Distribution procedure

May 2010

Part 2 Distribution procedure

36A.19 Notice of intended dividend

Before declaring a dividend, the liquidator or trustee (office-holder) must give notice of his/her intention to do so using form DVDL [note 1][note 2][note 3].  This notice is to be sent to all the creditors whose addresses are known to him/her, who have not proved their debts, [note 4] and who have not previously been invited by notice (which for cases where the petition was presented on or after 6 April 2009 should have been gazetted), to prove their debts [note 5].  See also paragraph 36A.21 for further information on the requirement to arrange for the notice of the intended dividend to be gazetted.   Where a member State liquidator has been appointed in relation to the insolvent (see paragraph 36A.20), notice must also be given to that person using form DVDL [note 6].

The term “office-holder” was introduced by The Insolvency (Amendment) Rules 2010 SI 686/2010 (IAR2010) [note 7] with effect from 6 April 2010, as a general replacement for the terms “responsible insolvency practitioner” and “insolvency practitioner”, with regard to IR86 rules 11.1 to 11.12. See paragraph 36A.22 for a full definition of these terms and their application in insolvencies occurring before and after 6 April 2010.

See also the Case Help Manual chapter on Distributions – bankruptcy and company cases, paragraph xiv. See also paragraph 36A.23 where the payment will only be made to preferential creditors.

 

36A.20 Member State liquidator

The EC Council Regulation on Insolvency Proceedings (1346/2000) gives a liquidator appointed in insolvency proceedings in another member State the right to participate (i.e. lodge claims) in other insolvency proceedings in relation to a debtor,  on the same basis as a creditor.  Where a creditor has proved,  and a member State liquidator has proved in relation to the same debt, payment of a dividend can only be made to the creditor [note 8].

 

36A.21 Public advertisement of notice of intended dividend

(a) Declaring a first dividend where petition presented before 6 April 2009
The transitional provisions of rule 3 of the Insolvency (Amendment) Rules 2009/642
(IAR2009) state that the principal rules (IR86) continue to apply unamended by the IAR2009, where before 6 April 2009:

a) a company voluntary arrangement was in force;

b) a company entered in to administration;

c) a company entered in to liquidation (voluntary or compulsory);

d) a receiver or manager was appointed, or;

e) in relation to an individual, a bankruptcy petition was presented

This means in court winding up proceedings and bankruptcy proceedings where the petition was presented before 6 April 2009, unless the responsible insolvency practitioner (see paragraph 36A.22) has previously by public advertisement invited creditors to prove their debts, he/she is required to give notice of the intended dividend by public notice (advertisement).

(b) Declaring a first dividend where petition presented on or after 6 April 2009
In cases where the petition was presented on or after 6 April 2009, before declaring a first dividend the responsible insolvency practitioner/office-holder (see paragraph 36A.22) is required to give notice of the intended dividend as soon as is reasonably practicable by arranging for the notice to be gazetted
[note 9]. This does not apply where the responsible insolvency practitioner/office-holder has previously, by notice in the Gazette, invited creditors to prove their debts [note 5].  He/she may further advertise the dividend as he/she decides is necessary, using whatever medium is deemed to be the most appropriate. There is no requirement for this to be by advertising in a newspaper specifically (see also Chapter 5 paragraph 5.35 concerning notice of dividend) [note 10]. Chapter 5, in particular paragraphs 5.3 and 5.6, contain further information regarding gazetting and advertising and the changes implemented from 6 April 2009.  See also Chapter 5 Annex 3 for a comparison of the Rules pre and post 6 April 2009.

See also the  Case Help Manual chapter on Distributions – bankruptcy and company cases, paragraph xv, which includes Word document templates for the Gazette notices.

 

36A.22 Definition of terms “responsible insolvency practitioner” and “office holder”

(1) Pre 6 April 2010 - definition of a “responsible insolvency practitioner” as defined by rule 13.9 of the IR86

(a) For cases where the petition is presented before 6 April 2010 the term “responsible insolvency practitioner” is defined as the person acting:

(i) in a company insolvency,  as the supervisor of a company voluntary arrangement; as an administrator; as an administrative receiver; as liquidator; or as provisional liquidator. 

