1.    Fees on VAT Element of ISA Transactions

In the past The Service has been asked to justify charging fees on the VAT element of amounts paid into the Insolvency Services Account ("ISA"). The fee in question is ‘for the performance by the Secretary of State of his general duties’ (namely Fees No. 10 and 11 in Part I and Fee No. 13 in Part II of the Schedule to the Insolvency Fees Order 1986 (S.I. 1986/2030).

Fee No. 10 relates to companies being wound up by the Court and is calculated on amounts paid into the ISA under regulations 4 and 16 (The Insolvency Regulations 1986 – S.I. 1986 No. 1994). Regulation 16 concerns payments into the ISA at the date of the company’s dissolution. Regulation 4 provides that the liquidator shall pay ‘all money received by him in the course of carrying out his functions as such’ into the ISA. Accordingly, on realising an asset it is the amount received, whether gross or net of the costs of sale, inclusive of VAT or not, which must be paid into the ISA. The Service has no discretion to calculate the fee other than on the basis of the amount paid in.

Fee No. 11 relates to companies wound up voluntarily and is calculated on amounts paid into the ISA by the liquidator under regulation 24 (the balance of funds in hand) and regulation 33 (unclaimed funds and dividends). The Service calculates the fee on the amount paid into the ISA, irrespective of whether or not it includes any element of VAT.

Fee No. 13 relates to the administration of estates of individuals, and is calculated on amounts paid into the ISA by trustees under regulation 4 (all money received) and by the OR under Section 287 Insolvency Act 1986, namely prior to the estate vesting in a trustee. In the same way as Fee No 10 is applied, it is the amount paid in on which the fee is calculated irrespective of its make up.

We are sympathetic to complaints by IPs, but the Fees Order and the Regulations do not provide any discretion in the way the fees are calculated.

Fees on VAT refunds are subject to Fee 10 (in compulsory liquidation), Fee 11 (in voluntary liquidation) or Fee 13 (in bankruptcy) in accordance with the wording of the Insolvency Fees Order 1986 and the Insolvency Regulations 1986.

In the event of a dividend in bankruptcy or compulsory liquidation being unclaimed, typically because the creditor’s whereabouts are unknown, any valid dividend cheques should be mutilated by cutting off the bottom right hand corner and returned to the Central Accounting Unit (for the attention of Cashiers section) in accordance with Regulation 15 (7) of the Insolvency Regulations 1986:

"On the responsible insolvency practitioner vacating office he shall send to the Department any valid unclaimed payable orders for dividends or returns to contributories after defacing them by cutting off the bottom right hand corner and any cheques which have not been delivered after endorsing them with the word "cancelled".

In cases other than vacating office, the procedure in Regulation 15(5) should be followed, and the list forwarded to the Department:

"The responsible insolvency practitioner, on the expiration of six months from the last day of the month of issue, shall destroy any lapsed payable orders which have become invalid and any cheques which have not been delivered after first preparing a list of their numbers, names of payees and amounts".

Such cheques are drawn on the Insolvency Services Account. On no account should any attempt be made to pay them back into the Insolvency Services Account.

Practitioners will be aware that under regulation 5 (5) of the Insolvency Regulations 1994 unclaimed dividends in voluntary liquidation cases must be paid into the Insolvency Services Account (ISA) and at the same time, notice sent to Central Accounting Unit (CAU); such notice is given on form CAU 103 or one that is substantially similar.

Form CAU 103 requires the practitioner’s signature but increasingly forms received are not signed by the practitioner. This unacceptable practice involves additional work for CAU because of the need to obtain the practitioner’s signature before processing the form.

Whilst practitioners may feel that his or her signature on the document is unimportant, the form constitutes part of the accounting process and the Insolvency Service considers that by signing it, the practitioner personally confirms that the funds remitted are unclaimed dividends due to the parties named on the form. Indeed, where CAU are approached directly by creditors, CAU will whenever possible, process the claims without recourse to the practitioner on the basis that he/she has already confirmed on the CAU 103 that a dividend is unclaimed.

Practitioners are therefore asked to ensure that they sign all CAU 103s before dispatch to CAU, and are reminded that form CAU 103 should be submitted to CAU at the same time as they remit the funds to the ISA at the Bank of England.

Following recommendations by the National Audit Office, CAU no longer undertakes transactions in respect of uncleared funds. For those practitioners who remit monies to the ISA through the Bank Giro Credit System or by telegraphic transfer, there is no change as these transactions are considered to represent cleared funds once CAU has been notified of the receipt by the Bank of England. For Bank Giro Credits, this is effectively four days from the monies being deposited.

However, where a practitioner sends monies direct to CAU or pays those funds directly to the Bank of England, the funds are no longer considered to be available funds immediately on receipt. As with Bank Giro Credits, such receipts will be treated as cleared funds on the fourth day after entering the banking system.

Contrary to the Regulations, some practitioners have in the past sent cheques direct to CAU for banking in the ISA. Practitioners will no doubt appreciate that with the new procedures it is no longer beneficial to pay funds directly to CAU, as those funds will not become available for transactions such as the automatic transfer to interest bearing accounts for companies, for at least a day later via the Bank Giro Credit system.

