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PART 1
December 2008
GENERAL PROTECTION AND COLLECTION OF ASSETS
31.0.2 Delivery up of assets by officers or bankrupt
Company officers and bankrupts have a duty to co-operate with the official receiver [note 1]. A bankrupt also has a duty to deliver up possession of his/her estate to the official receiver [note 2]. In company cases, where the company officers have control of any property, books, papers or records of the company, the court has the jurisdiction to order their delivery up to an administrator, administrative receiver, liquidator or provisional liquidator [note 3]. The legislation also imposes a duty upon a bankrupt to deliver up to his/her trustee possession of any property, books, papers or other records which the trustee requires [note 4]. Where company officers and bankrupts fail to co-operate with the official receiver, reference should be made to Chapter 13. That chapter also outlines the procedure for making an application to court for the search and/or seizure of an insolvent’s property.
Before taking action in relation to any item the official receiver should be reasonably satisfied that it is owned by the insolvent. Reference should be made to Part 2 in relation to items belonging to third parties.
If the official receiver wrongfully takes possession of property to which he/she or the insolvent has no title, then some protection is offered by legislation provided that at the time of taking possession, he/she honestly believed it was property of the insolvent [note 5]. The official receiver will not be able to rely upon this protection where he/she has notice of a claim by a third party unless he/she has reasonable grounds for rejecting such a claim. See paragraph 63.12 for more information.
31.0.4 Assets subject to agreement with finance company
Assets may be subject to the terms of an agreement with a third party. These agreements may vary from simple rental agreements to agreements under which ownership of the item is intended to pass to the insolvent. Subject to any express terms of the agreement, the rights of the insolvent both to exercise rights over the asset (e.g. to use it), and to acquire ownership on the fulfilment of any specified condition, will become exercisable by a liquidator or pass to a trustee in bankruptcy. Further details on specific types of agreement are provided in Chapter 31.2, Part 2, which deals with motor vehicle agreements but may also be applied to other items.
31.0.5 Assets covered by charges
Assets discovered on inspection may be owned by the insolvent, but a third party may hold a type of security over that asset in the form of a mortgage, charge, lien or debenture. Assets subject to a lien are covered at paragraph 31.0.16. The various types of charges are discussed in Chapter 40, Part 4. Reference should be made to Chapter 9, Part 3 and Chapter 56, Part 2 regarding the action the official receiver should take to establish the intentions of a charge holder to realise their security. The official receiver has an obligation to protect any charged assets when he/she is receiver and manager of a bankrupt's estate [Note 6], and to take such assets into his/her custody and control when liquidator of an insolvent company [Note 7]. However, once the charge holder has been informed of the insolvency, the official receiver may be justified in taking minimum steps to protect such property if there is no prospect of there being a surplus for the unsecured creditors once the security is realised. Any realisation of the property will be for the charge holder to undertake. In certain circumstances, however, it may be necessary to insure assets covered by a fixed charge and to deal with them (see paragraph 31.0.6).
The official receiver should, at an early stage, ensure that adequate insurance is in place to cover the property forming part of the insolvent's estate (which it is his/her duty to protect) and, where appropriate, public and employer's liability. This may be achieved by having his/her interest noted on an existing policy or by arranging new policies (see Chapter 8, paragraphs 8.92 and 8.93). The official receiver may have to insure property in the care of the insolvent (see paragraph 31.0.22) and also any assets charged under a fixed charge if, for some reason, the official receiver cannot immediately contact the third party or charge holder to inform them of the proceedings and invite them to consider obtaining their own cover. The official receiver should not incur expenditure on insuring third party property except to protect himself/herself from any public liability. Where the official receiver is unable to contact the owner of the third party goods consideration needs to be given as to whether the goods should be insured until the necessary contact is made. Where this insurance will result in a high premium the matter should be discussed with Technical Section in advance (see also paragraph 31.0.22).
For further details concerning insurance generally, see Chapter 49.
Where it is considered practicable and commercially worthwhile to do so, agents should be employed without delay to collect and store assets pending their disposal. The official receivers usual agents will normally be able to provide a verbal indication of the value of the assets free of charge, however, the agents may make a charge if the assets are of a specialist nature. The official receiver may commission such a valuation to decide the best method of disposal for the assets. This course of action should only be followed when the official receiver has no knowledge of the value of the assets e.g. due to their unusual nature.
Reference should be made to Chapter 32.3, Part 1 regarding the employment of agents generally. Any instructions given to agents verbally should be followed up in writing to prevent a misunderstanding arising (see paragraph 32.3.18).
