PART 1
February 2010
REALISING ANTECEDENT RECOVERIES
31.4B.4 Identifying potential recoveries
Obviously, the recoveries referred to in this chapter will not be scheduled as assets in the statement of affairs or referred to in the preliminary examination but information contained therein may be used to establish that an event or occurrence may be challenged. Transactions may have occurred which have removed the property from the company or the bankrupt’s estate which it may be possible to overturn to produce a recovery for creditors. During the course of a preliminary examination it may be possible to detect that such a transaction has occurred.
Where a property has been sold or otherwise transferred, the official receiver acting as liquidator or trustee should always seek to satisfy him/herself that the property was transferred at as fair market value, and any transaction with a relative or associate of the insolvent may be viewed with suspicion.
Advice and information relating to the types of enquires that may be needed to identify suspect transactions are given in later Parts of this chapter.
31.4B.5 Antecedent recoveries contractor
The Service has entered into an agreement with Moon Beever for that firm to take on all qualifying antecedent recoveries (see paragraph 31.4B.7) on behalf of official receivers. Paragraphs 31.4B.6 to 31.AB.16 give an overview of the Service Level Agreement and procedures relating to that arrangement. This contract runs until 7 September 2011.
Annex I of the Service Level Agreement covers the arrangements in relation to antecedent recoveries.
31.4B.6 Scope of recoveries under the contract
Although the instruction forms available on the ORS intranet site are for use in submitting instructions for recoveries in respect of preferences, transactions at an undervalue (see Chapter 31.4A for information on these procedures) and civil recoveries following the misfeasance of directors, there is no limit to the types of antecedent recovery work that Moon Beever will undertake. Where necessary, the instruction form (see paragraph 31.4A.9) can be amended to provide instructions to recover sums due under any of the other types of antecedent recovery discussed in the chapter.
31.4B.7 Minimum level of recovery
Moon Beever will accept instructions in respect of antecedent recoveries where the amount to be recovered is likely to be in excess of £5,000.
See paragraphs 31.4B.17 to 31.4B.21 for action to be taken where the level of recovery is likely to be less than £5,000.
31.4B.8 Conditional fee arrangement
Moon Beever will undertake recoveries under the arrangement on a conditional fee basis, meaning that they will undertake legal action at their own risk. Moon Beever will pay for the fees and deal with any costs (including adverse costs) associated with bringing a legal action.
Under the agreement, the official receiver will have no liability for costs in the event of an action being unsuccessful.
No fee is payable where no realisation is made and no fee is payable where the action taken against the debtor is unsuccessful. All adverse costs and fees incurred in taking the action will be payable by Moon Beever under the conditional fee agreement.
31.4B.9 Referral to Moon Beever
The official receiver should endeavour to refer antecedent recoveries to Moon Beever at the earliest possible opportunity (as time is usually of the essence in these matters), but not before the relevant information is obtained. This can be in advance of the transfer of the case to an RTLU if there are other matters delaying the case transfer of the case to the unit.
The method of referral is by completion of the relevant referral forms. These forms set out the information that is required to make a referral and, unless unavoidable, the matter should not be referred until the form is substantially complete, assuming the information is held or otherwise possible to obtain.
It is accepted that some of the required information may not be available and a decision will have to be taken to refer the matter with incomplete information if a potential recovery is not to be lost.
Separate forms are available for referral to Moon Beever on the ORS intranet pages as follows:
http://intranet/CAD/ORBS/Contract%20Information/Moon%20Beever%20Links.htm
31.4B.10 Further enquiries following referral
If after initial consideration Moon Beever agrees with the official receiver’s view that there are reasonable grounds, they will take such action as is necessary to pursue recovery including seeking such further information from the beneficiary of the transaction as is necessary including if appropriate seeking and conducting private examinations [note 1] [note 2].
This should not, though, be an excuse for referring a matter with incomplete information, and the information to be provided in the referral form (see paragraph 31.4B.9) should, in any case, be necessary to enable the official receiver to make a sound judgement that there is a matter of recovery.
It may be necessary for Moon Beever to refer back to the originating OR in relation to case specific information but once the case is with the RTLU it will be for that office to decide in conjunction with Moon Beever the determination of the claim.
31.4B.11 Discussion with insolvent or beneficiaries prior to referral
To avoid any prejudice on actions taken by Moon Beever, the official receiver should avoid asserting to any intention or right to recover either a specified amount or by reference to a specific statutory provision when discussing or corresponding with the insolvent or beneficiary – either before or after the instruction to Moon Beever has been issued.
31.4B.12 Recovery action successful
Neither The Service nor the official receiver will be responsible for any fees or disbursements incurred by Moon Beever in taking legal action in such matters.
If the action is successful and monies have been realised, Moon Beever will first deduct all disbursements from the sum realised and will be entitled to costs in accordance with the agreed levels. Moon Beever will then transfer the balance of monies to the official receiver following deduction of their fees.
If the action is successful but the a reduced sum is accepted from the debtor as settlement, any disbursements will still be deducted first from the recoveries. Moon Beever will then deduct their costs in accordance with the agreed levels and transfer the balance to the official receiver.
31.4B.13 Expenses of winding up/bankruptcy
Costs relating to the conduct of any legal proceedings which the official receiver, as liquidator or trustee, has the power to bring which are properly chargeable or incurred are expenses of the liquidation or bankruptcy respectively and can, therefore, be paid out of the estate [note 3] [note 4].
