MARCH 2011
PART 1
PROCEEDINGS UP TO THE MAKING OF AN ORDER FOR THE APPOINTMENT OF AN INTERIM RECEIVER
2A.2 Who can be appointed as interim receiver
If at any time after the presentation of a bankruptcy petition (and before a bankruptcy order is made) the court considers that it is necessary for the protection of the debtor’s property (e.g. where the debtor has absconded), the court may appoint an interim receiver [note 1].
The court will usually appoint the official receiver as interim receiver, although an insolvency practitioner may be appointed in certain circumstances [note 2], see paragraph 2A.3 below. In most cases the official receiver is appointed and the applicant will be the petitioner. It is usual that a good prima facie case for a bankruptcy order is made before the court will appoint an interim receiver.
2A.3 When an insolvency practitioner can be appointed as interim receiver – debtor’s petition
Where the court has, on a debtor’s petition, appointed an insolvency practitioner to inquire into the debtor’s affairs and prepare a report on whether the debtor is willing to make a proposal for a voluntary arrangement [note 3] [note 4], the court may appoint the insolvency practitioner who prepared that report to be interim receiver, as that person can reasonably be expected to have knowledge of the debtor’s affairs. The official receiver can also be appointed in these circumstances, but it is less likely. It still needs to be shown to the court that the appointment is necessary for the interim protection of the debtor’s property [note 5].
2A.4 Appointment of insolvency practitioner as interim receiver – exceptional circumstances
Although not provided for in legislation, in one case an insolvency practitioner was appointed by the court as interim receiver without first having been appointed to prepare a report on the debtor’s willingness to propose a voluntary arrangement [note 6]. The claimants appealed the courts decision to appoint an insolvency practitioner rather than the official receiver, but the appeal was dismissed by the court on the grounds that it had discretion in exceptional cases as to whom to appoint, and concluded that the particular case was sufficiently exceptional to lead to the conclusion that it was just and equitable to appoint the insolvency practitioner as interim receiver rather than the official receiver.
2A.5 Who may present an application for the appointment of an interim receiver
The majority of interim receivers are appointed on the application of the creditor who petitions for a bankruptcy order. Additionally, the debtor, an insolvency practitioner appointed to prepare a report [note 7] (see paragraph 2A.3 above), a temporary administrator, or a member state liquidator appointed in main proceedings, may apply for the appointment of an interim receiver [note 8].
2A.6 Application for official receiver to act as interim receiver when debtor deceased
Where a petition has been presented after the death of the deceased debtor, an order for the administration in bankruptcy of the insolvent estate of a deceased debtor is referred to in the Administration of Insolvent Estates of Deceased Persons Order 1986 as an insolvency administration order [note 9].
An application can be made for the official receiver to act as interim receiver following the presentation of a petition and the making of a insolvency administration order (see Chapter 54, paragraph 54.3). The interim receivership should be proceeded with as in the guidance contained within this chapter, with the exception that the personal representative is the person with a duty to cooperate with the official receiver (see paragraph 2A.55).
2A.7 Expedited petition often accompanied by application for interim order
Where a creditor suspects that there is a serious possibility that the debtor’s property or the value of any of his/her property will be significantly diminished e.g. assets may be taken out of the jurisdiction, then that creditor may present an expedited bankruptcy petition with a statement to that effect [note 10].
There is normally a requirement for a three week period to have elapsed following the serving of a statutory demand before a bankruptcy petition can be presented [note 11]. When grounds for an expedited petition are found, the three week period required between the serving of a statutory demand and filing of a bankruptcy petition can be cut short (see Chapter 45, Paragraph 45.90). It is likely that an expedited petition will be accompanied by an application for an interim receiver, as a bankruptcy order cannot be made until the expiry of the three weeks from service of the statutory demand.
2A.8 PIU official receiver only to act in interim receiverships which meet specific grounds
The majority of interim receiverships will be dealt with by local official receivers, see paragraph 2A.10 below. In all interim receiverships where the case has a significant reputational or financial risk for The Service, it will be Public Interest Unit (PIU) who deal with the matter (see paragraph 2A.9). The local official receiver may be asked to assist at some stage, for example, to carry out an interview within their area or to assist in dealing with initial telephone queries. In all other cases, a local official receiver will be appointed (see paragraph 2A.10).
There will be cases initially allocated to a local official receiver which have reputational/financial risks of the type described in paragraph 2A.9 which requires PIU expertise, but size and complexity of administration and investigation would not of themselves be the defining criteria. Where an official receiver has identified a case which it is felt should be dealt with by PIU, it is essential that the referral to PIU is made at the earliest possible moment so that the risks can be properly identified.
