Part 2 The ownership of assets and dealing with third party property
The official receiver should take reasonable measures to ensure that any property in the possession of the company, bankrupt or a third party is owned by the company, or is owned by the bankrupt, and is included in the bankruptcy estate. The official receiver has a statutory duty to protect all property held by the company or bankrupt for example by insuring it until such time has he/she establishes ownership by a third party [Note 1].
If the official receiver believes that third party property belongs to the company, or belongs to the bankrupt and comprises part of his/her estate, and the official receiver takes possession or sells the property he/she has some protection from the Insolvency Act 1986 if that belief is reasonable [Note 2]. The official receiver will not be able to rely on this protection where he/she has had notice of a claim by a third party unless there are reasonable grounds for rejecting the claim. If the official receiver, acting as liquidator, receiver and manager or trustee, is held to have acted negligently, for example, by selling the property after receiving notification from a third party, he/she may be personally liable for any loss or damage resulting from the seizure or sale of the property [Note 3].
Where the official receiver acts in good faith any costs incurred in the seizure and sale of property subsequently claimed by a third party can be claimed by him/her as a lien on the property or sale proceeds [Note 4].
In a number of instances the official receiver will encounter property owned by the company or owned by the bankrupt and comprising part of his/her estate subject to a legal claim by a third party, for example assets covered by a charge, such as a mortgage, assets covered by a finance agreement, such as hire purchase, or assets claimed under distress, under an execution or pursuant to a lien. For further information about property subject to a charge see paragraph 31.0.46. For further information on dealing with property subject to finance agreements see paragraph 31.0.51. For further information on dealing with property subject to a lien see paragraph 31.0.55. For further information on dealing with property against which distress has been levied see paragraph 31.0.62. For further information on dealing with property against which execution has been levied see paragraph 31.0.63.
A third party may claim goods under a retention of title clause. A retention of title clause is a form of security used by a supplier of goods to protect against a buyer’s failure to pay or insolvency. The official receiver should ensure that the supplier is entitled to claim retention of title (see Chapter 63 for what needs to be done to establish the claim, in particular paragraph 63.6 and paragraph 63.13). The official receiver should ensure that claims by parties connected to or associated with the company or bankrupt are valid [Note 5]. The official receiver should deal with retention of title claims in accordance with paragraph 63.12. The official receiver should seek to avoid claims for damages by wrongfully taking actual or constructive possession of property to which the company or bankrupt has no title.
The official receiver may ask a third party to complete a statutory declaration, Form ATCP, as evidence of their ownership of property. The declaration should be tested by a more careful scrutiny of the supporting documentation where the third party is associated with the bankrupt [Note 6]. If the official receiver is satisfied that a claim by a third party should be rejected the claimant should be asked to withdraw his/her claim within seven days. If the third party fails to withdraw the claim he/she should be told the official receiver may apply to the court for a private examination [Note 7] at which he/she will ask for an order by the court that the disputed property form part of the bankrupt’s estate [Note 8]. The official receiver if successful will then make an application for costs to be awarded against the third party [Note 9].
Where the names and addresses of third party owners of property are known the official receiver should send them Form NTPG. Where the official receiver intends to obtain insurance on third party property (see paragraph 31.0.23) Form NTPG should be amended accordingly.
Once the official receiver becomes aware that property belongs to, or is likely to belong, to a third party the statutory duty to protect (see paragraph 31.0.14) may, in certain circumstances, be replaced by a common law duty of care in negligence, i.e. a duty to take reasonable care of the property until such time as it is claimed by the owner (see paragraph 31.0.25).
The official receiver would not normally arrange insurance for third party property. Where the official receiver does not intend to obtain any insurance Form NTPG should be issued to third party owners of property informing them that insurance will not be obtained and the goods may be sold if not collected within 90 days, see paragraph 31.0.35 for further details.
In those cases where there is a risk of public liability the official receiver should obtain public liability insurance. This includes those buildings where there is unlikely to be any surplus sale proceeds. The official receiver may wish to obtain insurance cover where the third party goods are valuable, where he/she is unable to contact the owner of the property or to obtain cover against any claim that he/she failed to exercise adequate care as a bailee.
(Amended February 2014)
Where the premium is likely to be high the official receiver should discuss the matter with Technical Section in advance. Further guidance on obtaining insurance is contained in paragraph 49.5 and the Case Help Manual part on Official Receiver’s Insurance. The official receiver in obtaining insurance as receiver and manager or trustee becomes or may become an involuntary bailee (see paragraph 31.0.30).
The official receiver as receiver and manager or trustee does not have a duty to protect property that is not part of the estate. A duty of care may arise if the official receiver becomes, either voluntarily or involuntarily, a bailee of third party property. Bailment is the delivery of goods by one person to another for some purpose, under a contract, express or implied, that after the purpose has been fulfilled, they shall be returned to the bailor, or otherwise dealt with according to his/her directions, or kept until reclaimed. A bailee is under a common law duty to take reasonable care of third party goods and not to sell or destroy them. Paragraph 31.6.53 provides additional details about bailment.
