Distributions – Company and Bankruptcy Cases (ISCIS)

Distributions – Company and Bankruptcy Cases (ISCIS)

July 2014 

Distributions in Partnership cases are dealt with in a separate Case Help Manual (CHM) part and can be accessed by clicking HERE 

(Information given in this part should be read in conjunction with Technical Manual (TM) Chapter 36 and 36A.)

Introduction

1. How does the Service’s financial regime affect distributions?

On 1 April 2004, The Insolvency Service's revised financial regime came into force which seeks, in all cases, to simplify the fee structure applicable in relation to insolvency proceedings and official receivers duties. A single administration fee B1/W1 was introduced but this does not cover the function of distributing funds to creditors.

The financial regime, however, provides  that the official receiver may charge general remuneration based on a time and rate basis, as set out in The Insolvency Regulations 1994 (as amended) for the activity of distributing funds to creditors. This is applicable to all distributions made on or after 1 April 2004 whether the insolvency order was made pre or post 1 April 2004, but does not include the time spent on returning the petition deposit or payment of the petitioning creditor's costs for which no separate charge is made.

Previously the official receiver charged a distribution fee (e.g. a percentage of funds distributed) as set out in The Insolvency Regulations 1994 (as amended). The Insolvency Proceedings (Fees) Order 2004 (as amended) revoked the distribution fee for all cases although this fee, validly charged in pre 1 April 2004 cases, should be retained and not rebated.  

2. What action needs to be taken?

(Amended July 2014)

All cases where there are sufficient funds in the estate to enable the liquidator/trustee to declare and distribute a dividend should be sent to the LTADT. Before the case can be transferred to the LTADT checks must be made to ensure that there are no matters outstanding and that all fees have been charged correctly to ensure that the resultant balance is accurate. (See Guidance for cases being sent to the LTADT and Protocol for transferring cases to the LTADT are on the LTADT intranet page.

An interim dividend may be paid by the LTADT where there is a substantial credit balance and creditors are pressing for a distribution to be made. Such a dividend may also be paid in a very protracted realisation case.

There is also a standard block of activity which is performed by the LTADT in relation to all dividends, regardless of the number of creditors, which includes:

  • issuing a notice of intended dividend (see paragraph 9)
  • preparing the advertisement although this is not mandatory where only a preferential distribution is being paid (see paragraph 10)
  • ensuring that the deposit has been posted to the account, any Indivisible Balances and/or Reserved Funds have been transferred back to the estate and all fees and disbursements have been charged correctly on the ISCIS Financials ledger (‘Funds’ tab)
  • making a distribution calculation using the Dividend Probability Calculators which establishes if there are sufficient funds to make a distribution. This can be viewed by clicking HERE.

It should be noted that changes to the Insolvency Rules regarding gazetting and other advertising came into force on 6 April 2009. The new Rules affect the public advertising of intended dividend payments, that now require the publication of a notice in the London Gazette.(See paragraph 10 for more information which should be read in conjunction with this paragraph.)

3. What is the order of priority of payments?

(Amended July 2014)

If there is a credit balance remaining on the estate after all fees and expenses of the official receiver as liquidator or trustee have been charged and any deposit has been returned and petitioning creditor’s solicitors costs have been paid, the monies must be distributed in the proper order of priority according to the Act and Rules. See CHM part – Distributions - Pre- distribution and expense matters-Company and Bankruptcy Cases paragraph 5 for details of priority. The work relating to petition deposit and costs and the distribution of the monies will be undertaken by the LTADT. The official receiver must ensure, however, that other fees and expenses (e,g. agents’ costs and other costs associated with realising assets or administering the case) have been dealt with before the case is passed to the LTADT.

IVA supervisor/IP costs which qualify as an expense in the insolvency should be identified and paid or letter PSOLCOST issued and 3 months have passed, If there are no qualifying costs outstanding this should be stated in an ISCIS note. In creditor petition cases the bill of costs should be paid or a letter PSOLCOST issued and 3 months have passed, if there are no costs outstanding this should be stated in an ISCIS note. See Guidance for cases being sent to LTADT on the LTADT Intranet page.

4.  What is the National Dividends Unit (NDU)? 

This content has been deleted. (July 2014)

5. Who is classed as a preferential creditor?

A preferential creditor is an ordinary unsecured creditor whom the Insolvency Act 1986 s175 and 328 allows to be paid first before the general body of ‘ordinary’ unsecured creditors. These creditors are identified by legislation but the Enterprise Act 2002(EA2002) significantly reduced the types of creditors to whom preferential status is available and abolished the right of Crown Departments to preferential status as a creditor in most cases, where the petition was presented on or after 15 September 2003(HM Revenue and Customs(HMRC) were most affected). In consequence the majority of creditors will now rank equally as ordinary unsecured creditors.

