July 2005

Companies whose shares are traded on the London Stock Exchange are known as "quoted" companies. The London Stock Exchange is the organisation that provides the principal markets for the sale and issue of publicly quoted shares in the UK.

Where an insolvent claims to own shares, the official receiver should verify that the bankrupt or company is the registered owner of the shares. Although it is useful to have sight of any share certificates, checks should also be made by writing to the company registrar. 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 the insolvent has the share certificates, these should be recovered promptly to prevent the share realisation by an unauthorised person and to prevent them being used as security to incur further debts. Where the shares have a value the certificates should be kept in the office safe until their realisation. If necessary copies should be taken if the certificates are needed for day to day reference. A receipt should be issued for any share certificates given to the official receiver, and their receipt should be recorded in the official receiver's valuables register.

When the company registrars are contacted to confirm the share holding, they should be informed of the winding-up order or bankruptcy order to prevent any steps being taken to re-register the shares in a name other than the insolvent's. Any broker employed by the insolvent should also be informed of the bankruptcy or winding up order, especially if the insolvent has been dealing under Crest (see paragraph 31.5.52.)

Shares can be sold through a stockbroker. A list of member firms is available from the Stock Exchange. For information on how the official receiver may sell shares in a publicly quoted company when acting as liquidator or trustee, see paragraph 31.5.53.

Only the shares of public limited companies with a Stock Exchange listing can be traded on the Stock Exchange.

The UK equity market is based on a competing market maker system. A market maker is a broker - dealer who is prepared to buy and sell specified securities and thus makes a market in 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.

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.

December 2008

If the official receiver is liquidator or trustee, he/she should sell publicly quoted shares in order to realise their value for the benefit of the estate, provided that the realisation from the sale is likely to be greater than the cost of the sale. The official receiver cannot combine small numbers of different shares in one transaction. Shares in different companies must be sold in separate transactions. Similarly, shares in the same company but in different insolvency estates must also be sold in separate transactions. An estimation of the likely sale value of the shares can be obtained from the Financial Times website, which can be found at www.ft.com

Before instructing a broker to sell shares, the official receiver should ask for details of the broker's charges. A broker who will sell shares on behalf of the official receiver is: John Chatham of Fyshe Horton and Finney, Charles House, 148/149 Great Charles Street, Birmingham, B3 3HT 0121 236 3111. A small handling fee is payable for each enquiry.

Although different brokers may have slightly different operating methods, the sale of shares follows a basic procedure. When the broker is first contacted he/she will quote the current price per share and if this is acceptable a deal will be done there and then, and he/she will forward the necessary forms which will include a contract note and Crest transfer forms. The transfer form should be signed by the official receiver or deputy official receiver as soon as possible and returned to the broker before settlement day, with the share certificates (if there are any.) On settlement day the broker will receive payment via the Crest system, and then pay the official receiver.

The use of stockbrokers is not always the most cost effective way to sell shares, especially where the value of the shares is low. It may be more appropriate to sell the shares through the share registrar of the company concerned, for example, shares issued under an employee share scheme. Some banks and utility companies have low cost share transfer schemes. The official receiver should consider these options where available before instructing a broker.

In the unlikely event that the proportion of shares held in a quoted company is significant (i.e. 5% or more of the total shares) the official receiver should seek advice from a stockbroker before committing to a sale. In practice, it is more likely than an insolvency practitioner would be appointed as liquidator or trustee in a case where there are assets of this value.

For guidance on dealing with shares where the realisable value is less than the cost of realisation, see paragraph 31.5.56. 

Under the Stock Exchange system, settlement for sales and purchases must take place within a set period from the transaction date which is currently 3 days, or as it is sometimes written "T + 3". It is therefore essential that all documents required for a sale are ready before the sale is made, as costs and penalties will be incurred if the paperwork is not absolutely correct at the date of settlement.

If a share certificate has been lost, the registrars will require an indemnity to be signed before the shares are sold. Before giving such an indemnity the official receiver should take steps to purchase indemnity insurance cover only if the nominal value of the shares held is £10,000 or more. The shares should only be realised if the official receiver is able to 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 (see also Chapter 49 Part 2 - Insurance.)

It is also prudent to ensure that the registrars will accept that the official receiver can sign transfer forms in place of the bankrupt or directors as a delay once the sale has commenced could result in problems meeting the settlement period (see paragraph 31.5.54.) In company cases a copy of the winding up order, together with a short covering letter stating that under the provisions of section 136 the official receiver is liquidator of the company, should be sufficient. In bankruptcy cases the registrars should be provided with a copy of the bankruptcy order and the notice of no meeting form NNM/B27.01, together with a short letter of explanation that as from giving this notice to the Court, the official receiver is trustee of the bankrupt's estate by virtue of section 293(3).

Some brokers offer a service where they obtain the indemnity cover on behalf of the official receiver.

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 is liquidator or trustee, the official receiver should receive any dividends payable as a result of holding the shares and pay the amounts received into the insolvency estate.

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 protracted asset realisation register. A copy of the disclaimer should be sent to the company registrar [note 1].

In all circumstances creditors should be informed of how shares have been disposed of whether they have been sold, gifted or disclaimed. Creditors may be given this information in the official receiver's report to creditors, notice of an application to apply for early discharge (bankruptcy) or notice of intention to apply for release as appropriate.

