Dear insolvency
practitioner > Chapter 7 > Creditors'/Liquidation committee
1.
Functions carried out by insolvency practitioner Section
where there is no creditors’ or liquidation committee
(committee) including sanction to employ solicitors Where
there is no committee in a case where the company has been wound up by
the court (compulsory liquidation) or a bankruptcy the functions of the
committee are vested in the Secretary of State under Sections 141(5) and
302(2) of the Insolvency Act 1986. Since 2 April 2001 appropriate
members of staff in insolvency practitioner Section as duly authorised
officers have exercised these powers. Matters
that require sanction by the Committee Sanction
may be granted for the exercise of the following powers: Bankruptcy
Compulsory Liquidation
General
Considerations All
requests for sanction should be made to insolvency practitioner Section
in writing. They must be accompanied by Form CAU 101, charging the
appropriate fee (currently £27) to the estate account. Sanction will
only be granted in respect of a specified power and attention must be
paid to the following paragraphs which detail the information required
before any sanction can be given. A separate CAU 101 is required for
each sanction. Requests
for sanction should not be made retrospectively except in an emergency,
in which case, no undue delay should occur in applying for sanction
(S314(4) and R4.184(2)).
Authority to
take or defend legal proceedings
A written request for sanction should include the following information:
If the funding is by a conditional fee agreement, the following, further, information should be provided:
The
sanction, when granted, will include a financial limit based upon
estimated costs. If the practitioner needs, at a later date, to request
an increase in the limit for costs, he should provide the reasons for
the increase and details of any changes in the factors listed in the
earlier application. Note:
While sanction is
required to commence or defend any action or
legal proceedings, it is not required merely to
employ solicitors. All
other requests for sanction
All other requests for sanction should include the following information:
Generals enquiries may be directed to IPU.Email@insolvency.gov.uk 2.
Expenses of Liquidation
Committee Rule
4.169 of The Insolvency Rules 1986 states that the "the liquidator
shall defray out of the assets, in the prescribed order of priority, any
reasonable travelling expenses directly incurred by members of the
liquidation committee or their representatives in respect of their
attendance at the committee's meetings, or otherwise on the committee's
business". The
Service has been made aware of an instance where the meeting of the
(duly constituted) liquidation committee was held immediately after the
section 98 meeting, and the travelling expenses of the creditor (in
effect to and from the creditors' meeting) have been reimbursed from the
assets as expenses of attending the committee meeting. It
is the view of the Service that it would not be appropriate for the
travelling expenses of the liquidation committee to be reimbursed by the
liquidator from the company's assets in such a situation, as it is
doubtful whether the expenses can be described as having been incurred
directly in respect of attendance at a meeting of the committee. (First
published in Dear IP no. 43, January 1999) 3.
Delayed submission of sanction application. Section 314(4) IA86 provides that
the creditors’ committee may ratify anything that the trustee has done
under the provisions of subsections (1) & (2) without the prior
sanction of that committee. However, subsection (4) also provides that
such ratification by the committee should be sought “without undue
delay”. Where an application
is made to the Secretary of State, acting in lieu of a creditors’
committee for those purposes it is expected that in the majority of
cases IPs should be able to submit the application at the same time the
action requiring sanction is commenced. It will only be in exceptional
cases that staff in insolvency practitioner Section cannot be contacted
by telephone to agree the sanction “in principle” in anticipation of
the written application, which preferably should be faxed, fax number
0207 291 6773. Even where an agreement “in principle” can not be
obtained in advance of a delayed application, the IP should still
consider discussing the matter with staff in insolvency practitioner
Section in advance of the written application. Where staff acting on behalf of
the Secretary of State consider that undue delay has occurred before the
application has been made, and are therefore unable to sanction the
application, practitioners are reminded that they may instead apply to
the court under the provisions of the section 314(4) IA86 for
ratification. The same guidance also applies to a liquidator seeking ratification under the provisions of Rule 4.184(2) IR86. Generals enquiries may be directed to IPU.Email@insolvency.gov.uk NB: this article replaces that issued in Dear IP No.5 4. Further guidance on sanction applications: undervalue transactions; preferences; misfeasance & compromised claims. Article Withdrawn January 2011 5. Provision for adverse costs. As article 1 of this Chapter indicates, in an application for sanction it is necessary to detail how adverse costs are to be dealt with. Delays in dealing with applications have occurred as a result of IPs failing to indicate the proposed arrangements for dealing with such costs. In the majority of cases the IP, or his firm, undertakes to meet these costs should they arise, but IP Section cannot presume that this will be so. Therefore when applying for sanction IPs should indicate how these costs are to be provided for. Generals enquiries may be directed to IPU.Email@insolvency.gov.uk 6.