Preferential creditors are only the creditors listed in schedule 6 of the Insolvency Act 1986 and generally speaking most preferential claims now arise from (former) employees of the insolvent.   

The official receiver must give notice of his/her intention to make a preferential payment to all potential preferential creditors who have not proved their debts using form DVDL, having due regard to the date the petition was presented . The list of creditors and file correspondence should be examined to identify any possible preferential creditor. Note that Government Departments do not have to complete a proof of debt in the prescribed form 4.25/6.25

The priority of payment outlined in CHM part - Distributions - Pre- distribution  and expense matters- Company and Bankruptcy Cases remains unaffected but see provisions regarding ring fencing of funds in some liquidations with a floating charge outlined in paragraph 18 below.  

6. Preferential claims - cases where the petition was presented before 15 September 2003

The majority of open cases will increasingly not fall into this category but there may still be cases where these circumstances will apply.

Section 386 of the Insolvency Act 1986 refers to Schedule 6 (since amended for cases where the petition was presented on or after 15 September 2003)which lists certain categories of creditors (mostly Government Departments) to have a specified part of their debt paid in priority to ordinary unsecured creditors. The most frequent creditors whose claims may include a preferential element are shown in the table below.

When a proof of debt has been received, its content should be examined to see whether any part has been claimed as preferential. For example, in a proof of debt received from HMRC for VAT owing from over a 12 month period, only the amount due for a period of 6 months before the bankruptcy order/winding-up order can be claimed preferentially. The residual balance will be classed as non-preferential and will fall to be paid with the other non-preferential debts.

The table below lists the most frequently encountered type of debt and assumes that the relevant date is that of the bankruptcy order or winding-up order. However, where there was an interim receiver, provisional liquidator, voluntary liquidator or administrator previously in office this relevant date will change. Refer any cases like this to your B1/SOM for guidance.

Creditor

Most frequently encountered Type of Debt

Preferential Debt under Schedule 6 of the Insolvency Act 1986

HM Revenue and Customs (formerly Inland Revenue,  DHSS,  contributions Agency  and HM Customs and Excise)

Value Added Tax

Betting Duty/Gaming Licence Duty

Car Tax

Tax due for a period 6 months before BO/WUO

Due within 12 months prior to BO/WUO

--ditto--

 

PAYE deductions 

Schedule D Income Tax and other assessed taxes on debtor

Class 4 National Insurance Contributions (Bankruptcy)

Amounts due for period 12 months prior to BO/WUO

Not preferential except Class 4 National Insurance (see below)

Assessed on bankrupt up to 5 April before BO and not exceeding 1 year’s assessment

 

National Insurance Contributions

(Classes 1 and 2)

Contributions due in 12 months before BO/WUO

Redundancy Payments Service(RPS) but the initial principal creditor is the employee(s)

Employees arrears of pay

Employees accrued holiday pay

Earned  during 4 months immediately before BO/WUO and only the first £800 per claimant

All accrued holiday payable immediately before the date of BO/WUO

Please note that the amount paid by the RPS is subject to time and financial limits, which are different from those applied in respect of the preferential provisions of the IA 1986. For example the RPS will only pay a maximum of 8 weeks unpaid wages (the 8 weeks prior to the insolvency) at a maximum of £350 per week. The category of preferential debt, however, is unpaid wages for up to 4 months prior to the insolvency at a limit of £800. It is possible therefore that the employee might have a preferential claim and/or the RPS might hold a claim which is both preferential and ordinary unsecured.

Technical Manual Chapter 40 part 4 details all the categories of preferential debt. In addition to the above, banks or other (loan) creditors may have a preferential claim where funds they have advanced were used to pay sums to employees which, had they remained unpaid, would have constituted preferential claims (see TM Chapter 40 paragraph 40.23).

Contributions to occupational pension schemes and state scheme premiums, to which Schedule 4 of the Pension Schemes Act 1993 applies, may also be classed as preferential (see TM Chapter 40 paragraph 40.99). If in doubt, refer to your B1/SOM for guidance.

