Receivers: post insolvency order issues

Part 6 – Receivers: post insolvency order issues

October 2013  

56.2.153 Introduction 

A winding-up or bankruptcy order may be made against a company or individual even though a receiver is in office. In this part receiver should be taken to include administrative receiver (see Part 3), Law of Property Act (LPA) receivers (see Part 4) and court appointed receivers (see Part 5). The winding-up or bankruptcy order does not terminate the receiver’s appointment although the receiver’s agency is terminated. Once the agency is terminated the receiver becomes personally liable for any contract or agreement entered into after that date. The most common type of receivership encountered by the official receiver will be LPA receivers (see Part 4). Paragraphs 56.2.154 to 56.2.187 provide guidance to the official receiver in dealing with a receivership in a compulsory liquidation. Paragraphs 56.2.188 to 56.2.204 provide guidance to the official receiver in dealing with a receivership in a bankruptcy. Where the mortgagee has not appointed a receiver guidance to the official receiver is provided in paragraph 56.2.205.

 

Section A - Liquidation 

56.2.154 The receiver’s powers following a winding-up order

The receiver’s powers (as conferred by statute (see paragraphs 56.2.99 to 56.2.103), expressly conferred by the charge, including the right to use the company’s name in legal proceedings, realise assets covered by the charge and convey property in the company’s name) are unaffected by the winding-up order. The same applies to the statutory powers of an administrative receiver (see paragraphs 56.2.44 to 56.2.46) and the powers of a court appointed receiver (see paragraph 56.2.140).

 

56.2.155 The winding-up order terminates the receiver’s agency

After the making of a winding-up order the receiver is no longer the company’s agent (see paragraph 56.2.118). The receiver becomes personally liable for any debts incurred after the making of the winding-up order as he/she is unable to create any new debts in the company’s name. The only exception being the company’s tax liabilities, see paragraphs 56.2.59 to 56.2.60 and paragraphs 56.2.114 to 56.2.115.

 

56.2.156 Existing legal proceedings at the time of the winding-up order

A receiver may continue any litigation properly commenced in the company’s name prior to the liquidation. The receiver may be personally liable for any costs of litigation incurred after the date of the winding-up order, although such costs will be allowed as part of his/her expenses [Note 1].

 

56.2.157 Initial action by the official receiver on the making of a winding-up order

On the making of the winding-up order the official receiver should write to the receiver and obtain:

 

56.2.158 The charge or court order

The official receiver should check the charge or court order to establish what powers the receiver has over which assets (see paragraph 56.2.154). The official receiver should ensure that the receiver is acting within his/her powers.

 

56.2.159 Seeking directions regarding a court appointed receiver

The court may have appointed a receiver prior to a winding-up order being made. In these circumstances the official receiver may consider making an application to the court which appointed the receiver seeking directions [Note 2]. The official receiver may seek an order that either the receiver be discharged or remain in office with suitable changes to his/her powers (see paragraph 56.2.140). Before seeking the directions of the court the official receiver should seek the guidance of Technical Section as the order sought will depend upon the individual circumstances of the liquidation.

 

56.2.160 Checking the charge and the receiver’s appointment

The official receiver should check the charge and the receiver’s appointment by following the general guidance in Part 3 of Chapter 9, in particular paragraphs 9.94EA and 9.95EA. The official receiver should ensure that the charge was registered under section 26 of the Land Registration Act 1925 as well as under the Companies Act 2006 (see paragraph 9.96).  

 

56.2.161 Invalid appointment

The official receiver should check the documentation appointing the receiver to ensure that the appointment is valid. Where a receiver’s appointment is invalid due to a defect in the appointment or a defect in the security he/she is a trespasser in law and both he/her and his/her appointor may be liable in damages [Note 3]. In this situation the court may order that the appointor indemnify the receiver against such liability [Note 4].

 

56.2.162 Invalid appointment: administrative receiver

An administrative receiver’s acts are valid notwithstanding any defect in his appointment, nomination or qualification [Note 5]. This provision does not apply where there was no power to appoint an administrative receiver, i.e. where the charge is invalid. In such circumstances the administrative receiver may be liable to repay the company his/her remuneration and expenses plus interest [Note 6]. 

 

56.2.163 Checking which assets are covered by the charge or court order

The official receiver should check the charge documents or the court order to determine which assets, if any, are available to him/her as liquidator and which remain with the receiver. Where assets are covered by a floating charge the official receiver should follow the guidance in paragraph 56.2.165. 

