This snapshot taken on 09/07/2011, shows web content selected for preservation by The National Archives. External links, forms and search boxes may not work in archived websites.
August 1997
31.6.17 Definition of stock
Stock can be defined as goods or other assets purchased for resale; consumable stores; raw materials and components purchased for incorporation into products for sale, and finished goods.
31.6.18 Selling stock and the Consumer Protection Act 1987.
Part II of the Consumer Protection Act 1987 is concerned with consumer safety, and makes it a criminal offence to supply (whether as principal or agent) unsafe consumer goods or to supply goods in breach of safety regulations made under the Act, in the course of business. The Act also imposes civil liability for breaches of it.
It is thought that an official receiver realising assets as trustee or liquidator is not doing so in the course of a business, but as part of his statutory function. However, as the issue is not clear, an official receiver realising consumer goods should protect his position by trying to ensure that the goods are safe. There is a defence to potential liability for supplying unsafe goods where the supplier informs a buyer that the goods are secondhand and the sale involves a transfer of ownership of the goods. Therefore, where an official receiver sells consumer goods that are secondhand, he should ensure that they are sold on terms that the goods are secondhand and, in addition that they are sold on terms that the property is to pass to the purchaser directly.
Safety regulations relating to a wide variety of goods have been made under the Act, and unless otherwise specified apply to secondhand goods. The regulations are revised every six months, and up to date lists can be obtained from Trading Standards offices. f regulations have been made about certain goods, the goods should be checked before sale to see whether the regulations have been complied with.
When instructing agents, they should be asked to have regard to the provisions of the Consumer Protection Act. Requests by agents for indemnities for potential liabilities incurred whilst acting for the official receiver should not be given, and such requests should be referred to Technical Section.
31.6.19 Bonded warehouses - excise/tax and customs warehouses.
An excise warehouse is one which has been authorised by the Commissioners of Customs & Excise for the deposit without payment of duty of goods liable to excise duty. Excise duty is an indirect tax on beer, wine, made wine, cider, perry, spirits, mineral oil, cigarettes and other tobacco products.
There are also Customs warehouses which are used for the storage of imported non EC goods without the payment of import duties and/or VAT.
The warehouses are closely monitored by HM Customs & Excise, and are subject to a great many rules relating to the movement, storage, and removal of warehoused goods. Stock records are considered to be of considerable importance.
Where an insolvent used such a warehouse it may be simplest to sell the goods in situ rather than remove them from the warehouse. If, in the course of selling warehoused goods they are to be removed from the warehouse, agents familiar with the operation of such warehouses should be used, or the advice of HM Customs & Excise should be sought.
If samples of goods are required by agents or others in the course of a sale, the advice of HM Customs & Excise should be obtained.
Where storage charges and or duty payable exceeds the value of the goods in bond they should be disclaimed.
If the insolvent operated a warehouse the appointment of a special manager must be considered due to the complex nature of the procedures involved in operating a such a warehouse.
Drugs may be sold by wholesalers and retail pharmacists. Inspecting officers are likely to find small stocks of drugs at the premises of doctors, dentists or veterinary surgeons. Hospitals, clinics, and residential homes for the elderly are all likely to hold stocks of medicines.
There are three classes of medicines:
General sale list - these can be sold by any retail outlet, provided that it can be closed off to the public, which would therefore exclude car boot sales and some market stalls.
Pharmacy only medicines - may only be sold through a pharmacy, with a pharmacist present. They can be identified by a capital P on the label.
Prescription only medicines - again may only be sold through a pharmacy, with a pharmacist present. They carry the letters P.O.M on the label.
Notes:[S51 Medicines Act 1968][S52 Medicines Act 1968][S58 Medicines Act 1968]
31.6.21 Sale of drugs
The official receiver's usual agents may sell drugs on the general sale list and the components to make up prescriptions. Dangerous drugs (see paragraph 31.6.25 ) could be sold, but it is more usual that they are destroyed. Wholesalers may accept returned drugs, including dangerous drugs.
31.6.22 Continuing the business of a retail pharmacy.
It is possible for trading of a retail pharmacy to continue if the business is to be sold as a going concern or a special manager employed. Section 72 of the Medicines Act 1968 provides that if a pharmacist is made bankrupt, the business can be continued by the trustee, for a period of three years from the date of the bankruptcy order provided that:-The name and address of the trustee and the name of the pharmacist whose trustee he is are notified to the Secretary and Registrar of the Royal Pharmaceutical Society, Registration Section, 1 Lambeth High Street, London SE1 7JN (0171 735 9141)
Medicinal products, other than those on a general sale list, are sold by retail, and that the sales take place under the personal control of a pharmacist. For the meaning of medicinal products as defined by section 130 of the Medicines Act 1968 see Annex I to this chapter.