As well as ordinary shares, there are other types which may be held, preference, participating preference and cumulative preference shares, convertible stocks. If a company has been the subject of a management buy-out it may have issued convertible cumulative redeemable participating preferred ordinary shares (CCRPPOs). All can be realised in the same way as ordinary shares, if they are quoted on the Stock Exchange.

If the shares are not quoted on the Stock Exchange then the procedure for selling shares in a private company should be followed (see paragraphs 31.5.64 to 31.5.68)

A warrant conveys the right to buy a share in a company at some future time. The price is fixed at the outset and is known as the exercise price, and the option may be taken up on specified exercise dates. Generally the longer the lifespan of the warrant the higher its resale price will be. Like shares, warrants are traded on the Stock Exchange. The official receiver as liquidator or trustee should instruct a broker to realise such items.

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. The traditional link between the Bank of England and the Exchange is the Government Broker, a member of the Exchange’s board. He supervises the Bank’s own dealing room which trades with the firms registered as gilt - edged market makers (GEMMs) (see also paragraph 31.5.34. )

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 (see also paragraph 31.5.51. ) 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.

Any certificates should be recovered and held in the office safe pending realisation, or the appointment of an insolvency practitioner. To realise such items, a broker should be employed to act on the Official Receiver’s behalf.

An options contract is a standardised agreement which gives the right, but not the obligation to buy or sell a specified quantity or quality of an underlying product, at a specified price within a specified time period for a premium agreed when the contract is traded. The product could be shares, a futures contract, Gilts, or overseas Government bonds.

A futures contract is an agreement to exchange a specific quantity and quality of an underlying product at a specified date in the future for a price agreed when the futures contract is traded. The product could be shares, Gilts, overseas government bonds, or a physical product.

Financial futures and options are traded on Euronext.liffe, Cannon Bridge, London EC4R 3XX.Trading is carried out on the LIFFE CONNECT computerised trading system. In order to trade on LIFFE CONNECT a trader must be a member of Euronext or have affiliate access as an affiliated company of a Euronext member. Euronext.liffe produces a list of member firms who provide such a service, and further information can be found on the website www.euronext.com It is unlikely however that the official receiver as liquidator or trustee would become involved in the realisation of futures or option contracts as the minimum bargain size is often in excess of £50,000.

London’s main commodity markets divide between the metals and the soft (foodstuff) commodities.

Copper, lead, zinc, nickel, tin, aluminium and aluminium alloy are traded on the London Metal Exchange. Trading is carried out by ring dealing members who transact their own or their clients’ orders on an open outcry basis. In addition, there are commission houses which offer a brokerage service, channelling business through a ring dealing member.

The commodities are traded on various exchanges.

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, which are covered in more detail in Chapter 59 Part 3 - Unusual businesses and related assets.

Unlike the shares of a Stock Exchange listed company, those of a private limited company cannot be offered to the public for sale by the company, or sold through the Stock Exchange [note 2]. It is likely that it will be more difficult to sell the shares of a private company than those of a public company because of the lack of a readily available market, and that restrictions are often imposed on the transfer of such shares by the company's articles.

If the shares held are of a well known private company where there is likely to be interest from more than one or two people then the shares could be advertised for sale by auction.

It is more likely, however, that the shares are held in a small unknown company. The bankrupt or directors may be able to suggest a purchaser, particularly if it is a family company, or is connected in some way to the company in liquidation. The shares could also be offered to the company's existing shareholders, who may have pre-emption rights under the company's articles. For guidance on valuing shares before agreeing a sale, see paragraph 31.5.65.

The share certificates should be obtained, and the company's registrar should be asked to confirm that the insolvent does hold the shares in the company's register of members.

It would also be prudent to ensure that the company's directors accept that the official receiver may transfer the shares. The Companies (Tables A to F) Regulations 1985 Table A Article 30 provides that a person becoming entitled to a share in consequence of the death or bankruptcy of a member may, upon such evidence being produced as the directors may properly require, elect either to become the holder of the share or to have some person nominated by him registered as the transferee, but it is not necessarily the case that a particular company will have adopted this Article in the whole or in a modified form.

When the official receiver sells shares in unquoted public or private companies, care should be taken to ensure that a proper price is obtained for them. Valuing such shares is notoriously difficult. The first offer for a parcel of 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 2 valuations of parcels of such shares would provide the same value. When considering an offer to purchase a parcel of 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 31.5.66.

Any other factors applicable to the company itself.

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.

Restrictions on the right of a member to transfer his/her 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 in him/her (Bentham Mills Spinning Co (1879) 11 ChD 900 ) unless the articles expressly apply restrictions on transfers to such cases as well.

The company's articles may give directors the power to refuse to register a transfer of shares. The Companies (Tables A to F) Regulations 1985 Table A (if adopted) gives directors that power. However, 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.

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 his/her 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 his/her 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 provision is contained in The Companies (Tables A to F) Regulations 1985 Table A.

The shares would be transferred to the purchaser by a 'proper instrument of transfer' Companies Act 1985 section 183(1), the forms for such a transfer being contained in the Stock Transfer Act 1963.

If the shares are of little or no value, or there would be substantial costs incurred to facilitate a sale, a disclaimer should be considered. Further details concerning the disclaimer of shares is contained in paragraph 34.29.

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