October 1992 

32.4.1 General

The official receiver has a duty to protect the assets of any estate to which he/she may be appointed. Exceptionally, however, it may appear to the official receiver that the nature of the business or property of an insolvent company or individual or the interests of the creditors of the insolvent, or of the members of an insolvent company, require the appointment of a special manager to manager the business or property.

Notes: [s144 or 287] [s177 or 370]

32.4.2 Need to justify cost

The costs of a special manager are often considerable. The official receiver must be prepared to justify the appointment to the creditors as well as to the court and an appointment should not be seen as a means of avoiding inconvenient duties.

32.4.3 When application may be made

The need for such appointment might occur where:- 

1. there is a need for expert assistance in seeking the most effective realisation of assets, e.g. properties, development rights, specialised or highly technical plant, unusual stocks, patents, trade marks or the like where such assets could not be dealt with by the agent of the official receiver or a specialised dealer in the property involved;
2. trading might continue on a limited basis for a short time so as to complete orders on hand from existing work in progress and stocks in order to achieve a more profitable realisation of current assets;
3. the business retains some viability and trading might continue with a possibility of a sale as a going concern. In such a case the official receiver would normally have received some expression of interest in purchasing the business on which to base his/her decision.

In these and in other cases there may be added complications of sheer size, number of employees, livestock, dangerous materials such as hazardous chemicals, etc which may warrant assistance.

32.4.4 Appointment is made by court

The appointment of a special manager is made by the court on the application of a liquidator, provisional liquidator, or trustee; the official receiver may make such application when he/she is so acting or if he/she is acting as interim receiver or receiver and manager of the business and/or property of a debtor.

Notes: [s177 and R4.206 or s370 and R6.167]

32.4.5 Need for careful financial evaluation

A special manager is entitled to remuneration and reimbursement of his/her expenses, which may be heavy if a business is to be carried on for some time. The official receiver will therefore need to make a very careful and detailed assessment of all the factors involved before seeking the appointment of a special manager. Some financial and practical aspects of this matter are considered in this chapter which should be read in conjunction with chapter 62 dealing with the continuation of a business.

32.4.6 Information needed to decide if business is to be continued

The official receiver must acquire as much knowledge as possible concerning the business and the current trading position from company officers, the debtor or bankrupt, employees, creditors and others able to provide useful information. Matters for particular attention will include:- 

1. evaluation of the immediate and mid-term trading prospects; accurate details of outstanding sales orders and purchase contracts;
2. details of any involvement in specialised market operations such as options, dealing in futures or commodities such as wool, metal, grain etc where there may be obligations either way for settlement at some later date or complex issues involved arising out of selling out or buying in against contract which may be subject to special insolvency rules within the particular market concerned; (such transactions may fall to be dealt with as market contracts under Part VII of the Companies Act 1989 when the exchange itself will be responsible for winding up the positions);
3. a realistic estimate of the likely overall trading income; the views of the proprietors of the business or other interested parties may be useful but should not be accepted without critical examination;
4. what stocks are held, including for manufacturing concerns, partly completed items and raw materials; what purchases of materials or finished goods will be needed and whether supplies will be readily available;
5. details of all labour costs likely to be incurred especially bearing in mind employment protection legislation etc and related obligations;
6. reliable estimates of all overhead expenses likely to be incurred;
7. whether the business has security of tenure of essential property for a sufficient period to enable the envisaged production or trading programme to be accomplished;
8. public liability, trading standards, employer’s liability and health and safety responsibilities;
9. whether the conduct of the business is affected by its own constitution (i.e. the memorandum and articles of association) or specific legislation, e.g. railway companies, doctors in practice, retirement homes, etc.

32.4.7 Initial evaluation and report by special manager

If after consideration of all available information there appears to be a positive benefit in the appointment of a special manager, whether or not the business is to be continued, the official receiver must still take into account the remuneration and expenses of a special manager, the amount of which can only be estimated initially and refined in the light of subsequent events. Where an appointment is then made a first duty of the special manager will be to prepare a separate evaluation and report concerning anticipated recoveries with cash flow projections and trading accounts where appropriate. It must be appreciated that trading does not have to be ‘profitable’ according to the normal rules of accountancy; what is being sought is an end position which gives a better result for creditors than would be achieved by an immediate cessation of business and an auction sale of assets on a piecemeal basis.