The name and certificate of registration of that pharmacist are conspicuously exhibited.
Although the Section 72 of the Medicines Act 1968 refers only to bankruptcy, the same procedure should be followed if the pharmacy was operated by a limited company.
31.6.23 Disposal of drugs and medicines.
Drugs cannot be disposed of through the ordinary refuse collection system. Some local health authorities operate a bin scheme for the disposal of out of date or excess drugs by the public. Such schemes could be used if only a small quantity of medicines need to be disposed of. Larger quantities should be disposed of by using a contractor registered with the Environment Agency to dispose of such waste. The local council or health authority may be able to recommend such a contractor, alternatively the official receiver's usual agents may be able to recommend a specialist (see also paragraphs 8.26 to 8.29).31.6.24 Herbal medicines
Sales of herbal medicines are also controlled. Pharmacies often stock herbal medicines; a pharmacist who is also a herbalist may be able to sell more concentrated herbal medicines than those which may be sold by anyone who is not a herbalist. Herbal medicines should be treated as any other medicines for the purposes of disposal (see paragraph 31.6.23 above).
31.6.25 Controlled drugs.
The provisions of the Misuse of Drugs Act 1971 deal with the controls imposed on dealings with certain dangerous or addictive drugs such as heroin. The Misuse of Drugs Regulations 1985 divide controlled drugs (CD's) into five schedules corresponding to five levels of control. The placing of a drug in a particular schedule depends on a balance between its usefulness and its misuse potential. At the top end of the scale are the Schedule 1 drugs such as LSD which are not considered to have any therapeutic use and which no-one may produce, possess or supply without a special licence. At the opposite end of the scale are the Schedule 5 drugs such as codeine, which when in the form of a cough medicine, anyone may possess without a licence and for which there are minimal record keeping.
Notes:[Misuse of Drugs Act 1971][Misuse of Drugs Regulations 1985]
31.6.26 Possession
The following persons may lawfully possess controlled drugs:-
A retail pharmacist
A doctor, dentist or veterinary surgeon.
The person in charge of a public or charity funded hospital
A person licensed under Regulation 5 of the Misuse of Drugs Regulations 1985 to be in possession - principally a private hospital or a controlled drugs wholesaler.
A private individual with a prescription for himself or another on whose behalf he is collecting a prescription.
The above listing is not exclusive.
In addition common carriers such as the Post Office or Securicor, and a controlled drugs wholesaler's delivery driver may have controlled drugs in their possession.
If controlled drugs are encountered during an inspection, where it appears that they are being held illegally, the Police should be contacted immediately. The controlled drugs should not be moved or otherwise handled by the official receiver's staff.
A listing of the most commonly encountered controlled drug preparations available commercially, as extracted from the Home Office Notes for Chemist Inspecting Officers is contained in Annex II to this chapter.
31.6.27 Storage
Certain controlled drugs, specifically all Schedule 2 CD's, as defined by the Misuse of Drugs Regulations 1985, (except quinalbarbitone), kept by a pharmacist must be locked in a safe or cabinet. The Regulations specify the standard in some detail but essentially they require the cabinet to be made of steel, with good locks, and to be bolted to either the floor or a wall.
Regulation 4 provides that a chemist may be exempted from the requirement to comply with the specified standard by a certificate issued by the Chief Officer of Police where he is satisfied that an adequate degree of security will be provided, normally of a higher standard than that specified in the Regulations.
A doctor, dentist or veterinary surgeon is required under Regulation 5 to keep the controlled drugs, as far as circumstances permit, in a locked receptacle.
Controlled drugs should not be removed from secure premises, to a place where they cannot be kept in equally secure circumstances. If the security of premises is being assessed, external factors such as the possibility of vandalism or the likelihood of repossession should be considered.
When obtaining insurance cover for any such premises, the insurers should be made aware that dangerous or other drugs are being kept there. The police should also be informed that drugs will remain in the premises pending their removal, destruction or sale
If however the former trading premises are not secure then steps should be taken to instruct agents either to sell or destroy the drugs without delay. Specialists in the field should be employed either directly or through the official receiver's usual agents. The local health authority or police chemist may be able to suggest an appropriate contractor.
Under no circumstances should dangerous drugs be transported to the official receiver's offices. In the first instance, the officer transporting the drugs is likely to be acting illegally, and secondly as many offices are prone to burglaries the drugs may be stolen.
