Book Debts

Book Debts

November 2008

Introduction

1. What are ‘book debts’?

Book debts is the term used for sums of money owed to the bankrupt, partnership or company at the date of the insolvency order, usually for goods or services supplied or work carried out. Sums due under loans may also be treated as book debts as can sums due from partners or directors under any loan accounts they may have had with the partnership business or company, although detailed information must be available regarding the loan etc for it to be collectable.

The fact that an insolvency order has been made does not mean that the sums are no longer due and the official receiver is therefore entitled to claim the amount owed from the book debtor for the estate.

Where the book debts have a realisable value, the official receiver should not seek the appointment of an insolvency practitioner unless requested to do so by creditors. If, however, there are other assets of a complex nature in the estate, the official receiver may consider seeking the appointment of an insolvency practitioner.  

2. What is the role of the book debt collection contractor?

The Insolvency Service uses an agent to work on behalf of the official receiver to collect book debts due to companies or partnerships against which a winding-up order has been made or due to individuals (including members of a partnership) subject to a bankruptcy order and also to collect monies due under income payments agreements or income payments orders (IPAs/IPOs).See separate Case Help Manual parts: Income Payments Agreements and Income Payments Orders.

The current contract is with Moon Beever, solicitors of Bedford House, 21a John Street, London, WC1N 2BF. The telephone number is 0844 736 9775 and the contract manager is Graham McPhie.

3. Details of the agreement

Instructions for the collection of book debts due to the insolvent’s estate will be made by using form IMB (Instructions to Moon Beever) who will undertake to accept all instructions received from the official receiver for the collection of book debts (and IPAs/IPOs) regardless of the age of the debts or whether the book debts have been described as irrecoverable by the director, partner or bankrupt.

The debt collection agreement is exclusive and means that Moon Beever is the only party currently that the official receiver can instruct to undertake book debt collections and where instructed by the official receiver they must undertake to collect, or attempt to collect, those debts on behalf of the official receiver. The official receiver should make no attempt to actively recover book debts other than through them.

The contractor is paid a fee on all book debts monies it collects. No fee is payable where no realisation is made. The fee for book debt collection expressed as a percentage is fixed at 5% of the sum realised plus VAT. Where the average value of each debt in a case is £9.99 or less, subject to the official receiver’s agreement that the case is one that falls into this category, a flat fee of £1 plus VAT will be payable on each debt recovered. This may apply to milk rounds, for example.

For more detailed information on the fees that are charged see Technical Manual Chapter 31.1 part 2 paragraph 31.1.32.

Moon Beever will pay all book debt receipts into a global dedicated clients account in the name of The Insolvency Service and remit weekly by CHAPS to Estate Accounts Services (EAS) net of the fees charged.

If Moon Beever considers any debt to be irrecoverable, they will write to the instructing official receiver within 7 working days so that the debt may then be written off by the official receiver. Moon Beever will also write to the instructing official receiver once they have completed the collection in a case. These details are included in a quarterly report supplied to the official receiver.

Moon Beever also provides an online enquiry facility for staff which allows owning offices full access to cases for monitoring progress, viewing payments received, to see all letters and case history and receive and send instructions via their website at www.moonbeever.com. Each office and RTLU has a login account and password to allow access and instructions for use can be found on the OROS homepage.

4. What if the official receiver recovers cheques or they are paid directly to the official receiver?

If the official receiver recovers cheques from the insolvent’s business premises or they are handed over at interview by the bankrupt/director, they should be banked as normal and the official receiver’s usual fees charged if the contractor has not yet been instructed. Care should be taken to ensure that when Moon Beever are instructed, they are not asked to apply for the sum(s) already remitted.

Where Moon Beever have already been instructed, they should be notified of the remittance received by the official receiver. Only if the official receiver is satisfied that the remittance is a direct result of action by the contractor, such as a letter sent requesting payment, will Moon Beever be entitled to a fee on the payment.

5. When should Moon Beever be instructed?

As the chance of collecting book debts reduces considerably with time, Moon Beever should be notified of the details of any book debts as soon as they become available (form IMB). This will normally be after receipt of the statement of affairs or when the Preliminary Information Questionnaire (PIQ) has been completed. Moon Beever  will act on all book debt instructions from official receiver’s offices within 3 working days of receiving them via their Case Handling System and the case clerk will need to log on to their system to view. There will be no paper confirmation via letter.

At the same time as instructing Moon Beever, it is important that the relevant bankrupt/partner/director is notified of Moon Beever’s involvement as they may need to co-operate in the collection of the debts if they have additional information that may be of assistance (form BDTLTB).