 

56.2.164 Law of Property Act or fixed charge receiver

(Amended February 2014)

The official receiver should check the charge and the appointment documentation to determine whether the receiver has the right to sell the property. An LPA receiver does not have the statutory right to repay the principal owed to a mortgagee. In order to do so the receiver must have written instructions from the charge-holder (see paragraph 56.2.105). The official receiver should check with the receiver if the mortgagee has issued or intends to issue written instructions to allow payments of the principal to be made. In the unlikely event that the receiver is not in receipt of written instructions please contact Technical Section for further instructions. Where the official receiver has obtained insurance on property covered by the charge he/she should cancel it following the guidance in paragraph 49.27B.

 

56.2.165 Assets covered by a floating charge

The official receiver should check the date of any floating charge as it may be invalid allowing the any assets covered by the charge to be available in the liquidation. Charges created within a year of the commencement of the liquidation, or two years in the case of a person connected with the company, may be declared invalid [Note 7]. Detailed guidance on what the official receiver should do to avoid a floating charge may be found in paragraphs 31.4B.41 to  31.4B.56.

 

56.2.166 Administrative receivers and voidable dispositions

An administrative receiver may be appointed after the presentation of a winding-up petition but prior to the making of a winding-up order. Where there is a voidable disposition of assets which are covered by the charge document the receiver is entitled to recover the assets rather than the liquidator [Note 8].

 

56.2.167 Preferences

A liquidator is the only person with the power to recover monies paid by the company which has the effect of preferring one creditor over another. Where the liquidator recovers a preference payment these monies are not an asset of the company and as such are not covered by the charge. The court considered such monies to have been “impressed in their hands with a trust for those creditors amongst whom they had to distribute the assets of the company.” [Note 9]. Consequently the official receiver should pay any monies recovered into the estate account for the benefit of the creditors generally.  

 

56.2.168 Receiver’s receipts and payments

The official receiver should obtain a copy of the receiver’s receipts and payments accounts (see paragraphs 56.2.62, 56.2.112 and 56.2.148). The accounts will provide information on the realisation of assets, the distribution of funds and the receiver’s remuneration and expenses.

 

56.2.169 Law of Property Act receiver’s remuneration

The official receiver as liquidator may apply for an order to fix the LPA receiver’s remuneration (see paragraph 56.2.117). The official receiver should consider making such an application where: 

  • the remuneration and expenses were not paid in the correct order of priority, and
  • where he/she believes the remuneration and/or expenses are excessive after taking into consideration any appointment document and the matters referred to in paragraph 56.2.116.

 

56.2.170 Dealing with the company’s VAT affairs

 The official receiver as liquidator retains responsibility for submitting VAT returns on behalf of the company. As a first step the official receiver should confirm whether the receiver requires the company to remain registered for VAT. Where the company is subsequently deregistered the official receiver should arrange for the completion and return the final return, form VAT193 (see paragraphs 56.2.171 and 78.67 for further information). Where the receiver continues the company’s trading, guidance in paragraphs 56.2.171 to 56.2.173 should be followed with respect to the filing of VAT returns.

 

56.2.171 Dealing with the company’s VAT affairs:  Receiver continues to trade the company post-deregistration – accounting for output VAT only.

Where the receiver is accounting only for output he/she can do so directly by submitting form VAT 833.  The official receiver need have no involvement in this process.

 

56.2.172 Agreement with the receiver regarding submission of VAT returns – input VAT

A receiver is unable to submit a return to HMRC in respect of input tax paid out by the company; any return will therefore need to be signed by the liquidator on behalf of the company. Where the official receiver is required to sign the VAT return, to reclaim input tax, etc., he/she should obtain agreement from the receiver that:

  • VAT returns are professionally prepared by an accountant at no cost to the estate;  
  • the receiver meets the official receiver’s expenses incurred in completing the return (on a time and rate basis);
  • the receiver is solely responsible for the provision of the information and documents necessary for the return or requested by HM Revenues and Customs (see paragraph 56.2.173);
  • the receiver submits the VAT return together with any VAT due or provides sufficient funds to the official receiver to meet the VAT and his/her expenses; and
  • a written indemnity is provided from the charge-holder to cover any adverse costs arising from the submission of the returns.

