CONTENT OF ORDER, DUTIES AND FUNCTIONS OF INTERIM RECEIVER

March 2011

PART 2

CONTENT OF ORDER, DUTIES AND FUNCTIONS OF INTERIM RECEIVER

2A.25 Power of court to appoint Interim receiver

If the court is satisfied that an applicant for the appointment of an interim receiver has shown sufficient grounds, the court may appoint an interim receiver of the debtor’s property on such terms as it thinks fit [note 1] [note 2]. 

 

2A.26 Order appointing official receiver as interim receiver

The order appointing an interim receiver [note 3] is required to state the nature and a short description of the property of which the person appointed is to take possession, and the duties to be carried out by him/her in relation to the debtor’s affairs [note 4(see paragraph 2A.33).

 

2A.27 Sealed copies of order

The court shall, as soon as practicable, send two sealed copies of the order to the person appointed as interim receiver [note 5]. More copies of the sealed order may be required depending on the number of banks to served.

Where the applicant has prepared draft orders, the court may seal those copies whilst the official receiver’s staff waits in court to ensure a copy of the order is available on any inspection and to send to the debtor’s bankers forthwith.

 

2A.28 Distribution of order

Of the two copies of the order [note 6] sent to the official receiver (or insolvency practitioner), one must be sent to the debtor as soon as reasonably practicable [note 7].  This should be sent to the debtor at the address referred to in the bankruptcy petition, or if an inspection is carried out, it may be served personally on the debtor at the inspection.

A copy of the order should also be sent to any other address referred to in the bankruptcy petition or court file if it appears likely that the debtor is not at the address referred to in the petition, e.g. served on his/her solicitors.

The official receiver should place any remaining sealed copies of the order on the official receiver’s file.

 

2A.29 Advertisement of appointment of interim receiver

When an interim receiver is appointed, there is no requirement for the interim receiver to gazette or advertise that order.  In exceptional cases the official receiver may consider advertising or notifying various parties as he/she sees fit to assist with the administration of that case, but it is not normally considered necessary.

 

2A.30 Where service of order may be difficult

If the official receiver is aware at the time of the hearing to appoint an interim receiver, that service of documents on the debtor will be difficult (e.g. because he/she is residing abroad), the official receiver may wish to seek an appropriate order at that time or subsequently [note 8].  For example where an order needs to be served outside the court’s jurisdiction, the court may need to give permission for alternative service on the debtor, depending on the circumstances of the case [note 9] [note 10].

 

2A.31 No address known for service of order

If, for any reason, the official receiver has no address at which to serve the order appointing the interim receiver (see paragraph 2A.28), he/she must apply to the court for directions [note 11].

 

2A.32 Appointment of two or more interim receivers

An insolvency practitioner must be an individual [note 12], although two or more individuals may act as joint interim receivers.  A joint appointment of two or more persons to act as joint interim receivers is rare, but where this occurs, the order must declare whether any act required or authorised under any enactment to be done by the interim receiver is to be done by all or any one or more of the persons for the time being holding the office.

 

2A.33 Contents of order to include a description of property

The official receiver should ensure that the order of appointment as interim receiver sets out a short but clear description of the property of which he/she is expected to take possession [note 13].  This will in most cases extend to all the debtor’s property, but if the official receiver considers that he/she may have difficulty identifying this, a request should be made to the court to refer in the order to "all the debtor’s property of which the official receiver, as interim receiver, becomes aware". The order should also define the duties which the official receiver is expected to perform in relation to the debtor’s affairs [note 14] (see paragraphs 2A.43 to 2A.47).

 

2A.34 Interim order only covers specific property

Occasionally, the terms of the interim order will be that the official receiver, as interim receiver, is appointed only to take possession of particular specified  property.  This will most likely happened when the applicant is concerned about something specific, such as the sale proceeds of a recently sold house.  In such circumstances the official receiver should ensure that he/she only deals with the protection of the property covered by the order.  

