49.80 Abolition of crown preference and
remaining preferential creditors
The implementation of the EA2002 reduced the creditors who were previously
entitled to preferential ordinary unsecured status. The majority of unsecured
creditors (including HM Revenue and Customs(HMRC),) now rank equally as non-
preferential ordinary unsecured creditors where the petition was presented on or
after 15 September 2003. The remaining categories of debt defined as preferential
(contributions to occupational pension schemes, remuneration etc. of employees,
levies on coal and steel production) apply in both liquidation and bankruptcy
proceedings1 2.
1. Section 386(1)
2. Schedule 6
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49.81 Debts ranking as preferential where
petition presented before 15 September
2003
For those cases where the petition was presented before 15 September 2003, the
different categories of preferential creditors historically included debts due to HMRC
and social security contributions.
Whilst these categories of preferential debt will not be applicable in cases where the
petition was presented on or after 15 September 2003, there may still be cases
where the petition was presented before 15 September 2003 but where a distribution
is to be made after this date, where the preferential claims of these creditors will still
need to be considered.
49.82 Debts ranking as preferential where
petition presented on or after 15
September 2003
Following the abolition of Crown preference, in cases where the petition was
presented on or after 15 September 2003, Schedule 6 to the IA86 (as amended by
the EA2002) details the remaining categories of preferential debt, which are
applicable in all types of liquidations, administrative receiverships, voluntary
arrangements and bankruptcy, as follows:
•
Any sums owed by the bankrupt which are subject to Schedule 4 of the Pension
Schemes Act 1993; these constitute contributions to occupational pension
schemes and state scheme premiums;
•
remuneration etc. of employees (where they have been an employee of the
bankrupt), as defined by Schedule 6 to the IA86, and limited to the whole or any
part of the 4 month period immediately prior to the relevant date (as defined by
IA86 section 387. In bankruptcy proceedings, the relevant date is the date the
interim receiver appointed under section 286 is first appointed, following the
presentation of the bankruptcy petition, or where no interim receiver has been
appointed, the date of the making of the bankruptcy order1. The claim cannot
exceed £8002;
•
levies on coal and steel production3, 4.
1. Section 387(6)]
2. Insolvency Proceedings Monetary Limits Order 1986 (SI 1986/1996) article 4
3. Section 386
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4. Schedule 6
49.83 Exceptions where the change to
preferential status introduced by EA2002
does not apply (bankruptcy cases)
The transitional provisions, where the change introduced by the EA2002 does not
apply, are applicable where prior to 15 September 2003, a petition for a bankruptcy
order was presented, or an individual voluntary arrangement (IVA under part VIII of
the IA86) had effect1. It will also not apply to a case where a proposal for an IVA is
made (under part VIII of the IA86) either before or after the 15 September 2003, by a
person who was adjudged bankrupt on a petition presented before 15 September
20032.
For cases where the bankruptcy petition was presented before 15 September 2003,
Schedule 6 of the IA86 (prior to amendment by the EA2002) defined the different
categories of preferential debts. These included debts due to HMRC and social
security contributions. There may still be cases where the petition was presented
before 15 September 2003 and where a distribution is to be made after this date,
where the preferential status of these creditors will still need to be considered.
1. Section 386 Enterprise Act 2002 (Commencement No. 4 and Transitional Provisions and Savings) Order 2003/2093, article 4(1)
49.84 Landlords
Where a landlord levies distress upon the goods or effects of an individual who is
adjudged bankrupt before the end of the period of 3 months beginning with the
distraint, then the goods or effects, or the proceeds of sale, are charged for the
benefit of the preferential creditors but only to the extent that the bankrupt’s estate is
insufficient to meet those debts. When this has occurred, the landlord may rank as a
preferential creditor, to the extent of the value of the goods or proceeds surrendered
by them. Any person surrendering distrained goods in this way is entitled to share in
any dividend to preferential creditors payable out of the other assets, but cannot be
paid from the proceeds of the surrendered assets1.This applies in bankruptcy as it
does in corporate insolvency.
1. Section 347
49.85 Unsecured debts which are neither
preferential nor postponed
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Non-preferential unsecured creditors (which are neither preferred or postponed, rank
equally between themselves in the bankruptcy proceedings and are entitled to be
paid in full after the preferential creditors where there are sufficient assets. If there
are insufficient funds to pay them in full, they share the available assets between
themselves in proportion to their debts1.
1. Section 328(3)
49.86 Dividend payments for joint debts
listed in separate estates
Where the official receiver or trustee is dealing with a case where both husband and
wife are subject to separate bankruptcy orders, it is sometimes the case that both
have joint and several liability for the same debt, for example a joint bank account
which is overdrawn.
The trustee should consider the claim and where appropriate admit it in full in each
of the bankruptcy estates. When the trustee is ready to pay a dividend from the
separate estates, they should pay the dividend, as normal, in the first estate (the
case with the earlier court number). Then, in the second estate (the later court
number), they should also calculate the dividend as normal, that is on the joint
creditor’s claim in full, together with any other claims, but, in total, the joint creditor
should not be paid more than the amount of its full claim.
If the joint creditor’s claim is likely to be overpaid as a result of the second estate
dividend payment, the trustee should not pay the joint creditor more than its claim
but split the surplus monies in two. One half should be remitted back to the first
estate where it should be treated as an asset and, subject to any fees due, used to
pay other creditors. In the second case, the share of the surplus monies should be
used to pay other creditors, but not the joint debt.
In this way, the principle of, in effect, the first estate paying a portion of the second
estate’s debt under guarantee is acknowledged and accounted for. It is likely that in
practice the adjustments will need to be planned and made before the dividends are
actually paid.
Interest
49.87 Statutory interest
Any surplus left after payment of the debts that are neither preferential nor
postponed should then be used to pay interest on the debts outstanding since the
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commencement of the bankruptcy (to the date of payment of the debt). Interest on
preferential debts ranks equally with interest on all other debts (except those that are
postponed)1]. The interest payable is the greater of:
•
that applicable under s17 of the Judgments Act 1838 (JA1838)at the date of the
commencement of the bankruptcy (statutory interest) currently this stands at
8%2; and
•
the rate of interest that the bankrupt would have to pay in respect of the debt if
they had not been adjudicated bankrupt (contractual interest)3. Interest should
be calculated on a simple basis.
1. Section 328(4)
2. Section 328(5)(a)
3. Section 328(5)(b)
49.88 Interest due on debts for periods up
to the date of the bankruptcy order
In certain circumstances creditors may include interest accumulated on their debt for
periods prior to the bankruptcy order, even where this has not previously been
reserved or agreed, as follows1:
•
If a debt is due by written instrument and payable at a certain time, interest may
be claimed for the period from that specified time to the date of the bankruptcy
order2.
•
If the debt is due otherwise, interest may only be claimed if, prior to the
presentation of the petition a written demand for payment was made by or on
behalf of the creditor, giving notice that interest would be payable from the date
of the demand to the date of payment3]. Interest claimed in this way can only be
claimed for the period between the date of the demand and the date of the
bankruptcy order4. The rate of interest to be claimed cannot exceed the rate
specified in section 17 of the JA1838 on the date of the bankruptcy order.
1. Rule14.23
2. Rule14.23(3)
3. Rule14.23(4)
4. Rule14.23(5)
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49.89 Considering the period for statutory
interest (Wilcock v Duckworth [2005] BPIR
682 ChD)
Where all creditors have been paid in full, statutory interest is applicable on proved
debts, from the date of the bankruptcy order1. This applies even where the debt as
proved includes interest already charged as part of the repayment terms of that debt,
up to the date of the bankruptcy order2.
In the case of Wilcock v Duckworth [2005] BPIR 682 ChD, the court considered the
payment of statutory interest when using third party funds to fund a paid in full
annulment, where there were difficulties in identifying all the creditors due to the time
that had elapsed since the making of the bankruptcy order.
In deciding which creditors should be paid statutory interest, the court divided the
creditors in to three categories:
•
Creditors who require interest to be paid;
•
Creditors who advise the trustee that they waive their claims to interest;
•
Creditors who offer no view (including creditors that cannot be located).
With regard to the period for which statutory interest should be paid, the court
decided that the debtor should pay statutory interest on the debts from the date of
the bankruptcy order, to the date the official receiver was released; and then for the
period from the date of the appointment of a trustee until annulment. This solution is
only to be applied where creditors have been denied their money over a long period,
but also where it would be unfair for the debtor to carry the burden of interest for the
entire period in those cases where considerable time has elapsed.
In making this judgment the court considered the decision in Harper v Buchler [2004]
BPIR 724 concerning circumstances where there is sufficient surplus to pay the
debts in full with statutory interest (see also chapter 9).
1. Section 328(4)
2. Rule 14.23
49.90 Surplus cases and the payment of
statutory interest (Harper v Buchler (No 2)
[2005] BPIR 577)
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In Harper v Buchler (No 2) [2005] BPIR 577, due to property prices increasing in the
ten years between the date of the bankruptcy order (1995) and the date of the
annulment application, assets held within the bankruptcy estate provided funds
which were more than sufficient to pay not only all of the debts, costs and liabilities of
the bankruptcy but also statutory interest. The court held that this was a case where
it was entirely appropriate for statutory interest to be paid before an order of
annulment could be granted.
Postponed debts in bankruptcy cases
49.91 Debts to spouse or civil partner
Where a person is married to or has a civil partnership with the bankrupt at the date
of the bankruptcy order, and that person has provided credit to the bankrupt, the
outstanding debt is postponed and ranks behind all other categories of debt. This
includes any interest payable on the debt when a surplus arises. This debt
postponement applies irrespective of whether they were or were not married to, or in
a civil partnership with the bankrupt, at the date the credit was given, as long as they
are married to or in a civil partnership with the bankrupt at the date of the bankruptcy
order1.
1. Section 329
49.92 Other debts
The following debts are not provable until all other claims of creditors, plus interest
due on those claims (including statutory interest), have been paid in full:
49.93 Student loans
Student loans have been made under several pieces of legislation and their status
depends on the legislation under which they were made and the date of the
bankruptcy. The current position is that in all bankruptcy cases where the order was
made on or after 1 September 2004, all outstanding student loans are not provable
debts and thus are not released on a bankrupt’s discharge from bankruptcy. Further,
where the order was made on or after 1 July 2004, all student loans made under the
Education (Student Loans) Act 1990 (often referred to as mortgage style loans) were
also made non-provable in bankruptcy with the consequence that they were also not
released on discharge1, 2. Where the date of the bankruptcy order occurs prior to
these dates (1 July 2004 for loans under the Education (Student Loans) Act 1990
and 1 September 2004 for loans made under the Teaching and Higher Education Act
--- PDF page 42 ---
1988 (often referred to as income contingent loans), student loans may be treated as
provable debts and thus be included in the bankruptcy and released on discharge.
1. The Higher Education Act 2004 section 42
2. The Education (Student Support) (No.2) Regulations 2002 (Amendment) (No.3) Regulations 2004
49.94 Stay of distribution in case of second
bankruptcy
Where a bankruptcy order is made against an individual who is an undischarged
bankrupt and their existing trustee1 has been given the prescribed notice of the
presentation of the petition for the later bankruptcy2, any further distribution or other
disposition to them, as described below, is void except to the extent that it was made
with the consent of the court or is or was subsequently ratified by the court3.This
applies to4:
The creditors of the bankrupt in the earlier bankruptcy and the creditors of the
bankrupt in any bankruptcy prior to the earlier one, are not creditors of the later
bankruptcy in respect of the same debts, but the trustee may prove in the later
bankruptcy for the unsatisfied balance of the debts, together with any interest
payable on the balance and any unpaid expenses of the earlier bankruptcy. The
claim made by the trustee in the earlier bankruptcy will rank in priority after all the
debts, and the interest on those debts, have been paid in full from the later
bankruptcy.
1. Insolvency Act 1984 section 334(1)(c)
2. Insolvency Act 1984 section 334(1)(a)
3. Insolvency Act section 334(2)
4. Insolvency Act section 334(3)
49.95 Existing trustee’s expenses
The trustee in the earlier bankruptcy may have incurred expenses in dealing with
assets which, upon the commencement of the later bankruptcy, must be treated as
part of the estate for the purposes of the later bankruptcy1. Where this has occurred,
such assets are subject to a first charge in favour of the earlier trustee, for any
bankruptcy expenses incurred by them in relation to dealing with these assets.
1. Section 335 (1) & (2)
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Priority of debts in joint estate
49.96 General
The provisions of the Insolvent Partnerships Order 1994(IPO94)section 175A apply
as regards priority of debts in a case where IPO94 article 8 applies (winding up of an
insolvent partnership on a creditor’s petition, where concurrent petitions are
presented against one or more members of the partnership). Only after the payment
of expenses, are the joint debts of the partnership paid out of the joint estate in the
following order of priority;
•
the preferential debts
•
the debts which are neither preferential nor postponed (ordinary unsecured
debts);
•
statutory interest under section 189 on joint debts (other than postponed debts);
•
the postponed debts;
•
statutory interest under section 189 on postponed debts;
•
surplus to the (insolvent) members (possibly as an asset in their bankruptcy)
49.97 Ranking of preferential and non
preferential debts
The preferential debts rank equally between themselves, and separately the debts
which are neither preferential nor postponed (ordinary unsecured debts) rank equally
between themselves. If there are insufficient funds to pay the preferential creditors in
full, each receives the same amount in the £1. If there are sufficient funds to pay the
preferential creditors in full, and surplus funds remain, the non-preferential and non-
postponed creditors each receive the same amount in the £.
1. Insolvent Partnerships Order 1994/2421 Sch. 4 Art 8 Part II paragraph 23 section 175A(4)
49.98 Joint estate deficiency claimed
against separate estate(s)
Where the joint estate is not sufficient for the payment of all the debts, the insolvency
practitioner or official receiver as liquidator (or trustee of the partnership estate in
article 11 cases) should aggregate the value of each different category of debt that
has not been satisfied. Any shortfall which remains after part payment of the
preferential and ordinary unsecured debts is then claimed by the liquidator/trustee
--- PDF page 44 ---
proving in each of the separate estates for the full amount of the shortfall. The claim
by the liquidator/trustee ranks equally for payment with the unsecured creditors in
the separate estates1. The same applies to the postponed debts.
The unpaid total of each category of debt shall be a claim on each member’s estate
as follows:
•
where the aggregate amount of claim relates to preferential debts or debts that
are neither preferential or postponed (ordinary unsecured debts) the claim shall
rank equally with the ordinary unsecured debts of the member (i.e. the
preferential debts of the joint estate are not accorded preferential status in the
separate estates)1,
•
where the aggregate amount relates to interest on the joint debts (other than
postponed debts), the claim shall rank equally with the interest on the separate
debts of the member2,
•
where the aggregate amount relates to postponed debts, the amount shall rank
equally with the postponed debts of the member3,
•
where the aggregate amount relates to interest on the postponed debts, the
claim shall rank equally with the interest on the postponed debts of the
member4.
An illustrative example of a distribution from joint and separate estates, where a
winding-up order and concurrent bankruptcy orders have been made following
creditors petitions under article 8 IPO94 against a partnership and two individual
partners, is attached at Annex B.
1. Insolvent Partnerships Order 1994/2421 Sch. 4 Art 8 Part II paragraph 23 section 175A(5)
2. Insolvent Partnerships Order 1994/2421, Schedule 4, Article 8, Part II paragraph 23 s175A(6)
3. Insolvent Partnerships Order 1994/2421, Schedule 4, Article 8, Part II paragraph 23, s175A(7)
4. Insolvent Partnerships Order 1994/2421, Schedule 4, Article 8, Part II paragraph 23, s175A(8)].
49.99 Dealing with the liability of the estate
of a deceased partner
When dealing with the liability of the estate of a deceased member section 9 of the
Partnership Act 1890 (PA1890) still applies to the provisions of IPO94 section 175A
as regards priority of debts. This states that whilst every partner in a firm
(partnership) is liable jointly with the other partners for all debts and obligations of the
firm incurred while he is a partner, after his death his estate is also severally liable
for any unsatisfied debts for which he is jointly liable, subject to the prior payment of
his separate debts1.
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1. Partnership Act 1890 section 9
49.100 Priority of debts in separate estate
The priority of debts in the separate estate of each member against whom an
insolvency order has been made, after the payment of expenses, is the same order
of priority as the joint estate. The preferential debts rank equally between themselves
and separately the debts which are neither preferential nor postponed (ordinary
unsecured) rank equally between themselves1. The order of payment of debts in the
separate estates is2:
•
preferential debts
•
debts which are neither preferential nor postponed debts (ordinary unsecured
debts including any liquidator's claim from the joint estate)
•
interest under sections 189 and 328(5) on all debts
•
postponed debts (including any liquidator's claim from the joint estate)
•
interest on the postponed debts
•
surplus to the bankrupt or shareholders of the company.
Refer to Annex B for a worked example of how to calculate a distribution from joint
and separate estates.
1. Insolvent Partnerships Order 1994/2421 Sch 4 Art 8 Part II paragraph 23 section 175B(2)
2. Insolvent Partnerships Order 1994/2421 Sch 4 Art 8 Part II paragraph 23 section 175B(1)
49.101 Debts postponed by section 3 of the
Partnership Act 1890
By virtue of section 328(6) IA86, the general law on deferred creditors is preserved,
including section 3 of the Partnership Act 1890. Where a person has loaned or sold
in consideration of a share of the profits of a business, Section 3 of the PA1890
makes provision for the postponement of the rights of that person in cases of
insolvency. A postponed debt is usually a loan where the rate of interest varies
according to the profits earned by the partnership. These postponed debts are:
•
loans to a person engaged or about to engage in business on terms that
interest varies with the profits or that the lender shall receive a share of the
profits1, or
•
loans advanced by a person to a buyer of goodwill in consideration of the
receipt of a share of the profits2.
--- PDF page 46 ---
The lender of the funds and the seller of the goodwill are treated as deferred
creditors and these claims are payable after all the creditors’ claims for valuable
consideration in money or money’s worth have been satisfied2. The interest on these
debts is not payable in the same priority as the debt itself. Interest on the postponed
debts is a separate category in the order of priority ranking after the postponed debts
themselves have been paid3 ,4.
1. Partnership Act 1890, section 2(3)(d)
2. Partnership Act 1890, section 3
3. Section 175 modified by schedules 4 and 5 IPO94
4. Section 328 modified by schedules 4 and 5 IPO94
49.102 Distribution of assets from one
estate to another
Where a distribution is received from the joint estate or from the separate estate of
another member of the partnership (who is subject to an insolvency order) to the
separate estate of another member, that distribution shall become part of the
separate estate to which it is paid, and shall be distributed in accordance with the
order of priority set out in IPO94 Schedule 4, Article 8, paragraph 23,section
175B(1)1,2.
Where a distribution is received from the separate estate of a member, to the joint
estate, the distribution becomes part of the joint estate and is distributed in the order
of priority as set out inIPO94 Schedule 4, Article 8, paragraph 23, section 175A(2)3,4.
1. Insolvent Partnerships Order 1994/2421 Sch 4 Art 8 Part II paragraph 23 section 175B(1)
2. Insolvent Partnerships Order 1994/2421 Schedule 4, Article 8, Part II paragraph 23 s175B(3)
3. Insolvent Partnerships Order 1994/2421 Schedule 4, Article 8, Part II paragraph 23 s175A(9)
4. Insolvent Partnerships Order 1994/2421 Schedule 4, Article 8, Part II paragraph 23 s175A(2)
Interest on debts
49.103 Statutory interest
Any surplus left after payment of the debts that are neither preferential nor
postponed, should then be used to pay interest on the debts outstanding since the
winding-up order was made against the partnership or any corporate member (as the
--- PDF page 47 ---
case may be) or the bankruptcy order was made against any individual member (to
the date of payment of the debt)1.
The rate of interest payable is whichever is the greater of;
•
The rate specified in s17 of the Judgments Act 1838(JA1838) on the day the
order was made (currently this stands at 8%);and
•
The rate applicable to that debt apart from the winding up or bankruptcy
(contractual interest)1.
Interest on preferential debts ranks equally with interest on other debts which are
neither preferential nor postponed debts (ordinary unsecured debts)2. Interest should
be calculated on a simple basis.
1. IA86 sections 189 and 328 as modified by IPO 94 Sch 4 Art 8 Part II paragraph 24)
2. Insolvent Partnerships Order 1994/2421 Sch 4 Art 8 Part II para 23 s175C(4)
49.104 Interest due on debts for periods up
to the date of the insolvency order
(winding-up order against the partnership
or bankruptcy order(s) against an
individual member or members)
In certain circumstances creditors may include interest accumulated on their debt for
periods prior to the insolvency order, even where this has not previously been
reserved or agreed1. If a debt is due by written instrument and payable at a certain
time, interest may be claimed for the period from that specified time to the date of the
bankruptcy order2. If the debt is due otherwise, interest may only be claimed if, prior
to the presentation of the petition a written demand for payment was made by or on
behalf of the creditor, giving notice that interest would be payable from the date of
the demand to the date of payment3. Interest claimed in this way can only be claimed
for the period between the date of the demand and the date of the bankruptcy order4.
The maximum rate of interest to be claimed is the rate specified in section 17 of the
JA1838 on the date of the bankruptcy order5
1. Rule14.23
2. Rule14.23(3)
3. Rule14.23(4)
4. Rule14.23(5)
5. Rule14.23(6)
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49.105 Surplus on joint estate
Where a surplus exists on the joint estate, the insolvency practitioner shall adjust the
rights among themselves of the members of the partnership as contributories and
shall distribute any surplus to the members or, where applicable, to the separate
estates of the members, according to their respective rights and interests in it1.
1. Insolvent Partnerships Order 1994/2421 Schedule 4, Article 8, Part II, Paragraph 23 s175A(3)
49.106 Provisions generally applicable in
distribution of joint and separate estates.
Separate accounts must be kept for the joint estate of the partnership and of the
separate estate of each member of that partnership against whom an insolvency
order is made1.
No member of the partnership shall prove for a joint or separate debt in competition
with the joint creditors, unless the debt has arisen as a result of fraud or in the
ordinary course of business carried on separately from the partnership business2.
For the purpose of establishing the value of any debt where the joint estate is
insufficient to pay the joint preferential debts, the joint ordinary unsecured debts or
the joint postponed debts, the value of the aggregated claim may be estimated by
the responsible insolvency practitioner in accordance with section 322 (where a
trustee is able to estimate the value of a debt subject to a contingency or which does
not bear a certain value)or (as the case may be) in accordance with the rules3.
Sections 175A and 175B are without prejudice to any provision in the IPO94 or of
any other enactment concerning the ranking between themselves of postponed
debts and interest thereon but in the absence of any such provision, postponed
debts and interest thereon rank equally between themselves4. The interest on
postponed debts is a separate category of debt, ranking after the postponed debts
have been paid5, 6.
Where any two or more members of a partnership constitute a separate (sub)
partnership, the creditors of this separate partnership will be a separate set of
creditors and subject to the same statutory provisions as the separate creditors of
any member of the insolvent partnership. Any surplus in the separate partnership will
be distributed to the members or the separate estates of the members of that
partnership according to their respective rights and interests in it7.
The official receiver, the Secretary of State or a responsible insolvency practitioner
are not entitled to remuneration for their services in connection with:
•
the transfer of a surplus from the joint estate to a separate estate,
--- PDF page 49 ---
•
a distribution from a separate estate to a joint estate, or
•
a distribution from the estate of a separate partnership to the separate estates
of the members of that partnership8.
1. Insolvent Partnerships Order 1994/2421 Schedule 4, Article 8, Part II, paragraph 23 section 175C(1)
2. Insolvent Partnerships Order 1994/2421 Schedule 4, Article 8, Part II, paragraph 23 section 175C(2)
3. Insolvent Partnerships Order 1994/2421 Schedule 4, Article 8,Part II, paragraph 23, section 175C(3)
4. Insolvent Partnerships Order 1994/2421 Schedule 4, Article 8, Part II, paragraph 23, section 175C(5)
5. Section 175 modified by schedules 4 and 5 IPO94
6. Section 328 modified by schedules 4 and 5 IPO94
7. Insolvent Partnerships Order 1994/2421 Schedule 4, Article 8, Part II, paragraph 23 section 175C(6)
8. Insolvent Partnerships Order 1994/2421 Schedule 4, Article 8, Part II, paragraph 23, section 175C(8)
49.107 Winding up of insolvent
partnership on members’ petition where
concurrent petitions are presented against
all members
The provisions of IPO94 Schedule 4, Part II are also applied in the case of a winding
up of an insolvent partnership on a member’s petition where concurrent petitions are
presented against all the members1.
1. Insolvent Partnerships Order 1994/2421 Schedule 6 Article10
49.108 Insolvency proceedings not
involving winding up of insolvent
partnership as unregistered company
where individual members present joint
bankruptcy petition
IPO94 Schedule 7 Article 11 paragraph (2) provides that Part IX (other than sections
273, 274 and 287) and Parts X to XIX of the IA86 are to apply. As a result IA86
section 328 applies (concerning the priority of expenses and debts) which is modified
in IPO94 schedule 7. This provides for the administration of the partnership assets in
--- PDF page 50 ---
the same manner as scheduled under IPO94 Schedule 4 article 8 in relation to the
winding up of an insolvent partnership on a creditor’s petition, where concurrent
petitions are presented against one or more members of the partnership.
Return of capital to the contributories of
a company
49.109 Surplus assets - distribution to
members
Any surplus of funds remaining after satisfaction in full of all the liabilities is
distributable to the members of the company according to their rights and interests1.
Where the liquidator intends to apply to the court for an order authorising a return of
capital, the application should be accompanied by a list of the persons to whom the
return is to be made which must include any necessary alterations to take account of
matters after settlement of the list and the amount to be paid to each person. Where
the court makes an order authorising the return, it shall send a sealed copy to the
liquidator2.
1. Section 154
2. Rule 6.1
49.110 Distribution process - checks to be
made
The official receiver should check the following before making a distribution to
contributories:
•
Check that all other distributions required including the payment of contractual
or statutory interest and postponed creditors have been made as appropriate.
•
Check for any resolutions under section 247 of the Companies Act 2006
(CA2006) making payment of any surplus payable to the employees rather than
the contributories.
•
Once it has been established that there is a surplus due for return to the
contributories of the company, check with HM Revenue and Customs (HMRC)
whether there is any liability to taxation on the proposed distribution. Matters
affecting the level of tax due could include; any income earned by the company
during its liquidation, (including interest earned on the funds deposited in the
--- PDF page 51 ---
ISA); any capital gains tax accrued on the disposal of an asset in the liquidation
and; any liability to tax on the return of the surplus to the contributories.
•
The list of contributories and their claims must be settled1. The company’s
statutory records, namely the register of members, may be required in order to
verify the individual entitlements of the members. Where different classes of
shares exist, it may also be necessary to refer to the company’s articles of
association to check whether there are any preference shares authorised by the
company’s articles, entitled to take priority over other company shares
(including over other preference shares).
1. Rule 7.117
49.111 Distribution process - application to
settle the list of contributories
Once the tax position has been resolved and the list of contributories has been
settled, an application to court should be made, including a summary of the receipts
and payments in the liquidation and the settled list of contributories (including details
of any disputed contributories to be taken in to account)1 [note 2]. The contributories
should, where appropriate, be included as parties to the application.
The court will “adjust the rights of the contributories among themselves and distribute
any surplus among the persons entitled to it”2. Where it authorises the return of
capital, the court will send a sealed copy of the order to the liquidator3.
1. Rule 6.1
2. Section 154
3. Rule 7.117
49.112 Distribution process - payment to
contributories
Following the procedures outlined above, the liquidator will then make the required
payments, bearing in mind any requirements to deduct tax prior to distribution as
required by HMRC. The liquidator will inform each person to whom a return of capital
is made the rate of return and the likelihood of any further return. The payment will
be sent by post unless an alternative payment arrangement has been agreed with
the payee1.
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49.113 Recovering unpaid share capital
following an application to settle the list of
contributories
Where the liquidator becomes aware of uncalled share capital in the course of
settling the list of contributories, they should take the necessary steps to recover the
unpaid capital on behalf of creditors. Shareholders (also called "members" or
"contributories") are liable to contribute to the assets of a company limited to the
extent of the value of the shares they hold in the company (limited liability). It is
possible for a company to issue shares which will be paid for at a later date. This can
either be at a date agreed when the shares are issued, by instalment payments on
defined dates, or by payment when a call is made on unpaid capital by the company,
at the instigation of the directors. The manner in which a call on unpaid capital will be
made will be set out in the company's articles of association.
49.114 Interest due on unpaid calls
Under article 15 of Table A where a sum called is not paid on or before the date
specified, the person is due to pay interest on the amount. Under articles 18 and 19
if payment is not made the share(s) may be forfeit. The share is forfeit by resolution
of the directors (also in writing).
49.115 Action following settlement of list of
contributories
Following settlement of the list of contributories (the procedure for doing this is set
out in rules 7.79 to 7.91 of the IR2016 and document production forms are LOCCL,
LOCPL and LOCOBJ), the liquidator requires the leave of the court to make the call
on the unpaid sum1. The costs of settling the list of contributories and making calls
should be charged on a time and rate basis and deducted from the estate assets
before making any payment to creditors. The insolvency regulations permit the
official receiver, when acting as, liquidator or trustee, to charge remuneration, based
on hourly rates, when making a distribution to creditors and which is referred to as a
time and rate fee.
1. Rules 7.86 to 7.91
49.116 Liquidator’s call on contributories
Once the list of contributories is settled then the liquidator can write to the
contributories and ask them formally for their proposal for payment. If the
--- PDF page 53 ---
contributories fail to respond or make no reasonable offer, the liquidator can then
make an application to court for leave to make the calls. The court order obtained
establishes the liquidator’s ability to take enforcement action on the debt should it
remain unpaid.
49.117 Payment in to the ISA of unclaimed
dividends (following dissolution)
Where there is a surplus arising in a liquidation following compulsory winding up
proceedings and the liquidator has invited shareholders to make a claim, any surplus
monies not claimed by contributories1 still held by the liquidator upon the dissolution
of the company, must be paid into the Insolvency Service Account (ISA). In cases
administered by the official receiver the unclaimed surplus will already be held in the
ISA2.
It should be noted that where a dividend or other sum is paid to a person via a
payment instrument such as a credit transfer or cheque, 6 months or more from the
date of the payment instrument must have elapsed before any payment is made in to
the ISA in respect of the unclaimed dividend or sum. In cases administered by the
official receiver the monies are already held in the ISA3.
1. Insolvency Regulations 1994 (SI 1994-2507) regulation 18(1)(b)
2. Insolvency Regulations 1994 (SI 1994-2507) regulation 18(2)(b)
3. Insolvency Regulations 1994 (SI 1994-2507) regulation 18(4)
49.118 Preference shares
Preference shares are shares authorised by the memorandum or articles of
association and are entitled to some priority over the other shares of the company.
There may be several classes of preference shares ranking one after the other.
Preference shares do not as a matter of course have a priority in the repayment of
capital in a winding up. However, this right is usually given by the articles of
association of a company. If so, the surplus is applied as follows after the payment of
all the company’s debts and liabilities:
•
arrears of preference dividend;
•
repayment of preference capital; then
•
repayment of ordinary shareholders' capital.
Where there are surplus assets available after discharging all the company’s
liabilities and repayment of the capital to shareholders, and there is no reference
made in the articles giving preference shareholders further rights to capital in such a
--- PDF page 54 ---
surplus, then the preference shareholders have no right to participate in such surplus
assets Re Wilson and Clyde Coal Co Ltd v Scottish Insurance Corporation Ltd 1949
S.C. (H.L.) 90. Where the articles do provide further rights for preference
shareholders they are entitled to share in surplus assets after the repayment of
capital. The articles of association should always be consulted in these
circumstances.
49.119 Surplus assets - power to make over
assets to employees
Before the commencement of a winding up, a company may have resolved under
section 247 of the CA20061 to provide for employees and former employees in the
event of the cessation or transfer of the company’s business, by making over assets
to employees. Any such payment must be made out of profits of the company which
are available for dividend.
Once the winding up has commenced, the liquidator may still make over assets to
the employees2. Any payment must be taken from the company's assets which are
available to the members on the winding up i.e. the surplus held by the liquidator
after all the costs of the winding up have been met and the company’s debts have
been fully satisfied, including the payment of any interest. The liquidator should also
ensure that the company has made a resolution (by ordinary resolution of the
shareholders unless a larger majority has been stipulated in the company
memorandum and articles), sanctioning the exercising of its power to provide for
employees3. In practice this is likely to be a rare occurrence. Also in compulsory
liquidations, the actions of the liquidator’s power in this regard can be challenged by
an application being made to the court by any creditor or contributory4.
1. Companies Act 2006 (Commencement No. 3, Consequential Amendments, Transitional Provisions and Savings) Order 2007/2194 Schedule 4, Part 3, paragraph 42(2)
2. Section 187(1)
3. Section 187(2)
4. Section 187(4)
Return of surplus to bankrupt
49.120 Surplus in bankruptcy
Where a surplus remains after payment of the expenses of the bankruptcy and
payment in full and with interest of all the bankrupt’s creditors, the bankrupt is
--- PDF page 55 ---
entitled to the surplus1. Where the trustee has paid interest at the statutory rate to all
the creditors, they may consider waiting 28 days to pay the surplus to the bankrupt,
to allow for late notification from a creditor of contractual interest above the statutory
interest rate which is applicable to the debt.
1. Section 330(5)
49.121 Surplus in first estate where
bankrupt subject to a subsequent
bankruptcy order
Where an individual is the subject of more than one bankruptcy order, if there is a
surplus arising in the first estate, following the payment in full of all expenses and
creditors (including interest), that surplus becomes an asset in the subsequent
bankruptcy and as a result should not be paid to the bankrupt. It should be paid in to
the subsequent estate as a normal asset, and is subject to the same fees as other
assets recovered in the subsequent estate1
1. Rule 10.15
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 10 March 2020.
5. The Individual Insolvency Register
Chapter content
Frequently asked questions
General
Official Receiver’s role in relation to the Individual Insolvency Register (IIR)
Frequently asked questions
These FAQs are to assist official receivers in understanding the subject and should
be read in conjunction with the more detailed guidance given in the main body of the
guidance.
What is the IIR?
Strictly speaking, the IIR is two registers combined. The legislation requires that the
Secretary of State keeps a register of personal insolvencies (bankruptcies, IVAs and
DROs) and also a register of those subject to BROs, BRUs, DRROs and DRRUs.
The IIR is a combined register that allows the Agency, on behalf of the Secretary of
State, to comply with those requirements.
Which individuals’ data is in the IIR?
The IIR generally contains information relating to all current insolvencies and
restrictions and also those that have ended within the previous three months. There
are exceptions to this general rule in that certain cases that are annulled will be
removed sooner than three months.
--- PDF page 2 ---
What information does the IIR contain?
The IIR contains such personal information as might be expected to assist the public
in identifying individuals subject to personal insolvency or related restrictions. In
particular, the registers include relevant individuals’:
•
Names
•
Addresses
•
Trading information
•
Occupation
•
Date of birth
•
Gender
How is the register searched?
Members of the public will generally access the IIR online though they can also
attend at an official receiver’s office to conduct a search.
When a member of the public attends to
conduct a search, do I have to give them access
to a computer to carry out the search?
No. The searcher should be asked to provide details of the person in relation to
whom they wish to carry out the search, and you should conduct the search printing
the results for the searcher to take away.
What if there are multiple results from the
information provided?
The searcher may be provided with a list of all those individuals showing as results
for the search terms entered, but if they can provide further identifying information, a
more targeted search can be carried out and the results printed for the searcher’s
use.
If I cannot find the information on the IIR
should I look instead on ISCIS?
Under no circumstances should you provide a searcher with information not
appearing on the IIR, no matter how tempting that may be from a customer care
point of view, as this may be a breach of the data protection legislation. Where the
--- PDF page 3 ---
searcher appears to have a genuine reason to obtain information not in the IIR, they
should be asked to write in stating the reasons for the request, what information is
required and what it will be used for. The official receiver can then decide if it might
be disclosed.
If the question is merely about the fact of the making of an order, the searcher may
be referred to the London Gazette website.
Is information ever withheld from the IIR?
The court has the power to order that an individual’s address is withheld from the IIR
where there is a reasonable expectation that publication of that address will lead to
violence against he individual or any other person at the same address.
How does information get on the IIR?
All the information on the IIR is drawn from ISCIS.
If all the information on the IIR is drawn from
ISCIS, it must be important that that
information is accurately recorded on ISCIS?
Of course it is important that all information on ISCIS is recorded accurately and in a
timely manner, but this is especially true of that information that finds it way into the
IIR. Of particular importance is information relating to annulments and stays of
proceedings or stays of advertisement.
I have received a complaint from a bankrupt
that, despite his details having been removed
from the IIR, a Google search has thrown up
his insolvency details?
The Service is required to maintain the registers but has no control over how the
published information is gathered and used by internet search engines. In dealing
with the complaint, you should be sympathetic to the complainant, explaining the
position, and ask them to refer the matter to the search engine provider.
General
--- PDF page 4 ---
The legislation1 provides that the Secretary of State must create a register of matters
relating to bankruptcies, debt relief orders (DRO) and individual voluntary
arrangements. The Secretary of State is also required to maintain a register of those
subject to bankruptcy and debt relief order restrictions or undertakings. In practice,
there is one register kept which is an amalgamation of the two registers required to
be kept, which is known as the individual insolvency register (IIR).
1. Rule 11.13
5.2 Categories of information kept
The IIR is, in particular, required to include details of:
•
bankruptcies that are either current or where the bankrupt has been discharged in
the last three months
•
Individual voluntary arrangements (IVAs) that are either current or have ended in the
last three months
•
DROs that are either current or have ended in the last three months;
•
current bankruptcy restriction orders (BROs) and bankruptcy restriction undertakings
(BRUs)
•
current debt relief restriction orders (DRROs) and debt relief restriction undertakings
(DRRUs).
5.3 Public access to the IIR
Members of the public are entitled to search the IIR at an official receiver’s office
between the hours of 9am to 5pm1. In practice, this means that the search will be
conducted by the official receiver using information supplied by the searcher (see
guidance on conducting a search below).
Most searches are however carried out using the on-line search facility (formerly
known as the EIIR) provided on GOV.UK
1. Rule 11.13(4)
5.4 Information to be included in the IIR in
relation to bankruptcies
The legislation1 requires that the following information regarding existing
bankruptcies or bankruptcies where the bankrupt received their discharge in the
previous three months is made available on the IIR:
•
name (including aliases)
•
last known address
--- PDF page 5 ---
•
occupation (if any)
•
trading details
•
date of birth
•
gender
•
details (court, number, date etc.) of the bankruptcy
•
automatic discharge date or date discharge was suspended
•
the official receiver’s address
•
the date of any bankruptcy order or DRO made in the six year period prior to the
latest bankruptcy
1. Rule 11.16
5.5 Information to be included in the IIR in
relation to DROs
The legislation1 requires that the following information regarding existing DROs or
DROs where the debtor received their discharge in the previous three months is
made available on the IIR:
•
name
•
last known address
•
occupation (if any)
•
trading details
•
date of birth
•
gender
•
date of the making of the DRO
•
the reference number of the DRO
•
the date of the end of the moratorium period
•
the date of any bankruptcy order or DRO made in the six year period prior to the
latest DRO
1. Rule 11.18
5.6 Information to be included in the IIR in
relation to IVAs
The legislation1 requires that the following information regarding current IVAs or IVAs
that have ended in the previous three months is made available on the IIR:
•
name (including aliases)
•
last known address
•
date of birth
•
gender
•
date on which arrangement was approved by creditors;
--- PDF page 6 ---
•
(for IVAs) the name and address of the supervisor
•
a statement whether the arrangement was completed in accordance with its terms or
failed.
Information relating to IVAs is recorded by Estate Account Services (EAS).
1. Rule 11.14
5.7 Information to be recorded in the IIR in
relation to BROs, BRUs, DRROs and DRRUs
The legislation1 requires that the following information regarding current BROs and
BRUs or DRROs and DRRUs (including interim BROs and DRROs) is made
available on the IIR:
•
name
•
last known address
•
occupation and trading details
•
date of birth
•
gender
•
a statement that an order has been made or an undertaking given
•
the date that the order was made or undertaking given
•
the length of the restriction or undertaking
1. Rule 11.20
5.8 Information that may be withheld from the
IIR
The legislation1 2 provides that, where disclosure might reasonably be expected to
lead to violence against the debtor or other person residing with the debtor, the
address of the debtor may, on the order of the court, be withheld from the IIR.
Responsibility for ensuring that such an order is given effect rests with the official
receiver.
1. Rule 20.5(4) (a) (ii)
2. Rule 20.6(4) (a) (ii)
5.9 Duration of entries on the IIR – bankruptcy
An entry relating to bankruptcy is deleted from the IIR as follows1:
•
where bankrupt has received discharge – three months after the date of discharge.
--- PDF page 7 ---
•
where order annulled on grounds other than ought not to have been made – three
months after the date that the secretary of state (in practice, the official receiver)
receives notice of the annulment.
•
where order annulled on the grounds that order ought not to have been made – 28
days after the date that the secretary of state (in practice, the official receiver)
receives notice of the annulment.
•
where the order is rescinded – 28 days after the date that the secretary of state (in
practice, the official receiver) receives notice of the rescission order.
1. Rule 11.17
5.10 Duration of entries on the IIR – DROs
An entry relating to a DRO is deleted from the IIR three months after the date that
the order is revoked or three months after the debtor has been discharged1.
1. Rule 11.19
5.11 Duration of entries on the IIR – IVAs
An entry relating to an IVA is deleted from the IIR three months after the date that
the Secretary of State (in practice EAS) receives notice that the arrangement has
been revoked or that is has been terminated or completed1.
1. Rule 11.15
5.12 Duration of entries on the IIRR – BROs,
BRUs, DRROs and DRRUs
An entry relating to a BRO, BRU, DRRO or DRRU is removed from the IIR as soon
as the Secretary of State receives notice that the order or undertaking has ceased to
have effect or the expiry of the order or undertaking1.
1. Rule 11.21
5.13 Recording information relating to death
of a debtor
The Secretary of State (in practice, usually the official receiver) has a duty to record
the fact and date of death of a person in respect of whom information is held on the
IIR where they receive notice of death1.
1. Rule 11.23
--- PDF page 8 ---
5.14 General duty to rectify register
The Secretary of State has a general duty to rectify the IIR when becoming aware of
an inaccuracy contained therein1.
In practice, this will be the duty of the relevant part of the Agency and the obligation
will be met by the timely and accurate correction of information on the case
management system where required.
1. Rule 11.22
5.15 Acquisition of IIR data by internet search
engines
Internet search engines can collect the data in the IIR and make it available to those
conducting a search of the internet. This can mean that details of insolvencies that
have been removed from IIR can sometimes still be publically available on the
internet.
Where the official receiver receives a complaint that this has happened, they should
respond that the Service is under a legal obligation to produce the IIR but has no
control over how third parties collect or use the data contained therein. Any
complaint in this regard should instead be directed to the appropriate search engine.
Official Receiver’s role in relation to the
Individual Insolvency Register (IIR)
5.16 General
As covered above, the IIR draws much of its data from the case management
system and it is therefore important that this is completed accurately, and in a timely
manner, to assist in meeting statutory obligations in respect of the IIR and to ensure
that the IIR is a useful tool for the provision of insolvency information to the public.
In particular, the official receiver should see that the following case events/details are
recorded accurately:
•
bankrupt’s personal information
•
annulment and rescission
•
stays of advertisement
•
court order withholding address
--- PDF page 9 ---
5.17 Official receiver’s role in dealing with
personal searches of the IIR
Although the majority of searches of the IIR are conducted on-line, the legislation
provides that a facility for personal searches is available Monday to Friday, 9am to
5pm (except bank holidays). The network of official receiver’s offices provides this
facility.
Where a member of the public attends to conduct a search of the IIR, they should be
provided with copies of reports of all matches identical to the name provided in the
search request even if the date of birth is not known. Where a search returns an
unworkably large number of results, the searcher may be asked to provide further
details (for example, the date of birth) to aid in further identification, if required.
5.18 Care to be taken to only provide
information or records appearing on IIR
Where a person makes a search of the IIR, whether personally or by telephone, the
official receiver should take care to only provide information that is on the IIR. Whilst
there might be a temptation, from a customer care point of view, to assist by looking
for (further) details on the case management service, this should be avoided.
The official receiver may instead refer the enquirer to the insolvency section of the
website of the London Gazette which contains current and historical bankruptcy
information.
Care, however, should be taken in respect of the affairs of an individual whose
address has been withheld.
Where an enquirer has an apparently good reason for seeking information beyond
that available on the IIR or from the Gazette, they should write in and the official
receiver should consider carefully whether to release the requested information,
taking into account the guidance concerning data protection and confidentiality.
5.19 Accurate recording of bankrupt’s
personal information important
It is, of course, important that all information on the case management service is
recorded accurately and in a timely manner, but this is doubly important in respect of
those personal details that are transferred from the case management service into
the IIR. Precise recording of the date of birth is particularly important as this is often
a key identifying feature for searchers.
--- PDF page 10 ---
5.20 Recording annulment and rescission
information
The legislation provides that bankruptcy details are removed from the IIR following
the making of an annulment order. At what point the information is removed depends
on the grounds for the annulment.
It is therefore important that the fact and date of annulment and the grounds for the
annulment are recorded on the case management system accurately and in a timely
manner.
5.21 Recording information relating to stays of
advertisement or proceedings
The court has the power to stay all or part of the insolvency proceedings. Where a
stay of advertisement or stay of proceedings is granted by the court, it is important
that details are recorded immediately so that bankruptcy details do not appear, or
are removed from, the IIR.
5.22 Recording information relating to stays of
advertisement or proceedings obtained
subsequent to an annulment or rescission
Where the bankrupt obtains a stay of proceedings or stay of advertisement prior to
obtaining an annulment of the bankruptcy order, details of the bankruptcy will be
withheld from the IIR. When the annulment is granted the stay will be lifted and the
details of the bankruptcy will then appear on the IIR for the requisite time. This might
cause difficulties for the bankrupt, particularly in cases where the order was annulled
on the grounds that it ought not to have been made and the stay was intended to
protect the bankrupt’s business and/or reputation. It is open to the bankrupt to obtain
a further (post annulment) stay to prevent this.
Where such a further stay is granted, the official receiver should take immediate
steps to record on the case management system that the stay has been
granted/extended to ensure that details of the bankruptcy are withheld from the IIR.
5.23 Recording fact and date of an individual’s
death
--- PDF page 11 ---
As outlined above, the Secretary of State has a duty to record the fact and date of
death of any individual in respect of whom information is held on the IIR.
In practice, it will generally be the official receiver who will receive notice of the death
of a debtor and should update the case management system as soon a practicable
to ensure that the information is fed through to IIR.
This is achieved on the Case header tab of the ISCIS case, select ‘Update’ then
‘Update Case Party’ then select the drop/down box ‘Deceased’ and alter the default
‘No’ to ‘Yes’ and then insert the appropriate date of death in the ‘Date of deceased’
box, immediately below.
5.24 Recording that bankrupt’s address is
withheld – including in relation to a BRO/BRU
Where the court makes an order that an individual’s address is withheld from the IIR,
the official receiver should immediately note the case management system to show
that the address is withheld as this will feed through to the IIR.
This is achieved by selecting the Case Header tab of the ISCIS case, and then
selecting ‘Update’ and selecting the tick box ‘Address Withheld’.
The official receiver should also ensure when issuing any bankruptcy restriction
proceedings that the application complies with the court order and that, if applicable,
the current address does not appear on the bankruptcy restrictions register if an
undertaking is given or an order made. In appropriate cases the attention of the Civil
Proceedings Team should be drawn to the court order restricting disclosure of the
current address when reporting the result of a bankruptcy restrictions hearing or a
bankrupt’s consent to a bankruptcy restrictions undertaking.
5.25 Recording commencement and cessation
of BRO, BRU, DRRO or DRRU
Where the court makes a BRO or DRRO, or where the bankrupt or debtor enters into
a BRU or DRRU, the official receiver should immediately record the relevant details
on the case management system to ensure that the information is fed through to the
IIR.
The information to be recorded should include any change in tariff or variance of the
BRU/DRRU.
To achieve this select ‘Update Individual Details’ on the Case Header tab on the INV
case and update the appropriate sections in the Restrictions Proceedings and
Outcome sections.
--- PDF page 12 ---
In the event that the changes do not take effect, the official receiver should refer
matters to the Civil Proceedings Team for manual adjustment.
5.26 Recording information relating to a
certificate of discharge
Where the official receiver receives a copy of an order suspending the bankrupt’s
discharge the official receiver must enter the details in the ISCIS hearings tab and
the following in the ISCIS compliance tab:
•
the date of the order
•
the period for which the discharge has been suspended or
•
the period the relevant period has ceased to run until the bankrupt has fulfilled the
conditions specified in the order
Where the court sends the official receiver an order discharging the suspension of
the bankrupt’s discharge the details must be entered onto ISCIS, including the new
date for the bankrupt’s discharge. If the court subsequently rescinds an order
discharging the suspension of discharge, i.e. re-imposes a suspension of the
bankrupt’s discharge, the official receiver must amend ISCIS accordingly.
Once the information has been entered into ISCIS the IIR will be updated
automatically.
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 11 March 2020
50. Release of Official Receiver as
liquidator or trustee
Obtaining release as trustee or liquidator
Chapter content
Introduction
Notices
Checks prior to application for release
Deferral of dissolution
Application and objections
Rescission, stay and annulment
Ex-officio, deputyship and partnerships
Introduction
50.1 General
The official receiver may apply for their release as liquidator/trustee when the
administration of a company, partnership or bankruptcy estate is for all practical
purposes complete. Sections 174(3) and 299(2) provide that the official receiver
applies to the Secretary of State for their release and that release takes effect from
the date determined by the Secretary of State. The power of the Secretary of State
with regard to release has been delegated to Estate Account Services (EAS),
Birmingham. When the official receiver is released they are discharged as of that
date from all liability in respect of what they have done or anything they have failed
to do in the administration of the estate. They are also discharged from all liability in
respect of their conduct as liquidator or trustee. Creditors, contributories and
successor liquidators/trustees do still have recourse to the court under sections 212
--- PDF page 2 ---
or 304 (remedy against delinquent liquidator or trustee) but such an application may
only be made with the permission of the court once the official receiver has obtained
their release.
It is Insolvency Service policy that, except in certain contentious cases, the Official
Receiver will no longer apply for their release as trustee or liquidator. However, in
order to close a case in ISCIS, it is necessary to take the case through the release
process, which is fully controlled by Workflow.
50.2 Provisional liquidator
Where the official receiver has acted as provisional liquidator of a company and the
period of office ceases they should apply to the court which appointed them for
release either at the time of cessation or shortly afterwards1. Release as provisional
liquidator should still be applied for even if the official receiver has become liquidator
on the making of a winding-up order against the company as the release will stand to
protect them in respect of any action which they took, or did not take, whilst
provisional liquidator.
1. Section 174(5)
50.3 Release where OR replaced as liquidator
or trustee by IP
Where the official receiver is replaced as liquidator/trustee on the appointment of an
insolvency practitioner either at a meeting of creditors/contributories or following
appointment by the Secretary of State the official receiver obtains their release at the
time they notify the court that they have been replaced. In a case where the
insolvency practitioner is appointed by the court the court will determine the time of
the official receiver’s release1.
1. Section 174(2) or s299(1)
50.4 Early dissolution
Where the official receiver decides to apply for early dissolution of a company a
notice under section 202 to creditors, contributories and any administrative receiver
of the company informing them of their decision, they are under no legal obligation to
send creditors notice of their intention to apply for release. Section 202(4) relieves
them from any such duty, which is in any event unlikely to arise, since creditors will
not at that stage have had an opportunity to prove their debts. The official receiver
should then apply to EAS for release in the usual way (see paragraph 50.12). The
early dissolution procedure should not be used where there is an immediate or
--- PDF page 3 ---
foreseeable need to later defer the dissolution (see paragraph 50.9). For further
information regarding early dissolution see chapter 54.
Notices
50.5 Notice of intention to apply for release
It is Insolvency Service policy that, except in certain contentious cases, the Official
Receiver will no longer apply for their release as trustee or liquidator.
Where the official receiver decides to apply for release as trustee or liquidator and
they have acted as substantive liquidator/trustee of the estate and their release is not
granted by the operation of sections 174(2) and 299(1) (see paragraph 50.3), they
must send notice1 of their intention to apply to the Secretary of State for release to all
of the creditors of which they are aware and in the case of bankruptcy to the
bankrupt2. In the case of liquidation, contributories should not receive this notice. The
official receiver may apply to the court to be relieved of the duty to send notice to all
creditors of which they are aware3.
In considering the application, the court shall have regard to the cost of carrying out
the duty, to the amount of the assets available and to the extent of the interest of
creditors or contributories, or any particular class of them. The notice should include
a summary of their receipts and payments as liquidator/trustee consistent with the
information provided in the report to creditors. Full explanations must be given in
respect of any assets which have not been realised, assets subject to protracted
realisation and assets which did not achieve their estimated realisable values. In
bankruptcy cases reference must be made to the position on the bankrupt’s
discharge. In company cases reference should be made to any proposed application
for deferral of the company’s dissolution.
The recipients of the notice have 21 days in which to object to the Secretary of State
(EAS) regarding the granting of the official receiver’s release after which time the
release may be granted. If for any reason there is a delay in the posting of the
notices then EAS should be informed urgently by telephone so that the official
receiver’s release is not approved until after the full 21 day notice period has expired.
The telephone call should be followed up by an e-mail on the same day. See
paragraph 50.13 for information regarding objections to release.
1. Form NORAD
2. Rule 7.70 or 10.86
3. Rule 7.72 or 10.88
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50.6 Electronic delivery of notices and the use
of Websites
The official receiver is permitted to send notices by electronic means provided that
the recipient has consented and has provided an electronic address for delivery1.
The official receiver may also satisfy their requirement to notify creditors and
contributories by the notice being available for viewing or downloading on a website2.
The official receiver is required to notify creditors and contributories of the address of
the website together with any password required to access or download the
document. The notice must also contain a statement informing the recipient of their
entitlement to request a hard copy of the notice and specify a telephone number, e-
mail address and postal address to make such a request.
Accordingly, the official receiver could utilise electronic means or a website for giving
notice of their intention to apply for release.
1. Rule 1.45 – 1.50
2. Section 246B
50.7 Notice to mutual societies
Where release is being sought in respect of a friendly society, building society or
industrial and provident society, notice should be sent to Mutual Societies
Registration, The Financial Conduct Authority, 25 The North Colonnade, London,
E14 5HS
Checks prior to application for release
50.8 Checks to be carried out when preparing
notices for release
In the exceptional cases in which the official receiver decides to apply for release as
trustee or liquidator, and in all cases in which the administration is to be concluded, a
thorough review of the file should take place to ensure that all administrative matters
have been dealt with and that all ISCIS screens have been updated with the correct
information. If there are funds in the estate the official receiver should distribute them
to creditors as soon as possible. The checks that should be made as a minimum are
as follows;
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•
check that all relevant assets have been realised or otherwise accounted for
•
all protracted realisation items are listed
•
ensure all insurance, with the exception of that required for any long term
assets, has been cancelled
•
ensure that any agents have accounted for their asset realisations and that
agents’ accounts have been paid
•
check that any items held in the cashier’s safe for safekeeping have been
realised or returned to third parties, as appropriate
•
ensure that, where appropriate, remaining assets have been correctly recorded
and that all relevant documents have been uploaded to the electronic file to
assist the LTADT in realising the asset
•
check that a deposit exists in the Funds tab, that all fees and disbursements
have been charged correctly and any payments made in the due order of
priority
•
ensure that all correspondence has been answered
•
ensure that in company cases an approach has been made to any
administrative receiver in office to determine whether a deferral of dissolution is
necessary. A similar approach should also be made to any Law of Property Act
receiver in office, see paragraph 50.11)
•
check for any continuing prosecution or disqualification proceedings and, if so,
seek to defer the dissolution of the company (see paragraph 50.10)
•
consider the preservation or destruction of any accounting records and
electronic case file
•
consider deferring the dissolution of a company where there is an occupational
pension scheme in existence (see paragraph 50.9)
Deferral of dissolution
50.9 General
When notice that the administration of the liquidation has been completed has been
filed at Companies House, it is usual for the company to be dissolved by the
Registrar of Companies at the end of three months, beginning with the day on which
the notice is received by the Registrar of Companies1. Where the following situations
exist it is imperative that an application is made for the dissolution of the company to
be deferred by the Secretary of State2, 3:
a) where the company is subject to prosecution/disqualification proceedings,
application should be made for dissolution to be deferred for 6 years
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b) where an administrative receiver or Law of Property Act receiver is in office, 2
years deferral should be applied for
c) where the winding up of an occupational pension scheme remains to be
concluded, an estimate will need to be taken of the time needed and the appropriate
period of deferral (in whole years) applied for
Other situations may also exist where it is imperative that the dissolution of the
company is deferred e.g. where an insurance claim is in progress which requires the
company to remain on the register but does not stop the liquidator’s release. In such
situations the official receiver should apply for an appropriate period of deferral (in
whole years). For further information, see chapter 54.
1. Section 205(1)(b) & (2),
2. Section 205(3),
3. Form DSNDIR
50.10 Deferral of dissolution - prosecution or
disqualification proceedings outstanding
The official receiver may conclude the administration of the liquidation or apply for
their release as liquidator where prosecution or disqualification proceedings are
outstanding, but they must ensure that:
a) the company records relevant to the proceedings are not disposed of, and
b) the dissolution of the company is deferred for six years from the date of the
conclusion of the administration of the liquidation or official receiver’s release (see
chapter 54)
50.11 Deferral of dissolution - receiver in
office
Where there is an administrative or Law of Property Act receiver in office the official
receiver should, before applying for release, write to the receiver informing them of
the official receiver’s intention to apply for release. Further, the official receiver
should state that unless they hear to the contrary from the receiver, they will ask for
a direction that the dissolution of the company be deferred for two years from the
date of the official receiver’s release as liquidator. The official receiver should allow
28 days for a response from the receiver and should upload a copy of their letter and
a copy of any reply from the receiver to the electronic file.
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When the official receiver is informed at the time of release that the Secretary of
State has directed that the dissolution be deferred they should notify the receiver of
this. They should also inform the receiver that any subsequent application to extend
the period of the deferral should be made by them to the Secretary of State before
that period ends.
For further information regarding deferral of dissolution see chapter 54.
Application and objections
50.12 Application for release
In the vast majority of cases, the official receiver will no longer be applying for
release as trustee or liquidator. The closing notice letter including the notice of
release and account summary (NORAD/ACCSUM) will no longer be sent. Nor will
the notice of application for release (TRLTB) be sent to the bankrupt.
Once a case is ready to be closed, the ‘Release’ workflow on ISCIS should be
initiated by selecting the ‘Release’ button on the ‘Case Header’ tab. Then using the
‘Request Release’ screen details of the type of closing should be entered.
Take the ‘Perform Manual Checks’ workflow task carry out the manual checks and
mark the task Complete.
Take the ‘Create NORAD Documentation’ workflow task, do not produce the NORAD
or ACCSUM documentation (close the document production screen) and mark the
task Complete.
Check that the case header now shows - Financial Case Status: Closed
If this does not happen in a matter of minutes, it suggests there is an issue with the
case.
In those cases in which the official receiver decides to apply for release, they should
send out the notices of intention to apply for release and apply to EAS (acting on
behalf of the Secretary of State) for release by sending the following;
•
where appropriate, form DSNDIR, application for deferred dissolution
•
in exceptional cases only, a copy of the application for release checklist
EAS will vet all applications before approving the official receiver’s release and any
deferral of dissolution.
50.13 Objections to release
--- PDF page 8 ---
In those cases in which the official receiver applies for release, it should be noted
that the legislation does not provide for a period during which creditors may object to
the official receiver’s application for release. However, the official receiver’s release
will not be approved until the period of 21 days from receipt of the notice of intention
to apply for release has expired. Creditors are informed in that notice that any
objections should be reported in that period to EAS. If an objection to release is
received by the official receiver, EAS should be informed urgently by telephone to
ensure that the official receiver’s release is not approved until after the matter has
been resolved. On the same day a minute should be sent by e-mail. Once approved
there is no mechanism for the official receiver’s release to be revoked.
When an objection to release is received within 21 days of the notice to creditors, or
prior to release being granted, the official receiver’s application for release will be
removed from general processing to prevent the release being granted. The reason
for the objection is then considered by EAS and if it is not a valid objection the
person concerned is notified in writing and given a further 21 days in which to
respond. If the objection is considered to be valid, a holding letter is sent to the
objector and the official receiver is contacted for further information. The objection is
then referred to the Senior Official Receiver for adjudication. When the matter is
finally resolved EAS are instructed by the Senior Official Receiver to deal with the
release and to send a copy of the release certificate to the objector.
Some creditors will tend to object in principle to the release of the official receiver as
they consider that by the official receiver being released the director/bankrupt is in
some way “getting off lightly”. However, others may have concerns that the
director/bankrupt is now enjoying a good lifestyle whilst they are suffering as a result
of losses due to the insolvency. It is imperative that all creditor correspondence is
followed up prior to applying for release to avoid delays caused by objections to
release from creditors who believe, for example, that the bankrupt/company has
assets which were not disclosed to the official receiver.
Where an objection to release is lodged with the official receiver directly, in addition
to notifying EAS there is nothing to stop the official receiver dealing directly with the
objector to resolve the matter, copying the resulting correspondence to EAS and the
Senior Official Receiver team, as appropriate.
If an objection to release is received by EAS after 21 days and the release has
already been granted the objector is advised that the official receiver’s release
cannot be revoked but EAS will liaise with the official receiver/the Senior Official
Receiver to try to address the matter raised. The objector will have the option to
pursue the matter as a complaint whereupon the normal complaints procedure would
be followed.
50.14 Release granted
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Where release is granted this is automatically entered on ISCIS following the writing
off of any nil or debit balance (see following paragraph). EAS will send a certificate of
release to the court but a copy will not be forwarded to the official receiver. In
company cases, EAS will prepare the notice that winding up is complete and forward
this to Companies House together with any deferral of dissolution directions such
as1:
a) the dissolution can proceed; or
b) the official receiver wishes to apply for the early dissolution of the company; or
c) dissolution has been deferred by the Secretary of State for a certain period
A copy of the paperwork sent to Companies House regarding deferral of dissolution
will be uploaded on to the electronic file.
1. Rule 7.70 or 10.86
50.15 Writing off nil or debit balances
In the vast majority of cases in which the official receiver concludes the
administration of the bankruptcy or liquidation without formally applying for release,
the nil or debit balance is written off automatically as part of the workflow process.
In the rare cases in which the official receiver applies for release as trustee or
liquidator, any nil or debit balance is written off by EAS on approval of the official
receiver’s application for release. This is dependent on the request for write off
having been entered on ISCIS by the official receiver.
Rescission, stay and annulment
50.16 Rescission/recall or stay of proceedings
in winding up
Where the winding-up order is rescinded1 the official receiver as liquidator will have
their release as from such time as the Court may determine2. No application for
release is required. The date of the liquidator’s release should be recorded as a file
note in ISCIS. The release process should not be used.
Where an order for a permanent stay of proceedings3 is made, the order should state
that the liquidator will be released when the certificate of release issued by the
Secretary of State is filed at court. The order should also include details of how the
deposit is to be dealt with. If it is the intention of all parties that the stay be
--- PDF page 10 ---
permanent the court may state in the order that the deposit be returned to the
petitioning creditor’s solicitor. If the court declines to deal with the deposit in this way
then the deposit should be transferred to reserved funds.
A copy of the final account should be filed in the Wisdom folder
The following filing protocol should be followed: office – company name – case ID
number.
A copy of the final account should also be filed with the Court.
1. Rule 12.59
2. Section 174(4A)
3. Section 147(1)
50.17 Annulment of bankruptcy order
Where the official receiver is trustee they should ask the court, when it makes an
order of annulment, to order that the official receiver be granted their release as
trustee “on the date that the official receiver submits a copy of their final account to
the Secretary of State and files a copy of the final account with the court.”1
Following the making of an order of annulment of the bankruptcy order, official
receivers should file a copy of their final account directly into the Wisdom folder. The
following filing protocol should be followed: office – bankrupts name – case ID
number. The official receiver must also file a copy of their final account with the court
in order to comply with rule 10.141.