In those circumstances, practitioners are asked to reconsider their procedures for depositing monies in the ISA with a view to using the Bank Giro Credit System wherever practicable.

Finally, practitioners are asked to ensure that CAU 103s are completed legibly (preferably in black ink, as they sometimes need to be photocopied), and that the creditor’s last known address is recorded.

(First published in Dear IP no. 34, October 1995)

5. Amendment of Cheques Drawn on the Insolvency Services Account

(First published in Dear IP no. 19, November 1991)

Article Withdrawn December 2006

6.    CAU Cheque Requisition Forms

To avoid the risk of possible fraud, practitioners are reminded that they should rule off any unused space on cheque requisition forms.

(First published in Dear IP no. 21, May 1992)

7.    Action Following Expiry of ISA Cheques

A cheque issued by CAU is deemed to expire if not presented within six months, and is then treated as unclaimed monies, ultimately payable to the Consolidated Fund under Section 407 of the Insolvency Act 1986. As practitioners occasionally ask CAU to re-credit the estate with the value of an unrepresented cheque, this article explains the correct procedure.

Generally where a cheque has been issued the payee is properly entitled to the proceeds thereof and, after expiry, the proceeds are held on his behalf in an Unclaimed Monies Account on BANCS. If the payee subsequently seeks payment the practitioner should ask CAU to re-issue the cheque, where possible quoting the original cheque details. A new cheque will then be drawn against the Unclaimed Monies Account and the estate account is unaffected. The payee on the new cheque can be altered, upon the provision of the appropriate details/evidence to accommodate name or status changes, for example, the inclusion of an Executor’s name.

Where, after expiry of the cheque, the practitioner becomes aware that the original payee was not legally entitled to the proceeds, CAU should be asked to re-credit the estate – as the cheque has expired it is not appropriate to cancel the cheque in such circumstances.

[See article 23 for details of the BANCS system]

(First published in Dear IP no. 39, October 1997)

8. Practitioners’ Specimen Signatures

With a view to improving the security of withdrawals from the ISA, a file of practitioners’ specimen signatures was established in Central Accounting Unit, which enabled cheque requisition forms to be validated by comparing the specimen signature with that on the form.

(First published in Dear IP no. 21, May 1992)

9.    Reissue of Cheques Drawn on the Insolvency Services Account

Practitioners should note that applications for reissue of cheques which involve a change of amount or of payee should be authorised by the office-holder responsible for the case as stated in regulation 5 of the Insolvency Regulations 1986 (SI 1986 No 1994) (as amended). They should not be endorsed "per pro".

Where someone other than the office-holder submits a request for amendment directly to the Central Accounting Unit evidence is required that the payee change is valid eg a copy Certificate of Incorporation on Change of Name in the case of a company name change or a copy of a Death Certificate in the case of a widow claiming monies from her late husband’s estate.

(First published in Dear IP no.22, August 1992)

10.    Third Party Monies and the ISA

As practitioners frequently ask whether third party monies have to be paid into the Insolvency Services Account (ISA), this article explains the position regarding payment of funds into the ISA.

A liquidator or trustee is under a duty to pay monies into the ISA in the circumstances set out in regulation 5 and 20 of the Insolvency Regulations 1994. Whether the circumstances apply depends upon the facts in each case. It is primarily for a liquidator or trustee to form a view as to whether the Regulations do or do not apply to particular monies. However, in cases of difficulty CAU is willing to discuss the matter with the insolvency practitioner.

Regulation 5 (1) (winding up by the court) and regulation 20 (bankruptcy) require that, subject to the exception for local bank accounts, a liquidator or trustee is required, at specified times, to pay all monies received by him in the course of carrying out his functions as such into the ISA. In the case of a voluntary winding up regulation 5 (2) requires the liquidator, at specified times, to pay into the ISA the balance of funds in his hands or under his control relating to the company.

Such functions are, for the purposes of regulations 5 (1) and 20, set out in section 143 and 305 (2) of the Insolvency Act 1986, and relate only to "the assets of the company" and the "bankrupt’s estate" respectively. Therefore if, on the particular facts of a case, monies are received by a liquidator or trustee which do not belong to the company, or the bankrupt’s estate, then those monies are not received by the liquidator or trustee "in the course of carrying out his functions as such". Where a liquidator or trustee receives monies to which a third party claims he is entitled, and genuine doubt exists as to whether the monies received belong to the company or bankrupt, those monies should be paid into the ISA pending resolution of the third party claim.

For the purpose of regulation 5(2) any monies in the hands or under the control of a liquidator which do not belong to the company are not funds "relating to the company".

Generally speaking, this means that where monies are received by a liquidator or trustee which do not arise from the realisation of assets belonging to a company, or the bankrupt’s estate, they should not be paid into the ISA. The fact that funds received by the liquidator or trustee are used to discharge insolvency expenses or for payment to creditors does not necessarily mean that they were received in the course of carrying out his statutory functions.

Where a liquidator or trustee forms the view that the monies received fall outside the regulations he should ensure that the reasons for that decision are fully documented. CAU do not need to be advised of the decision, but in voluntary winding up cases the liquidator must separately identify in his section 192 returns any third party funds held outside the ISA. Failure to do so may result in unnecessary ISA default letters being sent.