7. Preferential claims - cases where the petition was presented on or after 15 September 2003

Although there may still be preferential creditors in a case, the likelihood is significantly smaller and funds are more likely to become available for distribution amongst the ‘ordinary’ unsecured creditors. Details of the remaining categories of preferential debt  as listed in Schedule 6 to the IA86 (as amended by the EA2002) are included in TM Chapter 36A paragraph 36A.59 and include contributions to pension schemes and remuneration to employees.

If you are in any doubt as to whether a claim or any part of it may be classed as preferential, please refer to your B1/SOM.

8. What is the official receiver's remuneration (time and rate fee) when distributing funds to creditors? (Amended May 2012)

The Insolvency Regulations permit the official receiver, when acting as liquidator or trustee, to charge remuneration, based on hourly rates, when making a distribution to creditors. This is referred to as a time and rate fee and is based on an hourly rate for each grade, calculated according to the time spent by each member of staff in carrying out specific duties. VAT is chargeable on the time and rate fee. To achieve some standardisation across The Service of costs associated with distributions, guidance has been produced on what should be charged in each case based on the expected time to be spent on that activity. For ease of application of this charging regime when applied to distribution work, the actual charge made is based on the number of creditors involved (see below).

ISCIS calculates the amounts charged for the time and rate fee automatically at the same time as the dividend payments are requested. The time and rate fee to be charged is shown in the guidance given in the tables in Technical Manual Chapter 36, Annex E (reproduced below for ease of reference). There are two tables, one for the official receiver’s offices in London A and B and PIU London, (London Insolvency Districts) and one for all other provincial offices. (The rate to be charged will depend on where the case is situated, High Court London or elsewhere). The fee is applicable to all distributions made on or after 1 April 2004, irrespective of whether the insolvency order was made pre or post 1 April 2004. (See TM Chapter 36A.18, however, for historic cases which exceptionally fall under a previous insolvency regime, such as the Companies Act 1985 or the Bankruptcy Act 1914).

Guidance on the expected time to be spent and therefore the expected fee to be charged on distributions is as follows: 

Guidance on distributions

LONDON RATES

Number of creditors  London cases

Hours per grade A2

A2

@

£40

Hours per grade B1

B1

@

£46

Hours per grade C2

C2

@

£63

Total expected hours

Total expected cost

£

Preferential creditors

2.5

100

1

46

0.5

31.5

4

177.5

Unsecured creditors

10

6.5

260

1

46

0.5

31.5

8

337.5

20

8.5

340

1

46

0.5

31.5

10

417.5

30

10.5

420

1

46

1

63

12.5

529

40

12.5

500

1

46

1

63

14.5

609

50

12.5

500

1

46

1

63

14.5

609

 

Guidance on distributions

PROVINCIAL RATES

Number of creditors Provincial cases

Hours per grade A2

A2

@

£36

Hours per grade B1

B1

@

£42

Hours per grade C2

C2

@

£58

Total expected hours

Total expected cost

£

Preferential creditors

2.5

90

1

42

0.5

29

4

161

Unsecured creditors

10

6.5

234

1

42

0.5

29

8

305

20

8.5

306

1

42

0.5

29

10

377

30

10.5

378

1

42

1

58

12.5

478

40

12.5

450

1

42

1

58

14.5

550

50

12.5

450

1

42

1

58

14.5

550

When banks or similar organisations have submitted a proof of debt combining several debts such as credit card, loan, overdraft etc, or where set-off has been applied, the balance of the debt as per the submitted proof should be counted as a separate creditor in respect of each account for calculating the number of creditors on a case when charging a time and rate fee.

The time and rate fees will need to be input on ISCIS Financials. They should be charged at the point at which the dividend payment is requested from EAIPS through ISCIS and should be applied to the total number of creditors to be paid out. VAT is charged on this fee. Where applicable, staff in the Distribution Unit (see paragraph 4) arrange for the entries to be made on the ISCIS Financials estate ledger.   

9. Does the official receiver have to give notice of intended dividend?

(Amended July 2014)

Before declaring a dividend, the official receiver must give notice of his/her intention to do so to all creditors who have not proved their debts using form DVDL. (The LTADT have an arrangement with major stakeholders whereby no form DVDL is issued – see below). If disputed debts have been identified attempts should be made to try and resolve the issues before beginning the process.

Notice of the intended dividend, together with a proof of debt form, must be sent to all known creditors, listed on ISCIS ‘Creditors ‘tab who have not submitted a proof of debt. This includes creditors in member states of the European Union (see TM 36A.19 and 20).

