September 2006
Part 1 - General
17.3 Circumstances in which the appointment of an Insolvency Practitioner may be appropriate
The official receiver should try to ensure that an insolvency practitioner is appointed to be liquidator or trustee in any case where there are sufficient assets of an appropriate nature to justify such an appointment or if a creditor wishes to fund such an appointment, with the agreement of the insolvency practitioner, where insufficient funds exist
Previously, the official receiver has been encouraged to call a first meeting of creditors when the level of assets in a case is sufficient to attract a nomination from creditors for the appointment of an insolvency practitioner (or, if more appropriate in a case, to apply to the Secretary of State for such an appointment). The level of assets required by insolvency practitioners before they will be interested in a case will vary, hence the use of primary and secondary rotas within offices. However, with the advent of the RTLUs and the financial regime introduced by the Enterprise Act 2002, The Service has had a policy of retaining and dealing with cases where the asset realisations are straightforward and in the majority of cases this will provide a greater return to creditors.
In the main, cases which the official receiver should look to retain are those with income payments orders/agreements and straightforward, uncontested realisation cases with assets such as cash at bank or an interest in the bankrupt’s home with a willing purchaser. Although this is by no means an exhaustive list, the main thing for staff to bear in mind when assessing whether a case should be kept in-house is going to be the time needed to realise the assets, not the value of the asset that will be realised. This is because a relatively small proportion of the administration fee that is charged on each case funds this aspect of the official receiver’s work and there is no direct benefit from the amount being realised.
In circumstances where a request for the appointment of an insolvency practitioner is made by creditors and the assets have already been realised by the official receiver or are comprised entirely of cash held either by a bank or a solicitor, for example following the sale of a property and only a distribution is required then the creditor(s) should be invited to reconsider their request. In responding to the request the official receiver should confirm that s/he believes all assets have been realised and s/he is in a position to pay a first and final dividend within a specified period of time. The creditor should be asked, if in the circumstances they still wish to appoint an insolvency practitioner, to confirm the reason for their request.
In such cases if the request for the appointment of an insolvency practitioner is based on the belief that there are further assets to be realised the creditor should be asked to provide specific details. An appointment should be refused if the creditor simply thinks that further assets may come to light if an insolvency practitioner investigates but has no information or evidence to support that assertion.
If the assets realised appear sufficient for the official receiver at the RTLU to pay the creditors in full with statutory interest and return a surplus to the bankrupt, the interests of the bankrupt must be considered. In these circumstances the creditor’s request should be refused as an appointment would simply reduce or extinguish the likely surplus. This should also apply where the case otherwise fits the criteria for referral to the RTLU but the assets remain to be realised. The creditor should be advised that the official receiver holds sufficient funds or anticipates that the realisation of assets will enable all creditors to be paid in full with statutory interest and that the appointment of an insolvency practitioner at this time would be inappropriate.
If, in any case, creditors actively seek the appointment of a practitioner following the no meetings decision, the OR should follow the guidance set out in paragraph 17.66 after consideration of the general points outlined above.
17.4 Power to appoint a liquidator or trustee
A liquidator or trustee may be appointed by
17.5 Contentious issues, disputes or conflict
(Amended November 2011)
If there is the possibility of contention, dispute or conflict, either relating to the case or to the appointment of an insolvency practitioner, meetings should be held. This allows the creditors (and contributories) an opportunity to express their views. If any party is aggrieved by the outcome of the meetings, they may apply to the court [note 4].
If, in exceptional circumstances, it is decided not to call meetings, the issue needs to have been considered and the basis of the decision to seek a Secretary of State appointment fully recorded. (See Part 5 - Secretary of State appointments.)
The fact that there are disputed claims in a case should not prevent the appointment of a liquidator or trustee. Where claims are disputed, the official receiver should consider whether the evidence to support a claim is sufficient. The official receiver should consider whether he/she would be entitled to reject the claim for voting purposes (see Chapter 16 - Part 5) and should highlight the disputed claim to other creditors consulted if seeking a Secretary of State appointment (see paragraph 17.47).
Where a nomination for the appointment of an insolvency practitioner as liquidator is received after the official receiver has applied for release (e.g. by a creditor objecting to release) or release has been granted at the time a nomination is received, attempts should be made to defer the dissolution of the company before the nomination is taken forward. Where the company has been dissolved the company will need to be restored before further action can be taken to appoint an insolvency practitioner as liquidator.