Requests by insolvency practitioners to CAU to open a suspense account in the ISA, without Secretary of State fees being charged, must be supported by a written explanation of the reasons why a suspense account is required, and why fees should not be charged.

(First published in Dear IP no. 39, October 1997)

11.    Need for Practitioners to Ensure that Adequate Control Systems Over Banking Arrangements are in Place

Practitioners are reminded of the need to ensure that any payment drawn on a local bank account (or indeed requisition for payment from the Insolvency Service Account) are properly supported by invoices or other vouchers and that the proposed payment relates to legitimate expenditure.

The Service has been made aware of a situation where a practitioner’s employee provided him with numerous cheques drawn on local bank accounts for signature, which were payable to false or fictitious payees. The employee used that method to steal unclaimed dividends in voluntary liquidations, which ought to have been paid over to the Insolvency Services Account in accordance with regulation 24 of the Insolvency Regulations 1986. The fraudulent transactions were then concealed by the creation of bogus CD1 returns.

(First published in Dear IP no. 29, January 1994)

12.    Accruals Based Accounting – "Debit Balance" Cases Handed Over by Official Receivers

The full operation of the Central Accounting Unit’s BANCS system and Official Receivers’ LOLA estate accounting system enabled the introduction of accruals based accounting in the Service. One effect of this was that in cases without assets the practice of funding disbursements and fees paid over to the DTI from the Insolvency Services Account ceased. Fees are only paid over to the DTI to the extent that there is cash to meet them in an individual estate. Where an individual estate is without any or sufficient funds, any disbursements made by Official Receivers are funded in part or in whole from the DTI Vote. DTI Vote funding is not available to practitioners where they become trustee/liquidator of an estate. Disbursements funded by the Vote or fees outstanding are treated as recoverable in favour of the DTI and constitute a "debit balance" on an estate. If not recovered, they are written off when the case is closed.

In the absence of estate funds, practitioners must themselves pay any necessary disbursements on account of that estate and, upon release, ensure that the OR is aware of any unrecovered disbursements due to them. If estate funds are received post-release, the OR (if ex-officio trustee or liquidator), or other practitioner appointed, will then reimburse the original practitioner.

Practitioners should not receive invoices for payment from the OR for work commissioned by him. These are paid by the OR (from Vote funds where necessary) with the resultant "debit balance" being transferred to the practitioner in the usual way. Any such invoices received from the OR (or third parties) should therefore be returned to him for payment.

It is possible for sanction fees and any other fees payable to the DTI to be charged to the estate even though this increases the "debit balance". They will be treated as recoverable in the event of funds subsequently becoming available, or otherwise written off when the case is closed by the insolvency practitioner.

(First published in Dear IP no. 35, April 1996)

13.    Estate Balances Transferred from ORs

When an estate is handed over to a practitioner by the OR, a balance is usually transferred to the practitioner and reflected on the estate account on BANCS.

Some time ago, investigations revealed that some cases were handed over after the OR had been released and the debit balance written off as irrevocable. Notwithstanding that write off, the estate is liable to discharge the debit balance should funds become available. Upon the subsequent appointment of a practitioner, the debit balance should have been reinstated and transferred to the ISA estate account.

Where a case is handed over to a practitioner without any balance (credit or debit) being transferred, the practitioner should seek an explanation from the OR and, particularly for reopened cases, ascertain whether or not any debit balance previously written off has been recovered.

When reconciling their accounts, practitioners must also ensure that transfers received from the OR are reflected in the ISA accounts, and promptly notify CAU of any omissions or errors.

14.    Voluntary Liquidations – Payments into the Insolvency Services Account – Regulation 5(2) of the Insolvency Regulations 1994

Where an Individual Voluntary Arrangement (IVA) is proposed following the appointment of a trustee in bankruptcy, the trustee, whilst acting as such, is still required to pay the proceeds of asset realisation into the ISA under Regulation 20 of the Insolvency Regulations 1994. These proceeds will attract the Secretary of State fee, which will not be rebated if the bankruptcy is subsequently replaced by an IVA.

Practitioners will wish to bear this in mind when formulating proposals for an IVA.

The Service’s Insolvency Practitioner Compliance Unit (IPCU) has reviewed the processes for identifying practitioners who have failed to:

1. pay monies into the Insolvency Services Account;
2. lodge a disqualification report or return within six months of the relevant date; or
3. lodge a final disqualification return or report within a reasonable period of time after lodgement of an interim return.

The processes for notifying the respective authorising bodies of these defaults has also been reviewed.

Guidance is given in item 14 above to practitioners on the acceptable criteria for retention of funds outside the ISA for "the immediate purposes of the liquidation". IPCU has been endeavouring to ensure that practitioners adhere to these guidelines and the authorising bodies are now notified of large or repeated defaults. IPCU also provides summaries of information on each practitioner to the authorising bodies prior to monitoring visits. This information can be provided on request at any time to assist the authorising bodies with their general regulatory functions.