Guidance on applications for sanction under s.141 (5) and 302(2) of the
Insolvency Act 1986 Article Withdrawn December 2006 7. Sanction applications Article Withdrawn December 2006 8.
Sanction applications Article Withdrawn December 2006 Enterprise
Act 2002 9.
Restrictions on individuals becoming members of a creditors’
committee (or liquidation committee) Rule 6.156 has been changed to provide that a member
of a creditors’ committee in bankruptcy proceedings cannot be
represented by a person who is subject to a bankruptcy restrictions
order, bankruptcy restrictions undertaking, or an interim bankruptcy
restrictions order, or who is a disqualified director.
However, a member can be represented by a person who has entered
into a composition or arrangement with his own creditors. Rule 6.158 has been changed to remove the automatic
termination of a person’s membership of a creditors’ committee
following the member’s entry into a composition or arrangement with
his own creditors. Equivalent changes have been made for liquidation
(rules 4.159 and 4.161), administration (rules 2.55 and 2.59) and
administrative receivership (rules 3.21 and 3.23). Generals enquiries may be directed to Policy.unit@insolvency.gov.uk
10.
Electronic Application for Sanctions insolvency
practitioner Unit based at Ladywood House, 45/46 Stephenson Street,
Birmingham, B2 4UZ, is responsible for carrying out various functions on
behalf of the Secretary of State, including the role of liquidation and
creditors’ committee under Section 141(5) and 302(2) of the Insolvency
Act 1986, where none has been formed.
In this capacity, the Secretary of State considers applications
to grant powers exercisable with sanction under Schedules 4 and 5
of the Insolvency Act 1986. Applications
for sanction may now be made electronically, using forms available on
the Insolvency Service website, under the heading: Information for and
about insolvency practitioners. Two
forms are available, Sanction 90% and Sanction 10%.
The first is the most commonly used, when making application for
authority to take or defend legal proceedings.
For example, proceedings to obtain an order for possession and
sale of a property. All
other applications may be submitted on the Sanction 10% form. The process will require you to download the requisite form onto a word document or similar for completion and submission to the insolvency practitioner Unit at IPU.sanctions@insolvency.gov.uk Generals enquiries may be directed to IPU.Email@insolvency.gov.uk 11. Guidance on powers exercisable with sanction. Insolvency practitioners are asked to note that as a result of the Enterprise Act 2002, the following changes to guidance given in paragraphs 4 and 6 of Chapter 7 of Dear IP relating to powers exercisable with sanction. Following enactment of the Enterprise Act 2002 with effect from 15 September 2003, a Liquidator’s power to bring legal proceedings under the provisions against debt avoidance, adjustment of prior transactions and penalisation of directors and officers, pursuant to sections 213, 214, 238, 239, 242, 243 and 423 of the Insolvency Act requires sanction of the liquidation committee or the court. In cases of companies that have been wound up by the court, where there is no liquidation committee, the committee’s functions are vested in the Secretary of State in accordance with Section 141(5). Also, with effect from 15 September 2003, the Enterprise Act 2002 provides that a Trustee’s power to bring legal proceedings under sections 339, 340 and 423 of the Insolvency Act in respect of provisions against debt avoidance and adjustment of prior transactions, requires permission of the creditors’ committee or the court. Where there is no creditors committee, the committee’s functions are vested in the Secretary of State in accordance with Section 302(2). Generals enquiries may be directed to IPU.Email@insolvency.gov.uk 12. Applications to the Secretary of State to exercise powers specified in Schedules 4 and 5 of the Insolvency Act 1986 In order to improve the service provided to insolvency practitioners where sanction is sought to exercise certain powers contained within Schedules 4 and 5 of the Insolvency Act 1986 the sanction application forms available on the Insolvency Service internet site have been updated. An additional form has been introduced to be used when an insolvency practitioner requires sanction to operate a local bank account whilst continuing to trade an insolvent’s business. The forms are available on the website at the following link: Any enquiries regarding this article should be directed towards Joe Clogan at Insolvency Practitioner Unit, Fourth floor, Cannon House, 18 Priory Queensway, Birmingham, B4 6BS; email: joe.clogan@insolvency.gov.uk General enquiries may be directed to: IPU@insolvency.gov.uk
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