Stay Of Proceedings

Stay Of Proceedings

June 2008                                                            

Introduction

1. What is a stay of proceedings?

A ’stay of proceedings’ is an order made by the court to stop the insolvency from proceeding any further. An order for a stay of proceedings can be made in winding up or bankruptcy proceedings, although the effect of the orders are somewhat different.

An application for a stay of proceedings may be made at any time and the court may order that the stay be permanent or for a limited period only.

2. What are the effects of a stay of proceedings?

In a winding up, the effects of a stay of proceedings will differ depending on whether the court orders that the stay be permanent, or for a limited period only. If, in a company or partnership winding up, the court makes an order staying the winding up proceedings altogether, (usually referred to as ‘stayed generally’), this would terminate the insolvency proceedings and remove control of the company or partnership in liquidation, from the official receiver as liquidator.

In the case of a bankruptcy, a stay of proceedings is normally a transitional order, i.e. for a limited period only, as it generally relates to a bankrupt's application for annulment or proposal for an Individual Voluntary Arrangement (IVA). For further information see Case Help Manual (CHM) part – Annulments, Rescissions and Recalls or CHM part – Individual Voluntary Arrangements  

3. Who can apply for a stay of proceedings?

Where a winding-up order is made, the official receiver, other liquidator, a creditor or a contributory may apply to the court for an order to stay the proceedings. In bankruptcy, it is normally the bankrupt who makes an application to the court for a stay of proceedings.

4. For what reasons might the court order a stay of proceedings?

In a winding up, the more common examples of when the court may order a stay of proceedings are where;

a. an application for rescission has been made

b. the order is made against the wrong company

c. the petition debt has been paid

d. the company has already been dissolved, i.e. it no longer exists

e. a winding-up order has already been made against the company

In a bankruptcy, the court may order a stay of proceedings where;

a. an application for annulment has been made

b. the bankrupt is trying to agree an IVA with creditors  

5. What is the effect of a stay of proceedings in a winding up?

The court can stay winding up proceedings ‘generally’ (permanently), or for a limited period, however, in a winding up a limited period stay is very rare. If the court makes a permanent order staying the winding up proceedings, the effect would be that the liquidation is terminated and control of the partnership or company is removed from the official receiver or other liquidator, and passes back to the partners or directors who are re-instated. Any assets and all records belonging to the partnership or company must be returned immediately. The liquidator would then be entitled to be released from office.

Where the stay is for a limited period, the liquidator remains in control of the company or partnership and the directors' or partners’ powers are suspended. 

6. What would be the effect of a stay of proceedings on a bankrupt’s property?

Where the official receiver is ‘receiver and manager’ no further action should be taken with regard to the bankrupt’s property. Where the official receiver is trustee, any property taken into possession before the stay should be retained and not returned to the bankrupt, unless the court specifically orders. The property will remain vested in the official receiver as trustee until such time as the bankruptcy order is annulled.

A stay of proceedings does not alter the status of the bankrupt, who remains subject to the restrictions of bankruptcy.

7. Hearing at court

The court will fix a date and time to hear the application to stay the proceedings and the applicant must notify the official receiver of the hearing in sufficient time to allow a representative to be present. The court may ask the official receiver to submit a report about facts or matters which would be relevant to the application. On most occasions, the official receiver or a representative, usually an assistant official receiver (AOR), will attend the court hearing.

In bankruptcy cases, the official receiver or representative who attends the hearing, will normally object to an order for a stay of proceedings on the grounds that difficulties in the administration may arise if such an order is made. Furthermore, if the bankruptcy order is not later annulled, a stay of proceedings may result in difficulties with recovering assets, etc.

The official receiver should also request that the stay, if it is to be granted, is for a specific period of time and this period must be monitored by the official receiver's staff. If the official receiver is concerned about the length of the stay or its effect on how to carry out his or her duties, an application for directions should be made to the court. If the stay appears to be in permanent force, with no prospect of being lifted, the official receiver can ask the court to give specific instructions as to the effect of the stay.