17.    Bankruptcy and Compulsory Liquidation Cases – Closure of ISA Account on BANCS

An examination of the BANCS database in May 1997 revealed that there were over 5,000 bankruptcy and 1,300 compulsory liquidation cases where the account had been brought down to nil but the case account remained open. The majority of these cases were brought down to nil because the practitioner intended to call a final meeting and seek his release as trustee or liquidator. Some cases remained open because of errors or omissions by the Service. Research also indicated that in many instances no final accounts, which initiate the closure action, had been received by CAU. This article explains the steps taken by CAU to reduce the number of cases with zero balances, and what the practitioner should do to ensure that a case is properly closed on BANCS.

All cases with nil balances as at 31 December 1996 were marked as closed as a one- off exercise. If a practitioner discovered that a case was closed on BANCS in error, he had to notify CAU’s Customer Services Section who arranged for it to be re-opened.

For other cases, CAU intend to send to practitioners a list of bankruptcy and compulsory liquidation cases which have been brought down to nil but remained open, to find out if any should have been closed (the practitioner having held a final meeting and the administration reverted back to the Official Receiver).

The revised procedures did not relieve practitioners of their statutory duty to file documents with the Court, Official Receiver, and CAU after the final meeting, under section 146 and 331 of the Insolvency Act 1986, had been held (or deemed to have been held). In particular, practitioners are reminded that:

• under Rules 4.125(4) or 6.137(4) of the Insolvency Rules 1986 notice that the final meeting has been held, stating whether or not the practitioner has been granted his release, and accompanied by a copy of his report laid before the meeting, must be sent to the Court and the Official Receiver; and
• under Regulations 14(3) or 28(3) of the Insolvency Regulations 1994 the liquidator/trustee is required to send to the Secretary of State (CAU, PO Box 3690, Birmingham B2 4UY or DX 713899, Birmingham 37), within 14 days of holding the final meeting (or giving notice under Rules 4.125(5) or 6.137(5)), an account of his receipts and payments.

For the avoidance of doubt, answering the question "is this a requisition to close the account?" on a cheque requisition form (CAU101), does not trigger formal account closures for bankruptcy and compulsory liquidation cases. However, the question should still be answered to assist CAU in processing your payment request, and to enable voluntary liquidation cases to be subsequently marked as closed.

The Service’s unit in Birmingham is now a member of the Hays (DX) Document Exchange. Steps are being taken to incorporate practitioners’ DX addresses into the Service’s database, including BANCS, which will then result in the majority of computer generated documentation being sent to the DX address, where known. For Central Accounting Unit (CAU) this will include cheques, account statements, and interest notification letters.

Practitioners can elect on request not to receive mail from CAU via the DX. Any such requests, along with any changes in address details, should be directed to IPCU, not CAU.

To avoid delays in the processing of instructions given to CAU, practitioners should ensure that, if they wish to have CAU mail sent by DX, both their postal and DX addresses are clearly shown on instructions. This is particularly important for cheque processing where, for security reasons, the address on the requisition is compared with that shown on the cheque counterfoil.

Insolvency practitioners are reminded of the need to periodically review procedures to limit the likelihood of cheques (or other valuable documents) going astray while in their possession or under their control. The Service recommends that:-

• Access to an area designated for post opening should be restricted to essential personnel, and all post should be opened in the presence of at least two people.
• All valuables received by post should be given to the cashier (or other designated officer) immediately, and a register of these items, including all cheques and other monetary receipts, should be maintained. This register should be reconciled with estate records on a regular basis.
• All recorded delivery, registered, and special delivery post should be entered in a register which shows the date of receipt and the addressee.
• All post should be seen by a senior member of staff.
• Comprehensive records should be maintained by cashiers of all cheques requisitioned from CAU, and this should be periodically reconciled with estate records.
• Cheques and other valuable documents should be locked away in a secure place, and not kept in a desk drawer or in a tray pending further action.

This list is not exhaustive but does cover key areas for concern.

20.    Dividend Payments Requested from CAU

In November 1997 CAU completed a dividend payment involving 6,822 creditors within the time-scale required by the practitioner; this is believed to be the largest dividend, by volume, undertaken by the Service "in house".

There are two lessons to be learnt from this dividend payment:-

• Listing dividend payments in ascending value order (instead of alphabetically) assists processing by both the Service and practitioners – cheques are printed via BANCS by requisition and in ascending value order.
• Where large volume dividends are required, early discussions with CAU’s Payments Manager (Neil Cook – 0121 698 4286) can be beneficial to both the Service and the practitioner. Special arrangements for the presentation of the requisition and production of the dividend cheques (within the terms of the Insolvency Regulations 1994) may be desirable.

Practitioners will be aware that since 24 October 1994 company balances in excess of £2.00 held in the ISA have automatically attracted interest at the rate of 3.5% per annum in accordance with Regulation 9(6) of the Insolvency Regulations 1994. The interest is applied in April and October each year.

The Regulations also provide that interest will cease to accrue from the date of receipt of a notice from the practitioner that accruals should cease in order to facilitate the conclusion of the winding up.

CAU frequently receives requests from practitioners for retrospective cessation of interest accruals (sometimes involving the reversal of interest payments already credited to the estate). Such requests do not comply with the Regulations, and practitioners are asked to note that CAU will not grant them. Practitioners should therefore ensure that they give CAU sufficient notice, so that estates may receive the optimum interest, and accruals are stopped in good time.

