May 2009

Part 9 Investment of funds by liquidator and trustee

36.124 Insolvency Services Account

The Insolvency Regulations 1994 (as amended) require the liquidator of a company wound up by the court or trustee in bankruptcy to pay all money received by him/her in the course of carrying out his/her functions as such,  without any deduction,  into the Insolvency Services Account (ISA) kept by the Secretary of State at the Bank of England. The money is required to be paid into the account to the credit of the company or bankrupt once every 14 days or forthwith if £5,000 or more has been received[Note 1],[Note 2],[Note 3].  The Insolvency Service operates a single realisations account for all official receivers’ offices.

36.125  Local bank account for cash received

An exception to the requirement to pay all monies in to the ISA (see paragraph 36.124) is where the official receiver receives monies to be banked, e.g. cash recovered on inspection, which should be paid into a local bank account from which the deposit is forwarded to the Official Receivers’ Realisations Account. The official receiver must send a copy of any general receipt issued in respect of cash taken and banked locally to Estate Accounts Services (EAS) and must also provide details of the paying in slip reference. All other monies are sent to Operations & Customer Support Unit for banking. There will be a transfer of cleared funds to the ISA on a daily basis. The transfer of funds to the ISA is a daily automated function that is carried out by Lloyds TSB.   Cheques are not cleared through the system until 5 working days after payment in. Payment will therefore be made to the ISA on the fifth day after payment.

36.126 Operation of a local bank account where carrying on a business

A further exception to the requirement to pay all monies in to the ISA (see paragraph 36.124) is where the liquidator or trustee is exercising his/her power to carry on the business of the company or bankrupt and the Secretary of State has authorised operation of a local bank account [Note 4]. In this circumstance the official receiver as liquidator or trustee may apply to the Secretary of State (Technical Section) for authorisation to open a local bank account.  The Secretary of State may then authorise him/her to make payments into and out of a specified bank, subject to a limit, instead of the ISA[Note 5],[Note 6]. Authorisation will only be given where Technical Section acting on behalf of the Secretary of State is satisfied that an administrative advantage will be gained from having such an account. The liquidator or trustee shall pay without deduction any surplus over any limit imposed by the Secretary of State into the ISA. The official receiver should exercise extreme care to ensure that only money belonging to the estate is paid into the ISA. Third party monies should not be paid in but held in a separate account.

 
36.127 Investments in Government Stocks (Gilts)

Where the official receiver is liquidator or trustee he/she may choose to invest in Government Stocks (Gilts). Automatic interest will be paid on any funds remaining following such an investment. There is no minimum sum which can be invested in Government Stocks [Note 7],[Note 8]. The official receiver cannot purchase Government Stocks directly but must make a written request for the purchase to EAS.  The purchase cost is recorded against the estate and the funds marked as committed. The official receiver must ensure that sufficient funds remain in the estate account to cover anticipated fees and expenses during the life of the Stocks to avoid early encashment, which could lead to potential losses. There are many different Stocks available for purchase at any one time, all with different redemption dates. For most Gilts the date of repayment (maturity date) is specified and can be anything between 5 and 25 years from the date of issue. The choice of date rests solely with HM Government.  Before this maturity date Gilts cannot be cashed in, however, an investor can sell their Gilt holdings in the stock market via brokers who are prepared to buy and sell most Gilts at any time. Because of the number of different Stocks available it is suggested that the official receiver contact EAS for further details before considering this type of investment.

36.128 Fee for purchase of Government Stocks

Once a request to purchase Government Stocks has been actioned, EAS will advise the official receiver of the nominal value and purchase cost of the Stocks. Where a request is made to purchase Government Stocks by a trustee in bankruptcy or a liquidator in winding up proceedings (including where the trustee is appointed under the Bankruptcy Act 1914 or the liquidator under the Companies Act 1985) a fee is chargeable to the estate for the purchase of Stocks (fee INV1)[Note 9].  From 1 April 2004 until 6 April 2009 this was a fixed fee of £50, irrespective of the amount of the Stocks purchased.  From 6 April 2009  the fee is £50 where the cost of the securities (Stocks) purchased does not exceed £5,000 (including accrued interest).  Where the purchase exceeds £5,000 (including accrued interest), the fee is £50 plus 0.3% of the cost in excess of £5,000[Note 10]. If the case is subsequently handed over to an insolvency practitioner, the official receiver should provide him/her with full details of Stocks currently held and inform EAS Operations & Customer Support Unit that the case has been transferred.

36.129 Taxation

When closing the case the official receiver should ensure that all Stocks have been redeemed or sold prior to closure and that the tax has been assessed and paid where necessary. Stock purchased on behalf of the estate attracts interest which is paid to the estate without deduction of tax. The official receiver when acting as liquidator or trustee should submit returns to HM Revenue and Customs (HMRC) each year showing the company's or bankrupt's estate income or other gains and arrange for the post winding-up order or bankruptcy order tax to be paid as an expense of the estate[Note 11].