Notes:[The Misuse of Drugs (Safe Custody) Regulation 1973 (as amended)]
31.6.28 Destruction
The destruction of controlled drugs, including those that are damaged or out of date, must be witnessed by an authorised person. The register or records kept by the chemist must be noted to record the date and quantity destroyed and signed by the witness. Authorised persons include all police officers (but in practice this task is performed by the police chemist inspecting officer), a Pharmaceutical Society Inspector and a Home Office Drugs Inspector. Destruction can usually be arranged within 24 hours. f specialist contractors have been employed to dispose of drugs, the official receiver will not be concerned with the destruction of the drugs. Where small quantities of drugs must be destroyed, the official receiver should contact one of the authorised persons referred to above, although in practice this is likely to be the Police who will destroy the drugs.
It is usual that the controlled drugs are destroyed on the premises in the presence of the pharmacist. The drugs will be de-natured, and then sent for incineration.
Notes :[Misuse of Drugs Regulations 1985]
Dependent on the quantity of explosives involved, the insolvent may have been authorised by the police, the local authority, the Health and Safety Executive or all three. Any licences issued by these bodies should be separated from the main body of the insolvent's papers and kept safely, as it is likely that the official receiver will be asked to return them. There are a great many regulations attached to the manufacture, storage, transportation and sale of explosives so it would be prudent to employ specialist agents to deal with the realisation of explosives.
The storage of explosives in quantities up to 1800kg is controlled by the local authority. The Health and Safety Executive deal with storage over 1800kg, the licensing of factories where explosives are manufactured, and magazines in which they are stored. The address of the Health & Safety Executive Explosives Inspectorate is Magdalene House, Stanley Precinct, Bootle, Merseyside L20 3QZ tel:(0151) 951 4000.The police authorise the individual to hold explosives, the police contact would be the Explosive Liaison Officer.
A small quantity of explosives may be held for private use without being subject to control, for example for making safety cartridges. However, should an examiner or inspecting officer find explosives during an inspection the advice of the police should be sought. Explosives found in such circumstances should not be touched or moved in case evidence of a crime is destroyed.
The keepers of explosives are required by law to keep the explosives in secure premises, and the official receiver, or any insolvency practitioner subsequently appointed would also be required to maintain the same level of security, or risk prosecution. The appropriate licensing authority, as referred to above should be contacted to check that the explosives are being properly stored. f the security of the insolvent's premises cannot be guaranteed, the explosives should be removed to secure storage by agents forthwith. Under no circumstances should explosives be taken to the official receiver’s offices as the inspecting officer is likely to be acting illegally by transporting the explosives, and some offices are themselves prone to thefts.
31.6.30 Insurance
When cover is being arranged, the official receiver's insurers should be made aware that the premises contain explosives and informed when the explosives have been sold or otherwise disposed of.
31.6.31 Sale of explosives
Explosives may only be sold through premises registered to keep explosives by the local authority or Health & Safety Executive. It is likely that a specialist auctioneer will be needed although the official receiver's usual agent's may be able to employ such a specialist to act for the official receiver.
The weapons most likely to be encountered are handguns and shotguns, which may be referred to as Section 1 and 2 weapons, due to their classification under those sections of the Firearms Act 1968 (as amended).The owner of a legally held firearm will be registered with the police. Any firearms should only be realised if to do so would result in a benefit to the estate, and if they are not exempt property. If a bankrupt was a gamekeeper a shotgun may be considered to be a tool of his trade.
Firearms may only be sold by a registered dealer. Dealers will also be registered with the police, although the official receiver's usual agents may be able to employ a dealer on the official receiver's behalf.
31.6.33 Sale of firearms
If the insolvent carried on business as a registered firearms dealer, the police should be informed that the business has ceased. Any licences or other official documentation issued to the insolvent should be retained and kept safely, as they may need to returned to the issuer. Wherever possible stocks of firearms should not be left in the former business premises, whatever the security arrangements at those premises, although in the short term will be the most prudent course of action if the alternative is to remove the items to less secure circumstances, or their legal removal cannot currently be arranged (see paragraph 31.6.35 below).The advice of the local police should be sought if leaving firearms in the premises is being considered. Under no circumstances should firearms be taken to the official receiver's offices, as many offices are prone to thefts, and the firearms may be stolen.
31.6. 34 Insurance.
When attempting to obtain insurance cover for any such premises, the insurers should be made aware that the premises contain firearms.
31.6.35 Moving and storing firearms
Firearms may be moved by the owner, or by a firearms dealer, or by the police. Under no circumstances should the examiner or inspecting officer move a firearm, as they may be considered to be in illegal possession of a firearm.
