SECURITY, SUPERVISION AND FEES OF SPECIAL MANAGER
The appointment of a special manager does not take effect until the person has given security to the official receiver or provided an undertaking to give security.
The amount of the security provided must not be less than the value of the business or property in respect of which the special manager is appointed, as estimated by the official receiver in his/her report (see paragraph 32.4.15)
It is not necessary for the special manager to provide security for each separate company or bankruptcy. The security may be given specially for a particular liquidation or bankruptcy or generally for any liquidation or bankruptcy in relation to which a special manager is to be employed [note 1 and note 2].
A special manager who is a licensed insolvency practitioner will still be required to lodge security, whether his/her appointment is before or after the making of a winding up or bankruptcy order, since the general bond lodged in relation to his/her functions as an insolvency practitioner does not extend to the function and responsibilities of a special manager [note 3].
Where the special manager has given security to the person making application for his/her appointment (usually the official receiver), that person shall file in court a certificate as to the adequacy of the security [note 4].
Where the special manager does not provide, or fails to maintain, the required security, the official receiver should report the failure to the court which may then either discharge the order appointing the special manager or remove him/her and make such other order regarding costs as it thinks just [note 5 and note 6].
Where the court removes or discharges a special manager for failure to provide or maintain security, the court must give directions as to whether any, and if so what, steps should be taken for the appointment of another special manager as a replacement [note 7 and note 8].
The special manager is responsible in the first instance for providing the cost of the required security [note 9 and 10]. The special manager is entitled to be reimbursed out of the assets of the estate according to the prescribed order of priority on the subsequent making of any winding up or bankruptcy order [note 11 and note 12].
If the appointment is made at a time when the official receiver is acting as provisional liquidator or interim receiver and no winding up or bankruptcy order is subsequently made, the court should be asked to order that the company or debtor, as the case may be, should reimburse the cost of the security to the special manager [note 13 and 14].
Although appointed by the court the special manager is an agent of the official receiver acting as provisional liquidator, liquidator, interim receiver or trustee, and requires adequate supervision. This will include agreeing a reporting regime and agreement on how the special manager will seek and receive decisions from the official receiver. Any reporting regime agreed should be such that the official receiver is always aware of the current position regarding trading. This may be daily, weekly or such period as appropriate in the circumstances. The method of reporting may be in writing or verbally, again depending on the appropriate circumstances.
The official receiver must therefore ensure the proper financial controls are in place and that he/she is kept informed as to the activities and general intentions of the special manager. Consistent with this objective, the special manager should be allowed to carry out the duties conferred on him/her by the court as an expert and should be able to act unhampered by the necessity of constant reference to the official receiver, whilst ensuring that the official receiver is consulted on all major decisions.
When the official receiver supervises a special manager whilst acting as provisional liquidator or liquidator, interim receiver or trustee, remuneration should be calculated on the total hourly rate spent in this activity by the official receiver [note 15] (see Chapter 36, paragraph 36.43).
It is therefore important to maintain accurate time recording records relating to the time spent in the supervision of a special manager.
Subject to paragraph 32.4.42 below, where the official receiver is acting as provisional liquidator or interim receiver he/she should open a separate bank account to accept the gross receipts of the special manager and to provide funds for current expenditure. After the making of a winding up or bankruptcy order such an account should be closed and the balance transferred to the insolvency services account which thereafter should be used to accommodate the income and expenditure of the special manager.
Where a business is continued and large amounts of cash are involved it may be expedient to allow the special manager to operate his/her own separate bank account provided such power is granted to the special manager by the court (see paragraph 32.4.26). In this connection the adequacy of the security of the special manager should take all such transactions into account. Any surplus funds generated by the special manager’s operations should be invested by the special manager or the official receiver subject to the normal rules applying to the investment of funds after the making of the winding up or bankruptcy order (see Chapter 36, Part 9).
When acting as provisional liquidator, liquidator, interim receiver or receiver and manager prior to a meeting of creditors, the official receiver should not make advances so as to incur a debit balance above £500 without the prior consent of Technical Section (see Chapter 36, Part 6 and paragraph 32.1.6).
Where the official receiver is liquidator he/she has the power to authorise the special manager to raise money on the security of assets or to make advances where it is for the protection of assets or in the interests of creditors to do so (providing the special manager’s powers allow him/her to do so, see paragraph 32.4.26) [note 16]. The official receiver need only seek the prior approval of Technical Section where the relevant assets might possibly realise less than the amount of the advance.
Where the official receiver is trustee he/she has the power to mortgage or pledge any part of the property comprised in the bankrupt’s estate for the purpose of raising money for the payment of his/her debts [note 17].
The special manager is required to produce accounts containing details of his/her receipts and payments for the approval of the official receiver when acting as liquidator, or trustee [note 18 and note 19]. The accounts are to be in respect of three month periods for the duration of the appointment of the special manager (or for a lesser period, if the appointment terminates less than three months from its date, or from the date to which the last accounts were made up).
The official receiver should examine the accounts and any accompanying schedules submitted and make test checks to ensure that they accurately reflect the transactions undertaken during the period, that they include no manifest inconsistencies and are arithmetically accurate. Where the official receiver is confident that the accounts are accurate the accounts should be marked as ‘approved’, signed and dated , and the receipts and payments added to those of the official receiver.
The legislation does not lay down accounting requirements where the official receiver is acting as provisional liquidator or interim receiver. Where a special manager has been appointed where the official receiver is provisional liquidator or interim receiver and the wining up or bankruptcy petition is dismissed, then on the dismissal of the petition the official receiver should seek the directions of the court regarding submission of the receipts and payments account of the special manager.
Where an insolvency practitioner other than the special manager is appointed trustee the official receiver should forward the receipts and payments account without his/her formal approval but may comment thereon as he/she considers appropriate. The official receiver should seek the directions of the court in any case where he/she is unable to resolve any difficulty relating to the submission of accounts by the special manager.
The remuneration of the special manager is determined by the court [note 20 and 21] but the method of calculation is likely to have been provisionally agreed between the official receiver and the special manger at the time of his/her consenting to act. Occasionally, the remuneration will be specified in the order of appointment but it is more usual for the fixing of remuneration to be deferred. During the period of office the special manager may submit to the official receiver a time and rate schedule together with a schedule of his/her disbursements supported by relevant invoices and vouchers. The official receiver may then report to the court, attaching copies of these documents and commenting briefly on their reasonableness. If the official receiver is concerned as to the amount of remuneration or expenses claimed and after discussion is unable to agree this with the special manager, he/she should make reference to the matter in any report submitted to the court.
The fixing of final remuneration on termination of the special manager’s appointment is considered in paragraph 32.4.57-58.