36.130 Calculating gain at investment maturity date

When the investment matures, the gain is calculated as the maturity value less the original cost of purchase together with the appropriate investment fee [Note 12]. In respect of a sale made at the request of a trustee in bankruptcy or liquidator in respect of compulsory or voluntary liquidation, where the proceeds of sale of the securities (including any accrued interest) exceed £5,000, a fee is  payable of £50 plus 0.3% of the proceeds in excess of £5,000[Note 13].

36.131 Payment of interest to estate

At any time after 1 April 2004 whenever there are monies standing to the credit of the company or the estate of the bankrupt in the ISA,  the company or bankruptcy estate shall be entitled to interest on those monies [Note 14], [Note 15].  The Secretary of State may, by notice published in the London Gazette, vary the rate of interest,  and such variation shall have effect from the day after the date of publication of the notice in the London Gazette [Note 16] [Note 17]. Interest rate details appear in the EAS area of the Insolvency Service website.

36.132 Cessation of interest accrual

Interest (see paragraph 36.131) shall cease to accrue when the liquidator or trustee gives written notice to the Secretary of State that in his/her opinion it is expedient or necessary,  in order to facilitate the conclusion of the winding up or bankruptcy,  that the interest should cease to accrue. Interest shall start to accrue again where the liquidator or trustee gives a further notice in writing to the Secretary of State requesting that interest should start to accrue again [Note 18],[Note 19].  

36.133  LOLA auto calculation and payment of interest and tax

Where the official receiver is liquidator or trustee, LOLA automatically calculates and posts the interest twice a year, no action is required by the official receiver. Where a company or bankrupt’s estate has become entitled to receive an interest payment, the Secretary of State is required to certify the amount of interest received and tax payable on it to the national Debt Commissioners, who pay in to the ISA (from the investment account) this certified sum less the tax due, and pay the tax to HMRC (formerly the Commissioners of Inland Revenue) [Note 20].  Every 6 months LOLA will produce a report centrally detailing the total amount of interest and tax paid. The tax element is remitted to HMRC directly by transfer of funds from the ISA.  

Where the case is being handed over to an insolvency practitioner liquidator, the official receiver should ensure that any interest earned is credited up to date and any necessary fees charged as at the date of the hand over. However, the hand over should not be delayed by the calculation. Upon receipt by EAS of the transfer to the insolvency practitioner, any balance will be placed on an interest bearing account.

36.134 Payments in to the ISA by liquidator following company dissolution

Following the amendment of the Insolvency Regulations 1994 on 6 April 2008, monies which are still held by the former liquidator of a dissolved company and which are either unclaimed dividends due to creditors (where for example creditors cannot be traced), and/or sums held by the company in trust in respect of dividends or other sums due to any person as a member or former member of the company [Note 21], may in the case of a voluntary winding up, be paid by the liquidator into the ISA.  In the case of a winding up by the court these monies must be paid in to the ISA [Note 22].

(Former) liquidators of companies in members' voluntary liquidations are still likely, upon the dissolution of those companies, to pay the monies so held into the ISA, unless, for example, the monies were to be held by a trust company or corporation which had had some involvement in the processing of the distribution of the monies.

36.135 Notice requirements where former liquidator pays sums in to the ISA

Where the former liquidator pays any sums into the ISA he/she is required to give notice to the Secretary of State of:

(a) the name of the company;

(b) the name and address of the person to whom the dividend or other sum is payable;

(c) the amount of the dividend, and;

(d)the date on which it was paid[Note 23].

Any payments into the ISA in respect of these dividends or other sums due to untraced creditors/members may not be made earlier than on or after the expiry of 6 months since the date of the payment instrument making the distribution[Note 24].

36.136 Withdrawing ISA deposits following voluntary liquidation

Where a liquidator in voluntary winding up proceedings has deposited money in the ISA to the credit of the company in voluntary liquidation, and needs to make payment of either the expenses of the winding up [Note 25], or by way of distribution[Note 26], he/she is required to apply in writing  to the Secretary of State.  The Secretary of State may either authorise payment to the liquidator of the sum required by him/her, or may direct payment instruments to be issued to the liquidator for delivery by him/her to the  persons to whom the payments are to be made .

In respect of such an application, the Secretary of State may at his his/her discretion make payment by electronic transfer, either directly to the person to whom the liquidator would otherwise deliver payment instruments,  or make the payment which is the subject of the application to the liquidator by electronic transfer [Note 27],[Note 28].

[Back to Part 8 Other matters - set-off, transfers to liquidators/trustees and money laundering]