31.0.40  Insurance

(Amended February 2014)

The official receiver should, at an early stage, ensure that adequate insurance is in place to cover the property belonging to the company or forming part of the bankrupt's estate, and, where appropriate, obtain public and employer's liability. This may be achieved by having his/her interest noted on an existing policy or by arranging new policies (see Chapter 49, Part 2 and Chapter 29, Part 1). The official receiver may have to insure third party property in the care of the company or bankrupt (see paragraph 31.0.22) and/or any assets secured under a fixed charge if, for some reason, he/she cannot immediately contact the third party or charge-holder to inform them of the proceedings and make them aware of the need to consider obtaining their own cover. Where the official receiver obtains his/her own insurance he/she must make arrangements to review the need for its continuance. Once it is no longer required arrangements should be made for the insurance to be cancelled as per the instructions in Paragraph 49.27B. For further information concerning insurance generally, see Chapter 49. Paragraph 49.5 contains guidance on obtaining insurance. Further information is also contained in the Case Help Manual part on Official Receiver’s Insurance.

31.0.41 Removal of assets

 Where the official receiver considers it practicable and commercially worthwhile to do so, agents should be employed without delay to collect and store assets pending their disposal (see paragraph 31.0.79 for further details). The official receiver should obtain adequate insurance cover and take all reasonable steps to remove assets from unattended premises as soon as possible. Where incurring removal costs will have a substantial adverse effect on the net monies realised the official receiver should consider instructing his/her agent to sell the items of stock, machinery, etc. from the premises, see paragraphs 31.0.42, 31.0.43, 31.0.44  and 31.0.45 for further details.

31.0.42 Selling assets from the premises of a company or bankrupt

In order to maximise the sale price of assets the official receiver may wish to sell them from leased or rented premises of a company or bankrupt. However care is needed as rent may become payable in full to the landlord as part of the expenses of the liquidation or bankruptcy as a result of a sale at the premises [Note 1]. The official receiver should fully consider the likely costs when deciding whether to sell the assets from the company’s or bankrupt’s premises (see paragraph 31.0.43 and paragraph 31.0.44 for further details).

31.0.43 Selling assets from premises where no rent becomes payable

The official receiver may remain in occupation of leased/rented premises for the mutual benefit of the landlord and him/herself in order to sell the assets of a company or bankrupt. In this instance any rent accruing will not be an expense of the liquidation or bankruptcy unless the official receiver has agreed to pay rent to the landlord, although it will be a provable debt. The landlord will not be able to distrain on the assets where a winding-up order has been made [Note 2]. The landlord can still distrain on the assets for unpaid rent due prior to a bankruptcy order [Note 3]. In a bankruptcy the official receiver should consider the potential risk to the assets from distraint. If in any doubt, where possible, the assets should be removed from the premises without delay.

31.0.44 Selling assets from premises where rent becomes payable

Where the official receiver occupies the premises to sell the assets for the best price and there is no benefit for the landlord the official receiver is said to be retaining the premises “for the convenience of the” liquidation or bankruptcy. If this is the case it is likely that rent will be payable in full to the landlord as part of the expenses of the liquidation or bankruptcy. Rent only becomes due when the official receiver occupies the premises “for the convenience of the” liquidation or bankruptcy. Valuing the assets, leaving them on the premises or taking no steps to surrender the interest of the company or bankrupt in the premises do not constitute occupying the premises “for the convenience of the” liquidation or bankruptcy [Note 4]. A landlord may be able to lodge a claim in the proceedings, see paragraph 40.61 for further details.  The official receiver should ensure that rent and rates are paid promptly as both the landlord and the local authority may distrain on the assets for unpaid rent and rates accruing after the relevant date, i.e. when the official receiver occupied the premises “for the convenience of the” liquidation or bankruptcy.  

31.0.45 Occupation of premises – continuing services

The official receiver if occupying premises for the sale of assets should decide whether he/she requires needs gas, electric, water and/or telecommunication services to continue.  Paragraph 62.17 provides advice on continuing utility supplies. The contact details of energy companies can be found here. The contact details of water companies can be found here.

31.0.46 Assets secured by charges

Assets owned by a company or a bankrupt, may be subject to a mortgage, charge, lien, debenture or other type of security. Assets subject to a lien are covered at paragraph 31.0.55. The various types of security are explained in Chapter 40, Part 5. The official receiver has an obligation to protect any charged assets when he/she is receiver and manager of a bankrupt's estate [Note 5], and to take such assets into his/her custody and control when liquidator of an insolvent company [Note 6].

