Agency may be defined as a relationship existing between two parties the principal and the agent. The function of the agent being to create a legal relationship between the principal and a third party.
Whenever the official receiver considers it necessary to employ an agent he/she should ensure that adequate funds are, or will be, available to discharge the costs to be incurred or that he/she has the authority to incur or increase a debit balance (see paragraph 32.1.10). Before instructing any agent, the official receiver should consider the purpose of the employment and whether the sanction of the court or Technical Section acting on behalf of the Secretary of State as liquidation or creditors’ committee should firstly be obtained (see paragraphs 32.1.4 to 32.1.6). Most commonly, the official receiver will wish to instruct agents to sell, or advise on the value of, assets. However, the official receiver may wish, for example, to seek the advice of a solicitor on certain aspects of a case, or need the services of an interpreter to assist in the interviewing of a director or bankrupt, etc. Specific guidance regarding the retention of certain agents is contained in the Technical Manual as follows: chapter 32.2; solicitors - chapter 32.3 - auctioneers, shorthand writers, interpreters and others; chapter 32.4 - special managers and reference should be made to chapter 82 regarding the employment of agents to deal with waste.
The terms of an agent’s employment, including the rates of fees to be charged, should be free from doubt. Where such terms vary from any standing agreement between the official receiver and his/her local agent or where a different agent is used, the terms of employment should be agreed in advance and confirmed in writing (which can include in electronic form).
The making of a winding-up order or the appointment of the official receiver as provisional liquidator operates to discharge any contract the company may have entered into with agents, e.g. solicitors or accountants.
Where a bankruptcy order is made or the official receiver is appointed as interim receiver any contract the bankrupt may have entered into with agents will usually be discharged. Following the commencement of his/her bankruptcy a bankrupt is no longer entitled to deal with property comprised in his/her estate for his/her own benefit. Since the bankrupt is unable to deal with such property neither can an agent acting on his/her behalf and the effect of this is to revoke the agent’s authority to deal with the property comprised in the bankrupt principal’s estate. Where agents have been retained regarding actions personal to the bankrupt, for example, the employment of a solicitor in divorce proceedings or to take proceedings for personal damages, they will not be automatically discharged. However, the official receiver should ensure that they are aware that funds/assets in the bankruptcy proceedings cannot be made available for the payment of their fees.
Employees, although not strictly ‘agents’, are dismissed on the making of an insolvency order.
[form NORD1, NORD2]
Where the official receiver considers that it is necessary to continue a contract with an agent, he/she should ensure that the terms of the existing contract are favourable to him/her and that funds are/will be available to enable the agent’s costs to be paid. In addition, the official receiver should have regard to any possible conflict of interest that may arise. The action that the official receiver wishes the agent to carry out and the terms of the employment should be detailed to the agent in writing, which can include in electronic form.
If it is found to be necessary to retain agents in the insolvency proceedings (eg to continue an action), the official receiver should ensure that the sanction of the court or the Secretary of State (Technical Section) is obtained as outlined in the following paragraphs. Costs which may have been incurred in proceedings started before the insolvency proceedings must also be taken into account (see paragraph 32.2.19)
Where the official receiver is provisional liquidator or interim receiver, his/her powers are conferred on him/her by the provisions of section 167(1) or section 287(2) of the Act respectively, unless limited by the court. The functions to be carried out by a provisional liquidator are as set out in his/her order of appointment. Those to be carried out whilst acting as interim receiver will be as set out in section s287, unless limited by the court. The official receiver can employ an agent to enable him/her to carry out his/her duties providing he/she has the authority to carry out the functions for which the agent is to be employed (see also chapter 2: Provisional liquidators and interim receivers). Where legal proceedings have been either commenced or proceeded with when the official receiver was acting as provisional liquidator or interim receiver and a winding - up or bankruptcy order is subsequently made, the official receiver should seek further sanction from the court (when he is not the trustee) or Technical Section (acting on behalf of the Secretary of State as liquidation or creditors’ committee) if it is necessary to continue the proceedings (see chapter 2 Part 5).
Notes: [s135 or 286] [R4.26(1) or 6.52(1); Form 4.15 - Order of appointment of provisional liquidator or Form 6.32 - Order of appointment of interim receiver] [s167(1)(a) and Schedule 4 Part II para 4 or s314 and Schedule 5 Part I para 2] [form AFS]
The official receiver as receiver and manager may employ an agent, without the permission of the court, to assist him/her in carrying out his/her functions under section 287, for example to dispose of assets which would decrease in value if left to be dealt with following the appointment of a trustee (for instance assets in storage on which charges are continuing to accrue or assets at risk). If legal proceedings are in progress at the date of the bankruptcy order, the official receiver should request the court to consider adjourning the matter pending the appointment of a trustee due to his/her lack of capacity to act. In any case the other parties to the proceedings must be informed of the official receiver’s inability to proceed, by virtue of the capacity in which he/she is acting, to avoid further costs being incurred by them. In cases of extreme difficulty the official receiver should seek the directions of the court as to how he/she should deal with the matter.