 

2A.35 Property not covered by the order

If the official receiver, as interim receiver, becomes aware of any property not covered by the terms of the order which he/she considers ought to be protected, he/she must tell the applicant so that the applicant can apply to have the order amended. If the applicant does not so apply, the official receiver should apply to the court for directions giving notice to the debtor and the applicant [note 15].  No steps should be taken to protect assets excluded from an order until the order has been varied to permit this.

 

2A.36 Notice to solicitor when application for directions submitted

In relation to any application for directions in respect of the management of any property or business, in addition to giving notice to the original applicant, it is good practice for the official receiver, as interim receiver, to give additional notice to any solicitors acting for the applicant.

 

2A.37 Property to include all debtor’s property

If the terms of the order covers all of the debtor’s property rather than just a specific item of property, then the official receiver, as interim receiver, should take possession of all of the debtor’s property, whether or not it would be comprised in the debtor’s estate if he/she were to be adjudged bankrupt [note 16].

 

2A.38 Indemnity where property not covered by the order

If there are any circumstances which suggest doubt or risk in taking possession of any property specified in the order and immediate recourse to the court to clarify the position is not possible, the official receiver, as interim receiver, must obtain an adequate indemnity from the applicant before taking possession (see paragraphs 2A.107 to 2A.113). Where such an indemnity cannot be obtained, the official receiver should take no action until he/she is able to report to the court and seek it’s directions as to the appropriate steps to be taken [note 17].

 

2A.39 Possibility of damages

Any interference with the debtor’s affairs outside the terms of the court’s order may result in a claim against the official receiver, as interim receiver, for damages.

 

2A.40 Functions of a interim receiver – protection of estate

The function of the official receiver, whilst acting as interim receiver, is to:

  • Protect the estate pending the outcome of the petition hearing.  The interim receiver’s powers may be limited or restricted in any respect by the order of appointment, but, unless otherwise directed by the court, he/she has all the rights, powers, duties and immunities of a receiver and manager [note 18, note 19 and note 20] (see paragraph 2A.41 below);
  • Safeguard the debtor’s records; and,
  • Investigate the debtor’s affairs in so far as it is necessary to discover, protect and recover any assets.

If the official receiver considers that any proposed action may conflict with the terms of the order, application should be made to the court for directions [note 21].

 

2A.41 Functions of interim receiver the same as if he/she is receiver and manager

The interim receiver has the same powers as if he/she were a receiver or manager appointed by the High Court and he/she is entitled to sell or otherwise dispose of any perishable goods comprised in the estate and any other goods so comprised the value of which is likely to diminish if they are not disposed of [note 22].

 

2A.42 Steps to protect property

The official receiver, as interim receiver; 

  • shall take all such steps as he/she thinks fit for protecting any property which may be claimed for the estate by the trustee of that estate;
  • may, if he/she thinks fit (and shall, if so directed by the court), at any time summon a general meeting of the debtor’s creditors [note 23].

 

2A.43 Duty of interim receiver to take custody of debtor’s property

The interim receiver must take into his/her immediate possession all of the debtor’s property, or, as the case may be, the part of it to which his/her powers are limited [note 24] (see paragraph 2A.34).

 

2A.44 Powers of interim receiver over assets generally

The court may limit the official receiver’s powers in the order of appointment as interim receiver [note 25] (see paragraph 2A.45), but in practice, where the order does not refer to a specific item of property, the order usually limits the powers to ‘taking possession of, collecting and protecting the assets of the debtor in this country or abroad… but such assets are not to be distributed or parted with until further order.’

 

2A.45 Powers of interim receiver over specific assets

The court may limit the official receiver’s powers, as interim receiver, in the order of appointment to a specific item of property [note 26].  Where this is the case, the order usually limits the powers to ‘taking control of, and protecting [address or description of property]… but such assets are not to be distributed or parted with until further order.’

 

2A.46 Other powers usually contained within the order

The form of the order appointing the official receiver as interim receiver is usually drawn up by the applicant.  In addition to the power to take control of property (see paragraphs 2A.43 to 2A.45 above), the standard powers that are usually included are as follows:

(a) To take possession of and secure the debtor’s books and accounting records.