31.0.47 Initial contact with the charge-holder

The official receiver should inform the charge-holder of the bankruptcy order or winding-up order and establish their intentions with regard to the assets covered by their security. Where the official receiver cannot immediately contact the charge-holder to inform them of the proceedings he/she should consider obtaining insurance cover regarding the secured assets (see paragraph 31.0.24 for further information on obtaining insurance). Where the official receiver has informed the charge-holder of the liquidation or bankruptcy he/she may be justified in taking minimum steps to protect the secured assets if there is no prospect of there being a surplus for the unsecured creditors.  

31.0.47a Goods of bankrupt held by a pawnbroker - general (added October 2012)

Background information on how a pawn-broking business operates is provided in Chapter 59, paragraphs 59.77a to 59.77l but, in essence, it is a system whereby monies are lent against the value of goods surrendered by the borrower (the pawnor).  This is known as a pledge, for which a receipt, which is known as a pawn receipt, must be given [note 6a].

If the loan (and pre-agreed interest) is not repaid within the period agreed (which must be a minimum of six months [note 6b]) the lender (the pawnee) gains the right to sell the goods and apply the funds to the repayment of the loan.  The redemption period can be extended by agreement. If the goods are sold and there are surplus funds after repayment of the loan and interest, the funds are returned to the pawnor.

31.0.47b Goods of bankrupt held by a pawnbroker – dealing with the goods – pawnbroker to be instructed to sell (added October 2012)

The basic principle for the official receiver, as trustee, when dealing with goods of a bankrupt held by a pawnbroker are to establish the value of the goods (using agents where necessary), the amount of any loan (including interest) in relation to the goods and the pawnbroker’s likely costs of sale.  If the value of the goods exceeds the amount of the loan and interest and the costs of sale, the official receiver should ask the pawnbroker to sell the goods and remit the surplus funds to the bankruptcy estate.

In most cases it will be possible to deal with this on an informal basis, but there are legislative provisions to assist the official receiver when dealing with an obstructive pawnbroker (see paragraph 31.0.47e).

31.0.47c Goods of bankrupt held by a pawnbroker – dealing with the goods – where pawnbroker will not sell (added October 2012)

If the pawnbroker will not sell the goods, the official receiver may, with the permission of Technical Section, incur a debit balance to redeem the pledge so that the goods may be dealt with by his/her agents.  It is an offence for a pawnbroker to refuse to allow a pawnor to redeem a pledge [note 6c]. 

31.0.47d Net realisable value of goods less than amount of outstanding debt (added October 2012)

Where the net realisable value of the goods is less than the amount of the outstanding debt, the official receiver should inform the pawnbroker that he/she does not wish to redeem the pledge.  The pawnbroker will then sell the goods to discharge some of the debt.

31.0.47e Goods of bankrupt held by a pawnbroker – legislative provisions to assist the official receiver (amended February 2013)

The official receiver may, after giving notice of his/her intention to do so [note 6da], inspect any of the bankrupt’s goods which are held by any person by way of pledge or pawn.  Where such a notice is issued, the person on whom the notice is served is not entitled, without leave of court, to realise his/her security unless he/she has given the official receiver, as trustee, reasonable opportunity to inspect the goods and redeem the pledge [note 6d].

It is anticipated that the official receiver would use these powers only where the pawnbroker is being obstructive (see paragraph 31.0.47b).

A trustee in bankruptcy has similar powers to those available to the official receiver [note 6e].

31.0.47f Loss of pawn receipt (added October 2012)

Where the bankrupt has goods in pawn but has lost the pawn receipt (see paragraph 31.0.47a), it will still be possible for the official receiver, as trustee, to sell the goods.  This is achieved by tendering the pawnee with a statutory declaration (see Annex B) or, where the amount of the loan was under £75 and the pawnee agrees, a statement (see Annex C) [note 6f] [note 6g].

Before undertaking this, the official receiver should establish if the pawnbroker is prepared to allow the official receiver to deal with the goods without the production of the statutory declaration or, as the case may be, the statement.