Details must be checked to confirm that the address of the creditor is correct. For example, some creditors do not wish to receive proofs of debt etc and have appointed an agent to act on their behalf. To determine if this is the case you will need to check the contact lists found under CMP and Blanket Authorities on the ORS Business Delivery Team: Technical home page of the Intranet. In the case of a distribution to just the preferential creditors, only that class of (potential) creditor needs to be notified.

The notice must contain:

  • the date up to which the proofs may be lodged. The creditors must be given at least 21 days notice in which to prove their claims. The dividend must be completed within 4 months (petition presented before 6 April 2010) or 2 months (petition presented after 6 April 2010) from the last date for proving
  • the estimated liabilities and estimated amount available for dividend

Where the distribution is to be declared to preferential creditors only, the official receiver need only issue form DVDL to those creditors who the official receiver believes may have a preferential claim. This is applicable to cases arising both pre and post 6 April 2009. The number of preferential creditors is now significantly less following the amendments introduced by the EA2002. (see paragraph 5).

The LTADT have an arrangement with major stakeholders whereby no form DVDL is issued, but they are notified weekly, via a spreadsheet, of all intended dividends. Major stakeholders include HMRC, Max Recovery, TDX, Mazars, Tenon, PWC and Eversheds.

10. Does the official receiver have to advertise this intention?

Changes to the Insolvency Rules regarding gazetting and other advertising of insolvency matters came into force on 6 April 2009. The changes have affected the public advertisement of intended first dividend payments and will depend on whether the petition was presented before, on or after 6 April 2009 as follows:

a.   Cases where the petition was presented before 6 April 2009

Where the official receiver is liquidator or trustee, he/she is required to advertise an intention to declare a first dividend to be paid to non-preferential creditors unless he/she has previously invited creditors, by public advertisement, to prove their debts. Where the dividend is to be paid to preferential creditors only, there is no requirement to advertise the intention, unless the liquidator/trustee feels it may be necessary.

b.   Cases where the petition was presented on or after 6 April 2009

Before declaring a first dividend the official receiver as liquidator or trustee is required to gazette the notice of the intended dividend in the London Gazette, unless he/she has previously, by notice in the Gazette, invited creditors to prove their debts. Where the dividend is to be paid to preferential creditors only, there is no requirement to gazette the intention, unless the liquidator/trustee feels it may be necessary.

There is no automatic requirement that the relevant notice be published in any other place, such as a newspaper, so the official receiver may choose to advertise the matter in such other manner as he/she thinks fit. This is known as ‘discretionary advertising’.

c.   Content of the gazette notice (and any other advertisement)

(Amended July 2014)

The gazette notice and advertisement must include the date for the last day for submitting a proof of debt and an estimate of the amount available given as a pence in the £ figure. For example, 43p in the £ would mean that a claim for £10.00 would receive a dividend of £4.30 whereas 0.43p in the £ would mean that a claim for £10.00 would receive 43p. Care must be taken to enter the correct figures on the gazette/ advert form NFN2, which should be the estimated rate of dividend described as pence in the £.

In addition the Insolvency (Amendment) Rules 2010 introduced further details which are to be to be included in the intended dividend gazette (or advert) for petitions presented on or after 6 April 2010. Word document templates of the gazettes for use with cases pre and post 6 April 2010, for both company and bankruptcy cases, can be found in the ‘Forms to be Used’ section of this part.

When the LTADT receives charge details for distribution advertisements, they must forward them, after approving the invoice for payment, to Estate Accounts and Insolvency Practitioners Services (EAIPS), to enable them to arrange for payment from the estate. Before making any distributions, a check should be made to ensure that the costs of distribution advertisements have been paid from the estate account.

11. Admitting or rejecting proofs

The official receiver must deal with all the proofs of debt within 5 business days (7 days where the petition date is before 6 April 2010) of the last day given for proving debts. When ready the proofs should be given to the designated officer for admitting or rejecting, together with:

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 authorized and the fax or email is received within the time limits set for the acceptance of proofs of debt. (See TM 36A.26).

The designated officer may decide to admit or reject a proof in whole or in part. Late proofs may only be accepted at his/her discretion. If a proof or any part thereof is rejected the creditor must be notified together with the reasons for doing so. If a creditor is dissatisfied with the official receiver’s decision regarding their proof, they have 21 days in which they may apply to the court for the decision to be reversed or varied. 

Except with the permission of the court, the official receiver may not declare the dividend whilst there is a pending application to the court . See TM 36A.25-29 for further details on the admission and rejection of proofs of debt. In practice, the official receiver should avoid this situation arising and have resolved any outstanding matters before setting out on the dividend process. (See also Notes a).

