DEPOSITS, INDEMNITIES, AND REMUNERATION
This part deals with the various costs and financial matters that will need to be considered and dealt with prior to and during the course of a provisional liquidation.
When an application is made for the appointment of the official receiver as provisional liquidator, the applicant must deposit with the official receiver (or secure to his/her satisfaction), a suitable deposit to cover such sum as the court directs. This is to cover all of the expenses and remuneration which may be incurred by the official receiver in his/her capacity as provisional liquidator [note 1]. The court will fix the amount of the deposit on the official receiver’s advice (see paragraph 2.112) for advice where an additional deposit is required).
Where the Secretary of State or a Government Department is the applicant for the appointment of a provisional liquidator, they should be asked to provide an indemnity to the official receiver for his/her costs instead of providing a monetary deposit or other security.
Where the Secretary of State presents a petition for a winding-up order (following an investigation by CI) and an application is made for the official receiver to be appointed as provisional liquidator, there is a standing indemnity. In these circumstances there is no need for the official receiver to obtain a separate indemnity on an individual case basis, or for an indemnity to be mentioned in the court order appointing the provisional liquidator.
Where the applicant is not the Secretary of State or a Government Department the official receiver should always require an amount for deposit which reflects what the official receiver is likely to spend in dealing with a particular case, worked out on a case by case basis.
If, after appointment as provisional liquidator, the deposit proves to be insufficient, the official receiver must, as soon as he/she is aware that a further deposit is required, apply to the court (with notice to the original applicant) for an order that the required additional sum be deposited with him/her or security given [note 2]. At that stage the official receiver should give the applicant advance notice (by telephone, followed up in writing) of the sum for which he/she will be asking [note 3].
Application to court by the official receiver must usually be served at least 14 days before the date fixed for hearing on the respondent named in the application [note 4].
Where the application is urgent, which is likely in relation to an application to increase the deposit (and, indeed, most applications in a provisional liquidation are likely to be urgent), the court may;
a) hear the application immediately, either with or without notice to, or the attendance of, other parties, or
b) authorise a shorter period of service than 14 days [note 5]
See Chapter 19, paragraph 19.28 for further information on urgent applications.
The official receiver must in his/her application give sufficient details of the further sum required as deposit, and why, to enable the court to make the appropriate order.
If the court makes an order requiring an additional sum to be deposited with the official receiver, and that further sum is not paid to the official receiver within two business days after service of the order on the person to whom it is directed, the official receiver should draw the court’s attention to the default and ask the court to discharge the original order of appointment [note 6]. The official receiver should not normally incur any substantial expenditure beyond the amount of the original deposit until the further deposit is received.
If the terms of the proposed provisional liquidation order are to include a direction to the official receiver to continue the company’s business, he/she should, at the hearing of the application, draw the court’s attention to the additional need for a satisfactory indemnity supported by a cash deposit against loss in trading, so that provision can be made for these to be supplied by the applicant [note 7] (see paragraph 2.112). The official receiver should also consider whether it is appropriate to extend the limit of the indemnity to include any possible claim against him/her for damages (see paragraphs 2.44 and 2.50).
The official receiver should endeavour to persuade the court not to issue the order appointing him/her as provisional liquidator until the requirements of a satisfactory indemnity supported by a cash deposit are met. If the court nevertheless issues the order on the basis of an undertaking, and the applicant then fails to comply within a reasonable time (usually no later than the day after the order is made), the official receiver must immediately draw the court’s attention to the default with a view to the order being discharged (see paragraph 2.115).
If a winding-up order is subsequently made any deposit should (assuming the assets are sufficient following payment of the remuneration and expenses of the provisional liquidator) be repaid to the person who made it in the correct order of priority [note 8] [note 9], unless the deposit was provided for out of the company’s own property, in which case the deposit will simply form part of the company’s estate.
Without prejudice to any order the court may make as to costs, where either the official receiver or an insolvency practitioner is acting as provisional liquidator, his/her remuneration and any expenses incurred by him/her (including any special manager’s remunerations or expenses) should be reimbursed;
The court does not fix the official receiver’s remuneration. This is charged on an hourly rate set out in legislation [note 12] (see Chapter 36, paragraph 36.43). Details of the time spent on the case by the official receiver and his/her staff should be recorded for the purpose of calculating that remuneration, which is on a time and rate basis. Time sheets should be kept prior to the provisional liquidation and divided into units of 15 minutes for any time spent on a case prior to the making of a provisional liquidation order. Following the making of an order, the time spent to date and from then onwards should be recorded on the ISCIS time recording system. The maintenance of proper records in this respect will avoid any future dispute as to the amount to be charged to the case.