(ii) in an individual insolvency, as the supervisor of a voluntary arrangement; as trustee; as interim receiver, or the official receiver acting as receiver and manager of a bankrupt’s estate [note 11].

This includes the official receiver when acting in the relevant capacity as liquidator, as provisional liquidator, as trustee or as interim receiver [note 12].

(b) Transitional provisions
Schedule 4 of the IAR2010,  provides for the rules and terminology definitions in existence before 6 April 2010, to continue to apply unamended where:

(i)  A company enters into administration on or after 6 April 2010 and either;

  • the application for the administration order was made before 6 April 2010; or
  • the administration order was immediately preceded by either a voluntary liquidation in respect of which the resolution to wind up was passed before 6 April 2010, or by a compulsory liquidation where the winding-up petition was presented before 6 April 2010.

(ii) A company goes into voluntary liquidation on or after 6 April 2010, which was subject to a preceding administration order:

  • commencing before 6 April 2010; or
  • made on an application which was made before 6 April 2010.

(iii) A company goes into compulsory liquidation on a petition presented on or after 6 April 2010, which is immediately preceded by:

  • an administration where the administration order was made on an application made before 6 April 2010; or
  • an administration where the appointment of an administrator by the holder of a qualifying floating charge or by the company  took effect before 6 April 2010; or
  • a voluntary liquidation where the resolution to wind up was passed before 6 April 2010 [note 13].

(2) Post 6 April 2010 - definition of a “responsible insolvency practitioner” and “office-holder” as defined by rule 13.9 of the IR86 (as amended by the IAR2010)

(a) For cases where the petition is presented on or after 6 April 2010 (but see also transitional provision exceptions at (1)(b) above),  the term “responsible insolvency practitioner” is defined as a person acting as any of the following:

(i) in a company insolvency the person (other than the official receiver) acting as supervisor of a voluntary arrangement under Part I of the Act, or as administrator, administrative receiver, liquidator or provisional liquidator;

(ii) in an individual insolvency the person (other than the official receiver) acting as the supervisor of a voluntary arrangement under Part VIII of the Act, or as trustee or interim receiver [note 14].

(b) For cases where the insolvency commences on or after 6 April 2010 (see transitional provision exceptions at (1)(b) above),   the term “office holder” in relation to insolvency proceedings,  is used to describe any person who,  by virtue of any provision of the IA86 or IR86,  holds an office in relation to those proceedings. This includes  the official receiver when he/she holds office in relation to insolvency proceedings [note 15].

 

36A.23 Dividend declared for preferential creditors

Where a dividend is to be declared for preferential creditors, the notice required under rule 11.2 of the IR86 (form DVDL) need only be given to those creditors who the responsible insolvency practitioner/office-holder believes may have a preferential claim. Public advertisement of the intended dividend to preferential creditors need only be given if the insolvency practitioner thinks fit [note 16].  This is applicable to cases arising pre and post 6 April 2009.  The likelihood of there being preferential creditors in a case entitled to payment of a dividend ahead of ordinary unsecured creditors, is significantly less following the amendment of Schedule 6 of the IA86 (by the EA2002).  In cases where the petition was presented on or after 15 September 2003, the most likely preferential creditors in a case will be the Redundancy Payments Service (RPS) for remuneration to employees and/or pension scheme contributions and the subrogation of their claims to the RPS. See Parts 5 and 6 of this chapter for further information regarding ascertaining who is a preferential creditor and how their claim should be dealt with.

See also the Case Help Manual part on Distributions – bankruptcy and company cases, paragraphs ix, x and xi.

 

36A.24 Last date for proving and time period within which a dividend must be declared

The notice before declaring a dividend or first dividend (form DVDL) is required to specify a date ("the last date for proving") up to which the proofs may be lodged. The date shall be the same for all creditors, and not less than 21 days from the date of that notice [note 17]. The insolvency practitioner/office-holder must also state in the notice his/her intention to declare a dividend (specified as interim or final, as the case may be) within a given time period from the last date for proving.  For insolvency cases where the petition date is on or after 6 April 2010 this will be within the period of 2 months from the last date for proving [note 18].  For insolvency cases where the petition was presented before 6 April 2010 (and those cases subject to the transitional provisions as specified at paragraph 36A.22(1)(b)) the time period is 4 months from the last date for proving [note 19].