Whoever attends the hearing on behalf of the official receiver must ensure that any order made, states clearly the purpose of the stay. In the case of a company or partnership winding up, where the court orders a permanent stay of proceedings, a request should be made that the court makes adequate provision for payment of any appropriate costs and expenses of the liquidation and for the release of the liquidator.

8. Notice to third-parties of the insolvency order

Notice of a winding-up or bankruptcy order must not be given in cases where a stay of proceedings is in force, except where the court directs this on granting the stay, or on any subsequent application by the official receiver.

Where formal notice is received of an application to court for a stay of proceedings, advice should be sought from the examiner as to any further administration of the case.

9. London Gazette notice

Once the official receiver is given formal notice that an order for a stay of proceedings has been granted, or an application for one has been made (see 8 above), an e-mail must be sent to the Fees & Data Management (F&DM) team of the Estate Accounts Services (EAS) informing them of the stay, gpt.gazettestays@insolvency.gsi.gov.uk. If a gazette notice has been generated via LOIS but not yet published, and there is still time to prevent publication, the F&DM team will do so, and return an e-mail detailing the allocation of a unique security number.

10. Other advertising e.g. newspaper advertisement

(Amended March 2010)

Attempts must be made to cancel any other form of advertising that has been progressed, such as in a local newspaper. Where a newspaper advert has been sent to the official receiver’s agents for publication, the agents must be e-mailed immediately with instructions for them to withdraw publication of the advert. In an emergency, when e-mail is not available, cancellations can be made by telephone provided they are confirmed later by e-mail. If contact is by telephone the name of the person spoken to should be recorded, and those details or copies of any e-mail exchanges placed on the office case file.

11. Stays and entries on the Individual Insolvency Register (IIR)

(September 2010)

Where the court has ordered a stay of proceedings in a bankruptcy it is important that the stay is recorded on LOIS (CA06) immediately so that the bankruptcy details do not then appear on the IIR. Where the bankrupt subsequently obtains an annulment the stay will normally expire at the date of the annulment order so there is a risk that the bankruptcy details will then appear again on the IIR.

For cases where the bankruptcy petition was presented before 6 April 2010 the IIR entries will be deleted once the annulment is recorded on LOIS. It is important that the date of the annulment is entered on LOIS (CA06) promptly

In cases where the bankruptcy petition was presented on or after 6 April 2010, on the making of the annulment order the entries on the IIR will not be deleted until a period of time has elapsed after the LOIS entries are made (up to 3 months depending on the grounds of the annulment).  As a result, where a bankrupt obtains a stay before an annulment hearing the examiner should advise the bankrupt that without further order the bankruptcy details will appear on the IIR after the annulment has been obtained. The bankrupt may then seek an order for the continued withholding of his or her details from the IIR as part of the annulment order. Where such an order has been obtained the stay must be shown as continuing on LOIS (CA06) and a call must be made to the IBM helpdesk to request CWS to remove the details of that bankruptcy from the IIR permanently. 

For further information see Technical Manual Chapter 6A Part 7 – Action required following annulment of bankruptcy order

12. Other notices

Where an order has been made staying the proceedings, the official receiver no longer has a duty to report to creditors (and contributories), so those reports and other initial and subsequent notices must not be sent. This includes, (in bankruptcy cases) form LRRABO, LOIS (DO73) – ‘Land Registry, register BO or amend registration’ which must not be sent to HM Land Registry.

13. Advertisements

It is essential that the official receiver obeys a court order for a stay of proceedings, which includes advertisements in the London Gazette and in newspapers. This is because any advertising of the insolvency order could seriously damage the reputation of the company, partnership or bankrupt concerned and may result in legal action against the official receiver.

Under no circumstances should the official receiver agree not to advertise merely because a director, partner or bankrupt states that they intend to apply for a stay. Unless the official receiver has received formal notice of the issue of a stay order, or of an application to the court for a stay order, matters should proceed as normal.