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

  • any debts (company or bankruptcy) which appear to him/her to be due to persons who, by reason of the distance of their place of residence(i.e. living abroad), may not have had sufficient time to tender and establish their proofs
  • any debts (company or bankruptcy) that have not been determined  e.g. contingent debts – the amount of which is not fixed
  • disputed proofs and claims. Sufficient funds should be allocated from those available for distribution, to cover the potential payment of the disputed or delayed claims e.g. debts – the amount of which is not yet resolved

12. How are the dividend payments requested?

Once the proofs have been admitted for dividend and there are no outstanding issues with regard to the claim of any creditor, the request for the dividend cheques should be made. The official receiver’s advertising cost (if any) is to be charged before any dividend calculation is made and requested but his/her remuneration based on the appropriate time and rate is charged by using the “dividend wizard” on ISCIS at the same time as the dividend payments are requested. ISCIS calculates the amounts charged for the time and rate fee automatically, based on the number of creditors recorded on the ‘Creditor’ tab in ISCIS, but reference may be made to the table shown in paragraph 8 above for a cross-check of the amounts to be charged

Dividend payment requests are made using the ‘Funds’ tab on ISCIS and selecting the New Dividend Payment Schedule option. Once all information has been input the dividend will need to be approved by the designated officer and requests forwarded to EAS for processing. Where applicable, interest payments should be created separately through ISCIS before utilising the “dividend wizard".

The dividend may be paid simultaneously by post with the notice declaring it (NORAD) (see below). Arrangements may be made for any creditor to be paid by BACS transfer where this is requested. The dividend must be paid to an assignee or agent of a creditor, if the creditor has given notice of the assignment or agency along with the name and address of the assignee or agent. These details may already have been recorded on ISCIS.(‘Creditors’ tab).

If there is any doubt as to who is to receive the dividend, refer the matter to the B1/SOM.

13. Notice of declaration of dividend

At the same time as dividend payments are made, creditors should receive full information relating to the payment of the dividend. Notice of the dividend (form NORAD) must be sent to all those who have proved their debts, except in the case of a distribution to preferential creditors solely, whereby only that class of creditor needs to be notified. Options are available on form NORAD to cover the circumstances of each individual case e.g. whether release is being applied for and the type of dividend being paid. A summary of receipts and payments should also be enclosed (Form ACCSUM). The notice must contain the following particulars:

  • amounts realised from the sale of assets
  • payments made by the official receiver in the administration of the insolvent estate
  • the total amount to be distributed and the rate of dividend
  • whether, and if so when, any further dividend is expected to be declared
  •  provision made for unsettled claims (if any) and any funds reserved for that particular purpose
  • for company cases with petitions from 6 April 2010 the official receiver must also state the value of the prescribed part for unsecured creditors, except where the court has made an order under section 176A(5).

14. What if a dividend cheque is returned ?

If a dividend cheque is not required because the debt has already been satisfied either by payment or withdrawn, the cheque should be returned to EAS for cancellation and the amount re-credited to the estate account. If a dividend is returned for any other reason, for example if the creditor’s address has changed, efforts should be made to trace the creditor. If no further address can be found, the monies should be transferred to the Unclaimed Dividends Account. Dividend cheques that remain un-cashed after a period of 6 months, or are cancelled after issue, are automatically transferred to this account.  

Where a cheque is returned requesting an amendment to the name of the payee, the official receiver must be satisfied that the request is valid. e.g.  documentary evidence produced to support the request, before forwarding it for re-issue. Form DIVPA may be used for this purpose. No fee is charged for the reissue.

15. What if the official receiver has limited information to enable a distribution to be made?

In a small number of cases a credit balance may occur where the official receiver’s file and the court file have been destroyed and the creditors are not recorded on ISCIS (most likely bankruptcy cases where the case administration was completed before the introduction of LOIS).  

It should be possible to ascertain whether the case was a debtor’s or creditor’s petition from the amount of the deposit paid and/or whether the date of the petition and order were the same, where this information is available. The official receiver may also consider contacting the former bankrupt to ask for information concerning the petition and his/her creditors, for example in the case of a debtor’s petition the bankrupt may have kept a copy of the statement of affairs.

A table for possible scenarios where information is limited and there is a credit balance to be distributed can be found at TM 36A.39. This explains what action can be taken to obtain the information and what to do with the funds if no information is forthcoming.