1. Section 299(4)
Ex-officio, deputyship and partnerships
50.18 Official receiver acting in ex-officio
capacity
Where the official receiver deals with assets in an ex-officio capacity following
vacation of office on completion of an administration by a practitioner acting as
liquidator or trustee, no application for release need be made. Where funds received
enabled a payment to be made by way of refund of a deposit, payment of law costs,
etc, the official receiver should distribute the monies or transfer small credit balances
to the indivisible balances account as appropriate and update ISCIS with the nil
--- PDF page 11 ---
balance. In the event that the official receiver becomes liquidator or trustee as a
result of the removal, death or resignation of a practitioner acting as liquidator or
trustee, they should conclude the administration in the usual way1.
1. Section 136(3) or 300(2)
50.19 Deputyship cases
In the unusual event that an official receiver is acting as deputy for another official
receiver, the administration should be concluded by the deputy official receiver in the
normal manner.
An official receiver, acting as deputy official receiver, should apply for release (if
required) on behalf of the official receiver who is the liquidator or trustee. All
paperwork in this respect should bear the address of the deputy official receiver but
the name of the official receiver who is the liquidator or trustee.
50.20 Partnerships
Release, if required, should be applied for in respect of every estate account opened
regarding a winding-up order or bankruptcy order made in relation to a partnership.
When dealing with a joint bankruptcy partnership (Article 11) a separate application
should be made in each estate including the partnership estate. However, notices to
creditors can be combined where release in more than one insolvency is being dealt
with at the same time.
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 11 March 2020
51. The Official Receiver’s Role in
Voluntary Arrangements
Chapter content
General
Company Voluntary Arrangements
Partnership Voluntary Arrangements
Pre-bankruptcy individual voluntary arrangements
Post bankruptcy individual voluntary arrangements
General
51.1 Introduction and definitions
A voluntary arrangement involves a legally binding agreement in satisfaction of debts
or a scheme of arrangement of the company's/individual's affairs which may involve
restructuring, delayed or reduced payments of debts or an orderly disposal of assets.
The proposal is put to creditors and, if approved, its implementation is supervised by
a qualified insolvency practitioner or other authorised person. Part I of the Act
contains the provisions in respect of Company Voluntary Arrangements and Part VIII
contains the provisions in respect of Individual Voluntary Arrangements. The
Insolvent Partnerships Order 1994 provides for voluntary arrangements in respect of
partnerships and its members and parts I and VIII of the Act are applied accordingly.
The voluntary arrangement provisions are designed to provide an alternative to
winding up or bankruptcy proceedings. A voluntary arrangement may be entered into
before or after insolvency proceedings have been commenced.
51.2 Official Receiver's involvement
--- PDF page 2 ---
The official receiver should have no involvement with voluntary arrangements where
no winding-up or bankruptcy order is made. The exception to this would be where
the official receiver represents a creditor e.g. as liquidator of a creditor company.
The official receiver's involvement in post insolvency proceedings voluntary
arrangements should be limited and they should not take any steps designed to
frustrate any proposals made unless it is clear that an attempt is being made to
mislead the creditors. The official receiver should provide information where
necessary and may draw to the court's attention any difficulties or special
considerations of which they are aware.
51.3 Representations to the court
The official receiver is most likely to become involved with an IVA if an interim order1
is sought where it is in order for them to draw to the court’s attention any particular
difficulties or special considerations which they believe the court may wish to be
aware of. For example, there may have been a special manager appointed who is
actively engaged in selling property and their remuneration may need to be taken
into account when the details of the arrangement are agreed. It is open to the court
to include provisions for such circumstances, and other matters concerning the
conduct of the bankruptcy, in the terms of an interim order, if granted2.
1. Section 252
2. Section 255(3)
51.4 Fast Track Voluntary Arrangements
(FTVAs)
FTVAs were introduced in 20041 to provide a streamlined 'fast track' individual
voluntary arrangement (IVA) procedure for use after a bankruptcy order has been
made. The official receiver was able to act as nominee and supervisor of an FTVA
provided that the debtor was an undischarged bankrupt at the time the proposal was
made.
They did not prove to be successful as a concept and only a very small number were
ever entered into. The provisions of the Act allowing FTVAs to be proposed were
repealed in May 20152, though there are provisions to allow for the conclusion of
FTVAs that had been proposed before that date.
All guidance relating to FTVAs has been archived.
1. Enterprise Act 2002 Section 264 and Schedule 22
2. Small Business, Enterprise and Employment Act 2015 Section 135
--- PDF page 3 ---
Company Voluntary Arrangements
51.5 General
The company voluntary arrangement (CVA) procedure is set out in the Insolvency
Act 1986, Part I (as amended by the Insolvency Act 2000 (IA2000), the Enterprise
Act 2002 (EA2002) and the Small Business Enterprise and Employment Act 2015
(SBEEA 2015) and the Insolvency (England & Wales) Rules 2016, Part 2.
In particular, IA2000 introduced to the Act the option of a short moratorium for small
qualifying companies. Note that companies in liquidation do not have this option
available to them1.
1. Section 1A and Schedule A1.
51.6 The official receiver’s role where a
winding up order is made before
completion of the CVA
Where a winding-up order is made, the official receiver should obtain details of any
previous arrangement to which the company may have been subject. When a
winding-up order intervenes before the completion of a CVA, the official receiver
should, as soon as possible, obtain from the supervisor the following using form
NPBB:
• a copy of the CVA proposal agreed by creditors
• a copy of the statement of affairs
• details of the realised and unrealised assets
• any other information which might assist with enquiries and in the protection of
assets.
The official receiver should establish the basis on which the supervisor holds any
assets of the company. In particular the official receiver needs to establish whether
the arrangement contains any provisions in accordance with which the assets are
held on trust for creditors who are bound by the CVA and, if so, whether that trust
survives the making of the winding-up order.
51.7 Dealing with the assets
--- PDF page 4 ---
The CVA can provide for the way in which assets are to be dealt with on the
termination of the CVA1. The effect of liquidation (either voluntary or compulsory) on
any trust created by a CVA will depend on the terms of the CVA. Any provision in the
CVA for what is to happen on liquidation should be followed by the official receiver
as liquidator.
Where there is no provision in the CVA for what is to happen on liquidation, the
official receiver should follow the decision of the court in NT Gallagher & Son
Limited2 wherein the Court of Appeal held that any trust created by the CVA will
continue notwithstanding the liquidation or failure of the CVA and must take effect
according to its terms.
The official receiver should notify the supervisor of his conclusion regarding any trust
as soon as practical in the expectation that the position will be agreed between them.
Where an asset is held on trust under the terms of the CVA, the asset will remain
vested in the company. As, generally speaking, on the making of the winding-up
order, the liquidator is the only person who can act for the company, it will fall to the
official receiver as liquidator (or any insolvency practitioner that replaces them in that
capacity) to realise assets held on trust by the company for the benefit of the CVA
creditors. This might necessitate some liaison with the supervisor of the CVA. The
official receiver should follow general guidance in dealing with these assets but with
appropriate modification. For example, when dealing with rights of action which form
part of the CVA assets, if it is necessary to seek the views of the creditors or to seek
additional funding to deal with a right of action, then only the creditors under the CVA
should be contacted, as they would be the beneficiaries if any action were to be
successful, post-CVA creditors not having a direct interest in the realisation, at least
initially.
Usually the CVA creditors can prove for so much of their debt as remains after
payment of what has been or will be recovered from the monies or assets held on
trust.
Although the1986 rules (rule 4.21A) allowed for the reasonable expenses of a
voluntary arrangement to be paid in priority to liquidation expenses, the 2016 Rules
contain no corresponding provision.
1. Rule 2.3(1) (u)
2. NT Gallagher & Son Limited [2002] 3 ALL ER 474
51.8 Appointment by court following
voluntary arrangement
--- PDF page 5 ---
If a winding-up order is made following a CVA, an insolvency practitioner who is fully
aware of the company’s circumstances will already be in office as supervisor, and it
may be good sense for them to be appointed as liquidator at the time the winding-up
order is made in order that he can commence the duties of liquidator immediately.
The court may appoint the supervisor in office at the date of the winding-up order as
liquidator of the company1. In these circumstances, the official receiver is still obliged
to comply with his statutory duty to gazette the order and may advertise it if they
think fit2. They must also provide information to creditors and contributories3. It is the
liquidator’s duty to issue proofs of debt to the creditors.
1. Section 140(2)
2. Rule 7.22(4) & (5)
3. Rule 7.48
51.9 Disqualification and prosecution
Where a winding-up order follows a CVA the official receiver retains the obligation to
report on the conduct of the directors under the Company Directors Disqualification
Act 19861 and to make enquiries regarding the possibility that criminal offences might
have been committed, including offences connected with the proposal and the CVA.
1. Company Directors Disqualification Act 1986 Section 7a
51.10 Arrangement following winding-up
order
A company liquidator may propose a voluntary arrangement after the
commencement of compulsory winding up proceedings1. The nominee may be the
liquidator or another insolvency practitioner. The official receiver should not make
such a proposal and where a CVA seems viable should seek the appointment of
another liquidator to make the proposal and deal with all matters relating to the
application.
1. Section 1(3) (b)
51.11 Stay of proceedings
Where a CVA is approved on identical terms by both the company and its creditors1
and a winding-up order has been made against the company by the court, the court
may stay the winding-up proceedings and give any directions it thinks appropriate for
the future conduct of the winding up2.
1. Section 3
--- PDF page 6 ---
2. Section 5(3)
51.12 Assets to be handed over to
supervisor
On the CVA coming into effect, the directors, liquidator or administrator must do all
that is required for putting the supervisor into possession of the assets included in
the CVA1.
1. Rule 2.39(1)
51.13 Expenses of the liquidation
The supervisor must, out of the assets in his possession, discharge any balance due
to the official receiver or liquidator for remuneration, costs, fees and expenses
properly incurred and payable under the Act and Rules and any advances made in
respect of the company, or give a written undertaking to discharge that balance out
of the first realisation of assets. Sums due to the Official Receiver take priority over
sums due to an IP liquidator or an administrator.1
1. Rule 2.39(2) to (6)
51.14 Conversion of earlier proceedings
into liquidation
A CVA is an insolvency proceeding as defined by the EC Regulation on Insolvency
Proceedings 20151. Where the liquidator of the main proceedings considers it to be
in the interest of the creditors in those proceedings he may apply to the court for the
conversion of any CVA, in relation to the company, in any other member state, to
winding up proceedings2.
1. Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast) Annex A
2. Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast) Article 51
Partnership Voluntary Arrangements
51.15 General
The Insolvent Partnerships Order 1994 (IPO) provides for a voluntary arrangement
of an insolvent partnership1 and for voluntary arrangements of members of an
--- PDF page 7 ---
insolvent partnership2. Both corporate and individual members of a partnership may
enter into voluntary arrangements. Where a partnership voluntary arrangement
(PVA) is proposed it may be necessary to propose IVAs for the partners to run
concurrently with the PVA. A PVA should provide for both partnership creditors and
for the creditors of the individual/corporate members of the partnership. Part I of the
Act (Company Voluntary Arrangements) is applied to corporate members and Part
VIII of the Act (Individual Voluntary Arrangements) is applied to individual members
of a partnership, subject to the modifications mentioned in Article 5(1)3 and Schedule
1 to the IPO (as amended by the Insolvent Partnerships Amendment (No2) Order
20024, and the Insolvent Partnerships Amendment Order 20055).
1. The Insolvent Partnerships Order 1994 Article 4
2. The Insolvent Partnerships Order 1994 Article 5
3. The Insolvent Partnerships Order 1994 Article 11 and Article 5(1).
4. Insolvent Partnerships Amendment (No2) Order 2002 Articles 4 and 6, and Schedule 1.
5. Insolvent Partnerships Amendment Order 2005 Article 6.
51.16 Considerations for the official
receiver
Where winding-up orders or bankruptcy orders are made against a partnership or its
members subject to a voluntary arrangement, the official receiver will need to look
carefully at all previous voluntary arrangements to determine whether the winding-
up/bankruptcy order has the effect of terminating the arrangement. And
consequently whether assets held by the supervisor are available to the official
receiver as trustee or liquidator (and, if they are, the extent to which they are subject
to prior charges).
Pre-bankruptcy individual voluntary
arrangements
51.17 Previous arrangement
Where a bankruptcy order is made, the official receiver should obtain details of any
proposal previously made by a debtor under a formal or informal voluntary
arrangement, a deed of arrangement under the Deeds of Arrangement Act 1914
(repealed 1 October 2015) or an appointment under section 273(2) (repealed 6 April
2016). This information may well provide particulars of assets which have not been
--- PDF page 8 ---
disclosed in the bankruptcy proceedings and will generally assist the official receiver
in their investigations. It will also assist the official receiver in identifying those
creditors who are entitled to claim in the bankruptcy.
51.18 Effect of bankruptcy order on failed
IVA
Where an IVA has failed and the supervisor or an IVA creditor presents a bankruptcy
petition1, the official receiver will need to look carefully at the IVA proposal, and any
amendments, to determine what effect the bankruptcy order has on the IVA and,
particularly, how any funds in hand should be dealt with.
The decision in the case of Re N T Gallagher & Son Limited2 concerned a company
voluntary arrangement (CVA) but the judgment is clear that it can also be applied to
an IVA. In this case it was held that a supervisor of a CVA who has received
contributions from the subject of a CVA is in effect the trustee of those monies, which
are held in trust on behalf of the creditors bound by the CVA. It was also held that
CVA creditors could prove in a subsequent liquidation for so much of their debt as
remains after payment of what has been or will be recovered from the monies or
assets held in trust.
Where the IVA provides for what is to happen on the making of a bankruptcy order or
the failure of the IVA, those provisions should be followed. However, where there are
no such provisions contained in the IVA, any trust created by the IVA over the assets
will continue despite the making of the bankruptcy order.
When a bankruptcy order is made following a failed IVA, the official receiver should
request the following information from the supervisor of the IVA using form NPBB:
•
a copy of the IVA proposal (as amended) agreed by the creditors
•
a copy of the statement of affairs and details of the assets (both realised and
unrealised)
•
details of any trusts the supervisor considers have been established by the IVA
•
details of any distributions made
•
details of any records held by the supervisor on behalf of the bankrupt
The official receiver should consider the wording of the agreed proposal to determine
whether any monies or assets held by the supervisor or bankrupt are held on trust
for the benefit of the IVA creditors. The official receiver should notify the supervisor
and insolvent of their conclusions as soon as it is practical to do so in the expectation
that the position will be agreed between them. Thereafter, the official receiver should
ensure that all assets not held in trust for the IVA creditors are dealt with in the
bankruptcy in the usual way.
--- PDF page 9 ---
In bankruptcy cases where an asset has been placed in trust under the IVA, it will
not form part of the bankruptcy estate and will remain vested in the bankrupt3. It will
be for the bankrupt to realise the asset and account to the supervisor for any
realisation.
In cases where the bankruptcy petition is presented by the (former) supervisor under
section 264(1) (c), any unpaid expenses of the IVA properly incurred as expenses of
the IVA shall be a first charge on the bankruptcy estate4 (even though the underlying
asset from which they will be paid was not included in the IVA).
Unlike the 1986 Rules (rule 6.46A); the 2016 Rules do not contain any
corresponding provision for the properly incurred unpaid expenses of the IVA
forming a first charge on the bankruptcy estate, where the debtor makes their own
application for bankruptcy when they are subject to an IVA.
1. Sections 264(1)(c) and276
2. NT Gallagher & Son Limited [2002] 3 ALL ER 474.
3. Section 283(3)(a)
4. Section 276(2)
51.19 Effect of bankruptcy order on
previous IVA
Where the bankruptcy petition is presented by a creditor not bound by the IVA, e.g. a
creditor whose debt has arisen since the IVA was implemented, the IVA is not
automatically terminated and the assets comprising the IVA may be held in trust for
the IVA creditors1. In Re: NT Gallagher & Son Limited2 it was held that where a CVA
provides for monies or other assets to be paid, transferred to, or held for the benefit
of creditors, this will create a trust for those creditors. It was further held that where
the CVA does not make express provision as to what will happen in liquidation, the
trust will continue notwithstanding the liquidation or failure of the CVA and must take
effect according to its terms. Although the case relates to a CVA, the judgment is
clear that it can also be applied to an IVA.
1. Re Bradley-Hole (A bankrupt) [1995] BCC 418
2. NT Gallagher & Son Limited [2002] 3 ALL ER 474
51.20 Considerations for the official
receiver
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The official receiver will need to look carefully at a previous IVA to determine
whether the bankruptcy order has the effect of terminating the arrangement and
consequently whether assets held by the supervisor are available to the trustee (and,
if they are, the extent to which they are subject to prior charges).
Post bankruptcy individual voluntary
arrangements
51.21 Arrangement following bankruptcy
order
Where a bankrupt has not entered into an IVA prior to the bankruptcy and they have
assets or there is the obvious potential for an IVA to be proposed their attention
should be drawn to the voluntary arrangement provisions1. It should be made clear to
the bankrupt that the official receiver will continue to administer the bankruptcy in the
usual way until the court makes an interim order2 or an order under section 261
relating to the future conduct of the bankruptcy proceedings3.
1. Sections 252 to 263
2. Section 255
3. Section 261(4)
51.22 Application for interim order
Where an undischarged bankrupt intends to make a proposal for an IVA, the official
receiver, the trustee or the bankrupt may apply for an interim order which will provide
a moratorium for the insolvent debtor1. The official receiver is only expected to make
such an application in exceptional circumstances (e.g. where the bankrupt is through
mental or physical incapacity unable to take the necessary steps and no person can
be found who can adequately deal with these matters on their behalf).
1. Section 253(1)&(3)
51.23 Interim order not required in every
case
An interim order is not a requirement of an IVA and the debtor may apply for an IVA
without also making application for an interim order1.
--- PDF page 11 ---
1. Section 256A
51.24 Effect of application for an interim
order
When an application for an interim order is made the court may stay any
proceedings against the bankrupt1 but the official receiver should continue to
administer the bankruptcy in the normal way unless the court orders otherwise. As a
stay may involve the whole of the bankruptcy proceedings, the official receiver must
ensure that s/he is aware of the manner in which the bankruptcy is to be conducted
while any interim order is in force. If the stay will cause any obvious problems in the
bankruptcy, the official receiver should refer the matters to the court and obtain
directions2.
During the period of the stay the bankrupt will continue to be subject to the
restrictions of bankruptcy and an application for an annulment can still be made.
1. Section 254(2)
2. Rule 8.11
51.25 Effect of interim order
During the period for which the interim order is in force
•
no bankruptcy petition relating to the debtor may be presented or proceeded
with,
•
no landlord or other person to whom rent is payable may exercise any right of
forfeiture by peaceable re-entry in relation to premises let to the debtor, and
•
no other proceedings and no execution or other legal process may be
commenced or continued and no distress may be levied against the debtor or
his property
without the permission of the court1.
1. Section 252(2)
51.26 Secured creditors
A secured creditor may still take steps to enforce his security whilst an interim order
is in force provided that he does not need to commence or continue proceedings,
execution or other legal process, e.g. obtaining an order for possession, in order to
do so.
51.27 Undisclosed information
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If the official receiver is aware of any undisclosed information that may affect the
views of creditors when considering the debtor's proposal this should be brought to
the court's attention either in person or by way of a report at the hearing of the
interim order1. If the interim order is made, or it is a case where no interim order is
sought, that information should also be drawn to the nominee's attention. Any further
undisclosed information that comes to the official receiver's attention should also be
brought to the attention of the nominee. The official receiver should also request that
the nominee bring to the attention of the creditors any matters not included in his
report which the official receiver considers could have a bearing on the creditors’
decision to approve the proposal.
1. Rule 8.11
51.28 False representation to obtain IVA
If the debtor makes any fraudulent representation, or fraudulently does or omits
anything, for the purposes of obtaining approval of an IVA, this is a criminal offence1
and the official receiver should consider making a criminal referral.
1. Section 262A
51.29 Action on receipt of nominees report
In every case the nominee must serve the official receiver, and any trustee, with a
copy of the debtor's proposal (including any amendments), a copy of the nominee’s
report with any comments and a copy or summary of the statement of affairs1. For
cases with no interim order the official receiver should additionally be sent:-
•
a statement that no application for an interim order under section 253 is to be
made
•
a copy of the notice of the nominee’s consent to act
On receipt the official receiver should examine these documents and draw the
nominee's attention to any obvious discrepancies. The official receiver should ensure
that provision has been made for the payment of the costs, fees and expenses of the
bankruptcy and provide the nominee with an estimate of the total costs. The official
receiver will normally accept an undertaking for the payment of those costs2.
1. Rule 8.15 and Rule 8.19
2. Rule 8.25(2)(a)
51.30 Position of the official receiver
If no insolvency practitioner trustee has been appointed the official receiver will
continue as trustee until the IVA is implemented and should continue to administer
--- PDF page 13 ---
the bankruptcy (subject to the terms of any interim order) including paying any
money received into the Insolvency Services Account in the usual way. The court
may exercise its powers to vary the normal bankruptcy procedures during the period
of an interim order, for example, a continuing business where it may be necessary to
use the assets of the business to enable it to continue as a going concern. The
official receiver should seek to ensure that the court order does not leave them in
any doubt as to how to deal with any property and by whom and also does not place
any onerous duties on them1.
1. Section 255(3)&(4)
51.31 Creditors’ decision
Creditors will consider the debtor’s proposal via a decision procedure1. After the
decision has been made, the convener must give notice of the decision to the
creditors and the official receiver2 and, where an interim order is in place, the
convener must also report the decision to court3.
1. Section 257
2. Rule 8.24(5)
3. Section 259(1)(b) and Rule 8.24(3)
51.32 Challenge of the creditors' decision
The debtor, a creditor, the official receiver or the trustee may challenge the decision
of the creditors within a period of 28 days from the date on which the report of the
creditors' decision was filed at court or, where filing at court is not required, the date
on which notice of the decision was given1. The grounds for a challenge are that the
arrangement unfairly prejudices the interests of a creditor or the debtor or that there
has been some material irregularity at, or in relation to, the creditors’ decision
procedure. The official receiver is only expected to make such an application in
exceptional circumstances.
1. Section 262
51.33 Rejection of proposal
Where a voluntary arrangement proposed under section 256 is not approved by the
creditors' decision procedure, any interim order may be discharged by the court
following the receipt of the convener's report1. The interim order will continue to have
effect until it expires or the court orders its discharge. If the official receiver needs to
proceed with the bankruptcy before the interim order ceases to have effect they
--- PDF page 14 ---
should make an immediate application to the court for directions2 with a view to
obtaining the discharge of the interim order and any stay of proceedings.
1. Section 259(2)
2. Rule 13.3
51.34 Approval of proposal
Where the creditors' decision approves the proposal it takes effect from the date of
the decision to approve it. It binds every person who was entitled to vote in the
decision procedure and every person who would have been so entitled if they had
had notice of the decision procedure. Any interim order in force will cease to have
effect at the end of a period of 28 days from when the report of the creditors' decision
was filed at court, except if the court directs otherwise in circumstances where there
is an application to challenge to the decision1.
1. Section 260
51.35 Handover to supervisor
Once a proposal is approved the IVA should get under way as soon as practicable,
subject only to being halted by a challenge under section 262. The official receiver
must do all that is required to put the supervisor in possession of the assets included
in the IVA1, and should therefore hand over the property included in the IVA as soon
as practicable after the creditors' decision procedure. A receipt should be obtained
for any physical assets held by the official receiver. A handover to a supervisor does
not involve the record book, estate cash book or other documents usually handed
over to a trustee.
Any assets not included in the IVA should remain in the control of the official receiver
as trustee until the bankruptcy order is annulled or other directions for their disposal
are made by the court.
1. Rule 8.25(1)
51.36 Payment of official receiver's costs
When the supervisor takes possession of the assets they are required to discharge
any balance due to the official receiver and trustee in respect of fees, costs,
expenses and remuneration. Where there are insufficient funds in the hands of the
official receiver to be retained to pay those costs they should obtain a written
undertaking from the supervisor, before handing over the assets, to pay those costs
out of the first realisation of assets. The official receiver’s costs take priority over
sums due to a trustee in the bankruptcy proceedings1.
--- PDF page 15 ---
1. Rule 8.25
51.37 Annulment of the bankruptcy order
Where creditors have decided to approve an IVA the court shall, on the application of
the bankrupt or (where the bankrupt fails to make an application) the official receiver,
annul the bankruptcy. The court may give such directions about the conduct of the
bankruptcy and the administration of the bankruptcy estate as it thinks appropriate
for facilitating the implementation of the approved voluntary arrangement1.
1. Section 261
51.38 Application by bankrupt to annul
bankruptcy order
The bankrupt's application for the annulment of the bankruptcy order should be
supported by a witness statement stating that the IVA has been approved by
creditors, the date on which it was approved and that the 28 day period in which the
decision of the creditors may be challenged has expired1.
The bankrupt must give the official receiver, any insolvency practitioner trustee and
the supervisor of the IVA not less than five business days’ notice of the hearing of
the application2.
The official receiver, the trustee and the supervisor may attend the hearing or be
represented and draw to the attention of the court any relevant matters they think
appropriate3.
Where the court annuls the bankruptcy order it will send sealed copies of the order of
the annulment to the former bankrupt, the official receiver, any insolvency
practitioner trustee and the supervisor of the IVA4.
1. Rule 8.32(1)
2. Rule 8.32(3)
3. Rule 8.32(4)
4. Rule 8.34(2)
51.39 Application by official receiver to
annul bankruptcy order
If the bankrupt fails to make an application for the annulment of the bankruptcy
order, the official receiver may apply. The official receiver may not make the
--- PDF page 16 ---
application before the expiry of 42 days beginning with the day on which the
nominee filed the report of the creditors’ decision with the court or, where that is not
required, the date on which the nominee issued notice of the result of the creditors’
decision1. The official receiver's application should be supported by a report stating
the grounds on which the application is made and contain a statement that the time
period above has expired and that they are not aware that any application or appeal
remains to be disposed of2.
Where the court annuls the bankruptcy order it will send notice of the annulment to
the official receiver, any insolvency practitioner trustee, the supervisor of the IVA and
the bankrupt3.
1. Rule 8.33(2)
2. Rule 8.33(1)
3. Rule 8.34(2)
51.40 Notice of annulment to be sent to
creditors
Where the bankruptcy order is annulled the official receiver must notify all creditors
to whom notice of the bankruptcy has been issued, of the annulment. Expenses
incurred by the official receiver in giving notice of the annulment to the creditors are
a charge in their favour on the property of the former bankrupt1.
The former bankrupt is entitled to request, in writing, within 28 days of the making of
the annulment order, that the official receiver give notice of the annulment of the
bankruptcy in the gazette and in the same manner as the bankruptcy order was
originally advertised (if it was, in fact, originally advertised)2. The costs of such
publication are met from the administration fee.
1. Rule 8.35(1)&(2)
2. Rule 8.36(1)
51.41 Failure of IVA
Where the IVA fails the supervisor may apply to the court for directions1 or may
present a bankruptcy petition2. Where the original bankruptcy order was annulled
and the petition dismissed a new petition can be presented by the supervisor or a
creditor3, or the debtor may make their own application to the adjudicator4.
1. Section 263(4)
2. Section 264(1(c) and Section 276
--- PDF page 17 ---
3. Section 264 and Section 276
4. Section 263H
51.42 Individual insolvency register (IIR)
A database of IVAs is kept by the Insolvency Service (maintained by Estates
Accounts and Scanning) and the information is available on the Individual Insolvency
Register (IIR) which is open to the public free of charge through the Insolvency
Service website1. The convener of a creditors’ decision making procedure which
approves an IVA is required to provide details of the arrangement to the Secretary of
State for registration2. The Rules specify the information which must appear on the
IIR, subject to any order under the ‘persons at risk of violence’ provisions3. The
official receiver can view the register via the link on the intranet homepage.
All information concerning an IVA must be deleted from the register of IVAs 3
months after the Secretary of State has received a notice that the IVA has been
revoked, fully implemented or terminated4.
1. Rule 11.13 and 11.14
2. Rule 8.26
3. Rule 20.1, 20.2 and 20.3
4. Rule 11.15
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ATTACHMENT: 52.Partnerships.pdf
TEXT_FILE: 52.Partnerships.pdf.txt
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 11 March 2020
52. Partnerships
This chapter provides guidance on partnerships. It covers both general partnerships
and limited partnerships but not limited liability partnerships (LLPs), which are
covered in chapter 53.
Annexes
Annex A – Template application to deal with partnership assets
Annex B – Template order to deal with partnership assets
Chapter Content
Types of partnerships
Partnerships – general and formation
Limited partnerships
The partnership agreement
Partners
The dissolution of a partnership (including dissolution following the bankruptcy of a
partner)
The insolvency of partnerships and partners
Practical issues relating to the administration of insolvent partnerships
Realisation of assets in relation to partnerships
Partnership definitions
Types of partnerships
52.1 Types of partnership
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Generally speaking there are three main categories of partnerships:
•
general partnerships (formed under the Partnerships Act 1890)
•
limited partnerships (formed under the Limited Partnerships Act 1907)
•
limited liability partnerships (formed under Limited Liability Partnerships Act
2000)
This chapter deals with general partnerships and limited partnerships.
This chapter does not deal with limited liability partnerships (LLPs) as these are best
thought of as corporate bodies rather than as partnerships. Information and guidance
on LLPs can be found in Chapter 53.
52.2 Differences between partnerships and
limited companies
The key differences between a partnership and a limited company are that there is
unlimited liability in a partnership (with the exception of limited partners) and the
partnership does not have a separate legal identity.
Partnerships – general and formation
52.3 Partnerships – general and the
historical background
It could be said that partnerships have existed for as long as business has been
conducted. Until the Partnership Act 1890 (‘Partnership Act’) most of the law relating
to the operation and status of partnerships developed through case law precedent.
52.4 The Partnership Act 1890
The Partnership Act provides a definition of what a partnership is, its relationship
with external parties and, in the absence of a partnership agreement to the
contrary, the rules by which the partnership will conduct its internal business.
The Partnership Act does not cover all aspects of partnership business, and some
matters are dealt with by separate legislation or by case law. The House of Lords
has sanctioned reference to pre 1890 case law to provide guidance in cases where
the provisions of the Partnership Act leave ambiguity, or may lead to an absurd
conclusion.1
--- PDF page 3 ---
1. Pepper v Hart [1993] A.C.593
52.5 Partners have wide discretion
Many of the provisions of the Partnership Act are subject to the contrary agreement
of the partners, partners have a wide discretion to decide between themselves the
terms of their relationship and may agree to adopt different rules than those specified
in the Partnership Act (but not so far as their relations with the outside world are
concerned).
52.6 Partners and members
The term ‘member’ is used in the legislation to refer to partners and is, in many
ways, completely interchangeable with the term ‘partner’. This chapter will use the
term partner in preference to member for the sake of consistency, except where the
context dictates otherwise.
52.7 The insolvency of partnerships
The Partnership Act has no provisions relating to the insolvency of partnerships and,
instead, the current provisions are found in the Insolvent Partnerships Order 1994
(IPO 1994), which supplements and modifies aspects of the Insolvency Act 1986 to
apply them to partnerships.
52.8 Definition of a partnership
A partnership is defined as the ‘relation which subsists between persons carrying on
a business in common with a view to a profit’.1
The terms carrying on business, in common, and with a view to a profit, are
discussed in the following paragraphs. Whilst the general principles are outlined
below, some of them are subject to fine distinction and much legal debate and, whilst
the general principles can be applied to most cases encountered by the official
receiver, where there is doubt the advice of ORS Advice should be sought.
1. Partnership Act 1890 section 1
52.9 Carrying on a business
A partnership cannot exist until trading begins. So, an agreement to carry on
business at a future time does not constitute a partnership1 though ‘trading’ is
defined quite broadly and can, for example, include preparing premises for trade.2
--- PDF page 4 ---
For the purposes of defining a partnership, ‘business’ can be taken to include every
trade, occupation or profession.3
1. Dickinson v Valpy (1829) 10 B & C 128
2. Khan V Miah [2000] 1 WLR 2123
3. Partnership Act 1890 section 45
52.10 A business in common
For a partnership to exist, the partners must be carrying on a business in common.
This is a concept perhaps best explained by reference to a type of business that
would not be a partnership. Where a landowner and a farmer decide that the
landowner will allow his land to be farmed by the farmer to their mutual benefit (a
sharing of the profits) then they would not be carrying on a business in common as
one would running a business as a landlord and the other as a farmer. If, on the
other hand, one partner was the landowner but both were engaged in some way in
the farming operation then that would be a partnership.1
1. George Hall & Son v Platt [1954] TR 331
52.11 With a view to profit
If the activity of a business is not being carried on with an intention to make profit
(even if that profit is not actually realised) then that business cannot be a
partnership. This would exclude, for example, clubs and societies which, by and
large, are not formed with a view to making a profit – even if they may actually make
one.
So long as a partnership is capable of making a profit, the fact that a partnership
does not actually make a profit does not decide matters – it is the intention and
ability to make a profit which would be relevant.1 The intention to make a profit need
not be the dominant purpose, it may be secondary or incidental, but that would still
be sufficient to meet the definition of a partnership.
1. Jennings v Baddeley (1856) 3 K&J 78
52.12 Indicators of the existence (or
otherwise) of a partnership
It is not always easy to establish if persons engaged in an activity are, in fact, in
partnership. The key piece of evidence in assessing whether or not there is a
partnership in existence is the partnership agreement, but there are other indicators
of the existence (or otherwise) of a partnership.1
--- PDF page 5 ---
•
Co-ownership of property (see paragraph 52.13)
•
Sharing gross returns (see paragraph 52.14)
•
Sharing profits (see paragraph 52.15)
•
Holding out as partners (see paragraph 52.16)
1. Partnership Act 1890 section 2
52.13 Co-ownership of property
The joint ownership of property does not, of itself, create a partnership – even if the
owners are sharing profits from the property.1 The question as to whether the co-
owners are partners is one of evidence in the books.2
By contrast, the fact that property used by the partnership is not jointly-owned does
not mean that there is not a partnership.3
1. Partnership Act 1890 section 2(1)
2. Re Hulton, Hulton v Lister (1890) 62 LT 200, CA
3. Moore v Davis (1879) 11 ChD 261 at 265
52.14 Sharing gross returns
The receipt of a share of gross returns does not create a partnership and, as
opposed to a share of profits, is not evidence of the existence of a partnership.12
1. Partnership Act 1890 section 2(3)
2. French v Styring (1857) 2 CBNS 357
52.15 Sharing of profits
The sharing of profits is an indicator that there is a partnership, but is not, of itself,
evidence1 and the terms of the arrangement between the parties must also be
considered (that is are they merely acting as principal and agent)2. Equally, a
partnership could be created even if there is no sharing of profits if, for example,
there was an agreement that a partner would be paid a fixed sum in lieu of a share of
profits.3
1. Partnership Act 1890 section 2(3)
2. Davis v Davis [1894] 1 Ch 393
3. M Young Legal Associates Ltd v Zahid Solicitors (a firm) [2006] EWCA 613
52.16 Holding out as partners
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Any person holding themself out as a partner is liable to be treated as such by third
parties.1
1. Partnership Act 1890 section 14
52.17 Limited company cannot be a
partnership
Although a limited company could reasonably meet the definition of a partnership set
out in the Partnership Act, that Act provides that a limited company cannot be a
partnership.1 However, a limited company can be a partner in a partnership.
1. Partnership Act 1890 section 1(2)
52.18 Limited partnerships
A limited partnership is a type of partnership and can, largely, be dealt with as a
‘general’ partnership. Further information is provide later in the chapter. A limited
partnership should not be confused with a limited liability partnership (LLP).
52.19 A partnership has no separate legal
identity
Unlike a company, a partnership has no legal identity (corporate personality)
separate from that of its partners.1 The partnership is the partners and the partners
are the partnership and there is no legal distinction between the parties. The rights
and liabilities of a partnership are also those of the partners and any liability is
enforceable against each of the partners individually.
It has to be said that this general principle is at odds with the provisions that allow a
partnership to be subject to formal insolvency provisions separate to any
proceedings against the partners of the partnership.
As stated elsewhere in this chapter LLPs are corporate bodies with their own legal
identity.
1. Sadler v Whiteman [1910] 1 KB 868
52.20 Definition of ‘firm’
The Partnership Act provides that the persons who have entered into business in
partnership are collectively called a ‘firm’ and the name under which they carry on
business is the ‘firm name’.1
--- PDF page 7 ---
This chapter will generally use the term ‘partnership’ rather than firm to assist with
accurate searching using the intranet search facility.
1. Partnership Act 1890 section 4
52.21 Partnership cannot be employer
As a partnership has no separate legal identity it cannot employ people. Often, the
partnership name will be on an employee’s employment contract, but this is just as
convenient shorthand for the names of the partners.
Similarly, on the basis that a person cannot make a contract with themselves, a
partner cannot be employed by their own partnership (in the same way as a director
is usually an employee of a limited company).1
1. Ellis v Joseph Ellis & Co [1905] 1 KB 324
52.22 No limited liability in a partnership
Apart from the fact that a partnership does not have a separate legal identity to that
of its partners, the other significant difference between a partnership and a company
is that the members of a partnership have unlimited liability, unlike the members of a
company whose liability is limited to any unpaid shares. The only exceptions to this
are in respect of limited partnerships and LLPs.
52.23 Duration of a partnership
A partnership may be entered into for a fixed term, a single business venture, or an
open-ended period of time (know as a ‘partnership at will’) terminable by any partner
on the giving of notice.1
1. Partnership Act 1890 section 32
52.24 The partnership (firm) name
Subject to the usual restrictions regarding the ‘passing off’ (using a name over which
some other party claims a proprietary interest) and the use of sensitive names,1 a
partnership is free to choose its name. There are no special rules.
Unless the partnership (firm) name consists of the surnames (or corporate names,
as the case may be) of the partners of the partnership,1 then all business
documentation such as orders, receipts, letters and invoices must contain the names
of the partners,2 unless the partnership has over 20 members – in which case the
relevant documentation should contain a statement that a list of the partners is
--- PDF page 8 ---
available for inspection, and the address that the list is kept3. Whilst these provisions
are in Companies Act they apply to all businesses including partnerships.
1. Companies Act 2006, Part 41
2. Companies Act 2006 section 1202
3. Companies Act 2006 section 1203
52.25 Legal proceedings in the name of the
partnership
Even though a partnership has no separate legal identity, it is a requirement that
legal proceedings are brought in the name of the partnership.1 In effect, using the
partnership name in litigation is just shorthand for using the names of the partners, in
whose name the litigation is more correctly brought (against).2
1. Civil Procedure Rules Practice Direction 7A Para 5A.3
2. Meyer & Co v Faber (No 2) [1923] 2 Ch 421, 441
52.26 Legal status of members of a
partnership
The partners of a partnership may be persons both natural (a person in the normal
sense of the word) and corporate12 and a partnership must have at least two
partners.
Since a partnership has no separate legal identity, a partnership cannot be partner in
another partnership. Where it is suggested that a partnership is a partner in another
partnership then, legally speaking, it will be the partners of the partnership who are
the partners of the other partnership,3 although the partnership (firm) name may be
used to describe the partners collectively within the documentation of the other
partnership.
1. Interpretation Act 1978 schedule 1
2. Scher v Policyholders Protection Board [1994] 2 AC 57
3. Major v Brodie [1998] STC 491, 510
52.27 No maximum size of partnership
There used to be an upper limit of 20 on the number of partners that a partnership
could have. This limit was removed in 2002 and there is, therefore, no upper limit.1
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1. Regulatory Reform (Reform of 20 Member Limit in Partnerships etc) Order 2002
52.28 Corporate partnerships
A corporate partnership is simply a partnership where one, or more of the partners
are corporations (limited company, public limited company or limited liability
partnership). There are no special rules applying to this type of partnership and the
statutory provisions in relation to partnerships apply. The guidance given elsewhere
in this chapter may be followed generally.
The effect on the partnership of the insolvency of a corporate member of a
partnership is dealt with in paragraph 52.91.
1. Re Rudd and Son Ltd [1984] Ch 237
52.29 Group partnerships
A group partnership is simply a partnership where two or more of the partners are
themselves partnerships (but see paragraph 52.25 for ‘true’ position regarding a
partnership as a partner). There are no special rules applying to this type of
partnership and the guidance given elsewhere in this chapter may be followed
generally.
52.30 Capital
Capital is the amount contributed by the partners of the partnership for the purpose
of commencing or carrying on the partnership business and is usually expressed in
cash terms even if the contribution was property or goodwill. A partner’s capital
interest in the partnership relates to the amount contributed and is different to their
interest in the assets of the partnership, which relates to their share in the
partnership as set out in the partnership agreement .
The capital of a partnership cannot be increased or reduced without the consent of
all the partners.1
1. Re Bouch (1887) 12 App Cas 385
52.31 Partnership property
The Partnership Act provides no definition of partnership property and matters are
largely decided by case law. Generally speaking, it is left up to the partners to agree
what is (and what is not) partnership property.1 In the absence of any partnership
agreement, the following will taken into account.2
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•
The circumstances of the acquisition – including the (ultimate) source of the
funds used to purchase the property.3
•
The purpose of the acquisition – regardless if it was actually used for that
purpose (if purchased with partnership monies).
•
The manner of use/dealing/treatment of the property.
1. Partnership Act 1890 section 19
2. Partnership Act 1890 section 20
3. Partnership Act 1890 section 21
52.32 Transfer of partnership property
Assuming that all the partners are solvent, they may agree to remove property from
or introduce property to the partnership. In the absence of any fraudulent intention,
such an agreement is binding on the office holder.1This does not affect the office
holder’s ability to seek to overturn the transaction as, for example, a transaction at
an undervalue.
52.33 Charging of partnership property
A partner may pledge any part of the partnership’s property as security for
borrowings of the partnership.12
A partner is not permitted to pledge partnership property as security for their own
debts without the agreement of the other partners.3 If they do so, they would be liable
to recompense the partnership for any property lost under the pledge.
1. Re Patent File Co (1870) LR6 Ch App 83]
2. Re Clough (1886) 31 Ch D 324
3. Partnership Act 1890 section 7
52.34 Losses and the sharing of losses
Subject to any contrary agreement, losses are paid first out of partnership profits,
next out of capital and then, if necessary, by the partners personally in the proportion
in which they are entitled to share profits1 or, otherwise, equally.2 Accordingly, unless
the partners make specific arrangements to the contrary, losses are shared equally
between them, even if the amounts of the capital they contributed were unequal or
they are a salaried partner (see paragraph 52.70) with no entitlement to share in the
profits of the partnership.
There are exceptions to this general principle, for example, where there has been a
breach of trust, where the partner has acted outside their authority, or fraud.3 4
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1. Partnership Act 1890 section 44(a)
2. Partnership Act 1890 section 24
3. Bury v Allen (1845) 1 Colly 589, 604
4. Partnership Act 1890 section 41
52.35 Partnership accounts and records
Unlike with a limited company, there is no statutory duty to produce accounts of a
partnership, though invariably there will be an indirect requirement as a result of tax
regulations and there may be a requirement in the partnership agreement to keep
accounts. The partners do have a duty to provide each other with accounts.1
The legislation makes a presumption that records will be kept and provides that they
are to be kept at the principle place of business and made available to all partners to
inspect.2 3
1. Partnership Act 1890 s28
2. Partnership Act 1890 s28
3. Partnership Act 1890 s24(9)
52.36 Failure to keep partnership
accounting records
The failure to keep records may form the basis of any allegation of wrongdoing in
respect of a Bankruptcy Restriction Order or a disqualification order.
Limited partnerships
52.37 Limited partnerships - definition
A limited partnership is where one or more of the partners is a limited partner who is
only liable to the extent of their investment.
This should not be confused with a limited liability partnership (LLP) (see Chapter
52A), which has more in common with a limited company.
52.38 Limited partnerships – general
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A limited partnership is, in almost all other respects the same as an a ‘general’
(sometimes referred to as ‘ordinary’) partnership discussed within this chapter.
52.39 Legislation
The provisions for the creation of limited partnerships were introduced by the Limited
Partnerships Act 1907, which legislates on those matters peculiar to limited
partnerships. Limited partnerships are, otherwise, governed by the general
partnership legislation, being the Partnership Act.
52.40 Differences between a limited
partnership and a ‘general’ partnership
The key differences between a limited partnership and a general partnership are:
•
A limited partnership will have at least one general partner with unlimited liability
for the debts and liabilities of the partnership (although the general partner may
often be a limited company).
•
The remaining partners’ liability for the debts and obligations of the partnership
is limited to the amount of their original contribution1 but they are excluded from
the management of the partnership, and cannot bind the firm without express
permission.2
•
There is a requirement that a limited partnership is registered at the Registrar of
Companies (Companies House) and the partnership will be deemed a general
partnership until so registered.3
1. Limited Partnerships Act 1907 section 4(2)
2. Limited Partnerships Act 1907 section 6(1)
3. Limited Partnerships Act 1907 section 5
52.41 The Registrar of Companies
The Registrar of Companies must keep a register and index of all registered limited
partnerships and of all the statements registered in relation to them.1 Hence why for
limited partnerships notice of the insolvency must be given to Registrar of
Companies.
1. Limited Partnerships Act 1907 section 14
52.42 Statement in support of registration
The partners must provide the Registrar with a signed statement containing the
following particulars of the partnership:1
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•
the firm name;
•
the general nature of the business;
•
the principal place of business;
•
the full name of each of the partners;
•
the term, if any, for which the partnership is entered into, and the date of its
commencement;
•
a statement that the partnership is limited, and the description of every limited
partner as such; and
•
the sum contributed by each limited partner, and whether paid in cash or how
otherwise.
1. Limited Partnerships Act 1907 section 8
52.43 Inspection of register
Any person may inspect the register of files statements and may request a copy of
the certificate of registration of any limited partnership or a certified copy of any
registered statement.1
1. Limited Partnerships Act 1907 section 16(1)
52.44 False information provided to the
Registrar
A person who knowingly and wilfully makes a statement for registration false on a
material particular is guilty of an offence.1
1. Perjury Act 1911 section 5(b)
52.45 Limited partnership not a separate
legal entity
As with a ‘general’ partnership, a limited partnership does not have a legal identity
separate from that of its partners.1
1. Re Barnard, Martins Bank v Trustee [1932] 1 Ch 269
52.46 The winding-up of a limited
partnership
Limited partnerships are dealt with as general partnerships so far as their winding-up
is concerned except where there is a creditor’s petition for the winding-up of the
partnership with concurrent petitions against one or more members or a member’s
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petition with concurrent petitions against all members (see paragraph 52.99). In
those cases, the court may dismiss the petition against a limited partner if the partner
satisfies the court that they are no longer under any liability in respect if the debts
and obligations of the partnership).1
1. Insolvency Act 1986 section 125A(7) as amended by Insolvent Partnerships Order 1994 schedule 4 paragraph 9
52.47 Dealing with the winding-up of a
limited partnership
Other than the need to investigate the extent to which the limited partner may have
been involved in the management of the partnership (see paragraph 52.52), and the
need to file notice of the winding up order at Companies House, the case can be
dealt with as a partnership, following the guidance and advice elsewhere in this
chapter.
52.48 Bankruptcy order made against a
limited partner of a limited partnership
Where a bankruptcy order is made against a limited partner, the official receiver
should seek to establish if the bankrupt limited partner took any active part in the
management of the partnership and, if so, the creditors of the partnership should be
offered the opportunity to prove in the proceedings.
The bankruptcy of a limited partner does not, unlike the bankruptcy of a general
partner (see paragraph 52.88), have the default result of the dissolution of the
partnership.1
1. Limited Partnerships Act 1907 section 6(2)
52.49 Bankruptcy or death of sole general
partner
A limited partnership cannot continue if there is no general partner. The bankruptcy
or death of the sole general partner will result in the dissolution of the partnership
and would result in the limited partner(s) having to seek the winding-up of the
partnership.
Where the partnership is insolvent and there are assets to be dealt with, or where
the general partner was a corporate entity of which the official receiver is liquidator;
the official receiver should consider applying to the court1 for the court to make an
order regarding the administration of the limited partnership’s estate. Notice of the
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application should be served on any limited partner with a short covering letter
explaining that the purpose of the application is to regularise the administration of the
insolvent partnership estate. Putting the limited partner on notice will give them the
opportunity to step in and make an application to the court2 for the court to consider
whether the limited partner should deal with the partnership estate.
1. Insolvent Partnerships Order 1994 article 14
2. Limited Partnerships Act 1907 section 6(3)
52.50 Winding-up of sole general partner
The winding-up of the sole general partner will not, automatically, lead to the
dissolution of the partnership but it is unlikely that the general partner (acting through
the liquidator) will be willing or able to continue to perform the functions of the
general partner. The official receiver should seek first to establish whether there is
another general partner, or a limited partner who wishes to accept the role of general
partner, and arrange for the insolvent to retire from the partnership. Otherwise it will
be necessary for the official receiver to seek an order of the court as described
above to initiate the dissolution of the partnership.
52.51 Qualification as a partner and change
of status of partners
Any person who can be a general member has equal capacity to be a limited
partner.
Provided that the partnership at all times has at least one general partner and at
least one limited partner, the partners are free to change status from general partner
to limited partner or vice versa.1 2
1. Limited Partnerships Act 1907 section 9(g)
2. Limited Partnerships Act 1907 section 10
52.52 Forfeiture of limited liability
There are three circumstances in which a limited partner will lose their limited liability
(and in the first two cases will have unlimited liability for the debts of the partnership):
•
If the firm is not registered correctly (see paragraph 52.41)
•
If the limited partner takes part, directly or indirectly, in the management of the
partnership they will be liable for all the debts and obligations of the partnership
incurred whilst taking part, in the same way as a general partner.1
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•
If the limited partner receives back part of their contribution – in which case they
will be liable for the debts and obligation of the partnership up to the amount so
received.2
See paragraph 52.161 for guidance on seeking recovery from limited partners in
these circumstances.
1. Limited Partnerships Act 1907 section 6(1)
2. Limited Partnerships Act 1907 section 4(3)
52.53 Position of limited partners
following winding-up
Limited partners are considered to be officers of the partnership1 and all relevant
provisions under the Act would apply.
The official receiver should establish the amount and terms of the investment by the
limited partner(s) and record this on the list of contributories.
1. Insolvent Partnerships Order 1994 article 2
The partnership agreement
52.54 Partnership agreement
A partnership agreement will set the rules by which internal business of the
partnership is to be conducted. It cannot set any rules relating to the partnership’s
relationship with third parties.
In most cases the formation of a partnership will be an intentional act on the part of
the partners, but that does not mean that there will be a written partnership
agreement. In many partnerships encountered by the official receiver there partners
may not have a written partnership agreement.
52.55 Official receiver to obtain copy of
partnership agreement
Where a partnership agreement exists it is important that the official receiver obtains
a copy to ascertain the terms of agreement between the partners.
52.56 Oral partnership agreement
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A partnership agreement need not be in writing to be effective and, depending on the
actions of the partners, any written agreement may have been superseded by a later
oral agreement.1
1. Greville v Venables [2007] EWCA Civ 878
52.57 Absence in part or full of a
partnership agreement
Where there is no partnership agreement, or where a matter is not covered by the
partnership agreement, the rules by which the internal business of the partnership is
to be conducted are laid out in the legislation.1 These rules would be applied in the
absence of any express or implied (by action) exclusion in the agreement.2
It is, in fact, unlikely that any partnership agreement will cover all matters that could
potentially arise in relation to the business of a partnership and may need to be
supplemented by statute or case law.3
1. Partnership Act 1890 section 24
2. Partnership Act 1890 section 19
3. Smith v Jeyes (1841) 4 Beav 503
52.58 Form of the agreement
A partnership agreement need only be a contract/agreement signed by the parties
(sometimes referred to as a simple contract ‘under hand’) unless there is some part
of the agreement that relates to the transfer of property, in which case the agreement
must take the form of a deed.1 The agreement may even take the form of a signed
draft or outline of the intend final version.2 Despite this, many partnership
agreements will take the form of a deed.3
1. Law of Property Act 1925 section 52(2)
2. England v Curling (1844) 8 Beav 129
3. Law of Property (Miscellaneous Provisions) Act 1989 section 1
52.59 Variation of the terms of the
agreement
The terms of the agreement may be varied by unanimous agreement of the
members of the partnership. That agreement to vary the terms may be express or
implied (by their actions).1 2
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1. Const v Harris (1824) T&R 496
2. Partnership Act 1890 section 19
52.60 Areas usually covered by an
agreement
Whilst there is no such thing as a ‘standard’ partnership agreement, one will typically
cover some or all of the following:
•
The partners and their roles
•
The nature of the partnership’s business
•
The commencement date of the partnership (which may be in the past)
•
The duration of the partnership (which may be for a fixed term, a single venture
or an undefined term).
•
The name under which the partnership will trade (usually known as the ‘firm
name’).
•
The premises used by the partnership (including the rights of occupation where
the premises are owned by only some of the partners).
•
The partnership property.
•
The sharing of profits and losses.
•
The arrangements for drawings.
•
The position regarding goodwill
•
The banking arrangement of the partnership
•
The maintenance of the books and papers of the partnership.
•
The powers and duties of the partners.
•
How decisions are to be made
•
Admitting a new partner.
•
The capital contributions of the partners To what extent partners can retire from,
or be removed from, the partnership.
•
The entitlements (particularly, financial entitlements) of outgoing partners.
•
The extent to which ex-partners may compete (a restraint of trade clause).
•
Dissolution of the partnership.
•
The winding-up of the partnership.
•
Generally, business specific matters.
52.61 Consideration in agreement
The partnership agreement must be supported by consideration by the partners to
give effect. This may be capital, skill1 or may be the incurring of a liability.2
1. Dale v Hamilton (1846) 5 Hare 369
2. Wedgwood Coal & Iron Co (Anderson's case) (1877-78) LR Ch D 75
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52.62 Actions for specific performance of a
partnership agreement
Where two parties have agreed to go into partnership and one party refuses to abide
with the agreement, the court will not compel that person to comply with the
agreement, but the other party would have an action for damages against the
refusor.1
1. Hercy v Birch (1804) 9 Ves Jr 357
Partners
52.63 No limits on who may be a partner of
a partnership
There are no special rules on who may (or may not) be a partner in a partnership. A
minor (a person under 18)1 may be a member of a partnership but will not normally
be liable for the debts incurred before the age of 18 and may repudiate the
agreement when they reach the age of 18.2
There can, of course, be no barrier to a person being a partner of the grounds of
race, gender, religion or sexuality.3
1. Family Law Reform Act 1969 section 1
2. Goode v Harrison (1821) 5B and Ald 147
3. Equality Act 2010
52.64 Undischarged bankrupt may be a
partner
An undischarged bankrupt may be a partner in a partnership, subject to the usual
trading restrictions1 (though see paragraph 52.88 regarding the effect on a
partnership of a bankruptcy order against an existing partner), as may a person
subject to a company director disqualification order (on the basis that a partnership is
not a company within the definition of the relevant legislation).2 The legislative logic
of this is that a partnership does not afford limited liability – the removal of this
privilege being one of the main reasons why a person would be disqualified from
managing a company.
1. Section 360
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2. Company Directors Disqualification Act 1986 section 22(2)(b)
52.65 Rights of the partners
Subject to any contrary agreement between the partners, each general partner has
rights to:
•
Inspect the books of the partnership1
•
Take part in the management of the partnership2
•
To have a say in decisions regarding the partnership3
Limited partners (see paragraph 52.40) and salaried partners (see paragraph 52.70)
have no rights in respect of the second of the two bullet points, above.
1. Partnerships Act 1890 Section 28
2. Partnership Act 1890 section 24(5)
3. Const v Harris (1824) Turn & R 496
52.66 Partner’s share in partnership
A partner’s share in the partnership is their right to a share in the profits (although it
will also inform their liability for the partnership losses). Contrary to what might be
thought, the value of a partner’s share does not necessarily relate to their
contributions (capital, labour, etc.) to the partnership, and the value of the share will
instead depend on what is agreed between the partners or, in the absence of any
such agreement, will be an equal share.1 2
Such an agreement relating to the proportion of shares may be a written agreement
(forming, perhaps, part of the partnership agreement) or may be inferred from the
actions of the partners or from the books.3
1. Partnership Act 1890 section 24
2. Joyce v Morrissey [1999] EMLR 233 (CA)
3. Stewart v Forbes (1849) 1 Mac & G 137
52.67 Calculating bankrupt’s share in
partnership
The official receiver, as trustee of a bankruptcy estate, would only be involved in
valuing a partner’s share following the dissolution of the partnership as a result of the
making of a bankruptcy order against a partner (see paragraph 52.145).
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It is the responsibility of the remaining, solvent, partner(s) to account to the official
receiver for the bankrupt partner’s share, though it may be the case that the official
receiver will need to become involved in this process. See paragraph 52.146 for
advice on this process.
52.68 Share in partnership is property
A partner’s share (in essence, the right to share in profits) in a partnership may be
transferred (subject to the terms of the partnership agreement) but the assignee is
not entitled to be involved in the management of the continuing partnership.1 As well
as being entitled to a share of the profits, the assignee would be liable to contribute
towards losses according to the vendor’s share in the partnership (subject to any
indemnity).2 Additionally, they would be entitled to a share of the proceeds following
dissolution.3
Where the official receiver is trustee of the estate of the vendor, the share would
have no value to the estate, but were the official receiver trustee of the assignee’s
estate the benefit would vest (any losses being a debt of the assignees estate).
1. Partnership Act 1890 section 31
2. Dodson v Downey (1901) 2 Ch. 620
3. Partnership Act 1890 section 31(2)
52.69 Remuneration
Partners are not, subject to any contrary entitlement in agreement with other
partners, entitled to remuneration for managing the partnership affairs.1 Instead, they
are entitled to a share of the partnership profits. The exception would be a salaried
partner (see paragraph 52.70) who is not entitled to a share of the profits but is
entitled to a fixed remuneration irrespective of the profits.
1. Partnership Act 1890 section 24(6)
52.70 Salaried partner
A salaried partner is one that receives a fixed salary, but may have limited rights to
participate in the management of the partnership and may have no obligation to
contribute capital and/or share losses. A salaried partner is one that receives a
salary whether or not the partnership makes a profit, any other type of arrangement
(such as receiving a salary as a share of the profits) is likely to mean that the partner
has full rights to participate in the management of the partnership.
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52.71 Agency of the partners
Every partner is the principle and agent of the other partners for the purpose of the
business of the partnership.1 In simple terms, what this means is that, in carrying out
partnership business (negotiating a new sales contract, for example), the partner is
acting for themselves and for the other partners.
This means that the actions of one partner will bind each member and the
partnership as if they had carried out the action. This potential liability is limited to the
partner carrying out the act if that partner had no authority to carry out the act (under
the terms of the partnership agreement for example) and the person with whom they
are dealing knows that they have no authority, or if the partner was clearly not acting
for the partnership.2
Such an agency can be created in the borrowing of money3 (i.e. the money borrowed
for the partnership by one partner is a debt of all partners).
1. Partnership Act 1890 section 5
2. Partnership Act 1890 section 8
3. Montaignac v Shitta (1890) 15 App.Cas 357
52.72 Duty of good faith
The partners have a general duty of good faith to each other in respect of their
actions1 and, also, a statutory duty in respect of the provision of full and accurate
information to each other.2
1. Blisset v Daniel (1852) 10 Hare 493
2. Partnership Act 1890 section 28
52.73 Duty to account for profit
There is a duty for a partner to account to their fellow partners for any profit made in
connection with the business of the partnership or with the use of partnership
property.1 If a partner separately carries on a business in the same nature of the
partnership or competing with the partnership then they are required to account for
and pay over to the partnership all profits so derived.2
1. Partnership Act 1890 section 29
2. Partnership Act 1890 section 30
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52.74 Relationship of partners to each
other
The partners do not have the relationship of debtor and creditor of the partnership
until the final taking of account (see paragraph 52.147) following dissolution.1 The
relationship between the partners is primarily contractual.2
1. Richardson v Bank of England (1838) 48 ER 897
2. Pooley v Driver (1876) 5 Ch D 458
52.75 Person may become partner through
verbal agreement
A person may become a partner by agreeing to become one, even if they do not sign
a partnership agreement,1 unless they agreed to become a partner only on the
signing of the agreement.2
1. Syers v Syers (1876) 1 App.Cas
2. Battley v Lewis (1840) 1 Man & G 155
52.76 Partners are contributories and
officers
Unlike in a company (where contributories and officers are sometimes different
individuals), the partners (and this includes past partners who are liable for any debts
of the partnership of the period involved) are considered to be both contributories
and officers. See paragraph 52.144 for advice on having a partner contribute to the
debts of an insolvent partnership.
52.77 Partners as contributories with
unlimited liability
A partner’s liability to contribute in the event that there is a deficiency in the
partnership position is, of course, unlimited – though may be limited to debts incurred
during the period of their membership of the partnership in the case of ex-partners.1
1. Partnership Act 1890 section 17
52.78 Liability for debts after retirement
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Where a partner retires and a third party deals with the partnership (as in does
business, for example) after the change of partners, that third party is entitled to treat
all apparent ‘old’ members of the partnership as still being partners unless/until
notified of the change,1 unless they knowingly holds themselves out as a partner
post-retirement.2 The notice may be actual notice, or by placing a notice in the
London Gazette.3
1. Partnership Act 1890 section 36
2. Partnership Act 1890 section 14
3. Partnership Act 1890 section 36(2)
The dissolution of a partnership
(including dissolution following the
bankruptcy of a partner)
52.79 Dissolution - general
The dissolution of a partnership is the process during which the affairs of the
partnership are wound up (where the ongoing nature of the partnership relation
terminates). This should not be confused with the term dissolution when applied to a
limited company, which is the event that marks the conclusion of the winding-up.
52.80 Technical dissolution versus general
dissolution
So far as regards a partnership, there are two types of dissolution – technical and
general.
52.81 Technical dissolution
A technical dissolution takes place each time there is a change in the composition of
the firm – i.e., technically, the partnership is dissolved each time one partner leaves
(and is replaced by another), or a new partner joins.1 In such a case there will usually
be no break in the business of the partnership with the ‘new’ firm generally taking on
the assets and liabilities of the ‘old’.
1. Hadlee and Sydney Bridge Nominees v Commissioner of Inland Revenue [1993] AC 524
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52.82 A general dissolution
A general dissolution is the full dissolution of the partnership – following, for
example, the cessation of trade, the bankruptcy or death of a partner or by
agreement. The general dissolution involves the winding-up of the partnership and
the taking of and settling of accounts.
52.83 Causes of general dissolution
The general dissolution of a partnership will usually be instigated as a result one of
the following events:
•
The mutual agreement of the partners – which may be an ad hoc agreement, or
an agreement enshrined in the partnership agreement (where, for example, it
was agreed that the partnership would be dissolved after a particular date, or
after a certain event). Such an agreement may be implied rather than actual.1
•
By the serving of a notice by a partner where such an action provided for in
partnership agreement.
•
The exercise of a specific power in the partnership agreement – where, for
example, the partnership agreement allowed a majority of the partners to seek
dissolution.
•
The exercise of a power in the legislation.2
•
One of the events provided for in the legislation (e.g., the death or bankruptcy of
a partner)3 subject to contrary agreement.4
•
Fraud, misrepresentation, rescission or illegal activity.5
•
By an order of court (following, for example, the mental incapacity6 or other ill-
health7 of a partner).8
•
Where the business may only be carried on at a loss .9
1. Partnership Act 1890 section 32
2. Partnership Act 1890 section 26(1)
3. Partnership Act 1890 section 33
4. Partnership Act 1890 section 19
5. Partnership Act 1890 section 34
6. Mental Capacity Act 2005 s18
7. Whitwell v Arthur (1865) 35 Beav 140
8. Partnership Act 1890 section 35
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9. Partnership Act 1890 section 35(e)
52.84 Date of dissolution
Where the partnership is dissolved following an application to the court, the effective
date of dissolution is the date of the judgment for dissolution.1
If the dissolution was by notice of a partner, then the partnership is dissolved as from
the date specified in the notice.2
1. Partnership Act 1890 section 35
2. Robertson v Lockie (1846) 15 Sim 285
52.85 Position of partnership and partners
following dissolution
Where a partnership is subject to general (rather than ‘technical’) dissolution, it will
be unable to conduct new business (unless the partnership agreement says
otherwise), but the partners will have the authority to manage the business for the
purposes of winding-up its affairs.1 2
1. Partnership Act 1890 section 38
2. HLB Kidsons (formerly Kidsons Impey) v Lloyds Underwriters Subscribing Policy No 621/PK1D00101 [2009] All ER (Comm) 760
52.86 Position of creditors following
dissolution
A dissolution will not, of itself, discharge any partner from a debt incurred prior to
dissolution, unless they can show that the creditor has discharged them from the
debt or accepted a substitute debtor.1
15. Vulliamy v Noble (1817) 3 Mer 593
52.87 Position of employees following
dissolution
A general dissolution will terminate the contracts of employment of all those
employed in the partnership.
