ACTION FOLLOWING APPOINTMENT OF OFFICIAL RECEIVER AS PROVISIONAL LIQUIDATOR
Upon appointment as provisional liquidator the official receiver will attempt to secure the company’s bank accounts and carry out an immediate inspection of any trading premises with a view to identifying and securing the company’s business and assets. Guidance on inspections is contained with Chapter 8, and some further information relating specifically to provisional liquidations is contained within this part.
It is essential that the company’s funds are protected by the freezing of the bank account as soon as the provisional liquidation order is made. On the presentation of a petition for a winding-up order the disposition or alteration of any company assets are void unless a court has otherwise ordered [note 1].
PIU have a standard letter and fax template to inform the bank of the official receiver’s appointment as provisional liquidator.
The process for notifying the company’s bankers is as follows:
(a) Prior to the order being made, full details of the local branch where the account is held, and the group legal department should be obtained, including the name, telephone and fax number of someone at both offices who is prepared to accept notification on that date if an order is made (see paragraph 2.30). At this stage the name of the company should not be mentioned to avoid prejudice to the company should the order not be made, and to prevent the company being notified of the proposed application in advance where the application is being made without notice.
(b) On the day of the order, the sealed court orders are returned straight to the office from court, and notification should then be given by both telephone and fax to both the local branch and the group legal office, and confirmed by letters to be sent in the post.
(c) Confirmation of receipt of the fax should be obtained from all recipients and placed on the office file.
(d) During the telephone call to the bank, the official receiver should request that the bank does not notify any of the company personnel or agents of the appointment of the provisional liquidator prior to the arrival of the official receiver’s staff at the premises. This is to prevent the removal of any assets or records. The official receiver should give the bank an estimate of when the official receiver’s staff are likely to arrive at the premises.
(e) Some banks will only accept an original sealed copy of the court order as notification of the provisional liquidation, and it should be ascertained whether this is the case prior to the making of the order. If so, arrangements should be made to hand deliver notification to the bank with a sealed copy of the order prior to the inspection.
The inspection is crucial as the attendance at the trading addresses of a company will be when the company comes under the official receiver’s control, as provisional liquidator. The atmosphere is likely to be highly charged, particularly where the company has not received prior notice of the application to appoint the official receiver as provisional liquidator (see paragraph 2.19). Inspecting staff should be prepared to act in a calm, assertive and professional manner.
Where there is more than one trading address, the official receiver should arrange for a team to be at each location and the person in charge of each inspecting team should enter each location at the same time and attempt to make contact with the director(s). This is to ensure that the director(s) do not get notification of the official receiver’s appointment as provisional liquidator prior to contact with the inspecting team, and to ensure all the assets are protected that may be present at all the premises.
Following contact with the director, the examiner should ensure that they are dealing with the correct company, and that the director is prepared to co-operate with the official receiver’s staff. This may involve speaking to the company’s solicitors and faxing a copy of the provisional liquidation order to the solicitor as evidence of the official receiver’s appointment as provisional liquidator.
The aims of the inspection are:
(a) To establish the current trading position.
(c) To secure the premises, and if necessary, the locks should be changed (see Chapter 8, Part 6).
(d) To ensure that the staff cease to work, pending the official receiver’s decision on whether to dismiss them, as soon as possible (see paragraphs 2.74 to 2.76).
(e) To interview the director(s) and complete the provisional liquidation questionnaire (see paragraphs 2.77 to 2.79).
(f) To map the premises and obtain an inventory (see paragraphs 2.80 to 2.82).
(g) To identify any third party goods and secure them (see paragraphs 2.84 to 2.87).
(h) To identify and secure any assets, obtaining the director’s confirmation of ownership (see paragraph 2.84).
(i) To list and remove any accounting records including payroll records (see paragraphs 2.89 to 2.90).
(j) To check the accounting records available for any undisclosed bank accounts or for any large transactions that may have taken place so that action can be taken to trace the funds.
(k) To dismiss the company’s staff, where appropriate (see paragraphs 2.98 to 2.100).