A company in possession of third party property is a bailee. The liquidator has no duty to protect third party property however the company may become liable for damages under common law for failing to fulfill its duty to the third party. The official receiver in protecting the estate against potential claims for damages should take no steps that would put him/her personally in the position of a bailee. When the liquidator insures third party goods (see paragraph 31.0.23) he/she does not personally become bailee.
A bankrupt in possession of third party property is a bailee. The official receiver, as receiver and manager or trustee, has no duty to protect third party property and should, in general, take no action which would put him/her in the position of being an involuntary or voluntary bailee. In certain circumstances the official receiver may become a voluntary (see paragraph 31.0.31) or involuntary bailee (see paragraph 31.0.30).
Wherever possible, owners should be requested to collect their property from the former trading address or from other premises of the company or bankrupt without delay. Detailed instructions for arranging the collection of third party property can be found in paragraph 31.6.52. The official receiver should arrange insurance cover where appropriate (see paragraph 31.0.23).
There are a number of occasions where the official receiver will take possession of third party property, see paragraphs 31.0.30 and 31.0.31 for details. Where the official receiver does not become bailee of unclaimed goods they may be left for the landlord or mortgagee of the premises to deal with. In some cases unclaimed goods will be left with the bankrupt.
The official receiver becomes an involuntary bailee when, to protect assets, he/she secures premises which are leasehold or where the mortgagee does not intend to realise their security. The official receiver may become bailee as a result of third party goods being removed from the premises along with other assets. The duty of care of an involuntary bailee is low. The official receiver must not wrongfully dispose of the property or take any positive steps to damage or destroy it. Whilst the official receiver does not have to protect the third party property he/she can be held to be negligent in certain instances. The official receiver should take into account the circumstances of each case when considering his/her obligations.
The official receiver may become a voluntary bailee when he/she accepts responsibility for protecting and dealing with third party property. This may occur, for example, when dealing with valuable property, livestock or animals, or by removing (or instructing agents to remove), third party property to store pending its return to its owners. The official receiver may wish to remove third party property where the property is exceptionally valuable, where there are risks attached to leaving it in the premises, where the official receiver wishes to vacate the premises to reduce his/her potential liability to visitors and trespassers (see paragraph 8.100) or if the company or bankrupt has a lien on the property for sums due from the third party, for example, for repairs or storage costs.
The official receiver as bailee is under a common law duty to take reasonable care of third party goods and generally not to sell or destroy them. The official receiver may sell third party property where certain conditions are fulfilled (see paragraphs 31.0.35, 31.0.36 and 31.0.38).
The official receiver may wish to consider charging the owners of the property concerned for the costs incurred in this activity and/or for insuring the property where the company or bankrupt does not have an interest in it. The official receiver or his/her agents should, where possible, inform third parties that their property is to be moved.
Where the official receiver, as liquidator, interim receiver or trustee, performs a task for which there is no fee applicable [Note 10], such as protecting third party goods, he/she can charge remuneration at the time and rate fee together with his/her agent’s costs and any other incidental expenses. The current time and rate fees are shown in Annex E of Chapter 36.
The official receiver should give proper notice of his/her intention to sell the goods to the owner (the bailor), giving them a set time within which to collect their goods. If they do not collect them within this time, the official receiver will be entitled to sell the goods and account to the bailor for the net sale proceeds. The amount paid will be after deductions are made for example for any sum owed to the insolvent for any repair etc to the goods, and the agent’s costs of disposal. The official receiver may be able to recover his/her costs and, in some instances, remuneration from the owner, see paragraph 31.0.34.
After making reasonable efforts to find the owners of third party property (i.e. asking the director(s) or bankrupt, searching the accounting records, internet searches, etc.) the official receiver may be left with some unclaimed property. The official receiver should consider advertising in an appropriate trade journal or newspaper for claims to be submitted by a specific date. The official receiver needs to balance the costs of advertising against the likely sale proceeds.
(amended March 2012)
Where the official receiver decides to sell unclaimed property, either after or without advertising, the net sale proceeds should be paid into a suspense account. If a person comes forward within six years of the sale [Note 12] and the official receiver accepts his/her claim to ownership the net funds resulting from the sale of the asset should be paid to them. Legal advice has been obtained that if the sale proceeds remain unclaimed at the end of the six year period ownership passes to the bailee (either the company or the official receiver as trustee) and the monies may be paid into the estate account and, used to pay/defray the costs of the insolvency, distributed to creditors, etc. in the usual way.
If a claim is received from the former owner after the expiry of the six year period and exceptional circumstances existed which prevented a claim being made during that time (e.g. absence from the country), Technical Section should be consulted as to whether it may be appropriate to make a payment to the former owner.