 

36A.25 Admission and rejection of proofs for dividend (including where received after the date for proving)

For insolvency cases where the petition date is on or after 6 April 2010, within 5 business days of the last day for proving, the responsible insolvency practitioner/office-holder must deal with the proofs so far as he/she has not already dealt with them. For insolvency cases where the petition was presented before 6 April 2010 (and those cases subject to the transitional provisions as specified at paragraph 36A.22(1)(b)) the time period for dealing with the proofs is within 7 days of the last date for proving.  The responsible insolvency practitioner/office-holder must deal with the proofs by:

a) admitting or rejecting them, either in whole or in part, or

b) making such provision as he/she thinks fit in respect of them [note 20].

“Making provision“ may involve setting aside such funds as he/she considers appropriate to cover the payment of the dividend on the proof should it be admitted. Proofs received after the date for proving may be accepted at the discretion of the insolvency practitioner/office-holder [note 21].  A proof may be admitted for dividend either for the whole amount or for part of the amount claimed by the creditor [note 12].  For further information regarding the submission and admission of proofs, see chapter 16, part 5.

 

36A.26 Faxed and emailed proofs for dividend purposes

A proof sent by fax or email can be accepted for dividend purposes, in the same way as for meeting purposes, provided the proof is signed (either by the creditor or by a person authorised in that regard) and the fax or email is received within the time limits set for the acceptance of proofs of debt. See paragraph 36A.25 for guidance where proofs are received after the time limit. In the case of Inland Revenue Commissioners v Conbeer ([1996] BCC 189) it was held that a faxed proxy form was validly signed because when a creditor faxes a proxy to the chairman of a meeting,  he/she transmits both the contents of the proxy and his/her signature applied to it. This is similarly applicable to proofs.

The proof will still be considered valid if it is faxed or emailed via an intermediary such as an insolvency practitioner, who does not hold an original proof of debt having been instructed by fax or email, as long as that intermediary is duly authorised by the creditor (see also chapter 16 paragraph 16.108 regarding faxed/scanned proxies).

 

36A.27 Rejected proofs

Where the responsible insolvency practitioner/office-holder has concerns regarding the admission of a proof, for example where he/she suspects miscalculation or misrepresentation of a debt and, following enquiry of the creditor no satisfactory explanation is forthcoming, the proof should be rejected.  The liquidator or trustee should prepare a written statement explaining his/her reasons for rejecting the proof,  and send this statement to the creditor as soon as reasonably practicable [note 23] [note 24]. The creditor who has submitted the proof then has 21 days in which to object to this rejection (via a court application under IR86 rules 4.83(1), 4.83(2)  or rules 6.105(1), 6.105(2)).  If a creditor does lodge an application to challenge the rejection of their proof, the insolvency practitioner/office-holder may postpone or cancel payment of the dividend [note 25] (see paragraph 36A.29).

 

36A.28 Withdrawal, variation or expunging of a proof

Where the creditor wishes to withdraw his/her proof or vary the amount claimed, this can be achieved by agreement between him/herself and the liquidator or trustee [note 26] [note 27].

The liquidator or trustee or a creditor may apply to the court for a proof to be expunged (erased) or for the amount of the proof to be reduced, where he/she has sufficient concerns that a proof has been improperly admitted or the amount ought to be reduced [note 28][note 29]. This applies where the liquidator or trustee suspects the proof has been admitted in error.  Where following such an application the proof can be shown to have been improperly rejected, the court may decide to  direct the liquidator to accept it under IR86 rule 4.83 (see also Re Shruth Ltd [2005]EWHC 1293(Ch);2007]B.CC. 960.)  For bankruptcy cases the court may direct the trustee to accept the incorrectly rejected proof under IR86 rule 6.105.

 

36A.29  Postponement or cancellation of dividend

As explained at paragraph 36A.27, where the responsible insolvency practitioner/office-holder has rejected a proof,  if a creditor is dissatisfied with this decision he/she may apply to the court for the decision to be reversed or varied within 21 days of receiving the written statement rejecting his/her proof [note 30][note 31]. A contributory or any other creditor [note 32] or a bankrupt [note 33] may also make such an application within 21 days of becoming aware of the decision to reject a proof.