CAU is always pleased to hear practitioners’ comments on its service to them, including suggestions for improvement (subject to legislation and security constraints). Any comments should be addressed, preferably in writing, to the Unit Head, Eddie Doherty at Ladywood House, 45-46 Stephenson Street, Birmingham, B2 4UP.

CAU developed a new computer system which became fully effective in 1996.

The main features of the BANCS system which may be of interest to practitioners are:-

• The half yearly interest bearing exercise is completed in a much shorter time, resulting in statements being issued earlier than before.
• The production of the daily investment schedule is incorporated into the system, generating postings and notification letters automatically.
• Account statements are produced for each account every six months after the case start date.
• The system automatically generates a confirmation letter when a case is handed over and set up on BANCS.
• Cheque processing is quicker than it was.
• As BANCS incorporates accounting functions previously carried out on six separate systems, there should be fewer errors resulting in reconciliation problems.

It is recognised that posting and other errors arise in any organisation and we have decided to incorporate a check digit in the Account ID. This will significantly reduce or eliminate posting errors within CAU, and improve the quality of the service provided by CAU.

Your computer team may wish to note that the check digit chosen is based on Modulus 23.

Account statements are produced for each account every six months after the case start date. The first bank statement records all transactions on the estate. Practitioners are asked to compare the statements with their own records, and to notify CAU if there are any discrepancies. Account statements will continue to be available on demand.

CAU hopes that practitioners find this service useful in enabling them to undertake early and frequent reconciliation of their accounts.

Cheques, account statements, and correspondence generated by BANCS will only be despatched to the practitioner at his/her last recorded address. It is therefore important that all changes of name(s) and address(es) are notified, without delay, to:

The Insolvency Practitioner Compliance Unit, The Insolvency Service, 5^th Floor, Ladywood House, 45/46 Stephenson Street, Birmingham, B2 4UY. IPCU is responsible for maintaining the practitioner reference database. For security reasons CAU will not update these details.

CAU is always prepared to consider comments and constructive suggestions for improving its service to practitioners. Please address any comments and suggestions to Eddie Doherty, at The Insolvency Service CAU, PO Box 3960, Birmingham B2 4UY

One of the issues raised by the CAU User Group was a lack of understanding of the relevant components of the Account ID used by CAU’s computer systems.

This is how the account is broken down:-

1. Court reference number – 3 digits
2. Case number – 6 digits (court number)
3. Case year – 4 digits
4. Case type: B = Bankruptcy, C = Compulsory, V = Voluntary
5. Check digit (an alpha character automatically calculated by the system)
6. Account type – 2 digits
   *Account type 00 – Main Estate eg: Main Account
   *Account type 01 – Individual Estate, an example being J. Jones
   (separate estate) in a partnership account
   *Account type 02 – Suspense Account eg: Fixed Charge Account and Debenture Account
7. Account number – this is a system generated number to identify the
   number of accounts within the account type.

Accruals accounting functionality has been incorporated into BANCS principally to accommodate improved fee accounting, and has resulted in the following posting types which appear on some bankruptcy and compulsory liquidation accounts:

T22D Transfers of OR’s Disbursements balance to IP

T23F Transfer of OR’s fees balance to IP

T24D Transfer of disbursements balance back to OR (usually on release)

T25F Transfer of fees balance back to OR (usually on release)

Fees and disbursements balances are shown separately, partly to enable the Service to distinguish between unrecovered fees charged and unrecovered disbursements incurred by the OR, which are separately funded by the DTI. Funds credited to an estate are applied against fees and disbursements according to the statutory order of priority.

Examination of the BANCS database reveals many cases where the account balance has not moved for at least three years, the reasons for which are unknown but likely to include:

• protracted asset realisation;
• difficulties in settling creditors’ claims;
• errors or omission by the Service/CAU; and
• an over-sight or inaction by the practitioner.

As the Service is particularly concerned about possible errors or omissions by CAU and inaction by the practitioners, it is undertaking an exercise whereby cases with static balances are drawn to practitioners’ attention. They are then expected to comment on whether the case remains open. Where satisfactory replies are not received the respective authorising body will be informed.

Practitioners are asked to note that the Service expects them to have systems in place to regularly review all insolvency cases held by them, so that they are promptly and effectively progressed, and creditors are not prejudiced by unnecessary delays in case administration. Consequently, where the Service becomes concerned about the number of static balance cases held by a practitioner, details will be passed to the relevant authorising body.

While it is likely that from time to time the Service will repeat this exercise, practitioners’ case review systems should not rely solely upon the information provided.

Since 2 December 1996 CAU automatically issue account statements, which usually correspond with the six monthly anniversary of the Bankruptcy Order, Winding Up Order, or resolution for winding up.

Statements are still also made available upon request.

Please note that the Service considers the routine reconciliation of practitioners’ records to the ISA an important part of their duties, and believes that it assists them. Where there appears to be errors or omissions in the ISA records, practitioners are asked to promptly notify CAU in writing, so that the matter can be investigated and the records amended if appropriate.