52.88 Dissolution following the bankruptcy
of a partner
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The legislation provides that the bankruptcy of a general partner shall cause the
partnership to dissolve unless the partnership agreement provides otherwise.1
The date of dissolution would be the date of the making of the bankruptcy order.2
1. Partnership Act 1890 section 33
2. Insolvency Act 1986 section 278(a)
52.89 Bankrupt partner – no order made
for the winding up of the partnership
The official receiver, as trustee of the bankruptcy estate, has no authority to step into
the shoes of the bankrupt partner and, for example, deal with the dissolution of the
partnership.1 The official receiver’s interest (as trustee) in the partnership is limited to
the share in the partnership after the accounts have been settled, which is dealt with
by the solvent partner(s) (see paragraph 52.146).
1. Francis v Spittle (1840) 9 LJ Ch 230
52.90 Dissolution may have been earlier
than making of bankruptcy order
Where one of the ‘triggers’ outlined in paragraph 52.83 have occurred it is possible
that the partnership will already have been dissolved prior to the date of a
bankruptcy order against the insolvent partner. In practical terms, this does not affect
how the official receiver should deal with the partnership, in that they should seek to
claim the bankrupt partner’s share in the partnership (see paragraph 52.145).
See paragraph 52.152 for guidance where all members are subject to bankruptcy
orders.
52.91 Effect of the winding up of a
corporate partner
Where a corporate partner is wound-up it is unlikely that this would cause the
dissolution of the partnership (as the bankruptcy of a partner would) because the
company continues, albeit in liquidation. It is unlikely that the partner (acting through
the liquidator) would be willing or able to continue to perform the functions of a
partner and there would be a need to prevent the corporate partner from being
exposed to further liability for partnership debts.
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The official receiver as liquidator of a coporate partner should first look to resign from
the partnership, which will in any event trigger the dissolution the partnership.
Alternatively the liquidation of a corporate partner may lead to an application for the
partnership to be wound-up on the grounds that it is just and equitable to do so.1
See paragraph 52.150 for advice on dealing with an insolvent corporate member’s
share in a partnership.
1. Partnership Act 1890 section 35
52.92 Sale by order of court where fraud
against bankruptcy creditors
Partnership agreements sometimes contain clauses that, where a partnership is
dissolved, a surviving (solvent, in this context) partner may purchase the bankrupt’s
partner’s share at a pre-arranged price. Where this is considered to be a fraud upon
the bankruptcy creditors, the court may order the sale of partnership assets to
ensure that the creditors are not disadvantaged.1 Such a challenge would constitute
an antecedent recovery and the advice elsewhere in may be followed.
1. Wilson v Greenwood (1818) 1 Swan 471
52.93 Continuation of business by ex-
partner
It is open to the (ex)partners of a dissolved partnership to continue the business of
the partnership, even using the ‘original’ name, providing they do not hold out that
the other partners are still partners with them. In such a case, the official receiver
should satisfy themselves that the new business is not using assets that formed part
of the partnership property or, if such assets are being used, that they were
accounted for when calculating the bankrupt’s share in the dissolution of the
partnership (see paragraph 52.147).
52.94 Continuation of business by other
partners
Where one partner leaves and the partnership is dissolved (either through choice or
by, for example death or bankruptcy), the departing partner’s interest in the assets of
the partnership and any undrawn profits must be valued by the continuing partners.
Where the business is continued without any financial settlement, the departing
partner is entitled to such share of the profits as the court may find attributable to
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their share of the partnership assets or, alternatively, 5% per annum on the amount
of their share.1
1. Partnership Act 1890 section 42(1)
The insolvency of partnerships and
partners
52.95 Legislative background
Prior to 1986 insolvent partnerships were dealt with as bankruptcies of the individual
partners under the Bankruptcy Act 1914, apart from partnerships with eight or more
members, which could have been wound up as unregistered companies under the
Companies Act in force at the time.
In 1986, through a power given in the Act1 the Insolvent Partnerships Order 1986
came into force. This Order was repealed in 1994 and, with effect from 1 December
1994, replaced by the Insolvent Partnerships Order 1994 – this being the current
legislative tool for dealing with insolvent partnerships. The significant legislative
departure from the pre-1986 position in these Orders is that partnerships are now
dealt with under the corporate provisions of the insolvency legislation.
1. Insolvency Act 1986 section 420
52.96 Application of Insolvent Partnerships
Order 1994
The Insolvent Partnerships Order 1994 operates to apply provisions of the
Insolvency Act 1986 and the CDDA 1986, with appropriate amendment set out in the
schedules to the Order, to partnerships (including limited partnerships).
52.97 Secondary legislation
Secondary insolvency legislation (such as the Rules) are applied to insolvent
partnerships.1 The application of the Rules and other secondary legislation is ‘with
the necessary modification’. The necessary modifications are not set out in the
legislation and the official receiver will have to use their best judgement as to how
the rules might apply in particular circumstances.
1. Insolvent Partnerships Order 1994 article 18(1) and Schedule 10.
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52.98 The legislation does not apply to
LLPs
The Insolvent Partnerships Order 1994 which deals with the insolvency of
partnerships does not apply to LLPs. They are dealt with as a version of a limited
company, rather than as a partnership and, therefore, the legislation does not apply
to them.
52.99 Routes by which partnership may be
dealt with under the legislation
There are five routes (not including partnership voluntary arrangements – see
paragraph 52.117 - or administration orders - see paragraph 52.118) by which a
partnership may be dealt with under the insolvency legislation:
Legislative
reference
(IPO 1994)
Route
Also
known
as
Number
of cases/
orders
Paragraph
containing
any specific
advice
Article 7
Winding up of the
partnership as an
unregistered company on a
creditor’s (or other third
party – including an
insolvency practitioner)
petition with no concurrent
petition against partners
Form 3
1
52.100,
52.101
Article 8
Winding up of the
partnership as an
unregistered company on a
creditor’s petition with
concurrent petitions
against one or more
partners
Form 5
2 or more
52.102,
52.126
Article 9
Winding up the of the
partnership on the petition
of a partner where no
1
52.103
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Legislative
reference
(IPO 1994)
Route
Also
known
as
Number
of cases/
orders
Paragraph
containing
any specific
advice
concurrent petition
presented against partners
Article 10
Winding up of the
partnership as an
unregistered company on
the petition of a partner,
with concurrent petitions
against all the partners
Form 11
3 or more
52.104,
52.105,
52.126
Article 11
Joint bankruptcy petitions
by all the individual
partners, but with no
petition against the
partnership (court order will
include order winding up
business of partnership)
Form
14/Form
16
1 (with 3
or more
parts)
52.104,
52.106
52.111,
52.121
52.100 Article 7 - Winding up of the
partnership as an unregistered company
under
A partnership is wound up as an unregistered company1 2 and it will, to all intents and
purposes, be dealt with as a company for the purposes of its liquidation (this is
despite the general principle that a partnership has no separate legal identity).
Most of the provisions of the Insolvency Act will, therefore, apply with necessary
amendments as provided by the legislation.3 Similarly, the Rules will apply with
necessary modification. The modifications are largely administrative to allow the law
to be applied to partnerships. Matters of particular note are covered in the following
paragraphs.
1. Insolvent Partnerships Order 1994 article 7
2. Insolvent Partnerships Order 1994 schedule 3 paragraph 3
3. Insolvent Partnerships Order 1994 schedules 1 to 7
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52.101 Article 7 - recovery from partners
Where a winding-up order is made against a partnership as an unregistered
company on a creditor’s (or other third party – including an insolvency practitioner)
petition with no concurrent petition against partners, the (former) partners become
contributories with unlimited liability for any deficiency in the liquidation. The official
receiver should take steps to seek recovery of the debt due to the partnership from
the partners (see paragraph 52.144).
52.102 Individual orders not made under
article 8
If a creditor presents a petition under article 8 for the winding-up of the partnership
and concurrent petitions against one or more of the members 1 but the court does not
make bankruptcy orders against the partners within 28 days of the winding-up order
matters will proceed as if the petition had been presented under article 7.2
The net effect of this will be much the same as the partners will still have unlimited
liability to contribute to the debts of the partnership when the official receiver, as
liquidator, makes a call on contributories (see paragraph 52.144).
The official receiver should administer the winding-up of the partnership in the usual
way but note that they are unable to seek the appointment of an insolvency
practitioner until the 28 days have expired (see paragraph 52.127).
If the bankruptcy order(s) is made, but not the winding-up order, then the bankruptcy
will proceed essentially as a ‘normal’ bankruptcy.2
1. Insolvent Partnerships Order 1994 article 8
2. Insolvency Act 1986 section 125A as inserted by Insolvent Partnerships Order 1994 schedule 4 paragraph 9
52.103 Orders under article 9
A member of a partnership with eight or more members or, with the leave of the
court, a partner of any partnership, can apply to the court for the partnership to be
wound up – without concurrent petitions against the partners. Generally, the
partnership is wound up as an unregistered company under Part V of the Act, with
the same modifications made for cases under article 7.1 2
The partners would be liable to contribute to the debts of the partnership (see
paragraph 52.144).
1. Insolvent Partnerships Order 1994 schedule 3
2. Insolvent Partnerships Order 1994 schedule 5
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52.104 Practical difference between
articles 10 and 11
On the face of it, there may appear to be very little difference in the practical effect
between articles 10 and 11 (see paragraph 52.99).
The main difference between those articles is that article 10 provides for the winding
up of a corporate partner of a partnership, whereas article 11 might only be utilised
where all partners are individuals.
52.105 Application of article 10 where
impracticable to petition against all
partners
The legislation1 provides that a petition to wind up a partnership by a partner with at
least one accompanying bankruptcy petition against a partner shall be accompanied
by petitions for the bankruptcy of all the other partners.
Where this is impracticable (in a case where, for example, it is not possible to trace
one of the partners), the court may direct that the petitions be presented against the
partnership and such partner or partners of it as are specified by the court.2
19. Insolvent Partnerships Order 1994 article 10
20. Insolvency Act 1986 section 124(3) as modified by Insolvent Partnerships Order 1994 schedule 6 paragraph 2
52.106 Application of article 11 where
impracticable to petition against all
partners
The legislation1 provides that all the partners are required to bring a joint petition for
their winding up, which will include an order for the winding-up of the partnership
business.
Where this is impracticable (in a case where, for example, it is not possible to trace
one of the members), the court may direct that the petitions be presented by such
member or members of it as are specified by the court.2
1. Insolvent Partnerships Order 1994 article 11
2. Insolvency Act 1986 section 266 as modified by Insolvent Partnerships Order 1994 schedule 7 paragraph 4
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52.107 Jurisdiction
The jurisdiction requirements for the winding-up of a partnership are largely the
same as for a company except that where a partnership has more than one place of
business (which is a deciding factor in the absence of a registered office) the petition
may be served in the court covering the locality of the place of business where the
debt was incurred, even if that is not the primary place of business.1
1. Insolvency Act 1986 section 221 as amended
52.108 Grounds for winding-up a
partnership
The grounds for winding-up a partnership are largely the same as for an
unregistered company – that is, that the partnership has ceased to carry on
business, is unable to pay its debts, the winding-up is just and equitable or to exit
administration.12
In deciding whether a partnership is unable to pay its debts the court will only
consider the position of the partnership (i.e., the partnership assets and the
partnership liabilities) and not the ability of the partners to personally deal with
partnership debts from their separate estates.3 This is unless the petition is presented
by an insolvency practitioner and an insolvency order has already been made
against a partner – in which case the making of the order against the partner is proof
that the partnership is unable to pay its debts, unless proved otherwise.4
1. Insolvency Act 1986 section 221 as amended
2. Partnership Act 1890 section 39
3. In re HS Smith and Sons The Times 6 January 1999
4. Insolvency Act 1986 section 221A as inserted by Insolvent Partnerships Order 1994 schedule 3 paragraph 3
52.109 Power to wind up partnership
where winding up order or bankruptcy
order made against partner
At any time after a petition has been presented for the winding-up or (more
commonly) the bankruptcy of a partner, and the attention of the court is drawn to the
fact that that person is a partner of an insolvent partnership, the court may make an
order as to the future conduct of the proceedings.1 2 Such an order is likely to bring
the proceedings under one of the articles of the legislation (see paragraph 52.99).
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1. Insolvency Act 1986 section 168(5A) as amended
2. Insolvency Act 1986 section 303(2A) as amended
52.110 Court has power to wind-up
partnership despite no petition
The court has jurisdiction to wind up a partnership of its own motion despite the
absence of a petitioning creditor. Such jurisdiction is likely to be exercised only in
exceptional circumstances such as where there is concern over the security of
customer deposits.1
1. Lancefield v Lancefield [2002] BPIR 1108
52.111 Creditors may petition against
partner only
Partnership creditors may seek a bankruptcy order against one or more of the
partner(s) of an insolvent partnership without including other members and without
petitioning for the winding-up of the partnership.1 2 Any subsequent liquidator of the
partnership would then have power to prove in those bankruptcy proceedings (see
paragraph 52.144) .3 4
1. Insolvent Partnerships Order 1994 article 19(5)
2. Schooler v Commissioners for Customs and Excise [1995] 2 BCLC 610
3. Insolvency Act 1986 schedule 4, part III, paragraph 8
4. Insolvency Act 1986 schedule 5, part III, paragraph 11
52.112 Official receiver to act as trustee
where concurrent petitions presented
Where bankruptcy orders are made on a joint petition under Article 11 the official
receiver will be appointed trustee on the making of the order.
52.113 ‘Officers’ of the partnership
Any person who has acted as a partner in the management or in control of a
partnership may be considered to be an ‘officer’ of the partnership (and, as with the
position of a de-facto director in a company, such an individual might not,
necessarily, have been a partner).1
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1. Insolvent Partnerships Order 1994 article 2(1)
52.114 Claims against the partners
Where a winding-up order has been made against a partnership no actions or
proceedings can be commenced or continued against the members of an insolvent
partnership in respect of any debt of the insolvent partnership except by leave of the
court.1 The effect of this provision would create a moratorium for the partners against
partnership debts, although they are instead liable as contributories for the deficiency
in the liquidation.
Such a moratorium would not be effective if the partnership is in a PVA or
administration.
1. Insolvency Act 1986 section 228 as amended
52.115 Liability of partners to
disqualification or criminal sanction
As partnerships are wound up as companies (see paragraph 52.95) and the partners
are considered to be officers (see paragraph 52.113), the partners are liable to
actions for disqualification1 and criminal sanctions for fraudulent trading.2 However,
whether it would be in the public interest to prevent an unlimited partner from being a
director (with the benefit of limited liability in the future) depends on the
circumstances of the specific case.
1. Insolvent Partnerships Order 1994 article 16
2. Insolvency Act 1986 section 214
52.116 Powers of the official receiver as
liquidator of the partnership
The powers of the official receiver as liquidator of a partnership are the same as the
powers as liquidator of a company (with appropriate modification) and the powers as
trustee of the bankruptcy estates are the same as for a ‘normal’ bankruptcy (chapter
1).
52.117 Partnership voluntary
arrangements
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It is possible to propose a partnership voluntary arrangement (PVA).1 Such an
arrangement would operate in much the same way as an IVA or CVA in that the
partnership comes to a legally binding arrangement, through a nominee, with its
creditors. The partners may propose the arrangement, unless an administration
order (see paragraph 52.118) is in force, where the partnership is being wound-up,
or where an order has been made on a joint bankruptcy petition.
In many cases, a PVA will only be approved by creditors if the members also enter
into interlocking IVAs or CVAs.
1. Insolvent Partnerships Order 1994 article 4, schedule 1
52.118 Partnership administration orders
Any partnership which the courts in England and Wales have jurisdiction to wind-up
may apply to those courts for an administration order. The legislation provides that
the Act1 is applied in modified form2 3 as are other parts of the Act.4
1. Insolvency Act 1986 Part II
2. Insolvent Partnerships Order 1994 article 6
3. Insolvent Partnerships Order 1994 schedule 2
4. Insolvent Partnerships Order 1994 article 6(2) and (3)
52.119 Voluntary liquidation not available
Voluntary ‘liquidation’ of a partnership is not available1 unless to exit administration.2
1. Insolvency Act 1986 section 221(4) as modified by Insolvent Partnerships Order 1994 schedule 3 paragraph 3
2. Insolvency Act 1986 section 221A as modified by Insolvent Partnerships Order 1994 schedule 3 paragraph 3
Practical issues relating to the
administration of insolvent partnerships
52.120 Partnership practical issues
covered elsewhere in the operational
guidance
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Apart from some practical issues dealt with in this part of the chapter, further
practical in other chapters is also applicable to partnerships e.g. in relation to assets,
court hearings and creditors.
52.121 Where bankruptcy orders made
against partners with no concurrent order
against partnership
Where bankruptcy orders have been made against all members of a partnership but
no order has been made against the partnership (as opposed to a joint bankruptcy
petition under article 11 which includes an order to wind-up the partnership) there
could be difficulties in dealing with the administration of the estate as, although the
partnership will have been dissolved (see paragraph 52.88), there will be no ‘solvent’
partner to deal with the winding up of the partnership (see paragraph 52.146).
The official receiver as trustee will not be able to deal with the partnership property.
The legal position is that partnership property effectively forms a trust in favour of the
partnership creditors and thus does not form part of a bankrupt’s estate capable of
vesting in a trustee. The official receiver has no powers, save for the restrictions
placed upon an undischarged bankrupt, to prevent the bankrupts from trading
although they will be obliged to account to the liquidator for any profits generated
from the use of partnership assets.
See paragraph 52.152 for advice on dealing with this circumstance.
52.122 Where official receiver deals with
partnership property and there is no
winding-up order
Where no winding up order has been made against the partnership and the official
receiver has mistakenly dealt with partnership property, the advice in paragraph
52.152 to 52.155 should be followed and an application to court made for an order
that the partnership assets be administered as if the individual members had
presented a joint bankruptcy petition.1 The official receiver should additionally seek
the directions of the court as regards the property already dealt with. Ideally, the
official receiver should seek an order that the court validates the realisation/removal
of the property and that the costs of dealing with the property can be applied as
expenses of the estate as if the property had been dealt with when the winding-up
order was in place.
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Any property in the possession of the official receiver or their agents should be held
pending these directions. Where the property is perishable in nature, or if the official
receiver is incurring onerous storage charges, they should consider consulting with
the partners with a view to seeking their agreement for the sale of the goods.
1. Insolvent Partnerships Order 1994 article 11
52.123 Consolidation
Consolidation is where related insolvency cases are joined together in one case,
following an application to court. So far as partnerships are concerned, this is usually
carried out where different elements of the partnership are subject to insolvency
orders at different times (such as in the circumstances described in paragraph
52.121).
Consolidation on its own is not sufficient to allow the official receiver to deal with
property of the partnership and, instead, the process at paragraph 52.155 should be
followed.
52.124 Notification to Land Charges
Department
Any consolidation order made by the court should be notified to the Land Charges
Department, following the guidance in chapter 7.
52.125 Where order made under wrong
article
Where an order is made under the wrong article of the legislation (for example,
where an order is made under article 10 when not all the partners were subject to
concurrent petitions) the correct approach would be for the official receiver to apply
to the court to seek a review and possible rescission of the order(s).
52.126 Appointment of insolvency
practitioners under the Insolvent
Partnerships Order 1994
Generally speaking, in partnership cases, insolvency practitioners may be appointed
in the usual manner under the Act. However, the IPO1994 makes modifications to
the Act and care must be taken to adapt the process to reflect the different types of
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partnership insolvency. The IPO1994 was brought up-to-date in 2017 to reflect the
modern decision making procedures.1
For cases being dealt with under articles or 7 or 9 of the IPO1994, where the
partnership is being wound up with no concurrent member insolvencies, generally
speaking the process mirrors that of a normal company winding-up.
There are modified procedures under articles 8 and 10 of the IPO19942, where the
partnership and one or more members are subject to concurrent insolvency
procedures, the key difference being the appointment of an ‘responsible insolvency
practitioner’ over the combined estates. This person is initially the official receiver,
however an insolvency practitioner can be appointed in their place. Importantly,
decisions must be conducted by creditors of the partnership and creditors of the
insolvent member(s), as if there were a single set of creditors i.e. there is only one
combined decision process not one for each insolvency. This principle should be
followed when considering the intentions of creditors for Secretary of State
appointments.
Where insolvency orders are made at different times (under articles 8 or 10 – see
paragraph 52.99), the insolvency practitioner appointed in the earliest case must be
appointed in each subsequently made insolvency order.2 Also, where the Secretary
of State has appointed an insolvency practitioner as trustee in a case where a
creditor has presented concurrent petitions3 then the practitioner will be appointed for
any member against whom an order is subsequently made. See paragraph 52.127
for potential difficulties appointing insolvency practitioners via the Secretary of State
route in in these cases.
In cases under article 11 of the IPO1994, where members present joint petitions for
bankruptcy and the winding-up of the partnership, the official receiver becomes
trustee of the members and partnership estates. The official receiver may be
replaced by insolvency practitioner via a decision process of the members and
partnership creditors (as one) or a Secretary of State appointment.
Please see chapter 45 for details of appointing insolvency practitioners in insolvency
cases.
1. Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017/540
2. Insolvent Partnerships Order 1994 schedule 4 paragraph 12
3. Insolvency Act 1986 section 137A as inserted by Insolvent Partnerships Order 1994 schedule 4 paragraph 13
52.127 Difficulty in the appointment of
insolvency practitioners in certain
partnership cases
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Where a winding-up order is made against a partnership on the petition that it be
wound-up with concurrent petitions against the members (see paragraph 52.99), it
will not be possible to seek the appointment of a insolvency practitioner via the
Secretary of State route (chapter 45) unless an order has also been made against at
least one of the partners1. If the petitions against the partners are not proceeded with
within 28 days of the making of the order against the partnership, the winding up will
proceed as if it was on the petition against the partnership solely, and a Secretary of
State appointment will then be possible.
The problem in this will come where the official receiver is dealing with a partnership
where continued trading is viable and where the appointment of an insolvency
practitioner would normally be sought. In such a case, the advice of ORS Advice
should be sought as to how matters might be progressed (by the appointment of a
special manager, for example).
1. Insolvency Act 1986 section 137 as modified by Insolvent Partnerships Order 1994 schedule 4 paragraph 13
52.128 Where annulment obtained in a
joint petition
In the extremely unlikely event that one partner in a joint bankruptcy order under
article 11 sought and obtained an annulment of their bankruptcy the official receiver
should make application to court for an amendment of the title of proceedings (see
chapter 3) to remove the name and description of the ‘solvent’ partner from the
description. This is only likely to occur where the partner pays their personal debts,
and any partnership debts, in full.
52.129 Naming a partnership in the full
description
Whilst there will be undoubted concern about reputational damage to a solvent
partnership named in the full description of the individual bankruptcy of a partner, the
legislation does not provide any alterative1 2 in that it is a requirement that the full
description contains the name under which the debtor carries on business.
Where a bankrupt was formerly a partner in a business that is continuing to trade,
urgent consideration should be given to applying to the court to vary a winding-up
order or bankruptcy order description where the description suggests that the
business is subject to the order as such publicity could adversely affect the
continuing business. Such action should, ideally, be carried out prior to gazetting or
advertising the making of the order,
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Specifically, the description should state that the bankrupt ‘formerly traded in
partnership with others as…..’.
An early application for variation of the description along these lines will protect the
official receiver from a claim for damages in respect of adverse publicity.
1. Rule 10.8
2. Rule 10.35
52.130 Registrar of companies
Except in the case of limited partnerships (see paragraph 52.41) or corporate
members of a partnership (see paragraph 52.28), the Registrar of Companies has no
role to play as regards partnerships so any reference in the legislation to the
Registrar (for example, a requirement to serve notice) can be ignored.1
1. Insolvent Partnerships Order article 3(2)
52.131 Serving notice on the Registrar of
Companies where winding up order made
against limited partnership
The legislation does not require the official receiver to serve a copy of the winding-up
order made against a limited partnership on the Register of Companies (as is
required in the case of a limited company), although there is a requirement to notify
the Registrar of any changes to the nature of the partnership using form LR6
52.132 Where there is doubt over
membership
It may be the case that there is doubt over who is a partner of a partnership. This
may be particularly relevant where the official receiver is dealing with a bankruptcy of
a person who may be a partner (and whose interest in the partnership will be an
asset in the proceedings – see paragraph 52.145) or where the official receiver is
dealing with the winding up of a partnership and is seeking contributions from the
partners (see paragraph 52.144).
In deciding whether a person is a partner, the official receiver will need to consider
the actions of the person and, particularly, the actions of the person against the
definition of a partnership. Indications of the members of a partnership may be found
in the partnership agreement or in headed notepaper, or similar. It is likely to be the
case that there is no list kept of partners joining or leaving and it will often be a case
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of considering the actions of those involved to establish if and when individuals were
partners.
52.133 Principle for estate accounting and
distributions
Estate accounting for partnerships is dealt with in detail in chapter 48 and
distributions are dealt with in chapter 49 but a very brief summary is that joint
creditors are paid out of the joint (partnership) estate, and separate creditors paid out
of the separate estates. If there is surplus on the joint estate then those monies may
be applied to the separate estate(s).
If, on the other hand, the joint estate is not sufficient for the payment of the joint
debts, the official receiver, as liquidator, should total the debts which remain
unsatisfied and that amount shall be a claim against the separate estate of each
partner against whom an insolvency order has been made – ranking equally with
their own creditors. In short, any shortfall on the joint estate is treated as just another
creditor on the individual’s estate.1
1. Ex p Cook (1728) 2 PW 500
52.134 Partnership debts – joint debts
The legislation defines a joint debt as a debt of an insolvent partnership, in respect of
which an order is made.1
Contractual debts tend to be joint debts, which are the joint responsibility of the
members of the partnership. The terms of the contract and/or the partnership
agreement may need to be reviewed for the possible agreement of members to
seperate responsibility for partnership debts, in addition to their joint liability. A
deceased member’s estate is jointly and severally liable for the partnership debts, in
so far as they remain unsatisfied by the joint estate, but subject to the prior payment
of their separate debts.2
1. Insolvent Partnerships Order 1994 article 2
2. Partnership Act 1890 section 9
52.135 Partnership debts – separate debts
(added March 2014)
The legislation defines a separate debt as one for which a member of the partnership
is liable, other than a joint debt (see paragraph 52.134)1. Generally, these are the
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private debts of a member, not incurred directly in relation to the trading activities of
the partnership.
1. Insolvent Partnerships Order 1994 article 2
52.136 Estate expenses
Estate expenses are paid in priority to the debts, but on the principle that joint
expenses are paid out of the joint (partnership) estate, and separate expenses paid
out of the separate estates. If there is surplus on the joint estate then those monies
may be applied to the separate estate(s).
52.137 Position of employees of
partnership following insolvency
As outlined in paragraph 52.21 a partnership cannot employ people. The proper
employers are the partners. The effect of this is that a winding-up order made solely
against the partnership (with no order(s) against the partners) would not trigger the
provisions that allow employees of an insolvent business to claim monies from the
national insurance fund.1 2
Where the official receiver is dealing with employees in these circumstances (for
example, during a trading inspection), they may not dismiss the employees and
should not takes steps to notify RPS or issue redundancy/termination paperwork.
The employees may still pursue the partners personally for outstanding wages
(including petitioning for their bankruptcy).
Where the official receiver is dealing with the insolvency of the partnership and any
of the partners, they may deal with the employees in the usual way.
1. Employment Rights Act 1996 section 166
2. Employment Rights Act 1996 section 183
52.138 Bankruptcy order against partner -
contact with partnership creditors - no
order against partnership
Where a partner is bankrupt, as partners are jointly and severally liable for
partnership debts, the official receiver should send out a report to creditors and
notices to creditors to all the partnership creditors. Where the official receiver is
satisfied that the partnership creditors will be paid by the new partnership/the solvent
--- PDF page 45 ---
partners, he should consider applying to the court1 to relieve him of the requirement
to report to the creditors.2
1. Insolvent Partnerships Order 1994 article 14
2. Rule 10.66(3)
52.139 Bankruptcy order against only
general partner of a limited partnership
with assets
A limited partnership by its very nature cannot continue in the absence of a general
partner (see paragraph 52.40) and on the bankruptcy of its only general partner it is
determined. Where the partnership is insolvent and there are assets to be dealt with,
the official receiver should consider applying to the court1 for the court to make an
order regarding the administration of the limited partnership’s estate. Notice of the
application should be served on any limited partner with a short covering letter
explaining that the purpose of the application is to regularise the administration of the
insolvent partnership estate. Putting the limited partner on notice will give him the
opportunity to step in and make an application to the court2 for the court to consider
whether the limited partner should deal with the partnership estate.
1. Insolvent Partnerships Order 1994 article 14
2. Limited Partnerships Act 1907 section 6(3)
52.140 Trustee/ liquidator’s right of access
to records of solvent partnership
The trustee or liquidator of a partner has no right to retain the records of a solvent
partnership of which the insolvent is/was a member. However, the official receiver,
as trustee or liquidator, should require the solvent partner/s to provide proper
accounts of the partnership trading and permit inspection of the records.1
Access to the records will be necessary to establish the financial position of the
partnership and for considering the bankrupt’s share of any value of the partnership,
for example to verify that a fair price is being offered for the insolvent’s interest in the
partnership (see paragraph 52.145). Where the solvent partner/s refuse to permit the
trustee/liquidator access to the partnership records, application may be made for the
solvent partner/s to be summoned before the court and ordered to produce the
records (see chapter 21 generally regarding private examinations).
1. Upperton, re ex parte Stoveld (1823) 1 Gl & J 303
--- PDF page 46 ---
Realisation of assets in relation to
partnerships
52.141 Assets and partnerships generally
Assuming that the official receiver has an order to deal with the winding-up of a
partnership (or its business) then the principles relating to the realisation of assets is
largely the same as for a company in liquidation. There are, though some areas
where specific guidance is useful, and that guidance is contained below.
•
Claims by official receiver against the partners as contributories (see paragraph
52.144).
•
Dealing with a bankrupt partner’s interest in a partnership (see paragraphs
52.145 to 52.152).
•
Dealing with assets where all partners bankrupt but no winding-up order made
against partnership (see paragraphs 52.152 to 52.160).
•
Dealing with the liability of a limited partner (see paragraph 52.161).
52.142 Partnership property
Where the official receiver is dealing with only the partnership, or only a partner, it
will be necessary to establish what property belongs to the partnership and what
property belongs, separately, to the partners.
The Partnership Act provides no definition of partnership property and matters are
largely decided by case law. Generally speaking, it is left up to the partners to agree
what is (and what is not) partnership property.1 In the absence of any partnership
agreement specifying the division of assets and profits on dissolution of the
partnership, the following will taken into account:2
•
The circumstances of the acquisition – including the (ultimate) source of the
funds used to purchase the property.3
•
The purpose of the acquisition – regardless if it was actually used for that
purpose (if purchased with partnership monies).
•
The manner of use/dealing/treatment of the property.
1. Partnership Act 1890 section 19
2. Partnership Act 1890 section 20
3. Partnership Act 1890 section 21
--- PDF page 47 ---
52.143 Goodwill as partnership property
Where goodwill is generated by a partnership, that goodwill will clearly be an asset of
the partnership.1 If the partnership was formed to continue an existing business then
the position is less clear cut and the partner(s) who introduced the existing business
may have a greater claim over the goodwill.
In a compulsory insolvency the sale of goodwill is rare as by that stage the goodwill
will often have no value. Advice on dealing with goodwill is contained in chapter 39.
1. Steuart v Gladstone (1879) 10 Ch.D 626
52.144 Claims by official receiver against
partner as contributory
Partners are liable for the debts of the partnership, and if the official receiver is
dealing with the insolvency of a partnership, and no order is made against any or all
of the partners, they may be called upon to meet partnership liabilities.
Where the official receiver has established that a ‘solvent’ partner (i.e. a partner that
is not subject to formal insolvency proceedings) has a liability to contribute to the
debts of the partnership they should instruct their debt collection agent to deal with
the matter after settling the list of contributories pursuant to the procedure outlined in
the Act and Rules for companies1 2 . This may extend to a retired partner.
Where the partners are subject to insolvency proceedings their obligations as
contributories are liabilities of the insolvency proceedings. The official receiver, as
liquidator or trustee of the partnership should lodge a proof of debt in the separate
proceedings for the amount which comprises the deficiency of assets over liabilities
of the partnership. Where the partnership creditors have been listed separately, the
details should be removed from the separate estate and replaced by the official
receiver’s claim.
1. Sections 148 - 150
2. Rules (Part 7; Chapter 10 and 11)
52.145 Realisation of a bankrupt’s share in
a partnership as an asset
When a bankruptcy order is made against a member of a partnership and, as a
result, the partnership is dissolved (see paragraph 52.88), it will be necessary to take
an account (see paragraph 52.147) of the partnership in order that the trustee can
claim their share of the partnership.
--- PDF page 48 ---
52.146 Solvent partner to provide account
The solvent partner(s) should be requested to carry out the process of taking the
account of the partnership and to then account to the official receiver, as trustee, for
the value of the partnership1, providing the evidence from the last accounts prepared
and the books and papers of the partnership etc.
1. Document: NMSP
52.147 Taking the account
Generally, the taking of the account will be left to the ‘solvent’ partners to deal with,
but the general principle is:
•
Distinguish between partnership and separate property (see paragraph 52.31)
•
Distinguish between joint debts and separate debts
•
Deal with liabilities due to non-partners.
•
Ascertain what each partner is entitled to charge in respect of advances, etc.
•
Apportion profits and losses and cross-claims between partners.
Where there is a dispute over the taking of the account, it is possible that the official
receiver, as trustee, will have to employ an accountant to assist in resolving matters.
Where the employment of an accountant is being considered the official receiver
should take into consideration the costs and benefits of doing so and should only do
so where it is likely to be beneficial to the estate.
Generally, the costs of taking the account should be paid out of the assets of the
partnership.1
1. Butcher v Pooler (1883) 24 ChD 273 CA
52.148 Where bankrupt’s interest in
partnership is minimal
Where the official receiver has information that the bankrupt’s interest in the
partnership is small and would be outweighed by the costs of seeking a formal taking
of the account, they may come to an ‘informal’ arrangement with the other partners
for the sale of the bankrupt’s interest.
Whilst, strictly speaking, the sale of an interest in the partnership should be
conducted under deed (requiring the employment of solicitors – for which the fees
should be paid by the purchaser), the official receiver may conduct the sale by an
exchange of letters. The official receiver should, in this respect, ensure that their
letter confirms that the offer is accepted as full and final settlement of any claims in
respect of the partnership business.
--- PDF page 49 ---
52.149 Forfeiture clauses
It has been held that a forfeiture clause in a partnership agreement, whereby the
bankrupt partner’s share is forfeit to the other partners on bankruptcy, may be a
fraud on bankruptcy law. Any attempts to rely on the existence of such a clause
should be resisted.1
In practical terms, the official receiver is likely to find it necessary to appoint solicitors
to deal with such a matter, if agreement cannot be reached with the partners. In
deciding whether to appoint solicitors, the official receiver should consider the likely
costs and the benefit to the estate in doing so
1. Whitmore v Mason (1861) 2 John and H204
52.150 Winding-up order against corporate
member – dealing with corporate
member’s share
The Partnership Act does not provide for a partnership to be automatically dissolved
on the making of a winding up order against one of its corporate members, though
this may be grounds for winding-up the partnership1. A partnership agreement may
provide how the partner’s interest in the partnership should be valued and paid out. It
is possible that the agreement may provide that on the winding up of a member the
share of the partnership attributable to the relevant corporate partner will be divided
between the remaining partners. Such a provision may be rendered void2, but if all
the corporate partners were solvent at the time the agreement was entered into and
there was proven commercial justification for its inclusion, then it may be binding.
In the event that this situation is encountered, the official receiver should obtain a
copy of the agreement and copies of the accounts of the corporate members.
Creditors should be informed of the position and be given an opportunity to fund the
obtaining of legal advice and/or the nomination of an insolvency practitioner
liquidator to enquire into the matter. As a general rule, where a winding up order is
made against a corporate partner, the official receiver should request the solvent
partner(s) to buy the company’s interest in the partnership (see paragraph 52.145).
1. Partnership Act 1890 section 35(f)
2. Insolvency Act 1986 section 127
52.151 Sale by order of court where fraud
against bankruptcy creditors
--- PDF page 50 ---
Partnership agreements sometimes contain clauses that, where a partnership is
dissolved, a surviving (solvent, in this context) partner may purchase the bankrupt
partner’s share at a pre-arranged price. Where this is considered to be a fraud upon
the bankruptcy creditors, the court may order the sale of partnership assets to
ensure that the creditors are not disadvantaged1. Such a challenge would constitute
an antecedent recovery and the advice in chapters 31 and 32 may be followed.
1. Wilson v Greenwood (1818) 1 Swan 471
52.152 Continuation of business by solvent
partner
It is open to the ex-partners of a dissolved partnership to continue the business of
the partnership, even using the name, providing they do not hold out that the other
partners are still partners with them. In an insolvency case, it is likely that it will be
the solvent partner(s) who wish to carry on the business. In such a case, the official
receiver should ensure that the new business is not using assets, including goodwill,
that formed part of the partnership property or, if such assets are being used, that
they were accounted for when calculating the bankrupt’s share in the dissolution of
the partnership (see paragraph 52.147).
Where the partnership business is continued without any financial settlement, the
departing partner is entitled to such share of the profits as the court may find
attributable to their share of the partnership assets or, alternatively, 5% per annum
on the amount of their share.1
10. Partnership Act 1890 section 42(2)
52.153 Where bankruptcy orders made
against partners with no concurrent order
against partnership
Where bankruptcy orders have been made against all partners but no order has
been made against the partnership there could be difficulties in dealing with the
administration of the estate as, although the partnership will have been dissolved but
there will be no ‘solvent’ partner to deal with the dissolution of the. The official
receiver as trustee will not be able to deal with the partnership property. The legal
position is that partnership property effectively forms a trust in favour of the
partnership creditors and thus does not form part of a bankrupt’s estate capable of
vesting in a trustee.1 The official receiver should consider applying to court for an
order giving power to deal with the partnership property (see paragraph 52.155).
--- PDF page 51 ---
1. Section 283(3)(a)
52.154 Official receiver may not deal with
partnership property if no winding-up
order against partnership
Where bankruptcy orders have been made against all partners but there has been
no concurrent order against the partnership the official should not deal with
partnership property as there is no authority to do so (there being no winding-up
order against the partnership). The correct course to follow in this circumstance is
outlined in paragraph 52.152.
See paragraph 52.122 for advice where official receiver mistakenly deals with
partnership property where there is no authority to do so.
52.155 Application to court for an order in
relation to the partnership assets
Where bankruptcy orders are made against all partners with no order being made to
deal with the partnership, assuming there is no pending petition against the
partnership (in which case the official receiver should await the outcome of that
petition), the official receiver can make an application to court for an order that1:
•
the partnership assets be administered as if the individual members had
presented a joint bankruptcy petition2
•
the official receiver, as trustee of the bankrupts’ estates, be trustee of the
partnership and that they have authority to wind up the affairs of the partnership
and administer the partnership property applying all the relevant provisions of
the legislation3 4 to the administration of the various estates, and that
•
the cases are consolidated under one number – usually the earliest number.5
1. Insolvency Act section 303(2A) as amended by Insolvent Partnerships Order 1994 article 14(2)
2. Insolvent Partnerships Order 1994 article 11
3. Insolvent Partnerships Order 1994 article 11
4. Insolvent Partnerships Order 1994 schedule 7
5. Insolvency Act 1986 section s303(2B)
52.156 Templates for application
--- PDF page 52 ---
Annex A is a template that can be used for an application to deal with the partnership
where no ‘solvent’ partner remain (see paragraph 52.152) and Annex B is a draft
order.
52.157 No partnership assets
It would not normally be appropriate to seek an order to deal with the partnership if
there were no partnership assets.
52.158 Seeking a winding up order usually
unjustified
As an alternative to the process outlined at paragraph 52.155, the official receiver
could seek a winding-up order against the partnership.1 This course of action is
almost always unjustified and, unless the process outlined at paragraph 52.155
cannot be followed and the partnership has sufficient assets to cover the costs of the
application, such a course should not be followed.
1. Insolvency Act 1986 section s221 as amended
52.159 Partners have duty to deliver up
partnership property
For the avoidance of doubt, the authority of partners of a partnership to deal with
partnership property ends on the making of a winding-up order against the
partnership (whether or not there are concurrent petitions/orders against the
partners) and they are under a duty to deliver up property to the official receiver as
liquidator.1 2 3
1. Insolvency Act 1986 section s234
2. Insolvency Act 1986 section s312
3. Insolvency Act section s333
52.160 Partnership property cannot be
exempt
Property of a partnership cannot be considered as exempt property in the bankruptcy
of an individual member. If a person choses to trade, with another, through a
partnership, and the relevant tools of trade were assets of that partnership they are
liable to be realised for the benefit of creditors in the event of the insolvent winding-
--- PDF page 53 ---
up of that partnership.1 There is no provision in the liquidation proceedings for
exempt property.
1. Official receiver v Hollens [2007] B.P.I.R 830
52.161 Dealing with the potential liability
of a limited partner
As outlined in paragraph 52.52, there are certain circumstances where a limited
partner will be liable to contribute to the debts of the partnership in excess of their
original contribution.
In this regard, the official receiver’s investigations should seek to establish whether
the limited partner(s) had any involvement in the running of this business to decide
whether they may be liable for the debts of the partnership along with the general
(non-limited) partners.1
Establishing the date of the limited partner’s commencement of involvement in the
management of the partnership is also important as it is from this date that they
would be liable for the debts of the partnership.
1. Limited Partnerships Act section 6(1)
52.162 Recovering monies from a liable
limited partner
If it can be established that a limited partner has a liability to contribute to the debts
of a partnership, the official receiver should seek the appointment of their debt
collection agent as this is, effectively, a book debt.
Partnership definitions
52.163 Partnership definitions
•
Agency – the relationship between the partners
•
Capital– the amount contributed by the partners for the purpose of commencing
trading
•
Dissolution – the process by which the partnership is wound-up (in the general
sense)
•
Firm name– the name by which a partnership is known
•
General dissolution– a full dissolution
--- PDF page 54 ---
•
General partner – a partner in a limited partnership who is able to manage the
partnership
•
Individual member – a partner who is a natural person
•
Insolvent member – a partner who is subject to an insolvency order
•
Joint bankruptcy petition – a type of bankruptcy petition where all members
petition for bankruptcy and the partnership business is wound up
•
Joint debt – a debt of a partnership
•
Joint estate – the partnership property
•
Limited liability partnership -a type of partnership where member(s) have limited
liability
•
Limited partner – a partner in a limited partnership who has limited liability and
may not take part in the management of the partnership
•
Member – a partner
•
Officer – a partner or a person who has management or control of the
partnership business
•
Partner – a member of a partnership
•
Partnership – the relation which subsists between persons carrying on a
business in common with a view to a profit
•
Partnership agreement – the document that sets out the rules for the running of
the partnership
•
Partnership property– the property owned by the partnership not owned by the
individual members personally
•
Separate debt – a debt for which a partner is personally responsible, other than
a partnership
•
Separate estate – property of a partner not property of the partnership
•
Separate property – the property owned by the partners not owned by the
partnership
•
Solvent partner – a term used to describe a partner of an insolvent partnership
who is not themselves subject to an insolvency order. Despite the description,
they are not necessarily ‘solvent’ in the true sense of the word.
•
Taking the account – the process by which the solvent members of the
partnership calculate the partners’ interests in the partnership. Corporate
member – a partner that is a limited company
--------------------------------------------------------------------------------
ATTACHMENT: 54.Dissolved_companies.pdf
TEXT_FILE: 54.Dissolved_companies.pdf.txt
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 11 March 2020
54. Dissolved companies
Annexes
Annex A – Letter to Companies House objecting to dissolution
Chapter content
Introduction
Dissolution prior to Winding-up
Dissolution after winding-up
Early dissolution
Dissolution after completion of winding-up
Deferred dissolution
Bona vacantia
Administrative restoration to the register
Restoration to the register by the court, the legislation
Official receiver’s application for restoration
Introduction
54.1 General
Dissolution marks the end of a company’s life. This guidance deals with the
circumstances in which the Registrar of Companies may dissolve a company, both
before and after the making of a winding-up order; the circumstances in which the
official receiver would apply for the dissolution of a company to be deferred once
--- PDF page 2 ---
they have completed the administration of the liquidation; the legal position regarding
any company assets after the date of dissolution, i.e. bona vacantia; when a
company may be restored to the register and the action needed by the official
receiver to cause a company to be restored to the register.
Dissolution Prior to Winding-up
54.2 Company not carrying on business
Where dissolution occurs prior to or without the Registrar being aware of the winding
up it will be in accordance with either section 1000 or section 1003 Companies Act
2006. Section 1000 details the procedure available to the registrar of Companies to
enable them to remove a company from the Register where they have reason to
believe it is not carrying on business or is not in operation. The procedure takes
approximately six months during which time two letters are sent to the company and
a notice of intention to strike the company off the Register is published in the London
Gazette with a similar notice being sent to the company. At the end of the period of
three months from the date of the notice, the Registrar may strike the company’s
name off the Register, notice of which is published in the London Gazette. On the
publication of that notice the company is dissolved. A final notice giving the dates the
company was struck off the Register and then dissolved is placed on the Registrar’s
file. If approached by a creditor, the Registrar may delay striking the company’s
name off the Register to enable a claim to be pursued or winding-up proceedings
brought.
54.3 Company application for dissolution
Under the provisions of the Companies Act 2006 both a private and public company
may apply to the registrar to be struck off the register providing they satisfy the
criteria for striking off1. There are a number of circumstances in which an application
should not be made, including when the company is being wound up2. It may be an
offence for a person to make an application in these circumstances3.
1. Companies Act 2006 section 1003
2. Companies Act 2006 sections 1004 and 1005</sup>
3. Companies Act 2006 sections1004(7) and 1005(6)
54.4 Who receives notice of the application?
--- PDF page 3 ---
Within 7 days of making the application the applicant must send a copy of the
application to anyone who, on the day the application was made was, a member,
creditor, employee, manager, or trustee of any employee pension fund and to any
directors who have not signed the application form. The directors are also required to
give a copy of the notice to anyone who becomes a member, creditor, employee,
manager, director, or trustee of any employee pension fund and to any directors
before the application for striking off is concluded or withdrawn. It may be an offence
if a person fails to perform these duties1.
1. Companies Act 2006 sections 1006(4) and 1007(4)
54.5 Company application for dissolution
Sections 1003 – 1011 Companies Act 2006 set out the procedure which enables a
private company which is not trading and satisfies the conditions in section 1003 to
apply to the Registrar of Companies to be struck off the Register. The application
must be made on the company’s behalf by its directors, or by a majority of them. An
application should not be made when a company is being wound up or a winding-up
petition has been presented or other formal insolvency process is in train and may
not be made under section 1003 if, at any time in the 3 months preceding the
application, it has changed its name or traded or otherwise carried on business
(note: paying a liability does not constitute trading). A copy of the application must be
sent to all members, creditors, employees, managers or trustees of any employee
pension fund and to any directors who have not signed the application form. The
Registrar will publish a notice in the London Gazette advertising the proposed
striking off and inviting objections. If cause to the contrary is not shown and the
application is not withdrawn, the Registrar will strike the company off the Register not
less than three months thereafter. The Registrar will publish a notice to that effect in
the London Gazette and the company is thereby dissolved.
54.6 Company struck off and dissolved prior to
presentation of petition
In order to bring winding-up proceedings against a company which has been struck
off and dissolved it is necessary to have it restored to the Register. The petitioner
should be alerted to the dissolution, if previously unaware, when they make a search
of the company’s file to obtain the current registered office to effect service of the
petition. The application for restoration should be included in the petition for winding-
up.
--- PDF page 4 ---
54.7 Company dissolved subsequent to
presentation of petition but prior to making of
winding-up order
If the petitioner has not included in the petition an application for the restoration of
the company or it is subsequently discovered that it has been dissolved the petitioner
should be asked to seek leave of the court to amend the petition to include an
application for the restoration of the company to the Register. On hearing that
petition the court will then be able to make the usual “double-barrelled” order,
restoring the name of the company to the Register and then winding it up. Care
should be taken to ensure that Forms 4.13 and the winding up orders issued by the
court actually reflect this in such cases. If restoration does not occur, the official
receiver will be unable to file the documents at Companies House. If a winding-up
order is made prior to it becoming apparent that the company has been dissolved,
the official receiver should not proceed with the winding-up until the company has
been restored to the Register, a winding-up order against a dissolved company
being a nullity. Enquiries should be made to ensure that it has been dissolved as a
winding-up order may validly be made against a company which has merely been
“struck off” as it is still in existence, dissolution having not yet occurred, its name
merely having been removed from the Register. However, steps will need to be
taken to “restore” the company to the Register as dissolution automatically follows
striking off. It is considered that it is for the petitioner to take the appropriate action to
rectify the position following notice (confirmed in writing) from the official receiver1.
1. Companies Act 2006 section 1003
54.8 Oversea company
An oversea company which has traded in Great Britain may be wound up in Great
Britain as an unregistered company, notwithstanding that it has been dissolved or
otherwise ceased to exist as a company under or by virtue of the laws of the country
where it was incorporated1.
1. Section 225(1)
54.9 Procedure to follow on discovering that
the company has been dissolved prior to the
making of the winding up order
When it is discovered that a winding-up order has been made against a dissolved
company (without restoration), the usual notices and advertisement of the winding-
--- PDF page 5 ---
up order should not be issued. If the company is restored to the register the official
receiver should generate a Gazette notice advertising the making of the winding-up
order.
54.10 Winding-up order made after a company
has been dissolved
If a winding-up order is made after the company has been dissolved, the official
receiver should not proceed with the winding-up until the company has been
restored to the register. However it is necessary to ensure that the company has
been dissolved, as a winding-up order may validly be made against a company
which has merely been “struck off” as it is still in existence although its name has
been removed from the Register1.
1. Companies Act 2006 section 1000 (7)(b)
54.11 Contact with petitioning creditor’s
solicitor
The official receiver must immediately contact the petitioner’s solicitors by telephone
advising them of the dissolution and requesting that they make an application to the
court for the restoration of the company to the register to enable the proceedings to
continue1.
1. Companies Act 2006 section 1029
54.12 Petitioning creditor’s application to
restore the company
The petitioning creditor’s solicitors should be directed to the Company Restoration
Guide. Notice of the application must be given to the registrar and The Treasury
Solicitor (BV) or the relevant Duchy Solicitor. This can be effected by serving a copy
of the application together with a covering letter. A letter from the Solicitor concerned
will be required by the court to enable it to be satisfied that the bona vacantia rights
to any assets have been waived (Government Department petitioners have a blanket
authority to apply and therefore do not need to obtain such letters).
54.13 Restoration to the register
If notice has been given that the registrar intends to strike off the company or the
company has been “struck off” but not yet dissolved, steps need to be taken to
--- PDF page 6 ---
“restore” the company to the register as dissolution will automatically follow. The
official receiver should inform the petitioner by telephone, and confirm in writing, that
they should apply to the court to have the company restored to the register1.
1. Companies Act 2006 sections 1000(3)-(6)
54.14 Failure of petitioning creditor to apply
to restore the company to the register
If an application for restoration is not made within fourteen days of the winding-up
order Form PSCD Follow Up Letter should be sent to the petitioning creditor’s
solicitors. If no response is received within ten days the official receiver should
consider restoring the company to the register.
54.15 Official Receiver’s application to restore
the company
If the petitioning creditor is unwilling to restore the company to the register the official
receiver should consider making an application to the court in certain circumstances,
i.e. where there are realisable assets above the grant limit set by The Treasury
Solicitor (BV) (see paragraph 38.59) or where it is in the public interest to do so. If
the official receiver decides not to restore the company they should inform the
petitioning creditor’s solicitor and confirm that an application to rescind the winding-
up order will be made.
54.16 Company restored to the register
Once a company has been restored to the register it is regarded as having continued
in existence as if it had never been dissolved or struck off the register. As a
consequence at the date of the winding-up order the company would not be
considered dissolved and the order would be valid1. The official receiver should then
complete their duties and administer the estate as normal.
1. Companies Act 2006 section 1032(1)
54.17 Where there is no application to restore
the company to the register
If neither the petitioning creditor or the official receiver applies to the court to restore
the company to the register, the company will remain dissolved. In these
circumstances an application to restore the company, which might be made a
--- PDF page 7 ---
number of years after the winding up-order, would result in the order becoming valid
and the official receiver becoming liquidator. To avoid this happening the official
receiver should apply to the court for the winding-up order to be rescinded rather
than for a stay of proceedings.
54.18 Application for rescission
An application for rescission of a winding-up order should normally be made within
seven days of the making of that order but the court does have discretion to extend
the period1.
1. Rule 12.59
54.19 Official receiver’s application for
rescission
As soon as it becomes apparent that there will be no attempt to restore the company
and there is no benefit to seeking restoration an application for rescission should be
made. The application should set out clearly the circumstances leading up to the
dissolution, the dates Forms PSCD were sent to the petitioning creditor’s solicitor
and the date the official receiver decided that it was unlikely that the company would
be restored to the register.
Dissolution after winding-up
54.20 Introduction
It is important the official receiver provides early notification to the registrar on the
making of a winding-up order to avoid the company being struck off and dissolved.
Failure to notify the registrar could lead to additional costs being incurred by the
official receiver if they need to restore the company to the register. If the notification
of the winding-up order is received after the gazette notice of intention to strike off
the company has appeared but before the instruction to gazette the notice of striking
off has been issued, the dissolution process will not proceed.
54.21 High Court Cases
Where the winding-up order is made in the High Court or the District Registries the
Petition and Transfers team will receive the sealed copies of the order before
sending them to the local official receiver. The official receiver will be responsible for
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filing the order with the registrar of companies. To do so the official receiver should
enter the CRO number on ISCIS within 48 hours of receiving notice of the winding-
up order.
54.22 County Court Cases
In the County Court the official receiver is responsible for notifying the registrar of the
winding-up order.
54.23 Procedure begun prior to the winding-
up order
It is possible that dissolution proceedings may have started before the winding-up
order has been made. The official receiver on receiving notice of the order should
check the company’s public file at Companies House to see whether the company is
in the process of being dissolved and, if so, follow the guidance in paragraph 2.24 of
Chapter 2. If the company has already been dissolved the official receiver should
follow the advice in paragraphs 54.25 and 54.26.
54.24 Lodging an objection to the dissolution
of the company
Where the company is in the process of being dissolved the official receiver should
lodge an objection to the dissolution with the registrar of companies pursuant to
section 1000 of the Companies Act 2006. The objection letter should be sent by
email to enquiries@companieshouse.gov.uk and marked for the attention of the
Dissolution Section. The objection should include a copy of either, the winding-up
order, winding-up petition or Secretary of State’s order appointing the official
receiver. The objection should include the statement that “the official receiver has
only just commenced their duties as liquidator and the company will continue to be in
“operation” until its winding-up is complete”. The official receiver may include any
other relevant matters, for example where the company is still trading.
54.25 Company dissolved – no further
enquiries
Where the official receiver has completed their enquiries and all the following criteria
are met:-
a) there are no assets to be realised
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b) the official receiver is reasonably satisfied that all creditors and employees are
aware of the winding-up proceedings
c) the directors have complied with their obligations with regard to the winding up,
and
d) further enquiry, prosecution and/or disqualifications are not proposed
The case should be processed quickly and closed. If the case is passed to Estate
Accounts Services, Birmingham the fact that the company has been dissolved
should be drawn to that Section’s attention to prevent notice of the conclusion of the
liquidation being sent to Companies House.
54.26 Company dissolved – further
investigation
On the making of a valid winding-up order against a company the official receiver
has a general duty to investigate its affairs1. Although there is doubt as to whether
the official receiver can investigate the affairs of a company which has been
dissolved, it would appear that they can act upon this general duty and complete
their enquiries. Legal advice obtained states that offences survive dissolution and
disqualification action can be taken against the directors of a company that has been
subject to a valid winding-up order. However, the Insolvency Act 1986 precludes the
taking of enforcement action, such as the calling of a public examination, after the
company has been dissolved2. Neither the official receiver nor an insolvency
practitioner can act as liquidator of a company which has been dissolved. Where
enforcement action or any action which involves some form of asset recovery is to
be taken, for example, misfeasance, which requires the company to be on the
register before damages can be awarded, the official receiver should apply for the
company to be restored to the register3.
1. Section 132(1)
2. Section 133(1)
3. Companies Act 2006 section 1029
Early dissolution
54.27 Official receiver’s ability to apply for
early dissolution
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When the official receiver is liquidator the may at any time apply to the registrar for
the early dissolution of the company where it appears:-
a) the realisable assets are insufficient to cover the expenses of the winding-up, and
b) the affairs of the company do not require any further investigation. The making of
the application, including the raising and sending of form NOTCH to the Registrar of
Companies, will be dealt with by Estate Accounts Services, Operations and
Customer Support, Releases
54.28 Identification of early dissolution cases
Early dissolution is intended to save time in case administration. Suitable cases may
be identified at the PTA stage, that is up to eight weeks after the making of the
winding-up order. Any assets having a net realisable value should be realised before
the dissolution to defray the costs of the proceedings. The early dissolution
procedure should not be used in cases where there is a prospect of disqualification
and/or criminal proceedings or an immediate or foreseeable need to defer the
dissolution of the company.
54.29 Administrative receiver in office
The official receiver should not invoke the early dissolution procedure when there is
an administrative receiver in office as it is likely that the administrative receiver will
require the company to remain on the register pending the completion of the
receivership. The dissolution of the company would result in the company’s assets
becoming “bona vacantia” thus preventing the administrative receiver from dealing
with them. When applying for release the RELADR should be sent to the
administrative receiver.
54.30 Law of Property Act receiver in office
The Insolvency Act is silent in regard to Law of Property Act receivers. However,
early dissolution of a company would create additional work for such a receiver and
as a result, generally, early dissolution should not be applied for where a Law of
Property Act receiver is in office.
54.31 Administration of estate when
Administrative receivers or Law of Property
Act receivers are in office
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In these cases the official receiver should proceed with the winding up without
invoking early dissolution and apply to the Secretary of State to issue directions for
the deferral of the company’s dissolution when they apply for their release. That is
unless the administrative receiver or Law of Property Act receiver agrees, in writing,
to the use of the early dissolution provisions.
54.32 Sending notice of early dissolution
The official receiver must give at least 28 days notice of theirintention to apply for
early dissolution to the creditors and contributories and any administrative receiver in
office. The legislation does not require notice to be given to a Law of Property Act
receiver who is still in office, however a notice should be sent1.
1. Section 202(3)
54.33 Notice of early dissolution
Early dissolution is likely to be rarely used as few cases would be expected to be
considered as appropriate for this process. The form used for this purpose is called
NED and can be sent with the report to creditors and contributories. Where the
official receiver has notified the creditors of their intention to apply for the early
dissolution of the company, there is no obligation to give creditors notification of
theirintention to apply for release.
54.34 Official receiver’s privilege
If the report to creditors is sent out after the notice of the intention to apply for early
dissolution, the official receiver may not be covered by privilege as their only duty
after giving such notice is to continue the application for early dissolution1.
1. Section 202(4)
54.35 Consequence of notice under s202
Following notice of intention to seek early dissolution under section 202 the official
receiver, any creditor or contributory or the administrative receiver may apply to the
Secretary of State for directions on the grounds that:-
a) the realisable assets of the company are sufficient to cover the expenses of the
winding up
b) That the affairs of the company require further investigation; or
c) that for any other reason the early dissolution of the company is inappropriate1
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The Secretary of State may issue a direction:
a) such as they think fit to enable the winding up to continue as if no notice of
intention to apply for early dissolution had been given, or
b) where an application for early dissolution has already been received by the
registrar that the date of dissolution be deferred for such a period as they think fit2
1. Section 203
2. Section 203(3)
54.36 Right of Appeal
Under section 203 an appeal may be made to the court regarding any decision of the
Secretary of State on an application for directions1. A copy of any directions issued
or the determination of an appeal should be delivered to the registrar by the
applicant or the person in whose favour an appeal is determined within 7 days of the
direction or determination of the appeal. This will ensure the registrar is fully
informed of the position and that the company is not inadvertently dissolved2. Anyone
who fails to deliver such a copy, without reasonable excuse, is liable to a fine3.
1. Section 203(4)
2. Section 203(5)
3. Section 203(6)
54.37 Application for release
In practice official receivers no longer undertake the formal release process in most
cases therefore we no longer notify creditors (or the court) of the intention to release.
When a case is closed, 28 days need to elapse before a workflow automatically
gives SoS release and, thereafter, EAS are triggered to inform Companies House.
Dissolution takes place three months later.
An application for early dissolution does not require the official receiver to give
creditors notification of their intention to apply for release therefore the official
receiver should consider only issuing notice of early dissolution to keep
administrative costs to a minimum.
Dissolution after completion of winding-
up
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54.38 Dissolution after liquidator released
This occurs when the registrar receives:-
a) a notice served for the purposes of section 172(8) (final meeting of creditors and
vacation of office by liquidator) or
b) a notice from the official receiver that the winding up of a company by the court is
complete1
1. Section 205(1)
54.39 Notice of dissolution after release
The notice of dissolution is raised and sent by Estate Accounts Services following
the official receiver’s release as liquidator or the administrative closing of a case by
the official receiver. The registrar registers the notice on receipt and at the end of 3
months from the date of registration the company is dissolved1.
1. Section 205(2
54.40 Receivers and dissolution after release
There is no legal requirement to inform an administrative receiver or a Law of
Property Act receiver of the official receiver’s intention to apply for release. However
in all cases where an administrative receiver or Law of Property Act receiver is in
office before applying for release the official receiver should inform the receiver of
their intention to apply for release, and enquire whether they wish to have the
dissolution of the company deferred.
Deferred Dissolution
54.41 Introduction
The official receiver, or any other interested party, may apply to the Secretary of
State to give directions to defer the date of dissolution. The Secretary of State may
direct the deferral of the dissolution of the company for such a period as they think
fit1. An appeal to the court may be made against any decision of the Secretary of
State on an application for directions given under this section2. A copy of the
directions or the determination of an appeal is to be provided to the registrar within 7
days by the person seeking the directions or in whose favour any appeal is decided3.
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Failure to deliver such a copy, without reasonable excuse, will result in liability to a
fine 4.
1. Section 205(3)
2. Section 205(4)
3. Section 205(6) and Rule 7.119
4. Section 205(7)
54.42 Circumstances where the official
receiver would apply for a deferred
dissolution
The official receiver may make an application to the Secretary of State to defer
dissolution in circumstances where they think it is necessary to continue the life of
the company after the administration of the liquidation has been completed. This will
include cases where an administrative receiver or Law of Property Act receiver have
been appointed, where there are further enquiries, where an insurance claim is in
progress which requires the company to remain on the register but does not stop the
liquidator’s release, where there is a pension scheme which has not been finalised ()
or where there is a claim for personal injury.
54.43 Deferral where administrative receiver
or Law of Property Act receiver in office
The official receiver should apply to Estate Accounts Services, who act on behalf of
the Secretary of State, for the dissolution to be deferred where an administrative or
Law of Property Act receiver is in office at the conclusion of the winding up. The
dissolution should be deferred for 2 years unless the administrative or Law of
Property Act receiver has asked for a longer period of deferral to be applied. In this
instance the period of deferral should be agreed with the administrative or Law of
Property Act receiver. If the Secretary of State gives directions deferring the date of
dissolution, the administrative or Law of Property Act receiver should be notified of
the deferral and informed that any subsequent application to extend the period of the
deferral should be made by them to the Secretary of State, Estate Accounts
Services, Birmingham before that period ends.
