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July 2005
The official receiver should aim to contact the company or bankrupt's bank within five working days of the winding-up or bankruptcy order. A bank may not be able to identify the insolvent's account without full details of the account number and sort code and the official receiver should make efforts to obtain these details before telephoning or sending correspondence to the bank, and quote them in all correspondence with the bank. Prior to the first interview, bank details may be obtained from the petitioner, or from initial telephone contact with the director or bankrupt. Directors and bankrupts are asked to provide details of any bank and building society accounts in the Preliminary Information Questionnaire [note 1] or in the statement of affairs in the case of a debtors petition. The questionnaire also warns the director or bankrupt not to use these accounts. Where bank accounts are discovered at a later date the official receiver should contact the banks without delay, where applicable by telephone immediately after discovery, and make the banks aware of the winding-up order or bankruptcy order in an attempt to prevent any unauthorised removal of funds.For information on contact details and procedures for individual banks see OROS bulletin index bank information
Realisation of any credit balance should be a facilitated where the bank account is to be closed by contacting the branch by standard letter requesting that the balance on the account as at the date of the winding-up order or bankruptcy order be paid to the official receiver [note 2]. The cost of realising the balance should be balanced against the credit balance on the account. Where the credit balance (or balances in total if there is more than one account at the same bank) is less than £50, if there is no response to the initial letter a telephone call should be made to chase this up and then one further reminder letter should be sent, after which no further effort to realise the balance should be made. Where the balance or balances are more than £50, the official receiver should use his/her discretion as to the efforts he/she should go to in order to realise the balance in each case, bearing in mind that the effort expended should be proportionate to the amount that can be realised for the benefit of the insolvency estate.
In a bankruptcy there may be other factors to consider before any credit balance is realised (see paragraphs 31.5.22 to 31.5.24.) Care should be taken when realising the credit balance in a bankruptcy to ensure that the funds do comprise part of the bankruptcy estate and that they do not come from any of the sources in paragraph 31.5.17.
31.5.21 Cash at bank - releasing money for the bankrupt's immediate household expenditure
As stated in paragraph 31.5.7, the bankrupt should be allowed to meet his/her immediate day to day expenses. If the bankrupt receives earnings, whether it be salary or income from self employment by a payment made into his/her bank account, or it is his/her practice to pay these monies into a bank account, if the official receiver realises these monies the bankrupt will be unable to provide for himself/herself and any dependants whilst awaiting his/her next salary payment etc. To overcome such difficulties the bankrupt should be asked to provide a written estimate of immediate household expenditure for himself/herself and dependants and the income the household receives from other sources, up to the date of the next expected income receipt. If the bankrupt is self employed or is paid at irregular intervals, then he/she should provide an estimate based on current work in hand but for a period not exceeding one month. If this estimate is accepted by the official receiver, and the account contains sufficient funds, the official receiver should give authority to the bank to release that amount to the bankrupt, any remaining funds being realised for the benefit of the estate [note 3]. The balance on the account should be verified with the bank before the authorisation for the release of the funds is given.
If the official receiver is not closing the account, i.e. where the account contains only wages or benefits received, the official receiver should not take possession of the bank card from the bankrupt, as it is for the bank in question to decide whether they wish to continue to deal with the bankrupt. Where the official receiver agrees to release only part of the funds in the account, he/she will need to decide whether to leave the bank card with the bankrupt. In order to protect the part of the balance he/she is claiming, if the bank card is left with the bankrupt, the official receiver can immediately telephone the bank to specify how much of the balance should be remitted to the official receiver, followed by a faxed letter to confirm this. A note should also be made of the agreement reached with the bankrupt as to the amount of the balance that the bankrupt may withdraw.
This procedure should be restricted to the account into which the bankrupt's income is usually paid. The contents of any savings or deposit accounts should be realised unless the funds come from a source which does not comprise part of the bankrupt's estate.
31.5.22 Cash at bank - joint accounts
Unless funds can be specifically traced as belonging to either account holder the balance on the account should be divided equally with the consent to this treatment being obtained from the other account holder. When dealing with claims from the joint account holder the official receiver should request documentary evidence such as payslips, benefit books or invoices to substantiate the claim. Without such evidence any claim should be rejected, although a sworn affidavit could be accepted at the official receiver's discretion.
Again the bankrupt should be allowed to retain sufficient funds to meet his/her day to day living requirements. Where the joint account holder contributes to the household expenses, this should be taken into account when calculating the amount required by the bankrupt for day to day living expenses.