17.6 Insolvency practitioners- qualifications, authority to act
Apart from the official receiver, only a person who is both authorised to act as an insolvency practitioner [note 5] and has the necessary security [note 6] (see paragraph 17.7 to 17.9) can be appointed as a liquidator or trustee. For further general information regarding insolvency practitioners, their qualifications and authorisation see Chapter 55 - Insolvency Practitioners, Part 1.
It is an offence for a person who is not in possession of a current authorisation and security to hold such an appointment [note 7].
The acts of any liquidator or trustee appointed, by whatever means, are valid notwithstanding any defect in his/her appointment, nomination or qualifications [note 8].
17.7 Insolvency practitioner’s security requirements
An insolvency practitioner will not be qualified to act in respect of an insolvent unless there is in force security for the proper performance of his/her functions and that security complies with the security requirements of the Insolvency Practitioners Regulations 2005 (IPR05). In relation to his/her appointments as liquidator or trustee the insolvency practitioner must hold -
For further information regarding security and bonding criteria see paragraphs 17.8 to 17.12 and Chapter 55 - Insolvency Practitioners.
The enabling bond [note 9] must be in a form approved by the Secretary of State and provide general insurance cover up to an amount of £250,000, against any losses caused by the fraud or dishonesty of the Insolvency Practitioner. The enabling bond is lodged with the insolvency practitioner’s authorising body and can be called upon if the insolvency practitioner fails to obtain a specific penalty (see paragraph 17.9) or the specific penalty obtained is insufficient.
The insolvency practitioner must obtain a specific penalty in respect of each and every appointment taken. The specific penalty sum will be based upon the amount of assets estimated by the insolvency practitioner [note 12].
In order to assist the insolvency practitioner in determining the correct level of specific penalty cover, the official receiver must ensure that full details of the assets and their expected realisable value are included in the record of handover [note 13]. It is not suggested that the assets are specifically valued for this purpose. In the majority of cases it will be sufficient to provide the valuation of the assets given by the bankrupt or director. After the provision of this information, it is not considered that the official receiver will take any further part in the assessment of the level of specific penalty cover.
Reference should be made to paragraph 55.9 of Chapter 55 - Insolvency Practitioners if the official receiver requires more information on specific penalty, including the submission of a bordereau (schedule of risks).
Any verbal notification of the specific penalty sum should be confirmed in writing in the official receiver’s report on the handover of the estate.
17.10 Previous insolvency proceedings
A specific penalty need not be obtained where a provisional liquidator or a liquidator in voluntary winding-up proceedings is appointed liquidator in a subsequent court winding up; nor is it required where a former administrator is appointed liquidator under section 140 [note 14].
In such cases the specific penalty from the previous proceedings continues to be effective.
17.11 Failure to effect specific penalty
If a practitioner is known to have failed to effect a specific penalty, he/she should be warned that any continuing failure will be drawn to the attention of Insolvency Practitioner Policy Section, who may take the matter up with the insolvency practitioner’s authorising body.
17.12 Verification of bonding and authorisation
The official receiver should ensure that all Insolvency Practitioners appointed to their cases have the required authorisation and security [Note 14a]. When an official receiver adds an insolvency practitioner to his/her rota the insolvency practitioner must supply evidence that he/she is properly bonded and authorised.
Where the insolvency practitioner is a regular appointee, and the official receiver knows that he/she holds a current enabling bond and authorisation certificate, it is not necessary for the insolvency practitioner to produce it for inspection on each occasion.
17.13 Insolvency practitioners - guidelines on conduct and ethics
It is the responsibility of the insolvency practitioner to ensure that he/she is acting in accordance with the guidelines on professional conduct and ethics issued by his/her professional body. If the official receiver requires further information, he/she should refer to the appropriate guidelines on professional conduct and ethics for the insolvency practitioner concerned and consider them in conjunction with the specific circumstances of the case.