2A.9 The work of Public Interest Unit (PIU)
PIU is part of Centralised Activities Directorate and undertakes the administration and investigation of cases brought on the petition of the Secretary of State and other regulatory authorities in the public interest including the majority of appointments of the official receiver as provisional liquidator (see Chapter 2). PIU undertakes cases in which there is significant reputational or financial risk to the Insolvency Service or whose handling/outcome has attracted or is likely to attract Ministerial interest or attention. Through application of its experience and expertise PIU seeks to minimise these risks. If an interim receivership fulfils these guidelines, PIU will be appointed.
PIU cases are often of unique complexity and/or of national and international media interest. All cases are investigated, many of which progress to a referral to legal services. Cases also involve asset tracing and recovery, dealing with professional advisers and liaison with other regulatory and investigatory authorities and Crown Departments.
2A.10 Local official receiver appointed as interim receiver
Where a local official receiver is approached by a potential applicant, with a view to the official receiver being appointed as interim receiver, the potential applicant should only be referred to PIU if the local official receiver feels that the case meets the grounds mentioned in paragraph 2A.9. Should it be necessary for the local office to contact PIU, it is preferable for this to be at official receiver level (at both ends).
Where the case is not considered suitable for transfer to PIU, PIU may be requested to provide the local official receiver with guidance as needed.
2A.11 Application to be supported by a witness statement
An application for the appointment of an interim receiver must be supported by a witness statement stating:
(a) The grounds on which it is proposed that an interim receiver be appointed;
(b) Whether or not the official receiver has been informed of the application or furnished with a copy if it;
(c) Whether to the applicant’s knowledge there has been a proposed or is in force a voluntary arrangement;
(d) The applicant’s estimate of the value of the property or business in respect of which the interim receiver is to be appointed [note 12].
Additionally, if an insolvency practitioner has been appointed to prepare a report, and he/she is the proposed interim receiver instead of the official receiver, the witness statement should state that the insolvency practitioner has consented to act where he/she is not the applicant [note 13].
2A.12 Application for appointment of official receiver as interim receiver
Where the official receiver is the proposed interim receiver, the official receiver will in most cases be served with copies of the application and supporting witness statement by the applicant. In certain cases, because of extreme urgency, it may not be practicable for a copy of the application to be served, but the official receiver should always be given sufficient notice of the application to enable him/her to be present at the hearing [note 14].
Where the official receiver is the proposed interim receiver, but an insolvency practitioner has been appointed to prepare a report mentioned in paragraph 2A.3, the insolvency practitioner will also be sent copies of the application and supporting witness statement.
2A.13 Attendance at hearing for appointment of official receiver as interim receiver
The official receiver should attend the hearing to make any representations considered necessary, especially in regard to the terms of the order (as the court will make an order on such terms as it thinks just) [note 15].
Such representations may be regarding any practical matters that the official receiver needs included in the order to assist him/her in dealing with the case, and the inclusion of references to the payment of his/her expenses and remuneration (see Part 4). The official receiver should also ensure that a sufficient deposit or security has been provided to cover the costs in carrying out his/her duties and that appropriate details will be included in the court’s order [note 16].
If the debtor attends the court hearing, the official receiver should interview him/her at the court using the bankruptcy preliminary questionnaire as a prompt, see paragraph 2A.76.
The amount of the deposit or security should be commensurate with the level of any trading to be continued, coupled with an indemnity against loss and possible damages (see paragraphs 2A.107 to 2A.109).
2A.15 Application for appointment of insolvency practitioner as interim receiver
On an application for the appointment of an interim receiver, where the applicant is the debtor or an insolvency practitioner appointed to report to the court on the viability of a voluntary arrangement, he/she may propose that a particular insolvency practitioner is appointed rather than the official receiver [note 17] (see paragraph 2A.3). The official receiver will not usually receive details of the application for the appointment of an insolvency practitioner as interim receiver, as the applicant is not obliged to send him/her copies [note 18]. The insolvency practitioner proposed as interim receiver is entitled to attend and make representations at the hearing of the application [note 19].
The official receiver will not normally get involved in cases where the proposed interim receiver is an insolvency practitioner, and need only attend the hearing if he/she thinks it necessary to make any representations with regard to the terms of the order. The official receiver should liaise in this connection with the proposed insolvency practitioner.
2A.16 Petition presented with notice to the debtor
The application for an interim receiver can be presented either with or without notice to the debtor, ‘With notice’ is where the applicant gives notice to the debtor that he/she intends to apply to have an interim receiver appointed, and explains why. This will usually bring a response from the debtor and the applicant may negotiate a change in the debtor’s business practices. This will often result in an interim receiver not being appointed.