31.5.23 Internet and telephone bank accounts
It is becoming increasingly common for banks to offer on-line or telephone bank accounts. These enable the bank's customer to manage their account through the internet, using a password to access the account, or in the case of a telephone account by telephone using a pin number or security questions. The official receiver 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.If the official receiver is closing the account, all debit or cash withdrawal cards for the account should be taken from the director or bankrupt, and a written record should be made that he/she has been told not to access these accounts via the internet or telephone. If in a bankruptcy the official receiver is not closing the account he/she should not take possession of the bank card from the bankrupt. See also paragraph 31.5.21.
31.5.24 Post office card account
A post office card account is operated by Citibank International PLC 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 banks from a bankrupt (see also paragraph 31.5.17.)
Some overseas banks will provide information and remit funds simply by being provided with a copy of the winding up or bankruptcy order. Others may require the bankrupt's or director's authority, or a court order from within the relevant jurisdiction. If the official receiver becomes aware of the existence of overseas accounts during interview he/she should obtain a general authority from the interviewee at that stage or a specific authority directed to the particular bank to authorise the bank to give the official receiver the information that he/she requires and to remit any balance to the official receiver for the benefit of the estate account.
It is possible that an overseas bank will reply to correspondence in its own language rather than in English. In order to avoid incurring substantial translation charges initial enquiries should be kept as brief as possible anda letter asking for any credit balance to be remitted to the official receiver should be sent.
More detailed information concerning dealings with assets overseas is contained in Chapter 42.
31.5.26 Joint accounts - deceased insolvents
An exception to the practice of dividing the balance at bank equally would occur if the debtor were deceased. Because of the right of survivorship, when an Insolvency Administration Order is made the deceased's interest in jointly held assets would have already passed to the surviving partner. In these circumstances the balance on the joint account would be retained wholly by the other account holder. See Chapter 54 Part 2 - Deceased insolvents
for more information.
Cheques made payable to the company or bankrupt should be paid into the estate account, without being held pending any appointment of an insolvency practitioner as trustee or liquidator.
Cheques that cannot be paid into the estate account straight away should be stored in the office safe.
Care should be taken to ensure that the cheques are payable to the insolvent. This may be a problem where companies with similar names occupy the same premises or family members have the same name or initials. Where there is any doubt, the drawer of the cheque should be contacted in order that the correct payee can be established. This may be achieved by having sight of any invoice to which the cheque relates.
Subject to any verification detailed above, cheques should be collected promptly. It is a convention that cheques are considered "stale" if they have not been presented for collection or cashed within six months of the date on which they were drawn, and will not be met on presentation by the drawer's bank. If a cheque is not met because it is "stale", then the drawer should be asked to provide a replacement or to re-date the cheque with the current date. If such a request is refused, and it can be established that the drawer is a debtor of the insolvent, they should be pursued in the same manner as any other debtor.
A receipt should be issued for any cheque received by the official receiver.
The initial procedure to be followed when savings accounts are discovered is the same as that for dealing with ordinary bank accounts. The bank or building society where the account is held should be contacted as soon as is practicable after discovery and made aware of the insolvency order to prevent any unauthorised removal of funds.
Any passbooks for the accounts should be recovered if possible. This is to prevent any unauthorised withdrawals or the books being used by a bankrupt as evidence of wealth to incur further debts.
In a bankruptcy section 305(2) provides that the function of the trustee is to get in, realise and distribute the bankrupt's estate.....and in the carrying out of that function and the management of the bankrupt's estate the trustee is entitled, subject to those provisions to use his own discretion. Generally, if a bankrupt has long term investments, the official receiver as trustee may use the discretion referred to in section 305(2) to continue to hold those investments to maximise returns, rather than realising those items at the earliest opportunity. The official receiver may wish to consult the creditors before taking such a step, or make an application to the Court for direction [note 4], as if the official receiver caused a loss to the estate by holding on to such investments, a creditor may make application to the Court to reverse or modify any decision of the trustee [note 5], or to seek payment from the trustee to rectify the loss.
31.5.29 Long term savings and investments and ISAs and TESSAs
Most banks and building societies offer accounts where a higher rate of interest is paid in return for restricted access to the funds deposited, with a notice period of 60, 90, 120 (or sometimes more) days being required before monies can be withdrawn, without incurring a penalty. In such cases, the official receiver should give the notice required 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 on the account by sending the BANK1 letter to the bank or building society holding the account.
ISA is an acronym for Individual Savings Account. ISAs replaced TESSAs in April 1999. Tax is not deducted from the interest paid on the account, nor is capital gains tax incurred if the value of the investments made rises over the investment period. An individual can save up to £7000 (with no more than £3000 in a cash ISA, and the rest in stocks and shares) each tax year up to and including 2005-2006 and thereafter £5000 (with no more than £1000 in a cash ISA ) each tax year. When a bankruptcy order is made, the ISA is closed, and tax is payable on any interest earned after the date of the bankruptcy order.