Where the official receiver is provisional liquidator, remuneration is payable only out of money belonging to the company and not out of money held by it on trust. It is possible that if the assets are insufficient to satisfy the official receiver's fees and expenses in dealing with the property he/she may then apply to the court to be paid his/her proper expenses and remuneration out of the trust assets for doing so [note 13]. It has been held that to prevent any unfairness the court has an inherent jurisdiction to order payment to the official receiver, as provisional liquidator, ‘a just allowance for his/her services and in reimbursement of costs and expenses reasonably so incurred’ [note 14].
Where a person, other than the official receiver, has been appointed as provisional liquidator, his/her remuneration will be fixed by the court from time to time, on his/her application [note 15]. Amongst other factors the court will take into consideration the complexity of the case and the value and nature of the assets [note 16]. The court can appoint an assessor to assist in fixing the remuneration.
Where a provisional liquidator causes a company to continue trading and has collected VAT and deducted PAYE income tax and national insurance contributions from staff wages, these expenses are given priority to the normal insolvency expenses [note 17], see Chapter 36, paragraph 36.51. It has been held that these liabilities are a charge or expense incurred in the winding up of the company as they arose from the proper performance of the provisional liquidator’s duties [note 18].
The expenses incurred by the official receiver, as provisional liquidator, in preserving, realising or getting in any of the assets should be paid in priority to the expenses of the official receiver as liquidator in undertaking the same type of work [note 19].
When an insolvency practitioner is acting as provisional liquidator, he/she must maintain in force at all times security which meets the prescribed requirements in relation to that company [note 20]. If the provisional liquidator fails to give or maintain this security, the court may remove him/her from office and make such order as it thinks fit as to costs. If the court makes such an order removing or discharging the provisional liquidator, the court must also give directions as to whether any, and if so what, steps should be taken for the appointment of another person in his/her place [note 21].
The cost of the insolvency practitioner, appointed as provisional liquidator, providing security is to be paid in the first instance by the provisional liquidator, but;
If the official receiver performs any duty in relation to the proceedings when an insolvency practitioner has been appointed as provisional liquidator (e.g. at the request of the provisional liquidator obtains a statement of affairs [note 24]) the court must direct the amount to be paid to the official receiver in respect of his/her costs [note 25]. Costs will normally be calculated on a time and rate basis and the official receiver should inform the court when such costs have arisen so that appropriate directions may be given. If necessary, the official receiver should attend any hearing for the termination of the provisional liquidator’s appointment or of the petition to ensure that such costs are provided for (see Part 5).
The official receiver as provisional liquidator of a company with limited resources, when faced with having to decide whether to fund a contract that may turn out to be a disadvantageous contract, may exercise his/her judgment in the interests of the company and the creditors in any future winding up. The official receiver has the right to withhold payment under the contract if he/she feels it is the best thing to do [note 26].
See Part 3 which deals with when to appoint a special manager in a provisional liquidation. For information on the costs associated with a special manager, in particular the security that should be provided by a special manager prior to appointment, see Chapter 32.4, paragraph 32.4.15 onwards.
When the provisional liquidator is discharged prior to the winding-up petition hearing, there is no provision in the legislation for payment of his/her remuneration and expenses. The official receiver should therefore ask the court to consider his/her remuneration and the costs incurred, whilst acting as provisional liquidator, at the hearing for his/her discharge. The court has the power [note 27] to direct as it thinks fit with respect to the accounts of his/her administration, or any other matters which it thinks fit. This doesn’t protect the provisional liquidator if the company has insufficient funds, but the provisional liquidator should take this into consideration when ensuring a suitable deposit has been provided before the order appointing him/her was made (see paragraph 2.13).
Where a provisional liquidator is appointed after 15 September 2003 and a floating charge exists over company property, which was also created after that date, then the provisional liquidator must set aside (or ring fence) a prescribed part of the property subject to the charge for distribution to the unsecured creditors before making any distribution to the charge holder. See Chapter 36A, paragraph 36A.86 for more information.