31.6.36 Unregistered firearms.
It is extremely unlikely that an unregistered firearm will be found during an inspection. A great many unregistered firearms were handed in to the police during the firearms amnesty following the Dunblane shootings, and if a person is sufficiently dishonest to possess an unregistered firearm they are unlikely to leave it where it may be found by a member of the official receiver's staff during a pre-arranged visit. If an examiner or inspecting officer finds an unregistered firearm during an inspection, the police should be informed immediately. As it is possible that the firearm may have been used in the commission of a crime it should not be touched or moved in case fingerprint or other forensic evidence is destroyed.The law on the holding of firearms by individuals is presently under review.
31.6.37 Flowers
It may be possible to sell flowers to a nearby florist, or to members of the public passing by when an inspection is taking place. It is more likely that they will be thrown away.
31.6.38 Food - fresh food (updated November 2008)
Under the provisions of the legislation (see note) food shall not be placed on the market if it is unsafe, which is defined as injurious to health or unfit for human consumption. Under the General Food Regulation 2004, any person who fails to comply with this regulation is guilty of an offence and liable to imprisonment or a fine of up to £20,000, or both. In cases where the insolvent sold fresh food the official receiver should not take any risks, and the food should not be sold.
If the insolvent had an arrangement that old stock be sold for animal feed then care needs to be taken as European food safety legislation now covers animal feed placed on the market, or fed to any food-producing animal. In all cases the foodstuffs should be thrown away, taking advice from the local Environmental Health Officer if necessary.
Food should not be given away, as the definition in the legislation of placing on the market is so wide as to cover “the holding of food or feed for the purpose of sale, including offering for sale or any other form of transfer, whether free of charge or not, and the sale, distribution, and other forms of transfer themselves”.
Frozen foods should also be thrown away. Particular care should be taken with stocks of prepared foods, such as sandwich bar or restaurant meals as the official receiver will be unable to be certain that fresh foods were used and that the foods were prepared using hygienic methods, and the official receiver should ensure that all such items are also thrown away.
The local authority (or any contractors employed by them) may dispose of such foodstuffs through their normal trade refuse collections, particularly if the insolvent was their customer. Alternatively, a contractor, registered with the Environment Agency to dispose of controlled waste may be used (see Chapter 82, paragraphs 82.3 to 82.5 and Part 2).
[Note: Regulation (EC) no 178/2002 of the European Parliament and of the council laying down the general principles and requirements of food law, establishing the European Food Safety Authority and laying down procedures in matters of food safety, articles 14 and 15 and General Food Regulations 2004, regulation 4 and Feeding Stuffs (Safety Requirements For Feed For Food-Producing Animals) Regulations 2004, regulation 3]
Most grocery items are unlikely to cause food poisoning, and may be sold. Grocery items may be sold through the official receiver's usual agents. Foods which are considered to be of low risk are dried or pickled foods, foods with a very high sugar content, eg jam, food with a very high salt content, and chemically preserved food. Food that has passed its use by date should not be sold, neither should foods where the packaging appears to be damaged, or seals broken. If there are any concerns about the conditions in which groceries were stored, such as possible rodent infestation, or the possibility of cross contamination from fresh foodstuffs then they should be destroyed.
Canned goods that are dented, rusty, damaged in any way, or blown (that is bulging at the top or the bottom) should be disposed of.Botulism, a rare, but potentially fatal form of food poisoning can be caused by eating improperly canned food. As there is a small risk that blown cans may explode, advice should be taken from the local Environmental Health Officer concerning their safe disposal.
In the first instance, steps should be taken to ensure that the animals can be fed and cared for whilst a decision is being made about their future. In the short term it is likely that the bankrupt or directors of the company in liquidation will offer to care for livestock. If insufficient foodstuffs are available short term supplies should be purchased. If no funds are available a modest debit balance may be incurred to purchase food. Livestock should be dealt with promptly, so that any expenditure on foodstuffs can be restricted.
If there is any doubt as to the physical condition of livestock or other animals, or the conditions in which they are being kept, a representative of a reputable animal welfare organisation such as the RSPCA should be asked to inspect the animals. If so advised, the official receiver should arrange for the animals to be destroyed by a vet, slaughterhouse or knackers yard.
The decision to hold a meeting of creditors, or to apply for a Secretary of State appointment should be made promptly, so that any ad hoc care arrangements may be formalised over a specific period. The appointment of a special manager should also be considered.
If no insolvency practitioner is to be appointed, the animals should be sold, destroyed or offered to a reputable animal charity promptly in order to minimise the costs to the estate for foodstuffs and husbandry. Livestock auctioneers are licensed by the local authority, although the official receiver's usual agents are likely to be able to suggest a reputable firm, if they do not undertake such business themselves. Only as a last resort, should consideration be given to disclaiming animals, although Technical Section should be consulted if this is being considered.