TESSA is an acronym for Tax-exempt special savings account. No new TESSAs could be opened after April 1999, and these accounts will close and cease to exist after April 2005. Interest on a TESSA is paid gross, and the capital paid into the account which is limited to a maximum of £9000, must remain in the account for 5 years. Although the interest up to the value which would be received if tax was paid, i.e. the net interest, can be withdrawn at any time, the interest which would have been paid over to the Inland Revenue must remain in the account for the full 5 year term. Inland Revenue rules state that if the account is closed before the expiration of 5 years it ceases to be a TESSA and tax at the current basic rate would have to be deducted from all interest earned. In the case of an account closed by reason of holder's bankruptcy, the Inland Revenue would submit a proof of debt in the bankruptcy for the tax. The official receiver should realise the balance on the account by sending the BANK1 letter to the bank or building society holding the account.
Inland Revenue rules state that if the account holder is made bankrupt, the account ceases to be a TESSA or ISA, so there would be no benefit in keeping the account open post bankruptcy as the Inland Revenue would expect tax to be deducted from any interest earned.
31.5.30 Building society mergers/restructuring
When a building society is to merge with another financial institution, or is to become a bank, financial incentives such as share options or cash bonuses are often offered to existing account holders. The bankruptcy order terminates a saver’s membership of a building society, so a bankrupt saver would not be entitled to receive any shares or bonuses arising. A bankrupt who is a borrower remains a member and would be entitled to receive free shares or bonuses. If the bonus is paid before the bankrupt is discharged, it may be claimed by the official receiver as trustee as after-acquired property under section 307.
Where a joint account is held it is usual that the bonus would be payable only to the first named account holder. In such circumstances, the official receiver should agree to an equal division of the bonus with the other account holder.
National Savings
31.5.31 Easy Access Savings Accounts and Investment Accounts
In bankruptcy cases, notification of the order is given to the Director of Savings, if the bankrupt is believed to have a National Savings account or hold premium bonds (see also paragraph 4.16). Although there are certain accounts that may be operated by companies, it is unlikely that companies will hold National Savings accounts.
An Easy Access Saver Account can be opened by any individual aged 11 or over. The Investment Account can be opened by any individual aged 7 and over, and can also be opened on behalf of a person under 7. Money in an Easy Access Savers Account is accessed using a cash card which the official receiver should take from the bankrupt. The Investment Account uses a passbook, which should be recovered from the bankrupt wherever possible. National Savings provide a form to enable accounts to be closed, usually at the same time that they confirm that an account is held. Generally, National Savings request that the passbook be returned when the account is closed. If the passbook is unavailable, National Savings will provide a different form to be used to close the account.
National Savings requires all enquiry letters to be signed personally by the official receiver. No enquiries will be processed without the signature of the official receiver. All enquiry letters should be sent to the following address:
Mr J McNair
Compliance Manager
5th Floor, Wing D
National Savings & Investment
375 Kensington High Street
Charles House
London W14 8SD
31.5.32 Premium Bonds and other National Savings investments
(Amended February 2010)
Premium bonds can be purchased by anyone aged 16 years or over, and can be bought in the name of someone under the age of 16 years by parents, grandparents or legal guardians. Each bond costs £1, the minimum holding being £100 (£50 if buying by monthly standing order) and the maximum is £30,000. Each month a draw is held with the chance to win cash prizes. The Official Receiver should request National Savings to provide the necessary form to complete so that bonds can be cashed in, which should be returned by the official receiver with the bonds. On redemption, the face value will be received, together with any unclaimed winnings. Any winnings should be treated as being part of the bankrupt's estate.
All premium bonds should be realised by the official receiver, however small the face value. See also paragraph 31.5.33. The official receiver may on occasion face a situation where the debtor claims that a small value premium bond holding has a sentimental value. In these circumstances the official receiver may consider allowing the debtor to purchase his/her interest in the small value premium bond holding for the full face value of the holding plus any unclaimed prizes associated with it (the full amount repayable). If the debtor is able to supply their premium bond holder’s number then the following link can be used to find details of any outstanding unclaimed prizes http://www.nsandi.com/products/pb/haveYouWon.jsp. The website is normally updated by the third working day of each month. If there is any doubt as to the full amount repayable in respect of the holding, enquiries should be made with NS & I (see paragraph 31.5.33).
It is important that the bankrupt accepts and confirms that they understand their obligation to inform the official receiver of any prizes due on draws occurring prior to the date of their discharge from bankruptcy, and that they understand that the official receiver is in a position to claim these prizes as after acquired property.