16. What if the credit balance is only small ?

(Amended July 2014)

It is suggested that a dividend need not be declared if after deducting the appropriate amount for the official receiver’s remuneration plus VAT, the total net funds available for distribution (i.e. after allowing for advertising, VAT etc.) is less than £100 or if none of the creditors will receive £5 or more. On this basis, if the funds are insufficient to declare a dividend to creditors, then the credit balance should be transferred to the Indivisible Balances Account before any of these procedures are embarked upon. The LTADT has developed dividend probability calculators for both London and provincial cases, which will assist in establishing whether funds are sufficient to make a distribution. From this calculation it will be possible to work out whether the balance available meets the criteria above.

17. What happens if a credit balance still remains after payment of all debts plus statutory interest?

In bankruptcy the remaining surplus funds will be returned to the former bankrupt when the official receiver is satisfied that:

  • all expenses of the bankruptcy have been paid
  • any future debts, interest and unproved creditors have been accounted for (see TM 36A Part 4)
  • payment in full with statutory interest to all known proved creditors has been paid ( including (proved) deferred creditors) See TM 36A.143.
  • there is no subsequent bankruptcy, since any surplus arising in the first estate should be paid in to the subsequent estate. See TM 36A.144.

The bankrupt is then entitled to apply for annulment depending on the circumstances of the case (see CHM part: Annulments and TM Chapter 6). In bankruptcy, there is now no facility to rebate fees on any surplus which arises where the bankruptcy order was made before 31st March 2004, even if the surplus arose after 1 April 2007. Refer any case of this nature to the B1/SOM for guidance.

In a company, any surplus funds available must be used as a return of capital to the contributories, according to their rights and interests (it may be necessary to firstly settle a list of contributories - see TM Chapter 58 paragraph 58.1). The process, however, is more complicated than in a bankruptcy. Full guidance on the checks to be made before making a return to contributories can be found at TM 36A Part 8 Section 1.

18. What does ‘Ring-fencing’ mean ?

Ring -fencing means that where a company goes into liquidation, administration or administrative receivership, or where there is a provisional liquidator, and there is a floating charge over assets of the company, the liquidator, administrator or administrative receiver must set-aside (ring-fence) a prescribed part of any assets realised to distribute to the unsecured creditors, rather than to the floating charge - holder.

The order of priority set out in CHM part - Distributions - Pre- distribution  and expense matters- Company and Bankruptcy Cases paragraph 5 was affected by the EA2002 in company liquidations. In a liquidation where a floating charge was created after 15 September 2003, the next class of creditors to be paid after preferential creditors may be floating charge-holders, in appropriate cases. In order that ‘ordinary’ unsecured creditors benefit in such cases, section 252 of the Enterprise Act 2002 added a new section 176A to the Insolvency Act 1986, which provides that a ‘prescribed part’ of the net property, (this includes assets realised under the floating charge which would be otherwise available only for floating charge-holders) should be set aside for the benefit of ‘ordinary’ unsecured creditors. This is what is referred to as ‘ring fencing’.

Where the company’s net property is below £10,000 in value, 50% of that amount is the ‘prescribed part’, which has to be made available to ‘ordinary’ unsecured creditors. Where the net property is over £10,000 the ‘prescribed part’ to be made available to ‘ordinary’ unsecured creditors is 50% of the first £10,000 in value (i.e.£5,000) and 20% of the property in excess of that amount(up to the maximum ‘prescribed part’ of £600,000). Where a case fulfills this criteria reference should be made to TM 36A.86-90 and TM 56.122 for guidance.

Please note, however, that the assets which form the ‘prescribed part’ are not available to pay the liquidation expenses. There are in effect, three almost parallel distribution regimes with priority of payments, which can be illustrated as follows :

General liquidation estate account

Floating charge account Prescribed part account

General liquidation expenses.

Expenses directly associated with the floating charge realisations and distributions.

 Expenses directly associated with the prescribed part, mainly distribution costs or associated expenses (such as the cost of tracing a creditor)

Preferential creditors.

Preferential creditors.

Ordinary unsecured creditors.

Ordinary unsecured creditors.

Monies available under the prescribed part rules (where appropriate).

 

 

Floating charge holder.

 

In practice, there is unlikely to be any money in the first (column) account except the petition deposit in a compulsory liquidation case.

Changes made by section 1282 of the Companies Act 2006 and Rule 4.218 of the Insolvency Rules 1986 mean that post 6 April 2008 unpaid general liquidation expenses can also be recovered from the Floating Charge account.