Where the official receiver considers it necessary, Moon Beever can be instructed, even if the notices have not yet been issued and the official receiver is not yet trustee/liquidator. If the official receiver feels that the book debts are at risk and should be protected for the estate, the contractor should be instructed to begin the collection process whilst the official receiver is still receiver and manager. Such action should only be taken on the receipt of specific instructions from the examiner.

However, where an insolvency practitioner has been appointed by the court on the making of an insolvency order or has been appointed by the Secretary of State shortly after the order, the contractor should not be instructed by the official receiver as he/she is not the liquidator or trustee.  

6. What information do Moon Beever need to recover book debts?

(Amended July 2012)

Successful debt recovery is dependent on the official receiver supplying Moon Beever with as much information as possible as early as possible.

Moon Beever will need the following information to be supplied in every case:

  • the name and court details of the case and the name and address of the official receiver dealing with it
  • the name, address and telephone number of the bankrupt/partner/director who may be able to provide additional information
  • the name, address, telephone number and reference number of each book debtor
  • the amount of the debt
  • the date the debt was incurred
  • the consideration for the debt, e.g. goods supplied
  • any supporting documentary evidence, such as invoices, previous correspondence, proof of delivery. Where possible documents should scanned and sent via e-mail. For more detailed information on documentary evidence see Technical Manual Chapter 31.1 part 2 paragraphs 31.1.15 - 31.1.16

In the event that this information is not available to the official receiver or where the contractor needs further information, the contractor must be prepared to make further enquiries at their own expense. 

Where Moon Beever has been instructed on a case, the official receiver or RTLU office receiving a Book Debt query should refer the caller to Moon Beever using these details.

Address:

Moon Beever Solicitors

Bedford House

21a John Street

London

WC1N 2BF

Telephone: 0844 736 9775

7. The role of the RTLUs

In an NFI case where the “no meeting” notices have been issued and there are no other court proceedings pending or no other assets in the case that would justify the appointment of a trustee, the case should be passed to the appropriate RTLU for them to monitor the book debt collection after instructions have been given to Moon Beever. It is imperative that LOIS screens 8 and 15 are fully completed to date as the RTLU will carry out its work based solely on those instructions. All instructions completed by the exporting office should be signed off before the case is transferred to the RTLU.

Where the case is sent at an early stage, immediately after the report to creditors has been issued, it may be appropriate to send the whole case file to the RTLU. Otherwise, only those papers relating to the outstanding instructions such as the book debt collection should be sent. The transfer front sheet should be completed for each case. The case will then be transferred into the RTLU using LOIS screen 41 (see LOIS Workbook: Transfer of cases to the RTLU).

For further information see the “Protocol Governing the relationship between Official Receivers (ORs) and Regional Trustee Liquidator Units (RTLUs)" which can be found on the OROS homepage.

8. What if the book debtor is resident abroad or cannot be traced?

Where Moon Beever use tracing agents to locate a missing book debtor, an additional fee of £100 can be charged for a positive trace, if recovery of the debt is made. However, if no recovery is made, no additional fee may be charged.

When collections are made outside the United Kingdom, Moon Beever will liaise with the official receiver on a case by case basis, to agree the fee which will be payable in advance.

If either of these situations arises, refer the matter to the examiner

9. What if a book debtor offers to pay a reduced figure or in instalments?

On occasion, a book debtor may offer a compromise, which means that they will offer a lesser sum than the outstanding amount in settlement of the debt. Where the debt in question is less than £3,000, Moon Beever will have the discretion to decide whether to accept the proposed compromise and will advise the official receiver within 7 working days of their acceptance.

Where the debt exceeds £3,000, they will refer the matter to the official receiver within 7 working days with advice as to whether they consider that the proposal is acceptable or otherwise. This should be referred to the examiner for a decision.

Where there is full admission of a debt by any book debtor who then offers to pay the full sum in instalments, Moon Beever may exercise their discretion as to whether to accept the proposals for settlement. All such matters should be reported to the official receiver within 7 working days of their acceptance. 

10. Legal Action to recover Book Debts

If Moon Beever believe that there is a good chance of recovering a book debt, but cannot progress the recovery without funding, for example to commence legal action, all relevant details should be supplied to the official receiver. The official receiver will consider the request for sanction to institute legal proceedings within six weeks of receipt during which time creditors may be consulted.

The official receiver will decide whether to ask the creditors in the case if they are willing to fund the action or not. If the official receiver decides not to refer the matter to creditors, or if he/she does so and the creditors are not willing to fund the action, the matter will be concluded.

If the creditors are willing to fund the action, on receipt of the funds, the official receiver may instruct the contractor, in writing, to continue with the recovery. The contractor will act as solicitors on behalf of the official receiver and they will be entitled only to recover their legal fees not the fees they would be entitled to as collection agents.

