APPLICATION FOR AND APPOINTMENT OF SPECIAL MANAGERS
The official receiver has a duty to protect the assets of any estate to which he/she may be appointed [note 1] [note 2]. Exceptionally, it may appear to the official receiver that the nature of the business or property of an insolvent company or individual, or the interests of the creditors of the insolvent, or of the members of an insolvent company, require the appointment of a special manager to manage that business or property [note 3].
Where a company has gone into liquidation or a provisional liquidator has been appointed, the court may, appoint any person to be the special manager of the company’s business or property, or specific part of the property [note 4].
The appointment of a special manager may be made by the court on the application of the official receiver in his/her capacity as liquidator or provisional liquidator where it appears to the official receiver that the nature of the business or property of the company, or the interests of the company’s creditors or contributories generally, require the appointment of another person to manage the company’s business or property [note 5].
The court may appoint any person to be the special manager of the property or business of an undischarged bankrupt, or the property or business of a debtor where the official receiver has been appointed interim receiver [note 6].
The appointment of a special manager may be made by the court on the application of the official receiver or the trustee of the bankrupt’s estate in any case where it appears to the official receiver or trustee that the nature of the estate, property or business, or the interests of creditors generally, require the appointment of another person to manage the estate, property or business [note 7].
The need for such appointment might occur where:
(a) There is a need for expert assistance in seeking the most effective realisation of assets, e.g. property, development rights, specialised or highly technical plant, unusual stocks, patents, trade marks, where such assets could not be dealt with by the agent of the official receiver or a specialised dealer in the property involved (see Chapters 31.6 and 31.10);
(b) Trading might continue on a limited basis for a short time so as to complete orders in hand from existing work in progress and stocks in order to achieve a more profitable realisation of current assets (see Chapters 31.6);
(c) The business retains some viability and trading might continue with a possibility of a sale as a going concern. In such a case, the official receiver would normally have received some expression of interest in purchasing the business on which to base such a decision (see Chapter 62).
In these and in other cases there may be added complications of sheer size of the business, number of employees, livestock, dangerous materials such as hazardous chemicals, etc which may warrant specialist assistance.
A special manager is entitled to remuneration and reimbursement of his/her expenses, which may be heavy if a business is to be carried on for some time. The official receiver will therefore need to make a very careful and detailed assessment of all the factors involved before seeking the appointment of a special manager. The official receiver must be prepared to justify the appointment to the creditors as well as to the court (see paragraphs 32.4.3-32.4.6)and an appointment should not be seen as a means of avoiding inconvenient duties.
The official receiver must acquire as much knowledge as possible concerning the business and the current trading position from company officers, the debtor or bankrupt, employees, creditors and others able to provide useful information. Matters for particular attention will include:
(a) Evaluation of the immediate and mid-term trading prospects; accurate details of outstanding sales orders and purchase contracts.
(b) Details of any involvement in specialised market operations such as options, dealing in futures or commodities such as wool, metal, grain, where there may be obligations either way for settlement at some later date or complex issues involved arising out of selling out or buying in against contract which may be subject to special insolvency rules within the particular market concerned (such transactions may fall to be dealt with as market contracts under Part VII of the Companies Act 1989, when the Commodities Exchange itself will be responsible for winding up the positions);
(c) A realistic estimate of the likely overall trading income; the views of the proprietors of the business or other interested parties may be useful but should not be accepted without critical examination;
(d) What stocks are held, including for manufacturing concerns, partly completed items and raw materials; what purchases of materials or finished goods will be needed and whether supplies will be readily available;
(e) Details of all labour costs required and likely to be incurred especially bearing in mind employment protection legislation etc and related obligations;
(f) Reliable estimates of all overhead expenses likely to be incurred;
(g) Whether the business has security of tenure of essential property for a sufficient period to enable the envisaged production or trading programme to be accomplished;
(h) Public liability, trading standards, employer’s liability and health and safety responsibilities;
(i) Whether the conduct of the business is affected by its own constitution (i.e. the memorandum and articles of association) or specific legislation, e.g. railway companies, doctors in practice, retirement homes, etc.