31.0.47g Time period of pawn agreement expires during bankruptcy (added October 2012)

If the time period of the pawn agreement (see paragraph 31.0.47a) expires during the period of bankruptcy, the pawnbroker may sell the goods after giving the pawnor a minimum of 14 days notice of his/her intention to sell.  Such notice is not required where the loan was less than £75 [note 6h] [note 6i].

On receipt of such a notice, the official receiver will need to decide promptly whether he/she wishes to redeem the pledge prior to sale, taking into account the guidance in paragraph.  Where necessary, the official receiver may, prevent the sale by service the appropriate notice under the Act (see paragraph 31.0.47e).

31.0.47h Notice to pawnor of sale of goods (added October 2012)

Where the pawnbroker sells goods he/she holds under a pledge, he/she has to give notice, within 20 days of the sale, to the pawnor of the sale.  The notice should give details of the proceeds and expenses.  The price obtained at the sale, or the expenses of the sale, may be challenged as appropriate [note 6j] [note 6k] [note 6l]. 

31.0.48 Administrative receivers, receivers and Law of Property Act receivers

The charge-holder may have the power to appoint an administrative receiver, a receiver and/or a Law of Property Act receiver to realise their security. Where the charge-holder has appointed, or appoints, a receiver the official receiver should write to that person requesting amongst other things, copies of the documents appointing him/her and an estimate of anticipated realisations. A template letter, is available, to send to an administrative receiver is available (ADMREC). The official receiver should check the documents received to ensure the appointment is valid. See Chapter 9, part 3 for further information on the appointment of a receiver or administrative receiver. See Chapter 56, part 2 for further information on receivers and administrative receivers generally. See Chapter 69 for further information on Law of Property Act receivers.

31.0.49 Charge-holders and receivers to account for any surplus monies

The official receiver when writing to the charge-holder, or, where applicable, the administrative receiver, receiver or Law of Property Act receiver should ask for any surplus proceeds to be paid to him/her. If asked the official receiver should not provide an indemnity in respect of the receiver’s actions and remuneration.

31.0.50 Charge-holder takes no action to realise secured assets

The charge-holder may inform the official receiver that no action will be taken to realise his/her security. The official receiver would have to consider each case separately, taking into account the value of the asset, the amount secured on the asset and the costs of realisation. The official receiver may consider it appropriate to make an application to the Secretary of State for the appointment of a liquidator or trustee (see Part 5 of Chapter 17 on how to apply for a Secretary of State appointment). In this instance the official receiver should inform the charge-holder in advance of his/her application. The official receiver may also consider disclaiming his/her interest in the asset concerned. Chapter 34 provides additional information on disclaimers.

31.0.51 Assets subject to agreement with finance company

The company or bankrupt may be in possession of assets belonging to a third party that are subject to a formal agreement. Such agreements include rental agreements, conditional sale agreements, hire purchase agreements, etc. A summary of the different types of agreement in relation to motor vehicles can be found in Chapter 31.2, part 2. These agreements can apply to assets other than motor vehicles. The rights of the company or bankrupt to use the asset and, possibly, to acquire ownership on the fulfilment of any specified conditions, become exercisable by a liquidator or pass to a trustee in bankruptcy unless excluded by an express term of the agreement.

31.0.52 Dealing with assets subject to a rental agreement

In the majority of cases the official receiver will not adopt a rental agreement and the owner of the property will be invited to collect it as soon as possible. In a small number of cases the official receiver may need to negotiate a temporary extension to the agreement in order to protect the realisable value of other assets, for example, flowers.

31.0.53 Dealing with assets subject to hire purchase, etc.

In agreements, such as hire purchase, conditional sale, etc., whereby ownership of the asset passes to the bankrupt or company after the fulfilment of a number of conditions, there may be sufficient equity in the property to provide a benefit for the estate after meeting the official receiver’s sale costs. Once the official receiver has confirmed the amount needed to settle the agreement and is confident that there will be a surplus on sale, the hiring owner should be informed that the official receiver as liquidator or trustee will be taking possession of the property and arranging for its sale. The official receiver should arrange adequate insurance on the property as necessary (see paragraph 31.0.24). Where there is doubt as to whether the property can be sold for a sum sufficient to pay the settlement figure under the agreement and the costs of sale, the hiring owner should be given notice of the order and asked to hold the surplus, if any, arising from any future sale to the order of the official receiver. Paragraph 31.2.15 provides further advice. Where there is insufficient equity the official receiver as trustee or liquidator, should inform the hiring owner that he/she does not wish to adopt the agreement.