Ring fencing will not apply to those companies that are subject to a company voluntary arrangement (CVA) if the arrangement disapplies the provision or in those cases where the liquidator, administrator or administrative receiver applies to the court for an order to the effect that the cost of making such a distribution to the unsecured creditors would be disproportionate to the benefits. This is unlikely to arise in official receivers’ cases. 

Further guidance and details on the final distribution and application of assets for company liquidation cases can be found in TM 36A Part 5. This guidance also covers the estate accounting for the realisation of assets subject to fixed and floating charges and the associated payment of expenses and costs. TM 36A Part 6 deals with bankruptcy cases, including calculating statutory interest payments.

Notes:

  1. The official receiver may postpone or cancel declaring a dividend if there is an application to court to reverse or vary the official receiver’s decision on a proof of debt as mentioned above. The court may give leave to the official receiver to continue with the dividend but will normally direct the official receiver to set funds aside in respect of the proof in question. (See TM 36A.29)

 

Where can I find out more?

The Insolvency Regulations 1994 (as amended)

The Insolvency Proceedings (Fees) Order 2004 (as amended)

The Insolvency Proceedings (Fees) (Amendment) Order 2007

The Insolvency Proceedings (Fees) (Amendment) Order 2008

The Insolvency (Amendment) Rules 2009

The Insolvency (Amendment) Rules 2010

Insolvency Rules 1986

4.82 Admission and rejection of proofs for dividend (company)

4.83 Appeal against decision on proof (company)

4.180 Manner of distributing assets (company)

6.104 Admission and rejection of proofs for dividend (bankruptcy)

6.105 Appeal against decision on proof (bankruptcy)

11.2 Notice of intended dividend

11.3 Final admission/rejection of proofs

11.5 Decision to declare dividend

11.6 Notice of declaration

11.11 Assignment or right to dividend

11.12 Preferential creditors

Insolvency Act 1986

Sections

175 Preferential debts

176ZA Payment of expenses of winding up

176A Share of assets for unsecured creditors

189 Interest on debts (company)

324 Distribution by means of dividend (bankruptcy)

328 Priority of debts (bankruptcy, including interest on debts)

329 Debts to spouse

386 Preferential debts

407 Unclaimed dividends and undistributed balances

Schedule 6 The categories of preferential debts.

Enterprise Act 2002

Sections;

251 Abolition of Crown preference

252 Unsecured creditors (Ring-fencing)

The Insolvency Act 1986 (Prescribed Part) Order 2003

The Enterprise Act 2002 (Commencement (No. 4) and Transitional Provisions and Savings) Order 2003 

Technical Manual

Chapter 5 – Publication of insolvency information

Chapter 6 – Appeals, stays, rescissions and annulments

Chapter 36 - Estate Accounting

Chapter 36A - Distributions

Chapter 39 – Detailed Assessment 

Chapter 40 – Creditors and Liabilities

Chapter 56 – Alternative Corporate Procedures

Chapter 58 – Unregistered Companies

Case Help Manual:

Annulments, Rescissions and Recalls

Closing a Case 

Distributions - Pre- distribution  and expense matters- Company and Bankruptcy Cases

Publication of insolvency information 

ISCIS Protocols

Dividend Probability Calculator 

Forms to be used:

Intended First Dividend Gazette - Company Case 

Intended First Dividend Gazette - Bankruptcy Case  

4.25 Proof of Debt (winding-up)

6.37 Proof of Debt (bankruptcy)

ACCSUM - Account Summary

DIVPA -  Dividend – authority to official receiver to pay dividends to another person

DVDL  -  Dividend – notice to unproved creditors of intention to declare dividend

NORAD - Dividend – notice to creditors (options available for release/attach dividend)

PRFFU - Proofs, follow up

TRLTB – Trustee release, letter to debtor

 

Distributions Company and Bankruptcy Case Flowchart 

 

Procedure

All distributions will be carried out by the LTADTs. In practice, the procedure for distribution should be planned in advance with all of the distributions taking place on one day.

Where a credit balance still remains on the estate

1. Use the Dividend Probability Calculators to establish whether there are sufficient funds to pay a dividend to creditors.

It is suggested that if the resultant sum is less than £100, or if none of the creditors will receive £5 or more a dividend need not be declared.

2. If the funds are insufficient to declare a dividend to creditors, then the credit balance should be transferred to the Indivisible Balances Account.