31.0.8 Employment of agents – Incurring or increasing a debit balance (amended June 2009)
If the likely costs of the employment of any agent would result in the creation of a debit balance on the estate account of more than £500, or the increase of an existing debit balance above £500, the approval of Technical Section must be obtained before any such costs are incurred, unless the circumstances of the case are as mentioned below or specific authority is given elsewhere in the Technical Manual. Where because the matter is urgent, approval is sought, and given, verbally, the official receiver should make and retain a file note of the telephone conversation. Authority to incur a debit balance will not be necessary where the official receiver is acting to protect assets of uncertain value, e.g. when agents are employed to value a lease, unless the costs of employment are likely to be unusually high (perhaps because of the specialised nature of the item to be valued). When the employment of an agent will incur or increase a debit balance, the official receiver should consider whether realising the asset concerned will result in a net benefit to the estate. If not, consideration should instead be given to disclaiming that asset (see Chapter 34).
31.0.9 Disposal of assets – general (amended June 2009)
The official receiver has a general duty to realise assets belonging to an insolvent whilst acting as liquidator or trustee [note 8]. The official receiver should dispose of any assets that are likely to diminish in value e.g. seasonal goods such as Christmas stock, even where an insolvency practitioner is likely to be appointed (see also paragraph 31.6.50). The official receiver can do this even whilst acting as receiver and manager [note 9] (see paragraph 31.0.10). If, for example, storage charges of an item will have a material effect on the net proceeds of sale available for the estate, the assets should be sold without delay and the agents asked to account to the official receiver for the net sale proceeds. Reference should be made to Chapter 31 regarding the realisation of specific assets and paragraph 32.3.11, regarding the bonding of auctioneers/valuers.
31.0.10 Disposal of assets where official receiver is receiver and manager (bankruptcy only)
In bankruptcy cases, the official receiver acting as receiver and manager should exercise care that he/she does not exceed the power to dispose of perishable ‘goods’ [note 9]. The term ‘goods’ is not defined by the Insolvency Act but should be taken to mean ‘goods and chattels’ and to include all moveable property. Therefore items such as land, and fixtures annexed to it, would be excluded. If the official receiver is in doubt regarding the disposal of assets of significant value, he/she can apply to the court for directions [note 10] and detail his/her views as to the best method of disposal. The bankrupt and petitioning creditor’s solicitor should be notified of the application and that notification should be brought to the court’s attention.
31.0.11 Dealing with assets and other property at premises generally
Normally assets and other property of an insolvent’s estate should be removed from business premises as a matter of urgency where a business is not to be continued. In addition to obtaining adequate insurance cover (see paragraph 31.0.6), the official receiver should ensure that all reasonable steps are taken to prevent any delay in removal of items from unattended premises. If the cost of removal is likely to have a substantially adverse effect on the realisation, the official receiver should consider disposal of items of stocks, machinery etc in situ. However, the official receiver may then be considered to be in occupation of the premises for the convenience of the liquidation (see paragraph 31.0.12 below).
31.0.12 Occupation of premises for the convenience of the insolvency proceedings (amended June 2009)
The official receiver should exercise extreme care when considering whether to remain in possession of premises to enable assets to be realised to better advantage [note 11]. If the official receiver retains premises for the convenience of a liquidation or bankruptcy and not for the benefit of the landlord, the rent may be considered to be payable in full to the landlord as part of the expenses of the liquidation or bankruptcy. If this is the case, rent will be payable from the date of the winding-up or bankruptcy order to the date of vacation of the premises where, for example, assets are stored on the premises. In addition, a landlord or local authority may distrain upon the property of the insolvent at the premises for rent (if it is payable as part of the expenses of the winding up) or rates respectively accruing after the date of the winding-up or bankruptcy order. The official receiver should therefore ensure that where occupation is to continue, rent and rates are paid promptly.
If the official receiver remains in occupation by arrangement with the landlord and for the benefit of the landlord as well as for the company, and there is no agreement that the official receiver should pay the rent, the rent will not be an expense of the liquidation and the landlord will not be entitled to distrain [note 21]. This does not apply in bankruptcy cases where the landlord can still distrain [note 22]. Also, if the official receiver simply retains the property without using it but abstains from disposing of it, rent will not be an expense but a provable debt. In all cases, the official receiver should endeavour to remove assets from premises as soon as possible to avoid the risk of distraint. Reference should be made to paragraphs 3.63 and 4.73 regarding any continuance of the electricity or gas supply.
31.0.13 Assets outside England and Wales
Assistance in enforcing court orders obtained by the official receiver in the courts of England and Wales, in the courts of other parts of the United Kingdom and certain other countries, is found in section 426. For further details, reference should be made to Chapter 41 – Cross Border Insolvency – European Union, and Chapter 42 – Cross Border Insolvency – Within the UK and outside the European Union.
The official receiver may encounter problems in dealing with assets abroad, as his/her appointment may not be recognised there. There may also be local creditors claiming the assets under local laws. The official receiver can seek the insolvent’s assistance in realising overseas assets. The company’s officers, and the bankrupt, have a duty to co-operate with the official receiver (see paragraph 31.0.2) [note 12]. If they fail to co-operate, the official receiver should remind them of the enforcement procedures available to him/her - see Chapter 13.