The disbursements required for legal action will depend on the nature of each case. However, typical disbursements, which Moon Beever expect to incur, include court fees for issuing proceedings, possible Counsel’s fees, if the action is defended, and enforcement fees if any judgment obtained requires enforcement.
31.4B.15 Decision to take legal action under conditional fee agreement
While the action will be brought in the name of the official receiver (with the exception of actions to recover directors’ loans, which should be issued in the name of the company), the decision to take a legal action will rest entirely with Moon Beever, and will be taken only in the following circumstances:
31.4B.16 Sanction to take legal action
Where the official receiver wishes to bring a legal action in the name of a company or as trustee of a bankruptcy estate he/she must obtain the sanction of the Secretary of State [note 5] [note 6] [note 7] [note 8]. Where the official receiver is liquidator or trustee, Technical Section carries out the functions of the Secretary of State on this matter.
Moon Beever will not commence any legal action until appropriate sanction has been obtained. Sanction will be applied for by Moon Beever on a case-by-case basis on the appropriate application form. The form (Annex B to this chapter) will be completed by Moon Beever and e-mailed to the official receiver or RTLU for onward transmission to Technical Section. The form should be e-mailed to the Technical Section in box (Technical.Section@insolvency.gsi.gov.uk) and should be headed “Moon Beever agreement – application for sanction”.
On reviewing the application, Technical Section will, if appropriate, grant sanction by return of e-mail, copied to Moon Beever.
31.4B.17 Recoveries where amount less than £5,000
As detailed in paragraph 31.4B.7, Moon Beever will not accept instructions where the antecedent recovery is likely to be less than £5,000.
The following paragraphs (paragraphs 31.4B.18 to 31.4B.21) give guidance and advice for cases where it is not possible to instruct Moon Beever owing to to the recoverable amount being below £5,000.
In most cases it will not be worth pursuing the matter through court action, but an attempt should be made to secure a voluntary payment from the beneficiary of the transaction, that is without litigation or settlement.
31.4B.18 Initial assessment of claim
It is the responsibility of the office initially dealing with the case (the home office) to establish in relation to each potential antecedent recovery:
31.4B.19 Antecedent recoveries - seeking repayment from a beneficiary
The official receiver should write to the individual or organisation involved in the antecedent transaction setting out the position and asking what arrangements they intend to make for repayment. If the reply sets out how they will repay all, or part, of the money owing, then the case can be passed to the RTLU for collection. But, of itself, this should not prevent a home office making a recovery for the benefit of creditors. Where part payment is offered, and thought to be reasonable, the home office/RTLU official receiver should be willing to compromise the debt where appropriate (obtaining the necessary sanction from Technical Section).
31.4B.20 Action where beneficiary unable or unwilling to repay
Where the individual or organisation benefiting from the antecedent transaction does not respond to the official receiver’s correspondence, refuses to repay or disputes the antecedent transaction, the official receiver should consider the merits of pursuing the matter and discontinue collection where recovery is unlikely (e.g. where the debtor is unable to pay and/or the amount involved is too small to warrant legal action for recovery) or inappropriate (e.g. where evidence suggests there was no intent to prefer or the debtor was not insolvent as a result of the transaction). In making a decision on the ability to repay the debt etc., the official receiver should consider all relevant information such as the beneficiary’s income and/or property ownership.
The official receiver may also consult with principal creditors before finally deciding what course of action to take, including seeking funds and an indemnity against adverse costs.
31.4B.21 Action where collection appropriate
Where the official receiver considers collection action should continue he/she should consider the appointment of an insolvency practitioner liquidator or trustee (whether by meeting of creditors or a Secretary of State appointment (see Chapter 17, Part 5), or transferring the case to the RTLU.
31.4B.22 Antecedent recoveries in Limited Liability Partnerships
The legislation relating to Limited Liability Partnerships (“LLP”) [note 9] extends the antecedent recovery provisions in the Act to LLPs. In addition, there are special provisions relating to the recovery of withdrawals from the partnership. Further details can be found in Chapter 53A, paragraphs 53A.59 to 53A.60.
31.4B.23 Antecedent recoveries and deceased insolvents
The provisions in the Act relating to transactions at an undervalue and to preferences apply to deceased insolvents [note 10].
See Chapter 54, paragraph 54.32 for more information.
Generally, the law [note 11], sets time limits to the period under which debts etc. can be recovered. Although the legislation makes no particular provision for time limits in respect of the recovery of monies due in respect of antecedent recoveries in formal insolvency, case law has developed in this area.
In essence, the relevant legislation sets two time periods under which debts should be recovered. These are 12 years for an action on a specialty (an obligation under a contract, bond or other instrument) [note 12] and six years for any sum due by virtue of any enactment. Where there is an element of fraud on the part of the debtor, the time period does not begin to run until the fraud has, or should have, been discovered.
It has been held that an action to recover a transaction under the provisions in the Act relating to antecedent recoveries is a specialty and, therefore, the 12 year period applies [note 13]. The court in that case considered that, where the substance of the claim is the recovery of monies rather than the setting aside of a transaction, the shorter six-year period may apply.
Generally speaking, the official receiver should aim to commence proceedings (where appropriate) within the shorter, six year, period to avoid the recovery being out of time.
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