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9.123 Legal actions stayed on making of the bankruptcy or winding-up order
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 court [note 1]. Where bankruptcy proceedings are pending or an individual has been adjudged bankrupt the court may stay any proceedings or allow them to continue on any terms that it thinks just [note 2].
9.124 Action by the official receiver on becoming aware of legal proceedings against the insolvent
When the official receiver becomes aware of the existence of legal proceedings being taken against the insolvent, reference should be made to the guidance in Chapter 3, Part 3 - Initial procedure when winding-up order made, for companies and Chapter 4, Part 3 - Initial procedure when bankruptcy order made, for bankruptcies and to Chapter 31.9 - Rights of action for both companies and bankruptcies. If a creditor is attempting to recover a debt which is not provable, reference should be made to Chapter 40 Part 1 - Creditors and liabilities and to Part 2 of this Chapter regarding the assets which may be seized if execution is levied. Where a bankrupt is involved in divorce proceedings, the official receiver should refer to Chapter 33, Part 5 - Bankrupt’s interest in the family home, concerning the action required to protect the bankrupt’s interest in the family home.
On the application of a judgment creditor or the clerk of the court in respect of maintenance orders, the High Court or a county 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 debt or amounts due under a maintenance order [note 3].
On the making of a bankruptcy order a creditor who has a provable debt is not entitled to retain the benefit of an attachment [note 4] unless it was completed or the sums paid before the commencement of the bankruptcy [note 5]. The creditor will be entitled to any monies paid into court between the petition date and the date of the bankruptcy order, unless he/she had received notice of the presentation of the petition (Re Green (a bankrupt) ex parte the Official Receiver v Cutting [1979] 1 All ER 832). The court may discharge the attachment of earnings order on the making of a bankruptcy order [note 6].
9.126 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 terrorism [note 7]. The court 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 Crown.
9.127 Effect of insolvency on the forfeiture order
The money or property subject to a forfeiture order shall not be finally disposed of for a period of six months from the making of the forfeiture order [note 8]. If, during that time, qualifying insolvency proceedings are commenced, the insolvency practitioner (including the official receiver) may claim that money or property to deal with within the insolvency proceedings [note 9]. 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 person.
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 made. The notice should;
Provided that the notice complies with the above, the forfeiture order will cease to have effect in relation to the assets covered by it, which will be dealt with in the insolvency proceedings. 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.
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 discharged [note 10]. 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 proceedings.
If the official receiver reasonably deals with any property which is subject to a restraint or forfeiture order he/she shall not be liable for any loss caused by his/her action and he/she will have a lien on that property for his/her unpaid expenses and remuneration [note 11].In the event of any distribution being made to creditors the Crown would be a postponed creditor (see Chapter 40 Parts 1 and 6 - Creditors and liabilities) 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 interest [note 12].
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 receiver [note 13]. 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.
An injunction is an order of court requiring a party either to do a specific act or acts (a mandatory or positive injunction) or to refrain from doing a specific act or acts (a prohibitory or negative injunction) [note 14]. Failure to comply with an injunction will render the offender guilty of contempt of court. Details of types of injunction are provided in Chapter 19 Part 4 and in particular paragraph 19.35.
9.129 Action by the official receiver in relation to an injunction
If the official receiver becomes aware of an injunction in relation to the insolvent made before his/her appointment, he/she should immediately contact the court and the other party to the proceedings to inform them of the insolvency order. Where the order prevents the official receiver from carrying out his/her functions, he/she may need to apply to the court for that order to be varied or lifted [note 15]. A solicitor should be employed (see Chapter 32 Part 2 - Employment of agents) to advise on the merits of any application. If the official receiver is advised to apply to the court for the order to be lifted, he/she should ensure that he/she has adequate funds or indemnities to cover the costs and any potential adverse costs. In addition the official receiver, as liquidator or trustee, should obtain the sanction of the court or the liquidation or creditors’ committee before entering into proceedings. Where the official receiver is without funds (for the costs and any potential adverse costs), the guidance on securing funds or indemnities from those creditors who would benefit from the application will apply - see Chapter 32.2 - Employment of agents (solicitors).
(Amended December 2010)
A freezing injunction or freezing order (formerly known as a Mareva injunction) is a form of interim injunction whereby a defendant is restrained from removing from the jurisdiction, disposing of, or dissipating his/her assets so as to frustrate any judgment which the claimant may obtain against him/her [note 16] (see Chapter 19, paragraph 19.36). A freezing order may be granted pending the hearing of an application for the restoration of an insolvent’s position, with regard to transactions at an undervalue, or transactions defrauding creditors, under sections 238, 339 or 423 of the Insolvency Act 1986 respectively (Aiglon Limited v Gau Shan Co ltd [1993] BCLC 321).
Where the official receiver becomes aware of a freezing injunction in relation to the insolvent made before his/her appointment, he/she should immediately contact the court and the other party to the proceedings to inform them of the insolvency order (see paragraph 3.41 (company) or paragraph 4.50 (bankruptcy)). Where the order prevents the official receiver from carrying out his/her functions, he/she may need to apply to the court for that order to be varied or lifted (see paragraph 9.129 above). However, where the appointment of an insolvency practitioner as liquidator/trustee is expected, such an application should properly be dealt with by the liquidator/trustee following their appointment.
The assets subject to a freezing injunction still form part of the insolvent estate but are only available to the liquidator/trustee subject to the restrictions contained within the injunction. Usually the creditor who has the benefit of the injunction is a creditor with a provable debt in the bankruptcy. The freezing injunction does not render the creditor a secured creditor, but effectively stops the assets being sold and the funds dissipated. The liquidator/trustee in insolvency proceedings will need to make an application to court to lift or vary the freezing injunction to realise the assets.
If it is suspected that evidence would be destroyed if prior warning of a requirement for the delivery of documents were to be given to a defendant, the High Court may make a search order (formerly known as an Anton Pillar order) [note 17]. A search order requires the defendant to the proceedings to;
If the official receiver becomes aware of a search order in relation to the insolvent made prior to his/her appointment, he/she should immediately contact the court and the other party to the proceedings to inform them of the insolvency order and follow the guidance given in paragraph 9.129 on a possible application to court and the employment of solicitors.
A third party debt order is the new term to describe what was formerly known as a "Garnishee Order" [note 18]. The former terms now have the following meanings:
A third party debt order is where a judgment creditor is able to claim for his/her own benefit money which is due to the debtor from a third party, often the debtor’s bank or building society. This is known as an "attachment" of the debt. A third party debt order is made under the provisions of the Civil Procedure Rules 1998 Part 72 Rule 72.2. An interim third party debt order is made by the court 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. Any attachment which is not complete (i.e. the money has already been paid to the creditor) prior to the commencement of the winding up or bankruptcy will be void against the liquidator or trustee [note 19]. If an interim third party debt order has not been made final prior to the making of a winding-up or bankruptcy order, the official receiver should inform the court of the decision in Roberts Petroleum Ltd v Bernard Kenny Ltd (in liquidation) [1983] 1 All ER 564 HL where it was held that the making of a winding-up order was sufficient grounds for the charging order not to be made absolute and for the nisi order to be discharged. See also paragraph 9.105B regarding more recent guidance following the decision of the court of appeal in the matter of Nationwide Building Society v Wright [2009] BPIR 1047.
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