(b) To investigate the affairs of the debtor in so far as is necessary to protect the assets of the debtor.

(c) To investigate in so far as is necessary  (with a view to identifying, tracing and protecting the assets of the debtor) any transactions entered into by the debtor which may have resulted and/or involved the dissipation and/or reduction in value of all or any of the debtor’s assets, or which in the event of a bankruptcy order may be avoided and/or recoverable.

(d) To engage all such solicitors, other agents and specialists as may be necessary to assist him/her in the carrying out of his/her duties and the exercise of his/her powers under this order.

(e) Without prejudice to the foregoing, to commence such action in this country or abroad for the protection of and/or recovery of documents and/or assets as may be required.

(f) To be at liberty to terminate, complete or perfect as advised any contract or transactions involving the debtor’s assets.

 

2A.47 Powers sometimes included in the order

It can also be contained in the order that the official receiver, as interim receiver, has the further powers:

(a) To gain entry to the debtor’s trading premises, take possession of and protect the debtor’s assets.

(b) To have the discretion to retain, pay or dismiss employees (see paragraph 2A.73 to 2A.75).

(c) To retain and operate the existing bank accounts of the debtor and where necessary open new bank accounts.

(d) Insofar as any part of the property or assets of the debtor are held on trust, then the interim receiver shall be entitled to retain such sums as the court shall think fit by way of remuneration, disbursements and expenses including his/her expenses in connection with the administration of the trusts affecting such property [note 27].

 

2A.48 Duties that an interim receiver does not have

The official receiver, as interim receiver, has no statutory duties.  What he/she is required to do is contained within the order (see paragraphs 2A.43 to 2A.47 above). In particular, the official receiver has no statutory duty to investigate the affairs of the debtor, establish the causes of failure, or make such report if any to the court as he/she sees fit (see Chapter 15, part 1).  The interim receiver also has no duty to summon a meeting of creditors, although he/she does have the power to summon a general meeting of creditors if this is considered necessary [note 28] (See Chapter 16 on meetings of creditors). The interim receiver cannot seek the appointment of anyone else in his/her place (See Chapter 17 for insolvency practitioner trustee appointments).

Additionally, the official receiver has no duty to send a report to creditors [note 29], but can do so such action is considered appropriate.

 

2A.49 No duty or power to realise property

The official receiver, as interim receiver, does not normally have the power to realise (only protect) assets pending the outcome of the bankruptcy petition hearing and appointment of a trustee, although his/her exact powers will be listed in the order of appointment (see paragraph 2A.26).  The official receiver, as interim receiver, is entitled to sell or otherwise dispose of any perishable goods and any other goods the value of which is likely to diminish if they are not disposed of [note 30], although he/she should still apply to court for direction, see paragraph 2A.105.

 

2A.50 Powers and rights of the creditors

After the appointment of the official receiver, as interim receiver, no creditor who has a claim which would be provable in bankruptcy proceedings has any remedy against the debtor or his/her property, including the commencement of any action [note 31] [note 32]. The official receiver should therefore inform any creditor who appears likely to continue or commence an action, that any costs he/she incurs, may not be recoverable from the debtor’s property, unless the court has given leave for the proceedings to be continued or commenced, and subject to such terms as the court may impose.  This may not prevent a landlord forfeiting by peaceable re-entry [note 33].

 

2A.51 Execution levied prior to appointment of interim receiver

Where execution has been levied prior to the appointment of an interim receiver, the provisions of the Insolvency Act 1986 [note 34] do not apply until a bankruptcy order has been made [note 35].  This differs from provisional liquidations where the restrictions on execution apply from the date a provisional liquidator is appointed, see Chapter 2.  If an enforcement officer is in possession of goods on the appointment of the official receiver as interim receiver, the official receiver cannot request that those goods be held to the interim receiver’s order.

 

2A.52 Lien claimed over books or records

Unlike bankruptcy, a lien claimed over books and records is not specifically unenforceable against the official receiver, as interim receiver [note 36], see Chapter 9, paragraph 9.109. Where the official receiver, as interim receiver, needs to obtain control over a debtor’s books and records, and it was not provided for in the order, he/she should go back to court for directions (see paragraph 2A.40).