The rules concerning preferential status differ depending on whether  the petition was presented before or after 15 September 2003 when the relevant provisions of the Enterprise Act 2002 came into force. For the definitive list of what categorises a preferential claim where a petition is presented after 15 September 2003, please refer to Schedule 6 of the Insolvency Act 1986 and Section 251 of the Enterprise Act 2002.

Initial Procedure for payment to preferential creditors (follow point 7 onwards if a dividend is to be paid concurrently)

3. Check the list of creditors and make a list of all possible preferential creditors.

4. Where neither a proof of debt nor letter confirming that there is no claim have been received, issue form DVDL to the creditor(s) concerned. (Unless known major stakeholder)

5. It may be useful in some cases to contact the creditor concerned by telephone to inform them of the situation and obtain an indication of whether they intend to prove or not. This would be done in addition to performing step 4 and should not be used as a replacement to written confirmation in any event.

6. Once the date for submitting proofs or claims has passed, and the preferential proofs have been admitted, proceed to declare a dividend for preferential creditors (and/or ‘ordinary’ unsecured creditors, where there are sufficient funds to pay all preferential claims in full and a dividend to ‘ordinary’ unsecured creditors). The payment of a dividend can be undertaken concurrently with the payment in full of preferential creditors.

Initial action for notice of intended dividend

7. Having obtained the estimated amount available for dividend, calculate the last day for lodging proofs of debt. The creditors must be allowed at least 21 days notice from when the gazette notice (for a first dividend on a petition presented on or after 6.4.09) or newspaper advertisement, if any, appears in the local paper.

8. If required, arrange advertisement of intended dividend for local paper using forms NFN2, under cover of form LCAD (Docs tab).

9. Issue form DVDL to all unproved creditors showing :

  1. the last day for proving
  2. what type of dividend is being declared, e.g. first and final, supplemental, etc
  3. the estimated liabilities
  4. estimated amount available for distribution

but do not do this for unsecured creditors if there are only sufficient funds available to (part) pay the preferential creditors only, or any debenture holder (floating charge).

Admitting the proofs

10. The official receiver must deal with all the proofs of debt within 5 business days (7 days on a petition presented before 6.4.10) of the last day given for proving debts by. When all proofs have been received check all creditors’ details and claimed amounts are updated on ISCIS ’Creditors’ tab. Details must be checked to confirm that the address of the creditor is correct. For example, some creditors do not wish to receive proofs of debt  etc and have appointed an agent to act on their behalf. To determine if this is the case you will need to check the contact lists found under Case Guidance on the ORBS home page of the Intranet. Creditors claims should be compared to any information on the office file.

11. Pass the proofs to the designated officer for "admitting" purposes by enclosing :

  1. a complete list of creditors;
  2. letters from creditors confirming that they have no preferential claim;
  3. details of any claim by the Secretary of State (in lieu of employees) and balance of any employees’ claims and
  4. details of any prior administrative receivership, voluntary liquidation or bankruptcy, etc.

12.  When instructed deal with any matters regarding the rejection of proofs.

13. Receive the admitted proofs of debt and record all details and amounts admitted for each creditor on ISCIS ( ‘Creditors’ tab). Check that the advertising costs have been paid and any credit of interest has been charged/credited. When satisfied that the balance is correct, proceed with dividend payment request process. including arranging for the OR time and rate fee to be charged.

14. Dividend payment requests are made using the ‘Funds’ tab on ISCIS and selecting the New Dividend Payment Schedule option. Once all information has been inputted the dividend will need to be approved by the designated officer and approved requests will be forwarded automatically through ISCIS functionality to EAS for processing. Where applicable, interest payments should also be created through ISCIS before processing the dividend payment. The OR time and rates fee must be charged by submitting the daily fees spreadsheet to EAS.

Notices to creditors

15. Form NORAD offers options depending on the circumstances of the case. Choose the appropriate option on ISCIS (‘Docs’ tab )and arrange to attach the dividend cheques to the appropriate notice and send to creditors. A summary of the official receivers’ receipts and payments (ACCSUM) should also be enclosed. Send a copy of the both forms to the bankrupt using the appropriate  form TRLTB.

16. If applying for release follow the workflow process in ISCIS. Where a dividend has been paid update ISCIS ‘Datastore’ tab with details.

17. If the case has been re-opened check that the status (ISCIS ‘ Case Header’) reflects that the case is now closed and electronically file all papers.  

18. File proofs of debt electronically on the office file.

19. If a surplus remains after payment of all debts plus statutory interest, refer to B1/SOM.