Where the official receiver is liquidator or trustee and wishes to carry out a function for which sanction is required under Schedule 4, part I or II, Schedule 5, part I or section 314(2) (power to appoint bankrupt) and wishes to employ an agent for that purpose the official receiver should seek the authority of Technical Section acting on behalf of the Secretary of State (carrying out the powers of the liquidation or creditors’ committee). (For applications relating specifically to legal proceedings see paragraph 32.2.10.)
Notes: [s141(4) or 302(1); form AFS]
It is imperative that the official receiver ensures that any agent he/she retains is insured against the loss of any assets whilst in his/her care whether as a result of damage from fire, etc. or as a result of his/her negligence. These assets would include as yet unaccounted for sale proceeds and the risk of insolvency occurring before accounting occurred. If the official receiver is satisfied that the agent(s) he/she is using are bona fide agents and/or auctioneers and are sufficiently well covered for any loss that may occur, then he/she is not required to insist on annual verification of their bond.
Membership of a professional body should not in itself be relied upon as proof that appropriate insurance cover is held as the majority do not provide for insurance cover in respect of the financial failure of a member. If the official receiver is in any doubt about the agents' cover then he/she should request verification prior to instructing them.
The Department for Environment, Food and Rural Affairs (DEFRA) has advised that, should the official receiver instruct his/her usual agent to make arrangements for the disposal of waste, that agent could be viewed to be a ‘broker’ of waste and as a result subject to registration.
Where the official receiver needs to instruct an agent in respect of waste he/she should deal directly with an agent holding the relevant licences/certificate (see paragraph 82.14 for further information).
Notes: [s34(1) Environmental Protection Act 1990]
All fees, costs, charges and other expenses incurred in the course of winding -up or bankruptcy proceedings are to be regarded as expenses of the liquidation or bankruptcy. Where the official receiver employs an agent in the course of insolvency proceedings, the costs should be paid in the prescribed order of priority from the estate except where:-
Agents retained by the official receiver must be paid (see paragraph 32.1.10 regarding incurring or decreasing a debit balance).
Notes:[R4.218 or 6.224 and 13.13(7)] [s156 or 363(1)] [form CINDY]
(Amended February 2014)
Authority is not required to increase a debit balance by £500 or less. Before the official receiver employs an agent which may result in the creation of a debit balance in excess of £500 the prior approval of Technical Section must be obtained unless specific authority is given by the Technical Manual (for example at paragraph 50.76 where specific authority is given to incur a debit balance in order to protect property at risk). Where an agent is instructed to deal with an asset and the amount to be realised by the agent is in excess of the agent’s fees Technical Section authority would not be required (e.g. dealing with a freehold reversionary interest, see paragraph 31.3.237). However, when considering whether the asset sale will be sufficient to cover the costs of sale the official receiver should be aware that the agent’s costs may be significantly higher when valuing and selling assets of a specialist nature.
(Inserted February 2014)
Where prior approval is required a minute or email should be sent to Technical Section outlining the relevant facts of the case to justify the expenditure together with an estimate of the costs involved. In many instances, the beneficiaries of the proposed expenditure are the creditors, in which case they may be the appropriate body to provide the necessary funds. Where the matter is urgent and verbal approval is sought and given, the official receiver should seek confirmation by email.
Even where the costs are to be decided by detailed assessment or fixed by court order, the official receiver may make payment on account of the costs incurred by any agent employed, provided that the agent undertakes in writing to repay, with interest, any money which may, when detailed assessment is made, prove to have been overpaid.
Notes: [R7.34(3) substituted by r7.33A and r7.34A(4)]
An agent is not required to account gross to the official receiver for realisations. His/her fees should be deducted from the funds realised and the balance only forwarded to the official receiver, whether or not the costs are subject to detailed assessment. The value added tax element must be recorded separately in the agent’s bill.
If the official receiver is not content with any charge made by the agent, he/she should request the agent to reconsider it. In the event that the agent refuses to reconsider, the official receiver may request the agent to have the bill assessed by the court (see paragraph 39.10). Prompt payment should be sought from agents. Where the official receiver intends to retain a particular agent on a regular basis he/she should include as a standard condition of employment that the agent accounts to him/her on a monthly basis.
Notes: [R7.34(1) substituted by 7.34A(1)] [Reg 33] [fee 10 in Part I or fee 5 and 13 in Part II of the Schedule to the Fees Order or Reg 19]
The official receiver should notify any agent he/she has retained of the appointment of an insolvency practitioner as trustee/liquidator. It may be that the insolvency practitioner will wish to continue to employ the agent. However, even if this is the case the official receiver will remain responsible to ensure that the agent is paid up to the date of the handover in accordance with the agent’s terms of employment. Where payment is made after handover, the resultant debit balance should be transferred to the insolvency practitioner.
Notes: [form NACT]