54.44 Deferral in prosecution and
disqualification cases
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The official receiver should apply for the deferral of the dissolution of companies in
all cases where prosecution or disqualification proceedings have been or are to be
brought. The usual period of deferral to be sought is 6 years, although a longer
period may be sought if merited. Although offences survive dissolution companies
should not be dissolved as it may create difficulties in taking enforcement action and
realising assets arising from such action.
There may be times when a lead company in a disqualification action has been
dissolved prior to the case coming to court, for example where an insolvency
practitioner has filed a s172(8) notice and the company has been dissolved. The
Company Directors Disqualification Act 1986, as amended by the Insolvency Act
2000, allows for disqualification proceedings against a director or directors in cases
where the lead company has been or is being dissolved1. As a result an application
to restore the company to the register solely to issue disqualification proceedings is
not required.
1. Company Directors Disqualification Act 1986 section 6(3)(a)
54.45 Deferral in personal injury cases
Where the official receiver is aware of any potential claims against the company for
personal injury they should also apply for the deferral of the dissolution of company
when the liquidation is complete. Claims arising from personal injuries must be made
within 3 years from the date of the injury or first knowledge of the effect of the injury
i.e. when the full extent of an injury becomes apparent. It may be that the full extent
of any injuries do not become apparent for many years. The official receiver should
use their judgement in determining the length of deferral of dissolution required. That
said any person1 pursuing a claim for personal injury may make an application to the
court for restoration of the company to the register at any time2.
1. Companies Act 2006 section 1029(2)(f)
2. Companies Act 2006 section 1030(1)
54.46 Period of deferral
The dissolution of the company should be deferred to a specific date, which
Departmental lawyers have advised, may be extended, for example where
disqualification proceedings have not been completed. Any further deferral of
dissolution also should be to a specific date. In these cases the official receiver
should apply for an extension of the period no later than 3 months prior to the expiry
of the original deferred date of dissolution.
54.47 Period of deferral cannot be shortened
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A deferred period may not be shortened. The notice of directions deferring the
dissolution to a specific date is registered on the company’s file with the registrar.
This is a public file and any person searching the company’s entry should be entitled
to rely on the company remaining on the register until the deferred date disclosed on
the file.
Bona vacantia
54.48 Introduction
Bona vacantia, defined as “goods found without any apparent owner”1, is the term
given to assets of dissolved companies. The ownership of any assets held by a
company passes on its dissolution to the Crown, or the Duchies of Cornwall or
Lancaster where the company’s registered office is in Cornwall or Lancashire2. As a
result of recent changes in county boundaries the official receiver should check with
the Duchy Solicitor if they feel that a company’s registered office may be in the area
covered by the Duchy. The web site of the Treasury Solicitor (BV) is at
https://www.gov.uk/government/organisations/bona-vacantia.
The Solicitor for the affairs of the Duchy of Cornwall is Farrer & Co 66 Lincoln’s Inn
Fields London WC2A 3LH and the web site for the Duchy of Lancaster is
https://www.duchyoflancaster.co.uk/about-the-duchy/duties-of-the-duchy/bona-
vacantia/.
1. Mozley & Whiteley’s Law Dictionary
2. Companies Act 2006 section 1012
54.49 Sale of assets after dissolution
Where any assets of the company are inadvertently realised after dissolution the net
proceeds should be paid to The Treasury Solicitor (BV) or the Duchy Solicitor. The
official receiver should provide details of the agent’s charges deducted from the sale
proceeds to enable the Solicitor to decide whether or not to challenge these costs.
The official receiver should not charge any fees in relation to these bona vacantia
monies.
54.50 Method of paying over bona vacantia
monies
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The official receiver on discovering that they have sold assets after dissolution
should pay the funds into the Insolvency Service Account. Once in the Insolvency
Service Account the monies are then paid into the estate account, which is re-
opened if necessary. Estate Accounts Services then pay the monies into an
Insolvency Service Treasury Solicitor account where a bulk payment is made to the
relevant Solicitor every 6 months.
54.51 Bona Vacantia – application for
restoration
The official receiver should apply to the court (see paragraph 54.80) for the
restoration of the company to the register where the assets of the dissolved
company are in excess of £3,000. Where the assets have not been realised or
amount to a long-term realisation it is unlikely that The Treasury Solicitor (BV) will
make a grant as there are no liquid funds available. The official receiver will therefore
need to make an application for the restoration of the company. Once the company
has been restored the official receiver will automatically become liquidator and may
then deal with the realisation and distribution of the assets.
54.52 Discretionary grants - where the
dissolved company can be restored
Where a dissolved company has assets valued at less than £3,000 and can be
restored to the register1, the official receiver, as the former liquidator, may apply to
The Treasury Solicitor (BV) for a discretionary grant. The Treasury Solicitor (BV) will
usually only consider making a grant from monies already received. The Treasury
Solicitor (BV) will only make one grant in respect of the dissolved company.
1. Companies Act 2006 Section 1030
54.53 The official receiver’s application
The official receiver’s application must be supported by a Statutory Declaration
which includes all of the following:
a) that the official receiver was liquidator at the date of dissolution
b) an undertaking that the official receiver will not apply for the company to be
restored
c) that any grant will be distributed as if the official receiver was still liquidator of the
company
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d) that the official receiver acknowledges that The Treasury Solicitors (BV) proper
legal costs plus disbursements will be deducted from any grant
e) that a 5% reservation (where the grant is over £750) will be deducted from any
grant, and
f) who the cheque should be made payable to
The Statutory Declaration must be witnessed by a practising solicitor or
commissioner of oaths.
54.54 Additional information that must be
included in the application
The official receiver’s application must also include:
a) the full registered name and number of the dissolved company
b) the last registered office of the company
c) the date of dissolution of the company
d) if the asset is not money, full details of the type of asset, and evidence that the
company owned it at the date of dissolution
e) evidence of appointment as liquidator
f) the necessary proof of identity, e.g. a copy of the winding-up order
54.55 Other matters to be considered when
making an application
If there is cash at bank the official receiver should also provide details of the
company’s bank account, including the sort code, account number and address.
If the official receiver has any claim against a third party for losses suffered as a
result of the dissolution then the application will not be considered until the matter
has been resolved.
Finally, whether any tax would be payable if the asset had been dealt with during
trading or in the process of winding-up.
54.56 The Treasury Solicitor’s decision
The official receiver’s application will be considered on its merits and if The Treasury
Solicitor (BV) is not satisfied no grant will be made. If a grant is made the official
receiver will be required to pay the costs of The Treasury Solicitor (BV); VAT is not
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charged on these costs which are currently £300. The official receiver may check
https://www.gov.uk/guidance/apply-for-a-discretionary-grant-where-the-dissolved-
company-can-be-restored-cb2 for details of the current charges.
54.57 Other matters considered by the
Treasury Solicitor
In deciding whether or not to make a grant The Treasury Solicitor (BV) will consider
a) the size and nature of the bona vacantia asset
b) what other remedies may be available to the official receiver,
c) the extent the official receiver contributed to the asset becoming bona vacantia
d) whether there would have been any tax payable if the asset had been dealt with
during trading or in the process of winding-up
e) any third party rights to the asset, and
f) who (if anyone) is in possession of the asset
54.58 Restoration to the Register
Although the official receiver will have given an undertaking not to restore the
company to the register, this does not preclude an application being made by
another interested party1. If the company is restored to the register, The Treasury
Solicitor (BV) will be called upon to account for the assets to the official receiver as
liquidator. The Treasury Solicitor (BV) therefore makes a reservation of 5% of the
value of the grant (after deducting costs), which is not repayable, to enable them to
account for the assets in the event of restoration.
1. Companies Act 2006 section 1029 (2)
54.59 Grant approved
If The Treasury Solicitor (BV) approves the official receiver’s application the monies
should be dealt with as a normal asset realisation. The official receiver should
ensure that the appropriate fees are charged, that all their costs are paid and any
surplus monies distributed to creditors in the usual way.
54.60 Discretionary grants where the
dissolved company cannot be restored to the
register
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When a dissolved company cannot be restored to the register1, the official receiver,
as the former liquidator, may also apply to The Treasury Solicitor (BV) for a
discretionary grant. The application for the discretionary grant is made in the same
way as in the case where the company can be restored. The £3,000 limit does not
apply, however the Treasury Solicitor (BV) will usually consider only making a grant
from monies already received. The Treasury Solicitor (BV) will only make one grant
in respect of the dissolved company.
1. Companies Act 2006 sections 1030 and 1031
54.61 Conditions in which a discretionary
grant may be made in these circumstances
The Treasury Solicitor (BV) will make a grant to alleviate hardship, it would otherwise
be unreasonable or unconscionable for the Crown to keep the assets or where there
is a compelling public interest in making the grant.
Administrative restoration to the
register
54.62 Introduction
The Companies Act 2006 introduced a new administrative restoration procedure
which enables, in certain circumstances, an application to be made to the registrar to
restore a company without a court order1.
1. Companies Act 2006 section 1024
54.63 Who can apply for administrative
restoration
An application to the registrar may only be made by a former director or a former
member of the company1. It is not possible for the official receiver or liquidator to
apply for the administrative restoration of a company.
1. Companies Act 2006 section 1024(3)
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54.64 Circumstances in which an application
may be made
An application to restore the company administratively may be made where the
company has been struck off the register pursuant to the power of the registrar to
strike off non-trading companies1. An application can be made whether or not the
company has been dissolved2. The application must be made within 6 years from the
date of dissolution3.
1. Companies Act 2006 section 1024(1)
2. Companies Act 2006 section 1024(2)
3. Companies Act 2006 section 1024(4)
54.65 Conditions for administrative
restoration
The registrar must restore the company if, and only if, the following conditions are
met:
a) the company was carrying on business or in operation at the time it was struck off1
b) the Treasury Solicitor (BV), or the Duchies of Lancaster or Cornwall have
consented, in writing to the Registrar of Companies, to the restoration2
c) the applicant has delivered to the registrar such documents as are necessary to
bring the company’s records up to date3, and
d) paid any penalties that were outstanding at the date of dissolution or striking off4
1. Companies Act 2006 section 1025(2)
2. Companies Act 2006 section 1025(3)
3. Companies Act 2006 section 1025 (5)(a)
4. Companies Act 2006 section 1025 (5)(b)
54.66 Statement of compliance
The application must be accompanied by a statement of compliance. The statement
must include confirmation that the person making the application has standing to
apply. The statement must also include confirmation that the requirements have
been met (see paragraph 54.68). The registrar may accept the statement of
compliance as providing sufficient evidence to accept the application1.
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1. Companies Act 2006 section 1026
54.67 The decision of the registrar
The registrar must give notice to the applicant of their decision. If the application is
accepted then the restoration takes effect from the date that notice is sent1. Where
the registrar agrees to the restoration they must make an entry in the register
showing the date the restoration takes effect. The registrar must publish notice of the
restoration in the Gazette2.
1. Companies Act 2006 section 1027(2)
2. Companies Act 2006 section 1027(3)
54.68 Effect of administrative restoration
Once the company has been restored to the register it is deemed to have continued
in existence as if it had not been dissolved or struck off. However the company is not
liable to a penalty imposed by the registrar for any failure to file accounts and reports
after the date of dissolution or striking off and before the date of restoration. An
application may be made to the court at any time within 3 years after the date of
restoration to make such provision as seems just for placing the company and all
other persons in the same position (if possible) as if the company had not been
dissolved or struck off1.
1. Companies Act 2006 section 1028
Restoration to the register by the court,
the legislation
54.69 Introduction
If the company has been dissolved and not administratively restored an interested
party may apply to the court for its restoration to the register1. A company may be
restored to enable it to be wound up, to take enforcement action in connection with
prosecution or disqualification proceedings, to take action in relation to any
misfeasance, to enable assets to be realised or to enable an action to be brought for
damages arising from personal injury or death.
1. Companies Act 2006 section 1029
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54.70 Application to the court for restoration
to the register
An application can be made to the court to restore a company dissolved after
winding up1, dissolved after administration2, or dissolved after being struck off the
register voluntarily or by the registrar3.
1. Companies Act 2006 section 1029(1)(a)
2. Companies Act 2006 section 1029(1)(b)
3. Companies Act 2006 section 1029(1)(c)
54.71 Who can make the application
An application pursuant to Section 1029 of the Companies Act 2006 may be made
by;
a) the Secretary of State
b) any former director of the company
c) any person having an interest in land in which the company had a superior or
derivative interest
d) any person who but for the company’s dissolution would have been in a
contractual relationship with it
e) any person with a potential legal claim against the company
f) any manager or trustee of an employee pension fun
g) any former member, or their personal representative(s), of the company
h) any person who was a creditor of the company at the time of its striking off or
dissolution
i) any former liquidator of the company
j) where the company was voluntarily struck off the register1, any person entitled to
the notice of application2, or
k) any other person appearing to the court to have an interest in the matter3
1. Companies Act 2006 section 1003
2. Companies Act 2006 sections 1006(1)(f) and 1007(2)(f)
3. Companies Act 2006 section 1029(2)
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54.72 When can the application be made
An application to restore the company to the register may be made at any time for
the purpose of bringing proceedings in respect of damages for personal injury1. In
any other case except in the instances mentioned below, an application for
restoration may not be made after the end of a period of 6 years from the date of
dissolution2.
An application for restoration can no longer be made in respect of a company
dissolved before 1 October 20073. Previously, if the company was struck off under
the provisions of section 652 or 652A of the Companies Act 1985, an application
could be made up to 1 October 2015 or the expiration of the period of 20 years from
publication in the Gazette of notice under the relevant section or Article, whichever
occurs first4.
The 6 year limitation does not apply where a non-trading company was struck off by
the registrar and an application for administrative restoration was made but refused
within the time limits allowed5. In such circumstances an application could be made
to restore the company within 28 days of the notice of the registrar’s decision being
issued, even if the 6 year limitation period has expired6.
1. Companies Act 2006 section 1030(1)
2. Companies Act 2006 section 1030(4)
3. Companies Act 2006 (Commencement No. 8, Transitional Provisions and Savings) Order 2008 paragraph 91(4)
4. Companies Act 2006 (Commencement No. 8, Transitional Provisions and Savings) Order 2008 paragraph 91(5)
5. Companies Act 2006 section 1030(5)(b)
6. Companies Act 2006 section 1030(5)(c)
54.73 The court’s decision
Where the registrar has struck a non-trading company off the register the court may
order its restoration on the following grounds:
a) it was carrying on business or in operation at the time, or
b) it was struck off the register voluntarily and had engaged in any activity not
associated with the application1, or
c) any proceedings had not been concluded2, or
d) notice of the application had not been properly sent to all parties3, or
e) the company had grounds to withdraw the application4, or
f) the court considers it just to do so5
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1. Companies Act 2006 section 1004
2. Companies Act 2006 section 1005
3. Companies Act 2006 sections 1006, 1007 and 1008
4. Companies Act 2006 section 1009
5. Companies Act 2006 section 1031(1)
54.74 When is the company restored?
The restoration of the company takes effect from the date a copy of the court order is
delivered to the registrar. On receiving a copy of the order restoring the company,
the registrar must publish notice in the Gazette1. The notice must contain the name
of the company, or if the company is restored under a different name, that name and
its former name, the registered number of the company and the date restoration took
effect1.
1. Companies Act 2006 section 1031(2) and (3)
54.75 The effect of restoration to the register
Once a company has been restored to the register it is deemed to have continued in
existence as if it had not been dissolved or struck off the register. The company is
not liable for any civil penalty for failing to deliver returns or accounts for a financial
year ending after the date of dissolution or striking off and before the restoration to
its register. The court may give such directions for placing the company and all other
persons in the same position (as far as possible) as if the company had not been
dissolved or struck off. This provision can be used to include the provision that the
period between dissolution and restoration shall not be counted for the purpose of
any statute of limitations1. The court may also order that all outstanding returns,
accounts, etc. are filed with the registrar, that the applicant pays the registrar costs,
and that the applicant pays the costs of The Treasury Solicitor (BV), or the relevant
Duchy Solicitor, for dealing with any property vested as bona vacantia and dealing
with the application2.
1. Re: Donald Kenyon Ltd (1956) 1WLR 1397
2. Companies Act 2006 section 1032 CA2006
54.76 Company’s name on restoration
A company will be restored to the register with its original name unless another
company with the same name has been registered1. If another company with the
same name is registered, the company must be restored under another name
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specified in either the application, in the case of administrative restoration, or in the
court order, or as if the registration number was also its name2.
1. Companies Act 2006 section 1033(1)
2. Companies Act 2006 section 1033(2)
54.77 Company restored under another name
If the company is restored to the register by administrative application or court order
the provisions relating to the registration and issue of a new certificate of
incorporation1 and the effect of a change of name2 apply as if the application or court order were notice of a change of
name3.
1. Companies Act 2006 section 80
2. Companies Act 2006 section 81
3. Companies Act 2006 section 1033(3) and (4)
54.78 Company restored under its registered
number
If the company is restored to the register as if its registered number was also its
name it must change its name within 14 days of being restored. The change of name
may be made by directors’ resolution, without prejudice to any other method, and
notice must be given to the registrar. The notice of the change of name ensures the
provisions relating to the registration and issue of a new certificate of incorporation
and the effect of a change of name apply. If the company fails to change its name or
notify the registrar, the company and every officer who is in default commits a
criminal offence. Any person summarily convicted of this offence is liable to a fine1.
The official receiver should not apply for the restoration of the company under its
registered number, (see paragraphs 54.81 and 54.82) for details on how to proceed.
1. Companies Act 2006 section 1033(6)
54.79 Bona vacantia
The Treasury Solicitor (BV) or the relevant Duchy Solicitor can dispose of any
property, right or interest vested in them despite the fact that the company may be
restored to the register. If the company is restored it does not affect the disposition.
However, The Treasury Solicitor (BV) or the relevant Duchy Solicitor shall pay to the
company the amount of any consideration received or the value of such
consideration at the time of disposition. If no consideration has been received The
Treasury Solicitor (BV) or the relevant Duchy Solicitor must pay an amount equal to
--- PDF page 27 ---
the value of the property, right or interest disposed of. The Treasury Solicitor (BV) or
the relevant Duchy Solicitor may deduct the reasonable costs of the disposition
unless they have already been paid as a result of the application for administrative
restoration or as a result of a court order1.
1. Companies Act 2006 section 1034
Official receiver’s application for
restoration
54.80 Introduction
There are number of occasions where the official receiver will need to restore the
company. This will usually be achieved with an application for restoration to court.
However, in a small number of cases the registrar may restore the company to the
register at the request of the official receiver
54.81 System error by Companies House
Companies House may make an administrative mistake, known internally as a
system error, when dealing with the dissolution process. In these instances the
registrar can restore the company to the register without the need for an application
to court. The official receiver should ask the registrar to restore the company to the
register in these circumstances. If the registrar does not make a system error the
official receiver will need to make an application to the court to restore the company
to the register.
Where notification of the winding-up order is received by the registrar in the interim
period between the issuing of an instruction to gazette a notice of the company’s
name having been struck off the register and the actual publication of the notice,
then dissolution will occur1 and the registrar should be considered to have acted
appropriately.
1. Companies Act 2006 section 1000(6)
54.82 Change of company name
If it is not possible to restore the company under its original name the official receiver
must ensure that its name is changed. The official receiver should include the new
company name in their application to the court together with a request for restoration
under this name.
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ATTACHMENT: 55.Second_or_subsequent_bankruptcies.pdf
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 11 March 2020
55. Second or subsequent bankruptcies
Chapter content
Introduction
Relationship between estates
Deceased estates and partnerships
Introduction
55.1 Second or subsequent bankruptcies
Before the introduction of the Enterprise Act 2002 where a bankruptcy order was
made against an individual who had previously been an undischarged bankrupt
during the fifteen years prior to that bankruptcy order, they would not be entitled to
an automatic discharge from the later bankruptcy unless the prior bankruptcy was
annulled. To obtain a discharge from the second or subsequent bankruptcy, the
bankrupt would have had to apply to the court for an order of discharge and would
not be have been able to make such an application until five years had elapsed from
the date of the latest bankruptcy order.
Under the Enterprise Act 2002, a previous bankruptcy had no direct bearing on an
individual's right to automatic discharge. Thus, where a bankruptcy was made
against an individual on or after 1 April 2004 from which he was discharged and a
subsequent/second bankruptcy order was made against him, he would be
automatically discharged one year from the date of the second/subsequent
bankruptcy order (see chapter 47).
The Enterprise Act 2002 also introduced a provision for a bankrupt to obtain an early
discharge. A bankrupt may be discharged earlier if the official receiver follows the
early discharge process or later if the court makes an order suspending the
bankrupt's discharge following an application by the official receiver or trustee.
This early discharge provision was repealed by the Enterprise and Regulatory
Reform Act 2013, which came into force on 1 October 2013. Bankruptcy orders
made on or after 1 October 2013 are not eligible for early discharge (see chapter
47).
If the first bankruptcy order was made before 1 April 2004 the transitional provisions
will apply (see chapter 55.3).
1. Section 279
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55.2 BROs and BRUs
The Enterprise Act 2002, whilst imposing a shorter term for bankruptcy, sought to
protect against the minority of bankrupts who abuse the system or whose conduct
has been dishonest, reckless or otherwise culpable by introducing Bankruptcy
Restrictions Orders (BROs) and Bankruptcy Restrictions Undertakings (BRUs).
If the official receiver makes application for a bankruptcy restrictions order (BRO) or
accepts a bankruptcy restrictions undertaking (BRU) then the second time bankrupt;
will still be discharged one year after the bankruptcy order; however, they will be
subject to the restrictions imposed under the terms of the BRO/BRU.
In determining whether an application for a BRO is appropriate, the court will
consider whether the bankrupt was an undischarged bankrupt at some time during
the period of 6 years prior to the current bankruptcy order. Similarly, in determining
whether to accept a BRU the official receiver should have regard to whether the
individual was an undischarged bankrupt in the previous 6 years.
A previous failure is not listed in the grounds for a BRO application1 but is a matter
for consideration when making an application. The official receiver cannot therefore
make application for a BRO solely as a result of the bankrupt having a previous
failure. There needs to have been unfit conduct in respect of the current bankruptcy
before an application is made. If, however, it can be shown that a bankrupt has failed
to learn from previous mistakes, the court may take this into account when making a
BRO and make it for a higher period.
For further information on discharge see chapter 47and for further information on
BROs see the Enforcement Investigation Guide.
1. Schedule 4A para 2(3)
55.3 Transitional provisions for second time
bankruptcies (under the Enterprise Act 2002) which
applies to cases where the bankruptcy order was
made before 1 April 2004
Where an individual (who was adjudged bankrupt before 1 April 2004 and remained
undischarged on that date) was also an undischarged bankrupt at any time during
the 15 years before the second or subsequent bankruptcy order was made, the
transitional provisions did not apply. A pre-commencement second time bankrupt
who had not been discharged (either absolutely or conditionally) from the second
bankruptcy before 1 April 2004 was discharged under the transitional provisions1;
• at the end of the period of five years from 1 April 2004, or
• earlier if the court made an order under section 280 of the Insolvency Act
1986 after 1 April 2004
Pre-commencement bankrupt – this term applies where an individual had a
bankruptcy order made against them before 1 April 2004 and they remained
undischarged from the bankruptcy at that date.
For further information on suspension of discharge for second time bankruptcy for
those bankrupts which fall under the transitional provisions see chapter 47.
--- PDF page 3 ---
1. Enterprise Act 2002 schedule 19, paragraph 5 (5)
55.4 How does the official receiver know if the
bankrupt has been subject to proceedings before?
As part of the OR's initial procedure when a bankruptcy order is made, a search
should be made of the Case Search Facility on ISCIS using all of the name(s) of the
individual included in the description. This is to check whether that person has been
made bankrupt previously or is subject to an individual voluntary arrangement.
In adjudicator cases there is a question in the bankruptcy application asking about
previous insolvency actions in the last 2 years.
In creditor petition cases, the bankrupt is also required to state whether they have
been made bankrupt before as part of the bankruptcy preliminary information
questionnaire (PIQ). If so, the bankrupt should provide details of the court and OR's
office which dealt with those proceedings.
The previous case should always be examined, especially in relation to the cause of
failure, in the earlier bankruptcy and the pattern of events preceding it. Often this will
provide a guide to particular areas of conduct which may also feature in the
subsequent failure. Additionally the cases should be linked on ISCIS using the
Linked Cases Tab and selecting the same debtor insolvency on the linked case
type.
55.5 Foreign bankruptcies
Any bankruptcy orders made in "foreign" countries, and that includes Scotland and
Northern Ireland, do not count as earlier bankruptcies for the purposes of
determining the bankrupt's discharge. A second or subsequent bankruptcy refers
only to those orders made in England and Wales. Where the bankrupt is involved in
a similar type of insolvency elsewhere the respective trustees will normally have no
title to undistributed assets in the other jurisdiction and no right to prove in the other
proceedings.
Relationship between estates
55.6 Claim of earlier trustee
When a bankruptcy order is made and the bankrupt has not been discharged from
prior bankruptcy proceedings, the trustee in the earlier bankruptcy is entitled to prove
in the later bankruptcy for1:
• the unsatisfied balance of the provable debts in the earlier bankruptcy,
• interest payable on that balance, and
• any unpaid expenses in the earlier bankruptcy.
Where the bankrupt has been discharged from the earlier proceedings the trustee is
not entitled to make such a claim.
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NB Any claim by the trustee in the earlier bankruptcy would rank for payment only
after all other proved debts have been paid in full with interest in the later
bankruptcy2.
Where the official receiver becomes aware that a bankrupt is undischarged from
previous bankruptcy dealings, they should inform the trustee (in the earlier
proceedings) of the making of the bankruptcy order to ensure that any undistributed
assets relating to any after-acquired property and/or monies paid under an IPA, are
transferred to the later proceedings3, 4. The official receiver should also ensure that
the claim of the trustee in the earlier bankruptcy is noted in ISCIS.
1. Section 335(5)
2. Section 335(6)
3. Section 334
4. Rule 10.151
55.7 Assets from a previous bankruptcy
In circumstances where a bankruptcy order is made against an undischarged
bankrupt any assets (including income) acquired by them after the date of the earlier
bankruptcy and not yet distributed by the trustee are to be transferred to the later
bankruptcy1, 2. Any such money or property will then form part of the estate in the
later bankruptcy but subject to a first charge in favour of the earlier trustee for any
expenses they may have incurred in dealing with those assets3.
Where, on receiving notice of a bankruptcy petition, a trustee has any after-acquired
property they should hold and protect the property until the petition is disposed of.
Any disposal after receipt of notice is void unless the consent or ratification of the
court dealing with the earlier bankruptcy is obtained4.
Assets belonging to a subsequent bankrupt who is discharged from an earlier
bankruptcy would vest in the subsequent bankruptcy estate and should be dealt with
in the usual way. The official receiver should be aware that, particularly with
properties, the trustee of the earlier bankruptcy may have transferred the bankrupt’s
beneficial interest to a third party.
When the official receiver is trustee in the earlier bankruptcy they must ensure that
all appropriate fees and remuneration have been charged under the Insolvency Fees
Order and the Insolvency Regulations and are deducted from the proceeds of any
property before being transferred.5, 6
For further information on after acquired property generally see chapter 36.
1. Section 334(3)
2. Section 335(1)
3. Section 335(3)
4. Section 334 (2)
5. Rule 10.151
6. Rule 10.152
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55.8 Payments regarding conditional discharge from
prior bankruptcy
On occasion, the second time bankrupt may have been conditionally discharged
from a previous bankruptcy, which means that the discharge was given subject to
certain conditions regarding income or property being met1 (see chapter 47).
If those discharge conditions have not been satisfied at the time of the later
bankruptcy, the trustee in the earlier case is entitled to retain any payments made in
accordance with these conditions including amounts yet to be distributed, unless the
order of discharge is subsequently rescinded.
Where the bankrupt's failure to comply with the conditions on which the order of
discharge was made2 results in the discharge being rescinded on the application of
the first trustee, or where the second/subsequent bankruptcy order prevents the
bankrupt from complying with those conditions, any funds held will be transferred to
the later bankruptcy and the first trustee will submit a claim in the later proceedings.
1. Section 280 (2)
2. Rule 10.162
55.9 Creditors and proof of debts
Individual creditors in the earlier bankruptcy do not become creditors individually in
the subsequent bankruptcy for any debt relating to the earlier proceedings. Where
the bankrupt is not discharged from the earlier proceedings, the original trustee
should prove in the later bankruptcy for the unsatisfied balance of the total provable
debts in the earlier bankruptcy1.
The trustee may also prove for interest payable on that balance and any unpaid
expenses, such as petition costs1. As with any other claim, the amount claimed may
be varied at a later stage if circumstances were to change, for instance, where
assets realised and distributed may reduce the outstanding balance. (See chapter
49)
1. Section 335(5)
55.10 Claims in the earlier bankruptcy
If the official receiver as trustee in an earlier bankruptcy needs to submit a claim in
the later proceedings, they should establish all claims in so far as possible before
lodging a proof of debt. The official receiver does not need to obtain formal proofs of
debt for this purpose; a notice to creditors outlining the circumstances and
requesting early indication of their claims would suffice.
However, in undertaking this work, the official receiver should bear in mind that a
distribution will only be made in respect of the debts, etc. of an earlier bankruptcy,
after all of the proved debts in the later bankruptcy have been paid in full with
interest1. The likelihood of such a distribution being made is thus remote and the
official receiver should rely on existing information wherever possible for this
purpose.
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In spite of this proviso, should a further provable debt come to light after the earlier
trustee has proved for the unsatisfied balance, the trustee in the earlier bankruptcy
should notify the later trustee and amend their proof of debt accordingly.
1. Rule 10.153
55.11 Distribution of funds received from first trustee
Funds received by way of dividend from the later proceedings must be distributed to
all proved creditors in the earlier bankruptcy, whether or not their claims were
included in the proof lodged by the original trustee. If the funds have already been
distributed when a late claim is received, the usual rule applies and the distribution
will not be disturbed. The additional claim will only be paid if and when further funds
are received.
55.12 Proposal for a voluntary arrangement
Where a proposal for an IVA is made in the later bankruptcy, and the official receiver
is trustee in either of or both bankruptcies, they should ensure that the rights of the
creditors in the earlier bankruptcy are dealt with specifically together with the
disposal of any undistributed after-acquired property or income in the hands of the
second trustee or supervisor.
Where the official receiver is trustee in the earlier bankruptcy, they should attempt to
make it a condition of their agreement to vote for the proposal (as creditor in the later
bankruptcy) that either the undistributed after-acquired property remains in the
earlier bankruptcy or that the creditors in the earlier bankruptcy are paid the same
proportion of their claims as those in the later bankruptcy. It is only fair that the
proposal should contain some provision to achieve something for the creditors in the
earlier bankruptcy. See chapter 51 for more information on voluntary arrangements.
Deceased estates and partnerships
55.13. Administration of Insolvent Estates of Deceased
Persons Order 1986.
All of these provisions relating to second bankruptcies also apply where an
insolvency administration order is made under the Administration of Insolvent
Estates of Deceased Persons Order 1986.
For further information about deceased insolvents generally see chapter 56.
55.14 Partnerships
If the earlier bankruptcy involved a partnership, the proof for the unsatisfied balance
will comprise the balances due both in the separate estate of the partner and the
joint estate of the partnership. However, any dividend received on the proof must be
--- PDF page 7 ---
applied to the liabilities of the separate estate first and only if there is a surplus once
that balance has been paid in full, can it be transferred to the joint estate.
For further information see chapters 52 and 49.
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ATTACHMENT: 56.Deceased_insolvents.pdf
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 11 March 2020
56. Deceased insolvents
Dealing with the affairs of a debtor who dies during the bankruptcy process or the
estate of a deceased insolvent
Chapter content
Frequently asked questions – Debtor dies before petition
Frequently asked questions – Debtor dies after petition
Introduction
Debtor dying prior to the presentation of a bankruptcy petition
Debtor dying after a bankruptcy petition is presented
The debtor’s personal representative
Dealing with property of a deceased individual
Frequently asked questions – Debtor
dies before petition
How is it possible to have a deceased
insolvent, surely a person’s debts die with
them?
It is a common misconception that a person’s debts ‘die’ with them. In fact, the
deceased’s estate in death will still owe the money, which must be paid from
available assets in the estate before property can be passed to beneficiaries under
the will. If there are insufficient assets in the deceased estate, then the estate will be
insolvent.
--- PDF page 2 ---
What happens if a deceased estate is
insolvent?
A creditor, or the deceased’s personal representative (usually the person dealing
with the will), can make application to court for the estate to be dealt with in
bankruptcy, under an insolvency administration order. This would mean that the
estate could be dealt with in an orderly fashion.
Who deals with these types of orders?
On the making of a insolvency administration order the official receiver is, as in a
bankruptcy. In fact, most of the features of an insolvency administration order are
similar to a bankruptcy.
In what ways is an insolvency administration
order similar to a bankruptcy?
The bankruptcy provisions of the Act apply equally in the case of an insolvency
administration order, with certain necessary exceptions and differences.
What are the main ways in which the
administration of an insolvency administration
order differs from a bankruptcy order?
The main ways that the administration differs are that the debtor is known as a
deceased insolvent, and not a bankrupt, and in the absence of the debtor to assist
with providing information regarding his/her financial affairs, that duty falls on the
personal representative. Another difference is that the trustee’s title to the assets
begins with the date of death and not the date of the order – this is to allow recovery
of assets disposed of after death.
You mention that the duty to co-operate falls
upon the personal representative. How can I
find out who that is?
The personal representative is either the executor of the will or, where the person
died without a valid will, the person known as the administrator. In short, the person
with responsibility to deal with the deceased’s estate and arrange for their burial. The
--- PDF page 3 ---
executor is generally named in the will, and the details of an administrator can be
obtained from the organisation that keeps a record of the appointment of
administrators. The personal representative may have been served with a copy of
the petition for the insolvency administration order, so their details may be on that, or
they may be known to the insolvent’s bankers, solicitors or accountant.
If the personal representative is the executor
or administrator, it is possible that they are a
relative of the deceased. Does this matter?
It only matters in as much as you should tread carefully, as it were, when dealing
with the personal representative, to avoid causing unnecessary bereavement-related
distress.
You mention that the personal representative
has the duty to arrange for the burial of the
deceased. How can they do this if the estate is
insolvent?
The provisions of the Act, as amended, allow for the reasonable funeral costs to be
paid out of the estate before any of the preferential or other unsecured creditors.
Does the official receiver need to issue any
special notices?
Notices similar in design and audience to those in bankruptcy are issued, except that
they should be headed ‘In the matter of the Administration of Deceased Persons
Order 1986’ and should refer to the insolvent as the deceased debtor and not the
bankrupt.
The rules on survivorship provide that a
property interest in a joint tenancy passes
automatically to the surviving party on death.
Doesn’t this mean that that interest would be
lost to the estate?
--- PDF page 4 ---
As matters would normally operate, it would follow that it would (the property passing
to the surviving party immediately before the estate vests). The Act provides that
such automatic passing of property can be reversed in the interests of the creditors
Can there be exempt property in the case of a
deceased insolvent?
Tools of the trade cannot be treated as exempt, but household equipment, etc. can
be treated as exempt if it is necessary for the family of the deceased debtor.
Can an insolvency administration order be
annulled?
An insolvency administration order can be annulled on the same grounds as a
bankruptcy order – i.e., on the grounds that debts and costs paid in full or that it
ought not to have been made.
I presume that the debtor is not discharged?
That is right, there are no discharge provisions in relation to a deceased insolvent.
Frequently asked questions – Debtor
dies after petition
A bankrupt I am dealing with has died. In what
ways will this affect the administration of the
estate?
Generally speaking, the insolvency process will continue as if the debtor were still
alive (this is the case even if the petition has been presented but the order has not
been made). The clear difference is that the debtor will not be available to provide
information regarding his/her affairs.
Who should provide information regarding the
debtor’s affairs?
--- PDF page 5 ---
The duty to provide information regarding the debtor’s affairs falls upon his/her
personal representative. Of course, the death may have occurred after the bankrupt
had provided a full account of his/her affairs – in which case minimal involvement of
the personal representative will be required.
Who is the personal representative?
The personal representative is either the executor of the will or, where the person
died without a valid will, the person known as the administrator. In short, it will be the
person with responsibility to deal with the deceased’s estate and arrange for their
burial.
You mention that the duty to co-operate falls
upon the personal representative. How can I
find out who that is?
The executor is generally named in the will, and the details of an administrator can
be obtained from the organisation that keeps a record of the appointment of
administrators. The personal representative may have been served with a copy of
the petition for the bankruptcy order (if the debtor has died after the petition has been
presented but before it has been served), so their details may be on that, or they
may be known to the insolvent’s bankers, solicitors or accountant.
If the personal representative is the executor
or administrator, it is possible that they are a
relative of the deceased. Does this matter?
It only matters in as much as additional care should be taken when dealing with the
personal representative, to avoid causing unnecessary bereavement-related
distress.
You mention that the personal representative
has the duty to arrange for the burial of the
deceased. How can they do this if the estate is
insolvent?
The provisions of the Act, as amended, allow for the reasonable funeral costs to be
paid out of the estate before any of the preferential or other unsecured creditors.
--- PDF page 6 ---
Should the fact of the bankrupt’s death be
recorded anywhere?
The fact of the bankrupt’s death should be recorded in ISCIS. This will allow The
Service to meet an obligation that the information recorded on the IIR is correct and
up to date. The information should be recorded as soon after notification as possible.
What if the bankrupt had a life policy. Can I
make a claim?
If there were no defined beneficiary and the policy has not been sold ‘back’ to the
bankrupt, the monies due under the policy would be due to the estate so, yes, a
claim should be made.
What about the bankrupt’s property. How is
this affected by death?
Where a person holds a property on the basis of a joint tenancy, their share of the
property will pass, automatically, to the surviving tenant (owner) under the rules of
survivorship. Since the making of the bankruptcy order has the effect of severing the
joint tenancy their interest in the property will remain in the bankruptcy estate and will
not pass to the survivor.
But the bankrupt I am dealing with died after
the petition but before the order was made.
Would the property interest still belong to the
estate?
Where the debtor dies between petition and order, there has been no severance of
the joint tenancy and the property interest would pass to the surviving owner. This
would not be recoverable as a post-petition disposition as it is not considered to be a
disposition. If, however, the property were unregistered, it is possible for the property
interest to be recovered.
Introduction
--- PDF page 7 ---
56.1 Background and legislation
The debts a person owes when they die are not discharged on death (save for any
specific provision, such as an insurance policy) and any debts remain to be paid by
their estate. So far as the administration of the estates of a debtor who dies before
the presentation of a bankruptcy petition is concerned, the Administration of the
Insolvent Estates of Deceased Persons Order 1986 operates to extend and modify
the provisions of the Act to the administration, in bankruptcy, of the estate of the
deceased person. The order will be an insolvency administration order and not a
bankruptcy order. Similarly, a person subject to such an order is known as a
deceased debtor, and not a bankrupt. As in bankruptcy the Official Receiver
becomes trustee on the making of the Order For deceased bankrupts (that is, those
debtors who die after the presentation of a bankruptcy petition), the Administration of
the Insolvent Estates of Deceased Persons Order 1986 provides that, unless the
court orders otherwise, matters shall proceed as if the debtor were still alive, subject
to certain special provisions on which further guidance is provided (see Debtor dying
after a bankruptcy petition is presented below) The legislation also contains
provisions relating to other forms of personal insolvency, but these are not covered
in this guidance except for brief reference to IVAs.
Debtor dying prior to the presentation of
a bankruptcy petition
56.2 Insolvency administration order and
deceased debtors
Where a debtor dies prior to the presentation of a bankruptcy petition, any order for
the administration in bankruptcy of their insolvent estate is referred to as an
insolvency administration order and not a bankruptcy order. Similarly, a person
subject to such an order is known as a deceased debtor and not a bankrupt. Where
a debtor dies after the presentation of a bankruptcy petition, the guidance in ‘Debtor
dying after a bankruptcy petition is presented’ of this chapter should be followed.
56.3 Presentation of a petition for an
insolvency administration order
The persons who may present a petition for an insolvency administration order are
the same as those who may present a petition for bankruptcy, except that the debtor
--- PDF page 8 ---
themselves cannot, obviously, present the petition1 The power of the debtor to
present the petition is instead given to the debtor’s personal representative 2, 3 in
relation to which no deposit is payable4
1. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 1
2. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1 part I
3. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 3, Form 6
4. The Insolvency Proceedings (Fees) Order 2004 article 6(1)
56.4 Grounds for an insolvency administration
order
One of the requirements for making an insolvency administration order is that the
debt, or one of the debts, in respect of which the petition is presented is payable as
at the date of the petition, or has since become payable, and has not been paid or
secured for, or has no reasonable prospect of being able to be paid when it falls due.
The other essential requirement is that it is reasonably probable that the estate is
insolvent1. This requirement must be demonstrated to the court to obtain an
insolvency administration order. There is no statutory demand requirement2 and the
court has no power to refer a case to an insolvency practitioner for a report.3
1. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 5
2. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II
3. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 3
56.5 Petition by a creditor for a future debt
In addition to a creditor being able to petition in respect of a debt for a liquidated sum
equal to or exceeding the bankruptcy limit, a creditor may petition for a future debt if,
due to the death of the debtor, there is no reasonable prospect of payment being
made when the debt falls due and there is a reasonable probability that the estate
will be insolvent1.
1. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 3
56.6 Petition by the supervisor of a voluntary
arrangement
A petition may be presented by a supervisor of an individual voluntary arrangement
(IVA) which has been approved prior to the debtor’s death and where continuance of
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the arrangement is dependent on the receipt of payments from the debtor’s future
earnings. The supervisor does not have to demonstrate default with the terms of the
arrangement, but merely needs to show to the court that, without the debtor’s
continuing involvement in the arrangement, it is not feasible for it to continue. Neither
a supervisor nor a creditor can petition on the grounds that the IVA contained
inaccurate or misleading information, as the relevant provision1 is not extended to
deceased debtors.
1. Section 276(1)
56.7 Service of petition
An insolvency administration petition shall, unless the court directs otherwise, be
served on the personal representative of the deceased and may be served on such
other persons as the court may direct1. This latter provision enables service where a
personal representative has not been appointed. If a liquidator (within the meaning of
the EC Regulation on Insolvency Proceedings) has been appointed in another EU
state, the petition shall also be served on them.
1. Administration of Insolvent Estates of Deceased Persons Order 1986 schedule 1, Part II, paragraph 2
56.8 Restrictions on dispositions of property
A personal representative is restrained from disposing of any property of the debtor
in the period from the date of the presentation of the petition for an insolvency
administration order to the date the estate vests in the trustee. If the disposition is in
good faith and for value then there can be no recovery by any subsequently
appointed trustee in respect of the disposition2. It is likely that, for a disposal to have
been in good faith, it will have had to have been made without notice of the petition.
Ratification by, or consent of, the court would remove any uncertainty here. In
respect of this provision, it is likely that the date of the presentation of the petition
should be the actual date, and not the deemed date (which is the date of death).1
1. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 12
2. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 5
56.9 Ratification of disposals
Any dispositions made by the personal representative in the relevant period are void
unless made with the consent of the court or subsequently ratified by it. Where a
disposal is considered void, the related money or goods should normally be
recovered for the estate.
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56.10 Administration proceedings in another
court
A petition for an insolvency administration order may not be presented where
proceedings for the administration of the deceased debtor’s estate have been
commenced in another court1. An example of such proceeding would be civil
proceedings commenced in the Chancery Division of the High Court for the
administration of the estate. These proceedings may have been instigated by the
personal representative, or any person interested in the estate such as a creditor,
legatee (beneficiary under the will), or next of kin. Such proceedings may be
transferred to the bankruptcy court where it appears that the estate is insolvent, thus
enabling an insolvency administration order to be made1.
1. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 5
56.11 Official receiver appointed as interim
receiver
The court may, at any time between the date of the presentation of a petition for an
insolvency administration order and the making of the order, appoint the official
receiver as interim receiver to protect the assets1. Where so appointed, care should
be taken by the official receiver to observe the terms of the order, which may restrict
their duties as interim receiver and the assets to be dealt with by them. In the
absence of any such restrictions, the interim receiver has all the powers, duties and
immunities of a receiver and manager1. Immediate possession should be taken of
the deceased debtor’s assets which should be protected pending the hearing of the
petition. The personal representative has a duty to co-operate with the interim
receiver and provide them with details of the assets comprised in the deceased
debtor’s estate1.
1. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 13
56.12 Commencement of the insolvency
administration proceedings
Provided that the court is satisfied regarding the grounds, it may make an insolvency
administration order1, 2 and the proceedings commence upon the making of the
order3.
1. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 5
2. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 7
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3. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 10
56.13 Appointment of the official receiver as
trustee
On the making of an insolvency administration order, the official receiver is
appointed trustee of the deceased debtor’s estate, which has the effect of removing
control of the estate from the personal representative1
1. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 14
56.14 Duty of the official receiver to
investigate the deceased’s affairs
The official receiver has no statutory duty to investigate the conduct and affairs of the
debtor unless they think fit, but may make such report (if any) to the court as they
think fit1. In practice, there is unlikely to be any merit in an investigation into the
affairs of the debtor, but if the official receiver considers that there is prima facie
evidence of wrongdoing by someone other than the deceased debtor, they may
report it as appropriate. In particular, there is an offence of receiving, in the 12
months before death, property obtained on credit by the deceased2.
1. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 16
2. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 29
56.15 On the making of an insolvency
administration order, notices similar to those
issued on the making of a bankruptcy order
should be issued.
The notices should be headed: ‘In the matter of the Administration of Insolvent
Estates of Deceased Persons Order 1986’ The notices should refer to the making of
an insolvency administration order (not a bankruptcy order) and state that the debtor
is deceased. The deceased debtor should not be referred to as ‘the bankrupt’, but as
‘the deceased debtor’. Similarly the official receiver should arrange for the mandatory
Gazette notice to be published and, at the official receiver’s discretion, a local
advertisement.
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56.16 Duties of a personal representative after
the making of an insolvency administration
order
Where an insolvency administration order has been made, the personal
representative’s duties with regard to possession of the estate are similar to those of
a bankrupt. The personal representative should notify the official receiver of any
assets which may be claimed for the estate, provide an inventory of the estate,
attend on the official receiver at such times as reasonably required and provide
information regarding the deceased’s assets and affairs1. If the personal
representative does not fulfil these obligations, they guilty of contempt of court and
may be punished accordingly1. Similarly, the personal representative is liable to a
private examination in the event of non-cooperation.
1. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 17
56.17 Contact with the personal
representative
The official receiver should make contact with the personal representative as soon
as possible following the making of the insolvency administration order. The making
of the order has the effect of removing control of the estate from the personal
representative and it is therefore important that no dealings are carried out by the
personal representative subsequent to the order. The personal representative may
be a professional such as a solicitor or banker, or may be a relative or acquaintance
of the deceased. In the latter case, the official receiver should, in carrying out their
duties, exercise care to avoid adding to any bereavement distress which the relative
may be experiencing.
56.18 Statement of affairs requirement
There is a requirement for the personal representative or, where there is no such
person, such other person as the court may direct, to lodge a statement of affairs
within 56 days of the making of the insolvency administration order. This period may
be extended by the official receiver or the court, or the personal representative may
be released from the requirement1. Due to the information that will be contained in
the statement, the duty to provide one should generally be enforced.
1. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 15
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56.19 Notice to personal representative
requesting a statement of affairs and other
information
As soon as possible after the making of an insolvency administration order, the
official receiver should send the statement of affairs (SADI) to the personal
representative with the standard notice (NRPDD). The standard notice also contains
a supplementary information sheet for completion by the personal representative,
and requires that they provide a copy of the death certificate and a copy of the last
will made by the deceased.
56.20 Content of statement of affairs
The statement of affairs should show the position of the estate at both the date of
death and the date of the order. Supporting schedules, such as accounts or a
deficiency account may also be required by the official receiver. The statement
should include details of disposals of assets, and a receipts and payments account
for the period between the date of death and the date of the order.
56.21 Preliminary information questionnaire
It will generally not be necessary for the official receiver to require the completion of
a preliminary information questionnaire (PIQ) as many of the questions asked therein
relate to information that will be contained in the statement of affairs. If, having
inspected the statement of affairs and other information provided by the personal
representative, the official receiver considers completion of the PIQ is necessary, it
may be issued to the personal representative. If this is done, the PIQ must be
amended so that the questions clearly relate to the affairs of a deceased debtor and
not a bankrupt. In view of the need to deal sympathetically with a relative that is the
personal representative of the deceased, it may be more appropriate for any PIQ to
be completed at interview, or for matters to instead be dealt with in a narrative
statement.
56.22 Interviewing the personal
representative
The information contained within the statement of affairs and supplementary
information sheet should enable the official receiver to make a decision whether an
interview with the personal representative is necessary. In reaching this decision, the
official receiver should particularly take account of asset disposals between the date
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of death and the date of the insolvency administration order, how recent was the
death, and of any trading activity by the deceased. Details of disposals may be found
in sheets G and H of the statement of affairs (SADI). If the personal representative
has not provided the required information by the date requested, they should be
invited to attend for interview. Depending on the complexity of the deceased’s affairs,
a narrative statement may be sufficient for the official receiver’s purposes, with a PIQ
being used as an aide mémoire.
56.23 Appointment of a trustee
Where there are sufficient assets to attract the appointment of an insolvency
practitioner as trustee, the same provisions apply as with bankruptcy cases. Where a
meeting is held, the usual rules and procedures apply except that the proof of debt
forms sent out with the notices should bear the date of death as being the date to
which claims should be made1, 2
1. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 31
2. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 18
56.24 Trustee’s title to assets
The trustee’s title to assets, including life policies, etc., dates back to the date of
death of the deceased debtor as if the presentation of the petition, the insolvency
administration order and death all occurred on the dame day1. This date is
sometimes known as the ‘deemed date’. Only assets which form part of the
deceased’s estate at the time of death vest in the trustee.
1. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 12
56.25 Extent of the deceased debtor’s estate
An insolvency administration order is made in relation to ‘the insolvent estate of a
deceased person’ and the estate, in this context, comprises that property which
passes under the deceased person’s will or intestacy1. Such estate would not include
property held on a joint tenancy. The power to bring proceedings over or in respect
of property (see chapter 37) would be property of the estate2.
1. Administration of the Insolvent Estates of Deceased Persons Order 1986 article 2 2. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule
1, part II, paragraph 12(b)
56.26 Debts in the proceedings
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Debts in insolvency administration proceedings are defined as they would be in
relation to a bankruptcy1 (see chapter 43) and future and contingent liabilities at the
date of the deceased debtor’s death are valued in the same way as in bankruptcy, at
the discretion of the trustee2. The order of payment of debts and costs is also the
same as in bankruptcy, with the exception of funeral and testamentary costs being a
pre-preferential debt.
1. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 36
2. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 23
56.27 Claim for funeral and testamentary
expenses by personal representative
The official receiver, as trustee, must have regard to any claim by the personal
representative (or similar) for reasonable funeral, testamentary and administrative
expenses incurred1, provided the estate has sufficient funds in hand. These claims
have priority over the preferential debts1, 2 and should be detailed on sheet G of the
statement of affairs. Care should be taken by the trustee, that account is taken of
such expenses (whether previously notified to them or not) before any distribution is
made.
1. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 20
2. Insolvency Act 1986 schedule 6
56.28 Assessment of claimed funeral expenses
In assessing what are reasonable funeral expenses, the trustee should have regard
for the lifestyle and standing in the community of the debtor. It would, for example,
be reasonable to proceed on the basis that the funeral expenses of a person of
some standing might be higher than average.
56.29 Assessment of claimed testamentary
expenses
Testamentary expenses are the expenses of obtaining probate; this being the
exhibiting and proving of the will by the executor in the High Court. The original will is
deposited at court and a copy sealed. The court then issues a certificate evidencing
that it has been proved. This allows the executor, in the normal course, to administer
the will. These functions are often carried out by a solicitor on behalf of the executor.
In assessing a claim for testamentary expenses, the official receiver should ask for a
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detailed bill of costs, or similar, including time and rate calculations where the stated
expenses appear unreasonably high.
56.30 After-acquired property
The official receiver, as trustee, may by notice in writing claim for the benefit of the
estate any property which has been acquired by, or devolved upon, the deceased
debtor since their death1, 2. In practice, these provisions are unlikely to have effect as
it is doubtful that a deceased debtor could acquire property.
1. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 12
2. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 22
56.31 Transactions at an undervalue and
preferences
The provisions of the Act relating to transactions at an undervalue, transactions
defrauding creditors and preferences apply to deceased insolvents1, 2, 3, 4, 5. The
relevant date from which to ‘look back’ for actions to recover such transactions would
be the date of death, rather than the date of petition6. So, for example, a transfer to
an associate within the period five years before death (rather than petition) might be
a transaction at an undervalue if the other criteria were in place.
1. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 26
2. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 27
3. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 28
4. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 36
5. Inland Revenue Commissioners v Hashmi [2002] BPIR 271
6. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 10
56.32 Exempt property
The provisions in the Act relating to exempt property (see chapter 24) apply partially
in the case of an insolvency administration order1. In this regard, the official receiver
should consider whether clothing, bedding, household equipment, furniture and
provisions are necessary for the family of the deceased debtor. Tools of the trade,
etc. cannot be treated as exempt property where the debtor is deceased as the
provision2 requires that the equipment is used by them personally to be considered
as exempt.
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1. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 12(a)
2. Section 283(2)(a)
56.33 Enforcement by creditors against the
property of the insolvent
In order for a creditor to retain the proceeds resulting from execution or attachment
proceedings, or sums paid to avoid such proceedings, the procedure must have
been completed prior to the date of the insolvency administration order1.
1. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 28
56.34 Annulment of an insolvency
administration order
The court may annul an insolvency administration order where the order should not
have been made or when the debts and costs of the proceedings have been paid in
full or secured to the satisfaction of the court. Dispositions of assets by the official
receiver, as receiver and manager or trustee are valid. Assets vested in the trustee
may be vested in the personal representative or, if there is no personal
representative, in such person as the court may order1. Where the annulment is on
the grounds of payment in full, any surplus remaining after debts and costs should
be returned to the personal representative subject to any parallel EU insolvency
proceedings. The court may order that the surplus be paid to a person other than the
personal representative2.
1. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 11
2. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 1, part II, paragraph 25
56.35 Discharge
A deceased insolvent does not receive a discharge from the proceedings. The
relevant provisions of the Act in relation to discharge are not applied to deceased
insolvents.
56.36 Surplus in the proceedings
If there is a surplus after the debts, costs, expenses and interest of the insolvency
administration proceedings have been paid in full, the surplus should be paid to the
personal representative, subject to any parallel EU insolvency proceedings.
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Debtor dying after a bankruptcy petition
is presented
56.37 Debtor dying after the presentation of
bankruptcy petition – general
The legislation provides that, unless the court orders otherwise, the bankruptcy
proceedings against an individual who dies after the petition has been presented will
continue as if the individual were still alive, with some necessary modifications1, 2.
Consequently, the order will be known as a bankruptcy order. Where the debtor dies
before the presentation of the petition the guidance in ‘Debtor dying prior to the
presentation of a bankruptcy petition’ (above) should be followed.
1. Administration of the Insolvent Estates of Deceased Persons Order 1986 article 5
2. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 2
56.38 Service of bankruptcy petition
Where the debtor has died after the presentation of the petition but before service,
the court may order the petition to be served on the personal representative or other
person as the court thinks fit1.
1. Administration of the Insolvent Estates of Deceased Persons Order 1986 article 5(3)
56.39 Court not aware of debtor’s death after
presentation of the petition
Where the bankrupt has died between the presentation of the petition and the date of
the bankruptcy order, it is possible that the court were not aware of their death at the
time of the making of the order. Where it is apparent that the court was not aware of
the bankrupt’s death, notification of the death should be given to the court1.
1. Brister v The Official Receiver [2015] Lexis Citation 161
56.40 Provision of a statement of affairs –
general responsibility
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Where a bankruptcy order has been made and the debtor has died without first
submitting a statement of affairs, the debtor’s personal representative or other
person directed by the court is required to submit the statement of affairs in the
debtor’s place1. Generally, this provision will only apply to cases made on a creditor’s
petition as a statement of affairs is supplied with the petition in a case made on a
debtor’s petition.
1. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 2, paragraph 1
56.41 Provision of a statement of affairs and
other information – practicalities
As soon as possible after it becomes apparent that a bankrupt has died without
providing a statement of affairs, the official receiver should issue the statement of
affairs forms to the personal representative or other person with a covering letter
explaining their duty and requesting completion of the forms. The statement of affairs
must be submitted within 56 days of the request, or such longer period prescribed by
the court or the official receiver1. The official receiver should also request sight of the
death certificate and a copy of the last will of the deceased bankrupt. Due to the fact
that the personal representative is often a relative or otherwise closely connected to
the deceased, the official receiver should phrase letters carefully so as to not cause
undue distress on the individual. Depending on the circumstances, an introductory
telephone call may be appropriate.
1. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 2, paragraph 1
56.42 Preliminary information questionnaire
It will generally not be necessary for the official receiver to require the completion of
a preliminary information questionnaire (PIQ) as many of the questions asked therein
relate to information that will be contained in the statement of affairs. If, having
inspected the statement of affairs and other information provided by the personal
representative, the official receiver considers completion of the PIQ is necessary, it
may be issued to the personal representative. In view of the need to deal
sympathetically with a relative that is the personal representative of the deceased, it
may be more appropriate for any PIQ to be completed at interview, or for matters to
be dealt with in a narrative statement.
56.43 Interviewing the personal
representative
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The information contained within the statement of affairs and/or PIQ should enable
the official receiver to make a decision whether an interview with the personal
representative is necessary. In reaching this decision, the official receiver should
particularly take account of any recent trading activity by the deceased. If the
personal representative has not provided the required information by the date
requested, they should be invited to attend for interview. Depending on the
complexity of the deceased’s affairs, a narrative statement may be sufficient for the
official receiver’s purposes, with a PIQ used during the process of taking the
statement as an aide memoir of questions to be asked.
56.44 Extent of the bankruptcy estate
The deceased bankrupt’s estate comprises the same property as that which
comprises the bankrupt’s estate at the date the bankruptcy order is made1, 2. Where a
debtor dies after the appointment of a trustee, any will made by the deceased pre-
dating the order is invalid as all assets will have vested in the trustee.
1. Section 283
2. Section 426
56.45 Pension annuity and death benefit
A pension annuity that is being paid to the bankrupt at the time of death may be
capable of being claimed under an income payments agreement (see chapter 35) as
it would if the debtor were still alive, taking into account the reasonable domestic
needs of the debtor’s family. A death benefit under a pension policy would be
excluded from the estate, but might be claimed as after-acquired property, if there
were no beneficiary to the policy.
56.46 Life policy
Where the debtor has a life policy that pays out on death it is usually the case that
the policy will pay out to a defined beneficiary (the spouse, for example), in which
case the bankruptcy estate would have no interest. Where there is no defined
beneficiary, the proceeds of the life policy would be payable to the deceased estate,
in which the bankruptcy estate has an interest. Generally speaking, many policies of
this type are now sold ‘back’ to the bankrupt. Where this has happened, the funds
may only be claimed, from the deceased estate, as after-acquired property (see
chapter 36).
56.47 Disposal of property post-petition
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Where property has been disposed of (whether by the bankrupt before they died, or
some other person after) between the presentation of the petition and the vesting of
the estate in the trustee the value of the lost property is recoverable, unless the
disposal was with the permission of, or subsequently ratified by, the court, or was for
value and without notice of the petition. A transfer of a property interest under the
rules of survivorship would not be affected by these restrictions as there is no
‘transfer’ in these circumstances.
56.48 Deceased bankrupt - individual
insolvency register
A bankrupt’s death is one of the events that the official receiver is required to include
on the individual insolvency register1, 2. The information contained in the register is
drawn from ISCIS, so it is important that the date of death is entered onto ISCIS at
the earliest opportunity.
1. Rule 11.16
2. Rule 11.22 and 11.23
56.49 Claim for funeral and testamentary
expenses by personal representative
The trustee, must have regard to any claim by the personal representative (or
similar) for reasonable funeral, testamentary and administrative expenses incurred1,
provided the estate has sufficient funds in hand and these claims have priority over
the preferential debts 1 2. If the personal representative does not inform the trustee of
these expenses before a final dividend is declared, they may declare and distribute a
dividend without regard to the claim for the expenses3.
1. Administration of the Insolvent Estates of Deceased Persons Order 1986 article 5(2)
2. Insolvency Act 1986 schedule 6
3. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 2, paragraph 1
56.50 Assessment of claimed funeral expenses
In assessing what are reasonable funeral expenses, the trustee should have regard
for the lifestyle and standing in the community of the debtor. It would, for example,
be reasonable to proceed on the basis that the funeral expenses of a person of
some standing might be higher than average.
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56.51 Assessment of claimed testamentary
expenses
Testamentary expenses are the expenses of obtaining probate; this being the
exhibiting and proving of the will by the executor in the High Court. The original will is
deposited at court and a copy sealed. The court then issues a certificate evidencing
that it has been proved. This allows the executor, in the normal course, to administer
the will. These functions are often carried out by a solicitor on behalf of the executor.
In assessing the claim, the official receiver should ask for a detailed bill of costs, or
similar, including time and rate calculations where the stated expenses appear
unreasonably high.
56.52 Payment of funeral expenses where
policy available to cover expenses
In some cases an insurance policy that vests in the trustee, may become payable on
the death of the bankrupt. In such a case, the funds would be payable to the estate,
but would be subject to a claim by the personal representative. It is possible that
such a policy may pay out some years after the trustee has obtained their release as
trustee of the bankrupt’s estate. Nevertheless, the personal representative will still
have a claim for funeral expenses against the amount of money received by the
official receiver, as trustee ex-officio. In each case, the official receiver should charge
the usual fees and also hold back an amount equal to any debit balance (written-off)
on the estate before making a payment to the personal representative.
56.53 Discharge and suspension of discharge
The discharge provisions of the Insolvency Act would apply normally to a debtor who
dies after the presentation of the petition1, 2 (see chapter 47). The provisions relating
to suspension of discharge (see guidance on co-operation, non-co-operation etc.)
would only apply to the non-cooperation of the bankrupt (before death), and not to
any non-cooperation of the personal representative.
1. Administration of the Insolvent Estates of Deceased Persons Order 1986 article 5
2. Administration of the Insolvent Estates of Deceased Persons Order 1986 schedule 2
56.54 Bankrupt subject to suspension of
discharge before death
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Where the bankrupt’s discharge from bankruptcy was suspended (see chapter 19)
before, or without knowledge of, their death, the official receiver may apply to lift the
suspension if the personal representative, or other person, is able to provide
information to allow for the conclusion of the administration of the estate.
The debtor’s personal representative
56.55 Personal representative – general
A personal representative is either the executor named in the deceased debtor’s will
or, where the debtor died intestate (without a valid will), a person (known as an
‘administrator’) to whom letters of administration have been granted by a court of
probate. The duties of an executor/administrator are:
•
to bury the deceased in a manner suitable to the estate which they leave
•
to prove the will of the deceased
This part contains guidance on identifying and locating the personal representative.
In the absence of a debtor, the personal representative has a number of duties in
relation to insolvency administration proceedings. Guidance on these duties is
contained within this chapter for debtors deceased before or after the petition
56.56 Identifying the personal representative
The identity of the personal representative may be recorded on the bankruptcy court
file. It may be the personal representative who petitioned for the insolvency
administration order, or on whom the petition was served by a creditor. Similarly, the
personal representative may contact the official receiver, or the person who notifies
the official receiver of the death of a bankrupt may hold the relevant details. It is
possible that a relative, or the former solicitors, bankers or accounts of the deceased
may be aware of the identity of the personal representative. If none of the above
avenues prove fruitful, the official receiver will have to conduct a search to establish
if a grant of representation has been granted.
56.57 Grant of representation
A grant of representation is a document issued by the court which enables the
person named within it to deal with the estate of the deceased. There are three
types:
•
probate – granted to executors (those charged with administering the will)
named in a will made by the deceased debtor
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•
letter of administration (with will) – granted to someone other than the executor
where there is a valid will
•
letter of administration – granted when the deceased did not have a will
A grant of representation may not be necessary in every case, especially if the
estate is small.
56.58 Grant of representation not always
necessary
Organisations holding the deceased debtor’s money may release it to the next of kin
without seeing a grant, although they may require completion of a statutory
declaration instead. If the whole of the estate is in joint names it passes
automatically to the surviving joint owner, but a grant of representation will always be
necessary to transfer property in the deceased’s sole name.