28.    Banking Arrangements for the Insolvency Services Account

(First published in Dear IP no. 35, April 1996)

Article Withdrawn December 2006

Practitioners are reminded that when they remit money to the Insolvency Services Account (ISA), cheques which are not made out to the ISA should be endorsed:-

"Please credit the Insolvency Services Account

Signed……………………..Date……………."

The endorsement should be signed by the Trustee or Liquidator.

Unendorsed cheques are still being received and practitioners are reminded that normal banking practice requires this endorsement, and that the Bank has a right to refuse and return cheques which have not been so endorsed. Please draw attention to this important requirement to any of your staff who are responsible for paying money into the ISA.

CAU regularly receives requisitions from practitioners to be actioned against monies remitted, or intended to be remitted, to the ISA, which have not been credited to the ISA by the time that the instruction has been received.

Such requisitions cannot be actioned by CAU until the funds have been credited to the ISA at the Bank of England, and represent cleared funds. Effectively, for funds deposited via the bank giro credit system, four working days should be allowed for clearance.

In order to avoid the unnecessary return of instructions due to "insufficient funds", practitioners are asked to allow time for clearance before submitting requisitions to

CAU which call upon recently deposited monies.

31.   Treasury Bills Maturity Dates 

(First published in Dear IP no. 49, March 2000)

Article Withdrawn December 2006

CAU has produced a largely self-explanatory guide on its new organisation and procedures. Practitioners are asked to note the following.

• CAU’s key performance targets include the production and despatch of 97% of cheques within four days of receipt of the requisition. The requisition processing time is dependent upon there being sufficient cleared estate funds available to meet the amount requisitioned.

Copies of the guide can be obtained from CAU’s Customer Services Section on 0121 698 4268/4269/4270.

The CAU user group was formed in 1997 in recognition that there is always scope to improve the banking and investment service provided to practitioners, and that their comments have an important role to play in the identification of possible areas for improvement

The User Group members comprise practitioner representatives (who were nominated by each of the authorising bodies and provide a cross-section of views from large and small firms), a representative from the Association of Business Recovery Professionals (formerly the Society of Practitioners of Insolvency) and representatives of CAU and MCS.

The objectives of the User Group are to:

• ensure that CAU provides practitioners with the best service possible within the constraints of the legislation;
• provide a forum for users to give feedback to CAU on the quality of service they are receiving, any deficiencies, or changes needed;
• allow CAU to provide first hand information about current issues; and
• build useful relationships for mutual benefit;

The User Group meets twice a year.

While the User Group is not a forum to discuss legislative changes, well founded points made will be passed onto The Service’s Policy Unit for further consideration.

If practitioners have any views on these issues, or other issues which they would like the User Group to consider, please write to Gary McDonnell, CAU User Group Secretary at CAU in Birmingham.

(First published in Dear IP no. 39, October 1997)

Dear IP number 35 advised practitioners of the move of The Insolvency Services Account (ISA) from The Bank of England Birmingham to The Bank of England London. The notice did not provide the full postal address for the bank. The address and account number details are as follows:

The Insolvency Services Account
Sort code 10 00 00 account number 23672021
Bank of England
Threadneedle Street
London
EC2R 8AH

Insolvency Practitioner Compliance Unit (IPCU) recently had cause to consider the interaction of section 19(4) of the Insolvency Act 1986 with regulation 5(1) of the Insolvency Regulations 1994 in connection with the payment of funds into the ISA in the situation where a liquidation follows an administration. Practitioners will be aware that section 19(4) provides:

"His remuneration and any expenses properly incurred by him shall be charged on and paid out of any property of the company which is in his custody or under his control at that time [i.e. when he ceases to be the administrator] in priority to any security to which section 15(1) then applies."

IPCU became aware of a case where the former administrator of the company was appointed liquidator by the court following a winding up order but did not remit the funds under his control in a bank account into the ISA. When contacted, the insolvency practitioner indicated that he has sought legal advice on his position following the discharge of the Administration Order, and how to meet the liabilities which remained unpaid from the administration, including his remuneration and expenses. The advice was about the interaction of section 19 of the Insolvency Act 1986 and regulation 5 of the Insolvency Regulations 1994, and concluded that there was no obligation to bank with the ISA those funds, falling within section 19.

After considering the matter, the Service takes the view that the property of the company in the hands of this insolvency practitioner at the time of his discharge as Administrator was indeed subject to a charge under section 19 (4) in respect of his outstanding remuneration and expenses. The effect of such a charge was considered in the case of Re Sheridan Securities Limited (1986) 4BBC 200 by Mervyn Davies J who stated that:

"The company’s assets, at the time when the administrator vacates office, stand charged with his remuneration and expenses. When winding up ensues the assets remain so charged in the hands of the official receiver. They will then take priority over other claims in the winding up save that they are postponed to debts secured by fixed charges and to the sums mentioned in section 19 (5)."

This passage appears to envisage that such property of a company as is covered by the section 19 (4) charge falls into the hands of the official receiver or liquidator acting in the course of their functions, but is held subject to the section 19 (4) charge.