The appointment of a provisional liquidator does not affect the rights or status of employees. Depending on whether or not a business, or part of a business, is to be continued, a provisional liquidator should ask the court to specify in the order of the appointment of the provisional liquidator that he/she has power, on the company’s behalf, to continue the employment of and pay some, or all, of the employees, or that he/she cause the company to terminate their employment at his/her discretion. Where a company’s business is to be continued it will often be necessary to keep on key staff.
As soon as the inspecting officer has the cooperation of the director(s), he/she should request all employees to assemble (if possible with company officers in attendance). He/she should advise the staff of the provisional liquidation proceedings, and that the official receiver has to decide whether to continue the company’s trading which may take some time. The inspecting officer should then send the staff home and either give them a time when to return or tell them the official receiver will notify them whether the company is going to continue trading. See paragraphs 2.98 to 2.100 for further guidance if a decision is taken to dismiss staff.
Before the staff can be released they will need to provide relevant personal details to the inspecting staff. Any company assets in the possession of staff should be taken into the official receiver’s possession, e.g. a company car. Any assets held by staff away from the office should also be identified and arrangements made to secure them. Staff should also be instructed to remove any personal belongings from the trading address, which should be supervised by the inspecting staff.
As soon as the inspecting officer has the cooperation of the director(s) and the decision has been made that trading should cease, he/she should request all employees to assemble (if possible with company officers in attendance), advise them of the provisional liquidation proceedings, and that the official receiver has decided to cease the company’s trading. The employees should be advised that they might have a claim to redundancy payments only (see paragraph 2.99), under the Employment Rights Act 1996. The inspecting officer should take copies of the booklet “Redundancy and Insolvency – A Guide for Employees” to hand out on the inspection if it is suspected that the company has employees who will be dismissed at the inspection (see paragraph 2.29).
The inspecting officer should collect names and addresses of all employees and inform them that the official receiver will forward all employees a letter explaining their rights under the Employment Rights Act 1996. The employees’ names and addresses should be recorded on the schedule of employees which forms part of the provisional liquidation questionnaire or on any written additional report produced by the inspecting officer.
All directors or company officers identified on the inspection should be interviewed separately and a separate provisional liquidation questionnaire should be completed with each director. He/she should also be encouraged to sign the questionnaire confirming that he/she has provided the information within the questionnaire. It may not be possible for all of the directors to provide information on all aspects of the company, but it is important that someone provides information about each aspect of the business and that the individual who provided that information can be identified. See paragraph 2.60 regarding the director’s duties to co-operate.
The inspecting officer should also complete an inspection report whilst at the premises [note 2]. The inspection report should preferably be completed with a company officer in all cases where trading premises are found. If a company officer is not present, the person in charge of any business premises should be requested to provide the information as far as it may be known. It is important that the person providing the information signs the inspection report as an acknowledgement of the details provided together with an explanation of the position held by that person in the company. This will be evidence of the assets, together with third party property, disclosed and should help to avoid subsequent disputes. If the person assisting in completion of the form subsequently refuses to sign the report, a note should be made on the report and signed by the inspecting officer.
In addition to completing an inspection report [note 2] the inspecting officer may, in appropriate cases, prepare an additional report to record any further matters not mentioned in the inspection report. The report should contain details of premises visited, date, persons seen, nature of enquiries made, results of such enquiries, and the action taken regarding the assets, including details of any items removed from the premises. A brief note of any telephone conversations made during the inspection should similarly be made. The report should be signed and dated by the inspecting officer and placed on the official receiver’s file. The report should provide a written record of the decisions and actions taken on the inspection. There is no standard form for this report, this may be written into the blank pages at the back of the inspection report [note 2].
Consideration should be given by the inspecting staff to the necessity to map the premises and to taking photographs, as evidence as to the position of the premises from the date it is taken over by the provisional liquidator.
The inspecting officer should prepare an inventory of any stock, plant and machinery, equipment, furniture, fixtures and fittings belonging to the company. This should usually be prepared with the director(s) to avoid later disputes concerning the assets comprised in the estate. The inventory should, wherever possible, state the make, type and any serial number of large items of plant, machinery, equipment, etc. The inventory should be signed by the company director who should be present to avoid any later disputes. If the director refuses to sign the inventory, the inspecting officer should record the refusal and sign and date the note.
See also Chapter 8, Part 4.