If an animal was destroyed because of doubts about its health, any meat should not be subsequently sold for human consumption, because if the meat is found to be unfit for human consumption the official receiver could be found to have committed an offence under Section 8 of the Food Safety Act 1990 (see also paragraph 31.6.38).
Because of the concern about the transmission of BSE the meat of cattle over 30 months is banned from the food chain. Although cattle over this age may be sold it may be difficult to find a purchaser. An alternative is the scheme operated by the Intervention Board which is an agency of the Ministry of Agriculture Fisheries and Food where farmers are compensated if they have cattle over 30 months destroyed. The telephone number of the Ministry of Agriculture, Fisheries and Food is 0645 335577.
Details of how to insure livestock on a farm are contained in Chapter 49.
31.6.41 Milk (updated November 2008)
It is likely that a dairy farmer will have a sole supply contract with an organisation such as Milk Marque or Northern Dairies, so that any milk produced up to the date of the insolvency order would have to be supplied to that organisation.
There may also be monies due to the farmer in respect of earlier supplies. Payment will usually have been made directly to the farmer's bank account, so that steps will have to taken to ensure that payment is made to the official receiver, or alternatively held to his/her order.
If the farmer does not have a sole supply contract, then the milk may be sold. If however, the milk is to be sold for human consumption, care should be exercised as under the provisions of the legislation (see note) it is an offence to supply food for human consumption which fails to comply with food safety requirements (see paragraph 31.6.38). Expert advice should be sought where there is any doubt about the sale of milk.
[Note: Regulation (EC) no 178/2002 of the European Parliament and of the council laying down the general principles and requirements of food law, establishing the European Food Safety Authority and laying down procedures in matters of food safety, articles 14 and 15 and General Food Regulations 2004, regulation 4 and Feeding Stuffs (Safety Requirements For Feed For Food-Producing Animals) Regulations 2004, regulation 3]
31.6.42 Pawnbrokers
Pawnbroking is highly lucrative, and it is unlikely that the official receiver will ever have to deal with such a business.
Wherever possible the items in pawn should remain at the former premises to avoid paying removal and storage costs. Also the pawned items are likely to be stored in the premises in such a way that they can be easily identified for the purposes of redemption. If rent for the premises is to be charged, this should be compared with the costs of removal and storage, and the most cost efficient course of action followed.
Pawnees (pawnbrokers) must keep such books or other records as are sufficient to show and explain readily at any time all dealings with pawns taken by them. If adequate records have been maintained the official receiver will be provided with a list of both the items in pawn and their owners and the amount of credit secured by the pledge. Articles taken in pawn are redeemable for a specific period, the "redemption period". That period is defined as follows :-
a pawn is redeemable at any time within 6 months after it was taken.
Subject to subsection (1) above the period within which a pawn is redeemable shall be the same as the period fixed by the parties for the duration of the credit secured by the pledge, or such longer period as they may agree.
If the pawn is not redeemed by the end of the redemption period the pawn remains redeemable until it is realised by the pawnee under section 121 of the Consumer Credit Act 1974, except where under section 120(1)(a) the property passes to the pawnee (see below).
On the basis that the duration of the credit secured by the pledged goods will cease and therefore the redemption period will end on the bankruptcy or liquidation of the pawnee, the goods not redeemed at that time become realisable and may be sold using the powers under section 121 of the Consumer Credit Act 1974.
When the pawn becomes realisable the official receiver may sell it after giving to the pawnor not less than 14 days notice of the intention to sell indicating in the notice the asking price and other such particulars as may be prescribed, including a statement that the sale will not take place if the article is redeemed by surrendering the pawn receipt and paying the amount owing without delay. If there is no response to this notice the goods should be sold. The official receiver's usual agents should be used for the sale. When the goods are sold, the official receiver should give notice within 20 working days of the sale, to the former owners, detailing the sale proceeds and expenses. If the sale proceeds have been received by this time a cheque for any monies due to the pawnor should be enclosed (see below).The sale proceeds should be paid into a suspense account, any surpluses due to the pawnors (after deduction of the amount which would have been payable for the redemption and the sale expenses) being repaid by cheque. Fees should not be charged on the surpluses paid to the pawnors. Any amounts deducted should be transferred to the estate account and fees charged on those sums. Where the pawnors cannot be traced the funds should be transferred to the estate account.