56.59 Register of grants of representation
A register of all grants of representation issued throughout England and Wales is
kept in the Probate Calendar (http://www.justice.gov.uk/courts/probate/copies-of-
grants-wills). There is a calendar for every year from 1858 to date. Every entry
includes at least the following details:
•
the full name and last address of the deceased
•
the date of death
•
type of grant issued
•
the registry at which the grant was issued
•
date of issue of grant
•
the gross value of the estate
It is possible to search the register to obtain the above details and to establish to
whom a grant has been made.
56.60 Carrying out a search of the Register of
grants
In order to carry out a search of the register of grants of representation, it is
necessary to complete form PA1S http://www.justice.gov.uk/courts/probate/copies-
of-grants-wills A grant cannot be located without, at least, the correct full name of the
deceased. A fee of £10 is payable for a General Search for England and Wales to be
carried out, which covers the period from 1958 to the present day. The fee includes
one copy of the grant and one copy of the will if there is one. Full guidance notes on
probate search applications are attached to the form PA1S
--- PDF page 25 ---
Dealing with property of a deceased
individual
56.61 Dealing with a property of a deceased
individual – general
Generally speaking, the process for dealing with a property owned by a deceased
individual, whether they died before or after the petition for bankruptcy, will be the
same as a ‘normal’ bankruptcy. There are, though, some differences so far as
concerns properties jointly owned by the deceased. This Part particularly gives
guidance on those differences.
56.62 Property owned under a joint tenancy –
right of survivorship
Many properties, but especially the matrimonial or quasi-matrimonial home, are held
on the basis of a joint tenancy. As a result, by virtue of the right of survivorship, a
deceased joint-owner’s beneficial share of such joint-tenancy property passes
automatically to the surviving joint-owner at the time of death.
56.63 Property owned solely or on the basis of
tenants in common
Where the property is held solely by the deceased debtor, or on the basis of a
tenancy in common, the rules relating to survivorship will not apply and the
bankrupt’s property interest will form part of the insolvency estate, to be realised by
the trustee.
56.64 Effect of right of survivorship where
debtor dies prior to presentation of petition
Only assets which form part of the deceased debtor’s estate at the date of death will
vest in the trustee. At the time of death the interest in any property held on the basis
of a joint tenancy passes to the surviving joint-owner, and therefore this interest
cannot form part of the insolvent’s estate to be realised by the trustee. There are
--- PDF page 26 ---
provisions however to allow the trustee to recover for the estate any value lost by the
operation of the right of survivorship.
56.65 Effect of right of survivorship where the
debtor dies after the presentation of the
petition but before order
Where the debtor dies after the presentation of the petition but before the making of
the bankruptcy order, any property held on the basis of a joint tenancy passes to the
surviving joint-owner, and therefore this interest cannot form part of the insolvent’s
estate on the making of the order to be realised by the trustee1. This leads to the
anomalous position that, apart from in relation to unregistered land, there are no
provisions for recovery such as there are when the debtor dies before petition, and
the provisions for void dispositions will not apply as the accrual by right of
survivorship does not count as a disposition for the purpose of the relevant
provision2.
1. Re Palmer (deceased) (a debtor) [1994] 3 WLR 420
2. Section 284
56.66 Effect of right of survivorship where the
debtor dies after the making of the order
The right of survivorship cannot apply after the making of a bankruptcy order as an
effect of the order is to sever the joint tenancy, with the property then being held on
the basis of a tenancy in common, to which the survivorship rules do not apply.
56.67 Recovery of a property interest lost
through right of survivorship
Where a property interest has been lost to the estate due to the operation of the
rules of survivorship, there is provision to allow for recovery relating thereto1 It is
important to note that such provision applies only to debtors who die prior to the
presentation of a bankruptcy petition (and are therefore subject to an insolvency
administration order). Under these provisions, the trustee can make application to
the court to seek to recover the value lost to the estate by the survivorship rules.
Value lost to the estate is defined as the amount which would, in the court’s opinion,
restore the position to what it would have been if the deceased had been adjudged
bankrupt immediately before their death2.
--- PDF page 27 ---
1. Section 421A
2. Section 421A(9)
56.68 Application for order to recover lost
property interest
Where the official receiver, as trustee, is seeking to recover a lost property interest,
they will be able to apply to the court for a monetary order against the survivor to pay
to the estate an amount not exceeding the value lost to the estate1 where:
•
the petition on which the insolvency administration order was made was
presented after 2 April 20012
•
the petition is presented within five years of the debtor’s death3, and
•
immediately before their death, the debtor had a beneficial interest in property
held under a joint tenancy4
In practice, the Service’s antecedent recovery contractor should normally be
appointed.
1. Section 421A(2)
2. Insolvency Act 2000 (Commencement No.1 and Transitional Provisions) Order 2001 article 2
3. Section 421A(1)(b)
4. Section 421A(1)(c)
56.69 Order to recover lost property interest
In making an order to recover a lost property interest, the court will have regard for
all the circumstances but, unless the circumstances are exceptional, it must assume
that the interests of the creditors outweigh all other considerations1. The court cannot
make an order against the property, or against any person who has acquired the
property subsequent to the death.
1. Section 421A(3)
56.70 Unregistered land – debtor dies after
presentation of petition
Where a debtor dies after the presentation of the petition and the surviving joint-
owner has disposed of the property after the date of the deceased’s death, the
legislation1 provides that, if the conveyance occurred after the registration of the
petition at the Land Charges Department,, any interest the third party has acquired
will be subject to the trustee in bankruptcy’s claim. Where there is a possibility of
--- PDF page 28 ---
such a claim, it is likely to be appropriate to seek the appointment of an insolvency
practitioner as trustee to take the matter forward.
1. Law of Property (Joint Tenants) Act 1964 section 1(1)
56.71 Transfer of property prior to death
Where the debtor has transferred a property interest to a third-party prior to death,
the right of survivorship would not apply, and the official receiver, as trustee, could
seek recovery as a transaction at an undervalue, preference, or a void disposition,
as appropriate (see chapter 31).
56.72 Property of a deceased debtor as the
family home
Where the debtor dies prior to the presentation of the petition it is to be assumed that
the ‘use it or lose it’ provisions of the Act relating to the ‘family home’ will apply as
the relevant section1 is applied, without modification, to deceased debtors. The
official receiver should, therefore, ensure that any relevant property interest is dealt
with, in line with the guidance in chapter 28, within three years of the date of death to
avoid the interest being lost to the estate. Where the death was more than three
years, or close to three years, before the date of the insolvency administration order
the advice of Senior Official Receiver’s Team should be sought. Where the debtor
dies after the presentation of the petition, the ‘use it or lose it (see chapter 28)
provisions will apply normally.
1. Section 283A
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ATTACHMENT: 57.Pensions.pdf
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 11 March 2020
57. Pensions
Annexes
Flowchart to assist the official receiver in dealing with a bankrupt’s pension.
Flowchart to assist the official receiver when dealing with a pension operated by
the insolvent as an employer.
Annex A – Proforma letter to bankrupt enclosing qualifying agreement
Annex B – Draft qualifying agreement – EU pension
Annex C – Draft qualifying agreement – non-EU pension
Annex D – Proforma letter to pension provider enclosing qualifying agreement
Chapter content
Frequently asked questions – Pensions in bankruptcy
Frequently asked questions – Pensions operated by an insolvent as an employer
Introduction
Overview of pension matters
Pensions and divorce
Annuities, fund values and income drawdown
Exclusion of pensions from a bankrupt’s estate
Establishing whether a pension arrangement is approved
Exclusion of unapproved pension schemes
Exclusion of a pension administered from another EU member state
Revocation of a qualifying agreement
Exclusion orders
--- PDF page 2 ---
Realising pension benefits
Pension schemes operated by the insolvent as an employer - background
Action to take regarding a pension scheme operated by the insolvent
Pension Protection Fund (PPF) assessment of the pension scheme
Functions of official receiver when acting as trustee of a pension scheme
Frequently asked questions – Pensions
in bankruptcy
These FAQs are to assist official receivers in understanding the subject and should
be read in conjunction with the more detailed guidance given in the main body of the
chapter.
I thought that pensions were excluded from
the bankruptcy estate?
All approved pensions in cases made on a petition presented on or after 29 May
2000 are excluded from the bankrupt’s estate. This includes not only the pension
fund itself, but any related rights such as the right to receive a death benefit or the
right to bring a legal claim in respect of the pension.
What is an approved pension?
In essence an approved pension is one that has been approved by HMRC as being
tax compliant.
How will I know if a pension has been
approved by HMRC?
We take the position that a pension with a recognised national provider or a
recognised national employer will be tax approved.
Is there any way that the benefits of an
excluded pension can be realised?
--- PDF page 3 ---
Not directly but if the pension is comes into payment during the period of bankruptcy
or during the period of an existing IPA/IPO, the official receiver, as trustee, should
seek to enter into an IPA for any surplus pension income. The official receiver
cannot, however, ‘force’ the bankrupt to take their pension for the purposes of an
IPO/IPA.
What if the pension is unapproved?
Apart from in relation to foreign pensions, unapproved pensions are very rare, but if
you do encounter a pension that is unapproved, it will vest in the official receiver as
trustee of the bankrupt’s estate as any other type of asset.
What should I do with an unapproved
pension?
You should notify the pension provider and bankrupt of the official receiver’s interest
in the pension. Unless the bankrupt wants to enter into a qualifying agreement, the
pension would then be passed to the LTADT to monitor and realise as appropriate.
What is a ‘qualifying agreement’?
A qualifying agreement is an agreement between the bankrupt and their trustee in
bankruptcy that the pension will be excluded from the estate. Depending on the
value of the pension fund and the pension provision available for the bankrupt and
their dependents, the trustee should look for some payment to be made into the
estate in return for entering into the qualifying agreement.
Is there a time limit to enter into a qualifying
agreement?
A qualifying agreement must be entered into within nine weeks of the vesting of the
bankrupt’s estate in the trustee or the date that the pension ceased to be an
approved pension. This time limit is not able to be extended.
What if the trustee does not wish to enter into
a qualifying agreement?
The bankrupt can apply to court for an order that their pension is excluded from the
bankruptcy estate. They have 13 weeks from the date that the pension vested in the
--- PDF page 4 ---
trustee to apply for such an order. The bankrupt can apply for such an order before,
after or instead of attempting to enter into a qualifying agreement with the trustee.
I have a bankrupt with a pension that is
administered in another EU country. What do
I do about this?
A pension administered in another EU country is unlikely to have sought, or
received, HMRC approval and is therefore considered to be unapproved and forms
part of the bankruptcy estate.
Unapproved pensions are assets of the
bankruptcy estate, so would I send it
to LTADT for them to realise in due course?
No. The Insolvency Service is concerned to ensure that EU citizens that have
exercised their right to free movement within the EU are not disadvantaged by the
operation of UK law and we would not seek to realise the pension.
Why don’t we realise the pension?
We would take the position that a person that has a pension that is tax-approved in
its own EU country should be treated the same as a pension approved in the UK.
Since the law operates to vest the pension in the official receiver as trustee, we have
to find some other way of dealing with the pension.
How would I know if the pension has been
approved in another EU country?
If the pension is with an internationally recognised pension provider or employer, it
can be assumed that the pension is approved. Otherwise, there is some guidance in
the chapter.
How do we deal with an
‘approved’ EU pension?
We would deal with an ‘approved’ EU pension by entering into a qualifying
agreement with the bankrupt.
--- PDF page 5 ---
Qualifying agreements. I know about those –
so, we ask the bankrupt for a payment in
return for agreeing that their pension is
excluded from the estate?
A qualifying agreement is an agreement between a trustee and the bankrupt to
exclude the pension from the estate and we would normally seek a payment in return
for entering into the agreement. However, to seek a payment in these
circumstances would be treating the EU pension-holder differently from how we
would treat a bankrupt with a UK approved pension (which is unconditionally
excluded from the estate).
If the pension is able to be brought into payment within three years of the making of
the order, you should, in return for entering into the qualifying agreement, seek an
agreement that in the event the pension is brought into payment, the bankrupt will
enter into an IPA for any surplus pension funds. However you should not seek an
agreement that the bankrupt will bring the pension into payment. This is the same
way as we would treat a UK approved pension – in that we would seek an IPA/IPO in
relation to pension income.
And if the pension is not coming into payment
within three years?
Then the qualifying agreement would be unconditional.
Does the time limit for entering into the
qualifying agreement still apply to these
‘EU pension’ qualifying agreements?
Yes. The qualifying agreement must be entered into within nine weeks of the
pension vesting in the official receiver as trustee.
What about pensions held outside the EU?
These should be treated as any other unapproved pension.
--- PDF page 6 ---
I have a pension in a case that was made on a
petition presented before 29 May 2000. What
should I do?
A pension in a case made on a petition presented prior to 29 May 2000 would vest in
the official receiver as trustee (or trustee ex-officio). Naturally, the majority of
pensions of this type will already be with an LTADT but, if not, you should ensure
that the pension details (to include how the pension has come to light) are included
on the case file, obtaining (from the court file if necessary) and scanning to the file all
relevant documents and then send it to the LTADT.
What do the LTADT do with these pensions?
The LTADT will engage a contractor who will realise the pension for the benefit of
the bankrupt’s creditors.
Are there any exceptions to the general rule
that a pre-May 200 pension will be realised?
Yes. In cases made under the Bankruptcy Act 1914 (essentially, this will be cases
made before 29 December 1986), The Insolvency Service has taken a policy
decision not to realise vesting pension benefits. There can be problems obtaining a
court order to facilitate the realisation and there are often no records of the creditors
in these old cases, meaning that it can be impossible to make a distribution.
I am dealing with a bankrupt who has been
granted pension rights under a divorce
settlement. Would those rights vest?
Pension rights can pass to a former spouse in divorce proceedings under what are
known as earmarking or sharing arrangements. Assuming that the bankruptcy order
was made on a petition presented on or after 29 May 2000, the rights passed to the
bankrupt would be excluded from the estate as with any other form of pension
rights. If the order was made on a petition presented before 29 May 2000, the
pension rights should be dealt with as a vesting asset, following the guidance above.
--- PDF page 7 ---
Frequently asked questions – Pensions
operated by an insolvent as an employer
These FAQs are to assist official receivers in understanding the subject and should
be read in conjunction with the more detailed guidance given in the main body of the
chapter.
What do you mean, a ‘pension operated by an
insolvent’?
This is a pension operated by a company in liquidation or a bankrupt, as an
employer, for the benefit of the employees. You are far more likely to encounter such
a pension in a company case.
OK. So what do I have to do?
The difficulty, when an insolvency order is made against an employer, is that it will
no longer be able to operate the pension scheme and, particular, it will be unable to
continue to make contributions to the scheme.
Although not directly the responsibility of the official receiver, the rules surrounding
how such a pension are dealt with are designed to ensure that, so far as is possible,
the benefits promised to members under the pension are paid. There are certain
tasks for the official receiver in this regard, which are covered later.
What do I need to know about occupational
pension schemes?
For the purposes of fulfilling the official receiver’s obligations, you do not need to
know too much about occupational pension schemes. Suffice to say that there are
two types of occupational pension schemes.
The first is a ‘defined contribution’ scheme where the contributions to the pension
scheme accumulate into a fund which is invested and then used to pay the pension
benefits. In this type of scheme, the benefits payable will relate directly to the value
of the accumulated funds.
The second type of scheme is called a ‘defined benefit’ scheme. As a civil servant
you will be familiar with this type of scheme as it is the type that you are a member
of. This is a scheme where the benefits are promised at the outset and generally
relate to the time that the person has been a member and the amount of salary they
--- PDF page 8 ---
have earned whilst a member or when they retire, rather than being connected to the
monies paid into the scheme.
In both types of scheme, contributions are generally made by both employer and
employee.
What about stakeholder pensions?
Stakeholder pensions are effectively personal pension schemes accessed via the
employer and managed by a financial services company. In that sense they are not
pension schemes operated by the insolvent employer and the official receiver need
not be concerned with these schemes as they will continue to operate outside of the
insolvency.
What role does the official receiver have in
this?
The official receiver’s prime duty is to inform interested parties of the making of the
insolvency order.
Who are these interested parties?
They are the Pension Protection Fund, the Pensions Regulator and the pension
trustee(s).
What do these organisations do?
The Pension Protection Fund has the duty to provide a minimum level of benefits to
members of defined benefit schemes. Where the assets of the scheme are
insufficient to pay the benefits that the members were promised, the Pension
Protection Fund can make up some of the shortfall.
And the Pensions Regulator?
The Pensions Regulator has the job of ensuring that persons responsible for
providing access to and managing work based pension schemes fulfil their
obligations. They have the power to seek an order that a person responsible for a
pension fund having insufficient assets to pay benefits (leaving the Pension
Protection Fund to ‘pick up the tab’) makes a financial contribution to the assets of
the scheme. The Regulator can also appoint an independent trustee.
--- PDF page 9 ---
Trustee? What does the trustee do?
The trustee’s role is to ensure that the pension scheme is managed according to the
trust deed and rules. A pension scheme may have a number of trustees and they
may be a combination of members of the scheme, the employer, specialists or a
financial services company. At least one third of the trustees must be nominated by
the members of the scheme.
How are these interested parties notified of
the making of the order?
Notification is by way of the submission of a notice called a ‘section 120’ notice. It is
called this after the section of the Pensions Act 2004 that requires it be sent. The
form can be submitted in paper form, or on-line.
The Official Receiver, as liquidator or trustee, has also to issue a ‘section 122’ notice
to advise the interested parties whether or not the insolvent business is to be
rescued. If the business is to be rescued, the pension scheme can continue. Of
course, it is extremely unlikely that any business being dealt with by the official
receiver, as liquidator or trustee, will be rescued.
When should these notices be issued?
The section 120 notice should be issued within 14 days of the making of the
insolvency order or the official receiver becoming aware of the existence of the
pension scheme.
The section 122 must be issued as soon as practical after the decision has been
taken whether or not the business is to be continued. For most official receiver cases
this is likely to be no later than the time that the report to creditors is issued.
What is the effect of the section 120 notice
being issued?
The issuing of the section 120 notice starts a process whereby the Pension
Protection Fund will decide whether the pension scheme will be taken into an
assessment process, during which they will decide if the scheme has any shortfall
that needs covering. If so, they will assume control of the scheme from the trustees,
but the assessment process takes around two years so is unlikely to be completed
within the period that the official receiver is dealing with the insolvency.
--- PDF page 10 ---
It is likely that any defined benefit scheme operated by the insolvent will be taken
into the assessment process.
And what is the effect of the scheme being
taken into the assessment process?
The Pension Protection Fund will assume creditor rights in respect of the pension
scheme – for employer contributions to the scheme, for example (and should
therefore be added to the list of creditors). Otherwise the trustees will continue to
manage the scheme, following the trust deed and rules.
What if the company in liquidation is the sole
trustee?
The trustees have the duty to manage the pension scheme. It is possible that the
company was a trustee of the scheme, and might even have been the only trustee. If
the company is the sole trustee, the duties of the company as trustee would fall to
the official receiver as liquidator to discharge, which can be administratively
burdensome. If there are other trustees, the discharge of the trustee functions can be
left to the other trustees.
Fortunately, this situation is unlikely to occur as the Pensions Regulator will generally
appoint an independent trustee if the insolvent company is the only trustee.
What if the Pensions Regulator does not
appoint an independent trustee?
It is likely that the Regulator will be able to be encouraged to make such an
appointment as there can be a conflict between the liquidator’s duty to manage the
scheme to the benefit of the members and their duty to realise the company assets
(which can include any scheme surplus) to the benefit of the creditors. In the
extremely unlikely event that they do not, the official receiver should seek the early
winding-up of the pension scheme
How is the winding-up of the pension scheme
arranged?
It should be possible to effect the winding-up of the scheme simply by requesting this
in writing to the financial services company with whom the scheme was arranged.
--- PDF page 11 ---
If the scheme is in the Pension Protection Fund assessment process the official
receiver should seek their authorisation for the scheme to be wound-up before
starting the process. Of course, winding-up by the official receiver will not be
necessary if the scheme has been taken into the control of the Pension Protection
Fund.
Are there trustee duties that the official
receiver may need to carry out before the
scheme is wound-up?
There are some other duties that the official receiver may need to carry out. These
are explained in the Technical Manual but, generally, they may be categorised as
duties to issue documentation to the scheme members. For the most part, it should
be possible for the financial services company through whom the pension scheme is
operated to carry out these duties.
Are there any other actions for the official
receiver to carry out?
The official receiver has a duty to co-operate with the trustees of the pension
scheme, the Pensions Regulator and the Pension Protection Fund and to supply
information, as requested, to enable those parties to carry out their various functions.
The official receiver also has a duty to report, to the Pensions Regulator, any
concerns they have regarding the operation of the pension scheme.
Finally, the official receiver may need to defer the dissolution of the company if the
winding-up of the pension scheme has not been completed.
Introduction
57.1 General
This chapter provides advice on dealing with pensions from two different
perspectives:
•
where the official receiver is dealing with the affairs of a bankrupt who has an
interest in a pension, and
--- PDF page 12 ---
•
where the official receiver is dealing with the insolvency of an employer that
operated a pension scheme for the benefit of its employees
57.2 Pensions and bankruptcy
In any case where the bankruptcy order was made on a petition presented on or
after 29 May 2000, all approved pensions arrangements will not form part of the
bankrupt’s estate.
Pensions in all earlier cases will, for the most part, form part of the bankruptcy
estate.
Overview of pension matters
57.3 Types of pensions
There are a number of different types of pensions; the following are the ones that the
official receiver is most likely to encounter:
•
occupational pension schemes
•
personal pension plans
•
retirement annuity contracts
•
stakeholder pensions
•
self invested personal pension plans (SIPPs)
•
state pension
•
Second State Pension (S2P)
57.4 Occupational pension scheme
An occupational pension scheme is one set up by an employer for the benefit of its
employees and provides members with retirement and death benefits. Contributions
to the scheme are generally deducted at source, and may be supplemented by the
employer. The scheme may operate on the basis of defined benefits (where the
benefits are paid as a proportion of the final or average salary of the member), or
defined contribution (also known as money purchase), where the contributions made
by the member are used to purchase an annuity on retirement.
The scheme may be administered by pension trustees or by a financial services
company. Retirement age is dependent on the scheme rules, but cannot be before
age 60.
--- PDF page 13 ---
57.5 Personal pension plans
A personal pension plan (PPP) is an investment policy designed to offer a lump sum
and income on retirement.
A PPP is provided by a financial services company (including banks, building
societies and insurance companies) and is a money purchase arrangement. This
means the monies invested (usually on a monthly basis) are used to provide an
annuity and a lump sum on retirement. The lump sum is a maximum of 25% of the
pension fund value. The earliest retirement age in a PPP is 55.
57.6 Personal pension plans – amount payable
The amount of pension paid to a member on retirement will depend on:
•
the amount paid into the PPP
•
how well the investment performs
•
the annuity rate at the date a person retires
57.7 Retirement annuity contract
Prior to June 1988 (the date that PPPs were introduced), individuals not in
occupational pension schemes and those self-employed (and paying UK tax) were
able to invest monies in a retirement annuity contract (RAC). RACs took on largely
the same features as PPPs from April 2006.
57.8 Stakeholder pensions
Stakeholder pensions are a form of PPP, offered by an employer to its employees.
They are structured in such a way as to make them low cost and flexible. The
management charges that can be applied by the provider are limited and the
flexibility derives from the ability to switch providers without penalty, to start
contributions at a low level and to stop and start contributions as circumstances
dictate.
57.9 Workplace pensions
Workplace pensions are not a pension schemes in their own right; rather it is a
government scheme requiring an employer to enrol its employees in a pension
scheme, with deductions being made out of the employees gross salary. The
employee has the opportunity to opt out of the enrolment, should they wish.
57.10 Self invested personal pension plans
--- PDF page 14 ---
As the name might suggest, a self invested personal pension plan (SIPP) is a type of
personal pension plan (PPP). It differs from a PPP in that it allows a greater
flexibility as regards investment opportunity and it allows the member to borrow
against the fund for further plan investments. Whereas a PPP is generally structured
so that the plan holder pays a regular contribution to the financial services company
for that company to invest, a SIPP allows the plan holder to choose their own form of
investment, which may be, for example, shares, property, cash savings, antiques or
vintage cars.
The official receiver should look closely at a SIPP held by a bankrupt to ensure that it
has not been used as a vehicle to transfer assets out of the reach of
creditors. Further guidance on this can be found in chapter 32.
57.11 State pension
The state pension is a pension provided by the state that is intended to provide a
basic income in retirement. The date at which a person becomes eligible to draw the
state pension varies depending on when they were born. The amount payable is
dependent on a number of factors.
Further information on ’Your State Pension explained’.
A state pension cannot form part of a bankrupt’s estate, no matter when the date of
the bankruptcy petition is1.
1. Social Security Administration Act 1992 section 187 as amended by the State Pension Credit Act 2002 schedule 2(2) paragraph 23
57.12 Second State Pension
The Second State Pension (S2P) provided a top-up to the basic state pension based
on the individual’s earnings and was based upon earnings on which standard rate
class national insurance is paid. It was replaced by the revised state pension in April
2016 for new pensioners.
S2P is also known as Additional Pension and forerunners of S2P were the State-
Earnings Related Pension Scheme (SERPS) and, before that, the Graduated
Retirement Benefit.
57.13 Pension terms and ‘jargon’
The website of the Pensions Regulator contains a glossary that official receivers may
refer to if they encounter a term relating to pensions that they are not familiar with:
--- PDF page 15 ---
Pensions and divorce
57.14 Pensions and divorce – pension
earmarking
Generally, a spouse’s or civil partner’s right to a pension in a divorce/dissolution
settlement will be protected by the court making a special attachment order known
as an ‘earmarking’ order1. This order will require the pension provider to make some
form of payment (specified at the time of the divorce) to the former spouse/civil
partner when the pension benefits are payable. Either party can subsequently apply
to the court to have the amount varied.
A bankrupt’s right to benefit from such an order will be excluded from the estate if the
order was made on a petition presented after 29 May 2000, otherwise the rights
under the order would vest in the estate.
1. Matrimonial Causes Act 1973 sections 25B to 25G
57.15 Pensions and divorce – pension sharing
The other form of pension protection in divorce is pension sharing (where the
pension ‘pot’ is split on divorce). This will provide both parties with their own pension
for the future. This scheme did not come into force until December 20001, and has no
retrospective effect, so any pension sharing arrangement will affect only excluded
pensions.
1. Welfare Reform and Pensions Act 1999 sections 27 to 30
Annuities, fund values and income
drawdown
57.16 Transfer fund value and cash equivalent
transfer value
The transfer fund value is the cash value of the pension, and is simply the value of
accumulated funds and associated benefits.
The cash equivalent transfer value, of a pension is the expected cost of providing the
member’s benefits within the scheme, – generally, this will be in relation to an
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occupational pension scheme. Depending on the type of scheme this may simply be
the value of accumulated funds, or may require some more complicated calculations
related to assumptions regarding events affecting the scheme.
The relevance of the fund transfer value for the official receiver, as trustee, will be in
the realisation of a vesting pension scheme.
57.17 Annuity
Most defined contribution pensions operate in the way that the funds invested in the
pension accumulate and, at the time that the pension holder wishes to draw down
the benefits they will use the accumulated funds to take a lump sum and/or purchase
a separate policy known as an annuity. The annuity is simply a policy that provides
for periodic payments to the individual until a defined date/event – generally the
death of the policy holder.
Defined benefit schemes operate similarly (in that they provide for a lump sum and
periodic payments), but the benefits are set out in the rules of the scheme and
accrue independently of the contributions payable, often based on length of service
and/or the level of salary at retirement.
57.18 Income drawdown
An income drawdown plan (also known as an unsecured pension) is where the
pension-holder leaves the funds invested in the pension policy and draws an income
from that fund.
Exclusion of pensions from a bankrupt’s
estate
57.19 Pensions excluded from the bankruptcy
estate
The legislation1 provides that, where a bankruptcy order is made on a petition
presented on or after 29 May 2000, all rights and benefits under approved pension
arrangements will be excluded from the bankrupt’s estate.
The vast majority of pensions encountered by an official receiver in current cases will
be excluded from the estate by the virtue of these provisions, though it may still be
possible for pension funds to be claimed by the official receiver, as trustee, for the
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benefit of the estate through an IPA/IPO in relation to any scheme brought into
payment during the period of bankruptcy or an existing IPA/IPO.
1. Welfare Reform and Pensions Act 1999 section 11(1)
57.20 Trustee has no power to require that a
pension comes into payment
The court has considered whether the definition of ‘income’ for the purposes of an
IPO/A should include an entitlement to an undrawn pension and has found that there
is no entitlement to receive the pension monies until the decision is made on how to
draw the pension. Therefore a pension fund is not within the definition of ‘income’
unless the bankrupt decides to draw it, and the official receiver cannot require that it
is drawn1.
1. Horton v Henry (a bankrupt) [2016] EWCA Civ 989
57.21 Unapproved pensions – excluded by
court order or agreement
It is possible for the rights and benefits under an unapproved pension to be excluded
from the bankrupt’s estate by court order or agreement with the trustee. See the
guidance later in the chapter relating to unapproved pensions.
57.22 Pensions where petition presented prior
to 29 May 2000
Where the official receiver is dealing with a pension in a case where the order was
made on a petition presented before 29 May 2000 (and the pension is therefore not
excluded from the estate), they should follow the guidance later in this chapter
concerning the realisation of vesting pensions.
57.23 Exclusion of all rights and benefits under
the pension
All rights and benefits under an approved pension are excluded from the bankrupt’s
estate. This exclusion would include not only the right to receive a pension payment
and lump sum, but also any ancillary benefits such as a death benefit. Any right to
bring a claim (a right of action) where that right arises from the pension arrangement
would similarly be excluded from the estate.
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57.24 Establishing whether the bankrupt has
abused the protection given to pensions in
bankruptcy
Where the bankrupt is aged 55 or over and holds an undrawn personal pension fund,
the official receiver should obtain the current fund value1. Where the pension fund
value exceeds the total unsecured liabilities and, in a debtor’s application case, the
bankrupt might have elected to draw the pension before applying for bankruptcy,
official receivers are asked to consider whether the bankrupt met the insolvency
test. Where they did not, the official receiver should consider making an application
for annulment on the grounds that the order ought not to have been made.
1. PENSIONP5254
57.25 Claiming pension income where pension
drawdown is available
Where a pension has been claimed (drawn-down) by the bankrupt in the period of
their bankruptcy or the period of an existing IPA/IPO, the guidance in chapter 35
should be followed as regards the amount that can be claimed from the monthly
pension and any associated lump sum.
57.26 Exclusion of state pensions
As with other forms of benefits, the right to receive a state pension is excluded from
the bankrupt’s estate1.
In other words, the right to receive the pension cannot transfer to the official receiver,
as trustee, but they can still access, in theory, the pension benefits through an
IPO/A.
1. Welfare Reform and Pensions Act 1999 section 11(1)
Establishing whether a pension
arrangement is approved
57.27 An approved pension arrangement
An approved pension arrangement is defined in the legislation1 as, in summary:
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•
any pension schemes registered under the tax legislation2 (in essence,
schemes tax-approved by HM Revenue and Customs)
•
an annuity purchased in relation to a tax-approved pension scheme
•
an occupational pension scheme set up by a government outside the UK for the
benefit, or primarily the benefit, of its employees
1. Welfare Reform and Pensions Act 1999 section 11(2)
2. Finance Act 2004 section 153
57.28 No need to seek verification of tax
approved status/registration
It can be assumed by the official receiver that the vast majority of occupational
pension schemes and personal pensions will have tax approval/registration from/with
HM Revenue and Customs.
As such, the official receiver should not normally need to write to the pension
provider seeking confirmation of approval and may assume that the pension is
approved and, therefore, excluded from the estate.
57.29 A pension administered outside the UK
A pension arrangement administered outside the UK is unlikely to have achieved the
necessary UK tax-approval to qualify it as an approved pension that would be
excluded from the estate. The exception to this is an occupational pension scheme
set up by a government outside the UK for the benefit, or primarily the benefit, of its
employees, which is automatically excluded from the estate1.
If the pension is held in another European Union (EU) country, the guidance later in
this chapter should be followed, in particular paragraph 57.39. Otherwise, the official
receiver, as trustee, will need to consider the value of the pension against the likely
costs of obtaining the orders required to deal with the pension in that other country.
The cost of such an order is likely to be prohibitive and the best way to deal with the
pension interest is likely to be to enter into a qualifying agreement with the
bankrupt. Guidance on qualifying agreements can be found later in this chapter.
1. Welfare Reform and Pensions Act 1999 section 11(2)(c)
Exclusion of unapproved pension
schemes
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57.30 Exclusion of unapproved pension
arrangements – general
If a pension is unapproved it is still possible for the bankrupt to seek to exclude their
rights under the pension from the bankruptcy estate1, 2, 3. The relevant regulations
provide that the question of whether the pension is one in relation to which the
bankrupt can seek exclusion is dependent on the type of pension arrangement4, and
certain conditions relating to the pension5 being satisfied.
It is likely that any arrangement termed a ‘pension’ that is not an approved pension is
likely to fall within one of the definitions given in the regulations and therefore be one
in relation to which the bankrupt can seek exclusion from the estate.
1. Occupational and Personal Pension Schemes (Bankruptcy) (No.2) Regulations 2002 regulation 4
2. Occupational and Personal Pension Schemes (Bankruptcy) (No.2) Regulations 2002 regulation 3
3. Welfare Reform and Pensions Act 1999 section 12
4. Occupational and Personal Pension Schemes (Bankruptcy) (No.2) Regulations 2002 regulation 3(1)
5. Occupational and Personal Pension Schemes (Bankruptcy) (No.2) Regulations 2002 regulation 3(2)
57.31 Methods of exclusion of an unapproved
pension arrangement
In order to exclude their rights under an unapproved pension, the bankrupt may1:
•
enter into a qualifying arrangement with the official receiver as trustee, or
•
make an application to court for an exclusion order
Both methods are subject to time limits – see below.
1. Occupational and Personal Pension Schemes (Bankruptcy) (No.2) Regulations 2002 regulation 4
57.32 Qualifying agreements – general
A qualifying agreement is an agreement between the official receiver as trustee and
the bankrupt that their rights under the pension will not form part of the estate.
57.33 Qualifying agreement to be by deed
The qualifying agreement must be by deed (in writing and signed by both parties)
and incorporate all agreed terms.
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57.34 Pension provider/trustee to be given
notice
The official receiver, as trustee, must notify the pension provider and trustee of the
qualifying agreement, within 30 days of the date that the agreement was made1.
1. Occupational and Personal Pension Schemes (Bankruptcy) (No.2) Regulations 2002 regulation 6(5)
57.35 Qualifying agreements – time limits
The legislation provides that a qualifying agreement must be made within nine weeks
of1:
•
the vesting of the bankrupt’s estate in the official receiver as trustee, or
•
the date that the pension ceased to have HMRC tax approval/registration if that
date is after the vesting of the estate in the trustee
There is no facility for this time limit to be extended.
1. Occupational and Personal Pension Schemes (Bankruptcy) (No.2) Regulations 2002 regulation 6(1)
57.36 Qualifying agreements for unapproved
pensions
Where the official receiver is minded to enter into a qualifying agreement in relation
to an unapproved pension, they will need to consider entering into an agreement that
provides for some return to the creditors, because an unapproved pension is a
vesting asset which the official receiver should realise. In reaching such an
agreement the official receiver should take into account the types of matters
considered by a court when dealing with an application for an exclusion order and
also any excessive pension contributions.
As the calculation to be made in this regard will vary on a case-by-case basis, the
official receiver may seek the advice of the Senior Official Receiver’s Office before
entering into the agreement.
Where however the pension is one that is administered in a foreign EU state, the
qualifying agreement should be unconditional, provided that the pension is
‘approved’ within the state of its establishment. Further information on this can be
found below.
57.37 Qualifying agreements – excessive
pension contributions
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The official receiver should, before entering into any qualifying agreement, consider
whether there have been any excessive contributions into the pension fund1 and, if
so, the agreement should not be proceeded with unless recovery of the excessive
contributions forms part of the agreement.
1. Section 342A
57.38 The seeking of information from pension
providers
Where the bankrupt seeks information from the pension provider, and that
information is required in connection with the negotiation of a qualifying agreement,
the provider is required to produce such information with a period of nine weeks
beginning with the date on which the request is received1.
That period can be extended by order of court, where good cause is shown2.
1. Occupational and Personal Pension Schemes (Bankruptcy) (No.2) Regulations 2002 regulation 10(1)
2. Occupational and Personal Pension Schemes (Bankruptcy) (No.2) Regulations 2002 regulation 10(2)
Exclusion of a pension administered
from another EU member state
57.39 The exclusion of a pension administered
from another EU member state
A pension administered from another EU member state is likely to be an unapproved
pension.
In order to ensure parity of treatment for any EU national who has exercised their
right to freedom of movement within the EU, The Insolvency Service has, as a matter
of policy, decided to instruct the official receiver to seek to exclude the majority of EU
pension arrangements by entering qualifying agreements with the bankrupt.
Such a qualifying arrangement should be sought if the EU pension arrangement is
an occupational pension scheme (where the bankrupt was an employee but not a
director of the company), or the arrangement is a recognised pension scheme under
the laws of the EU state in which it is based.
Where the pension arrangement is not recognised under the laws of the EU state in
which it is administered, the official receiver should still enter into a qualifying
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agreement, but on the same terms as for a non-EU unapproved pension. Where
there is doubt, the advice of the Senior Official Receiver’s Office should be sought.
57.40 Establishing if scheme would be tax
approved in country in which it is
administered
HMRC provide a list of pensions that they have recognised as meeting tax
requirements of the country in which they are established. If a scheme is not on the
list, it does not necessarily mean that the scheme does not meet tax requirements in
its own country, it may be that the scheme provider has not applied
for HMRC recognition:
https://www.gov.uk/government/publications/list-of-qualifying-recognised-overseas-
pension-schemes-qrops
Alternatively, information may be sought from the bankrupt (in whose interest it will
be to provide the information), or from the pension provider.
57.41 Qualifying agreements – EU pensions
Where the official receiver is required to enter into a qualifying agreement in relation
to an EU pension, the terms of the agreement will be, essentially, unconditional
except for some requirements in respect of IPA/IPOs in that the bankrupt should
agree to provide information regarding the drawing of the pension during bankruptcy
or the term of any existing IPA/IPO.
Annex A is a letter that can be sent to the bankrupt explaining this position and
enclosing a draft agreement (Annex B) for signature. Annex D is a letter that should
be sent to advise the pension provider to inform them that a qualifying agreement
has been entered into.
Revocation of a qualifying agreement
57.42 Revocation of a qualifying agreement
Where the bankrupt has failed to make a full disclosure of all material facts in respect
of any pension agreement which is the subject of a qualifying agreement; and that
failure has resulted in a pension being excluded where it otherwise would not have
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been, the official receiver, as trustee, may revoke the qualifying agreement by giving
the bankrupt notice of the revocation1.
1. Occupational and Personal Pension Schemes (Bankruptcy) (No.2) Regulations 2002 regulation 6(3)
57.43 The notice of revocation
Where the official receiver, as trustee, needs to revoke a qualifying agreement, they
must issue a notice of revocation that1:
•
is dated
•
is in writing
•
specifies the reasons for revocation
•
specifies the date on which the agreement shall be revoked (which shall be at
least 30 days after the date of the notice)
•
informs the bankrupt that they have the right to apply for an exclusion
order within a period of 30 days of the date of the revocation
•
The official receiver, as trustee, must also notify the pension provider/trustee of
the revocation, within 30 days of the date of the notice2
1. Occupational and Personal Pension Schemes (Bankruptcy) (No.2) Regulations 2002 regulation 6(4)
2. Occupational and Personal Pension Schemes (Bankruptcy) (No.2) Regulations 2002 regulation 6(5)
Exclusion orders
57.44 Application to court for an exclusion
order – matters for the court to consider
In deciding whether to make an order excluding the bankrupt’s rights under an
unapproved pension from the bankruptcy estate, the court will take into account the
future needs of the bankrupt and their family and whether the bankrupt is, or is likely
to be, in receipt of benefits or pension (other than a UK state pension) that will assist
in meeting those needs.
The court can make an order that all or part of the pension benefits are excluded
from the estate1.
1. Occupational and Personal Pension Schemes (Bankruptcy) (No.2) Regulations 2002 regulation 5(3)
57.45 Application to court for an exclusion
order – time limits
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The bankrupt’s application for an order excluding from the bankruptcy estate their
rights under an unapproved pension must be made1:
•
within 13 weeks of the vesting of their
•
within 13 weeks of the date that the pension ceased to have HMRC tax
approval/registration if that date is after the vesting of the estate in the trustee,
or
•
within 30 days of the revocation of a qualifying agreement with the trustee
•
the court can extend these periods, before or after they have expired, where
good cause is shown2
1. Occupational and Personal Pension Schemes (Bankruptcy) (No.2) Regulations 2002 regulation 5(1)
2. Occupational and Personal Pension Schemes (Bankruptcy) (No.2) Regulations 2002 regulation 5(2)
Realising pension benefits
57.46 Realising pension benefits – general
This section of the chapter is concerned only with pensions that are vesting assets
by virtue of being property of a bankrupt in a case made on a petition presented prior
to 29 May 2000.
The majority of pensions in cases where the order was made on a petition presented
after 29 May 2000 will be excluded from the bankruptcy estate and, therefore, the
official receiver should take no action to realise those pensions.
57.47 Dealing with a vesting pension – ensure
that pension is one that vests
Before taking any action arrange for the realisation of a bankrupt’s rights under a
pension arrangement, the official receiver should be certain that the pension is one
that forms part of the, and should consider the guidance for pensions in cases where
the order was made under the Bankruptcy Act 1914.
57.48 Pensions in cases made under the 1914
Act
The Service has taken a policy decision that official receivers will take no action to
recover benefits in relation to pension arrangements in cases administered under the
Bankruptcy Act 1914.
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57.49 The vesting of a pension in the official
receiver as trustee
Apart from those pensions that are excluded from the estate, the bundle of
contractual rights that make up the bankrupt’s rights under a pension will vest in the
official receiver as trustee by virtue of the provisions of the Act1, 2, 3. It is irrelevant that
those rights may not be due for payment for some time, even after discharge4, 5.
Equally, it has been held that the vesting of pension rights is not contrary to the
European Convention on Human Rights6, 7, and forfeiture clauses (and similar) are
generally ineffective against the trustee in bankruptcy.
1. Section 283
2. Section 306
3. Section 436
4. Re Landau [1998] Ch 223
5. Jones v Patel [1999] BPIR 509
6. Krasner v Dennison and others; Lawrence v Lesser [2001] Ch 76
7. Malcolm v Mackenzie [2005] 1 WLR 1238
57.50 Official receiver as trustee has no better
claim on pension than bankrupt
Where the pension rights and benefits vest in the official receiver, as trustee1, 2, they
will have no better title to the asset than the bankrupt. In practice this means that the
trustee must wait until the bankrupt reaches the earliest retirement date under the
terms of the scheme before any benefits can be realised. In occupational schemes
(those without a valid forfeiture clause), the benefits are unlikely to be available until
the person chooses to retire.
1. Section 283
2. Section 306
57.51 Protection of the estate’s interest in
pension rights and transfer to LTADT
Where the (former) bankrupt is below the pension scheme’s normal retirement age,
or a vesting pension interest has otherwise not be dealt with, the official receiver
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should ensure that their interest in the pension has been noted by the pension
provider, before taking the following steps:
•
the pension details should be recorded on the case file as an asset
•
the official receiver should ensure that as a minimum the bankruptcy order and
creditor details are present on the case file
•
all relevant documents from the case/court file, including details of the former
bankrupt and/or the pension company should be scanned as a single PDF
document and uploaded to the asset documents area on the case file
•
if, in older cases, neither the court or case file is available the following note
should be added to the case file ‘Court and OR file requested but no longer
available’
•
the case file should have a note added to confirm how the pension has come to
light and confirm that all relevant and available documents have been up loaded
•
the case should then be transferred to the LTADT Pensions Team
57.52 Protected rights
Where an individual contracted out of SERPS , the portion of the pension rights that
related to SERPS were protected from a trustee in bankruptcy1 – these rights being
known as protected rights.
The concept of protected rights was abolished on 6 April 2012, and pension scheme
trustees are now allowed to treat protected rights as ordinary benefits.
This does not, however, affect the pre-April 2012 principle that rights identified as
protected rights at the date of bankruptcy were excluded from the bankruptcy estate.
1. Pension Schemes Act 1993
57.53 Realisation of pension rights –
contractor appointed
The Service has appointed a contractor to realise the benefits in pensions in relation
to cases made on petitions presented under the 1986 Act prior to 29 May 2000.
The pension will be passed by the LTADT to the contractor for realisation
57.54 Professional offers to realise pension
benefits
Any approach to official receivers by independent financial advisors, professional
pension trustee companies, insolvency practitioners or others with a plan to realise
pension benefits as an immediate lump sum payment should be refused if this
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involves the realisation of pension benefits before the earliest retirement age (usually
age 55). This early realisation is known as ‘pension liberation’ and is usually illegal.
57.55 Action to take when pension has been
realised
When the former bankrupt’s pension benefits have been realised (whether from
selling the official receiver’s interest or by realising the pension benefits – i.e., at the
conclusion of five years of annuity payments), the contractor will inform the pension
provider and bankrupt that the official receiver has no further interest in the pension.
The matter will then be passed back to the LTADT to arrange for distribution of the
realised sums.
57.56 Forfeiture clauses – general
A forfeiture clause is a clause in the rules of a pension that forfeit the member’s
rights under the pension in the event of certain events occurring. Some schemes
have a clause that seeks to forfeit the rights in the event of bankruptcy.
Any dispute regarding the validity (or otherwise) of a forfeiture clause is likely to have
arisen at the point that the pension provider was notified of the official receiver’s
interest in the pension.
57.57 Forfeiture clauses in personal pensions
invalid
A forfeiture clause in a personal pension is, in principle, invalid against the official
receiver, as trustee and should be challenged1.
1. Krasner v Dennison and others; Lawrence v Lesser [2001] Ch 76
57.58 Forfeiture clauses in occupational
schemes generally valid
Occupational schemes will often have forfeiture clauses which, if properly worded,
will be effective and the official receiver should not seek to challenge such a clause.
57.59 Non-assignment clauses
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All approved pensions will contain a general clause which prevents benefits being
assigned or charged – such a clause being necessary for the scheme to gain the
relevant tax-approval.
Such clauses are not effective against the official receiver as trustee as any asset
vests in a trustee without conveyance, assignment or transfer1. The official receiver
should not accept any refusal by the pension provider to pay funds or note their
interest based on such a clause.
1. section 306(2)
57.60 Pensions in cases where insolvency
practitioner trustee has obtained release
Where a case, in relation to which an insolvency practitioner trustee has obtained
their release, has an unrealised pension, the official receiver should write to the
pension provider(s)1 to inform them that the case is now being dealt with by
themselves and requesting that the provider update their records accordingly, before
passing the matter to the LTADT.
1. RTLUPEN2
Pension schemes operated by the
insolvent as an employer - background
57.61 The administration of an occupational
pension scheme
An occupational pension scheme will have three people (or groups of people)
involved in its operation – the employer, who sponsors and/or contributes to the
scheme, the employees/members who benefit from the scheme and the trustee who
manages the scheme on behalf of the members. The employer and/or the
members(s) may, in some cases, also be the trustee.
In an insolvency context, the official receiver, as liquidator or trustee, will be the
employer.
57.62 The effect of the insolvency of an
employer on a pension scheme
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The effect on the pension scheme of the insolvency of an employer will be set out in
the scheme’s trust deed and rules.
Unless the official receiver, as office holder, is the sole trustee, the responsibility for
considering and dealing with the effect of the insolvency on a pension scheme
operated by an insolvent will rest with the scheme trustees.
57.63 Trustee of a pension scheme
The role of a trustee of a pension scheme is to run the scheme in accordance with
the trust deed and rules for the benefit of the scheme members/beneficiaries.
The trustees (at least one third of whom should be nominated by the members) may
be drawn from:
•
employees
•
scheme members
•
professional trustees
•
the employer
•
a business involved in running the scheme (such as a financial services
company).
In reality, in many of the companies dealt with by the official receiver, the trustees
(who are likely to be the company and the director(s) of the company) will have
appointed a financial services company to run and manage the pension scheme –
though the trustees still bear ultimate responsibility for the correct operation of the
scheme.
57.64 Disqualification of pension scheme
trustee
It is a criminal offence to act as the trustee of a pension scheme whilst disqualified
from doing so. An individual who is subject to a disqualification order under the
Company Directors Disqualification Act 1986 or who is an undischarged bankrupt is
disqualified from being a trustee of a pension scheme1. Any company that has a
director that is disqualified from being a trustee is also disqualified2.
The Pensions Regulator may waive the disqualification, on the application of the
disqualified person3.
1. Pensions Act 1995 sections 29(1)(b) and 29(1)(f)
2. Pensions Act 1995 sections 29(1)(c)
3. Pensions Act 1995 sections 29(5)
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57.65 Pension Protection Fund
The role of the Pension Protection Fund (PPF) is to provide a minimum level of
benefits to members of a defined benefit pension scheme. The compensation will be
paid where there is a qualifying insolvency event, a shortfall in the funding of the
scheme needed to pay minimum levels of benefit, and it has not been possible to
rescue the pension scheme.
The PPF and its compensation scheme is funded by levies on each defined benefit
scheme.
Further information regarding the PPF can be found below.
57.66 Pensions Regulator
The Pensions Regulator is the UK regulator of work based pension schemes; its
specific objectives are provided for in the legislation governing pensions1, 2. The
Pension Regulator has a duty to ensure that all parties responsible for providing
access to and managing work-based pensions fulfil their obligations.
The Pensions Regulator has enforcement powers; for example, it can seek a
contribution notice where an employer has failed to fulfil its duty to properly fund a
pension scheme – leaving the PPF to deal with the shortfall. The contribution notice
requires the responsible person to make good the loss to the PPF3. Such an order
cannot be made against the official receiver for acts carried out in accordance with
their duties4.
The Pensions Regulator also maintains a list of independent pension trustees, and
has the power to make an appointment of a trustee from the list to a pension
scheme.
1. Pensions Act 2008
2. Pensions Act 2004
3. Pensions Act 2004 section 38
4. Pensions Act 2004 section 38(2)
57.67 Winding-up of a pension scheme
A pension scheme will normally be wound-up if the employer is unwilling or unable to
continue to make contributions to the scheme. In these circumstances, it will be for
the trustees of the scheme to decide if the scheme should be wound-up. If the official
receiver as liquidator is the only employer (i.e., if there are no other trustees and no
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independent trustee has been appointed), they should follow the guidance
below regarding winding-up.
Action to take regarding a pension
scheme operated by the insolvent
57.68 Pension schemes operated by the
insolvent – overview
This section of the chapter gives information and guidance regarding the official
receiver’s duties when a pension scheme operated by the insolvent for the benefit of
the insolvent’s employers is encountered by the official receiver. Such a scheme
would generally be termed an occupational pension scheme.
The flowchart attached to this chapter gives the official receiver on overview of the
process of dealing with a pension operated by an insolvent.
57.69 Stakeholder pensions ‘operated’ by the
insolvent as an employer
Stakeholder pensions are not a pension scheme operated by the employer, as such.
Instead, they are effectively personal pension schemes that are accessed by the
employee through the employer. The key difference is that the operation the scheme
is unlikely to be unaffected by the insolvency of the employer and it is not, therefore,
necessary for any action to be taken as regards these types of pension schemes.
57.70 A summary of the official receiver’s
duties/actions as regards an occupational
pension scheme
There are a number of duties on the official receiver, and actions for them to carry
out as regards the insolvency of an employer that operated an occupational pension
scheme:
•
to issue the standard letter to the pension scheme trustees/administrators
•
to notify certain interested parties in the event of the insolvency of an employer
that operated an occupational pension scheme
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•
to provide the pension scheme trustees with information required to manage the
pension, if so requested1
•
to provide information, usually on request, to the PPF, the Pensions Regulator
and the Redundancy Payments Service
•
to report concerns regarding the past operation of the pension to the Pensions
Regulator
•
to add the PPF to the list of creditors if the pension is accepted into the PPF
assessment process
•
defer dissolution in some cases
•
in exceptional circumstances, the official receiver may have other duties if the
insolvent employer were the only trustee of the pension scheme and no other
trustee can be appointed. Guidance on those other duties is given later in the
chapter
1. Pensions Act 1995 section 26
57.71 Establishing if official receiver is sole
trustee
The official receiver ought to be able to establish if they are the sole trustee (as
employer) from documentation available. In short, if the trust deed shows the
company as the only trustee then the official receiver, as liquidator of the company,
will be the sole trustee.
57.72 Establishing information regarding the
scheme
To assist in dealing with the pension, the official receiver should obtain the following
information from the pension scheme trustee/administrator, using the standard letter:
•
a copy of the trust deed or declaration of trust that established the scheme
•
a copy of the scheme rules, together with any amendments
•
for larger schemes, any explanatory booklets for scheme members
•
a list of scheme members, both current and deferred (that is, those members
who have left the company’s employment but still have a right to benefits from
the scheme
•
details of payments into the scheme during the two years prior to the winding-up
order
57.73 Standard letter to obtain pension
information must be sent
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There is a standard letter1 for the purpose of obtaining pension scheme information
from the trustees, which should be sent in all cases.
If all/some of the information requested in the letter has been obtained from other
sources, the letter should be amended as appropriate but should contain, as a
minimum, the official receiver’s claim, as liquidator of the company or trustee of the
bankrupt’s estate, for surplus funds.
1. PNCSTN
57.74 Notices to be issued to interested parties
The official receiver is required to issue:
•
a notification of insolvency event (known as a ‘section 120 notice’)1 on the
making of a winding-up order or a bankruptcy order and
•
a scheme status notice (known as a ‘section 122 notice’)2
As soon as reasonably practical3, 4 to the following interested parties5, 6:
•
the Pension Protection Fund (PPF)
•
the Pensions Regulator, and
•
the pension scheme trustees or managers
1. Pensions Act 2004 section 120
2. Pensions Act 2004 section 122
3. Pension Protection Fund (Entry Rules) Regulations 2005 regulation 9
4 Pensions Act 2004 section 122(7)
5. Pension Protection Fund (Entry Rules) Regulations 2005 regulation 5(2)
6. Pensions Act 2004 section 122(6)
57.75 PPF to be listed as a creditor
Assuming the PPF accepts the pension into an assessment process (guidance on
which follows), the PPF will assume all the creditor rights of the pension scheme
trustees. This means that the official receiver will be required, after that date, to issue
to the PPF all documents usually sent to creditors.
57.76 Issuing the section 120 notice
As outlined above, the official receiver is required to issue a notice to certain
interested parties of the making of a winding-up or bankruptcy order1. The notice is
accessed by following this link:
--- PDF page 35 ---
http://www.pensionprotectionfund.org.uk/DocumentLibrary/Documents/s120notice.pd
f
The form asks for details of the type of scheme, but there is no requirement that this
part of the form is completed2, so the official receiver should not spend time trying to
establish these details.
If the insolvent operated more than one pension scheme, a separate notice is
required for each scheme.
The form can be sent in paper format but there is an on-line facility, the use of which
will cause the form to be sent to the PPF, the Pensions Regulator and the scheme
trustees. Use of this facility requires registration, which is a simple process:
http://ppf-forms.org.uk/
1. Pensions Act 2004 section 120
2. Pension Protection Fund (Entry Rules) Regulations 2005 regulation 4(2)
57.77 Section 120 notice – time limits
The official receiver is required to issue the section 120 notice with 14 days of the
later of1;
•
the making of the winding-up or bankruptcy order, or
•
the date on which the official receiver became aware of the existence of the
scheme
1. Pensions Act 2004 section 120(2)
57.78 Issuing a section 122 notice
Assuming the PPF accepts the pension scheme into an assessment process, the
official receiver, as liquidator or trustee is required to decide whether rescue of the
pension scheme is possible. Such a rescue would only be possible if the insolvent
employer is continuing as a going concern. In the vast majority of cases dealt with by
the official receiver there will be no continuation of business and, therefore, the
official receiver will be required to issue a notice that scheme rescue has not been
possible1.
The form may be found by following this link:
http://www.pensionprotectionfund.org.uk/DocumentLibrary/Documents/s122notice.pd
f
The form should not be issued if a case with a trading business is to be handed over
to an insolvency practitioner. Responsibility to make the decision regarding the
rescue of the scheme will rest with the practitioner appointed.
--- PDF page 36 ---
1. Pensions Act 2004 section 122(7)
57.79 Official receiver unable to issue section
122 notice
Where the official receiver’s appointment as liquidator or trustee comes to an end
through the rescission or annulment of the order, they should notify the interested
parties of this fact.
The relevant form can be found by following this link:
http://www.pensionprotectionfund.org.uk/DocumentLibrary/Documents/s122_ceasing
%20to%20act.pdf
57.80 Provision of information to the trustee
The employer has a general duty to co-operate with the trustee of a pension
scheme1 and to provide such information as may reasonably be required to facilitate
the effective operation of the scheme. This duty is extended to the official receiver2,
as liquidator or trustee, but is subject to their ability to recover any costs incurred in
dealing with the duty. If not, they may require the pension scheme trustee to meet
the expenses.
There are civil penalties for failing in this duty and the official receiver should,
therefore, deal with requests for information from the trustee expeditiously – seeking
the guidance of Technical Section as appropriate.
1. Occupational Pension Schemes (Scheme Administration) Regulations 1996 regulation 6
2. Pensions Act 1995 section 26
57.81 Provision of information to the Pensions
Regulator
The Pensions Regulator has wide powers to seek information from parties dealing
with a pension scheme, including the official receiver1. Correspondence from the
Pensions Regulator should be dealt with promptly.
1. Pensions Act 2004 section 72
57.82 Deficiency in contributions – claim to
Redundancy Payments Service
--- PDF page 37 ---
If any of the insolvent employer’s contributions to the scheme, or those contributions
deducted from employees, are outstanding as at the date of the insolvency, it is
possible for the trustee of the pension scheme to make a claim on the National
Insurance Fund, via the Redundancy Payments Service (RPS).
The official receiver, as office holder, has a duty to co-operate with the RPS1, 2 and
any reasonable request for information or documents (which is likely to involve
completion of an RP15) should, therefore, be complied with.
1. Pension Schemes Act 1993 section 125
2. Pension Schemes Act 1993 section 157
57.83 Concerns regarding operation of the
pension scheme
Where the official receiver has concerns regarding the operation of the pension
scheme, they may be reported/discussed as follows:
•
concerns regarding the tax compliance of the scheme may be
reported/discussed with the HMRC Pension Schemes Office
•
concerns regarding breaches of law in relation to the operation of the pension
scheme should be reported to the Pensions Regulator (see Annex
•
H for address). Whether or not the official receiver is trustee of the pension
scheme, they are under a duty to report breaches to the Regulator1
1. Pensions Act 2004 section 70
57.84 Dissolution to be deferred – company
only
When the official receiver has completed the liquidation of the company, a letter
should be sent to the trustees and/or administrator of the scheme to check that the
imminent dissolution of the company will not hinder the administration/winding-up of
the scheme.
If the scheme’s trustees or administrators wish the company to remain on the
register, the official receiver should reach an agreement with them for a suitable
period of deferral of dissolution of the company.
The official receiver may nevertheless apply for release as liquidator, since they can
exercise the company’s functions in relation to the scheme as liquidator ex-officio at
any time before dissolution, if required1, 2.
1. Section 136(3)
--- PDF page 38 ---
2. Section 205
57.85 Appointment of an independent trustee
Following receipt of the section 120 notice, the Pensions Regulator has the power to
seek the appointment of an independent trustee to a pension scheme1.
It is the general policy of the Pensions Regulator to seek the appointment of a
trustee where the insolvent employer is the sole trustee and/or where the (other)
trustees are no longer contactable. Where the official receiver is aware that the
insolvent employer is the sole trustee, they should encourage the Pensions
Regulator to make such an appointment, if this is not already in process or has not
already been carried out.
It is unlikely, therefore, that the official receiver, as office holder, will have to carry out
any of the functions of a trustee of a pension scheme.
1. Pensions Act 1995 section 23
57.86 Exercise of company discretion
Depending on the terms of the pension scheme rules, the official receiver as
liquidator may be requested to exercise the discretion of the company to, for
example, allow the scheme to continue.
The exercising of such discretion often gives rise to a conflict between the
liquidator’s duties to the scheme members and company creditors. Conversely, the
official receiver may be under a duty to exercise discretion1.
The official receiver should therefore not exercise such discretion without first
obtaining legal advice that this is the correct way to proceed. The parties requesting
the exercise of discretion should pay the costs of obtaining that advice.
1. Bridge Trustees Ltd v Noel Penny (Turbines) Ltd [2008] Pens LR 345
57.87 Recovery of funds from the scheme
The rules relating to the operation of pension schemes provide that the scheme is
operated as a separate entity to the employer, and that the funds are not mixed with
company monies. It is extremely unlikely, therefore, that the funds in a pension
scheme would be available to the official receiver as liquidator. In certain
circumstances, however, some or all of the scheme funds might be claimed by the
liquidator. Some examples are as follows:
--- PDF page 39 ---
•
when the scheme is wound-up, it might have more funds that required to pay
the pensions of fund members. The standard letter to the pension scheme
trustee/administrator includes a claim for any surplus
•
if sums were paid into a scheme for the benefit of directors at a time when they
knew, or ought to have known, that the company was insolvent
•
if there was no reduction in pension contributions when the employees wages
were reduced, or they left the employment
•
if the rules of the scheme provides that contributions are recoverable if the
scheme is wound up soon after creation
As regards the final two bullet points, above, it is likely that the official receiver will
need specialist/legal assistance as regards recovery, which might be obtained from
any appointed antecedent recovery contractors.
57.88 Deficiency in pension scheme
Where, following winding-up of the scheme, there is a deficiency in the assets of the
scheme such that it is not possible to pay the benefits due under the scheme in full,
that deficiency is a provable debt against the company in liquidation or the
bankruptcy estate1.
Since a defined contribution (money purchase) scheme generally pays out benefits
based on the monies accumulated in the scheme, it is far more likely that a
deficiency in the scheme assets will be found in a defined benefit (final/average
salary) scheme.
1. Pensions Act 1995 section 75
57.89 Enquiries from scheme members
Enquiries regarding the pension scheme from scheme members should be directed
to the pension scheme trustees unless the PPF has assumed control of the pension.
If the enquiry regards the operation of the PPF compensation scheme, the enquirer
may be directed to the PPF.
Pension Protection Fund (PPF)
assessment of the pension scheme
57.90 PPF assessment of pension scheme
--- PDF page 40 ---
On receipt of the notice of insolvency and scheme status, the PPF decide, within 28
days, if the scheme is to enter into an assessment process. The PPF will assess the
pension scheme for eligibility for the compensation scheme based on the type of
insolvency event and the nature of the pension scheme. The types of insolvency
dealt with by the official receiver will meet the PPF eligibility criteria, as will most
occupational pension schemes that are defined benefit schemes1.
The assessment period may take up to two years, but the official receiver need have
no direct involvement, and will have little indirect involvement unless they remain as
the sole pension trustee, which is unlikely.
1. Pensions Act 2004 section 126(1)(a)
57.91 Conclusion of PPF assessment
Assuming the scheme meets the eligibility criteria, the PPF will issue a notice to the
official receiver and assume responsibility for the pension scheme from the trustees.
If any of the relevant eligibility criteria are not met, the PPF will have no further
involvement in the pension scheme. Similarly, the PPF will not assume control of the
pension if it is assessed that there are sufficient assets to pay the benefits due under
the scheme. In that case, it will become the responsibility of the scheme trustees to
wind-up the scheme.
57.92 Responsibility for pension during PPF
assessment
During the period of a PPF assessment, the pension scheme trustees will continue
to have responsibility for the scheme.
Any sums due to the scheme from the employer, during the assessment period,
should be passed to the PPF rather than the scheme trustees. In reality, such a need
to pass over monies is unlikely to arise in cases dealt with by the official receiver. If
in doubt, the official receiver should seek advice from Technical Section.
Enquiries from pension scheme members can be directed to the trustees or, if the
question is about the PPF compensation, the enquirer may be directed to the PPF.