A professionally prepared inventory should only be obtained if the inspecting officer cannot prepare an adequate inventory, and it is considered absolutely necessary due to the nature of the stock or quantities involved or their value. Such inventories will be expensive and are not always of any benefit. Reference should be made to Chapter 32.3 regarding the employment of an agent to undertake an inventory.
Agents should only be instructed to make an inventory when the stock is valuable or extensive. The court must always be asked to sanction such an expense, so that there can be no dispute about whether the official receiver, as provisional liquidator, needed to incur it. The cost of the valuation should be charged against the deposit paid by the applicant.
Should an inspecting officer discover that a business is still trading, he/she will need to assess whether it is likely to be beneficial to allow it to continue trading. Following assessment, the inspecting officer should make recommendations to the official receiver for a decision, prior to taking action to close a business down (see Part 1).
As a general principle, a business must not be carried on unless the official receiver is satisfied that to do so will ultimately be beneficial to the general body of creditors and the company, and the estate is indemnified against any resultant loss. A report to court should be considered if appropriate.
The company director(s) should be asked to identify all items on the premises in which third parties have an interest. The items may be subject to;
The director(s) should be requested to produce all relevant documentary evidence relating to the third party property, e.g. contracts, agreements, invoices etc. Where a company officer states that an item of property belongs to a third party but is unable to evidence this, the inspecting officer should secure the property and record the details of the item, together with the nature of the third party interest claimed and seek clarification of ownership of the property at a later date.
Where machinery or similar items are identified as third party property, the inspecting officer should consider attaching a label with the name and address of the claimant. When an item of equipment is subject to a hire purchase or lease agreement, the name of the owner may be displayed on a plate affixed to the machine. If a large quantity of items is shown to belong to third parties, the items should be clearly separated from the company’s property and any agents instructed should be advised accordingly. Reference should be made to Chapter 31.0, Part 2 regarding subsequent action in relation to third party goods.
If a director or one of their relatives or friends claims any property, those items should be clearly identified in the inspection report [note 2]. The director, relative or friend should be informed that they will be required to produce documentary evidence in support of their claim.
Where the property claimed is a computer or laptop, the official receiver is entitled to take an image of any company records if it is used by the company, only following the imaging and proof of ownership being provided should the computer be handed over. See Chapter 66 on computerised accounting records.
The director(s) must provide information about the company’s assets, whether on the premises or situated elsewhere. Typically this information will be included in the provisional liquidation questionnaire.
Where the company’s assets are present at the inspection address and can be removed, the official receiver’s agents should do this on the day of the inspection to ensure the assets are protected. This should only happen after the location of the assets has been noted on the map (see paragraph 2.80). Any vehicles owned by the company should also be taken into the official receiver’s custody and removed by agents. Where the official receiver is able to obtain suitable insurance cover the assets may remain on the premises.
All PAYE and personnel files should be taken back to the official receiver’s office for safe keeping. P45’s will need to be prepared where staff are to be dismissed, and details of all subcontractors should also be obtained. All the trading books and records of the company and other documents relating to the estate, e.g. documents of title, cheque books, bank cards and correspondence should be listed and the location noted on site prior to being boxed up and removed. The inspecting officer should check the accounting records available for any undisclosed bank accounts, and recent account statements should be located and checked for any large transactions that may have taken place, so that action can be taken to trace the funds. If the records are not at the premises being inspected, the inspecting officer should obtain details of their whereabouts and take immediate steps for them to be secured.
Reference should also be made to Chapter 10 regarding custody of the company’s records.
Where an inspecting officer encounters computerised accounting records, immediate action should be taken to protect the data stored on computer and preserve the discs, drives or other media on which data is stored.
The official receiver should arrange for the all the records to be imaged prior to allowing anyone to access the computerised records. The consideration as to the requirement for computer imaging specialists to attend the premises is something the official receiver will need to consider as part of his/her planning prior to hearing to appoint a provisional liquidator (see paragraph 2.25). Where it is not possible for the computerised records to be imaged immediately the records should be safeguarded until such time as they can be imaged.
Further information on computerised accounting records can be found in Chapter 66.