Alternatively, if creditors choose to appoint an insolvency practitioner, other than the official receiver, as liquidator or trustee of the estate the official receiver should notify the contractor of the appointment. It will then be for the insolvency practitioner to decide whether to continue with the recovery and whether he/she will continue to use the contractor to recover the book debts. 

11. What if there are legal proceedings pending?

There may be occasions where legal proceedings in pursuit of book debts have already been instigated by a solicitor formally instructed by the insolvent. Moon Beever will attempt to obtain their file in order to review and report on the merits of the case. Where they require additional information not available from the official receiver, they will make further enquiries of the bankrupt/director. This will be done at no charge to the estate initially, unless realisations result.

In any event, these matters should be referred to the examiner for a decision. For further information see Technical Manual Chapter 31 part 2 paragraph 31.1.23

12. Book debts subject to a fixed or floating charge

Book debts are a current asset and whether or not there can be a valid fixed charge on book debts has been the subject of much legal discussion. In the decision of the House of Lords in National Westminster Bank plc v Spectrum Plus Limited (In Voluntary Liquidation) and others [2005] UKHL 41 it was suggested that a fixed charge over book debts could be created in one of four ways. These are set out in T27/05.

In practice, in the majority of situations of fixed charges being claimed over book debts which the official receiver is likely to encounter, will involve the collection of the book debts by the company, the payment of the proceeds of realisation into an account operated for the company by the bank debenture holder and then the drawing on that money by the company for use in its business. These are characteristics of a floating charge, not of a fixed charge, notwithstanding the description of the charge as being a fixed charge security. As such, the charge should be treated as if it were a floating charge, not a fixed charge, and the proceeds of the collection of book debts, and other assets which the company may have been permitted to deal with in the same way, should be subject to the claims of the preferential creditors, see paragraph 14.

It is suggested that in such cases, before applying the proceeds of the book debts in this way, official receivers, when acting as liquidator, should write to the charge-holder notifying this view with reference to this judgment, just in case an alternative view is taken by them. In cases of difficulty, reference should be made to Technical Section. 

13. What if the book debts are covered by a valid fixed charge?

Where there is a valid fixed charge over the book debts (one of the four criteria as set out in T27/05 is fulfilled) and there is no prospect of any funds becoming available for the estate once the charge-holder has been paid, the official receiver would not usually be expected to realise the book debts on behalf of the charge-holder. The charge-holder may appoint a receiver to realise the book debts or take direct action to collect them but if he/she is not prepared to do so, then he/she cannot assume that the official receiver will collect them for him/her. The action to be taken should be agreed in writing between the official receiver and the charge - holder.

Although the official receiver should not normally expend resources on collecting debts subject to a fixed charge, the debts must not be neglected by both the charge-holder and the official receiver. Where the charge-holder takes no action, the official receiver should obtain the charge-holder’s consent to the proposed instruction of Moon Beever. It should be pointed out to the charge-holder that the official receiver’s use of the contractor will result in additional costs in the form of Moon Beever’s fee and that the official receiver will also charge remuneration together with VAT on that remuneration and that those charges will be deducted from any sums realised before any payment is made to the secured creditor.

If the charge-holder agrees to the use of the contractor, the official receiver can then instruct Moon Beever to collect the book debts. Moon Beever should be informed that the debts are subject to a fixed charge. The collected debts should then be remitted to the official receiver to be posted to a fixed charge account (on LOLA). 

14. What if the book debts are covered only by a floating charge?

Where a receiver has not been appointed under a floating charge it falls to the liquidator of the company (including the official receiver when he/she occupies that position) to realise any book debts covered by the floating charge. The official receiver should instruct the contractor to collect the debts in the usual way.

When the official receiver instructs Moon Beever he/she must make the contractor aware of that fact that the debts are covered by a floating charge. The charge-holder must be informed that there will be additional costs involved in the form of the contractor’s fee together with the official receiver’s usual Secretary of State fee and VAT that the charge-holder will be liable for. The preferential creditors will also be paid out of the proceeds before the charge-holder. The charge-holder should be asked for confirmation that he/she wishes the official receiver to proceed in these circumstances.

Please note that this situation arises only rarely and should be referred to the examiner for advice. 

15. What is a factoring agreement and how does it affect the official receiver’s position?

Where a business has a factoring agreement its sales invoices are sent to the factoring company as soon as they are raised and the factoring company advances a percentage of the debt to the business immediately. This means that the business gets cash instantly rather than having to wait for the customer to pay. The factoring company collect the debt and remit the balance due, less a standard rate of commission charged, to the business. Many factoring companies deal with the whole of a business's sales ledger and credit control functions.