Where the redemption period of the pawn is six months, and the pawn is security for fixed sum credit not exceeding £50 or running account credit on which the credit limit does not exceed £50, if at the end of the redemption period the pawn has not been redeemed, the property in pawn passes to the pawnee. In such circumstances, the pawned goods should be realised as an asset without any reference to the pawnor. Running account credit is a facility under a personal credit agreement whereby the debtor is enabled to receive from time to time (whether in his own person, or by another person) from the creditor or a third party cash, goods and services (or any of them) to an amount or value such that, taking into account payments made by or to the credit of the debtor, the credit limit is not at any time exceeded; and fixed sum credit is any other facility under a personal credit agreement whereby the debtor is enabled to receive credit (whether in one amount or by instalments).Notes:[Consumer Credit (Conduct of Business) (Pawn Records) Regulations 1983] [S116(1) Consumer Credit Act 1974][S116(1) Consumer Credit Act 1974] [S116(3) & S120(1)(b) Consumer Credit Act 1974] [S121(1) Consumer Credit Act 1974][Consumer Credit (Realisation of Pawn) Regulations 1983][S121(2) Consumer Credit Act 1974][Consumer Credit (Realisation of Pawn) Regulations 1983][S120(1)(a) Consumer Credit Act 1974.][The Consumer Credit (Realisation of Pawn) Regulations 1983][S10(1)(a)(b) Consumer Credit Act 1974]
The entries in relation to any article taken in pawn must be retained by the pawnee for a period of five years from the date on which the article was taken in pawn, or where the article has become realisable, three years from the date of sale, for either five years from the date on which the article was taken in pawn or three years from the date of sale whichever period expires last .Unless it can be established to the contrary, it should be assumed that the pawnbroker continued to accept goods until the date of the insolvency order and the records should therefore not be destroyed until five years from the date of the insolvency order.Notes:[Consumer Credit (Conduct of Business) (Pawn Records) Regulations 1983]
31.6.44 Goods of an undischarged bankrupt held by pledge etc.
The official receiver may, after giving notice in writing of his intention to do so, inspect any of the bankrupt's goods which are held by any person by way of pledge or pawn. Where such a notice has been given to any person, that person is not entitled, without leave of the court, to realise his security unless he has given the trustee a reasonable opportunity of inspecting the goods and of exercising the bankrupt's right of redemption.Where goods comprised in the bankrupt's estate are held by any person by way of pledge, pawn or other security and no notice has been served in respect of these goods by the official receiver under section 285(5) the trustee may serve such a notice in respect of the goods. A notice served by the trustee under section 311(5) has the same effect as a notice served by the official receiver under section 285(5).Whether or not notice has been served under section 311(5) the trustee may, if he thinks fit, exercise the bankrupt's right of redemption. If redemption of the pawned goods would result in a debit balance being incurred, Technical Section should be contacted before any action is taken.
If the bankrupt has lost the pawn receipt, the official receiver may still redeem the pawn by tendering to the pawnee either a statement or a statutory declaration. A statement should be tendered where the pawn is security for fixed sum credit not exceeding £25 or running account credit on which the credit limit does not exceed £25 and the pawnee agrees. On completion, the statement or statutory declaration becomes the pawn receipt.
Notes:S285(5) Insolvency Act 1986, S311(5)(6) , [S118Consumer Credit Act 1974]
31.6.45 Refusal to redeem
Where a pawnee, without reasonable cause, refuses to allow the pawn to be redeemed he commits an offence. Where the official receiver experiences any difficulty in redeeming a pawn he should contact Technical Section.Notes:[S119 Consumer Credit Act 1974]
31.6.46
Realisation of an insolvent's pawned goods by pawnee.When a pawn has become realisable, the pawnee may sell it after giving to the pawnor a minimum of 14 days notice of the intention to sell (except that no such notice is required when the article taken in pawn is security for fixed sum credit not exceeding £50 or running account credit on which the limit does not exceed £50)
On receipt of such a notice, the official receiver should decide promptly whether he wishes to redeem the pawn prior to sale .In bankruptcy cases the official receiver may prevent the sale taking place by serving notice under section 285 or section 311 (see paragraph 31.6.44).If redemption of the pawned goods would result in a debit balance being incurred, Technical Section should be contacted before any action is taken.
Where the pawnee sells the pawned goods he has, within 20 working days of the sale, to give notice to the pawnor of the sale, its proceeds and expenses .Where the amount realised on the sale is more than the amount owing to the pawnee, the official receiver should collect the surplus as an asset, and where there is a shortfall a proof of debt should be forwarded to the pawnee.
Where the pawned goods have been sold, the pawnor may challenge the price obtained at sale or the expenses of the sale, and the pawnee must justify the price or expenses. The official receiver should consider whether any challenge should be made.