For further information refer to the CHM part – Stay Of Advertisement

14. Insurance

Where winding up or bankruptcy proceedings are stayed for a limited period, the official receiver may leave any insurances already obtained in force, but should be wary of renewing existing cover or seeking any new insurance cover as there is no obligation for the official receiver to insure in such circumstances. The director(s), partner(s) or bankrupt should be notified by the official receiver in writing where any property is not insured as a result. Where the official receiver is concerned that property is not or will not be insured, he or she can seek court directions as to the appropriate course of action.

Where winding up proceedings are permanently stayed  the official receiver should cancel any insurance that has already been arranged and notify in writing, the director(s) or partner(s) of the situation. The premium paid will be recoverable as part of the official receiver’s expenses. Any keys that the official receiver has taken into possession from the director(s) or partner(s) should be returned at the earliest opportunity to prevent potential liability for the loss of any property.

For further information refer to the CHM part – Official Receiver's Insurance

Notes:

Where a company winding-up order is stayed, it is the responsibility of the company and not the official receiver, to forward a copy of the stay order to the Registrar of Companies.

b Winding-up orders may also be rescinded or recalled by the court but this should be done within seven days of the order being made, however, there is a capacity to extend this time limit if necessary.

c Where a stay is for a limited period, this does not affect the official receiver's obligation to report on the conduct of the company's officers under the Company Directors Disqualification Act (CDDA) 1986.

d Notice to the official receiver of an appeal against a bankruptcy order or an annulment application does not operate as a stay of proceedings by itself, but prior to the hearing the official receiver should only do the minimum necessary in carrying out any statutory duties.

Where can I find out more?

Insolvency Act 1986:

Section 147 – Power to stay winding up

Section 254 – Effect of application (stay pending interim order)

Section 285 – Court’s power to stay (bankruptcy)

Insolvency Rules as amended by the Insolvency (Amendment) Rules 2010:

Rule 4.48 – Winding up stayed

Rule 6.208 – Power of the court to stay proceedings (bankruptcy)

Rule 10.3 – Application for directions

Technical Manual:

Chapter 5 Publication of Insolvency Information

Chapter 6 – Appeals, stays and rescissions - Part 2

Chapter 6A – Annulments  

Chapter 7 paragraph 7.34 – Pending rescissions, annulments or stays in the High Court

Chapter 11 paragraph 11.7 – Stay of proceedings in bankruptcy 

Chapter 18 paragraph 18.6 – Reporting where proceedings are annulled, stayed or rescinded

Chapter 20 paragraph 20.12 – Stay of proceedings (Company Voluntary Arrangement (CVA) approved)

Chapter 37 paragraph 37.15 – Rescission, recall or stay of proceedings in winding up

Case Help Manual:

Annulments, Rescissions and Recalls

Stay of Advertisement

Individual Voluntary Arrangements

Official Receiver's Insurance

Publication of insolvency information

Notices:

Finance Notice F5/03: Changes to the processing of expedited and supplementary audit applications

 

Stay of Proceedings - Winding Up Flowchart   

Stay of Proceedings - Bankruptcy Flowchart 

 

Procedure 

 Upon receipt of either, a court order for a stay of proceedings, or an instruction from a senior colleague, all administration of the case must come to a halt. If notice of an application for a stay is received, guidance should be sought from the examiner before taking any further action.

2   As well as stopping any administrative procedures such as advertising and the realisation or securing of assets, do not send out any initial notices, or reports and notices to creditors (and contributories), and do not enter into any correspondence with third parties. Refer any doubts or queries to the examiner.

Winding-Up Orders

  Check immediately to see if the gazette notice and any other form of advertisement, such as a newspaper advertisement, have been generated and dispatched. If not, record details of the stay on LOIS (CA06) and await further instructions.

 If the advertisement process has begun it is important to prevent publication if at all possible. The guidelines for stopping an advertisement in the gazette and in newspapers are set out in the CHM part – Stay of Advertisement in Procedure, steps 3 to 6 inclusive.

5   Inform the examiner immediately if it has not been possible to prevent the gazette notice or any other advertisement, e.g. a newspaper advertisement, from being published.