If the official receiver considers that the company’s business ought to be continued and this has not been dealt with in the order appointing him/her as provisional liquidator, he/she should apply to the court and obtain it’s directions as to the amendment of the order in so far as it limits his/her powers. Before doing so the official receiver must ensure that he/she has an adequate indemnity and sufficient cash deposit or security from the applicant for the continuation of the business (see Part 4). The same provisions relating to deposits apply as if the original order included reference to the continuation of the business (see paragraphs 2.109 to 2.112). Only in rare cases and with the prior approval of Technical Section should the official receiver seek the permission of the court to continue a business without an adequate guarantee against loss in trading.
Where the official receiver decides to continue a business, he/she must bear in mind all liabilities which may arise in connection with claims for damages. Claims may arise under performance clauses, loss or depreciation of assets, any tax liability arising as a result of capital gains, etc, all liabilities to employees, e.g. under the Employment Rights Acts (see paragraphs 2.98 to 2.100 and Chapter 76) and any other relevant statutory provisions. So that the basis of any claim in relation to the loss or depreciation of assets is ascertainable, the official receiver should consider the advisability of arranging for valuations. The failure of the applicant to increase his/her deposit when required to do so must also be reported to the court so that the court may, if it thinks it the right course, terminate the provisional liquidator’s appointment [note 3].
Where the applicant has failed to provide an increased deposit or security, one of the company officers may be able to introduce a third party guarantee against trading loss [note 4] and/or a cash deposit to cover any potential loss. If this is acceptable, the official receiver should report the circumstances to the court and an appropriate order sought. See Part 4, paragraph 2.112 for information on asking for an increased deposit.
A business must be adequately supervised to prevent any mis-dealings and the official receiver, as provisional liquidator, should consider applying to the court for an order appointing a special manager to assist him/her in the carrying out of his/her duties. Such an application may be made where it appears to the official receiver that the nature of the business or property of the company, or the interests of the company's creditors or contributories or members generally, require the appointment of another person to manage the company’s business or property [note 5] [note 6]. The powers entrusted to the special manager and his/her remuneration will be determined by the court. A special manager is entitled to remuneration and reimbursement of his/her expenses, which may be heavy if a business is to be carried on for some time. The official receiver will therefore need to make a very careful and detailed assessment of all the factors involved before seeking the appointment of a special manager. See Chapter 32.4 for detailed guidance on the appointment of a special manager, including his/her duties, fees and remuneration and how the appointment is terminated.
The special manager is an agent of the provisional liquidator and requires adequate supervision by the office holder. This will include agreeing a reporting regime and agreement on how the special manager will seek and receive decisions from the provisional liquidator.
Also see Part 4 of this chapter for further guidance on obtaining an indemnity where a special manager appointment is to be sought.
Whether or not a special manager is appointed, if the company is allowed to continue to trade the official receiver, as provisional liquidator, should ensure that proper accounting records are maintained to record all the company’s trading activity. Where there is no special manager the company should normally account on basis dictated by the provisional liquidator.
If no special manager is appointed by the court and the official receiver, as provisional liquidator decides to undertake supervision of business, he/she must collect all takings and ensure that purchases and services are not obtained on credit. If it is necessary to allow sales on credit, due regard must be had to the cash flow position of the business and the credit-worthiness of the buyers.
The official receiver, as provisional liquidator, should not assume personal liability for expenses, either expressly or by implication, and undertakings in respect of the payment of overhead expenses such as rent, rates and electricity should not be given unless the amounts incurred are covered by the deposit or security. There is provision for the official receiver, as provisional liquidator, to negotiate for continuing supplies of electricity, gas, water and telecommunication services if he/she personally guarantees payment for such a supply [note 7]. A guarantee should only be given if it is covered by an indemnity, deposit or security. Payment of outstanding sums in respect of supplies at the date of the provisional liquidator’s appointment cannot be a prerequisite for the new supply [note 8].
If employees are dismissed (see paragraph 2.76), the notices affecting dismissal should be issued by the official receiver, as provisional liquidator, and not by any special manager who may be acting and who may, if he/she issues such notices, become personally liable in relation to the termination of employees’ contracts. PIU have their own notice for use when dismissing employees. When considering dismissal the official receiver should wherever possible attempt to minimise possible claims against the estate by employees whose contracts have been terminated. For instance, he/she should always try to give an adequate period of notice in accordance with the employee’s contract of employment. Where urgent action is required, however, it may not be possible to comply fully with the terms of the contract.