31.0.14 Information in the possession of third parties
There are various powers available to the official receiver and the courts for obtaining information relevant to the insolvent. 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. Note that in liquidation certain persons in addition to the company officers have a duty to give information, subject to fines for non-compliance [note 13]. Where a third party is unwilling to co-operate, the official receiver should consider making an application to the court for a private examination of the person in question [note 14], see Chapter 23. The court has enforcement powers relating to private examinations and on the application of the official receiver can order delivery up of property of the insolvent, payment of money due or re-examination of persons [note 15].
31.0.15 Property in the possession of third parties
There are also various powers available to the official receiver and the courts for obtaining property belonging to the insolvent. If a third party is in possession of, or is believed to be in possession of, property which is part of the insolvent’s estate, the official receiver should seek to obtain the delivery up of such property at an early stage. See paragraph 31.0.14 regarding the power to hold a private examination, where the court may order delivery up of property.
In addition, where the official receiver is liquidator or provisional liquidator, he/she can apply to the court for an order to require any person to pay, deliver, convey, surrender or transfer the property, books, papers or records of the company to the official receiver [note 16].
In a bankruptcy, any banker, agent or other person who holds property on account of or for the bankrupt is required to pay or deliver up to the trustee all property in his/her possession which belongs to the bankrupt’s estate, subject to any legal right to retain the property. If any person defaults in this obligation when the official receiver is acting as trustee, the official receiver should inform them that he/she may be in contempt of court and liable to penalties accordingly if he/she is being un-cooperative without reasonable excuse [note 17].
Also, in a bankruptcy, the court has the power in certain circumstances to issue a warrant for the seizure of property, which carries with it the right for the person executing the warrant to break open any premises necessary for its execution and the court can also issue search warrants [note 18].
A lien is a right to retain possession of another’s property pending the discharge of indebtedness. A creditor with a right to a lien should be treated as a secured creditor in the insolvency unless the lien is over books, records and papers of the insolvent (see below). Where a creditor claims a lien, reference should be made to Chapter 40, Part 4 for the rules regarding secured creditors and the valuation of their security when lodging a proof of debt. The official receiver should always ensure that a creditor has a right to claim a lien over the property held when considering the validity of the lien.
A company’s registered office will often be at the offices of its solicitor or accountant and the company’s books and registers should be kept there. The solicitor or accountant may be entitled to a lien over those books in respect of unpaid fees but note that a lien to retain possession of any books, papers or other records (other than those giving title to property) of the company is unenforceable against its liquidator or provisional liquidator [note 19]. Similarly, a lien to retain possession of any books, papers or other records of a bankrupt (except those giving title to property) is unenforceable against the official receiver as trustee [note 20]. Liens are discussed further in Chapter 9, Part 5.
The official receiver should at an early stage in the insolvency establish from the directors, bankrupt (or in the absence of these, the insolvent’s employees) whether any distress has been levied against any of the insolvent’s property. See Chapter 9, Part 1 for information on distress.
Written notification of the making of the insolvency order and the appointment of the official receiver should immediately be sent to the distraining creditor and to any bailiff acting on his behalf. The official receiver needs to consider whether the goods may be claimed for the benefit of the insolvent’s estate, see paragraph 9.30 for more information. If distress was levied by any person within three months prior to the winding-up order or bankruptcy order (i.e. the goods were seized in that period), then the goods or their proceeds of sale are charged for the benefit of preferential creditors, see paragraphs 9.33 and 9.34 for more information.
The official receiver should, at an early stage in the insolvency proceedings, establish from the directors, bankrupt or, in the absence of these, the insolvent’s employees, whether any execution has been levied against any of the insolvent’s property. See Chapter 9, Part 2 for information on execution.
Where the execution has been completed (see paragraph 9.68) prior to the commencement of the insolvency proceedings, the judgment creditor will be entitled to retain the benefit of the execution. If the officer charged with the execution still holds the proceeds of sale or property when he/she receives notice of the insolvency he/she must pass the funds or property to the liquidator or trustee (see paragraph 9.84) as the execution has not been completed.
Any execution levied after the commencement of a winding up by the court is void against the company’s liquidator. Any property or proceeds of sale held by the officer charged with the execution should be passed to the liquidator. Additionally, any proceeds of sale passed to the judgment creditor should be recovered and in both cases the judgment creditor can prove in the liquidation.
A List X site is a commercial site (i.e. not Government) on UK soil which is approved to hold UK Government protectively marked information marked CONFIDENTIAL and above. There are number of businesses in the UK carrying out contracted work on behalf of government departments on List X sites. Should a winding-up order be made against a company or a bankruptcy order be made against an individual trading on a List X site it is essential, in the interests of national security, that all protectively marked assets, books, papers and records are protected and not moved without the relevant security clearance. Reference should be made to paragraph 59.76A onwards if such a site is encountered.
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