Where the insolvency practitioner is authorised by the Secretary of State, the ethical guidelines may be obtained from IPU. The official receiver should also contact IPU or consult the IP database on the Intranet if he/she does not know which regulatory body has licensed the insolvency practitioner. (For information regarding potential conflicts of interest refer to Chapter 55 - Insolvency Practitioners, paragraphs 55.13 and 55.14)
17.14 Claims against insolvency practitioners
If an estate suffers loss due to fraud or dishonesty by an insolvency practitioner, whether acting alone or with others, or due to fraud or dishonesty committed by others with the connivance of the practitioner, a claim can be made under the practitioner’s general penalty (under his/her enabling bond) or the specific penalty [note 15].
The beneficiary under the bond is the insolvency practitioner’s authorising body, which will usually assign its rights under the bond to the successor liquidator or trustee. If no successor has been appointed, the official receiver should liaise with IPU
Any claims made under the bond are firstly made in respect of the specific penalty sum. If the practitioner failed to obtain a specific penalty for the estate(s) affected, or if the specific penalty understated the cover required, the general penalty (the enabling bond) can be called upon.
When performing the duties of liquidator or trustee, the official receiver is an office holder and is personally liable for his/her actions. See Chapter 1, Part 6 - The Official Receiver for further information on liability of the official receiver when acting as liquidator/trustee.
17.15 Application to court re acts of insolvency practitioner
If any person is aggrieved by an act or decision of the liquidator or by any act, omission or decision of a trustee, that person may apply to court [note 16]. The court may confirm, reverse or modify the act or decision and make such order in the case as it thinks fit. The court will only interfere with a decision if it was taken in bad faith or if it was so perverse as to demonstrate that no person properly advised could have taken it. If the official receiver receives notice of an application against him/her as liquidator or trustee he/she should immediately notify Technical Section.
17.16 Inducement or solicitation
If the official receiver learns that an offer of valuable consideration has been made to creditors or contributories to secure or prevent the nomination or appointment of a liquidator, the person who made the offer should be warned that his/her actions may constitute an offence, making him liable to a fine of up to £5,000 [note 17]. There is no equivalent offence in bankruptcy. Any practitioner who has made such an offer (whether in a winding up or a bankruptcy) and been appointed in the case concerned should be informed that the court can order that no remuneration be paid out of the assets to a person by whom, or on whose behalf, an improper solicitation has been used to obtain proxies or to procure his/her appointment as liquidator or trustee [note 18]. In all cases of suspected impropriety the official receiver should report the matter to Insolvency Practitioners Policy Section, who may take it up with the practitioner’s authorising body.
17.17 Insolvency practitioners prior involvement with insolvent
See paragraph 55.12 in Chapter 55 - Insolvency Practitioners, for information regarding sequential appointments of insolvency practitioners, previous material professional relationships and their effects upon insolvency practitioners accepting subsequent appointments as liquidator/trustee.
An appointment of joint liquidators or trustees (whether made by court order or by way of certification) must specify the way in which they are to act together [note 19]. Any certificate or order of appointment should therefore state whether any act required or authorised under any enactment to be done by the liquidator or trustee is to be done by all or any one or more of the joint appointees or whether they may act independently . Where there is likely to be a joint appointment, the official receiver should consult the proposed appointees as to the form of their appointment. If there is a resolution for a joint appointment, the chairman should put a resolution to the meeting concerning the terms of the appointment, after informing the meeting of any views expressed by the appointees [note 20]. If the creditors resolve differently to the wishes of the appointees, the creditors’ wishes must be adhered to (see also Chapter 16 - Meetings paragraph 16.79).
17.19 Release of official receiver as liquidator or trustee
(Amended July 2010)
Where the official receiver is replaced as liquidator or trustee on the appointment of an insolvency practitioner either at meetings called for that purpose or following appointment by the Secretary of State the official receiver obtains his/her release at the time he/she notifies the court that he/she has been replaced [note 21].
In post 6 April 2010 petition cases the official receiver is no longer required to file a notice of first meeting, notice of resolutions passed at a meeting or a copy of the certificate of appointment where an IP has been appointed as liquidator or trustee by the Secretary of State. The forms for notifying the court of the official receiver’s replacement as liquidator or trustee in these circumstances (notice to court under section 174 or 299) can be accessed through the OROS intranet site or by following this link http://intranet/OROS/CaseMngment/DocProd/DocProdHome.htm.
(Note: these forms are available on ISCIS).