Depending on the terms of the order appointing the provisional liquidator, the dismissal of employers may require an application to be made to court.
An employee who is dismissed should be advised to apply to the appropriate Redundancy Payments Office for a redundancy payment [note 9] on the grounds that his/her employer is unable to pay because of financial difficulty. The Redundancy Payments Office will ask the official receiver, as provisional liquidator, to acknowledge the company’s liability for the payments concerned and the subsequent debt to the National Insurance Fund. Such acknowledgement should be given as soon as possible, as redundancy payments cannot otherwise by made.
See Chapter 76 for more information on employment rights.
Dismissal due to a provisional liquidation does not trigger an employee’s right to any insolvency payments [note 10] for any of the following:
(a) Arrears of pay;
(b) Holiday pay; or
(c) Pay in lieu of notice.
The right to a payment in respect of these will only arise if and when a winding-up order is subsequently made.
Royal Mail should be instructed to redirect the mail addressed to the company to the official receiver, as provisional liquidator, (unless the official receiver allows the company to continue trading). Redirecting the company’s mail is particularly useful if the company is still trading, as it may be a valuable source of information when dealing with uncooperative directors. If the official receiver as provisional liquidator allows the company to continue trading, the provisional liquidator will need to consider whether to redirect the mail on a case by case basis. Initially the redirection should be for a three month period. A separate request must be made for every address (e.g. both the registered office and any trading addresses) together with a separate one for any trading name at each address [note 11], see Chapter 3, paragraph 3.45. As a redirection of post frequently takes up to 2 weeks to set up, it is essential for the notice to be submitted by fax to the local Royal Mail Letter Delivery Office and agreement made by phone to have the redirection put in place immediately.
Notification of the provisional liquidation should be sent to Companies House [note 12] (see paragraph 2.36). Additionally, to prevent the dissolution of the company prior to the winding-up petition, the company’s registered office should be changed to that of the official receiver’s office so that he/she receives notification of any proposed dissolution action. The registered office can be changed by completing the Companies House form 287 and submitting it to Companies House with a sealed copy of the provisional liquidation order at the same time the standard letter available within PIU is sent notifying Companies House of the provisional liquidation.
Where the company is trading on the making of a provisional liquidation order, and it is decided to cease that trading, it is important that the official receiver notifies any third parties of the order on that day. PIU have standard letters which they use to notify these parties.
Parties to notify would include:
The official receiver as provisional liquidator is an officer of the court and is independent of the petition and liquidation process until a winding up order is made. If a creditor requests information as to why a provisional liquidator has been appointed, the official receiver should provide the creditor with details of the provisional liquidator’s functions (see paragraph 2.45). If the creditor wishes to know the grounds upon which the petition was presented, the official receiver should refer the enquirer to the petition which is a matter of public record.
When the official receiver has obtained a copy of the section 447 report from CI (see paragraph 2.22), he/she needs to ensure that it is not disclosed. Disclosure of information obtained by CI from the company under investigation [note 13], is limited by law to specific bodies [note 14]. The official receiver receives a copy of the report as a disclosure for the purpose of enabling or assisting an official receiver, as provisional liquidator, to exercise his/her functions under the enactment relating to insolvency, and is specifically provided for in legislation [note 15]. There is no provision for the further disclosure of the report to any subsequently appointed liquidator.
A person who discloses any information other than to those specifically detailed in the Companies Act 1985 is guilty of an offence [note 16].
Where the official receiver decides to interview the directors or other parties (see paragraph 2.60), he/she should ensure that the section 447 report is not disclosed to that party or left unattended with the interviewee.
As the powers of the official receiver, as provisional liquidator, are usually limited by the court order of appointment, his/her powers are usually limited to the collection and protection of assets (see paragraphs 2.49) [Note 17]. Where the value of the assets are likely to be dissipated between the appointment of the official receiver as provisional liquidator and the winding up hearing the power of sale of assets should be sought from the court by the official receiver at the time the order is made or shortly afterwards by a further application. Such assets could be;
It is important to remember that the winding-up order may not be made, so extreme caution should be exercised when considering the realisation of assets.