32.4.8 Who should be appointed

Although it is not compulsory to do so it is usually preferable to seek the appointment of an authorised insolvency practitioner who is a qualified accountant because of his/her knowledge of financial matters, leaving him/her to acquire for himself/herself the necessary technical or specialist knowledge from other sources, e.g. from directors, the debtor or bankrupt, employees, etc. Many of the larger professional practices employ specialists in a particular trade or business. In exceptional circumstances, a director or the debtor or the bankrupt can be employed either as, or to assist, the special manager.

32.4.9 Powers and remuneration of special manager

The powers entrusted to the special manager and his/her remuneration will be determined by the court. Before making application to the court for an appointment the official receiver should discuss these matters with the proposed appointee and reach broad agreement concerning them. The intended appointee should also provide his/her written consent to act to the official receiver.

Notes :[s177(3) and R4.206(5) or s370(3) and R6.167(4)]

32.4.10 Indemnities

Before applying to the court for the appointment of a special manager, the official receiver must try to obtain adequate indemnities from the petitioning creditor or major creditors to cover any losses which might be incurred if the business is to be continued. Indemnities should be in writing, preferably following the wording of the prescribed forms but suitably adapted to reflect the state of the proceedings, the purpose(s) of the indemnity and the office held by the official receiver. However a written undertaking from a major bank, reputable financial institution or Government Department etc is acceptable (see paragraphs 32.2.4 et seq particularly noting paragraph 32.2.7 as to the investment of third party funds). The official receiver may require funds in advance from the indemnifying party to cover immediate expenses incurred when the special manager assumes responsibility for the continuation of a business.

Notes: [form CINDY]

32.4.11 Application to court for appointment (amended September 2010)

The application to the court by the official receiver for the appointment of a special manager under sections 177 or 370 must be supported by a report which must include details of the following matters:- 

a. the reasons for the application;

b. an estimate (on the basis of professional advice, if necessary) of the value of the business or property involved and should also preferably deal with:-

c. the name, address and qualifications of the person to be appointed and confirmation of his/her consent to act;

d. the powers which are considered appropriate to be entrusted to the special manager (see paragraph 32.4.13 below);

e. how remuneration is to be determined and paid or whether consideration of it is to be deferred; and, where appropriate,

f. request the sanction of the court to employ solicitors in relation to any matter connected with the special managership of the estate.

Notes: [R4.206(1) or 6.167(1)]

32.4.12 Defect in appointment

The acts of a special manager are valid notwithstanding any defect in his/her appointment or qualification.

Notes:[s377 or R4.206(6)]

32.4.13 Powers of special manager

The power of the special manager to exercise functions is conferred by the court and the special manager exercises them as a principal and appointee of the court. The official receiver should not request a special manager to perform acts in respect of which the official receiver has no statutory right to undertake himself/herself, nor should the official receiver request a special manager to discharge any responsibility outside the powers granted to him/her by the court. It will normally be appropriate in every case to request the powers outlined in (a), (b) and (c) below together with such other powers as may be applicable in the particular circumstances of the case:-

a. to advise and assist the official receiver in his/her administration of the estate;

b. to be at liberty to act for the official receiver (and the company, debtor or bankrupt as appropriate) in connection with taking possession, gathering in and protection of assets of the estate; (where the official receiver is acting as provisional liquidator or interim receiver and the assets comprise perishable items or other goods or property which need, for whatever reason, to be disposed of quickly, there may then need to be a specific reference to that position);

c. that any provisions of the Insolvency Act 1986 relating to the official receiver as provisional liquidator, liquidator, interim receiver, receiver and manager or trustee as the case may be are to have effect in relation to the special manager for the purpose of the carrying out by him/her of any functions of the official receiver;

d. to take such action which the official receiver may consider appropriate for the efficient administration of the estate, including the following;

• to manage any specified business and branches thereof carried on by the insolvent at the specified address of such business or branch;
• to employ and remunerate any necessary staff;
• to discontinue any part of a business when desirable in the interests of the estate;
• to receive book debts and give an effective discharge of them;
• to discharge all costs, expenses and outgoings necessary for the continuation of the business;
• to effect all necessary insurances including third party risks;
• to open such bank accounts and deposit account facilities as may be necessary for the proper conduct of the business;
• to invest surplus funds at interest;
• to take such other steps as may be necessary for the protection of the official receiver, the estate and the business.