2A.17 Petition presented without notice to the debtor
When an application for an interim receiver is presented ‘without notice’, it means that the applicant goes to court without giving notice to any party other than the proposed interim receiver. The application will be presented in open court, but the hearing will not be on any of the court listings. An applicant will do this where they consider that the application should be brought to the court’s attention immediately, and there is a real danger that the debtor’s assets will disappear if given notice of the application. It is a big decision for the court to appoint an interim receiver without giving the debtor a chance to make representations to the court, and the applicant will need to present the court with detailed information as to the reasons why it is considered that the debtor’s assets are in jeopardy [note 20].
2A.18 Appointment refused by interim receiver
If the applicant fails to provide sufficient funds for a deposit or adequate indemnity (see Part 4), the proposed interim receiver’s remedy is to refuse the appointment when attending at the hearing of the application, or following appointment, to apply for his/her discharge pointing out to the court why the indemnity was required and how as a result the aim of the appointment could not be achieved [note 21] [note 22].
2A.19 Application for appointment of an interim receiver dismissed at hearing
When an application for an interim receiver is submitted, it may be dismissed where the court is content that there is no advantage in the appointment being made, for example if the debtor had offered undertakings to freeze his/her business pending the hearing of the bankruptcy petition, and the court was satisfied with the undertaking. It is also open to the court to dismiss an application for an interim receiver on the basis that the grounds for making such an order have not been met or proved as the legislation only provides that the court “may” make an order [note 23].
2A.20 Pre-appointment planning
The official receiver is usually notified by the applicant or their solicitors that an application is going to be made for the appointment of the official receiver as interim receiver prior to the hearing (see paragraph 2A.12). In addition to a copy of the application and witness statement, the applicant may provide the official receiver with copies of the draft interim receivership order, the bankruptcy petition and exhibits that have been produced in the course of their investigations.
The official receiver should use the information provided by the applicant to complete preparation notes, and consider what action will be needed should the order be made.
2A.21 Matters to be considered prior to appointment as interim receiver
The official receiver should usually consider the following matters on receipt of the information from the applicant (see paragraph 2A.20):
(a) Whether professional advice from solicitors or accountants will be needed;
(b) If the debtor has a trading business, whether part of the business is unobjectionable and can be continued;
(c) If continued trading is a possibility, whether a special manager should be approached;
(d) Whether an inspection is needed, and if so at which locations;
(e) The number and grade of staff needed to carry out and assist on any inspection;
(f) If the case is allocated to PIU, who the local official receiver is and whether to put them on notice that an inspection will be carried out in their area. Also to discuss with the local official receiver or PIU if their assistance is needed;
(g) Travel and accommodation arrangements for the inspection should be considered but not booked in case the order is not made;
(h) Local agents (including computer imaging agents – see paragraph 2A.87) to be put on notice of the likely scope of the work, including number of boxes of records, location of premises, etc;
(i) Whether to continue trading or close down a business should be considered and documented in advance. Until the order is made and the current position discussed with the debtor no decision can be made as to continued trading.
2A.22 Official receiver to consider the terms of the order
The official receiver should check the draft interim receiver order prior to the hearing to ensure that it contains sufficient powers to allow the official receiver to carry out all the functions he/she will need to deal with that particular case. Where a particular power appears to be missing, the official receiver could liaise with the applicant to get the draft order amended, or report the matter to court at the hearing. Ultimately, it is the court’s decision whether to accept and use the draft order or make an order in their own terms.
2A.23 Official receiver to prepare for inspections
Prior to the hearing for the appointment of an interim receiver, the official receiver should prepare for an inspection (where trading is known or suspected) by preparing a pack containing all the necessary paperwork and equipment, and sufficient boxes for the accounting records to take on any inspections (see Chapter 8, paragraph 8.21 for a full list of items to take).
Where a debtor is trading, an inspection will normally be undertaken at all trading premises as soon as possible after the official receiver’s appointment as interim receiver (see Part 3). This is to protect any assets prior to the debtor becoming aware of the order. Where there is more than one trading premise, an inspection should be planned for each location to take place simultaneously and so separate teams of staff will be needed for each site, where staffing allows. Consideration as to an inspection of the debtor’s home should also be given (see paragraph 2A.68).
2A.24 Official receiver to ensure bank accounts are located prior to order
The official receiver should attempt to obtain details of all of the debtor’s known bank accounts from the applicant prior to the hearing and prepare notifications to the banks so that immediate contact can be made with them on the making of the order. This should include details of a telephone and fax number for the branch where the account is held and the group’s legal office. Contact names should be obtained for somebody willing to accept notification of the order, should it be made, at the branch and legal office (see paragraph 2A.66).
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