Functions of official receiver when acting
as trustee of a pension scheme
--- PDF page 41 ---
57.93 Trustee functions – basic overview
This Annex gives a overview of the actions that are most likely to be required of the
official receiver when they are liquidator or trustee and when acting as the sole
trustee of the pension scheme (as employer in the form of the office holder). For the
reasons given elsewhere in this chapter, it is extremely unlikely that the official
receiver will ever be in this position and instead the Pensions Regulator should be
encouraged to seek the appointment of an independent trustee, particularly in view
of the potential for a conflict of interest.
Similarly, the duties described in this Annex will be carried out by the Pensions
Protection Fund, if that organisation takes control of the pension scheme.
For clarification, therefore, the official receiver should not be concerned with the
guidance in this section unless they are sole trustee of the pension scheme.
57.94 Official receiver acting as pension
trustee – possible conflict of interest
Apart from the administrative difficulties that the official receiver would encounter
when acting as pension trustee, there is also the risk of a conflict of interest.
The insolvent employer is entitled to any surplus pension funds following the
winding-up of the scheme. Many pension scheme rules provide that the pension
trustee has discretion over how these funds are utilised during the winding-up
process (they may, for example, be used to pay enhanced benefits to members).
In the event that the official receiver was acting as both pension trustee and
insolvency office holder, there would be an obvious conflict of interest over those
funds.
57.95 Official receiver acting as pension
trustee – priority action
Where the official receiver is the sole trustee of the pension scheme, the priority will
be to seek the early winding-up of the scheme. Normally this may be effected by
writing to the financial services company that is administering the scheme to request
that it is wound up1. Subject to scheme rules, the costs of the winding-up would be
borne by the scheme.
If this is not possible, perhaps because there is no financial services company
appointed, or the scheme rules do not allow winding-up to commence in that way,
the official receiver should seek the guidance of Technical Section, as it is likely that
--- PDF page 42 ---
legal/specialist advice will be required. Subject to the rules of the scheme, the costs
of such advice are recoverable from the scheme and will not be an expense to the
liquidation or bankruptcy estate2, 3.
1. PNCSTL
2. Trustee Act 2000 section 31
3. Trustee Act 2000 section 32
57.96 Transfer requests – background
A member of a pension scheme has the right to request the transfer of their pension
benefits to another scheme1, 2. Such an event is particularly likely to occur during the
winding-up of a pension scheme. The administration of this would fall to the pension
trustee to deal with, and must generally be dealt with within six months of receipt3.
1. Pension Schemes Act 1993 section 94
2. Pension Schemes Act 1993 section 95
3. Pension Schemes Act 1993 section 99
57.97 Transfer request made to official
receiver
Where a transfer request is made to the official receiver as trustee of the scheme, or
employer, they should agree to the transfer provided the following documents and
information are obtained:
•
a copy of the written transfer request
•
confirmation that the calculation of the cash equivalent of the member’s benefits
can be made without the need for the official receiver to exercise the discretion
of the employer or trustee
•
a certificate from the administrators of the desired scheme confirming that their
scheme is eligible to receive the transfer and that the cash equivalent will be
applied to acquiring rights under the rules of that scheme
Provided that this request is satisfied, the official receiver can sign the necessary
paperwork relating to the transfer without the benefit of further advice – though they
may consult Technical Section if desired.
In the event that any of this is not able to be provided it is likely that legal/specialist
advice will be required. Subject to the rules of the scheme, the costs of such advice
are recoverable from the scheme and will not be an expense to the liquidation or
bankruptcy estate1, 2.
--- PDF page 43 ---
1. Trustee Act 2000 section 31
2. Trustee Act 2000 section 32
57.98 Information to scheme members
The regulations relating to pension schemes require the trustees of a scheme to
issue a Members’ Booklet and disclose various pieces of information to scheme
members, including an annual report, audited accounts, an investment report for the
scheme, a statement of investment principles and a schedule of contributions.
Assuming there is one appointed, the official receiver may request that the financial
services company administering the pension deal with such matters. Subject to
scheme rules, the costs of this would be borne by the scheme.
If this is not possible, perhaps because there is no financial services company
appointed or the financial services company declines to act, it is likely that
legal/specialist advice/assistance will be required. Subject to the rules of the
scheme, the costs of such advice are recoverable from the scheme and will not be
an expense to the liquidation or bankruptcy estate1, 2.
1. Trustee Act 2000 section 31
2. Trustee Act 2000 section 32
57.99 Appointment of advisors
Depending of the type of scheme, occupational pension schemes are required to
appoint an auditor, an actuary and/or a fund manager.
An auditor is not required for schemes where all members are trustees (so this will
be of no concern to the official receiver).
An actuary is not required for a money purchase scheme, and a fund manager is not
required for wholly insured schemes.
Assuming there is one appointed, the official receiver may request that the financial
services company administering the pension deal with such matters. Subject to
scheme rules, the costs of this would be borne by the scheme.
If this is not possible, perhaps because there is no financial services company
appointed or the financial services company declines to act, it is likely that
legal/specialist advice/assistance will be required. Subject to the rules of the
scheme, the costs of such advice are recoverable from the scheme and will not be
an expense to the liquidation or bankruptcy estate1, 2.
1. Trustee Act 2000 section 31
--- PDF page 44 ---
2. Trustee Act 2000 section 32
57.100 Resolution of disputes
The trustees of an occupational pension scheme must ensure that arrangements are
made and notified to members for resolving disputes about matters in relation to the
scheme. The procedures must provide for a nominated person, on the application of
a complainant to give a decision on such an agreement. The trustees are required,
following a decision made by the nominated person, to reconsider the matter in
question. Where the official receiver is sole trustee of the pension scheme, they may
rely on the existing dispute resolution procedure.
Where there is no procedure in place, the official receiver may request that the
financial services company administering the pension deal with such matters.
Subject to scheme rules, the costs of this would be borne by the scheme.
If this is not possible, perhaps because there is no financial services company
appointed or the financial services company declines to act, it is likely that
legal/specialist advice/assistance will be required. Subject to the rules of the
scheme, the costs of such advice are recoverable from the scheme and will not be
an expense to the liquidation or bankruptcy estate1, 2.
1. Trustee Act 2000 section 31
2. Trustee Act 2000 section 32
57.101 Tracing scheme members
If it is necessary to contact a scheme member, but it has not been possible to
ascertain the member’s current address, the official receiver may use the Letter
Forwarding Service operated by the Department for Work and Pensions.
Further information about this service is given in the following web-page:
https://www.gov.uk/government/publications/pensions-and-insurance-tracing-and-
letter-forwarding-service
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ATTACHMENT: 58.Employment_law_and_insolvency.pdf
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--- PDF page 1 ---
This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 11 March 2020
58. Employment law and insolvency
Chapter content
Protection of employment rights
Termination of employment and dismissal
Redundancy
Employment law and insolvency proceedings
Claims to the National Insurance Fund
Definition of employment and
employment contracts
58.1 Scope of this guidance
Given the relative complexity and breadth of this area of law, and the official
receiver’s involvement in only certain aspects, this is intended to be a brief summary
only.
58.2 Employment rights
Employment rights (and obligations) arise from both statutory protection and from
common law (case law) precedent. For employment rights to arise there has to be a
relationship of employer and employee, which is normally a question of fact
demonstrated by the existence of an employment contract1.
1. Employment Rights Act 1996 section 230(1) and (5)
58.3 Defining the employment relationship
The key factor in establishing if parties have the relationship of employee and
employer is the existence of an employment contract, and employment has been
defined as ‘employment under a contract of employment, a contract of
apprenticeship or a contract personally to do work.’1.
--- PDF page 2 ---
Where it cannot be found that there is a contract of employment, it is likely that the
arrangement will be that of self-employment, under a ‘contract for services’2 and the
various employment rights will not apply.
1. Equality Act 2010 section 83
2. Bacica v Muir [2006] IRLR 35
58.4 Existence of an employment contract
A contract of employment may be express or implied1, 2, in writing or oral3. The
existence of a contract of employment is a question of law4 and, whilst the label that
the parties apply to the arrangement is persuasive, it is not determinative5. In
deciding that a contract of employment exists, a court or tribunal will seek to identify
the following features:
•
that the employer exercises some control over the employee6, 7, 8, 9.
•
that there is an obligation on the person to provide work personally10 and that
the work being done is integral to the business of the employer and not ancillary
to it11.
•
that there is a mutuality of obligation (normally, an obligation to work and an
obligation to pay for that work) 12, 13.
1. Franks v Reuters Ltd [2003] ICR 1166
2. Cheltenham Borough Council v Laird [2009] EWHC 1253
3. Employment Rights Act 1996 section 230(2)
4. Anar v Dresdner Kleinwort Ltd [2013] EWCA Civ 394
5. Young and Woods v West [1980] IRLR 201
6. Performing Rights Society Ltd v Mitchell and Booker [1924] 1 KB 762
7. Yewns v Noakes (1880) 6 QBD 530
8. Ready Mixed Concrete (South East) :td v Minister of Pensions and National Insurance [1968] 2 QB 497
9. Montgomery v Johnson Underwood Ltd [2001] ICR 819
10. Express and Echo Publications Ltd v Tanton [1999] ICR 693
11. Stevenson, Jordan and Harrison v MacDonald and Evans [1952] 1 TLR 101
12. Carmichael v National Power plc [1999] ICR 1226
13. Stephenson v Delphi Diesel Systems Ltd [2003] ICR 471
58.5 The status of ‘worker’
--- PDF page 3 ---
Certain statutory employment rights are extended beyond employees to ‘workers’1.
The definition of worker includes employees, but also includes one who agrees,
under contract, to perform personally any work or services for another party who is
not a professional client of his, or one who is in the employment of a government
department (but not a member of the armed services)2 3.
The term ‘worker’ would generally include agency staff, contract workers or
freelancers, which persons would not normally be included under the definition of
employee.
1. Pimlico Plumbers v Smith [2018] UKSC 29
2. Employment Rights Act 1996
3. Trade Union and Labour Relations (Consolidation) Act 1992 section 296(1)
58.6 Company directors as employees
Without more a company director is not an employee of the company of which they
are a director1. If, however, there is in place a service agreement, or similar, with the
necessary features of an employment contract then the director will also be an
employee, even if the director is the sole director and sole employee2.
If the person works full time as a managing director then there may be a presumption
that they are also an employee3, but as with other enquiries into employment, it is a
question of fact and law4.
1. McMillan v Guest [1942] AC 561
2. Lee v Lee’s Air Farming Ltd [1961] AC 12
3. Folami v Nigerline (UK) Ltd [1978] ICR 277 EAT
4. Parsons v Albert j Parsins & Sons Ltd [1979] ICR 271
58.7 Indicators of a director as an
employee
It has been held1 that the main factors in determining the question of a director’s
employment were:
•
the use of any descriptive term such as managing director, sales/marketing
director, etc.
•
whether there was an express contract of employment or a board minute
constituting an agreement to employ,
•
whether remuneration was by way of salary as opposed to a director’s fee.
--- PDF page 4 ---
•
whether that remuneration was fixed in advance rather than paid on an ad hoc
basis,
•
whether remuneration was by way of entitlement rather than being gratuitous,
•
the function actually performed by the director.
1. Eaton v Robert Eaton Ltd and another [1988] ICR 302
58.8 Partnership cannot be an employer;
partner cannot be employee
As a partnership has no separate legal identity it cannot employ people. Often, the
partnership name will be on an employee’s employment contract, but this is just as
convenient shorthand for the names of the partners.
Similarly, on the basis that a person cannot make a contract with themselves, a
partner cannot be employed by their own partnership1.
1. Ellis v Jospeh Ellis & Co [1905] 1 KB 324
58.9 Terms of an employment contract
The terms of an employment contract may arise from the express statements
(written or oral) of the parties to the contract1, written rules of the employer (even
those in the form of a notice posted to the workplace wall)2, 3, custom4, 5, 6, statutory
standards, implied terms and/or collective agreements with trade unions.
1. Nelson v BBC (No 2) [1980] ICR 11
2. Secretary of State for Employment v Associated Society of Locomotive Engineers and Firemen (No 2) [1972] 2 QB 455
3. Petrie v Macfisheries [1940] 1 KB 258
4. Sagar v Ridehalgh [1931] 1 Ch 310
5. Davson v France [1959] 109 LJ 526
6. Mears v Safecar Security Limited CA 5 April 1982
58.10 Implied terms of an employment
contract
Even if not detailed expressly, a contract of employment will commonly contain
implied duties on the employee and employer.
In this context, a term will be implied if it is so clear that the parties to the contract
would have considered it to be a term even though they had not expressly stated it,
--- PDF page 5 ---
or if the inclusion of the term would be necessary to give the contract practical
effectiveness1, 2.
1. Scally v Southern Health and Social Services Board [1991] ICR 771
2. Liverpool City Council v Irwin [1977] AC 239
58.11 Implied terms of an employment
contract - employee
Even if not detailed expressly, a contract of employment will commonly contain
implied duties on the employee, as follows:
•
to be ready and willing to work1
•
to use reasonable care and skill2
•
to be reasonably competent3
•
to obey lawful orders4, 5, 6, 7, but not those orders that, though lawful, might place
them in danger8
•
to take care of the employer’s property9
•
to act in good faith (not to take bribes, etc.)10, 11
•
not to act against the interests of the employer (by running a rival business ‘on
the side’, for example)12
1. Miles v Wakefield Metropolitan District Council [1987] AC 539
2. Lister v Romford Ice and Cold Storage [1957] AC 539
3. Harmer v Cornelius [1858] 141 ER 94
4. Price v Mouat [1862] 142 ER 895
5. Cresswell v Inland Revenue Commissioners [1984] ICR 508
6. United Kingdom Atomic Energy Authority v Claydon [1974] ICR 128
7. Morrish v Henlys (Folkestone) Ltd [1973] ICR 482
8. Ottoman Bank v Chakarain [1930] AC 277
9. Superlux v Plaisted (1958) The Times 12 December 1958
10. Reading v Attorney General [1951] AC 507
11. Dyson Technology v Curtis [2010] EWHC 3289 (Ch)
12. Balston Ltd v Headline Filters Ltd [1990] FSR 385
58.12 Implied terms of an employment
contract - employer
--- PDF page 6 ---
Even if not detailed expressly, a contract of employment will contain implied
obligations on the employer, as follows:
•
to pay contractually agreed remuneration1, though there is no obligation to
provide work2 unless the contract is for piece work, or similar3
•
to treat employees with trust and confidence4, 5, 6
•
to observe provisions relating to holidays and hours of work7 and to permit time
off for official duties (for example, time off for work as a justice of the peace)8
•
to indemnify employees in respect of expenses occurred in performing duties
under the contract9
•
not to provide a negligent reference10
•
to ensure the employee’s safety11
•
to provide a system of redress of grievances12
•
to suspend the employee only on reasonable grounds13
1. Langston v AUEW [1974] 1 WLR 185
2. Collier v Sunday Referee Publishing Co [1940] 2 KB 647
3. Devonald v Rosser [1906] 7 WLUK 11
4. Courtaulds Northern Textiles Ltd v Andrew [1979] 1 IRLR 84
5. Herbert Clayton & Jack Waller Ltd v Oliver [1930] AC 209
6. Malik v Bank of Credit and Commerce International [1997] IRLR 462
7. Working Time Regulations 1998
8. Employment Rights Act 1996 section 50
9. Lister v Romford Ice and Cold Storage [1957] AC 555
10. Spring v Guardian Assurance plc [1995] 2 AC 296
11. Dutton & Clark Ltd v Daly [1985] ICR 780
12. WA Goold (Pearmark) Ltd v McConnell [1995] IRLR 516
13. McLory v Post Office [1992] ICR 758
Protection of employment rights
58.13 Statutory protections
In addition to contractual rights afforded them (see above), employees and, in some
cases, workers have statutory rights/protections in respect of the following:
--- PDF page 7 ---
•
to receive a written statement of employment terms (such as rate of pay, hours
of work, holidays, notice period, place of work, etc.) within two months of
starting work1
•
to receive at least the national minimum wage2, 3, statutory sick pay, statutory
maternity pay, itemised pay statements and protection from unauthorised pay
deductions4, 5, 6
•
to receive rest periods, including holidays7
•
to receive equal pay for like work of equal value8 and not be subject to pay
confidentiality clauses9
•
not to be discriminated against in respect of gender, disability, age, marriage
and civil partnership, pregnancy and maternity, race, sexual orientation, religion
or belief, part-time or fixed-term status, trade union membership or gender
reassignment10
•
family rights such as maternity/paternity/adoption leave11, 12, 13, parental leave14,
leave to deal with caring commitments15, ante-natal leave16, 17
•
health and safety18
•
protection of employment rights where there is a transfer of undertaking19
•
notice on termination20
•
unfair dismissal21
•
redundancy22
•
payment of outstanding wages, etc. in the event of the insolvency of employer23
1. Employment Rights Act 1996 section 1
2. National Minimum Wage Act 1998
3. National Minimum Wage Regulations 2015
4. Employment Rights Act 1996 section 8
5. Employment Rights Act 1996 section 9
6. Employment Rights Act 1996 section 13
7. Working Time Regulations 1998
8. Equality Act 2010 Chapter 3
9. Equality Act 2010 section 77
10. Equality Act 2010
11. Employment Rights Act 1996 Part VIII Chapter I
12. Employment Rights Act 1996 Part VIII Chapter III
13. Employment Rights Act 1996 Part VIII Chapter IA
14. Employment Rights Act 1996 Part VIII Chapter II
15. Employment Rights Act 1996 section 57A
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16. Employment Rights Act 1996 section 55
17. Employment Rights Act 1996 section 57A
18. Health and Safety at Work Act 1974 section 2
19. Transfer of Undertakings (Protection of Employment) Regulations 2006
20. Employment Rights Act 1996 Part IX
21. Employment Rights Act 1996 Part X
22. Employment Rights Act 1996 Part XI
23. Employment Rights Act 1996 Part XII
58.14 Employment Tribunals
Employment Tribunals are, in essence, courts which specialise in hearing complaints
that a person’s statutory employment rights have been breached.
Before bringing a claim before a tribunal, the employee must have exhausted an
internal grievance procedure1.
1. Trade Union and Labour Relations (Consolidation) Act 1992 section 207A
58.15 Employment tribunals – hearing
An Employment Tribunal hearing is normally in front of a specialist employment
judge, a lay-person from a panel of those selected following consultation with
employers’ organisations and a lay-person from a panel of those selected after
consultation with employees’ organisations, though the panel may be limited to one
lay-person if both parties agree1. Similarly, the hearing may be in front of the judge
only if so ruled2.
1. Employment Tribunals (Constitution and Rules of Procedure) Regulations 2013 regulation 9
2. Employment Tribunals Act 1996 section 4
58.16 Employment tribunal claim –
insolvency
Where the bankrupt is bringing a claim in an Employment Tribunal, the guidance in
chapter 37 should be followed.
Where a claim is being brought against the insolvent, as an employer, the guidance
in paragraph 58.59 should be followed.
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58.17 Dispute resolution – ACAS code
The Advisory, Conciliation and Arbitration Service (ACAS) have produced a guide to
disciplinary and grievance procedures and, whilst adherence to the code is not
compulsory, it is admissible is evidence before an Employment Tribunal1 and the
Tribunal can take account of the extent to which it was followed when awarding
damages2.
The main features of the code are that a disciplinary proceeding should include a
written invitation to a meeting, a grievance should be in writing, with both procedures
including a meeting (with a right to be accompanied) and a right of appeal.
1. Trade Union and Labour Relations (Consolidation) Act 1992 section 207(1)
2. Trade Union and Labour Relations (Consolidation) Act 1992 section 207A
58.18 Protection of employee rights where
business transferred
The legislation1 provides protection to employees where there is a ‘relevant transfer’
of an undertaking. Such protection being, in essence, that the employees are
retained by the transferee, subject to their agreement2, under existing contract terms3,
4.
A relevant transfer (which would apply to both public and private sector
undertakings) may include a transfer by sale of the undertaking from one legal entity
to another5, or may be where a part of the undertaking is contracted out, passed from
one contractor to another, or ‘insourced’ (that is, taken from a contractor back to the
client business6). A transfer of share-holding does not qualify as a ‘relevant transfer’7.
1. Transfer of Undertakings (Protection of Employment) Regulations 2006
2. Transfer of Undertakings (Protection of Employment) Regulations 2006 regulation 4(7)
3. Transfer of Undertakings (Protection of Employment) Regulations 2006 regulation 4(1)
4. Transfer of Undertakings (Protection of Employment) Regulations 2006 regulation 4(2)
5. Transfer of Undertakings (Protection of Employment) Regulations 2006 regulation 3(1)(a)
6. Transfer of Undertakings (Protection of Employment) Regulations 2006 regulation 3(1)(b)
7. Initial Supplies Ltd v McCall [1992] SLT 67
58.19 Transfer of employment rights in
insolvency
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A relevant transfer does not occur where the employer is in formal insolvency, the
transfer is conducted after insolvency and is instigated by the liquidator or trustee1, 2, 3,
but would occur where the transferor was subject to administration proceedings4.
1. Transfer of Undertakings (Protection of Employment) Regulations 2006 regulation 8
2. Transfer of Undertakings (Protection of Employment) Regulations 2006 regulation 9
3. Secretary of State for Trade and Industry v Slater and others [2008] BCC 70
4. OTG Ltd v Barke [2011] BCC 608
58.20 Transfers of undertakings – rights
protected/transferred
The legislation1 provides protection to the employees of an organisation where that
organisation is transferred (through contracting out, privatisation, sale or takeover).
The main rights are:
•
the employment transfers to the new undertaking,
•
the employee cannot be dismissed by reason of the transfer or by a reason
connected to the transfer, and
•
the employment terms and conditions cannot be worsened because of the
transfer (except that the new employer is not obligated to continue an
occupational pension scheme2).
Any dismissal in breach of these terms, or failure to ‘carry over’ the existing terms
and conditions leading to resignation, will usually be considered an unfair dismissal 3.
1. Transfer of Undertakings (Protection of Employment) Regulations 2006
2. Transfer of Undertakings (Protection of Employment) Regulations 2006 regulation 10
3. Transfer of Undertakings (Protection of Employment) Regulations 2006 regulation 12
58.21 Continuity of employment
Most of the statutory employment protections outlined above are available only to
employees who have attained a minimum period of employment (which can be
between one month and two years depending on the protection). The calculation of
the length of continuous employment is with reference to the legislation1. In
particular, a person’s employment by a particular employer is considered to be
continuous unless the contrary can be shown2. There will normally be no break in
employment where the employee transfers to an associated business3, or where
there is a transfer of the employer’s undertaking4.
1. Employment Rights Act 1996 Part XIV Chapter 1
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2. Employment Rights Act 1996 section 210(5)
3. Employment Rights Act 1996 section 218(6)
4. Employment Rights Act 1996 218(2)
Termination of employment and
dismissal
58.22 Termination of employment
Under common law, a contract of employment may be terminated or otherwise
ended by:
•
either party by notice in accordance with the terms of the contract of
employment,
•
in the absence of such a term in the contract, by notice of such period as
agreed by the parties (providing that either term is not less than the statutory
minimum applying to that employment1). The minimum period for termination
can be waived by agreement (where there is a ‘golden handshake’, for
example)2,
•
expiration, being the expiration of time on a fixed-term contract,
•
termination by frustration. This is where it is impossible for the contract to be
performed in a way that might be reasonably expected (for example where the
employee is imprisoned3 or ill4), or
•
dismissal (by notice or summarily).
1. Employment Rights Act 1996 section 86
2. Employment Rights Act 1996 section 86(3)
3. FC Shepherd Ltd v Jerrom [1987] QB 301
4. Egg Stores (Stamford Hill) v Leibovici [1977] ICR 260
58.23 Notice on termination
Where an employee has been continuously employed for a period of one month or
more, they are entitled to receive at least the following period of notice before
dismissal1:
•
one week, if employed less than two years2.
•
one week for each year employed if employed between two and twelve years3.
•
twelve weeks if employed over twelve years4.
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An employee is entitled to a written statement of the particulars of the reasons for the
dismissal5.
1. Employment Rights Act 1996 section 86
2. Employment Rights Act 1996 section 86(1)(a)
3. Employment Rights Act 1996 section 86(1)(b)
4. Employment Rights Act 1996 section 86 (1)(c)
5. Employment Rights Act 1996 section 92
58.24 Termination without notice
Termination without notice (summary dismissal) is allowed where the termination is
by reason of the employee’s conduct1, but such dismissal is generally
wrongful unless it can be shown that the conduct of the employee was such that it
prevented further satisfactory continuance of the relationship2, 3.
Where an employer fails to give the statutory notice period, it must pay
compensation equal to the pay attributable to the notice period4, 5.
1. Employment Rights Act 1996 section 86(6)
2. Sinclair v Neighbour [1967] 2 QB
3. Laws v London Chronicle (Indicator Newspapers) [1959] 1 WLR 698
4. Employment Rights Act 1996 section 87
5. Employment Rights Act 1996 section 88
58.25 Unfair dismissal
In simple terms, a claim for unfair dismissal is a claim by an employee that that they
ought not to have been dismissed from their job (it was ‘unfair’ to have done so). The
primary remedy for an unfair dismissal claim is to reinstate the employee to the job
from which they were unfairly dismissed, or re-engage them in an alternative job.
Protection from unfair dismissal arises from statute rather than case law1. A
dismissal may be unfair even if it was conducted within the terms of the contract.
Unfair dismissal applications are heard by an employment tribunal.
1. Employment Rights Act 1996 section 94
58.26 Unfair dismissal – Considerations for
the tribunal
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Assuming the employment tribunal is satisfied that the dismissal was a dismissal and
not a resignation or termination by consent, it is for the employer to show the
reason(s) for the dismissal and that that reason(s) was/were1:
•
related to the capability or qualifications of the employee for performing work of
the kind which they were employed to do;
•
reasons related to the conduct of the employee;
•
that the employee was redundant;
•
that the employee could not continue to work in the position which they held
without contravention (either on their part or on that of their employer) of a duty
or restriction imposed by or under any enactment; or
•
some other substantial reason of a kind such as to justify the dismissal of an
employee holding the position which that employee held.
1. Employment Rights Act 1996 section 98
58.27 Unfair dismissal – Remedies
Where an Employment Tribunal finds in favour of a claimant in an unfair dismissal
claim it will explain that it can make an order to reinstate the employee and ask the
claimant if they wish the Tribunal to make such an order1, 2. If the claimant is minded
not to accept such an order, the Tribunal will instead make an order for financial
compensation.
1. Employment Rights Act 1996 section 112
2. Employment Rights Act 1996 section 113
58.28 Unfair dismissal – Basic awards and
compensatory awards
When an Employment Tribunal finds in favour of a claimant in an unfair dismissal
claim and reinstatement is not possible/desirable, it must make a basic award, which
is a payment based on a calculation relating to the length of service of the employee
and their wages1.
Additionally, the Tribunal may make a compensatory award to take account of the
employee’s immediate lost earnings, future lost earnings, lost fringe benefits,
expenses, loss of employment protection and the manner of dismissal (where there
has been reputational damage)2.
Finally, the Tribunal may also make a compensatory award where an order for
reinstatement is not (fully) complied with3.
1. Employment Rights Act 1996 section 119 to 122
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2. Employment Rights Act 1996 section 123 and 124
3. Employment Rights Act 1996 section 117
58.29 Wrongful dismissal
A claim for wrongful dismissal is a claim that the person was dismissed in breach of
their contract of employment (where, for example, a contractual notice period was
not given or where an inefficiency procedure was not followed correctly). Fairness (or
otherwise) is not at issue – maybe, for example, the employee was inefficient and it
was ‘fair’ to dismiss them, but the correct procedure (as provided for in the contract)
was not followed. The remedy for wrongful dismissal is normally financial
compensation. Wrongful dismissal is a concept of common law and claims are
brought before the court.
58.30 ‘Constructive’ dismissal
An employee is entitled to bring their employment to an end where the employer is in
breach of a fundamental term of the employment contract. Even though it is the
employee’s decision to leave the employment, they will be considered to have been
dismissed for the purposes of unfair dismissal and redundancy protection1. The
employee is also likely to be able to seek damages for wrongful dismissal.
Leaving the employment in such circumstances is known as ‘constructive dismissal’.
1. Employment Rights Act 1996 section 136(1)
Redundancy
58.31 Redundancy - General
A redundancy (for which compensation is payable) has occurred where a dismissal
is wholly or mainly attributable to1, 2:
•
the fact that an employer has ceased or intends to cease, to carry on the
business for the purposes for which the employee was employed, or has
ceased or intends to cease the business in the place where the employee was
engaged, or
•
the requirements for the employee to carry out work of a particular kind, or work
of a particular kind in the place where employed, have ceased, diminished or
are expected to cease or diminish.
Under legislation, where the employment is terminated by the death, dissolution or
insolvency of the employer it is automatically considered to be redundancy3.
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1. Employment Rights Act 1996 section 139(1)
2. Murray v Foyle Meats Ltd [2000]b1 AC 51
3. Employment Rights Act 1996 section 139(4)
58.32 Consultation prior to redundancy
Before declaring a redundancy scheme, the employer must hold a consultation with
the employees1, 2 or, where the employee has more than 20 employees, with the
employees’ representatives3, 4. The consultation must be fair and proper, at a time
where there can be meaningful discussions5. Where the employer has failed to follow
this procedure properly, the employees may, following a claim to an employment
tribunal6 be awarded compensation in the form of a protective award.
1. Polkey v A E Drayton Services Limited [1988] AC 344
2. Trade Union and Labour Relations (Consolidation) Act 1992 section 188
3. Mugford v Midland Bank plc [1997] ICR 399
4. Trade Union and Labour Relations (Consolidation) Act 1992 section 188
5. King v Eaton Ltd [1996] SC 74
6. Trade Union and Labour Relations (Consolidation) Act 1992 section 189 to 190
58.33 Redundancy payments
A right to a redundancy payment arises where the employee has been continuously
employed for two years or more at the relevant date (which date is essentially the
date that the employment is ended)1.
An employee loses a right to a redundancy payment if they refuse a reasonable offer
of alternative employment from the employer2.
The claim for a redundancy payment must be made within six months of the relevant
date3 and the amount of payment is based on the employee’s age, length of service
and gross average wage.
1. Employment Rights Act 1996 section 155
2. Employment Rights Act 1996 section 141
3. Employment Rights Act 1996 section 164(1)
58.34 Protective awards
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A protective award is an award made by an Employment Tribunal to an employee or
group of employees where an employer did not properly consult prior to instigating a
redundancy scheme.
The Tribunal can order the employer to pay a week’s pay to each employee for the
period staring with the first dismissal or the date of the award and ending with a
period determined fair by the Tribunal, but not exceeding 90 days pay, and subject to
payments already made by the employer to the employee1.
1. Trade Union and Labour Relations (Consolidation) Act 1992 sections 189 to 191
Employment law and insolvency
proceedings
58.35 Practical aspects of dealing with the
employees of an insolvent
Certain practical aspects of dealing with the employees of an insolvents business are
covered elsewhere in the Operational Guidance, as follows:
•
dismissing the employees of a trading insolvent (see chapter 11).
•
dealing with a pension scheme operated by the insolvent for its employees (see
chapter 57).
•
The position of employee claims as debts of the insolvent (see chapter 43).
58.36 Practical aspects arising from the
bankrupt’s employment
Certain practical aspects of dealing with matters arising from the bankrupt’s
employment are covered elsewhere in the Operational Guidance, as follows:
•
employment claims (see chapter 37)
•
income payment orders and income payment agreements (see chapter 35)
•
pensions (see chapter 57)
•
employee share schemes (see chapter 33)
•
employee car loan schemes (see chapter 27)
58.37 Effect of formal insolvency of an
employer on a contract of employment
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Where an employer goes into liquidation or is made bankrupt, there is no automatic
termination of the employees’ contracts1, 2. The non-payment of wages resulting from
the cessation of trade is, however, likely to be a breach of contract allowing the
employee to bring the contract to an end and seek damages for (constructive)
wrongful dismissal or redundancy.
1. Fox Bros v Bryant [1979] ICR 64
2. Smith v the Lord Advocate (1978) SC 259
58.38 Effect on an employment contract of
a bankruptcy order against the employee
It is a general legal principle that an employment contract (one that requires the
bankrupt to provide their skill and/or labour) cannot vest in the trustee in bankruptcy.
The official receiver, as trustee cannot carry out the role of the bankrupt, nor can the
bankrupt be forced to remain in the job1.
In essence, the only benefit that can be derived for the bankruptcy estate from an
employment contract would be through an IPA/IPO, or in respect of a claim in
relation to an employment contract that has come to an end (for wrongful dismissal
for example).
1. Beckham v Drake (1849) 9 ER 1213
58.39 Dismissal of employees engaged by
an insolvent business
Generally speaking, unless in the very rare circumstances that the business is to be
continued, the official receiver, as liquidator or trustee will be required to dismiss the
insolvent’s employees (see chapter 11).
Such a dismissal is likely to lead to a monetary claim by the employees, in particular
a claim for redundancy since the termination of an employment contract as a result
of insolvency is automatically considered to be redundancy.
58.40 An employee’s claim for monies
owed - General
Following the insolvency of their employer, an employee can make a claim in the
insolvency for monies due to him, some of which will be treated as a preferential
claim. No priority is, however, given to monies due under a claim for wrongful
dismissal1.
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The employee can also make a claim for outstanding monies to be paid to him/her
from the National Insurance Fund.
1. Re Leeds United Association Football Club [2008] BCC 11
Claims to the National Insurance Fund
58.41 Claims to the National Insurance
Fund – General
The legislation1 provides that, if an employer becomes insolvent, certain debts2 owing
to employees, and a redundancy payment may be paid by the Secretary of State
from the National Insurance Fund.
Wages, holiday pay, notice pay, a basic award for unfair dismissal and protective
awards for an employer’s failure to consult representatives about proposed
redundancies (a protective award) are payable only if the employer is insolvent.
However, insolvency is not a pre-requisite for the Redundancy Payments Service to
make a payment in respect of statutory redundancy.
The amount payable can also be off-set against a debt owed by the employee to the
employer3.
1. Employment Rights Act 1996
2. Employment Rights Act 1996
3. Secretary of State v Wilson [1997] ICR 408
58.42 The Redundancy Payments Service
The Redundancy Payments Service (RPS) administers the redundancy and
insolvency provisions of the Employment Rights Act 1996, acting on behalf of the
Secretary of State.
The main function of the RPS is to make payments from the National Insurance
Fund, on behalf of the Secretary of State, to employees who have been made
redundant and whose employers are unwilling or unable to pay the statutory and
contractual debts owed to the employees.
58.43 Claims to the National Insurance
Fund – Practicalities – Employee claims
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To make a claim to the National Insurance Fund, the employee needs to complete
their claim online via gov.uk, guidance is also available. A fact sheet is also
available for the office holder to provide to employees.
If an employee is unable to complete the application online then they should contact
the Redundancy Payments Service:
redundancypaymentsonline@insolvency.gov.uk
Telephone: 0330 331 0020
In order to make a claim an employees will need a unique CN reference number
which will be provided by the official receiver or appointed insolvency practitioner
(see chapter 11).
58.44 Claims to the National Insurance
Fund – Provision of information to RPS
The official receiver should notify RPS of the insolvency using the RP20 template
which should be completed and returned to the email address on the template. The
RPS will then will set up the OR case on their system which will generate a unique
reference number. RPS will email the official receiver’s office a spreadsheet that will
need completing and returning to enable them to send the EMPLET letters to the
employees. Once the letters have been issued to the employees, RPS will email the
official receiver’s office
The official receiver should be aware of the possibility of fraudulent claims being
made to the RPS and should pass on any concerns in that regard to the RPS as
appropriate.
58.45 Claims to the National Insurance
Fund – Insolvency practitioner appointed
Where an insolvency practitioner has been appointed liquidator or trustee, the official
receiver should pass all details held regarding the employees and their claims to the
insolvency practitioner as part of the handover and also notify the employees of the
appointment.
58.46 Definition of employee for the
purposes of employee claims to the
National Insurance Fund
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The types of employment arrangement that can lead to a claim to the National
Insurance Fund are limited.
In summary, self-employed persons and members of a partnership, in particular, will
not qualify (not being considered to be employees). Such non-qualifying persons
may lodge a claim in the insolvency as an unsecured creditor.
The official receiver need not get too involved in establishing whether a person’s
claim qualifies or not and, where there is doubt, should simply provide the employee
with the standard claim forms stating that any decision will be made by the RPS.
58.47 Limitations in respect of payment
from the National Insurance Fund for
outstanding wages, and similar (but not
redundancy)
There are certain legislative limitations that apply in respect of claims to the National
Insurance Fund for outstanding wages, holiday pay, notice pay, unfair dismissal and
protective awards. In particular, claims may only be made in relation to situations
where:
•
the employer is formally insolvent, and
•
the employment contract of the employee is terminated, but not necessarily by
the insolvency.
Additionally, only those debts specified in the legislation may be paid, subject to
financial limitation.
Insolvency is not a prerequisite where the claim is for redundancy
58.48 Definition of insolvency for the
purposes of claims to the National
Insurance Fund
Where insolvency is a requirement for a successful claim, the legislation1 defines it in
terms of formal insolvency proceedings and does not extend to those employers who
have simply ceased trading or, in the case of a company been dissolved without any
preceding liquidation. In particular, insolvency is defined as:
•
Where the employer is a company:
o A winding-up order has been made, or a resolution for voluntary winding-
up has been passed.
o If the company is in administration under the Act.
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o If a receiver or manager of the company’s undertaking has been
appointed or if possession has been taken on behalf of or by the holders
of any debentures secured by a floating charge.
o If a company voluntary arrangement (CVA) has been approved.
•
Where the employer is an individual:
o They have been adjudged bankrupt.
o They have made an arrangement or composition with creditors.
o If an individual voluntary arrangement (IVA) has been approved by
creditors.
o They have died and their estate falls to be dealt with in relation to the
provisions for deceased insolvents.
1. Employment Rights Act 1996 section 183
58.49 Circumstances not considered to be
‘insolvency’ for the purposes of claims to
the National Insurance Fund
In addition to cessation of trade and dissolution, the following circumstances are not
considered to be insolvency for the purposes of deciding an employee’s qualification
to make a claim to the National Insurance Fund:
•
receivers appointed under an express term under a fixed charge.
•
winding up of a partnership, where no bankruptcy orders have been made
against the individual members).
•
receivership under the law of property act 1925
•
appointment of a provisional liquidator.
•
appointment of an interim receiver.
•
receivership under the Agricultural Credits Act 1928.
58.50 Debts payable from the National
Insurance Fund
The following is a brief list of those debts guaranteed and payable from the National
Insurance Fund where the employment has been terminated due to the formal
insolvency of the employer1:
•
arrears of pay up to a maximum of eight weeks.
•
protective awards.
•
notice payments in compensation of an employer’s failure to give the correct
period of notice.
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•
holiday pay up to a maximum of six weeks during the last 12 months preceding
the award date.
•
any basic award for unfair dismissal.
•
reimbursement of a fee or premium paid by an apprentice or articled clerk.
•
pension scheme contributions.
•
maternity pay2.
1. Employment Rights Act 1996 section 184
2. Statutory Maternity Pay (General) Regulations 1986
58.51 Claims for outstanding wages,
holiday pay, notice pay capped
A payment in respect of a claim in respect of arrears of wages and holiday pay is
capped. The cap relates to the amount payable per qualifying week, and is reviewed
each year1, 2.
Where the employee is claiming for a notice payment in compensation for an
employer’s failure to give the correct period of notice3, the amount payable will
depend on whether they were dismissed unlawfully without notice or worked the
notice period. In the latter case, there will be a deduction to take account of earnings
or state benefits received in the period4, 5.
1. Employment Rights Act 1996 section 186
2. The Employment Rights (Increase of Limits) Order 2019
3. Employment Rights Act 1996 section 184(1)
4. Secretary of State for Employment v Cooper [1987] ICR 766 EAT
5. Westwood v Secretary of State for Employment [1985] ICR 209 HL
58.52 Claims for a redundancy payment
Whether or not the employer is formally insolvent and has failed to make a statutory
redundancy payment, the employee may make a claim to the National Insurance
Fund for payment of the sum due1.
This will be equally relevant for those employees made redundant as a result of the
insolvency (which, for the relevant provisions is defined in the same way as for
claims in relation to outstanding wages, etc.) – in relation to which the two year
period necessary to qualify for a redundancy payment will not apply.
1. Employment Rights Act 1996 Part XI Chapter VI
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58.53 Claims for outstanding pension
scheme contributions
The trustee of an occupational pension scheme can make application to the National
Insurance Fund for outstanding employer’s pension contributions, the claim will be
limited to the lowest of the following: follows1:
•
arrears accrued over the 12 months prior to insolvency,
•
arrears certified by an actuary (a pensions expert) to be necessary to pay the
employees’ benefits on dissolution of the scheme, or
•
10% of the last 12 months’ payroll for the employees covered by the scheme.
For employee contributions the amount payable is limited to those contributions
deducted from employees but not actually paid into the scheme within the last 12
months2.
1. Employment Rights Act 1996 section 124(1)
2. Employment Rights Act 1996 section 124(2)
58.54 Disputes to be resolved by
Employment Tribunal
Where there is a dispute regarding the (non) payment of a claim to the National
Insurance Fund, the matter may be referred by the claimant to an Employment
Tribunal to decide1, 2, 3.
1. Employment Rights Act 1996 section 170
2. Employment Rights Act 1996 section 188
3. Pension Schemes Act 1993 section 126
58.55 Time limit for claims to the National
Insurance Fund
Except for holiday pay (which must have been owed in the 12 months leading up to
the date of insolvency or the date of termination – whichever is the later), there is no
specific legislative time limit for a claim to the National Insurance Fund for claims in
respect of outstanding wages, etc., though such a claim may become statute-barred,
which would happen 12 years from the date of the insolvency for this type of claim.
There is no time limit for a redundancy claim, providing that the individual made a
claim in writing to their employer or to the NIF within 6 months of dismissal,
otherwise there can be no payment from the National Insurance Fund1.
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1. Crawford v Secretary of State for Employment [1995] IRLR 523
58.56 No minimum requirements
regarding length of service, age or hours
worked in respect of a claim to the National
Insurance Fund
To qualify to make a claim to the National Insurance Fund, the claimant is not
required to have worked for the employer for a minimum period of time (except to
qualify for notice pay or redundancy pay), nor for a minimum number of hours per
day/week/month. There is no minimum or maximum age limit to a claim and, where
the potential claimant is deceased, the claim may be made by their personal
representative.
58.57 Claims by directors of the insolvent
company
A director of a company can be an employee of that company and, that being the
case, will not be barred from making a claim to the National Insurance Fund. The
fact that the director had considerable control over an insolvent company will not, of
itself, disqualify them from making a claim to the national insurance fund1.
Similarly, a director may make a claim for a redundancy payment2.
1. Secretary of State for Trade and Industry v Bottrill [1999] ICR 592
2. Secretary of State for Business, Enterprise and Regulatory Reform v Neufield (Richard) [2009] BCC 687
58.58 Subrogation of claims to the
Secretary of State
Where the Secretary of State has made a payment out of the National Insurance
Fund to an employee, they will take the employee’s creditor rights in the insolvency
in relation to those claims settled from the Fund1, 2. This is known as subrogation of
the claim.
Subrogation can also apply to other third parties in respect of payments made by
them relating to employee’s remuneration and holiday pay.
1. Employment Rights Act 1996 section 189
2. Employment Rights Act 1996 sections 167(3) and (4)
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58.59 A claim with an Employment
Tribunal at the date of the order
Where the official receiver, liquidator or trustee, receives notification of proceedings
being brought in an Employment Tribunal against the insolvent by an employee, the
Tribunal and the claimant should be informed of the insolvency proceedings and
reminded that proceedings may not be brought or continued without the leave of the
bankruptcy court1, 2.
It may be the case that the employee is bringing a claim in order to establish a
liability that may be claimed from the National Insurance Fund (in respect of a claim
for unfair dismissal, for example). In such a case, the official receiver should not
object to such a claim proceeding providing that no order is made against the
property of the insolvent or against the official receiver personally, and should write
to all parties in these terms.
1. Section 130(2)
2. Section 285(2)
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 10 March 2020.
6. Restrictions on bankrupts
Chapter content
Restrictions applicable to individuals subject to bankruptcy orders, bankruptcy restrictions
orders, interim bankruptcy restrictions orders and bankruptcy restrictions undertakings
Restrictions imposed on bankrupts by insolvency legislation (including CDDA86)
Restrictions imposed on bankrupts by other legislation
Disqualification as trustee (charities and pensions)
Births, deaths and marriages
Education
Financial Matters
Housing
Legal matters
Transport
Other considerations concerning restrictions against undischarged bankrupts
Restrictions imposed on individuals subject to BROs/IBROs and BRUs
The following abbreviations are used in this chapter:
--- PDF page 2 ---
BRO – Bankruptcy restrictions order
IBRO – Interim bankruptcy restrictions order
BRU – Bankruptcy restrictions undertaking
LLP – Limited liability partnership
IA86 – The Insolvency Act 1986
CDDA 86 – The Company Directors Disqualification Act 1986
EA2002 – The Enterprise Act 2002
Restrictions applicable to individuals
subject to bankruptcy orders,
bankruptcy restrictions orders, interim
bankruptcy restrictions orders and
bankruptcy restrictions undertakings
6.1 Introduction
Various disabilities or restrictions are applied under insolvency and other legislation
to an individual who is subject to a bankruptcy order and remains undischarged from
the proceedings. The restrictions applying under insolvency legislation are triggered
by the making of a bankruptcy order and do not apply to an individual after discharge
from bankruptcy. However if the Secretary of State or official receiver, acting on a
direction of the Secretary of State, apply to the court for a bankruptcy restrictions
order (BRO), interim bankruptcy restrictions order (IBRO) or accept from a bankrupt
a bankruptcy restrictions undertaking (BRU), when it is considered that a bankrupt
has committed significant misconduct. Depending upon the severity of the
misconduct, a BRO or BRU imposes the restrictions of bankruptcy upon the
individual concerned for a period of between two years and fifteen years1, 2.
This chapter provides guidance to official receivers in establishing which restrictions
apply in bankruptcy, and which apply where an individual is subject to a BRO, IBRO
or BRU, including consideration of other legislation, regulations, rules etc. which may
apply restrictions on an individual as a result of them having been made the subject
of a bankruptcy order or BRO/IBRO/BRU.
1. Schedule 4A section 4(2)
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2. Schedule 4A section 9(2)
Restrictions imposed on bankrupts by
insolvency legislation (including
CDDA86)
6.2 Introduction
When an individual is subject to a bankruptcy order, he or she is subject to a range
of disabilities or restrictions until discharged from bankruptcy.
These disabilities or restrictions are imposed by a variety of sources including the
Insolvency Act 1986 (IA86), the Company Directors Disqualification Act 1986
(CDDA86) and other Acts of Parliament, regulations under consumer legislation and
local government bye-laws. The Enterprise Act 2002 (EA2002) introduced BROs,
IBROs and BRUs to impose restrictions on bankrupts whose conduct has been
dishonest, reckless or otherwise culpable (see section on restrictions applicable
against an individual subject to a BRO/IBRO or BRU).
6.3 Public protection
The restrictions imposed provide a means of public protection in return for the
bankrupt being able to make a fresh start. This part looks at the restrictions imposed
on undischarged bankrupts by IA86 as amended by EA2002 and CDDA86. See
section on restrictions which apply where an individual is subject to a BRO/IBRO or
BRU.
6.4 Obtaining credit whilst undischarged
from bankruptcy
If a person subject to a bankruptcy order wishes to obtain credit to the extent of £500
or more, either alone or jointly with another person, they must disclose the fact of
their bankruptcy (or that their estate has been sequestrated in Scotland) to the
person from whom they seek to obtain credit1. Failure to disclose the fact of their
bankruptcy will render the bankrupt guilty of an offence. If credit is incurred contrary
to the law, it is still a valid post-bankruptcy debt for which the bankrupt remains
liable.
--- PDF page 4 ---
The £500 limit is for the total amount of debt incurred with a single lender but the
limit can also be reached through a series of transactions each smaller than £500
provided that all the transactions were with the same lender and in total add up to
£500 or more - as soon as the limit of £500 has been reached, the offence is
triggered. Where the bankrupt has committed more than one offence of this type
(i.e. obtaining credit with a number of lenders each for an amount (or total amount) of
£500 or more without disclosing the bankruptcy), then all such offences should be
considered together for the purposes of a BRO allegation or a criminal referral .
Obtaining credit is specifically stated to include cases when goods are bailed under
hire-purchase agreements and conditional sale agreements and also to include
payment made to the bankrupt in advance for the supply of goods or services2.
1. Section 360 (1) (a)
2. Section 360 (2)
6.5 Operating a bank account whilst
undischarged from bankruptcy
An undischarged bankrupt is not prohibited by law from operating a bank account but
the restrictions on obtaining credit apply to the operation of any post bankruptcy
account. An undischarged bankrupt will not necessarily find it easy to open or
operate a bank account, as individual banks make their own commercial decisions
and may have a policy of refusing to operate accounts for undischarged bankrupts. If
requested to do so, the official receiver may write to a bank to confirm that they have
no objection to the undischarged bankrupt operating a bank account but the official
receiver must not sign any disclaimer relating to the operation of the account.
6.6 Engaging in business whilst
undischarged from bankruptcy
If an undischarged bankrupt wishes to engage directly or indirectly in any business
under a name other than that in which they were adjudged bankrupt, they must
disclose the name under which they were adjudged bankrupt to all persons with
whom they enter into business transactions otherwise they are guilty of an offence1.
For example, if after bankruptcy and before his discharge, Bert Jones wished to
trade as ‘Cheese Emporium,’ he would have to disclose that the proprietor of that
business was Bert Jones.
The individual is not prohibited from trading in partnership, although they must still
disclose the name in which they were adjudged bankrupt.
--- PDF page 5 ---
1. Section 360(1) (b)
6.7 Dispositions of property
Dispositions of property may be rendered void due to the operation of the Insolvency
Act. Between the date of the presentation of the petition and the date of the
bankruptcy order a disposition of property, including cash, is void unless made with
the consent of, or subsequently ratified by the Court. This includes a transfer of an
interest in the matrimonial home (Re Flint [1993] Ch 319).
Where a debt is incurred to a banker or other person after the commencement of the
bankruptcy by virtue of making a payment which is void under this section, the debt
will be deemed to have been incurred before the commencement of the bankruptcy
unless:
• the banker or person had notice of the bankruptcy before the debt was
incurred, or
• it is not reasonably practicable for the amount of the payment to be recovered
from the person to whom it was made
Dispositions made prior to the presentation of the petition may be set aside, by the
court on the application of the trustee, if they were at an undervalue or constituted a
preference1. A general assignment of book debts by a bankrupt who engaged in a
business is void against the trustee unless the debts were paid for prior to the
presentation of the bankruptcy petition or the assignment has been registered under
the Bills of Sale Act 18782.
For more information on antecedent recoveries see chapters 31 and 32.
1. Section 284
2. Section 344
6.8 Fraudulent disposal of property
The bankrupt is guilty of an offence if they make or cause to be made, or has in the
period of 5 years ending with the commencement of the bankruptcy made or caused
to be made, any gift or transfer of, or any charge on, their property, if that disposal
was fraudulent1.The reference to making a transfer of or charge on any property
includes causing or conniving at the levying of any execution against that property.
1. Section 357
6.9 Absconding
--- PDF page 6 ---
A bankrupt must hand over the property comprising their estate to the official
receiver or the trustee. If a bankrupt leaves England and Wales, or attempts to or
makes preparations to leave and has in their possession property which is worth
more than the prescribed limit (currently £1,000), they will be guilty of an offence and
liable to prosecution1.
See also chapter 19 which details the civil remedies available to prevent a bankrupt
from absconding or leaving the jurisdiction.
1. Section 358
6.10 Restrictions on holding office
Once a bankruptcy order has been made against an individual, there are various
offices which the individual must not accept, or must vacate if already held.
Restrictions on holding office imposed by other legislation are outlined in the next
section.
6.11 Insolvency practitioner
Section 390(4)1 prohibits a bankrupt from acting as an insolvency practitioner before
they are discharged from bankruptcy.
1. Section 390(4)
6.12 Parliamentary disqualification
Where a court in Scotland awards sequestration of an individual's estate that
individual is disqualified for sitting or voting in the House of Lords, for being elected
to, or sitting or voting in, the House of Commons, and for sitting or voting in a
committee of either House1.
An MP who is made bankrupt in England and Wales and Northern Ireland is not
automatically disqualified from membership but would be if they were subject to a
BRO or DRRO1.
The provisions also apply to members of the Scottish Parliament3, National
Assembly for Wales4 and the Northern Ireland Assembly5.
1. Section 427
2. Section 426A
3. Section 427(6A)
4. Section 427(6B)
5. Section 427(6C)
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6.13 Liquidation and Creditor’s committee
An undischarged bankrupt may not represent a member of a committee1. A person
who has been a member of a committee has their membership terminated
automatically in which case the person’s trustee in bankruptcy replaces the bankrupt
as a member of the committee2.
1. Rule 17.17(5) (d)
2. Rule 17.11(a)
6.14 Promotion, formation and
management of a company
It is an offence for an undischarged bankrupt to act as a director of, or directly or
indirectly take part in or be concerned in the promotion, formation or management of
a company, except with the leave of court1. An application by a bankrupt for leave to
act as a director or to take part in the promotion, formation or management of a
company is made to the court pursuant to Insolvency Rules 2016 rule 10.128.
If a company has adopted model articles of association, a director is obliged to
vacate office if they become bankrupt.
1. Company Director’s Disqualification Act 1986 section 11
6.15 Undischarged bankrupt, application
for leave to act (CDDA 86)
The court to which a bankrupt must apply for leave to take part in the promotion,
formation or management of a company must be the court by which they were
adjudged bankrupt. However the application for leave to act is not considered ‘local
business’ and the application shall be transferred to the appropriate Court1. The
bankrupt’s application must be supported by a witness statement2.
The bankrupt must serve notice of the hearing upon the official receiver and any
trustee, together with a copy of the application and the witness statement, not less
than 28 days before the hearing date3. The official receiver may file a report with the
court, drawing the court’s attention to any relevant matters, including whether or not
they intend to oppose the application. The official receiver’s report should be filed not
less than 14 days before the hearing date with a copy being sent to the bankrupt and
any trustee4. The bankrupt may file, in court, a notice specifying any matters in the
official receiver’s report which they intend to dispute or deny. A copy of this notice
should be sent to the official receiver and any trustee not less than 3 days before the
--- PDF page 8 ---
hearing5. The official receiver and any trustee may appear on the hearing of the
application, and may make representations and put to the bankrupt such questions
as the court may allow6.
It is the duty of the official receiver to attend the hearing of the application to oppose
it, if they are of the opinion that if leave to act were to be granted it would be contrary
to the public interest7.
1. Practice Direction – Insolvency Proceedings 2018 Para 3.6/3.7
2. Rule 10.128(1)
3. Rule 10.129(1)
4. Rule 10.129(2)
5. Rule 10.129(6)
6. Rule 10.129(7)
7. Company Director’s Disqualification Act 1986 section11 (3)
6.16 Limited Liability Partnerships
Regulation 4(2) of the Limited Liability Partnership Regulations (SI 2001/1090]1
applies the CDDA86 to limited liability partnerships (LLPs), all references to a
company are to include an LLP and all references to a director include a member of
an LLP. As a result of the application of section 11 of the CDDA86, an undischarged
bankrupt cannot be a member of an LLP except with the leave of court2.
1. Limited Liability Partnership Regulations (Statutory Instrument 2001/1090) Regulation 4(2)
2. Company Director’s Disqualification Act 1986 section 11
Restrictions imposed on bankrupts by
other legislation
6.17 Introduction
The following sections list some of the restrictions and disqualifications imposed by
non-insolvency legislation, which are automatically applied to undischarged
bankrupts.
It should be noted that the restrictions listed here are not exhaustive, and non-
insolvency legislation affecting restrictions against an undischarged bankrupt may be
subject to revision at any time, as such the relevant legislation must be checked.
--- PDF page 9 ---
If a query is raised by an individual as to a restriction which is not on the list below,
that should be advised to seek their own independent legal advice and/or consult the
necessary governing body.
6.18 Restrictions in force against
undischarged bankrupts
The following paragraphs list the most commonly encountered
restrictions/disqualifications imposed by other legislation against an undischarged
bankrupt.
Disqualification as trustee (charities and
pensions)
6.19 Charities Act 2011 s178 - trustee of a
charity
Section 178 of the Charities Act 2011 disqualifies anyone who is an undischarged
bankrupt (or who has had their estate sequestrated) from acting as a trustee of a
charity1.
1. Charities Act 2011 Section 178
6.20 Pensions Act 1995 s 29(1) (b) – trustee
of a pension scheme
Section 29 of the Pensions Act 1995 disqualifies an undischarged bankrupt from
being a trustee of a pension scheme, unless the disqualification is waived, on
application, by the Pensions Regulator1.
1. Pensions Act 1995 section 29(1) (b)
Births, deaths and marriages
6.21 Registration of Births, Deaths and
Marriages Regulations 1968
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An undischarged bankrupt is disqualified from being appointed as a Registrar of
births, deaths and marriages as a result of the application of regulation 5(a) (I)
(disqualification for appointment) of the Registration of Births, Deaths and Marriages
Regulations 19681.
1. Registration of Births, Deaths and Marriages Regulations 1968 regulation 5(a) (I)
6.22 Acting as Executor of a will
There are no restrictions upon an undischarged bankrupt that would prevent them
from acting as the executor of a will.
Education
6.23 School Governance (Constitution)
(England) Regulations 2012/1034 SI
Schedule 4 Qualifications and
disqualifications
An undischarged bankrupt is not disqualified from holding office, or continuing to
hold office, as a school governor1.
6.24 Federation of Maintained Schools
(Wales) Regulations 2014/1132
A person is disqualified from holding or continuing to hold office as a governor of a
federation if that person has been made bankrupt or sequestration of that person's
estate has been awarded and (in either case) that person has not been discharged
and the bankruptcy order has not been annulled or rescinded or a moratorium period
under a debt relief order applies in relation to that person2.
1. School Governance (Constitution) (England) Regulations 2012/1034 SI Schedule 4 Qualifications and disqualifications Regulation 17 Schedule 4
2. Federation of Maintained Schools (Wales) Regulations 2014/1132 Schedule 7 Para 6
Financial Matters
--- PDF page 11 ---
6.25 Consumer credit licence
The Financial Conduct Authority (FCA) is the regulator of consumer credit, any firm
with a consumer credit licence will be listed on the consumer credit register
maintained by the FCA. A bankrupt with a consumer credit licence or wishing to
obtain a consumer credit licence must notify the FCA of the bankruptcy, the
operation of the licence is a matter for the FCA.
6.28 Individual Savings Account
Regulations 1998
Following the making of the bankruptcy order against them, an undischarged
bankrupt or an individual who is the subject of a bankruptcy restrictions order or an
interim order is disqualified from acting as account manager of an account held
under the Individual Savings Account Regulations 19981, 2.
1. Individual Savings Account Regulations 1998 regulation 20(1) (b)
2. Statutory Instrument 2006 No.1722 The Enterprise Act 2002 (Disqualification from Office: General) Order 2006 Schedule 2(2) paragraph 13
Housing
6.26 Estate Agents Act 1979 – estate agents
An undischarged bankrupt is disqualified from engaging in estate agency work of any
sort otherwise than as an employee of another person. For this purpose the
employment of the bankrupt by another person does not include his employment by
a body corporate of which he is a director or controller1.
1. Estate Agents Act 1979 section 23
6.27 Housing Act 1985 "Right to buy"
council property
There is a restriction on the "right to buy" under section 121 of the Housing Act 1985,
the right to buy cannot be exercised if the person, or one of the persons, to whom
the “right to buy” belongs has made a bankruptcy application that has not been
determined, has a bankruptcy petition pending against them, or is an undischarged
bankrupt1.
1. Housing Act 1985 section 121
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6.28 Housing Act 1996 Schedule 1, Part 2
paragraph 4 as amended by Housing and
Regeneration Act 2008 – director/trustee
of registered social landlord
Welsh Ministers may remove an officer of a registered social landlord if such person
has been made bankrupt1.
1. Housing Act 1996 Schedule 1, Part 2, paragraph 4
Legal matters
6.29 Mental Capacity Act 2005 – Lasting
power of attorney (formerly enduring
power of attorney)
The Mental Capacity Act 2005 repealed the Enduring Powers of Attorney Act 1985,
and introduced the lasting power of attorney to replace the enduring power of
attorney. The legal effect of an enduring power of attorney already made under the
law current at the date of its creation is preserved.
Lasting power of attorney is a power under which the donor (the person conferring
the power) confers on the donee(s) (the person(s) receiving the power) the authority
to make decisions about the donor’s personal welfare, property or affairs, and
includes the authority to make such decisions where the donor no longer has
capacity1.
The making of a bankruptcy order against the donor (person conferring power)
revokes the lasting power of attorney so far as it relates to their property and
affairs2. An individual who is an undischarged bankrupt may not be appointed as a
donee (recipient) of a lasting power of attorney in relation to the donor’s property and
affairs3, but bankruptcy does not terminate their appointment or revoke the power, in
so far as their authority relates to the donor’s personal welfare4.
1. Mental Capacity Act 2005 Chapter 9 Part 1 paragraph 9
2. Mental Capacity Act 2005 Chapter 9 Part 1 paragraph 13(3)
3. Mental Capacity Act 2005 Chapter 9 Part 1 paragraph 10
4. Mental Capacity Act 2005 Chapter 9 Part 1 paragraph 13 (8)
--- PDF page 13 ---
6.30 Solicitors Act 1974 – suspension of
practising certificate (solicitors)
Section 15 of the Solicitors Act 1974 provides that any current practising certificate
held by a solicitor is immediately suspended on the making of a bankruptcy order.
The Law Society, on application, may lift the suspension of a practising certificate.
There is no such restriction placed on practising barristers although as a matter of
courtesy the Bar Council wish to be informed of any order made against members1.
[Note 15]
1. Solicitors Act 1974, section 15 and section 16
Transport
6.31 Goods Vehicles (Licensing of
Operators) Act 1995 s 26 – operator’s
licence
A traffic commissioner who has issued an operator’s licence may revoke, suspend or
curtail it where an individual to whom that licence has been issued is made bankrupt.
The official receiver should notify the commissioners at the local Traffic Area Office
immediately after the bankruptcy order is made1.
1. Goods Vehicles (Licensing of Operators) Act 1995 section 26
6.32 Public Passenger Vehicles Act 1981 -
public service vehicle operators’ licence
A public service vehicle operators’ licence or road service licence is terminated if the
individual holding that licence is made bankrupt1. [Note 17]
1. Public Passenger Vehicles Act 1981 section 57(2) (b)
6.33 MOT Authorised examiner
A Motor Vehicles Test (MOT) authorised examiner shall cease to be authorised if he
is adjudged bankrupt1. This provision does not relate to nominated testers.
1. Motor Vehicles (Tests) Regulations 1981, reg 9
--- PDF page 14 ---
Other considerations concerning
restrictions against undischarged
bankrupts
6.34 Restrictions on revocation of a county
court administration order
Where a person fails to make any payment which he is required to make by virtue of
an administration order under Part VI of the County Courts Act 19841, the
administration order may be revoked2. An individual who has an administration order
revoked may be subsequently declared bankrupt; as such the Official Receiver
should be aware of the restrictions imposed on an individual who has such an order
revoked.
1. Part VI of the County Courts Act 1984
2. Section 429
6.35 Disabilities where administration
order is revoked
Where the court revokes an administration order due to the individual concerned
failing to make required payments, it may direct that section 12 of the CDDA 86 shall
apply. Section 12 provides that such a person shall not (except with the leave of
court) act as a director or liquidator of, or directly or indirectly take part or be
concerned in the promotion, formation or management of, a company for one year1.
1. Company Director’s Disqualification Act 1986 section 12, EA 2002 Schedule23, paragraph 15
6.36 Restrictions applicable under an
administration order (IA86 section 429)
As in the case of bankruptcy, a person to whom section 429 applies is prohibited
from obtaining credit to the extent of the prescribed amount or greater as set out in
s360 (1) (a) and is prohibited from entering into any transaction for the purpose of
any business in which he is engaged, without first disclosing that the provisions of
section 429 apply to them. A person contravening the provisions of this section is
guilty of an offence and liable to imprisonment or a fine, or both.