In the particular case which stimulated this exercise, the liquidator had been the administrator, which may have led to confusion over the treatment of funds subject to the section 19 (4) charge. However, had the liquidator and the administrator of this company been different individuals then it would have been straightforward, i.e.:

1. the newly appointed liquidator would have required the administrator to hand over all the property of the company immediately; and
2. the newly appointed liquidator would have received such property in his capacity as liquidator, and in the course of his functions as such.

Regulation 5 (1) provides:

"In the case of a winding up by the court, subject to regulation 6 below, the liquidator shall pay all money received by him in the course of carrying out his functions as such without any deduction into the Insolvency Services Account kept by the Secretary of State with the bank of England to the credit of the company once every 14 days or forthwith if £5,000 or more has been received."

The Service considers that the regulation is unambiguous in that it requires a liquidator to pay all monies received by him in the course of carrying out his functions into the ISA, and that there is no conflict between the requirements of this regulation and section 19 (4), the monies in question remaining subject to the section 19 (4) charge whilst in a liquidation account in the ISA. Realisations relating to charged assets, including those subject to a section 19 (4) charge, should be paid into the ISA and will not be liable to the Secretary of State fees. It will assist Central Accounting Unit to avoid any unnecessary charging and rebating of those fees, if the word "Charge" is inserted on the Bank Giro Credit slip.

In other words, the Service takes the view that the liquidator was obliged by Regulation 5 to pay all monies in his possession into the ISA, whether or not such monies were subject to a section 19 (4) charge.

(Enquiries arising from the above should be addressed to Pat Christopher, Insolvency Compliance Unit, 5^th Floor, Ladywood House, 45/46 Stephenson Street, Birmingham, B2 4UZ (telephone 0121 698 4104)

37.    Fixed charge realisations and the Insolvency Services Account-Regulation 5 of the Insolvency Regulations 1994

On the question whether realisations relating to charged assets received by a liquidator in a compulsory liquidation should be paid into the ISA, regulation 5 (1) of the Insolvency Regulations 1994 gives little scope for discretion. The Insolvency Service considers that realisations, whether or not relating to charged assets, must be paid into the ISA as they are received by the liquidator in the course of carrying out his functions. No convincing argument has been advanced that a liquidator acts as agent for the chargeholder.

As regards a voluntary liquidation, regulation 5(2) requires the liquidator to pay into the ISA, at the six-monthly accounting periods, " the balance of funds in his hands or under his control relating to the company". The Insolvency Service considers that this includes realisations from charged assets. However, regulation 5(2) excludes from the amount to be paid into the ISA "such part (if any) as [the liquidator] considers necessary to retain for the immediate purposes of the winding up". Therefore if a payment to the chargeholder is likely to be made in the near future, that proportion of the balance held by the liquidator may be retained.

Although realisations relating to charged assets should be paid into the ISA, they will not be liable to the Secretary of State fee (Fees 10 and 11, Part 1 of the Schedule to the Insolvency Fees Order 1986 (as amended). It will assist CAU, to avoid any unnecessary charging and rebating of those fees, if the word "Charge" or "Debenture" is inserted on the bank giro credit slip. The normal procedure is for such monies to be paid into a suspense account and any fees to be charged only when the balance, if any, is transferred to the estate account on the liquidator’s instructions.

Enquiries arising from the above should be addressed to Insolvency Practitioner Compliance Unit, The Insolvency Service, 5th Floor, Ladywood House, 45-46 Stephenson Street, Birmingham, B2 4UP; Telephone 0121 698 4093.

38.   Tracing Beneficiaries of Unclaimed Dividends 

The Central Accounting Unit (CAU) provides monthly information on unclaimed monies to private sector tracing companies and administers the claims when beneficiaries are traced. Difficulties have arisen when the information provided includes details of unclaimed dividends in an estate where an IP is still in office.

In order to allow an IP a further opportunity to trace beneficiaries, CAU will, on request, provide a list of uncashed cheques, relating to a specific dividend, one month before the six-month cheque expiry date. This will provide IPs with the information at least one month before it is released to the tracing companies.

Requests for lists should be made to:

The Customer Services Section
Central Accounting Unit
P.O. Box 3690
Birmingham B2 4UY
Telephone number: 0121 698 4266
Fax: 0121 698 4403
E-mail: CAU.customerservices.gsi.gov.uk

39.   Customer Survey 

Article Withdrawn December 2006

40.   Insolvency Practitioner Addresses Linked to Estates 

The database linking the IP address to an estate on CAU’s computer system, BANCS, is maintained by the Insolvency Practitioners Compliance Unit (IPCU).

Only one address per estate is linked to documentation generated by BANCS: this includes cheques, statements and notifications of investments and interest. To ensure that cheques are sent to the address on the requisition CAU carries out a 100% check of the IP address details. If there are any discrepancies the database is corrected to match the requisition and all future documentation relating to that estate will be sent to that address.

It is therefore important that IPs check that the address on the requisition is correct .The preferred practice is for IPs to notify IPCU, Ladywood House, 45-46 Stephenson Street, Birmingham B2 4UY of changes in address linked to specific estates.

41.   Guide to CAU

The guide to CAU has been updated and will be available via the Insolvency Service website: www.insolvency.gov.uk by visiting “Information for and about Insolvency Practitioners “. Copies are also available by contacting CAU’s Customer Service Section on telephone number 0121 698 4266, fax 0121 698 4403 or e-mail CAU. Customerservices.gsi.gov.uk .The website will also contain copies of the CAU User Group minutes and further information about CAU.