Notes :[s177(4) or 370(4)]

32.4.14 Security (amended September 2010)

A special manager is required to give security to the official receiver, which should be a specific bond, preferably in the form of a cover note for a sum at least equal to the value of the business or property stated in the official receiver’s report to the court as noted in paragraph 32.4.11(b). If the special manager is to be appointed in respect of several connected estates he/she may lodge one bond to cover all such specified estates. A special manager who is a licensed insolvency practitioner will still be required to lodge such a bond, whether his/her appointment is before or after the making of a winding-up or bankruptcy order, since the general bond lodged in relation to his/her functions as an insolvency practitioner does not extend to the function and responsibilities of a special manager.

Notes: [R4.207(3) or 6.168(3)] [Regulation 12 of the Insolvency Practitioners Regulations 1990]

32.4.15 Failure to provide or maintain security

The appointment of a special manager will not become effective until he/she has provided the required security. Where the special manager does not provide, or fails to maintain, the required security, the official receiver should report the failure to the court which may then either discharge the order appointing the special manager or remove him/her and make such other order regarding costs as it thinks just. Where the court removes or discharges a special manager it must give directions as to whether any, and if so what, steps should be taken for the appointment of another special manager in his/her place.

Notes: [R4.208 or 6.169]

32.4.16 Cost of security

The special manager is responsible in the first instance for discharging the cost of his/her security. This will later be repaid out of the assets of the estate according to the prescribed order of priority on the subsequent making of any winding-up or bankruptcy order. If the appointment is made at a time when the official receiver is acting as provisional liquidator or interim receiver and no winding-up or bankruptcy order is made the court should be asked to order that the company or debtor, as the case may be, should reimburse the cost of the security to the special manager.

Notes: [R4.218(3) or 6.224(1)] [R4.207(5) or 6.168(5)]

32.4.17 Service of order

Form SMDUT should be sent to the special manager to notify him/her of his/her appointment and duties and a sealed copy of the order should be attached to the form or forwarded when available.

Notes: [Form SMORD]

32.4.18 Duration of appointment

The court order will specify the duration of appointment of the special manager. This will either be for a defined period of time or until the happening of a specific event, e.g. the conclusion of the hearing of the petition when an order of appointment will be discharged on the making of a winding-up or bankruptcy order (see paragraph 32.4.27). In such circumstances if the employment of the special manager remains desirable, the official receiver should immediately apply to the court for the appointment to be renewed until for example, the estate is handed over to an insolvency practitioner appointed as liquidator or trustee or a further order is made by the court. In making any such application the court should be requested to renew existing or grant additional powers to the special manager as may be necessary.

Notes: [R4.206(3) or 6.167(2)] [R4.206(4) or 6.167(3)]

32.4.19 Duties of a special manager

When the appointment of the special manager is confirmed his/her attention should be drawn to the following matters as appropriate:- 

1. he/she will be responsible to and will act under the supervision of the official receiver;
2. he/she should submit an initial report on the affairs of the insolvent to the official receiver as soon as possible (preferably within two weeks of his appointment);
3. he/she must make only such purchases and incur only such costs as are essential and personally sign all orders in connection therewith;
4. he/she must not pledge the credit of the official receiver;
5. he/she will be responsible for the payment of the wages and salaries of all employees and must obtain receipts for all such payments;
6. when retaining or terminating the services of employees on behalf of the official receiver he/she must have regard to the potential liabilities of an employer and to the requirements of the Employment Protection Act, the Health and Safety at Work Act and all other relevant legislation;
7. subject to any action already taken by the official receiver he/she must promptly effect all necessary insurances, e.g. fire, burglary, employees’ and public liability, the insurers being asked to note the interest of the official receiver in any current policies; (Note: the official receiver should personally satisfy himself/herself as to the adequacy of cover in the above matters and particularly that proper cover for himself/herself and the estate is held in respect of common law negligence and breaches of statutory duties which are not covered by the National Insurance (Industrial Injuries) Act);
8. his/her trading transactions must, so far as possible, be on a cash basis; goods should only be sold on credit if strictly necessary and then only on a short term basis to reputable customers;
9. he/she must submit accounts for the approval of the official receiver (see paragraphs 32.4.24 et seq);
10. he/she is not to use the proceeds of book debts for the purpose of carrying on the business unless he/she is authorised to do so by the court.