31.0.54 Assets held by third parties

A company or bankrupt may leave assets with a third party for a number of reasons, safe-keeping, storage, repair etc. The official receiver should contact the third party at an early stage and ask for the asset to be surrendered to his/her control. Paragraph 31.0.55 explains what to do if the third party claims a lien on the asset for outstanding charges.

31.0.55 Liens

A lien is a right to retain possession of another’s property pending the discharge of a debt. A lien may arise where a service has been performed but the bill has not been paid, for example retention of a motor cycle until the repair invoice is paid. A creditor with a right to a lien should be treated as a secured creditor in the insolvency unless the lien is over the books, records and papers of the company or bankrupt (see paragraphs 31.0.56 and 31.0.57). Where a creditor claims a lien, reference should be made to Chapter 9, part 5 for further information on liens and how to deal with them. The official receiver should always check that a creditor has a right to claim a lien over the property held when considering the validity of the lien.

31.0.56 Lien on a company’s books, papers and/or records

A solicitor or accountant may be entitled to a lien over the company’s books, papers or other records in their possession in respect of unpaid fees. However a lien to retain possession of any books, papers or other records (other than those giving title to property) of the company is unenforceable against its liquidator or provisional liquidator [Note 7].

31.0.57 Lien on a bankrupt’s books, papers and/or records

A solicitor or accountant may be entitled to a lien over the bankrupt’s books, papers or other records in their possession in respect of unpaid fees. However a lien to retain possession of any books, papers or other records (other than those giving title to property) of the bankrupt is unenforceable against official receiver as trustee [Note 8].

31.0.58 Recovering assets from a third party

Where a third party does not deliver to the official receiver assets belonging to the company or bankrupt on request the official receiver has various powers available to enforce cooperation. For example the official receiver may apply to the court for a private examination of the third party, at which an order that the assets are delivered to the official receiver may be made [Note 9]. Chapter 23 provides guidance on when a private examination would be appropriate. In some cases the official receiver may be able to recover the costs of the private examination, see paragraph 23.54 for further details.

31.0.59 Additional enforcement powers - companies

Where the official receiver is liquidator or provisional liquidator an application to court may be made to require any person to pay, deliver, convey, surrender or transfer the property, books, papers or records of the company to the official receiver [Note 10].

31.0.60 Additional enforcement powers - bankruptcies

A banker, agent or other person holding assets on account of or for the bankrupt is required to pay or deliver up to the trustee all property in his/her possession which belongs to the bankrupt’s estate, subject to any legal right to retain the property. If the person defaults in this obligation the official receiver as trustee should inform him/her that they may be in contempt of court and subject to such penalties as the court may impose if he/she continues being un-cooperative without reasonable excuse [Note 11]. The court also has the power, in certain circumstances, to issue a warrant for the seizure of property. Such a warrant allows the person executing the warrant to break open any premises necessary for its execution. The official receiver may make an application to court for a warrant that allows a constable or officer of the court to search premises for any concealed  assets or books, papers or records of a bankrupt [Note 12].

31.0.61 Distress

At an early stage, the official receiver should establish from the directors, bankrupt (or in the absence of these, any employees) whether a valid distress has been levied against any of the bankrupt’s or company’s property. Paragraph 9.25 explains what information about the distress the official receiver should obtain. Where distress has been levied the official receiver should send written notification of the winding-up or bankruptcy order to the distraining creditor and to any bailiff acting on his behalf.  See Chapter 9, Part 1 for information on distress.

31.0.62 Dealing with assets subject to distress

The official receiver should consider whether the goods may be claimed for the benefit of the liquidation or bankruptcy. Before making this decision the official receiver should fully consider the points raised in Paragraph 9.30 together with paragraphs 9.33 to 9.39. Where the official receiver decides to claim the goods for the benefit of the liquidation or bankruptcy he/she should follow the procedure in paragraph 9.35. If distress was levied by any person within three months prior to the winding-up or bankruptcy order (i.e. the goods were seized in that period), then the goods or their proceeds of sale are charged for the benefit of preferential creditors, see paragraphs 9.33 and 9.34 for more information.