Notes:[S121 Consumer Credit Act 1974][Consumer Credit (Realisation of Pawn) Regulations 1983] [S121(2)
Consumer Credit Act 1974] [The Consumer Credit (Realisation of Pawn) Regulations 1983] [S121(6) Consumer Credit Act 1974]
If the bankrupt claims an emotional attachment to the animals, it should be suggested that a member of the bankrupt's family or other third party purchase the animals. The costs of sale that would otherwise be incurred should be taken into account in assessing any such offer.
In the rare event that a company in liquidation owns pedigree animals, they should be sold, although the directors of the company may wish to purchase the animals.
Although it will depend very much on the agreement between the tenants and the landlord it is likely that the wet stock i.e the drink will be supplied on a sale or return basis .The fixtures and fittings could belong either to the landlord or to the tenants, as may the glassware. In the first instance reference should be made to the tenancy agreement before any steps are taken to realise the contents of a tied house.
Notes:Tied houses
Alcohol is again likely to be supplied on a sale or return basis.Further details about dealing with public houses in general are included in Chapter 59 Unusual Assets and Businesses
Where the stock is comprised of seasonal goods such as Christmas or Easter novelties, then steps should be taken to realise this stock promptly if it is possible to take advantage of the seasonal market. Similarly, merchandise linked to sporting events should be realised promptly, as it is likely to have little or no value after the event .When realising seasonal foodstuffs such as haggis or Christmas cakes regard should be given to the contents of paragraph 31.6.38.Where there is a stock of seed to be sold, royalties may be due. Seed merchants are licensed by the British Society of Plant Breeders to produce and sell seed of agricultural varieties protected by Plant Variety Rights under the Plant Variety and Seeds Act 1964 (as amended).Under the Act, seed of the protected variety is intellectual property, and royalties are payable on sales of certified seed.
It is the policy of the Society to withdraw any licences issued on the insolvency of a seed merchant .Any liquidator or trustee appointed would be unable to make sales of seed of protected varieties held in stock without the authorization of the owner of rights. The Society will give such authorization provided the office holder agrees to pay to the Society the royalties due on such sales .Royalty rates vary and are set by the breeder of the seed. If a breeder does not wish for their seed to be sold, authorization will not be granted, and the seed may only be sold as grain for animal feed.
The official receiver has no statutory duty under the Insolvency Act 1986 to protect property which does not form part of an insolvent's estate (see Chapter 8, part 7 for further details)If the insolvent carried on business as a dry cleaner or cobbler then the business premises are likely to contain large quantities of third party goods. To a lesser extent jewellers may hold goods for valuation or repair as may camera shops. There are also businesses which specialise in the storage of items such as furniture or business records, and specialist archives.
In general such items may be of little value either individually or collectively. Wherever possible, steps should be taken to return the property to its owners as quickly as possible.
The official receiver should take no action, if possible which put him in the position of being an involuntary bailee (see paragraph 31.5.53).Action to trace the owners of the goods, which incur no expense to the estate would fall into this category i.e would not make the official receiver an involuntary bailee. If the official receiver insures the goods or takes possession of them, he would become an involuntary bailee (see also paragraph 49.7)
A notice should be posted at the former trading premises directing all enquiries to the official receiver. It is usual for premises to be opened at pre - arranged times on at least 4 occasions, one of which should be at the weekend, in order for third parties to collect their property. If the bankrupt or directors have informed the official receiver that the goods have already remained uncollected for a long period of time, for example six months or more, the number of occasions on which the premises are to be opened up may be reduced.
Where customers' names and addresses are available, they should be contacted by letter and informed when the premises will be open for the collection of their property. They should also be informed that the official receiver will be taking no steps to insure or otherwise protect their goods.
There may be charges to be paid in respect of the goods to be collected; in essence the owners of the goods will be debtors. Where the goods are of relatively low value e.g shoes or everyday clothing and the charges low, as the official receiver cannot guarantee the quality of the work carried out, a reduction in the charges of up to 60% should be offered. Where the goods are of a high value e.g fur coats or furniture in store, and the charges substantial, the case may attract an insolvency practitioner. If the case fits the guidelines in Chapter 17, part 5 it may be possible to obtain a Secretary of State appointment of an insolvency practitioner.
Despite such steps, it is likely that the majority of the goods will remain unclaimed. If the official receiver has not become an involuntary bailee, there is no reason why the remaining goods could not be left for the bankrupt or the landlord or mortgagee of premises to deal with.
31.6.53 Bailment, bailees and bailors
Bailment is the delivery of goods by one person, called the bailor, to another person called the bailee, for some purpose, under a contract, express or implied, that after the purpose has been fulfilled, they shall be re-delivered to the bailor, or otherwise dealt with according to his directions, or kept until he reclaims them.