(j) The working capital required and available in the estate and if insufficient, whether the petitioner is prepared to advance or guarantee the required funds.
(k) The legislative and corporate governance required. Consideration needs to be as to whether it is in place and if not whether it can be complied with e.g. ensuring that PAYE and VAT requirements are complied with.
If, after consideration of all available information, there appears to be a positive benefit in the appointment of a special manager, whether or not the business is to be continued, the official receiver must still take into account the remuneration and expenses of a special manager, the amount of which can only be estimated initially and refined in the light of subsequent events. The official receiver should work with the proposed special manager to get a better estimate of the likely costs involved in a particular case, before making an application for his/her appointment.
See also paragraph 32.3.39 regarding the special manager’s duty to report to the official receiver.
The special manager is an officer of the court with his/her powers and functions provided for by the court in the order of appointment (see paragraph 32.4.24). The role and function of a special manager requires that he/she shall possess the necessary business skills to adequately supervise the business or property that he/she is appointed over. Although it is not a legislative requirement, it is usually preferable to seek the appointment of an authorised insolvency practitioner, who will be capable of seeking the necessary technical or specialist knowledge from other sources. Many of the larger professional practices employ specialists in a particular trade or business.
It is unlikely that the official receiver would consider applying to the court for the appointment of a director, debtor or bankrupt as special manager due to the difficulties in satisfying the court that he/she would be adequately supervised. Where the director, debtor or bankrupt has expertise that would assist in the continuation of trading the official receiver is more likely to consider employing the individual, either directly or via the special manager.
Where an insolvency practitioner has acted as the special manager in a provisional liquidator or interim receivership, the official receiver may, in the interests of maintaining continuity, make application for that insolvency practitioner to be appointed as special manager on the making of the winding up order or bankruptcy order [note 8].
Alternatively with the agreement of the majority of creditors the official receiver may seek the appointment of the insolvency practitioner as liquidator or trustee via a Secretary of State appointment (See Chapter 17 Part 5).
The report must include [note 10];
a) The reasons for the application.
b) The applicant’s estimate of the value of the business or property in respect of which the special manager is to be appointed (company).
c) The applicant’s estimate of the value of the estate, property or business in respect of which the special manager is to be appointed (bankruptcy).
In addition to the statutory content of the report (see paragraph 32.4.15) the report should also include:
Where an application has been made for the appointment of a person to be a special manager, the hearing date and the name of the proposed appointee should be recorded on ISCIS.
Before applying to the court for the appointment of a special manager, the official receiver must try to obtain adequate indemnities from the petitioning creditor or major creditors to cover any losses which might be incurred if the business is to be continued. Indemnities should be in writing, preferably following the wording of the prescribed forms but suitably adapted to reflect the state of the proceedings, the purpose of the indemnity and the office held by the official receiver [note 11]. A written undertaking from a major bank, reputable financial institution or Government Department can be accepted without the need for completion of the form .
Where the court makes an order appointing a special manager, a letter should be sent to the special manager as soon as possible after the hearing to notify him/her of the appointment and the duties detailed in the order [note 12]. A sealed copy of the order should be attached to the letter or forwarded when available [note 13].
The court’s order appointing the special manager will specify the duration of the appointment of the special manager. This will either be for a defined period of time, until further order of the court, or until the happening of a specific event, e.g. the conclusion of the hearing of the petition when an order of appointment will be discharged on the making of a winding up or bankruptcy order [note 14]. In such circumstances, if the employment of the special manager remains desirable, the official receiver should immediately apply to the court for the appointment to be renewed until for example, the estate is handed over to an insolvency practitioner appointed as liquidator or trustee or a further order is made by the court [note 15]. In making any such application the court should be requested to renew existing or grant additional powers to the special manager as may be necessary.
The acts of a person acting as special manager are valid notwithstanding any defect in his/her appointment or qualification [note 16].
The appointment of the special manager does not take effect until the person appointed has given (or, being allowed by the court to do so, undertaken the give) security the person who has made the application for his/her appointment [note 17]. See Part 3.