In a case where the insolvency practitioner is appointed by the court the court will determine the time of the official receiver’s release . For information regarding the release of the official receiver as liquidator or trustee refer to Chapter 37- Release of official receiver as liquidator or trustee.
17.20 Vacation of office and release of liquidators and trustees (other than the official receiver)
For information regarding the vacation of office and release of liquidators and trustees (other than the official receiver) refer to Chapter 48 - Vacation of office and release of liquidators and trustees (other than the official receiver)
17.20A Blanket authority given by a creditor to an insolvency practitioner – information to be included (amended February 2012)
Where an insolvency practitioner holds an authority to act on behalf of certain creditors (this is often referred to as a “blanket authority”), it is important that the scope of the authority is clear. To assist both creditors and insolvency practitioners, Insolvency Practitioners Policy Section have laid down the format of an ideal authority:
(i) The authority should be on the headed notepaper of the creditor including the address and registration details.
(ii) The name and job title of the person authenticating the authority on behalf of the creditor should be printed.
(iii) A statement that the person authenticating the authority is authorised to give the authority.
(iv) The contact details of the person authenticating the authority should be included; address, telephone and email if available.
(v) The letter should be authenticated and dated.
(vi) The authority will be retained by the official receiver for 2 years after which it will have deemed to have lapsed and should be renewed by the creditor (see paragraph 17.20F).
Annex A contains a form of wording that it would be acceptable for official receivers to use. The ideal format of a blanket authority has been amended to take into account the general changes under the Insolvency (Amendment) Rules 2010, Schedule 1 as referred to in Chapter 16, Annex A. See paragraphs 16.65 and 16.66 for guidance on the meaning of authenticate in relation to proof of debt forms.
17.20B Subsequent blanket authority received from creditor (inserted February 2012)
Where the official receiver receives a later dated authority from the creditor for another insolvency practitioner it will be assumed that the creditor has withdrawn the earlier authority and the official receiver will be under no obligation to make enquiries.
17.20C ORBS central database of blanket authorities (inserted February 2012)
Official Receiver Business Services (ORBS) maintain details of all blanket authorities on a central database http://intranet/CAD/ORBS/Blanket%20Authorities/List%20of%20authorities.htm.
17.20D Guidance on use of blanket authorities in Secretary of State cases (inserted February 2012)
Guidance on the use of “blanket” authorities in relation to Secretary of State appointments is contained in Annex B.
17.20E Official receiver to use judgement with certain aspects of an authority (inserted February 2012)
The guidance contained in paragraph 17.20A and Annex A is not totally prescriptive. Official receivers should use their own judgment regarding any blanket authorities submitted to them. The guidance in paragraph 17.20A does however contain a number of points that should be addressed in the authority, e.g. that it be authenticated and dated. If the official receiver is not satisfied with the authority submitted, he/she should request further clarification, and if necessary, a new authority from the creditor. The guidance at Annex A provides creditors a “menu” of what specific authorities they give to the insolvency practitioner. If one of the items e.g. “Requesting a list of creditors” is not included, then, in the absence of further instructions from the creditor, the official receiver should decline such a request from the insolvency practitioner.
17.20F Authority to be renewed after two years (inserted February 2012)
The guidance in paragraph 17.20A specifies that the authority should be renewed after two years. The authority is a relationship between the principal (creditor) and agent (insolvency practitioner). The official receiver is not party to such agreement and cannot therefore cancel the agreement or deem it to have lapsed. The official receiver can however express doubts that the agreement is still current and seek clarification from the principal (creditor). In cases where the authority is over two years old, the official receiver should seek a new authority. In the absence of a new authority the official receiver should contact the creditor each time the insolvency practitioner attempts to rely on the old authority. In the case of existing authorities over two years old, the insolvency practitioner should be encouraged to submit new authorities.
17.20G Authorities submitted to local offices (inserted February 2012)
Where insolvency practitioners do not have a national agreement but wish to submit an authority to a local official receiver, staff should request that any new authorities address the issues raised in the guidance contained in paragraph 17.20A and Annex A. The official receiver should in all cases send a copy of the blanket authority to their RTLU.
Further guidance on the use of blanket authorities, particularly in Secretary of State appointments, is set out in Annex B.
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