--- PDF page 15 ---
6.37 Fit and proper person
There are instances in legislation, regulations, bye-laws and private club rules of
restrictions which refer to the individual being a ‘fit and proper person’ which may not
disqualify an undischarged bankrupt, but with the concept of culpable bankruptcy
and BROs, where the conduct of the individual in question is taken into account, it
may be that bankruptcy in itself will not lead to the restrictions being exercised
unless the bankruptcy leads to the making of a BRO which would give an indication
that the person is not fit and proper. It is not a matter for the official receiver to
determine if a bankrupt or an individual subject to a BRO/BRU is a ‘fit and proper
person’ but is down to the relevant governing body assessing the ‘fit and proper
person’ to determine.
6.38 Enlistment in the armed forces
If an undischarged bankrupt wishes to enlist in the armed forces they must notify the
recruiting officer of their status.
6.39 Professional bodies
Bankruptcy may also affect a person’s membership of professional bodies. The
bankrupt should be advised to contact the relevant professional body to determine
any restrictions that may apply.
6.40 Disciplinary matter for employees
An individual’s bankruptcy may render him/her subject to disciplinary procedures
according to the terms of their contract of employment.
Restrictions imposed on individuals
subject to BROs/IBROs and BRUs
6.41 Introduction
When an individual is subject to a BRO/IBRO or a BRU, he or she is subject to a
range of disabilities or restrictions until the BRO/IBRO or BRU has expired. The
court will grant a BRO if it thinks it appropriate to do so having regard to the conduct
of the bankrupt. A BRU does not require a court order, the bankrupt offering an
undertaking to the Secretary of State by which they agree to be bound by the
restrictions. An interim bankruptcy restrictions order (IBRO) is an order made by the
--- PDF page 16 ---
court at a time between an application for a BRO and the determination of the
application. An application for an IBRO may be appropriate where the one year
period of the bankruptcy will expire before the application for a BRO can be
determined and the nature of the misconduct alleged in the BRO report is such that
the public needs interim protection. An IBRO has the same effect as a BRO1.
1. Schedule 4A paragraph 5(4)
6.42 Post bankruptcy protection of the
public
Restrictions will apply to those individuals who, as a result of their misconduct, have
been made subject to a BRO/IBRO or BRU, even though they may have been
discharged from bankruptcy.
The restrictions will apply for a specified period between 2 years and 15 years from
the date of the BRO or any IBRO, whichever is the earlier, or from the date that a
BRU is accepted by the Secretary of State. A register of BROs, IBROs and BRUs is
maintained by the Secretary of State.
6.43 Restrictions applicable in
BROs/IBROs/BRUs
The disabilities or restrictions are imposed by a variety of legislation, regulations and
bye-laws, including the IA86, CDDA86 and other Acts of Parliament. BROs/IBROs
and BRUs serve to protect the public and business community against the minority
of bankrupts who have committed significant misconduct. See the EIG Effects of a
Bankruptcy Restrictions Order for details of the restrictions applied by insolvency and
non-insolvency legislation applicable in BROs/IBROs/BRUs. It should be noted
these may change at any time and the majority are ones over which The Insolvency
Service has no control. Indeed, the Insolvency Service has no responsibility to
maintain a definitive list of restrictions; rather it is the responsibility of those subject
to a BRO or BRU to comply with the relevant restrictions that may be in place from
time to time. In practice this means that the bankrupt will need to seek their own
guidance.
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 11 March 2020
60. Debt relief orders
Dealing with a Debt Relief Order (DRO) including application process
Annexes
Annex A - List of currently authorised competent authorities
Annex B - Bodies where membership is impacted by being subject to a DRO,
DRRO/IDRRO or DRRU
Chapter content
Introduction
Debt relief orders - eligibility
Application for a DRO
Considering the debtor’s application and the making of a DRO
Investigation into the debtor’s affairs and the revocation and amendment of a DRO
Effect of a DRO
Competent authorities and approved intermediaries
Restrictions imposed on debtors subject to a Debt Relief Order, Debt Relief
Restrictions Order, Interim Debt Relief Restrictions Order or Debt Relief
Restrictions Undertakings
Restrictions imposed on individuals subject to DROs by insolvency legislation
(including CDDA86)
Restrictions imposed on individuals subject to DROs by other legislation
Restrictions imposed on an individuals subject to DRROs/IDRROs and DRRUs
Introduction
--- PDF page 2 ---
60.1 General
Debt Relief Orders (DRO) were introduced by the Tribunals, Courts and
Enforcement Act 2007 and came into force on 6 April 2009. They provide a more
accessible form of debt relief for debtors who have relatively low level of debt,
minimal assets and insufficient disposable income to access alternative debt
solutions. This chapter will examine the circumstances under which a debtor might
apply for a DRO, the process for application and the involvement of the Insolvency
Service through the DRO team.
60.2 DROs general
A DRO, once granted, provides the debtor with relief from action by their creditors for
the moratorium period, usually one year, after which the debts are discharged. The
procedure is aimed at debtors who have minimal assets, a low level of liabilities and
who would have difficulty accessing other debt solutions. There is no vesting of the
estate in a trustee as with bankruptcy.
60.3 DROs pre-order
The DRO solution is provided by the Insolvency Service in partnership with the debt
sector. An application can only be made through an intermediary who has been
approved by a competent authority who in turn is authorised by the Secretary of
State 1.
The approved intermediary plays a vital role in the application process.
1. Section 251B
60.4 DROs and official receivers
The legislation requires that an application for a DRO is assessed by an official
receiver. This process has been centralised at the DRO team based in Plymouth
with its own official receiver1.
1. Section 251B(1)
Debt relief orders - eligibility
60.5 Eligibility - general
--- PDF page 3 ---
DROs are aimed at debtors who are unable to access debt relief through existing
debt solutions such as bankruptcy, debt management plans, Individual Voluntary
Arrangements or administration orders. To ensure that the scheme is available to the
debtors it is aimed at and is affordable, the legislation sets some criteria which a
debtor must meet in order to be eligible for the scheme. The approved intermediary
will check the debtor’s eligibility against the criteria prior to submission of the
application and complete the online form.
60.6 Basic eligibility criteria
The basic criteria that a debtor has to satisfy if they are to be successful in an
application for a DRO are as follows:
•
the debtor is unable to pay their debts
•
the debtor’s total liabilities do not exceed £20,000
•
the debtor’s total gross property level does not exceed £1,000
•
the debtor does not have a motor vehicle worth more than £1,000
•
the debtor’s disposable income, following deduction of normal household
expenses, does not exceed £50 per month
•
the debtor lives in England and Wales, or in the last three years has been
resident or carrying on business in England and Wales
•
the debtor has not been subject to a DRO within the previous six years
•
the debtor is not subject to any other current formal insolvency procedure
including a bankruptcy petition that has not been dismissed – unless the person
who presented the petition agrees to the debtor entering the DRO)
•
the debtor is not currently subject to a BRO/BRU or a DRRO/DRRU1
1. Schedule 4ZA
60.7 Relevant date for deciding eligibility
The debtor must meet the eligibility criteria on the day that the application is
determined by the official receiver1.
1. Schedule 4ZA
60.8 Inability to pay debts
In deciding if a debtor is not in a position to pay their debts, the official receiver must
presume this is this case if it appears to be so based on the contents of the debtor’s
application and there is no reason to believe the information is incomplete or
inaccurate or has changed since the application date1.
If the debtor was aware that they were going to receive a lump sum (perhaps, from a
pension or inheritance) within the 12 months of the DRO, then it is unlikely that a
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DRO would be appropriate as the process is aimed at those whose circumstances
are not expected to improve.
1. Section 251D
60.9 Debtor’s liabilities not to exceed £20,000
To be eligible for a DRO, the total amount of the debtor’s liabilities, other than
unliquidated debts and excluded debts must not exceed £20,0001. Debts that are
liquidated and not excluded are known as qualifying debts. Unliquidated debts and
excluded debts are not included in the calculation of total indebtedness but, equally,
those debts will not be subject to the moratorium period.
Explanations of these terms are given in the following paragraphs.
1. Schedule 4ZA paragraph 6
60.10 Qualifying debts
A qualifying debt is a debt that is:
•
for a liquidated sum payable either immediately or at some certain future time
and
•
is not an excluded debt
•
is not a secured debt
60.11 Liquidated debt
The legislation gives the definition of a liquidated debt as a debt that is for a
liquidated sum payable to a creditor either immediately or at some future time1. The
following paragraphs give some common examples.
1. Schedule 4ZA paragraph 6
60.12 Rent arrears
If the applicant has accumulated rent arrears these are a qualifying debt and should
be included in the application. The landlord can still seek possession of the property
after the making of the DRO notwithstanding that the arrears are a qualifying debt.
The landlord is simply exercising their right to recover their property from a defaulting
tenant. No leave of the court is required to either continue or commence the
possession proceedings. After a DRO is made a possession order might still be
suspended on any grounds except payment of rent arrears e.g. it might be
suspended by reference to payment of current (future) rent. It must therefore follow
that a possession order suspended before the DRO might be varied after the making
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of the order to exclude payment of the rent arrears. The applicant should seek
specialist housing advice before taking this step. When completing an assessment of
essential expenditure for the purposes of a DRO no allowance should be made for
the payment of rent arrears, whether or not that, at the time of completion, the
applicant is subject to a suspended possession order.
60.13 Council tax
Any amounts due and unpaid under an instalment agreement should be included in
the application. If the applicant’s council tax is up to date under their instalment
agreement then there is no debt because the unpaid balance relates to future
occupation of the dwelling. If instalment payments are in arrears and the applicant
has defaulted in respect of a final notice, this will have resulted in the full balance for
the year becoming due and payable. In this case, the full amount claimed on the final
notice should be listed in the application. Where the council has obtained a liability
order, the total amount claimed on the liability notice should be listed in the
application.
60.14 Income tax as a qualifying debt
Only those income tax debts that are determined (by returns or assessments) by HM
Revenue and Customs at the date of the application for the DRO can be considered
to be a liquidated debt and be a qualifying debt for the purposes of a DRO.
60.15 Court judgments
Where a debtor has committed an act that may result in another party making a legal
claim, for example causing a personal injury, the liability in this regard cannot be a
qualifying debt until there is a judgment (for example, a court order or judgment)
ordering an amount to be paid.
60.16 Secured debts
A debt is not a qualifying debt to the extent that it is secured. There is no special
meaning to the term “secured” in the legislation.
60.17 Excluded debts
The legislation provides that certain debts are automatically excluded from a DRO1.
1. Rule 9.2
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60.18 Excluded debts – fines
A Fine is defined as “any pecuniary penalty or pecuniary forfeiture or pecuniary
compensation payable under a conviction”. Any fine imposed for an offence is an
excluded debt1.
This definition may be taken to include a compensation order made under the
Powers of Criminal Courts (Sentencing) Act 2000.
Fines such as parking penalties imposed by local councils that have not gone
through the court process are not considered excluded debts.
1. Magistrates Courts Act 1980
60.19 Excluded debts – obligations under
family proceedings or CSA assessments
Any obligation (including an obligation to pay a lump sum or to pay costs) arising
under an order made in family proceedings or any obligation arising under a
maintenance assessment made under the Child Support Act 1991 is an excluded
debt1.
1. Rule 9.2(a)
60.20 Excluded debts – confiscation orders
Any obligation arising under a confiscation order made under the following Acts is an
excluded debt:
•
Drug trafficking Offences Act 1986, section 1, or
•
Criminal Justice (Scotland) Act 1987, or
•
Criminal Justice Act 1988 section 71, or
•
Proceeds of Crime Act 2002, parts 2, 3 or 41
1. Rule 9.2(c)
60.21 Excluded debts – student loans
Any debt or liability to which a debtor is or may become subject in respect of any
sum paid or payable to the debtor as a student by way of a loan and which they
receive before or after a debt relief order is made in respect of them is an excluded
debt. However, there is provision under the Regulations for a system of grants,
which are not repayable, some of which are paid directly to academic institutions and
some which relate to maintenance and are paid directly to the student. These are not
debts unless the student does not complete the course for which the grant was
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awarded, in this case there will have been an overpayment. The overpayment is a
qualifying debt if repayment has been requested.
60.22 Excluded debts – damages
Any debt which consists of a liability to pay damages for negligence, nuisance or
breach of a statutory, contractual or other duty, or to pay damages under Part 1 of
the Consumer Protection Act 1987 being in either case damages in respect of the
death or personal injury (including any disease or other impairment of physical or
mental condition) to any person is an excluded debt1.
1. Rule 9.2(d)</sub
60.23 Excluded debts – Social Fund loans
The liability to repay monies owed to DWP regarding a budgeting or crisis loan
(granted from the Social Fund) is an excluded debt1.
1. Rule 9.2(e)
60.24 Property level
The debtor must have a gross property level of less than £1,000 to be eligible for a
DRO. This is a fixed figure and cannot be exceeded. As the property level is gross
(rather than net) it is highly unlikely, if not impossible, that a homeowner would meet
this condition1.
In calculating the value of the debtor’s property certain property is excluded and this
is similar to bankruptcy2.
1. Rule 9.8
2. Rule 9.9
60.25 Definition of property
Property is defined in the Act as including “money, goods, things in action, land and
every description of property wherever situated and also obligations and every
description of interest, whether present or future or vested or contingent, arising out
of, or incidental to, property”. In a DRO a debtor’s property is considered to be all
property, which is not excluded property, at the date of determination of the
application.
60.26 Property level – motor vehicles
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A single domestic motor vehicle will be disregarded when determining the debtor’s
total gross property. The maximum value for the vehicle is £1,000.
The exception to this is a motor vehicle that has been specially adapted for use by
the debtor, because they have a physical impairment that has a substantial and long-
term adverse effect on their ability to carry out normal day-to-day activities. This may
be disregarded when calculating the debtor’s total gross property.
Only one vehicle may be disregarded per debtor1.
1. Rule 9.9(a)
60.27 Property level – vehicles on hire-
purchase
A vehicle on hire-purchase is not considered to be an asset and is not, therefore,
taken into account when calculating the total value of the debtor’s property.
However, the amount of the repayments will be considered in calculating reasonable
expenditure.
60.28 Property level – other items that are
disregarded
In addition to a motor vehicle certain other items are disregarded when calculating
the debtor’s property value1. They include:
•
tools of the trade
•
items satisfying the basic domestic needs of the debtor and/or their family
•
property held on trust for another
•
certain tenancies
1. Rule 9.9 (1)
60.29 Property level – excess principle
Where it appears to the official receiver that the realisable value of the whole or any
part of the value of property disregarded as tools of the trade or household effects, or
a vehicle disregarded as being specially adapted, exceeds the cost of a reasonable
replacement then they will disregard only the value of a reasonable replacement1.
1. Rule 9.9(3)
60.30 Property level – pensions
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A pension is excluded from the calculation of a debtor’s property. However, if the
debtor is over 55 and can draw down from their pension and that sum exceeds the
level of the liabilities it should be considered whether the debtor is able to pay their
debts and, therefore, not eligible for a DRO.
60.31 Property level – bank balance
Depending on when a DRO application is made, the debtor may have a bank
balance in excess of £1,000 (for example, if they have just been paid).
Intermediaries are expected to take a “rounded” view of the situation, and only list
the amount of the balance that will remain after essential household expenditure has
accounted for.
60.32 Income and expenditure
A debtor’s disposable income, following deduction of normal household expenses
must not exceed £50 per month for them to be eligible for a DRO. There is no
guidance in the legislation as to what are to be considered normal household
expenses and this will depend on the particular circumstances of the debtor. The
approved intermediaries who make the application for the DRO on behalf of the
debtor are expected to ensure that the expenses of the debtor are within normal
levels and will use something like the standard financial statement for consistency.
60.33 Determination of the debtor’s monthly
income
The Rules provide that the income of a debtor comprises every payment in the
nature of income which is from time to time made to them or to which they from time
to time becomes entitled, including any payment in respect of carrying on of any
business or in respect of any office or employment and any payment under a
pension scheme.
Any contribution made by any member of the debtor’s family is to be taken into
account when calculating the monthly surplus1.
1. Rule 9.7
60.34 Income and expenditure – Standard
Financial Statement
In the main, the approved intermediary will complete a Standard Financial Statement
(SFS) as part of the application process. The form contains “trigger” points to show
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up areas where the debtor’s expenses might exceed those considered normal and is
accepted as a standard tool in the debt advice sector. It is the responsibility of the
intermediary to ensure that the debtor’s expenses do not exceed the trigger points.
To maintain the integrity of the SFS, the levels of the trigger points are not widely
circulated. The official receiver will use the SFS to calculate whether there is a
surplus, and the amount, following any change in income or expenditure during the
moratorium period.
60.35 Employment status
The employment (or otherwise) status of the debtor will not affect their ability to enter
into a DRO so long as the debtor’s income, following deduction of normal household
expenses, does not exceed £50 per month. The debtor may be self-employed as
long as the surplus disposable income does not exceed £50 per month.
60.36 Expected improvement in income
position
If, at the time of application, there is an expectation that the debtor’s position, as
regards income, will improve to the extent that the increase will take their surplus
income over £50 (for example, if a pension is due to come into payment) then it
would normally be considered that the individual will not be eligible for a DRO.
Application for a DRO
60.37 Application process – role of official
receiver
The official receiver is not involved in the process of gathering the information for the
DRO application or completion of the application form. The official receiver’s role
begins once the application has been submitted and, at this point, they are required
to determine the application and make an order. This part of the chapter gives a brief
overview of the application process.
60.38 Application process – role of approved
intermediary
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The role of the approved intermediary is to guide the debtor through the DRO
application process and assist them in completing the application. Only an approved
intermediary can submit an application. As part of this process, the intermediary is
required to ensure that the debtor meets the eligibility criteria for a DRO. The
intermediary is assisted in this task by intermediary guidance notes issued by the
Insolvency Service. The intermediary cannot stop a debtor from making an ineligible
application, but must note the application to show that it has been submitted against
the advice of the intermediary1.
1. Rule 9.5
60.39 Application process – general
The application process is, largely, an electronic process, with the application being
completed electronically, on-line, and sent to the official receiver electronically.
60.40 Application fee
The current fee payable in respect of an application for a DRO is £90. The fee is for
the performance of the official receiver of their functions and for the payment of an
amount (not exceeding £10) in respect of the costs of the intermediary.
The fee must be paid on or before the date that the application is submitted and
must be paid at either the Post Office or a Payzone outlet1
1. The Insolvency Proceedings (Fees) Order 2016
60.41 Application fee payable in instalments
The debtor may pay the application fee in instalments at a Payzone type facility, or
the Post Office. Once the on-line completion of an application has been started the
debtor will be provided with a bar-coded letter which is used to ensure that the
instalment payment is allocated to the correct application. The instalment payments
must be completed before, or on the day, that the application is submitted.
60.42 Information to be provided in support of
application
The type and amount of information that must be supplied in support of the
application is provided for in the legislation. The legislation requires the debtor to
provide sufficient information to allow the official receiver to make a decision whether
to approve or decline a DRO application based on the eligibility criteria. The
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application must be made electronically and the form completed ensures that the
relevant information is supplied1.
1. Section 251B
60.43 Application process – fee charged by
intermediary
The intermediary is not allowed to charge a debtor a fee in connection with
assistance provided in respect of an application for a DRO1.
1. Section 251U(7)
Considering the debtor’s application and
the making of a DRO
60.44 Consideration of debtor’s application
and granting of DRO – general
The official receiver has a duty to consider and determine an application and must
either refuse it or make an order. The official receiver may stay consideration of the
application until they have received answers to any queries in relation to anything
connected with the application. There are specific grounds under which the official
receiver may decline an application and grounds under which they must decline an
application and these are set out in the following paragraphs.
60.45 Consideration of a DRO application –
timeliness
All DRO applications will be assessed within two working days of being received by
the DRO team for determination. The majority of orders will be made on the same
day.
60.46 Grounds under which the official
receiver may refuse an application for a DRO
The official receiver may decline an application for a DRO on the following grounds:
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•
the application does not meet the requirements set out for the format and
content of an application for a DRO
•
queries raised with the debtor have not been answered to the satisfaction of the
official receiver within such time as they may specify
•
the debtor has made any false representation or omission in making the
application or in supplying any information or documents in support of it
•
the debtor has entered into a transaction at an undervalue or given a preference
in the two years prior to the application
Each case is considered on its own circumstances in the round and the materiality of
the debtor’s conduct is taken into account. A decision is then taken by the official
receiver as to whether the order should be refused1.
1. Section 251C(4)
60.47 Grounds under which the official
receiver must refuse an application for a DRO
The official receiver must decline an application for a DRO if they are not satisfied
that:
•
the debtor is an individual who is unable to pay their debts
•
at least one of the specified debts was a qualifying debt at the date of the
application
•
the other eligibility criteria in respect of property level, income surplus level, debt
level and insolvency history are met1
1. Section 251C(5)
60.48 Refusal of an application
If the official receiver declines an application they must give reasons for the refusal.
The official receiver must deliver a notice to the debtor stating that they has decided
to decline the debtor’s application, and the reason for which it has been declined1.
1. Section 251C(7)
60.49 Presumptions to be made by the official
receiver when considering the application
The DRO process is designed to be a low-cost alternative to those debtors who are
unable to access other forms of debt relief (for example, bankruptcy or IVA). The
legislation allows the official receiver to make certain presumptions regarding the
debtor’s application, without the need for further enquiry1.
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In essence, these provisions allow the official receiver to presume that the
information in the debtor’s application is correct unless information to the contrary is
available. The legislation does allow that some basic verification checks are carried
out.
1. Section 251D
60.50 Verification checks
The DRO process does not involve an interview with the debtor and, generally
speaking, the official receiver is entitled to presume that the facts stated in the
debtor’s application are true. The legislation provides for verification checks to be
carried out. In the main, these are checks on the IIR (to check insolvency history)
and via a credit reference agency (to confirm ID, domicile, debt levels, property
levels)1.
1. Rule 9.6
60.51 What happens if a debtor has omitted to
list a creditor in their application?
A creditor cannot be added to an application after submission. The omitted creditor
will fall outside the proceedings and can pursue their debt in the normal way and it
will not be discharged at the end of the moratorium period. However, the official
receiver must consider whether that debt, added to the listed liabilities would take the
total debts over the £20,000 threshold. If this is the case the DRO will be revoked.
60.52 Format of debt relief order
If the official receiver determines that the debtor’s application should result in the
approval of a DRO application, then they must make the order1.
The order must contain the debtor’s name and address, the reference number
allocated to the application, a list of the qualifying debts as at the date of the
application, specifying the amount owed and the creditor to whom it was owed and
the date on which the order was made 2,3.
Each qualifying debt specified in the order this way is known as a ‘specified
qualifying debt’ or a ‘specified debt’4.
1. Section 251C(3)(b)
2. Rule 9.1031. Section 251G(1)
3. Section 251E(3)
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4. Section 251G(1)
60.53 Action required by official receiver on
making of DRO
On the making of the DRO, the official receiver is required to give a copy of the order
to the debtor and to make an entry in the DRO register (IIR). The delivery of the
order to the debtor is achieved by sending it by post. In addition, the official receiver
must notify the intermediary of the making and date of the order1,2.
1. Section 251E(4)
2. Rule 9.11
60.54 Notice to be sent to creditors on the
making of a DRO
The official receiver must also notify each creditor to whom a qualifying debt is
specified of the making, date and reference number of the order and its effect, along
with the matters to which a creditor may object to a DRO and the contact details of
the official receiver. The notice may be sent by post or electronically1.
1. Rule 9.12
60.55 Other action required by official receiver
on making of DRO
Where the debtor is involved in a debt management plan, administration order or is
the subject of an attachment of earnings order, the official receiver must inform the
body or the court, as the case may be, of the making of the DRO31.
1. Section 251F
60.56 Timing of notices to be sent on making
of DRO
The DRO Unit will issue the notice to the debtor within 5 days of the determination
date and notices to the creditors within 10 days of the determination date. In practice
the majority of notices to creditors go electronically on the day the order is made.
60.57 DRO register
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DROs are registered by recording details of the order in the Individual Insolvency
Register (IIR).
60.58 The effective date of a DRO
The DRO takes effect from the date that the order is determined.
Investigation into the debtor’s affairs
and the revocation and amendment of a
DRO
60.59 Objections by creditors
Any person specified in a debt relief order as a creditor to whom a specified
qualifying debt is owed may object to:
•
the making of the order
•
the inclusion of the debt in the list of the debtor’s qualifying debts; or
•
the details of the debt specified in the order
Such an objection must be made within the moratorium period, within 28 days of the
date on which the creditor was informed of the making of the DRO, based on
prescribed grounds and supported by documents1, 2.
1. Section 251K
2. Rule 9.15
60.60 Grounds under which a creditor may
object to the making of a DRO
Any objections to a DRO must state one or more of the following grounds upon
which the creditor relies the applicable grounds being as follows1:
•
that there is an error in, or omission from, something specified in the debt relief
order
•
that a bankruptcy order has been made in respect of the debtor
•
that the debtor has made a proposal for an IVA
•
that the debtor’s income surplus was over £50 per month
•
that the value of the debtor’s property was over £1,000
•
that the debts specified in the order were not qualifying debts
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•
that the basic eligibility criteria as at paragraph 46.5 were not met
•
that the debtor has entered into a transaction at an undervalue or given a
preference
•
that the debtor’s surplus monthly income has increased beyond the prescribed
level after the order was made
•
that the total value of the debtor’s property has exceed the prescribed level of
£1,000 after the order was made
1. Rule 9.15
60.61 Effect of an objection
The official receiver must consider every objection that is properly made. The official
receiver may open an investigation into the relevant affairs of the debtor, to arrive at
a decision1.
As a result of considering an objection the official receiver may
•
take no action
•
decide to revoke or amend the order
•
decide whether other steps should be taken in relation to the debtor such as an
application for a DRRO
1. Section 251K (3) & (40)
60.62 Official receiver to carry out
investigation on their own initiative
Whether or not the official receiver has received an objection from a creditor they
may open an investigation into the relevant affairs of the debtor, to arrive at a
decision1.
1. Section 251K(4)
60.63 Decision to be reached following
investigation
The decisions to which an investigation by the official receiver may be directed are1:
•
whether the DRO should be revoked or amended
•
whether an application should be made to court under its general power to
review a DRO
•
whether any steps should be taken in relation to the debtor (such as application
for DRRO)
1. Section 251K(5)
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60.64 Powers of investigation and duties of the
debtor
The official receiver may require any person to give them such information and
assistance as they may reasonably require in connection with an investigation1.
The debtor has a general duty to co-operate with the official receiver. They also have
a duty to inform the official receiver of any error or omission in their application, or
any change in their circumstances that would affect (or would have affected) the
determination of the DRO2.
Such duties can be enforced through the courts3.
1. Section 251K(7)
2. Section 251J
3. Section 251N
60.65 Enforcement of duty to co-operate with
official receiver
On the application of the official receiver, the court may summon to appear before it;
•
the debtor themselves
•
the debtor’s spouse or former spouse or civil partner or former civil partner
•
any person appearing to the court to be able to give information or assistance
concerning the debtor’s affairs
•
to give information regarding the dealings, affairs and property of the debtor or
require them to provide a written account or produce documents1
Where a person fails to comply with such summons, a warrant may be issued for
their arrest and the seizure of records and documents2.
1. Section 251(N) (1) & (2)
2. Section 251N(5)
60.66 Power of official receiver to revoke or
amend a DRO
The official receiver has the power to revoke or amend a DRO, whether or not there
has been an objection from a creditor or an investigation1.
1. Section 251L
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60.67 Grounds under which the official
receiver may amend a DRO
The order may be amended for the purpose of correcting an error or omission in
anything specified in the order but not to add creditors1.
1. Section 251L(8)
60.68 Grounds under which the official
receiver must revoke a DRO
The official receiver must revoke a DRO as soon as possible if a debtor dies during
the moratorium period1.
1. Rule 9.20
60.69 Grounds under which the official
receiver may revoke a DRO
The grounds under which the official receiver may revoke or amend a DRO are as
follows1:
•
that information supplied by the debtor in their application or subsequently was
incomplete, incorrect or misleading.
•
that the debtor has failed in their duty to co-operate
•
that a bankruptcy order has been made against the debtor
•
the debtor has made a proposal for an IVA
•
that the debts of the debtor were not qualifying debts
•
that the debtor did or does not meet all the eligibility criteria
1. Section 251L
60.70 Service of notice for revocation of a DRO
Where the official receiver takes the decision to revoke a DRO they must give notice
of the decision to revoke to the debtor, the intermediary and to any creditor listed in
the DRO1. The notice can be sent by post or e-mail, depending on the delivery
method that appears to best suit the debtor.
In practice the debtor will have been made aware of the possibility of revocation and
have been given the opportunity to make representations before the notice is served.
1. Rule 9.18
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60.71 Notice of revocation
The notice of the decision to revoke must identify the debtor and date and reference
number of the DRO. In addition, the notice of the decision to revoke must state the
reasons for revocation and specify the date from which the revocation has effect1.
1. Rule 9.18
60.72 Date of revocation
The official receiver must consider the circumstances of the case in deciding when
the revocation should take effect which can be with immediate effect or up to three
months from the decision. It should be within the moratorium period. Commonly 21
days notice is given.
60.73 Service of notice of amendment of DRO
Where the official receiver takes the decision to amend a DRO, they must send
notice of the decision to amend the order to the debtor and to any creditor listed in
the DRO1.
1. Rule 9.18
60.74 Notice of amendment
The notice of the decision to amend must identify the debtor and the date and
reference number of the DRO. In addition, the notice must specify the amendment,
the date on which the amendment was made and state the reasons for the
amendment1.
1. Rule 9.18
60.75 Amendment of entry on IIR following
revocation or amendment of DRO
Where the official receiver takes the decision to revoke or amend a DRO, the IIR
must be updated to reflect this1, 2.
1. Rule 9.18
2. Rule 11.19
60.76 Powers of court in relation to DROs
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A debtor or creditor may apply to the court to review any decision made by the
official receiver in dealing with a DRO application. This could result in all or part of
the decision being upheld or quashed.
The official receiver may apply to court1:
•
for directions in relation to a matter arising in connection with a DRO
•
to enforce the duty to co-operate
•
to extend the moratorium period
•
to seek revocation of an order after the end of the moratorium period
1. Section 251M
Effect of a DRO
60.77 Effect of a DRO – moratorium
The main effect of a DRO will be to place a moratorium period on the debts listed in
the DRO1. This means that creditors cannot take any action to recover or enforce
those listed debts during this period. The moratorium normally lasts 12 months2 after
which the debts will be discharged3.
1. Section 251G 2. Section 251H(1) 3. Section 251I
60.78 Restriction on action to recover or
enforce a DRO debt
During the moratorium period a creditor to whom a specified qualifying debt is owed
has no remedy in respect of the debt and may not commence a bankruptcy petition
in respect of the debt, or otherwise commence any action or other legal proceedings
against the debtor for the debt, except with the permission of the court and on such
terms as the court may impose.
In this respect, the term “debt” includes interest, penalty or other sum that becomes
payable in respect of the debt.
If the creditor has any action pending in respect of the debt, the court may stay the
proceedings or allow them to continue on such terms as the court thinks fit1.
1. Section 251G
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60.79 Example of a situation where court may
allow continuance of proceedings in respect of
a DRO debt
It is expected that it will be rare that a court would allow proceedings in respect of a
DRO debt to continue. An example of this might be where third party insurers are
involved and a creditor is required to establish liability before the insurers will settle
the claim.
60.80 Position of secured creditors
The restriction on action to recover or enforce a DRO debt has no effect on the right
of a secured creditor to enforce their security1.
1. Section 251G(5)
60.81 Effect of a DRO on debt management
arrangements
If the debtor is in a debt management arrangement: Administration Order;
enforcement restriction order or debt repayment plan, immediately before a DRO is
made, that other arrangement(s) will automatically cease on the making of the DRO1.
1. Section 251F
60.82 Exceptions to the normal 12-month
moratorium period
The moratorium period will, in most cases, last 12 months beginning with the
effective date of the order. The exceptions to this principle are1:
•
if the moratorium terminates early due to the revocation of the DRO
•
if the moratorium is extended to allow the official receiver to carry out an
investigation following an objection from a creditor
•
if the moratorium period has been extended to allow the official receiver to take
action they consider necessary (whether or not in connection with an
investigation)
•
if the moratorium period has been extended by the court
•
if the moratorium period has been extended in advance of a revocation to give
the debtor the opportunity to make arrangements for making payments towards
their debts
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1. Section 251H
60.83 Maximum period of extension of
moratorium
The moratorium period may be extended by the official receiver more than once, but
may not be extended beyond three months after the date that it would normally
expire1.
It may be further extended by the court.
1. Section 251H
60.84 Timing of extension of moratorium
The moratorium can only be extended whilst it is still in force. It cannot be extended
retrospectively including by the court.
60.85 Discharge from qualifying debts
At the end of the moratorium period provided the order has not been revoked the
debtor is discharged from all the qualifying debts specified in the order.
Debts incurred in respect of any fraud or fraudulent breach of trust to which the
debtor was a party are not discharged at the end of the moratorium period1.
1. Section 251I
60.86 Register of debt relief orders
The legislation requires that the Secretary of State maintain a register of DROs and
that the official receiver makes an entry in that register relating to the DRO1. In
practical terms, this is achieved by entering details of the DRO in the existing IIR.
1. Section 251W
60.87 Withholding of information relating to
those at risk of violence
Where a person, is going to apply for a DRO but would be at risk of violence, or if a
person who normally resides with them as a member of their family, would be at risk,
were their address published in the IIR the court may order that the debtor’s current
address is withheld. The debtor must make the application to the court and provide a
witness statement and evidence. This can be done before the application is
--- PDF page 24 ---
submitted. The court may order that the details to be entered on the IIR must include
instead other details such as previous addresses1.
1. Rule 20.4
60.88 Territorial extent of effect of a DRO
A DRO will have effect only in England and Wales, though any qualifying debts
incurred outside of England and Wales can be included in the DRO – the effect of
this being that the creditor would not be able to take action to recover the debt in
England and Wales. Neither the EC Regulation or the UNCITRAL Model Law will
apply to DROs as both procedures require that the debtor is divested of their assets
to have effect – a feature not present in a DRO. An individual may be subject to a
DRO if they live in England and Wales, or in the last three years have been resident
or carrying on business in England and Wales1.
1. Schedule 4ZA paragraph 1
60.89 Effect of a DRO on ongoing debts
The debtor will only have protection for debts specified in the DRO (which means
debts where the identity of the creditor and amount owed are included). Any debt in
excess of that specified amount – including debts incurred after the date of the DRO
– would be open to action for recovery by the creditor.
60.90 Effect of a DRO on the debtor’s assets
To be eligible for a DRO the debtor’s assets must not exceed £1,000 plus a domestic
motor vehicle of up to £1,000. There is no trustee in a DRO and assets do not vest in
an estate.
If assets exceed the parameter during the moratorium period they remain the
property of the debtor but the order is likely to be revoked.
60.91 Effect of a DRO on the creditor’s ability
to charge interest on the debt
The legislation does not prevent a creditor from adding interest, penalties and
charges to a specified debt. In reality, this will be of little consequence to the debtor
as the interest, penalties and charges will be discharged at the end of the
moratorium along with the originating debt unless the DRO is subsequently revoked
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60.92 Effect of a DRO on debts owed to the
Department for Work and Pensions
Overpayments and repayments of benefit where a DRO has subsequently been
made against the recipient of the benefit cannot be deducted at source if they have
been specified in the application as qualifying debts1.
1. Secretary of State for Work and Pensions v Payne and another [2011] UKSC 60
60.93 Effect of a DRO on a landlord
Where a debtor owes rent to their current landlord, the landlord may not take action
to recover the debt but may still take action to recover possession of the property if
this is allowed under the terms of the lease/tenancy agreement.
60.94 Effect on a DRO of the death of the
debtor
Where a debtor dies during the moratorium period the official receiver is required, as
soon as practicable after receiving notice to revoke the DRO, enter note of the fact
and date of death on the IIR and send notice of the revocation to creditors specified
in the DRO and the personal representatives of the deceased debtor1.
This would not affect the possibility of the deceased debtor’s estate being subject to
an administration order under the legislation relating to deceased insolvents.
1. Rule 9.20
60.95 Restrictions on a debtor subject to a
DRO
Where a debtor is subject to a DRO, during the moratorium period it is an offence for
that debtor to1:
•
obtain credit in excess of £500 without telling the person from whom they obtain
the credit about the DRO
•
engage directly or indirectly in any business under a name other than that in
which the DRO was made without disclosing to all persons with whom he enters
into any business transaction the name in which that order was made
•
act as a director of a company or directly or indirectly take part in or be
concerned in the promotion, formation or management of a company, without
the leave of the court
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Further guidance on restrictions imposed by other legislation on debtors subject to a
DRO is found later within the DRO guidance.
1. Section 251S
60.96 Potential offences in respect of a DRO
There are DRO offences in the legislation, and these are, roughly, in line with the
bankruptcy offences. Detailed discussion of the offences is outside the scope of the
Technical Manual but produced below is a list of the DRO offences:
•
false representation and omissions
•
concealment or falsification of documents
•
fraudulent disposal of property
•
fraudulent dealing with property obtained on credit
•
obtaining credit or engaging in business1
1. Sections 251O, 251P, 251Q, 251R, 251S
60.97 Debt relief restriction orders (DRRO)
and debt relief restriction undertakings
(DRRU)
It is possible for a debtor with a DRO to be subject to a DRRO or DRRU where there
has been some level of irresponsible behaviour or culpability by the debtor in the
incurring of the debts. A list of the matters of behaviour that may result in a DRRO or
DRRU are listed in the legislation1.
The effect of a DRRO or DRRU is to impose restrictions similar to those imposed on
debtors subject to a Debt Relief Order for a period of between two and fifteen years.
1. Schedule 4ZB, paragraph 2
Competent authorities and approved
intermediaries
60.98 Competent Authorities and approved
intermediaries – general
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DROs involve a partnership between The Insolvency Service (through the official
receiver) and the professional debt advice sector.
Intermediaries approved by Competent Authorities will assist the debtor in making an
application for the DRO via an online application form making all the necessary
eligibility checks. The Insolvency Service is the agency responsible for assessing the
application, granting the DRO and administering the case.
60.99 Competent Authorities
A competent authority is a body designated by the Secretary of State as having the
power to authorise intermediaries.
A list of the currently authorised competent authorities is given at Annex A to this
chapter.
60.100 Conditions to be met to be granted
authorisation as a Competent Authority
To be granted authorisation as a competent authority, the organisation has to
demonstrate to the Secretary of State that it:
•
provides or ensures the provision of debt management or debt counselling
services through intermediaries
•
provides those intermediaries with education, training and development
(including continuing education, training and development) in debt management
or debt counselling services. In addition, The Secretary of State must be
satisfied that the body making the application is a fit a proper body to approve
individuals to act as intermediaries1
1. Debt Relief Orders (Designation of Competent Authorities) Regulations 2009 3(2)(b)
60.101 Consideration of applications
The Secretary of State’s function is carried out by an independent section within the
Insolvency Service.
60.102 Application for designation as a
Competent Authority
The Debt Relief Orders (Designation of Competent Authorities) Regulations 2009 set
out the process by which the Competent Authority has to apply to the Secretary of
State for authorisation.
--- PDF page 28 ---
The information that the organisation has to supply in the application covers the
following areas:
•
details of the organisation (for example, name, registration, constitution,
occupation and activities)
•
financial information (for example, balance sheet)
•
details of the nature of the applicant’s connection with the provision of debt
management or debt counselling services
•
details of proposed or existing education, training and development for
intermediaries
•
description of the process they intend to implement for the appointment of
intermediaries
60.103 Fit and proper body
The Secretary of State cannot grant authorisation to a competent authority unless
they are satisfied that the applicant is a fit and proper body. The Secretary of State
must consider the following when making this decision1
•
if the body has committed any offence under the insolvency legislation
•
if the body has engaged in any deceitful or oppressive or otherwise unfair or
improper practices, whether unlawful or not
•
if the body has failed to carry on its activities with integrity and skill
•
if the body has entered into a CVA
1. Debt Relief Orders (Designation of Competent Authorities) Regulations 2009 regulation 5
60.104 Designation as a Competent Authority
If the Secretary of State is satisfied with the contents of the body’s application, they
may grant authorisation for it to act as a Competent Authority. The Secretary of State
must, on making this decision, send a letter to the body advising them if they have
unlimited designation, or limited designation (where it is only authorised to approve
persons of a particular description as intermediaries)1.
1. Debt Relief Orders (Designation of Competent Authorities) Regulations 2009 regulation 6
60.105 Withdrawal of authorisation
Where it appears to the Secretary of State that a body:
•
is not or is no longer a fit and proper person to act as a competent authority
•
has failed to comply with any relevant provision under the legislation
•
has furnished the Secretary of State with false, inaccurate or misleading
information
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The Secretary of State may withdraw an existing designation1.
1. Debt Relief Orders (Designation of Competent Authorities) Regulations 2009 regulation 7
60.106 Approval of intermediaries
Once a body has received the appropriate designation it may begin to appoint
individuals as approved intermediaries. The role of the approved intermediary is to
guide the debtor through the DRO application process and to make the application
on the debtor’s behalf. An individual cannot act for the debtor in the DRO process
without being an approved intermediary.
The intermediary must make an application for authorisation to the Competent
Authority, who must be satisfied that the individual is a fit and proper person to act as
an approved intermediary1.
1. Debt Relief Orders (Designation of Competent Authorities) Regulations 2009 regulation 8
60.107 Approved intermediary must be an
individual
An approved intermediary must be an individual (a natural legal person) and not any
organisation.
60.108 Ineligibility for approval
The legislation sets out grounds under which a individual will be automatically
prevented from being approved as an intermediary. These grounds include the
following1:
•
if the individual has been convicted of any offence involving fraud, dishonesty or
violence, whose convictions are not spent
•
if the individual has committed an offence under the insolvency legislation
•
if the individual has engaged in deceitful, oppressive, unfair or improper
practices
•
if the individual has no experience, education or other training in the provision of
debt management or debt counselling services
•
if the individual is an undischarged bankrupt, has a BRO/BRU, is in a DRO or
has a DRRO/DRRU
•
if the individual is disqualified under the Company Directors Disqualification Act
1986
1. Debt Relief Orders (Designation of Competent Authorities) Regulations 2009 regulation 9
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60.109 Application process
Applications to a Competent Authority by an individual for approval to act as an
intermediary must be in writing and contain, amongst other things, the following1:
•
a description of the individual’s current occupation or activities
•
reasons why the individual is considered suitable for approval
•
details of the individual’s qualifications
•
details of the individual’s experience in the provision of debt management or
debt counselling services
1. Debt Relief Orders (Designation of Competent Authorities) Regulations 2009 regulation 10
Restrictions imposed on debtors subject
to a Debt Relief Order, Debt Relief
Restrictions Order, Interim Debt Relief
Restrictions Order or Debt Relief
Restrictions Undertakings
60.110 Introduction
When an individual is subject to a DRO, they are subject to a range of disabilities or
restrictions until the end of the moratorium period (usually one year) These
restrictions are imposed by a variety of sources including the Insolvency (England
and Wales) Rules 2016 (IR16), the Company Directors Disqualification Act 1986
(CDDA86) and other Acts of Parliament, regulations under consumer legislation and
local government by-laws. Additional restrictions may also apply to those subject to
an IDRRO, DRRO or DRRU Annex B lists some of the legislation imposing
restrictions. It should be noted that the restrictions listed here cannot be guaranteed
to be exhaustive, and non-insolvency legislation affecting restrictions against a
debtor subject to a DRO or DRRO/DRRU may be subject to revision at any time.
60.111 Index
This Part is divided in to two sections,
Section 1 - Restrictions applicable while subject to a DRO, and
Section 2 - Restrictions applicable while subject to a DRRO, IDRRO and DRRU
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The following abbreviations are used in this chapter:
DRO – Debt Relief Order
DRRO – Debt Relief Restriction Order
IDRRO – Interim Debt Relief Restriction Order
DRRU – Debt Relief Restriction Undertaking
IR16 - The Insolvency (England and Wales) Rules 2016
IA86 – The Insolvency Act 1986
CDDA 86 - The Company Directors Disqualification Act 1986EA2002 - The
Enterprise Act 2002
Restrictions imposed on individuals
subject to DROs by insolvency legislation
(including CDDA86)
60.112 Obtaining credit over the prescribed
amount
A person subject to a DRO commits an offence if they, alone or jointly with another
person, obtain credit of £500 or more without disclosing that they are subject to a
DRO1.
1. Section 251S
60.113 Engaging in business under a different
name
A person subject to a DRO commits an offence if they engage in any business under
a name other than the one in which the DRO was made without disclosing to all that
they enter into business transactions with the name under which the DRO was
made1.
1. Section 251S
--- PDF page 32 ---
60.114 Promotion, formation and
management of a company
It is an offence for an individual subject to a DRO to act as a director of, or directly or
indirectly take part in or be concerned in the promotion, formation or management of
a company, except with the leave of court1. An application by an individual subject to
the above restrictions for leave to act as a director or to take part in the promotion,
formation or management of a company is made to the court and how the contents
of the application are set out in the insolvency rules2.
1. Company Directors Disqualification Act 1986 section 11
2. Rule 10.128
60.115 Acting as an Insolvency Practitioner
A person subject to a DRO is not qualified to act as an Insolvency Practitioner. A
person commits an offence if they act as an insolvency practitioner whilst not
qualified to do so1.
1. Section 390
60.116 Acting as a receiver and manager of
company property on behalf of a debenture
holder
A person is guilty of an offence if they act as receiver or manager of a company’s
property on behalf of a debenture holder whilst subject to a debt relief order. This is
not the case if the person is acting under an appointment made by the court1.
1. Section 31
60.117 Liquidation committee
An individual subject to a moratorium period under a DRO may not represent a
member of a liquidation committee1.
1. Rule 17.15
60.118 Creditors’ committee
An individual subject to a moratorium period under a DRO may not represent a
member of a creditors’ committee1.
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1. Rule 17.17
60.119 Limited Liability Partnerships
Regulation 4(2) of the Limited Liability Partnership Regulations 2001 applies the
CDDA86 to limited liability partnerships (LLPs), all references to a company are to
include an LLP and all references to a director include a member of an LLP. As a
result of the application of section 11 of the CDDA86, an individual who is the subject
of a moratorium period under a debt relief order or is subject to a DRRO or DRRU
cannot be a member of an LLP except with the leave of court1.
1. Company Director’s Disqualification Act 1986 section 11
Restrictions imposed on individuals
subject to DROs by other legislation
60.120 Auditor under the Public Trustees Act
1906
An individual who has a DRO made in respect of them may be removed as a Public
Trustees Act auditor1.
1. Section 13(4) of the Public Trustees Act 1906
60.121 Holder of a consumer credit licence
A licence held under the Consumer Credit Act 1974 terminates upon the licence
holder becoming subject to a DRO1.
1. Section 37(1)(b) of the Consumer Credit Act 1974
60.122 Solicitor
A solicitor’s practicing certificate is suspended upon the making of a DRO1. A
solicitor who has had their practicing certificate suspended due to this provision is
able, at any time prior to the expiry of the practicing certificate, to apply to the
Solicitors Regulatory Authority (SRA) for the suspension to be terminated. The SRA
are able to either terminate the suspension unconditionally; terminate the suspension
subject to such conditions as the Authority thinks fit; or dismiss the solicitor’s
application.
--- PDF page 34 ---
1. Solicitors Act 1974, section 15(1)
60.123 Estate Agent
An individual in respect of whom a DRO is made shall not engage in any estate
agency work except as an employee of another person1.
1. Estate Agents Act 1979, section 23
60.124 Holder of a public service vehicle
operator’s licence
It is the duty of the holder of a Public Service Vehicle (PSV) operator’s licence, within
28 days of the occurrence of the making of a debt relief order in respect of the
holder, to give notice in writing of that event to the traffic commissioner by whom the
licence was granted1.
1. Public Passenger Vehicles Act 1981, section 19
60.125 Licensed Conveyancer
Where an individual applies for a licence to be a licensed conveyancer while or after
being subject to a Debt Relief Order (DRO) the Council (Council of the Law Society)
may grant a licence with such conditions as it feels appropriate1.
1. Administration of Justice Act 1985, section 16
60.126 Right to buy
A council or local authority tenant will not be able to exercise a right to buy the
property in which they reside while they are subject to a debt relief order
moratorium1.
1. Housing Act 1985, section 121
60.127 Assessors of Compensation For
Miscarriages Of Justice (Criminal Justice Act
1988)
The Secretary of State may at any time remove a person from office as an assessor
if satisfied that they have had a debt relief order made in respect of them1.
1. Criminal Justice Act 1988, schedule 12 para 5
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60.128 An appointed person under the Trade
Marks Act 1994
An appointed person (an individual appointed by the Lord Chancellor to hear and
decide appeals) may be removed from office by the Lord Chancellor if he be
becomes subject to a Debt Relief Order1.
1. Trade Marks Act 1994, section 77
60.129 Goods Vehicle Operators Licence
A Goods Vehicle Operators licence may be revoked, suspended or curtailed by the
traffic commissioner who issued the licence upon the making of a Debt Relief Order
A Goods Vehicle Operators Licence may have certain specific obligations attached
to it regarding notifying the appropriate traffic commissioner of the making of a DRO
or the occurrence of any other insolvency event. The licence should be checked to
establish if there are specific reporting requirements. There is also an obligation
imposed upon a licence holder to notify the traffic commissioner, within 28 days, of
any circumstances that would affect their ability to hold a licence1.
1. Goods Vehicles (Licensing of Operators) Act 1995, section 26
60.130 Trustee of a Occupational Pension
Scheme
The trustee of an organisational Pension Scheme may, by order, be suspended
upon an application of the Occupational Pensions Regulatory Authority where the
trustee is the subject of an application for a debt relief order, The order for
suspension, if made, will last until the application for the debt relief order has been
determined. Upon the making of a debt relief order the individual will be disqualified
from holding office as a trustee of an occupational pension scheme1.
2. Pensions Act 1995, section 29
60.131 The Judicial Appointments and
Conduct Ombudsman
The Lord Chancellor may remove the Judicial Appointments and Conduct
Ombudsman from office if he is satisfied that the Ombudsman is a person in relation
to whom a moratorium period under a debt relief order applies1.
1. Constitutional Reform Act 2005 schedule 13 para 5
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60.132 Power of Attorney - Appointing a
donee
An individual who has a debt relief order made against them may not be appointed
as donee of a lasting power of attorney in relation to an individual’s property and
affairs1.
1. Mental Capacity Act 2005, section 5
60.133 Power of Attorney – Revocation
Where a lasting power of attorney is in place and the donee becomes subject to a
DRO the power of attorney shall be revoked so far as it relates to the donor’s
property and affairs (Where the donee remains subject to a DRO as a result of the
existence of a IDDRO the power is simply suspended for so long as the IDDRO has
effect). The making of a debt relief order in respect of a donee does not terminate
their appointment, or revoke the power, where their authority relates to the donor’s
personal welfare1.
1. Mental Capacity Act 2005 section 13
60.134 Power of Attorney – Effect on
registration
The Public Guardian must cancel the registration of an instrument as a lasting power
of attorney on being satisfied that the power has been revoked or a debt relief order
has been made in respect of the donor1.
The Public Guardian must cancel the registration of an instrument creating an
enduring power of attorney if satisfied that the power has been revoked by the
making of a debt relief order in respect of the donor or attorney2.
For joint and several attorneys see paragraph 22 of the Mental Capacity Act 2005
1. Mental Capacity Act 2005 schedule 1 para 17
2. Mental Capacity Act 2005 schedule 4 para 17
60.135 Gambling
In the case of an operating licence issued to an individual, the licence shall lapse if a
debt relief order is made in respect of the licensee1.
In the case of a premises licence issued to an individual, the licence shall lapse if a
debt relief order is made in respect of the licensee2.
--- PDF page 37 ---
A Family Entertainment Centre Gaming Machine Permit held by an individual shall
lapse if a debt relief order is made in respect of them3.
A Prize Gaming Permits held by an individual shall lapse if a debt relief order is
made in respect of them4.
1. Gambling Act 2005, section 11
2. Gambling Act 2005, section 194
3. Gambling Act 2005, schedule 10 para 15
4. Gambling Act 2005 schedule 14 para 15
60.136 National Health Service Act 2006
A person in relation to whom a moratorium period under a debt relief order applies,
may not become or continue as a member of the council of governors of a public
benefit corporation1.
1. National Health Service Act 2006 schedule 7 para 8
60.137 Assessors Of Compensation For
Miscarriages Of Justice (Armed Forces Act
2006)
The Secretary of State may at any time remove a person from office as an assessor
if satisfied that a debt relief order has been made against them1.
1. Armed Forces Act 2006 schedule 9 para 5
60.138 Charities Act 2011
The Commission may remove a charity trustee by order made of its own motion if
within the last 5 years, the trustee previously having been the subject of a debt relief
order, has been discharged from all the qualifying debts under the debt relief order1.
A person is disqualified from being a charity trustee or trustee for a charity if he is
subject to a moratorium period under a debt relief order; or a debt relief restrictions
order or interim debt relief restriction order2.
This disqualification does not apply if leave has been granted under section 11 of the
Company Directors Disqualification Act 19863.
1. Charities Act 2011 section 80
2. Charities Act 2011 section 178
--- PDF page 38 ---
3 Charities Act 2011 section 180
60.139 MOT Authorised examiner
A Motor Vehicles Test (MOT) authorised examiner shall cease to be authorised if he
has a debt relief order made against them1. This provision does not relate to
nominated testers.
1. Motor Vehicles (Tests) Regulations 1981 reg 9
60.140 Births, Marriages and Deaths
Registration Officer
No person shall be qualified for appointment to any registration office if he is a
person in relation to whom a moratorium period under a debt relief order applies, or
he is the subject of a debt relief restrictions order or an interim debt relief restrictions
order1.
1. Registration of Births, Deaths and Marriages Regulations 1968, reg 5
Restrictions imposed on an individuals
subject to DRROs/IDRROs and DRRUs
60.141 Obtaining credit over the prescribed
amount
A person subject to a DRRO, DRRU, IDRRU or IDRRO commits an offence if they,
alone or jointly with another person, obtain credit of £500 or more without disclosing
their status1.
1. Section 251S
60.142 Engaging in business under a different
name
A person subject to a DRRO, DRRU or IDRRO commits an offence if they engage in
any business under a name other than the one in which the DRO was made without
disclosing to all that they enter into business transactions with the name under which
the DRO was made1.
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1.Section 251S
60.143 Promotion, formation and
management of a company
It is an offence for an individual subject to a DRRO, DRRU or IDRRO to act as a
director of, or directly or indirectly take part in or be concerned in the promotion,
formation or management of a company, except with the leave of court1. An
application by an individual subject to the above restrictions for leave to act as a
director or to take part in the promotion, formation or management of a company is
made to the court and how the contents of the application are set out in the
insolvency rules2.
1. Company Director’s Disqualification Act 1986 section 11
2. Rule 10.128
60.144 Acting as an Insolvency Practitioner
A person subject to a DRRO, DRRU or IDRRO is not qualified to act as an
Insolvency Practitioner. A person commits an offence if they act as an insolvency
practitioner whilst not qualified to do so1.
1. Insolvency Act 1986 section 390(5)
60.145 Acting as a receiver and manager of
company property on behalf of a debenture
holder
A person is guilty of an offence if they act as receiver or manager of a company’s
property on behalf of a debenture holder whilst subject to a DRRO, DRRU or
IDRRO. This is not the case if the person is acting under an appointment made by
the court1.
1. Section 31
60.146 Limited Liability Partnerships
Regulation 4(2) of the Limited Liability Partnership Regulations 2001 applies the
CDDA86 to limited liability partnerships (LLPs), all references to a company are to
include an LLP and all references to a director include a member of an LLP. As a
result of the application of section 11 of the CDDA86, an individual who is the subject
--- PDF page 40 ---
of a moratorium period under a debt relief order or is subject to a DRRO, DRRU or
IDRRO cannot be a member of an LLP except with the leave of court1.
1. Company Director’s Disqualification Act 1986 section 11
60.147 Liquidation committee
An individual subject to a moratorium period under a DRRO, DRRU or IDRRO may
not represent a member of a liquidation committee1.
1. Rule 17.15
60.148 Creditors’ committee
An individual subject to a moratorium period under a DRRO, DRRU or IDRRO may
not represent a member of a creditors’ committee1.
1. Rule 17.17
60.149 Trustee of a Occupational Pension
Scheme
The trustee of an organisational Pension Scheme will be disqualified from holding
office as a trustee of an occupational pension scheme while subject to a DRRO,
IDRRO or DRRU1.
1. Pensions Act 1995 section 29
60.150 Births, Marriages and Deaths
Registration Officer
No person shall be qualified for appointment to any registration office if he is a
person in relation to whom a moratorium period under a debt relief order applies, or
he is the subject of a DRRO, IDRRO or DRRU1.
1. Registration of Births, Deaths and Marriages Regulations 1968, reg 5
60.151 Charities Act 2011
A person is disqualified from being a charity trustee or trustee for a charity if he is
subject to a moratorium period under a debt relief order, DRRO, IDRRO or DRRU1.
This disqualification does not apply if leave has been granted under section 11 of the
Company Directors Disqualification Act 19862.
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1. Charities Act 2011 section 178
2. Charities Act 2011 section 180
60.152 Power of Attorney – Revocation
Where a lasting power of attorney is in place and the donee becomes subject to a
DRO the power of attorney shall be revoked so far as it relates to the donor’s
property and affairs. Where the donee remains subject to a DRO as a result of the
existence of a IDDRO the power is simply suspended for so long as the IDDRO has
effect.
The making of a debt relief order in respect of a donee does not terminate their
appointment, or revoke the power, in so far as their authority relates to the donor’s
personal welfare1.
1. Mental Capacity Act 2005, section 13
60.153 Disqualification from Parliament
A person who is subject to a DRRO/IDRRO or a DRRU is disqualified from
membership of the House of Commons or from sitting and voting in the House of
Lords. That person will also be prevented from sitting or voting in any committee of
the House of Lords or any joint committee of both Houses1.
1. Section 426A
60.154 Member of a local authority
A person shall be disqualified from being elected or being a member of a local
authority if he is the subject of a debt relief restrictions order or interim debt relief
restrictions order1.
1. Local Government Act 1972, section 80
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ATTACHMENT: 61.Third_Parties_Rights_Against_Insurers_Act_2010.pdf
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 11 March 2020
61. Third Parties (Rights Against
Insurers) Act 2010
61.1 Introduction
The Third Parties (Rights Against Insurers) Act 2010 (the Act) modernises and
simplifies the Third Parties (Rights against Insurers) Act 1930 and the Third Parties
(Rights against Insurers) Act (Northern Ireland) 1930. The Act extends to the whole
of the UK and has been amended, particularly in relation to companies, by the
Insurance Act 2015 and the Third Parties (Rights against Insurers) Regulations
2016.
As with the 1930 Act, the Act provides for the rights of third parties against insurers
of insolvents against whom the third party has a claim which is covered by the
insurance contract. The Act has been updated to reflect changes in insolvency laws
and makes it easier for third parties to bring a claim directly against the insurer.
It continues to prevent the injustice of an insolvency office-holder being able to claim
under an insurance policy for the estate, while leaving the injured party as an
unsecured creditor with no special interest in the insurance money.
61.2 Scope
The 2010 Act applies in the case of an individual1 when:
• a bankruptcy order or insolvency administration order is made
• a composition or arrangement is entered into with creditors.
• A debt relief order is made (however see following paragraph)
In the case of a company1 (or unincorporated body) it applies when:
• a winding-up order is made,
• the company enters administration,
• a resolution for voluntary winding up is passed,
• a receiver or manager of the company’s business or undertaking is appointed,
• the holder of a debenture secured by a floating charge either personally takes
possession of property subject to that charge or appoints an administrative
receiver to do so
• where a voluntary arrangement is approved.
The Act covers third party liabilities which are incurred by the ‘relevent person’1 as
outlined above, both before and after the insolvency event. Such a liability could
occur, for example, where a vehicle belonging to the insolvent was involved in an
accident and an insurance claim arising from the accident was unresolved at the
date of the bankruptcy or winding-up order. The Act however does not apply to re-
insurance contracts.
--- PDF page 2 ---
1. Third Parties (Rights Against Insurers) Act 2010 sections 4 to 7
61.3 Commencement and application
The Act came into force on 1 August 2016 and will apply where on, or after, 1 August
2016:
• a company or individual had incurred a liability against which they were
insured and/or
• had entered a state of insolvency and become a ‘relevant person’1
The Act is not retrospective and there are no transitional provisions2. If both the
date of insolvency and the date that the liability was incurred were before 1 August
2016 then the 1930 Act will apply. Where the 1930 Act applies then a dissolved
company would need to be restored before any claim against the insurers could be
pursued.
Where an individual is subject to a debt relief order, rights against the insurer will
only transfer to the third party where the debt relief order was made after the liability
was incurred3.
The same rules apply where instead of entering a state of insolvency a company is
dissolved under section 1000, 1001 or 1003 of the Companies Act 2006.
1. Third Parties (Rights Against Insurers) Act 2010 sections 4 to 7
2. Redman v Zurich Insurance Plc [2017] EWHC 1919 (QB)
3. Third Parties (Rights Against Insurers) Act 2010 section 4(1)(d), section 4(4) and section 1(1)(b)
61.4 Third party action against the insurer
Under the 1930 Act, a third party cannot issue proceedings against an insurer
without first establishing the existence and amount of the insured’s liability. This may
involve expensive and time-consuming legal proceedings. The Act removes the need
for multiple sets of proceedings by allowing the third party to issue proceedings
directly against the insurer and resolves all issues (including the insured’s liability)
within those proceedings. Under the Act the third party has the choice of using either
the new method of single proceedings established by the Act, or the existing method
of first establishing the liability of the insured before initiating proceedings against the
insurer.
61.5 Provision of information to third parties – 1930
Act
The Act imposes a duty on the bankrupt, debtor, the insolvent’s personal
representative (for a deceased debtor) or the company and, as the case may be on
the trustee, liquidator or other insolvency office-holder to provide such information as
the third party may reasonably require for the purposes of ascertaining whether any
rights have been transferred to and vested in him by the Act and for enforcing any
such rights. This includes a duty to allow all contracts of insurance, receipts for
premiums and other relevant documents in the possession or power of the person on
whom the duty is imposed to be inspected and copies of them to be taken.
--- PDF page 3 ---
In a Court of Appeal decision1, the court held that a third party claimant needs to
know whether the person against whom they are making a claim is insured and in
what terms (including whether they hold limited or no insurance), and that this
statutory disclosure requirement2 under applies even before the third party has
established liability. This means that the official receiver is required to disclose (if
requested) the existence/non-existence of insurance cover, with appropriate details
of the cover where applicable, in every case.
Where the official receiver has been asked to disclose details of the insurance cover
under the terms of the 1930 Act they should notify the insurer of the request. Should
the official receiver be approached to provide information after the appointment of an
insolvency practitioner as office-holder, they should inform the third party that the
information should be requested from the insolvency practitioner.
1. Re: OT Computers Limited (In Administration) [2004] All ER (D) 361 (May)
2. Third Parties (Rights Against Insurers) Act 1930 section 2
61.6 Provision of information to third parties – 2010
Act
The disclosure provisions are similar to those required in OT Computers Ltd (above)
but are referred to in Schedule 1 of the Act and apply to the official receiver as
trustee or liquidator, or to any subsequent office holder.
61.7 Notifying insurer of proceedings
Where the official receiver becomes aware of legal proceedings being brought by a
third party to establish a claim against the insolvent, they should check the terms of
the insurance policy. It is extremely likely that it is a condition of cover that the
insurer is notified promptly of any circumstances which might give rise to a claim.
Notification of the proceedings will give the insurer the opportunity to become a party
to the defence and of disclosing the existence of the policy to the claimant. Failure to
notify the insurer of the proceedings could invalidate the insurance cover and leave
the official receiver liable in respect of damages.
61.8 Road Traffic Act 1988
There is a legal obligation1 on persons involved in a road accident to exchange
insurance details. Where a motor insurance policy is in the official receiver’s
possession, they should make it available to the insolvent to enable them to comply
with any obligation under the Road Traffic Act. It should be noted that whilst the
official receiver is not legally obliged to do so, where the request for information is
directed to the official receiver they may provide the insurance details directly to a
third party involved in a road accident subject to obtaining the insolvent’s consent.