 

2.53 Applicable duties from the Insolvency Act 1986

Certain provisions of the Insolvency Act 1986 are available to the official receiver, as interim receiver, if required to assist him/her in complying with his/her duties and exercising the powers conferred on him/her by the court (see paragraphs 2A.54 to 2A.58).

 

2A.54 No liability of interim receiver for wrongful seizure

If the official receiver, as interim receiver, seizes or disposes of any property which is not the property of the debtor but at the time of seizure or disposal, he/she believed or had reasonable grounds for believing that he/she was entitled to seize or dispose of that property, then he/she is not liable to any person for that loss or damage caused, unless a loss or damage is caused by the official receiver’s negligence [note 37].  Further, the official receiver will have a lien on the seized property or the proceeds of its sale for his/her expenses as interim receiver, incurred in connection with the seizure or disposal.

 

2A.55 Debtor’s duty to co-operate

The debtor shall give the official receiver, as interim receiver, an inventory of his/her property and other information, and shall attend on the official receiver at such times as reasonably required for the purpose of allowing the official receiver to carry out his/her functions [note 38], see Chapter 11, paragraph 11.59.

Additionally, the statutory duties relating to inquiry into a bankrupt’s dealings and property, and the court’s enforcement powers there under, apply as if the reference to official receiver or trustee were to interim receiver, and bankrupt or his/her estate were to the debtor and his/her property [note 39].  

 

2A.56 Persons required to co-operate in interim receivership

Various parties are under a duty to give the official receiver, as interim receiver, such information concerning the debtor’s dealings, affairs or property as the interim receiver may reasonably require (see paragraph 2A.55 above), they are;

(a) the debtor or the debtor’s spouse or former spouse or civil partner or former civil partner;

(b) any person known or believed to have any property comprised in the debtor’s property in his/her possession or to be indebted to the debtor, and;

(c) any person appearing to the court to be able to give information concerning the debtor or the debtor’s dealings, affairs or property [note 40].

For more information and the penalties for failure to co-operate, see Chapter 13, Part 2.

 

2A.57 Inquiry into debtor’s affairs and private examinations

If the official receiver, as interim receiver makes application to the court, the court may summon to appear before it, any of the parties mentioned in paragraph 2A.56, for the purpose of providing information about the debtor’s  dealings, affairs or property.  Such an appearance would be an examination in private rather than public [note 41] [note 42].  If such a person fails to appear, the court has certain enforcement powers [note 43].  Where such a person is ordered to appear before it, the examination does not have to be within the UK [note 44], although the court has refused to exercise its discretion to allow an examination in Belgium [note 45].  See Chapter 23 for further information. 

The court can also order any person who has in his/her possession or control property belonging to the debtor, to deliver that property up to the official receiver [note 46].  The court may also order such a person who is indebted to the debtor to pay that money to the official receiver [note 47].

 

2A.58 Privilege against self incrimination

The debtor cannot claim privilege against self incrimination as a ground for not disclosing information required by the official receiver, as interim receiver, to manage his/her affairs [note 48] (see Chapter 47, paragraph 47.3).

 

2A.59 Interim receiver cannot require a statement of affairs

The official receiver, as interim receiver, should only interview the debtor for the purpose of establishing the existence of assets and their whereabouts, he/she does not have an investigative role at this stage. Unlike provisional liquidations (see Chapter 2), the official receiver cannot require a debtor who is not subject to bankruptcy proceedings to lodge a statement of affairs [note 49].

 

2A.60 Appointment of interim receiver valid when bankruptcy petition subsequently dismissed

Any act or expense incurred by the official receiver, as interim receiver, prior to the hearing of the bankruptcy petition, will not be invalidated if the petition is subsequently dismissed.  This also applies to an act or expense incurred by a special manager appointed by the official receiver, as interim receiver [note 50]

 

 

[Back to Part 1 – Proceedings up to the making of order] [On to Part 3 – Action following appointment]