Bailment can be divided into five classes:
the gratuitous deposit of a chattel with the bailee, who is simply to keep it for the bailor;
the delivery of a chattel to the bailee, who is to do something without reward for the bailee to or with the chattel;
the gratuitous loan of a chattel by the bailor to the bailee for the bailee to use;
the pawn or pledge of a chattel by the bailor to the bailee, who is to hold it as a security for a loan or debt or the fulfilment of an obligation; and
the hire of a chattel or services by the bailor to the bailee for reward
and classified as being either gratuitous i.e without recompense, or for reward or valuable consideration. The common law duty of every bailee is to take reasonable care of his bailor's goods and not to convert them [ Morris v C W Martin & Sons Ltd (1966) 1 QB 716].The standard of care required will depend on the kind of bailment and the circumstance of each particular case.In the case of a gratuitous bailment the degree of care and diligence will be less than that required where both parties will benefit from the bailment.
For the official receiver to be considered to be a bailee of the property, the property must first be in his possession, whether actual or constructive. Constructive possession will arise if the person is able to exercise control over the goods in question. Although taking possession of the goods should be avoided, there are occasions where the official receiver may find himself in such a position, for example when securing the premises containing third party goods to protect assets, where premises are leased rather than rented, or when mortgagees do not intend to realise their security. The official receiver may also unwittingly take possession due to human error, say by removing third party goods along with assets to be sold. However, care must be taken to make the correct balance between not seeking to become a bailee and the duty of an official receiver to take possession and protect assets forming part of an insolvent estate.
As the official receiver has not volunteered to take possession of the third party goods, he would be an involuntary bailee, and as there will be no recompense the bailment will be gratuitous. The duty of care of an involuntary bailee is low; he must not wrongfully dispose of the goods or take any positive steps to damage or destroy them. Generally, as an involuntary bailee, the official receiver does not have to protect the third party assets, but this is not to suggest that the official receiver can never be held to be negligent whatever the circumstances of a particular case and the official receiver must have regard to the circumstances of each case when considering his obligations.
Under the provisions of the Torts (Interference with Goods) Act 1977 (the relevant provision of which, section 12 and schedule 1 are reproduced in an annex to Chapter 8) a bailee may sell uncollected third party goods, after having taken reasonable steps to contact the owners. There are specific conditions detailed in section 12 of the Torts (Interference with Goods) Act 1977 to be fulfilled before a power of sale becomes exercisable, and the official receiver should ensure that these conditions have been met before selling any third party goods.
The official receiver would be the bailee, the owners of the property bailors.
The bailee should give notice that the goods are available for collection, and that if they remain uncollected for a period of three months, the goods will be sold .Notice should be given in the form of a letter, to those owners whose addresses are known and additionally by posting a notice at the trading premises and advertising in a local newspaper. The notice should also make clear that the official receiver will be taking no steps to protect the property. Reference should be made to Schedule 1 for the specific legal requirements that are to be contained in the notice. In view of the time period which must elapse before a sale can take place, to minimise any storage costs, notice should be given promptly
The owners (bailors) are entitled to receive the net proceeds of the sale less any charges outstanding in respect of work carried out by insolvent. This may complicate the sale arrangements as it would be difficult to calculate the sale proceeds if the goods were sold as a single lot at auction, but auctioneers are unlikely to be willing to sell large numbers of pairs of shoes each as a single lot.
Also, as the principal reason that the goods would be sold is that the owners cannot be traced, it will be equally difficult to pay the sale proceeds to the owners. The sale proceeds should be paid into the estate account.
The insolvent may also be holding third party goods at their premises on an informal loan from a friend, or simply keeping items as a favour .If the official receiver took possession of such goods this would also be classified as a form of gratuitous bailment. Goods hired or leased by the insolvent such as a photocopier would also be classed as third party goods. Arrangements should be made for the owners of such goods to collect their property without delay. The official receiver should make it clear to the owners of the goods that he will not insure the goods, or take any other positive steps to protect the items.
Notes:[Sch 1 Torts (Interference with Goods) Act 1977][S12(5) Torts (Interference with Goods) Act 1977]
Alcoholic drinks may be sold by the official receiver's usual agents, although only agents licensed to sell alcohol should be employed. Some agents may accept opened bottles for sale.
Open barrels of beer are usually considered to have no value.
See also paragraphs 31.6.48 and 31.6.49 Public Houses.
[Back to Part 1 - General Policy] [On to Part 3 - Work in Progress (WIP)]