Details of other investment products issued by National Savings that a bankrupt may hold can be found at Annex A.
31.5.33 Encashment of premium bonds or other National Savings investments
To cash in bonds or savings certificates National Savings will provide a form. This will usually be sent when they confirm a holding. A different form will be provided should the bond document or savings certificate be missing. National Savings requires all enquiry letters to be signed personally by the official receiver. No enquiries will be processed without the signature of the official receiver. All enquiry letters should be sent to the following address:
Mr J McNair
Compliance Manager
5th Floor, Wing D
National Savings & Investment
375 Kensington High Street
Charles House
London W14 8SD
If the account requires that notice be given before closure, then the official receiver should give that notice rather than forfeit any interest due.
31.5.34 Government Stocks - Gilts
"Gilts" are marketable securities issued by HM Government. The majority of gilt dealing is done by institutions such as pension funds and insurance companies, although they can also be purchased by private individuals. Gilts usually have a life of between 5 and 20 years (though some last indefinitely) and when they reach their maturity they are redeemed or repaid by HM Government at their nominal value. Most gilts pay a guaranteed fixed rate of interest although some are index linked for both dividends and capital.
The stock can be sold at any time at its current market price. These prices are listed in newspapers, generally under the heading of `British Funds'. Gilts can be sold through the National Savings Stock Register (NSSR), a stockbroker or a bank (see also paragraph 31.5.52)
Friendly societies issue tax exempt savings plans, usually with a ten year life, although those specifically for children may have a longer lifespan. The plan may also include life assurance cover. An individual may only invest up to £270 per year. The friendly society should be informed of the bankruptcy order promptly to prevent any unauthorised removal of funds. Any documents relating to the plan should be recovered from the bankrupt.
Plans may be surrendered at any time although the fees charged by the society may reduce the amount repaid. The official receiver should write to the society requesting the closure of the plan and the remittance of the balance to the official receiver.
A unit trust is a fund controlled by professional managers who invest in a wide variety of securities. An investor buys units in the trust from the managers, and is issued with a certificate. The certificates should be obtained from the bankrupt, and the managers should be informed of the bankruptcy order, to avoid any unauthorised dealings with the unit trusts.
To realise units, they are sold back to the managers, when the certificate must be returned. Although a broker could be employed, he would charge commission. The prices of unit trusts are often quoted in newspapers, but a more accurate valuation should be obtained directly from the managers. To realise the value of the unit trust, the official receiver should write to the manager requesting that the units held in the trust be sold and the monies realised be remitted to the official receiver.
Personal Equity Plans (PEPs) were introduced as a way for individuals aged 18 years or over to invest in shares and to enjoy tax benefits. Money could no longer be invested in a PEPs from 06 April 1999 but investments made prior to that date within existing PEPs continue to benefit from the tax shelter.
A PEP must be run by a registered scheme manager. Managers include banks, building societies, unit trust groups, investment trust companies, stockbrokers, and independent financial advisers.
Any documentation relating to the scheme should be recovered from the bankrupt, and the scheme managers should be informed of the bankruptcy to prevent any unauthorised withdrawal of funds.
A PEP can be realised at any time, without notice, by contacting the scheme's manager. Depending on the rules of the scheme, an exit charge may be levied. The official receiver should write to the scheme manager requesting the termination of the investment and instructing that the monies realised be remitted to the official receiver.
Investment trusts are actually public limited companies that invest capital in shares and other types of security. An investor in an investment trust simply purchases shares in the company. Shares held in an investment trust are traded on the Stock Exchange, and can be realised as with other quoted securities by the official receiver instructing a stockbroker to sell the shares (see also paragraph 31.5.53). A variation on the investment trust is the open ended investment trust (OEIC). Units in an OEIC may become an increasingly common type of investment. An OEIC is a type of collective investment scheme, similar to a unit trust but set up in corporate form in which investors can buy units. - coins and bullion
Gold, silver and platinum can be bought in the form of bars and coins, as an investment, although gold is the most popular. In the UK, the one ounce gold Britannia coin is minted for investment purposes and sometimes sovereigns may also be held. Coins and bullion can be sold through banks, coin dealers, stockbrokers, or through the bullion dealing companies that make up the London Gold Market A. The Insolvency Service does not have an arrangement with any particular body for the sale of coins and bullion. Initially sale should be effected through the official receiver’s local agents, and adequate insurance cover obtained. Current prices for precious metals are listed in the business sections of broadsheet newspapers. It should be noted that the world trade in gold is transacted in US dollars, so the current exchange rate between the dollar and the pound will affect gold prices. The official receiver should not attempt to speculate on the movement of such markets.
[Bck to Part 2 - Earned/unearned income] [On to Part 4 - Life assurance]