1. Road Traffic Act section 154
61.9 Information generated/obtained by the official
receiver
--- PDF page 4 ---
In the event, however, that the official receiver receives a request to disclose
correspondence or documents which have been generated by or obtained from the
insolvent’s insurers in the course of the proceedings, reference should be made to
chapter 22.
61.10 Company officers’ and bankrupts’ duty to co-
operate
Company officers and bankrupts have a statutory duty to co-operate1 with the official
receiver following the making of a winding-up or bankruptcy order. It is envisaged
that any information, insurance documents etc needed to enable the official receiver
to comply with any request received from a third party in accordance with the Act,
will be requested under the provisions of these sections if not otherwise held by the
official receiver.
1. Sections 235 or 291
61.11 Enforcement of duty to co-operate
Legal advice has been obtained that that it would not be a proper use of the private
examination provisions1 of the Insolvency Act to compel a bankrupt or company
officer to produce information, documents, etc simply for the purpose of assisting a
third party. Accordingly the official receiver should not generally apply for a private
examination to assist a third party in progressing a potential insurance claim unless
doing so is likely to result in some benefit to the estate. Such benefit would occur
where there were assets to distribute and the dividend payable to the other creditors
could be increased by removing a large claim which would be borne by the insurers
(the insurer would not subrogate to the claim after payment of it). The official receiver
should obtain the agreement of the Senior Official Receiver by contacting ORS
Advice if they consider that the circumstances of a particular case merit a private
examination. Any such application should be brought by the official receiver in their
capacity as liquidator or trustee (or other relevant office-holder), because it is in that
capacity that the duties to third parties under the Act arise. The official receiver
should not apply for a public examination to obtain information for a third party,
because the public examination provisions are there to assist official receivers with
their statutory duties as official receiver, not to enable them to fulfil a duty to a third
party in the capacity of liquidator or trustee.
1. Sections 236 or 366
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ATTACHMENT: 7.HM_Land_Registry_and_protecting_property_interests.pdf
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This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 10 March 2020.
7. HM Land Registry and protecting
property interests
Chapter content
General
Registration of court orders
Dealing with amendments or variations to court orders
Other registration matters
Searches of HM Land Registry records
Protecting property/land
Using the Land Registry Portal
The following abbreviations are used in this guidance:
EA2002: Enterprise Act 2002
LR: Land Registry
LCD: Land Charges Department
LRA2002: Land Registration Act 2002
LRR2003: Land Registration Rules 2003
LCA1972: Land Charges Act 1972
LRA1925: Land Registration Act 1925
LRA1988: Land Registration Act 1988
--- PDF page 2 ---
General
7.1 Scope of the guidance
The contents of this guidance relate to winding-up and bankruptcy proceedings
unless specific reference is made to the contrary. Where reference is made to ‘land’
in this chapter it will mainly include freehold and leasehold titles (normally where the
lease has been granted for more than 7 years).
7.2 General
HM Land Registry is an executive agency of the Department for Business, Enterprise
and Industrial Strategy and is divided into two departments: the Land Charges
Department (LCD) and the Registration of Title Department which is commonly
referred to as ‘Land Registry’ (LR). The Chief Land Registrar heads the two
departments. Both departments deal with the recording of certain interests in, or
charges over, land.
HM Land Registry has a useful website, which includes a link to the Business e-
services portal.
7.3 Land Registration Act 2002
The Land Registration Act 2002 (LRA2002) received Royal Assent on 26 February
2002 and came into force on 13 October 2003. The Act provides a framework for the
development of electronic conveyancing.
Full details of the LRA2002 including the Practice Guides, the forms, the LRA2002
and the Land Registration Rules 2003 (LRR2003) can be found at HM Land
Registry. All of the forms can be easily obtained from the website.
7.4 Organisation of HM Land Registry
The LR is responsible for keeping and maintaining the Land Register of England and
Wales and for recording dealings (e.g. sales and mortgages) once the land is
registered. The Registers of Scotland deal with land in Scotland
7.5 Contacting HM Land Registry
When dealing with a winding-up order or bankruptcy order the official receiver should
make contact with the LCD or the LR to protect any land (or charge affecting land)
owned either jointly or solely by the company or by the bankrupt. A brief outline of
--- PDF page 3 ---
the procedure to protect an individual’s property is provided in How to protect the
trustee’s interest in a property at Land Registry.
Access to the information recorded by both the LCD and the LR is available to the
official receiver to assist in the discovery and/or protection of any land or charge(s).
7.6 Compulsory registration
All areas of England and Wales are subject to compulsory registration of title with the
LR when land is transferred in the circumstances referred to in Section 4 of the
LRA2002.
Owners of land may, generally, voluntarily apply for registration at any time.
Under the LRA20021 leases out of unregistered estates or registered titles for a term
of more than 7 years from the date of the grant are compulsorily registerable as are
many transfers or assignments of unregistered leases which have more than 7 years
to run2. Most transfers of registered leases, irrespective of the length of the term of
the lease are compulsorily registerable.
1. LRA2002, s4 and s27
2. Housing Act 1985, s154
7.7 Registered and unregistered land
Any land registered under the provisions in paragraph 7.6 is referred to as
‘registered land’. Land which is not registered land is referred to as ‘unregistered
land’. The owner of unregistered land will have a bundle of deeds, which form a
record of previous sales, mortgages and other dealings with the land. However if the
land is mortgaged, the lender normally holds the deeds as security for their loan.
There is usually no public record of the information contained in the deeds.
7.8 Land Charges Department
The LCD operates under the provisions of the Land Charges Act 1972. The
department maintains central registers of land charges, pending actions and writs
and orders affecting land and other mortgages or charges registered against the
names of owners of property which is not registered under the Land Registration Act
1925 i.e. unregistered land.
The LCD is situated at PO Box 292, Plymouth PL5 9BY. It is to this section of HM
Land Registry that notification of the presentation of a bankruptcy petition or the
making of a bankruptcy order is sent. Bankruptcy petitions and bankruptcy orders
--- PDF page 4 ---
are registered at the LCD whether or not it is known that the debtor owned land and
whether or not they own any registered land or registered charges1.
1. LCA1972 and LRA1925 - Register of pending court actions and writs and orders r6.13 or r6.43, Form 6.14, r6.34(2)(a) or r6.46(2)(a) and Form 6.26(LRRABO)]
7.9 Record of matters affecting
unregistered land
The LCD also maintains a record of matters which affect unregistered land. This
department maintains a record of restrictive covenants, rights and mortgages relating
to unregistered land. These are registered against the name of the landowner at the
time the entry was made, rather than against the land or property.
A record is kept at the relevant Land Registry office of cautions against first
registration which have been lodged against unregistered land.
7.10 Land Registry
The LR is responsible for keeping and maintaining the Land Register of England and
Wales. Its main purpose is to register title to land in England and Wales and to
record dealings once the land is registered. The object of registering title to land is to
create and maintain a register of land owners whose title is guaranteed by the State
and thus simplify the sale (transfer) and mortgage of such land. A registered title is
the legal evidence of title to land.
7.11 The Land Register
The Land Register is a record of all registrations in England and Wales. The register
provides an up-to-date official record of the legal ownership. When a parcel of land
or a charge affecting land is registered, details are recorded in the Land Register.
Upon registration a title number is allocated to the land, although a charge on just
part of the registered land may be allocated a different number. If the official receiver
is aware of the title number it should be quoted in all correspondence with the LR.
The Land Register is split into three parts:-
• the property register
• the proprietorship register
• the charges register
7.12 The property register
--- PDF page 5 ---
The property register identifies the geographical location and extent of the registered
property, i.e. usually the address and a reference to an official plan which is
prepared for each title. It may also give details of any rights that benefit the land, e.g.
a right of way over adjoining land. It also indicates whether the land is freehold or
leasehold. In the case of a leasehold title, it gives brief details of the lease. The
official title plan is based on the large-scale maps of the Ordnance Survey.
7.13 The proprietorship register
The proprietorship register specifies the quality of the title, e.g. absolute title. It also
provides the name and address of the legal owner(s) and shows whether there are
any restrictions on their power to sell, mortgage or otherwise deal with the land, e.g.
bankruptcy restriction (previously known as an inhibition).
Land registration is not concerned with trusts and therefore the proprietorship
register will not normally reveal that the property is held in trust for another, unless
the legal owner is described as a trustee. A partnership in England and Wales
cannot own land. If, for example, land is owned jointly by a husband and wife who
traded in partnership together, it may be that the property is part of their separate
estates or held in trust for the partnership.
7.14 The charges register
The charges register records details of registered mortgages and notice of other
financial burdens secured on the property. It does not disclose details of the amounts
of money involved. It also gives notice of other rights and interests to which the
property is subject such as leases, rights of way or covenants restricting the use of
the property.
7.15 Authority for search of the Land
Register
Anybody can now obtain information, on payment of any fee payable, which is held
on the register of a registered title1.
1. LRA1988, s112
7.16 Why search the register?
The official receiver has access to all the information maintained in the Land
Register. A search of the Register will be required if:-
--- PDF page 6 ---
• the official receiver wishes to ensure registration of bankruptcy proceedings
against a title of a specific property or charge
• doubt exists regarding the ownership of a specific property or charge in
winding-up or bankruptcy proceedings, e.g. the bankrupt is unsure about who
owns property or states that he has never had an interest in a property but
has paid the mortgage on it
• the official receiver has received information from a third party indicating
possible ownership of a property which has not been disclosed, e.g. a creditor
provides specific details regarding the bankrupt having an interest in a
property
• the company director or bankrupt is failing to co-operate with the official
receiver and a search of the known address may possibly lead to the lodging
of a form J restriction (previously a caution) on the property which may result
in the company director or bankrupt contacting the official receiver
• the official receiver suspects that the company director or bankrupt is
providing misleading information, e.g. regarding the ownership of property;
• in a non-surrender case, the search may reveal an asset of the company or
bankrupt and/or possibly the current whereabouts of a company director or
the bankrupt
Registration of court orders
7.17 Registration of bankruptcy petition -
In pending actions register
The LCD maintains a central register of pending court actions under the Land
Charges Act 1972 (LCA1972). Immediately after a bankruptcy petition is presented,
the court must notify the LCD to enable details of the petition to be entered in that
register.1 This registration will be made against the name of the individual whether or
not they are known to own any land. This entry alerts third parties to the possibility
that a person of that name may be made bankrupt.
1. Rule 10.13
--- PDF page 7 ---
7.18 Registration of bankruptcy petition -
In Land Register - Bankruptcy Notice -
solely owned property
The LCD informs the LR daily of new bankruptcy petitions. The LR makes an entry
on all title registers where it appears that a sole owner of the land may be subject of
a bankruptcy petition. Under the LRA2002, section 86(2) this entry is called a
bankruptcy notice (previously a creditors' notice) and is entered in the proprietorship
register. Notices entered under the LRA 1925 in respect of the burden of interests
affecting a registered estate or charge are treated for the purposes of the LRA2002
as if they had been entered as agreed notices (paragraph 2(1) of Schedule 12,
LRA2002).
The entry will take the following form:
BANKRUPTCY NOTICE entered under section 86(2) of the Land Registration
Act 2002 in respect of a pending action, as the title of the proprietor of the
registered estate appears to be affected by a petition in bankruptcy against
[name of debtor], presented in the [name] Court (Court Reference Number )
(Land Charges Reference Number PA ).
A similar entry would be made against the sole owner of a registered charge (i.e.
mortgagee) but in the charges register. The entry will take the following form:
BANKRUPTCY NOTICE entered under section 86(2) of the Land Registration
Act 2002 in respect of a pending action, as the title of the proprietor of the
charge dated referred to above appears to be affected by a petition in
bankruptcy against [name of debtor], presented in the [name] Court (Court
Reference Number ) (Land Charges Reference Number PA ).
The registered proprietor is informed of the entry in accordance with Rule 165(2) of
the LRR2003. There are indemnity provisions which may be called upon if there is
loss to an estate due to failure by the Chief Land Registrar to register a notice.
7.19 Jointly owned property
No protection is available at this stage of the proceedings in respect of jointly owned
property as a bankruptcy notice cannot be registered against such property except
as outlined in paragraph 7.25.
7.20 Dealings with registered land after
petition and before bankruptcy order
--- PDF page 8 ---
A bankruptcy notice (which can only be registered against solely owned registered
property) does not prevent the registered proprietor dealing with their land or charge.
If an application to register a transfer, charge or lease by the registered proprietor of
the land is actioned after the entry of the bankruptcy notice, the registration will be
made subject to the bankruptcy notice unless it can be shown that the interest of the
transferee, chargee or lessee has priority over the bankruptcy proceedings, e.g. the
dealing is protected by an official search of the register, issued before the date of the
bankruptcy notice, that gives it priority over the creditors’ rights1.
1. LCA1972 section 284
7.21 Dealings with registered property - No
notice of petition
If a bankruptcy petition is not protected by a bankruptcy notice in the proprietorship
register, then a purchaser or chargee in good faith and for money or money’s worth,
when registered, takes title free of the creditors’ rights unless at the date of the
disposition they had notice of the petition. For this purpose a purchaser (of registered
land) is under no liability to make a search against the individual’s name under the
LCA1972 to see if a petition has been registered as a pending action with the LCD.
7.22 Dealings with unregistered property
Under section 5(8) of the LCA1972, a bankruptcy petition does not bind a purchaser
of a legal estate in unregistered land in good faith, for money or money’s worth,
unless it is for the time being registered in the register of pending actions. Thus a
purchaser of unregistered land will, on the face of it, be bound by the petition
whether they make a Land Charges search or not provided the petition is protected
by registration. If the petition is not so protected it may be that a purchaser who had
actual knowledge of the petition could not rely upon section 5(8) of the above Act as
they would not appear to be acting in good faith.
7.23 Vacation of registration - Pending
action
Under section 8 of the LCA1972, a registration of a bankruptcy petition as a pending
action with the LCD will be automatically vacated after 5 years unless it is vacated in
one of the following circumstances
• the petition is dismissed or withdrawn with permission of the court and an
order is made at the same time permitting vacation of the registration of the
petition as a pending action. The court will send to the debtor two sealed
--- PDF page 9 ---
copies of the order. It is the debtor’s responsibility to request the LCD and the
LR to vacate any registration
• the bankruptcy order is annulled (see paragraph 7.31)
7.24 Vacation of registration - Bankruptcy
notice
The registration of the bankruptcy notice on the proprietorship register remains in
force until a bankruptcy restriction is registered. It will also remain in force if the LCD
automatically vacates an entry in the register of pending actions. The cancellation of
the entry at the LCD will not cause the LR to cancel any bankruptcy notices
automatically. Separate application must be made to the LR by the debtor for a
bankruptcy notice to be removed. The debtor can apply to cancel the registration in
the proprietorship register following the action in paragraph 7.23.Additionally, when
the trustee in bankruptcy wants to register themselves as proprietor of the property,
the bankruptcy notice will remain in force until the registration is complete or the
property is conveyed by the official receiver or trustee.
7.25 Protection of jointly owned property -
Official receiver acting as interim receiver
The LR cannot register a bankruptcy notice against jointly owned property. Where
the official receiver is acting as interim receiver and becomes aware of registered
land owned by the debtor jointly with others they should consider applying for a
restriction against the property to protect the creditors’ interest. The official receiver
must first make application to the court for permission to apply for a restriction. The
official receiver should withdraw the restriction if they cease to act as interim
receiver.
If the land is unregistered and solely owned the official receiver should consider
registering a caution against first registration. If a bankruptcy order is subsequently
made the caution should be withdrawn.
7.26 Registration of the bankruptcy order
in the writs and orders register
The LCD keeps a central register of writs and orders under the LCA1972. After a
bankruptcy order is made, the official receiver must send notice of the bankruptcy
order to the Chief Land Registrar at the LCD within 24 hours of notification of the
bankruptcy order unless the court orders that the notice should not be sent or that
--- PDF page 10 ---
advertisement or the proceedings should be stayed. The LCD will enter the details
in the register of writs and orders under the name of the bankrupt whether or not the
bankrupt is known to own any land. This entry alerts third parties to the fact that a
person of that name has been made bankrupt. Under section 6(3) of the LCA1972,
no fee is charged for this registration.
7.27 Registration of the bankruptcy order
in the Land Register - Bankruptcy
restriction and solely owned property
The LCD informs the LR daily of new bankruptcy orders. The LR then makes an
entry on all title registers where it appears that the sole owner of the land may be the
subject of a bankruptcy order. This entry will be made in the proprietorship register
and under the LRA2002, section 86(4) this entry is called a bankruptcy restriction
(previously a bankruptcy inhibition). Inhibitions entered under the LRA1925 are
entries that prohibit dispositions from being entered in the register and therefore are
treated as restrictions for the purposes of the LRA2002 (paragraph 2(2) of Schedule
12, LRA2002).
The entry would take the following form:
BANKRUPTCY RESTRICTION entered under section 86(4) of the Land
Registration Act 2002, as the title of the proprietor of the registered estate
appears to be affected by a bankruptcy order made by the [name] Court
(Court Reference Number ) against [name of debtor] (Land Charges
Reference Number WO ). No disposition of the registered estate is to be
registered until the trustee in bankruptcy of the property of the bankrupt is
registered as proprietor of the registered estate.
A similar entry would be made against the sole owner of a registered charge (i.e.
mortgagee) but in the charges register. The entry would take the following form:
BANKRUPTCY RESTRICTION entered under section 86(4) of the Land
Registration Act 2002, as the title of the proprietor of the charge dated
referred to above appears to be affected by a bankruptcy order made by the
[name] Court (Court Reference Number ) against [name of debtor] (Land
Charges Reference Number WO ). No disposition of the charge is to be
registered until the trustee in bankruptcy of the property of the bankrupt is
registered as proprietor of the charge.
This entry alerts third parties to the possibility that the owner of the land/charge may
be bankrupt. Under Rule 166(2) of the LRR2003 the Chief Land Registrar must give
notice of the registration to the proprietor of the land or charge.
--- PDF page 11 ---
7.28 Registration of bankruptcy order –
Follow up
The official receiver should ensure that a bankruptcy restriction has been registered
at the land registry against each registered estate/charge where they are aware that
the bankrupt is the sole registered proprietor and sole beneficial owner of a
registered interest in land. A search of the proprietorship and charges register should
be carried out to confirm that the restriction has in fact been registered.
Where the bankrupt is the sole registered proprietor but the property interest is held
under a trust, the legal estate would not vest in the official receiver and a bankruptcy
restriction would not be appropriate.
Once the official receiver is satisfied that a legitimate trust exists they should seek to
have the bankruptcy restriction removed.
7.29 Jointly owned property
It is not possible to register a bankruptcy restriction where a property is owned jointly
by the bankrupt and others. Reference should be made to paragraph 7.36 for
guidance on protecting jointly owned property.
7.30 Effect of registration of bankruptcy
order
The effect of a bankruptcy restriction is that no dealing affecting the property or
charge in respect of which the restriction has been entered can be registered until
the restriction is cancelled, except by the trustee in bankruptcy. The bankruptcy
restriction does not prejudice dealings with interests or charges over land which have
priority over the bankrupt’s estate. For example, the proprietor of a registered
charge, which was registered before a bankruptcy restriction (and any bankruptcy
notice) was entered in respect of the registered land, could exercise its power of
sale, notwithstanding the entry of the bankruptcy restriction in the proprietorship
register.
The trustee receives protection by the registration of a bankruptcy restriction without
registration of the trustee’s title or Form J restriction.
7.31 Vacation of registration of bankruptcy
order
--- PDF page 12 ---
Under section 8 of the LCA1972, the entry against the name of the bankrupt in the
register of writs and orders at the LCD will lapse automatically after 5 years. This
cancellation will not cause the LR to cancel any bankruptcy notices or bankruptcy
restrictions. The Chief Land Registrar will only remove these after an enquiry or if the
court so orders (see paragraph 7.32).
7.32 Annulment of bankruptcy order
If the court makes an order annulling a bankruptcy order it will usually also order that
the petition be dismissed. In such cases, provision should be made in the order for
the vacation of the registration of the bankruptcy petition and the bankruptcy order.
The application to remove the entry from the Land Charges register or the title
register is the bankrupt’s responsibility and not that of the official receiver.
7.33 Vacation of registration in other
circumstances
A bankruptcy restriction will be vacated where the property is disposed of, e.g. by
sale by the trustee or by a prior registered chargee under its power of sale or where
the trustee is registered as proprietor of the land or charge (see paragraph 7.43).
7.34 Vacation of registration and discharge
from bankruptcy
When a bankrupt is discharged from the bankruptcy proceedings, the registration of
a bankruptcy petition or bankruptcy order at the LCD will not be cancelled unless
there is a specific order of the court directing cancellation. The production of a
certificate of discharge is insufficient for the LCD. If an order for vacation is obtained
the registration of the bankruptcy petition and bankruptcy order will be vacated. Such
an order has no effect on the vesting of the property. Consequently any land or
charge which has vested in the trustee in bankruptcy will remain so vested and will
not re-vest in the discharged bankrupt. Therefore a bankruptcy notice or bankruptcy
restriction will not be removed from a registered title if such an order is lodged.
7.35 Removal of a bankruptcy restriction
where property vests
Because the legal interest in a registered estate/charge vests in the official receiver
where the bankrupt is the sole registered proprietor and sole beneficial owner a
--- PDF page 13 ---
bankruptcy restriction will not be removed without evidence that the legal estate has
re-vested in the bankrupt.
The application to cancel the bankruptcy restriction form (RX3) must be submitted to
the Land Registry. The appropriate legislative provisions to quote in the application is
either:
• Section 283A(2) IA 86 (period in which to deal with the property interest has
expired)
• Section 283A(3) IA86 (property interest has been dealt with, e.g. a charging
order has been made)
• Section 283A(4) IA86 (where e.g. a charging order application is dismissed)
• Section 261 EA02 (interest has re-vested under the transitional arrangements
in cases where the bankruptcy petition was presented before the Enterprise
Act 2002 came into force).
It is important to quote the provision that is appropriate for the mode of re-vesting
which has occurred.
7.36 Removal of a bankruptcy restriction
where property does not vest
If the property interest has never vested, e.g. the property interest is held by the
bankrupt under a trust, or the property has been sold prior to the bankruptcy order
being made but the purchaser’s solicitors had not yet registered their application a
different process needs to be followed. In these circumstances the official receiver
should write to the Land Registry and explain that the legal estate has not vested
and that the official receiver does not have an interest in the property. Application to
withdraw the bankruptcy restriction should be submitted on form RX4 along with the
letter.
7.37 Jointly owned property - Protection
No registration of a bankruptcy notice or a bankruptcy restriction will be made
against any jointly owned land in which the bankrupt has an interest, even where all
the owners are subject to bankruptcy proceedings. The reason that a bankruptcy
restriction cannot be registered is that in such cases the legal title (the only estate
which is registerable) is not vested in the bankrupt alone (and consequently does not
vest in the trustee of the bankrupt’s estate) but in the joint proprietors and the joint
legal estate is not severable. The bankrupt’s beneficial interest is in the proceeds of
sale. The Chief Land Registrar is not concerned with the beneficial interest in the
property (which is severable).
--- PDF page 14 ---
7.38 Form J restriction and Form A
restriction
Accordingly, dispositions by the registered proprietor(s) will not be prevented unless
a Form J restriction is registered A Form A restriction should also be requested to
protect the interest in land if one is not already in place. Both of these restrictions
can be applied for at the same time on the same application (using form RX1)1.
1. Land Registry Practice guide 34, para 5.2
7.39 Registration of Form A restrictions in
bankruptcy cases
When applying for a Form J restriction the official receiver should also apply for a
Form A restriction unless one is already in place. Application for a Form A restriction
is made by amending the text in box 9 of form RX1 to read “The applicant applies to
enter a restriction [in standard form J & A] against the estate referred to in panel 3 in
the following words:”. The words “A restriction in Form A” should be added following
the standard text in Form J at the bottom of box 9. The registrar will acknowledge
receipt of the request for registration and the date of acknowledgement will be the
date of registration. If an acknowledgement is not received the official receiver may
consider it prudent to apply for copies of the registry entries.
The Form A restriction states the following:
“No disposition by a sole proprietor of the registered estate (except a trust
corporation) under which capital money arises is to be registered unless
authorised by an order of the court. “
The Form A restriction indicates that a sole survivor of joint registered proprietors
cannot (unlike a sole beneficial owner) give a valid receipt for purchase monies and
that a further trustee of the trust for sale needs to be appointed so that the purchase
monies are received by at least two proprietors. It should be noted that a trustee
appointed for the trust for sale need not be the trustee in bankruptcy.
7.40 Registration of winding-up order by
liquidator
There is no mechanism for automatically making entries in the registers when a
company proprietor of registered land or of a registered charge goes into liquidation.
The appointment of the official receiver as liquidator of a company may be noted on
the proprietorship or charges register maintained by the relevant District Registry if a
--- PDF page 15 ---
company is the owner of land or charge(s). Registration of the winding-up order
should ensure that if a disposition executed by the company (other than a disposition
under the contractual powers of a receiver, appointed under a charge) is lodged for
substantive registration, the LR will ensure that it was executed in the presence of
the liquidator. Application for a restriction to be entered on the proprietorship register
must be made using Form RX1 together with the appropriate fee. The Chief Land
Registrar will, when he/she approves such an application, enter a restriction in the
proprietorship register as follows: -
“(Date) By an Order of the court dated (date of winding up order) (name of
official receiver) Official Receiver of The Insolvency Service (address of
official receiver’s office) has become the liquidator of (name of company).”
(Date) RESTRICTION: No disposition by the proprietor of the registered
estate other than a transfer on sale is to be completed by registration unless
made pursuant to powers granted by the Insolvency Act 1986.
If the official receiver considers that registration of the winding-up order is necessary
they should make application on Form AP1 to the relevant District Registry with a
certified true copy of the winding-up order and the certificate of theirtheir
appointment by the Secretary of State under section 399 of the Insolvency Act 1986
together with the appropriate fee.
Dealing with amendments or variations
to court orders
7.41 Amendment to bankruptcy order
At any time after the making of a bankruptcy order, the official receiver or trustee
may amend the title of the proceedings or any part of it. Where such an amendment
is made, the official receiver must send notice, as soon as reasonably practicable, to
the Chief Land Registrar at the LCD unless the court orders that the notice should
not be sent or that advertisement of the proceedings should be stayed (see
paragraph 7.42). The Chief Land Registrar will effect any amendments to the register
or make any registrations that are required. Where the proceedings are consolidated
under the Insolvent Partnerships Order 1994, the official receiver should similarly
notify the LCD.
The application should include:-
• details of the pending action number (PA(B)), which can be obtained by
reference to the court file (in the case of a creditor petition bankruptcy order)
--- PDF page 16 ---
• the writ or order (bankruptcy) number (WO(B)), which should be recorded in
the acknowledgement from the LCD of the application to register the
bankruptcy order
7.42 Stay of advertisement or proceedings
in bankruptcy cases
If a stay of advertisement or of the proceedings is granted before dispatch of the
notice to the LCD, the official receiver should refrain from dealing with Form
LRRABO (application for registration of a bankruptcy order), if the court so orders,
until such time as the stay is removed. If the official receiver considers that their
powers have been limited by the court, e.g. a stay of all proceedings has been
granted, and the official receiver is aware of jointly owned property, he/she should
seek permission of the court to register a restriction where the bankrupt’s interest is
in the proceeds of sale of registered land. Where an order is made for a stay of
advertisement or proceedings the LCD or the LR should not be requested to vacate
any prior registration of the petition or bankruptcy order unless the court so orders,
which will usually be on the annulment of the proceedings1.
1. Rules 10.32(3) and 10.135, LRRABO
7.43 Registration of bankruptcy order in
transfer cases
The notice to the LCD should not be delayed because the bankruptcy proceedings
are in the process of being transferred to another court. Form LRRABO should be
sent to the LCD by the official receiver appointed by the Secretary of State to be the
official receiver in relation to the proceedings, using theirtheir local office key number
to effect the registration. The local official receiver will thus deal with any subsequent
dealings with the LR and the LCD. Once the transfer has been completed the official
receiver should only make application to the LCD for an amendment of the court
details in the register of writs and orders if the court has amended the title of the
proceedings, requiring notice of the amended title to be given to the Chief Land
Registrar). If no such application is made then any documents relating to the
bankrupt’s property will be sent to the official receiver attached to the court in which
the bankruptcy order was made. Any documents so received should be forwarded
immediately to the official receiver to whom the case was transferred.
--- PDF page 17 ---
Other registration matters
7.44 Registration of after-acquired
property
If the official receiver as trustee claims any land or charge owned by the bankrupt as
after-acquired property they should seek to protect their interest. To protect solely or
jointly owned property a Form J restriction against dealings should be registered
without delay.
HM Land Registry Form RX1 should be used to lodge a Form J restriction against
dealings in a property, accompanied by:
• a letter to the LR stating that the official receiver as trustee is satisfied that the
land or charge(s) form part of the bankrupt’s estate
• evidence that the official receiver has claimed the property. Such evidence
should consist of a statutory declaration exhibiting a copy of the notice given
to the bankrupt and evidence of service of the notice
In the case of jointly owned property the official receiver should also register a Form
A restriction (see paragraph 7.39).
The official receiver should then take appropriate action to realise the asset which
may include seeking the appointment of an insolvency practitioner.
7.45 Registration of trustee as proprietor
The official receiver as trustee may be registered as proprietor of solely owned land
or charge(s) in place of the bankrupt.1 The application must be made on Land
Registry Form AP1. The official receiver must provide the Chief Land Registrar with
an office copy of the bankruptcy order, a certificate signed by the official receiver
stating that the land or charge is comprised in the bankrupt’s estate and the
appropriate fee HM Land Registry).
1. LRR2003, rule 168(1),
7.46 Identification of the debtor by LR
When a bankruptcy petition or a bankruptcy order is registered at the LCD, the LCD
provides the LR Bankruptcy Unit with details of the bankruptcy proceedings and a list
of title numbers which may be affected. In the light of all available information, the LR
then has to decide whether the debtor, the subject of the bankruptcy proceedings, is
the same person as the registered proprietor of the land or of any charges on the
--- PDF page 18 ---
titles which have been revealed. If it appears that the debtor is the registered
proprietor then an appropriate entry is made on the register of the title affected. If it is
clear that the debtor is not the registered proprietor then no action is taken. The
registered proprietor is informed of the entry that has been made. Where the entry is
made in respect of the land and there is a registered charge which secures further
advances, then the chargee is notified of the entry.
7.47 Debtor not fully identified
Where the LR cannot determine whether the debtor is the registered proprietor an
enquiry is made of the registered proprietor at their address for service as to whether
they are the person referred to in the bankruptcy proceedings. If the registered
proprietor signs the statement that they are not the person referred to then no action
is taken. If they confirm on the statement that they are the debtor then the entry is
made. If the registered proprietor fails to respond within the time allowed by the LR
then a further enquiry form is sent out. If there is still no response then, usually, an
entry is made.
7.48 Removal of entries in the register -
Proceedings not related to proprietor
Where the official receiver obtains details of a bankruptcy entry made by the LR
against a person’s title to land or a charge and that person is not affected by the
bankruptcy proceedings, the official receiver should advise that person to contact the
LR immediately. If the entry was made recently then the LR will remove it upon the
person signing and returning a disclaimer (supplied by the LR) stating that they were
not the subject of the bankruptcy proceedings. If the entry was made some years
ago then the LR may require a statutory declaration to the same effect.
7.49 Land charges entry after discharge
from bankruptcy
Because discharge does not re-vest property in the former bankrupt, it does not
entitle them to have any bankruptcy entries at the LCD cancelled.
The official receiver may be contacted by a former bankrupt in the period between
their automatic discharge and the 5 year automatic vacation of the Land Charges
entry, because the LCD shows that the individual is still subject to the bankruptcy
order. Where the former bankrupt seeks to acquire property or re-mortgage property
after their discharge they may experience difficulties, e.g. in obtaining a mortgage.
--- PDF page 19 ---
If the official receiver receives an enquiry in the period outlined above they should
draw the former bankrupt’s attention to the provisions of Rule 10.144 (order made by
the court) or Rule 10.145 (order made by the adjudicator), which states that if the
bankrupt is discharged from the proceedings the court or adjudicator will, on the
application of the discharged bankrupt, issue a certificate of discharge. Any
certificate of discharge obtained from the court should be sufficient to satisfy the
other parties to a transaction that the individual has been discharged from
bankruptcy.
Where an individual is made bankrupt on a petition presented on or after 1 April
2004 and they have an interest in a dwelling-house which is the sole or principal
residence of the bankrupt, bankrupt’s spouse/civil partner or former spouse/civil
partner, the official receiver should have regard to the guidance in the guidance
relation to chapter 28 Freehold & leasehold property.
7.50 Discharged bankrupt’s application to
vacate the register
Sometimes a discharged bankrupt may apply to the court, under section 1(6) of the
Land Charges Act 1972, for an order for the registration of the bankruptcy petition
and the bankruptcy order to be vacated. Upon receipt of a court order and the
appropriate fee the LCD will vacate the entries. Unlike an order annulling a
bankruptcy order such an order does not re-vest the property in the discharged
bankrupt. Any land or charge (whether registered or unregistered), which has vested
in the trustee, will remain so vested. Therefore a bankruptcy notice or bankruptcy
restriction will not be removed from a registered title if such an order is lodged.
7.51 The family home - Interest in dwelling-
house re-vesting in bankrupt
Where the bankrupt’s interest in a dwelling-house which falls within s283A of the
Insolvency Act 1986 re-vests in the bankrupt, the official receiver is required to make
an application to the chief land registrar to amend the register(s). For further
information see chapter 28 Freehold & leasehold property.
Searches of HM Land Registry records
7.52 HM Land Registry Portal
--- PDF page 20 ---
The Land Registry portal offers instant access to Land Registry information and for
the electronic submission of Land Registry applications.
To access the information held on the Land Register the full address of the property
is required. Where the full address details are not known the official receiver should
continue to use the paper/postal system.
7.53 Use of HM Land Registry forms
The HM Land Registry forms used by the official receiver can be downloaded
from HM Land Registry ,. Photocopies of such forms are not acceptable. When
using any HM Land Registry form, the title number of a specific property should be
quoted whenever it is available. Where the title number is not known, the application
should be marked in capital letters at the top ‘PLEASE SUPPLY THE TITLE
NUMBER’. An additional fee may be payable for this service. The current fees are
outlined in the Land Registration Fees Order 2009, which took effect from 6 July
2009. The most commonly used forms are described in the following paragraphs.
7.54 Public inspection of application forms
- HM Land Registry Form CIT
The LRR2003, rule 140 sets out the right of the official receiver, named in Schedule
5, LRR2003, to inspect and obtain copies of documents, or to make a search of the
Index of Proprietors' Names in connection with insolvency proceedings. Application
forms for official copies of records or documents held by LR are themselves open to
inspection. The official receiver must staple or permanently attach Form CIT
(Application in connection with court proceedings, insolvency and tax liability) to all
applications for inspection and copies of documents or the search of the Index of
Proprietors' Names made to the LR. Certificate K in Part 2 of Form CIT must be
completed and signed by the official receiver: Failure to complete this part of Form
CIT will lead to the LR not being able to process the application. Form CIT and any
other form attached as part of the application are not open to public inspection. If
Form CIT is not attached to any application then LR is under a statutory obligation to
issue official copies of any application form the official receiver uses.
7.55 Information provided where search of
specific property made [Form OC1]
If a search using Form OC1 is made, the Chief Land Registrar will provide an official
copy of the entries in the Land Register relating to the specific property. The
document states the title number of the property and is split into three parts:-
--- PDF page 21 ---
• Property register - this reveals whether the property is freehold or leasehold
and gives the full postal address of the property
• Proprietorship register - this states the nature of the title (e.g. absolute) and
provides the name and address of the legal owner. The date of registration of
the current owner is also given. Details of any restrictions on the owner’s
power to sell, mortgage or deal with the property are provided
• Charges register - this details the charge(s) against the property providing the
date(s) the charge(s) were registered and the details of the chargee(s). The
name(s) and address(es) of all current registered chargees or cautioners is
provided in their order of registration (which does not necessarily govern their
order of priority)
7.56 Search to ensure registration against
specific solely owned property
Where the official receiver becomes aware of specific land in the sole name of a
bankrupt they should effect a search of the register of the relevant title. If the official
copy of the proprietorship register or charge(s) register records a bankruptcy
restriction, i.e. the property is solely owned, then the official receiver need take no
further action regarding the registration with HM Land Registry
7.57 Request for registration against
specific solely owned property
If the official receiver’s enquiries reveal that there is no record of the bankruptcy
proceedings, i.e. the bankruptcy restriction has not been registered, on the Register
of Title for a property or land solely owned by the bankrupt, they should first ensure
that the LCD has been notified of the bankruptcy order and if form LRRABO has not
been issued, it should be sent immediately.
This may be necessary where the bankrupt has a common name. In this situation
the official receiver should send an office copy of the bankruptcy order, with form
LRRABO, to the relevant Land Registry office requesting registration of a bankruptcy
restriction against the title(s) of the bankrupt. An acknowledgement should be
obtained.
7.58 Other searches affecting unregistered
property
--- PDF page 22 ---
A search of the LCD at Plymouth may be made using Land Registry Form K015. A
fee per name is payable. The search may indirectly indicate that the company or
bankrupt is or was the owner of unregistered property, e.g. it could reveal a second
or subsequent legal charge or an entry to protect restrictive covenants. It should be
noted that unregistered land may be owned even though the Land Charges search
reveals no entries, e.g. where it is unencumbered in which case details of the land
are not known to HM Land Registry.
An office copy of the actual entry, based upon the application for the entry, may be
obtained by the submission of Form K019 to the LCD.
7.59 Additional searches in company
liquidation
Where the official receiver is dealing with a company in liquidation they should carry
out a search at Companies House. The Register of Charges filed at Companies
House, which should have been maintained by the company, should be inspected for
details of any charges created.
Protecting property/land
7.60 - Form J restrictions - General
Under the LRA2002 cautions against dealings were abolished. Under the LRA2002
Form J restrictions are available to protect the interest in a jointly owned property.
The general effect of the LRA2002 is to preserve the nature and effect of existing
cautions against dealings. This is achieved by providing that sections 55 and 56
LRA1925 continue to have effect in relation to existing cautions (paragraph 2(3) of
Schedule 12, LRA2002). A Form J restriction can be registered by the official
receiver as trustee or by an insolvency practitioner as trustee to protect the equitable
interest of a bankrupt’s estate that vests in the trustee.
A Form J restriction, when registered, is placed on the Proprietorship Register of
property as a warning to anybody having possible dealings with that property. A
Form J restriction will warn any prospective purchaser of the trustee’s interest. The
Form J restriction will also warn other parties, e.g. a finance company thinking of
providing funds secured by a charge on the property.
A Form J restriction reads as follows:
--- PDF page 23 ---
No disposition of the registered estate, other than a disposition by the
proprietor of any registered charge registered before the entry of this
restriction, is to be registered without a certificate signed by the applicant for
registration or their conveyancer that written notice of the disposition was
given to [name of trustee in bankruptcy] (the trustee in bankruptcy of [name of
bankrupt person]) at [address for service].
This wording cannot be amended as it is prescribed by the Land Registration Act
2002, section 43(2)d, and by the Land Registration Rules 2003, Schedule 4, as
amended by the Land Registration (Amendment) Rules 2008.
7.61 Instances where a Form J restriction
should be registered - Bankruptcy
The official receiver will not have an interest in the legal estate of a jointly owned
property but will have an interest in the proceeds of sale. The official receiver, when
acting as trustee, should consider registering a Form J restriction with the relevant
Land Registry office in the following circumstances:
• where the property is a jointly owned dwelling house
• where the property is or is suspected to be jointly owned with another but is
not a dwelling house e.g. it is suspected that the bankrupt has an interest
under a trust of the property but is not registered as proprietor
• where the property is jointly owned but is not a dwelling house and it is not
readily saleable at the time but there is every reason to believe that the
circumstances will enable disposal at a later date
Any suspicion that a debtor has an interest in a property will firstly need to be based
on sound enough evidence for the Land Registry to be prepared to accept the
application in the first place, and secondly, if the entry of the restriction was ever
challenged in court, the official receiver would want to be able to show that they had
acted reasonably in entering the restriction or they would be liable in damages.
7.62 Notice to mortgagees
The registration of a Form J restriction has only limited effect because it does not
prevent dealings with the property. Accordingly, the official receiver must contact all
known mortgagees as soon as possible after the bankruptcy order is made1. To
protect their interest in the property, whilst trustee, the official receiver must serve
notice on the mortgagees asking them to account to the official receiver if they
realise their securities or if any other action is taken against the property.
1. Form MP3
--- PDF page 24 ---
7.63 Protection of interest in land owned
by a company in liquidation
Where the official receiver is the liquidator of a company that is the registered
proprietor of any registered land or a registered charge it is possible to make
application for an entry at the Land Registry to note the official receiver as liquidator.
The application should be made using Land Registry form ‘AP1’ and the application
needs to be accompanied by evidence of the official receiver ‘becoming’ liquidator
(i.e. a certified copy of the winding-up order).
The entry would normally read as follows:
“(Date) By an order of the court dated [Date of WUO] [Name of OR] of [OR
office address] has become liquidator of [Company name]”
A fee is payable. Where the official receiver requires a restriction to be placed
against the estate/charge then an application using form ‘RX1’ should be submitted
along with the form ‘AP1’ application. A fee is also normally payable for this type of
restriction unless the court has ordered that a restriction be made, in which case no
fee would be payable. The wording of the restriction against a registered estate
would read:
“(Date) RESTRICTION: No disposition by the proprietor of the registered
estate other than a transfer on sale is to be completed by registration unless
made pursuant to powers granted by the Insolvency Act 1986.”
Where the company is the registered proprietor of a registered charge the restriction
would read:
“(Date ) RESTRICTION: No disposition by the proprietor of the Charge dated
[Charge date] in favour of [Company name] referred to above is to be
registered other than a discharge, a transfer of charge for value or a transfer
in exercise in the power of sale, unless made pursuant to the powers granted
by the Insolvency Act 1986.”
7.64 Registration of Form J restriction
without reasonable cause
The official receiver should exercise extreme care when applying to register a Form
J restriction. All details included in the application must be accurate.
The LRA2002, section 77(1) states that a person must not exercise the right to lodge
a Form J restriction with the registrar without reasonable cause. If they do, they owe
a duty to anyone who suffers damage and the person adversely affected may bring
an action for damages.
--- PDF page 25 ---
7.65 Protection of unregistered land
The official receiver may have to deal with unregistered land owned by the bankrupt.
The only protection available for the trustee, without seeking a caution against first
registration (applicable to only solely owned unregistered land until October 2005) or
first registration of the unregistered land (only available where the unregistered land
is solely owned), is that afforded by the registration of the PA(B) and the WO(B) at
the LCD and the control of the title deeds where possible. The official receiver must
ensure that the bankruptcy order is registered at the LCD.
7.66 - solely owned unregistered land
If the unregistered land is solely owned the legal estate vests in the trustee in
bankruptcy. The official receiver should endeavour in all cases to obtain and hold the
title deeds for the unregistered land from the bankrupt. If a mortgagee is in
possession of the title deeds the official receiver must ensure that the mortgagee is
aware of the trustee's interest in the unregistered land.
Under the LRA2002, section 15(3), the trustee, as legal owner, is unable to lodge a
caution against first registration over unregistered land. After October 2005, apart
from ensuring that the LCD have registered the bankruptcy order and having
attempted to secure the title deeds there is only one other measure of protection of
unregistered solely owned land available to the official receiver, as trustee, and that
is applying for first registration of the land. If the official receiver as trustee is
concerned about the level of protection over the unregistered solely owned land he
may consider, as legal owner, applying for first registration of the unregistered land.
Application for first registration must be made using HM Land Registry Form FR1
which can be obtained from the website. There is a fee payable for first registration
in accordance with the current Land Registration Fees Order. The fee should be
charged to the appropriate estate and a debit balance may be incurred for this
purpose, if necessary.
7.67 Effect of registration of caution against
first registration
The registration of such a caution at the relevant Land Registry office has limited
effect. The person who lodged the caution will be entitled to notice of any application
made for the registration of that estate that may affect their interest. The official
receiver must contact all known mortgagees without delay. The official receiver will
only be entitled to make representations as to why registration of land should not be
made or should be registered only on certain terms, when registration of the land is
subsequently sought.
--- PDF page 26 ---
7.68 Protection of jointly owned
unregistered land
Under the LRA2002, section 86, the trustee's interest in jointly owned unregistered
land is not classed as an interest affecting a qualifying estate. As a result of this and
the fact that the trustee is not the legal owner the trustee is unable to obtain a
caution against first registration over the unregistered land. Where the unregistered
land is jointly owned the official receiver should attempt to obtain and hold the title
deeds of the unregistered land. Where the title deeds are held by a mortgagee the
official receiver must ensure that their interest in the unregistered land is noted and
acknowledged. The only form of protection of the jointly owned unregistered land
available to the trustee is the bankruptcy entries at the LCD and the possible control
of the title deeds. As the official receiver as trustee is not the legal owner of the
unregistered land they are unable to apply for first registration of the land. If the joint
owners of the unregistered land arrange for the land to be registered the trustee will
be in a position to apply for a Form J restriction to protect their interest.
7.69 Procedure for registration of a Form J
restriction against dealings (registered
land)
Where the official receiver as trustee considers it necessary to register a Form J
restriction they should make application on HM Land Registry form RX1.. A fee is
payable in accordance with the current Land Registration Fees Order. The fee
should be charged to the relevant estate and a debit balance may be incurred if
insufficient funds are available. The details of the property must clearly identify it
and, if necessary, a map or plan should accompany the application. Part 13 of Form
RX1 requires evidence that the applicant has sufficient interest in the making of the
entry of the restriction applied for. Under the LRR2003, rule 93(j) a trustee in
bankruptcy will be regarded as having a sufficient interest. The following information
should be inserted at Part 13 of Form RX1:
• on (date) a bankruptcy order was made against (name of bankrupt) in the
(Court details). I am trustee of the bankrupt's estate
• the bankrupt is one of the registered proprietors of the land in title number
(xxx) and at the date of the bankruptcy order the bankrupt had a beneficial
interest in the proceeds of sale of the land
• the bankrupt's beneficial interest forms part of the bankrupt's estate and has
been vested in me under section 306 of the Insolvency Act 1986
--- PDF page 27 ---
Once completed Form RX1 should be submitted via the Land Registry Portal using
the electronic Document Registration Service (e-DRS). Where it is not possible to
use the Land Registry Portal users are able to send paper applications (with any
other standard Land Registry applications) to HM Land Registry Bankruptcy Unit.
The Chief Land Registrar will check the application to see that the person requesting
registration of a Form J restriction is claiming an interest which on the face of it is
capable of being registered but will not consider whether the claim can be
substantiated. The Chief Land Registrar will acknowledge receipt of Form RX1 by
sending a PDF document which will be available through the Notifications tab of the
Land Registry Portal. The notification will also appear as a PDF document under
PDF downloads, the PDF and notification will only be available for 15 days. The
registration date of the Form J restriction is when the application is received and
entered into the Land Registry's 'day list'. When registration of a Form J restriction is
requested in bankruptcy cases the official receiver as trustee should also request
registration of a Form A restriction. The registration of a Form J restriction will not
lapse after a period of time, it will remain in the register until it is cancelled or
withdrawn.
7.70 Address on forms used in conjunction
with registration of Form J restrictions
When producing Land Registry form RX1 used in conjunction with the registration of
Form J restrictions, Insolvency Service, PO Box 10089, Birmingham, B2 4WH must
appear as the default address at Panel 9 instead of the local office. The reason is
that once the restriction has been registered, most properties will be dealt with by the
LTADT rather than the home office. The LTADT will forward any subsequent Land
Registry correspondence to the appropriate office dealing with the case. Using this
address covers the problem of dealing with properties in matters where the official
receiver has relocated some years after the original restriction was lodged and a
redirection of mail (maximum of 1 year) is no longer effective. The local office
address should be entered at Panel 7 to ensure correspondence regarding the RX1
is returned directly to the official receiver.
7.71 Effect of registration of a Form J
restriction
Prospective purchasers or chargees of registered land would normally obtain an
office copy of the Register of Title from the Land Registry, which would show all the
entries made before the date of the office copy. A caution (pre LRA2002) or a Form J
restriction lodged by the official receiver as trustee or liquidator will be shown on the
--- PDF page 28 ---
register. In addition, once contracts have been exchanged or before an advance of
money is made, an official search of the register would normally be made which
would reveal any entries made since the date of the office copy, previously
requested, and the delivery of the official search.
In order to ensure that the vendor or chargor is in a position to give good title to the
land, the purchaser or chargee will normally require the vendor or chargor to obtain
from the person who registered the caution (pre LRA2002) or Form J restriction
details of what is required before that person will withdraw their caution (pre
LRA2002) or Form J restriction. The official receiver, therefore, has the opportunity
to consider the appropriate action.
7.72 Effect of a purchaser or chargee
unaware of caution (pre LRA2002) or Form
J restriction
There may be circumstances where, despite the caution (pre LRA2002) or Form J
restriction or because a purchaser or chargee has not carried out an official search
or the search was carried out prior to the registration of a caution (pre LRA2002) or
Form J restriction, the purchaser or chargee is unaware of the existence of the
caution (pre LRA2002) or Form J restriction and the transaction is entered into.
An example might be where a finance company obtains a second charge on
registered land and only becomes aware of the caution (preLRA2002) or Form J
restriction after it applies for registration of its charge the legal estate has remained
vested in bankrupt and the joint owner (now on trust for trustee in bankruptcy and
joint owner rather than the bankrupt and joint owner), and an advance of capital
money to two trustees able to give a valid receipt (S27(2) LPA 1925) then the trustee
in bankruptcy’s interest will be overreached (to the extent of the value of the
advance).
Equally, if an application is made to the Land Registry to register a transaction as a
result of which capital monies arising have been paid to two or more trustees, and a
certificate is given to the Land Registry that the person named in the Form J
restriction has been notified of the transaction, it will be registered because the
interest protected by the Form J restriction will have been overreached.
It is important, if notice is received by the official receiver that land subject to a Form
J restriction is to be sold or charged and the capital monies arising paid to two or
more trustees, that the official receiver acts promptly to ensure that their interest in
the capital monies will be realised.
--- PDF page 29 ---
7.73 Rights of prior registered
chargeholders
The registration by the official receiver as trustee of a Form J restriction will not affect
the rights or powers of any prior registered chargee(s) to execute a transfer of the
property under its power of sale. Accordingly the official receiver should, in company
and bankruptcy cases, contact all prior chargee(s) in order to protect the official
receiver’s interest in the property and serve notice on them to account to the official
receiver if they realise their securities.
7.74 Charging orders
The official receiver may apply to the court for a charging order to protect any
interest in a dwelling house which is comprised in the bankrupt’s estate and which is
occupied by the bankrupt, their spouse/civil partner or their former spouse/civil
partner. Certain charging orders can be protected by the registration at LR of a Form
K restriction under the LRA2002, section 42(4).
7.75 Vacation of office by practitioner
acting as trustee (Amended March 2011)
Where an insolvency practitioner is removed, resigns or otherwise vacates office,
details of any unrealised property should be notified to the official receiver. The
official receiver as trustee ex-officio should without delay ensure that adequate
protection in the form of a bankruptcy restriction or a caution (pre LRA2002) or a
Form J restriction is currently registered against the title of any land or charge which
still constitutes part of the bankrupt’s estate. If the position regarding protection is in
doubt a specific search should be made. HM Land Registry see a caution against
dealings (pre LRA2002) or a Form J restriction as personal to the applicant so when
an insolvency practitioner ceases to act as trustee of a bankruptcy estate, passing
the case to the official receiver to deal with as trustee ex-officio, the benefit of any
caution (pre LRA2002) or Form J restriction placed by the (former) trustee is, strictly
speaking, lost, as it is personal and not capable of being transferred. If the trustee’s
interest was protected by a caution (pre LRA2002) or Form J restriction, the caution
(pre LRA2002) or Form J restriction should be withdrawn by lodging HM Land
Registry Form WCT (Application to withdraw a caution) or HM Land Registry Form
RX4 (Application to withdraw a restriction), signed by the practitioner or their
solicitor. At the same time the official receiver should apply for a fresh Form J
restriction to protect their interest.
--- PDF page 30 ---
7.76 Withdrawal of a caution against
dealings or Form J restriction
An application to withdraw either a caution against dealings or Form J restriction
should be submitted via the Land Registry Portal using the electronic Document
Registration Service (e-DRS).
Using the Land Registry Portal
7.77 General
The Land Registry portal offers instant access to Land Registry information and
allows for the electronic submission of certain applications through the electronic
Document Registration Service (e-DRS). Official receivers are connected to this
facility and authorised user access can be granted to staff that require access to
Land Registry information as part of their work. Each official receiver’s command has
at least one Business Unit Administrator (BUA) who is responsible for maintaining
user accounts within the command concerned and is the first point of contact for any
Land Registry Portal related queries by staff. The BUA will act as a contact between
the Land Registry and individual offices.
To access the information held on the Land Register the full address of the property
is required. Where the full address details are not known the official receiver should
continue to use the paper/postal system.
7.78 Information Services
Land Registry e-business services users can use the Portal to request information
from the Land Register over the internet. Information that can be obtained includes,
for example, searches of the index map, official copies of documents, registers
and/or title plans. To carry out searches and request information the ‘Information
Services’ tab in the left hand pane of ‘My Portal’ should be selected. To obtain an
official copy of the register the user must provide a title number or at least one of the
following:
•
flat/house number and postcode
•
flat/house number, street and town
•
postcode
Where a document, title view or official copy is available to view immediately a link
will be sent to the user taking them to the document requested. Where the document
is not available for download immediately the user will be notified once the document
--- PDF page 31 ---
is available. The fees chargeable are set out in the Land Registration Fee Order
2012.
7.79 Land Registry e-DRS
The Land Registry electronic Document Registration Service (e-DRS) has been
introduced to allow users to submit applications to the Land Registry through the
Land Registry online transactional service known as ‘the Portal’. The service can be
used for applications affecting up to twenty different title numbers. The Document
Registration Service is accessed through a link in the left hand pane of ‘My Portal
Home’.
7.80 Making a Land Registry application
through the e-DRS
Prior to logging into the Portal the staff member should produce the relevant
application and save a PDF version of it to Wisdom. If any evidence is required to be
submitted along with the application (e.g. the bankruptcy order) this should also be
scanned or saved as a PDF before logging into the Portal.
After logging into the Portal the following procedure should be followed to make an
application
•
the Document Registration tab should be selected from the left hand navigation pane
of ‘My Portal Home’
•
the reference number for the application should be entered. The title numbers for the
application should be entered
•
the application type should be selected from the ‘Application’ box,
•
The PDF version of the application should be located using the ‘Browse’ button
following the ‘File location’ tab
•
the appropriate method of certification should then be selected
•
the ‘Attach’ button should be selected
Where evidence is required in support of an application the guidance at paragraph
7.81 should be followed. Where a joint application is being made the guidance at
paragraph 7.84 should be followed.
7.81 Lodging evidence in support of an
application
Evidence is lodged in the same way as an application through e-DRS but instead of
selecting an application type from the ‘Application’ box the ‘Court Order’ or
--- PDF page 32 ---
‘Evidence’ option should be selected as appropriate. The file name of the PDF
evidence should accurately reflect the nature of the evidence.
7.82 Additional information required by
the Land Registry
Where an application has been lodged electronically through e-DRS and the Land
Registry require further documentation they will send an ‘Electronic Requisition’
using the Land Registry Portal. Users will be able to view the requisitions within the
‘Notifications’ tab. The ‘Reply to Requisition’ tab should be used to submit any further
documentation required. It is important that users monitor the Portal closely after an
application has been submitted to ensure that the application is progressing
appropriately.
7.83 Form J applications through e-DRS
The e-DRS should therefore be used for all Form J applications apart from when the
official receiver does not have the full address of the property. In such circumstances
an e-DRS application will not be accepted by the Land Registry and a postal
application will have to be made.
7.84 Joint Form J applications through e-
DRS
Where two or more bankruptcy estates have an interest in a registered property it is
still possible to process a Form J restriction using a single application submission
through the e-DRS. The benefit of this is that only the one set of fees is payable and
that is based upon the number of titles affected (i.e. £20 for up to three titles and £10
per additional title). A separate form RX1 should be completed in respect of each
case but the forms should be annotated in the top right hand corner as ‘form 1 of 2’
and ‘form 2 of 2’. The first form should have the fee paid box of panel 4 detailing the
actual fee paid (e.g. £20). Panel 4 of ‘form 2 of 2’ should state the fee paid is “nil –
see form 1 of 2”). It is important that the fee is allocated appropriately between the
two estates so the reference numbers used must be accurate (see paragraph 7.87).
The form RX1 marked ‘form 2 of 2’ will need to be submitted through the eDRS as a
supporting document rather than as an application.
7.85 Saving a copy of the Land Registry
application as a PDF document
--- PDF page 33 ---
All applications submitted to the Land Registry through the e-DRS must be submitted
in Portable Document Format (PDF). A PDF document can be generated by using
the normal procedure to print a document but by selecting the printer named
‘PDFCreator’. When ‘OK’ is selected a dialogue box will appear and selections will
need to be made. The document should be given an appropriate name and saved to
a convenient location so that it may be uploaded to Wisdom. Any evidence required
in support of a Land Registry application (e.g. a bankruptcy order) should be
converted to PDF format either using the procedure outlined above or by scanning
the paper document as a PDF.
7.86 Authorising applications submitted
through e-DRS
All Land Registry Portal users within the Service have the required authorisation to
submit applications through e-DRS. To use the system users are required to login to
the Portal. Local offices will have procedures in place to ensure that the system is
being used appropriately and the ORS Central Management Group will conduct
audits regarding the efficiency of the process.
Insolvency Service Land Registry Portal Users are authorised to submit applications
through e-DRS so applications do not require signing or dating in order to be
accepted as it is understood that the registered user submitting the document will
have sufficient authority to make the application. The Business Unit Administrator
has the required access to monitor and review all applications submitted and will
form part of the locally implemented system of monitoring and control.
7.87 Reference numbers for applications
submitted through e-DRS
There has been no change to the reference numbers required when submitting
documents electronically than what is used when paper applications are made. It is
important that the reference used allows EAS to properly identify the case and the
office that made the application (e.g. BKT00885685-LTADT). Where an application
for a Form J restriction is made jointly in respect of a jointly owned property where
both owners are bankrupt it is important that the fee is apportioned correctly (i.e.
50/50) between the two estates. For this to be done correctly the reference in box 7
of both forms should refer to both bankruptcy estates, the official receiver’s office
making the application and also identifying that the application as a joint one (e.g.
JNT/BKT00885685/00885730). This reference cannot exceed 25 characters
(including spaces).
--- PDF page 34 ---
7.88 Confirmation that an application has
been processed
Once an application has been submitted a message will be generated confirming the
submission. A copy of the confirmation message should be saved to Wisdom by
selecting ‘Download as PDF’ and then by saving the document as you would any
other. As soon as an application has been processed by the Land Registry the Portal
will be updated to reflect this within the ‘PDF Downloads’ section of the ‘General
Facilities’ menu. Staff should diarise a review date to check that any application
submitted via the Portal is being progressed appropriately.
7.89 Land Registry training material
There are a number of short online training courses available on the Land Registry
website. The training covers:
•
Information Services
•
e-DRS
•
General Facilities
•
Administrative Services
The Land Registry Business e-Service Technical Manual - Part 2 is another useful
resource on using the Land Registry Portal.
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1
Chief Executive’s Office
The Insolvency Service
1 Westfield Avenue
London
E20 1HZ
Tel: 020 7637 1110
http://www.gov.uk/insolvency-service
Megan Lloyd
BY EMAIL ONLY TO:
request-657747-bfcc84d9@whatdotheyknow.com
Your ref:
Our ref:
e-mail:
Date:
FOI20/21-002
Insolvency.Technical@insolvency.gov.uk
28 April 2020
Dear Ms Lloyd
Re: Freedom of Information Act 2000
Thank you for your e-mail of 3 April in which you requested from the Insolvency Service:-
• Confirmation that the publicly available web version of the manual is up to date as of
April 2020.
• If not, a copy of the most up to date version of the manual or at least those sections
which have been updated since 2015.
• Confirmation when the publicly available version of the manual will be updated on the
website.
Your request has been dealt with under the Freedom of Information Act 2000 (FOIA).
The Technical Manual is no longer being maintained and is to be archived. Publication of
updated internal guidance for information purposes is under review and no publication
date is yet available.
In response to your request I have attached copies of the current operational guidance
for official receivers. Some numbered sections of the guidance are not currently
available. All available sections have been included.
Operational guidance provided to official receivers is tailored specifically for internal use.
It is discretionary and is not a statement of law. It is not intended for use by third parties,
copies of the guidance are provided for information purposes only. In some
circumstances it will be appropriate for the official receivers and their staff to deviate from
the guidance.
The Insolvency Service provides guidance specifically designed for stakeholders over a
range of subjects on GOV.UK.
--- PDF page 2 ---
Some text has been redacted since it is exempt information under section 43 of FOIA.
Section 43(2) provides that information is exempt if its disclosure would, or would be
likely to, prejudice the commercial interests of any person (including the public authority
holding it).
In order to apply this exemption, we have undertaken a public interest test and are
satisfied that it is not appropriate to disclose this information. Doing so will, or is likely to,
prejudice the commercial interests of either the Insolvency Service or its agents in future
commercial negotiations.
If you are not satisfied with the response we have provided you and would like us to
reconsider our decision by way of internal review, please contact our Information Rights
Team at FOI@insolvency.gov.uk.
As a result of government instructions to stay at home we have changed the way we
deliver our services. All our staff are working from home until further notice. While our
offices are closed, we will not be able to process any physical mail sent.
You also have the right to contact the Information Commissioner’s Office if you wish for
them to investigate any complaint you may have in regards to our handling of your
request. Please note the Information Commissioner is likely to expect an internal review
to have been completed.
Kind regards,
Chief Executive’s Technical Team
The Insolvency Service
The Department for Business, Energy and Industrial Strategy, Official Receivers and the Adjudicator are
Data Controllers in respect of personal data processed by the Insolvency Service. For the details about
how personal data is processed by the agency, please see the full Insolvency Service Personal Information
Charter here:
https://www.gov.uk/government/organisations/insolvency-service/about/personal-information-charter
Summary of sections provided:
1. The Official Receiver – Permission, powers, duties and functions
2. Winding-up orders – Initial action
3. Bankruptcy orders – Initial action
4. Gazetting and advertising – Publishing insolvency information
5. The Individual Insolvency Register
6. Restrictions on bankrupts
7. HM Land Registry and protecting property interests
--- PDF page 3 ---
11. Inspections
12. Creditor action against the insolvent and their property
13. Retention of title
14. Insurance
16. Accounting and other records
17. Interviews and statements
19. Co-operation, non co-operation and enforcement of duty to co-operate
20. Public examinations
21. Private examinations
22. Obtaining, releasing and formal disclosure of information
23. Proceeds of Crime Act 2002 and Terrorism Act 2000
24. Exempt property and property not comprised in a bankrupt’s estate
25. Assets – Identification, protection and realisation
26. Money owed to the insolvent
27. Motor vehicles
28. Freehold and leasehold property
29. Solely owned tenanted property
30. Jointly owned tenanted property
31. Antecedent recoveries – Preferences and transactions at an undervalue
32. Antecedent recoveries – Other antecedent recoveries
33. Monetary assets
34. Stock, work in progress, plant and machinery
35. Income payments agreements and income payments orders
36. Realisation of after-acquired property
37. Rights of action
38. Financial mis-selling
39. Intellectual property and other intangible assets
40. Sundry assets
42. Disclaimers
43. Creditors and liabilities
44. Decision making procedures
45. Appointment of liquidators and trustees
47. Discharge
48. Insolvency accounting/financial transactions
49. Distributions
50. Release of Official Receiver as liquidator or trustee
51. Official Receiver’s role in voluntary arrangements
52. Partnerships
54. Dissolved companies
55. Second and subsequent bankruptcies
56. Deceased insolvents
57. Pensions
58. Employment law and insolvency
60. Debt relief orders
61. Third Parties (Rights Against Insurers) Act 2010