42.   Indicative Treasury Bill Discount Rates

Article Withdrawn December 2006

Article Withdrawn December 2006

44.   IP BANKING 

Investment in Treasury Bills no longer an option 

IPs may recall that up to 2001, the Bank of England provided a facility to enable The Insolvency Service to buy and sell Treasury Bills for investment by individual insolvency estates. Following the withdrawal of this facility by the Bank of England a similar arrangement was established with the National Debt Commissioners. Of late, however, the National Debt Commissioners (since re-named the Commissioners for the Reduction of the National Debt) have found it increasingly difficult to maintain this service and in March 2003, after discussions with The Insolvency Service, the facility was withdrawn. 

IP Banking have investigated the possibility of establishing a similar arrangement with other organisations but no viable alternative could be found. This means that IP Banking can no longer arrange for investments in Treasury Bills but investment in other Government stocks remains an option. 

Enquiries arising from the above should be addressed to Customer Services on 0121 698 4252  

45.   Enterprise Act 2002 – Secondary Legislation – The Insolvency Service Financial Regime

1. Background

One of the key messages of the Enterprise Act 2002 was that it would provide a better deal for creditors. This required modernisation of the financial regime of the Insolvency Service.  Reforms to the Insolvency Services Account (ISA) will mean that creditors, including many small firms should benefit from the improved investment provisions for insolvency estate funds.  Simplifying the fee structure will bring increased transparency and simplicity.

2. Legislation

The secondary legislation to implement the reforms to the financial regime of The Insolvency Service has now been drafted and some of the statutory instruments have been laid. A list of the legislation is detailed below.

3. Reforms to the Insolvency Services Account (ISA)

3.1 Interest and the requirement to use the ISA

The Enterprise Act 2002 (s271 Insolvency Services Account: interest) introduced provisions enabling the Secretary of State to set the rate of interest credited to estate funds held in the ISA.

In practical terms this means that The Insolvency (Amendment) Regulations 2004 will provide for the Secretary of State to set the rate of interest paid by notice and to revoke the existing provision setting out the rate of interest. The rate of interest initially set in The Insolvency (Amendment) Regulations 2004 is 4.25%.  The Secretary of State, by notice published in the London Gazette may vary the rate of interest payable and this information will be published on our website www.insolvency.gov.uk.  At this stage it is intended to review the rate every six months although changes to the Bank of England Base Rate may require more frequent rate changes.

The rate of interest should ensure the maximum possible investment return to estates, however, in order to protect the solvency of the Insolvency Services Investment Account (ISIA) in terms of its ability to pay the interest due a small surplus must be retained in the ISIA.

The existing provisions setting out the rate of interest paid from the Insolvency Services Account in Regulations 9(6) and 23A (inserted following the Insolvency Act 2000 via the Insolvency (Amendment) Regulations 2001) of the Insolvency Regulations 1994 will be amended. The amendments are in The Insolvency (Amendment) Regulations 2004.  The new provisions will allow the interest rate to be paid on all funds, unlike the current position where it is to be paid only on balances over  £2,000.

The obligation for voluntary liquidators to deposit funds in the Insolvency Services Account will be removed. The requirement to deposit funds in the Insolvency Services Account in a voluntary liquidation is set out in Regulation 5(2) of the Insolvency Regulations 1994. This provision will be amended to give voluntary liquidators a choice whether to pay monies into the ISA.

Please note that the obligation has only been removed for voluntary liquidations. No changes have been made to the obligations of trustees in bankruptcy and liquidators in compulsory liquidations to deposit all monies in the ISA.

3.2 Payment of fees in respect of the operation of the ISA

The Insolvency Practitioners and Insolvency Services Account (Fees) Order 2003 makes provision for the payment of fees in relation to accounts maintained with the Secretary of State in the ISA in liquidations and bankruptcies. Provision is also made for the payment of fees in relation to the issue of cheques and other instruments and the electronic transfer of funds.

The following banking fees will be payable, where an account is maintained with the Secretary of State:

An account is “maintained with the Secretary of State in respect of monies which may from time to time be paid into the ISA” where-

(a)    in a winding up by the court or in a bankruptcy the Secretary of State creates a record in relation to the winding up or as the case may be, the bankruptcy for the purpose of recording payments into and out of the ISA relating to the winding up or, as the case may be, the bankruptcy; and

(b)    in a voluntary winding up on the request of the liquidator the Secretary of State creates a record in relation to the winding up for the purposes of recording payments into and out of the ISA relating to the winding up.

An account ceases to be maintained with the Secretary of State where –

(a)    a request in writing made by the liquidator or, as the case may be, the trustee for closure of that account has been received by the Secretary of State and no monies to which that account relates are held in the ISA (other than any unclaimed dividends or any amount that it is impracticable to distribute to creditors); or

(b)    in the case of a winding up by the court or a bankruptcy, the liquidator, or as the case may be, the trustee has filed a final receipts and payments account with the Secretary of State pursuant to regulation 14 or regulation 28.