These types of agreements are governed by the Factors Act 1889 and will remain valid notwithstanding the making of an insolvency order. Only if the factoring company was prepared to re-assign the debts back to the original owner, could the official receiver instruct Moon Beever to realise them.

See Technical Manual Chapter 31.1 part 5 paragraphs 31.1.39-31.1.41 for information on the Sale and Assignment of Book Debts.

16. What if an Insolvency Practitioner is subsequently appointed?

Where a trustee or liquidator is appointed, he/she must be notified of Moon Beever involvement as soon as possible using form IPHBP. Likewise Moon Beever should also be made aware of the insolvency practitioner’s appointment urgently using form NACT, since Moon Beever may wish to re-negotiate their employment with the insolvency practitioner. It will be a matter for the insolvency practitioner to determine whether Moon Beever continue to collect the book debts. The official receiver will be invoiced for any recoveries up to the date of the insolvency practitioner’s appointment. 

Notes

a    Where a book debt collector was appointed by the insolvent prior to the date of the order, the official receiver has the discretion to retain the services of that collector. If there is already an existing book debt collector, refer to the examiner for instructions.

b    Moon Beever must be informed if a case they are working on is subsequently transferred to another court or office using form NACT.

c    A copy of the Service Level Agreement with Moon Beever can be found on the OROS homepage.

 

Where can I find out more?

Insolvency Act 1986

Section 344 - Avoidance of general assignment of book debts

Section 287(3) – receivership pending appointment of trustee

Technical Manual Chapter 31.1 – Book Debts

Technical Notice T27/05 - -Fixed Charge over Book Debts

Service Level Agreement between Moon Beever and The Insolvency Service

Forms to be used:

IMB – Instructions to Moon Beever

BDTLTB – Book Debts letter to bankrupt or company

IPHBP–IP appointment Handover by Post

NACT –Notifying Agent of Case Transfer

 

Click HERE to view the Flowchart for Book Debts

 

Procedure

LOIS screen references are given in brackets e.g. (DO 73)

1. Receive instructions to realise book debts.

2. Send letter to Moon Beever (IMB) instructing them to act in the collection of book debts (DO73). Ensure that the following information is provided :

  • the name and court details of the case and the name and address of the official receiver dealing with it
  • the name, address and telephone number of the bankrupt/partner/director who may be able to provide additional information
  • the name, address, telephone number and reference number of each book debtor
  • the amount of the debt
  • the date the debt was incurred
  • the consideration for the debt, e.g. goods supplied

3. Photocopy any list of book debtors included in the statement of affairs or preliminary examination booklet for inclusion in the letter.

4. Prepare any documentary evidence in support of the claim for inclusion in the letter. Where the case in question is subject to an ongoing investigation, invoices and related correspondence should be photocopied and the copies sent to Moon Beever.

5. Send letter (BDTLTB) informing the bankrupt/director/partner of Moon Beever’s involvement. (DO73) 

6. If the case is NFI and the report to creditors and the no meetings notice have been issued, and there are no court proceedings outstanding, transfer the case to the appropriate RTLU to monitor the book debt collection after instructions have been given to Moon Beever.

7. Ensure that LOIS screens 8 and 15 are up to date. Send either the relevant papers or the whole file, as appropriate, to the RTLU with a completed front sheet.

8. Complete LOIS screen 41, transferring the case to the RTLU using the transfer code C (for closing or filing). 

If case transferred to another court

9. Send letter (NACT) notifying Moon Beever of the transfer. (DO73) 

If trustee/liquidator appointed

10. Prepare and send letter (IPHBP) notifying insolvency practitioner of Moon Beever ‘s appointment. (DO 73)

11. Prepare and send letter (NACT) notifying Moon Beever of the insolvency practitioner’s appointment. (DO73)

12. If Moon Beever suggest legal action, tracing agents etc refer to examiner  for instruction.

13. Where Moon Beever advise a debt to be irrecoverable, ensure that it is formally written off.

If case to be closed

14. Check the book debts realised/written off, against the original list. The  progress of collection of book debts in open cases can be viewed via the website at www.moonbeever.com

If instructions received to collect book debts on behalf of secured creditor

15. Check that written confirmation has been received from secured creditor that they have no objection to the official receiver instructing Moon Beever to collect the debts.

16. Instruct Moon Beever in the usual way (IMB). Ensure that at “Other relevant information”, a note is made that the debts are being collected by the official receiver on behalf of a secured creditor. (DO73)

17.Where the book debts are subject to a fixed charge, an appropriate fixed charge account should be opened on LOLA. For book debts secured under a floating charge, payments should be made via the estate account.