6   If the stay is for a limited period of time, note the expiry date and enter details on LOIS (CA06).

  Do not cancel any insurance that has been arranged, but if it becomes renewable during the period of the stay, check with the examiner before renewing it.

8   On the day that the stay is due to expire, check with the court to see if it has been extended. If it has, note the new expiry date and update LOIS (CA06).

9   Where the stay expires and has not been extended or has been lifted or discharged, the case should resume with all the normal administrative and asset related procedures being carried out. This includes gazetting and any other form of advertising decided upon, sending initial notices and other notices and reports to creditors and contributories. Consult the examiner before doing so if there is any doubt, and update LOIS (CA06).

10   Where the winding up proceedings have been stayed generally (permanently), and the official receiver has been released as liquidator, do not proceed any further with the case administration, other than to carry out any new instructions relating to the stay.

11   If any insurance has been effected, confirm with the examiner whether or not this should be cancelled, and act accordingly.

12   Upon receipt of the order of stay from court, update LOIS (CA06) and ensure that all appropriate costs, fees and expenses have been charged accordingly. If not already done, request the cashier to add the case details to the 'Final account spreadsheet' (shared drive) and to complete the summary of final receipts and payments as set out in the CHM part – Annulments, Rescissions and Recalls.

13   The cashier will arrange for any refunds or other outstanding payments to be made, before transferring any small credit balances that may remain, to the indivisable balances account. The cashier will then update LOLA GLM81 with the nil balance and send the information sheet 'Permanent Stay notification' (shared drive) to EAS. EAS will update LOLA and will produce a certificate of release and forward it to the court.

14   The ‘Permanent Stay Notification’ is completed instead of the ‘Cases for Closure’ spreadsheet, which must not be completed in cases where a permanent stay of proceedings is in force. This will ensure that the LOIS form L64.07 –  ‘Notice of completion of winding up’ is not sent by EAS to Companies House, and that the company or partnership is not dissolved.

15   Anyone already notified of the winding-up order, should now be informed that the order has been stayed generally by a further order of the court.

16   File case papers in accordance with local office procedures.

Bankruptcy Orders

17   As well as stopping all administrative procedures, including sending out notices, ensure that LOIS form LRRABO is not sent to HM Land Registry.

18   Check immediately to see if the gazette notice and any other form of advertisement, such as a newspaper advertisement, have been generated and dispatched. If not, record details of the stay on LOIS (CA06) and await further instructions.

19   If the advertisement process has begun it is important to prevent publication if possible. The guidelines for stopping any advertisement in the London Gazette and in newspapers are set out in the CHM part – Stay of Advertisement in Procedure, steps 3 to 6 inclusive.

20   Inform the examiner immediately if it has not been possible to prevent the gazette notice or any other advertisement, e.g. a newspaper advertisement, from being published.

21   The stay should be for a limited period of time so note the expiry date and enter details on LOIS (CA06).

22   Do not cancel any insurance that has been arranged, but if it becomes renewable during the period of the stay, check with the examiner before renewing it.

23   On the day that the stay is due to expire, check with the court to see if it has been extended. If it has, note the new expiry date and update LOIS (CA06).

24   Where the stay has expired and has not been extended, or has been lifted or discharged, the case should resume with all the normal administrative and asset related procedures being carried out. This includes gazetting and any other form of advertising, sending initial notices and reports and notices to creditors. Consult the examiner before doing so if there is any doubt, and update LOIS (CA06).

25   Where the bankruptcy order is annulled, follow the procedure outlined in the CHM part – Annulments, Rescissions and Recalls. If the annulment order contains a provision for a stay to continue to prevent any entries appearing on the IIR, update LOIS (CA06) to show stay is continuing and log a call with the IBM helpdesk to request IIR entry to be permanently withheld.

26   Where an IVA has been approved by creditors, follow the procedure outlined in the CHM part – Individual Voluntary Arrangements.

27   If any insurance has been arranged, confirm with the examiner whether or not this should be cancelled, and act accordingly.

28   File case papers in accordance with local office procedures.