31.0.63 Execution

The official receiver should, at an early stage establish from the directors, bankrupt (or in the absence of these, any employees) whether a valid execution has been levied against any of the company’s or bankrupt’s property. Paragraph 9.72 explains what information about the execution the official receiver should obtain. Chapter 9, part 2 provides more information on execution and what execution costs are payable.

31.0.64 Execution - completed

Where the execution has been completed (see paragraph 9.68) prior to the commencement of the insolvency proceedings, the judgment creditor will be entitled to retain the benefit of the execution. If the officer charged with the execution still holds the proceeds of sale or property when he/she receives notice of the insolvency he/she must pass the funds or property to the liquidator or trustee (see paragraph 9.84) as the execution has not been completed.

31.0.65  Execution void – companies only

Any execution levied after the commencement of a winding up by the court is void against the company’s liquidator [Note 13]. Any property or proceeds of sale held by the officer charged with the execution should be passed to the liquidator. Additionally, any proceeds of sale passed to the judgment creditor should be recovered and in both cases the judgment creditor can prove in the liquidation.

31.0.66 Dealing with assets subject to execution

The official receiver may be able to recover seized assets or their proceeds of sale. Details of when the official receiver may do this is outlined in paragraphs 9.77 to 9.85.

31.0.67 Partnership Estate

There are occasions when bankruptcy orders are made against all the members of a partnership and no winding-up order is made against the partnership. The assets of the partnership are effectively held in trust in favour of the partnership creditors and are unavailable to the trustee in bankruptcy. In some of these cases there will be significant partnership assets to be dealt with.

31.0.68 Partnership Assets

Partnership assets such as motor vehicles, tools of the trade, etc. unlike in individual bankruptcy, are not exempt from the proceedings (see Chapter 30, part 2 for further details of exempt items in a bankruptcy. The official receiver should take all assets into account when considering whether to make an application to consolidate the estates (see paragraph 31.0.69).

31.0.69 Dealing with partnership assets

Where all the partners have been declared bankrupt, the partnership has not been wound-up and there are partnerships assets the official receiver should make an application to court for the consolidation of the estates [Note 14] . The application must request that the official receiver, or any subsequently appointed trustee of the consolidated proceedings, be able to deal with the assets of the former partnership [Note 15]. This will allow the official receiver as trustee to administer the partnership estate and wind up its affairs as if the individual members had presented a joint bankruptcy petition [Note 16]. For more information on consolidation see Chapter 53 and the Case Help Manual part Consolidations.

31.0.70 Where there is a solvent partner(s)

In some instances a bankruptcy order will be made against a partner(s) leaving a solvent partner or partners who have a duty to dissolve the partnership, deal with the partnership assets and account to the official receiver for the share of the bankrupt(s). Chapter 53 provides full details of how to deal with cases which involve a solvent partner.

31.0.71 Assets outside England and Wales

The official receiver may enforce court orders in the courts of other countries of the United Kingdom and a number of other countries [Note 17]. Full details can be found in Chapter 42  (Cross Border Insolvency – Within the UK and outside the European Union) and  Chapter 41 (Cross Border Insolvency – European Union).

31.0.72 Problems dealing with assets outside the United Kingdom

The official receiver may encounter problems in dealing with assets abroad, as his/her appointment may not be recognised there. There may also be local creditors with a claim on an asset under local laws. Company officers and a bankrupt have a duty to co-operate with the official receiver in the realisation of overseas assets (see paragraphs 31.0.05 and 31.0.07) [Note 18]. If a company officer or bankrupt fails to co-operate, the official receiver should remind him/her of the relevant enforcement procedures outlined in Chapter 13.

31.0.73 List X

A List X site is a commercial site (i.e. not publicly owned) in the United Kingdom which is approved to hold government information, currently marked CONFIDENTIAL,SECRET and TOP SECRET. There are number of businesses in the United Kingdom carrying out work on behalf of government departments on List X sites. Should a winding-up or bankruptcy order be made against one of them it is essential, in the interests of national security, that all assets, books, papers and records with the appropriate protective marking under the HMG Security Policy Framework are protected and not moved without the relevant official clearance. If such a site is encountered the official receiver should identify the relevant items and follow the procedures as per the instructions in paragraph 59.76A onwards.

[Back to Part 2 – The ownership of assets and dealing with third party property] [On to Part 4 – The realisation of assets]