Notes:[R4.209 or 6.170]

32.4.20 Supervision by the official receiver

Although appointed by the court the special manager is responsible to the official receiver who must always have regard to the principles of commercial prudence in his/her overall control of the estate. He/she must therefore ensure the provision of proper financial controls (see paragraphs 32.4.21 et seq) and that he/she is kept informed as to the activities and general intentions of a special manager. Consistent however with this objective, the special manager should be allowed to carry out the duties conferred on him/her by the court with minimum supervision for he/she will have been employed as an expert and should be able to act unhampered by the necessity of constant reference to the official receiver.

32.4.21 Bank accounts

Subject to paragraph 32.4.22 below, where the official receiver is acting as provisional liquidator or interim receiver he/she should open a separate bank account to accept the gross receipts of the special manager and to provide funds for current expenditure. After the making of a winding-up or bankruptcy order such an account should be closed and the balance transferred to the insolvency services account which thereafter should be used to accommodate the income and expenditure of the special manager.

32.4.22 Separate account of special manager

Where a business is continued and large amounts of cash are involved it may be expedient to allow the special manager to operate his/her own separate bank account provided such power is granted by the court (see paragraph 32.4.13(d)). In this connection the adequacy of the security of the special manager should take all such transactions into account. Any surplus funds generated by the special manager’s operations should be invested by him/her or the official receiver subject to the normal rules applying to the investment of funds after the making of the bankruptcy or winding-up order.

32.4.23 Raising of money or power to make advances

When acting as provisional liquidator, liquidator prior to a meeting of creditors, interim receiver or receiver and manager, the official receiver should not make advances so as to incur a debit balance without the prior consent of Technical Section (see also paragraph 32.1.6). Where he/she is the liquidator the official receiver has power to authorise the special manager to raise money on the security of assets or to make advances where it is for the protection of assets or in the interests of creditors to do so (providing the special manager’s powers allow him/her to do so, see paragraph 32.4.13). He/she need only seek the prior approval of Technical Section where the relevant assets might possibly realise less than the amount of the advance.

Notes: [Schedule 4 Part III paragraph 10]

32.4.24 Submission of accounts by special manager

The special manager is required to produce accounts containing details of his receipts and payments for the approval of the official receiver when acting as provisional liquidator, liquidator or trustee. The accounts are to be in respect of three month periods for the duration of the appointment of the special manager (or for a lesser period, if his appointment terminates within 3 months, or from the date to which the last accounts were made up). The official receiver should examine the accounts and any accompanying schedules submitted and make test checks to satisfy himself/herself that they accurately reflect the transactions undertaken during the period, that they include no manifest inconsistencies and are arithmetically accurate. The accounts should then be marked as ‘Approved’, signed and dated by the official receiver, and the receipts and payments added to those of the official receiver.

Notes: [R4.209 or 6.170] Approval of accounts

32.4.25 When official receiver acting as interim receiver or as receiver and manager

Rule 6.170 does not lay down accounting requirements where the official receiver is acting as interim receiver or receiver and manager. Where the official receiver is acting in this capacity with a special manager and the bankruptcy petition is dismissed, then on the dismissal of the petition the official receiver should seek the directions of the court regarding submission of the receipts and payments account of the special manager. Where a practitioner other than the special manager is appointed trustee the official receiver should forward the receipts and payments account without his/her formal approval but may comment thereon as he/she considers appropriate. The official receiver should seek the directions of the court in any case where he/she is unable to resolve any difficulty relating to the submission of accounts by the special manager.

32.4.26 Remuneration and disbursements of special manager

The remuneration of the special manager is determined by the court (see paragraph 32.4.9) but the method of calculation will have been provisionally agreed at the time of his/her consenting to act. Occasionally the remuneration will be specified in the order of appointment but it is more usual for the fixing of this to be deferred. During his/her period of office the special manager may submit to the official receiver a time and rate schedule together with a schedule of his/her disbursements supported by relevant invoices and vouchers. The official receiver may then report to the court, attaching copies of these documents and commenting briefly on their reasonableness. If the official receiver is concerned as to the amount of remuneration or expenses claimed and after discussion is unable to agree this with the special manager, he/she should make reference to the matter in his/her report to the court. The fixing of final remuneration on termination of employment is considered in paragraph 32.4.33.