Except with the permission of the court,  the insolvency practitioner/office-holder may not declare the dividend so long as there is a pending application to the court to reverse or vary a decision on a proof of debt,  or to expunge a proof,  or to reduce the amount claimed [note 34].  Where the court  does give permission for the dividend to be declared, the insolvency practitioner/office-holder is required to make such provision in respect of the disputed proof as the court directs.

Where such an application is made to the court within the two months (where the petition date is on or after 6 April 2010) or four months (where the petition was presented before 6 April 2010 or the transitional provisions apply, see paragraph 36A.22(1)) from the last date for proving, the insolvency practitioner/office-holder may postpone or cancel the dividend[note 25].

 

36A.30 Decision to declare dividend

If no application has been made to the court to reverse or vary the decision of the responsible insolvency practitioner/office-holder in respect of any proof, the dividend of which he/she gave notice must be declared within the period of two months (this period applies where the petition date is on or after 6 April 2010, where the petition was presented before 6 April 2010 (and also those cases subject to the transitional provisions as specified at paragraph 36A.22(1) (b)) the period is four months) from the last date for proving [note 35] (which is the date specified in any Gazette notice and any advertisement of intended dividend [note 17]. The declaration of the dividend is the notice given under rule 11.6 which contains the particulars set out therein (see paragraph 36A.32). Usual practice is to issue the declaration and payment simultaneously [note 36].

 

36A.31 Calculation of dividend  

In calculating and distributing a dividend the liquidator/trustee must make provision:

a) for any debts (company) or bankruptcy debts (bankruptcy) which appear to him/her to be due to persons who, by reason of the distance of their place of residence, may not have had sufficient time to tender and establish their proofs;

b) for any debts (company) or bankruptcy debts (bankruptcy) that have not been determined, and;

c) for disputed proofs and claims [note 37][note 38]

Sufficient funds should therefore be allocated from those available for distribution,  to cover the potential payment of the disputed or delayed claims.

 

36A.32 Notice of declaration of dividend

Notice of the dividend must be sent to all creditors who have proved their debts [note 39] or just to preferential creditors if there is only sufficient to pay a dividend to that class of creditor [note 40] (see also paragraph 36A.23). The notice must contain the following particulars:

a) amounts realised from the sale of assets, indicating (so far as practicable) amounts raised by the sale of particular assets;

b) payments made by the insolvency practitioner in the administration of the insolvent estate;

c) provision (if any) made for unsettled claims and funds (if any) retained for particular purposes;

d) the total amount to be distributed and the rate of dividend; and

e) whether and, if so, when, any further dividend is expected to be declared.

This ensures that creditors receive full information relating to the payment of dividends.

 

36A.33 Payment of dividend including where the debt is assigned

The dividend is distributed simultaneously (by post) with the notice declaring it (see paragraph 36A.32 [note 41]). Arrangements may be made for any creditor to be paid in another way or for payment to be held for his/her collection. The dividend may be paid to an assignee of a creditor if the creditor has given notice of the assignment along with the name and address of the assignee. When a debt is sold by one creditor to another creditor, the assignee creditor should be considered to be ‘the’ creditor for dividend purposes and any proof of debt lodged by the original creditor should be ignored, unless the assignee creditor has not submitted a proof of debt in which case the original proof of debt can be dealt with. However, the dividend should still be paid to the assignee [note 42]. It is important that proofs of debt submitted by the original creditors and the assignee are not both admitted for dividend purposes.

 

36A.34 Cheque issue

Dividend cheques are raised against the LOLA Imprest Account held at Lloyds TSB Bank PLC and daily the LOLA Central Unit draws down from the ISA sufficient funds to cover the value of all cheques issued. 

 

36A.35 Notice of no, or no further distribution

When all the estate has been realised (or as much as can be realised without protracting the liquidation or bankruptcy) notice must be given that either no funds have been realised, or the funds realised have already been distributed or used or allocated for defraying the expenses of the insolvency [note 43].

 

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