Notes: [R4.206(5) or 6.167(4)]

32.4.27 Termination of appointment generally

The appointment of the special manager will cease in any of the following circumstances:-

1. by an order of the court following a report by the official receiver that the special manager had failed to give or keep up security (see paragraph 32.4.15);
2. dismissal of the petition
3. discharge of the provisional liquidator or interim receiver without a winding-up or bankruptcy order having been made:
4. on any date fixed by the court in the order of appointment or in any subsequent order;
5. the making of a winding-up or bankruptcy order (subject to renewal - see paragraph 32.4.18);
6. by an order of the court following an application by the official receiver at his/her own instigation or following the passing of a resolution by the creditors.

Notes: [R4.208 or 6.169] [R4.206(3) or 6.167(2)] [R4.210 or 6.171]

32.4.28 Handing back of business

If the petition is dismissed or an order for the appointment of a provisional liquidator or interim receiver is discharged before a winding-up or bankruptcy order is made, the appointment of the special manager is terminated. The official receiver must then make immediate arrangements to hand back the business and assets to the company or debtor against detailed receipts for all property handed over, subject to a reserve for outstanding costs.

32.4.29 Termination of appointment when not necessary or profitable

If at any time the official receiver considers that the employment of a special manager is no longer necessary or cannot be financially sustained, he/she should seek the directions of the court as to termination of the appointment and meanwhile instruct the special manager to keep further costs to a minimum. Such a position might occur where changed circumstances could result in detriment to the estate or where a third party refuses to extend an indemnity.

Notes: [R4.210(2) or 6.171(2)]

32.4.30 Termination of appointment at request of special manager

A special manager cannot directly apply to the court for the termination of his/her appointment but may, in writing, inform the official receiver of his/her wish to relinquish his/her appointment and the reasons for his/her decision. The official receiver must then immediately report the facts to the court and, if advisable, seek a replacement. The termination will not become effective until the court so directs.

32.4.31 Termination of appointment at request of creditors

Either in corporate or individual insolvency proceedings, the creditors at a meeting requisitioned for that purpose, may resolve to request the termination of the appointment of the special manager (see chapter 16 regarding requisitioned meetings generally). On receipt of notice of such resolution the official receiver must make application to the court for directions or for the termination of the appointment. The court should be requested to make a specific order for the discharge of the remuneration and costs of the special manager.

Notes: [R4.210(3) or 6.171(3)]

32.4.32 Memorandum summary of receipts and payments

If the official receiver considers a summary of the receipts and payments covering the entire period of office of the special manager would help the administration of the estate, he/she may ask the special manager to provide this. Any such summary will be of a ‘memorandum’ nature only and will not form part of the statutory accounts required of the special manager.

32.4.33 Final remuneration and costs

Where a provisional liquidator or interim receiver has been appointed but the petition is dismissed the official receiver should request the court to make provision for the payment of his/her fees and costs and the remuneration and costs of the special manager and for retention of assets for this purpose (see chapter 2 for further information relating to provisional liquidators and interim receivers generally). When the appointment of a special manager is terminated in other circumstances then, unless the court orders otherwise, his/her costs and expenses will be paid out of the estate in the specified order of priority and the official receiver may retain sufficient cash or assets to discharge this obligation. Where a practitioner is appointed liquidator or trustee the fact that a special manager has been employed should be brought to his/her attention and he/she should be notified of outstanding liabilities for remuneration or expenses.

Notes :[R4.218(3)(b) or 6.224(1)(b) re expenses; 4.218(3)(j) or 6.224(1)(j) re remuneration

34.4.34 Supervision fee payable

A supervision fee is payable to the official receiver for each week a special manager is in office and the official receiver should ensure this is charged to the estate account marking this as "provisional liquidation" or "interim receivership" if a winding-up or bankruptcy order has not been made. The fee will form part of the costs of the official receiver in the proceedings.

Notes: [Insolvency Fees Order 1986 (as amended) Part I, fee 5 or Part II, fee 8]

[Back to 32.3: Part 4 - Others]