The official receiver should ensure that the indemnity is sufficient to meet any potential adverse costs.

 

56.2.173 Preparation and submission of the VAT return

The official receiver may use the opportunity provided by the preparation of the VAT return to include the recovery of input VAT paid out in respect of the liquidation expenses. Such expenses would include agent’s fees but exclude the Gazette fee and other items covered by the administration fee. Whilst the VAT return is completed in the name of the company any VAT refund should be passed back to the receiver, after deducting any VAT refunded from the official receiver’s expenses, and not retained as a company asset in the liquidation. The official receiver should note that the returns may be made on form VAT 100, form VAT 193 or form VAT 426.

 

56.2.174 Dealing with the company’s corporation tax return

Where the receiver continues the company’s business the official receiver as liquidator remains liable for the preparation and submission of the corporation tax return. The official receiver, in such circumstances, should obtain agreement with the receiver that:

  • corporation returns are professionally prepared by an accountant at no cost to the estate;
  • the receiver meets the official receiver’s expenses incurred in completing the return (on a time and rate basis);
  • the receiver is solely responsible for the provision of the information and documents necessary for the return or requested by HM Revenues and Customs; and
  • a written indemnity is provided from the charge-holder to cover any adverse costs arising from the submission of the returns.

The official receiver should ensure that the indemnity is sufficient to meet any potential adverse costs.

 

56.2.175 Council tax and business rates - receivers

A company in liquidation is exempt from paying council tax or business rates unless it continues to trade. Where the company continues to trade as a landlord the individual tenants remain liable for the council tax. In all other circumstances the company will remain liable for business rates if it continues trading. An LPA receiver has a statutory duty to pay business rates or council tax due on the mortgaged property (see paragraph 56.2.105). The official receiver should ensure that the receiver fulfils his/her statutory duty when business rates or council tax continues to accrue. A court appointed receiver who remains in office with the agreement of the liquidator (see paragraph 56.2.149) and continues the company’s trading will be acting under the instructions of the court. The official receiver should ensure the receiver has been instructed by the court to pay any business rates or council tax (see paragraph 56.2.140).

 

56.2.176 Council tax and business rates – administrative receivers

Where an administrative receiver continues trading the company remains liable for the payment of business rates or council tax [Note 10]. The business rates or council tax will only become an expense of the liquidation where the liquidator instructs the administrative receiver to continue trading. The official receiver should seek the guidance of Technical Section before issuing any such instruction.    

 

56.2.177 Receivership – realisation of the assets and distribution of the monies

Where the company is in liquidation the receiver must distribute any assets realised in accordance with the legislation and case law. How these assets are distributed is dependent upon whether the charge was fixed (see paragraph 56.2.178) or, in the case of an administrative receiver, floating (see paragraph 56.2.179). In the case of a court appointed receiver the monies would be distributed in accordance with the court order (see paragraph 56.2.159 for further instructions on dealing with court appointed receivers).

 

56.2.178 Distribution of monies secured by a fixed charge

When the receiver realises assets covered by a fixed charge he/she should pay the costs of selling the assets, together with the proportion of his/her charges attributable to the fixed charge from the proceeds. The balance should be paid to the charge-holder unless there is a surplus. Where there is a surplus and there are no further charges on the property the surplus should be paid to the liquidator. Where the company is not in liquidation the monies should be paid to the company [Note 11]. Where there is a dispute over the payment over of any surplus the official receiver should contact Technical Section

 

56.2.179 Distribution of monies secured by a floating charge by an administrative receiver

Where an administrative receiver realises assets covered by a floating charge he/she should pay the costs of selling the assets, together with the proportion of his/her charges attributable to the floating charge from the proceeds (see paragraphs 56.2.65 to 56.2.68). Any surplus monies should then distributed as follows: 

 

56.2.180 Administrative receiver - preferential creditors

The administrative receiver will be responsible for the payment of the preferential creditors in the liquidation. The official receiver should contact the administrative receiver and agree the amounts due and what funds are available, if any, to pay to the preferential creditors. Whilst it is expected that the amounts due to the preferential creditors will be the same this may not always be the case. The official receiver should charge the administrative receiver, on a time and rate basis, for any work done on agreeing the preferential claims.

 

56.2.181 Administrative receiver - the “prescribed part” and unsecured creditors

In post 15 September 2003 administrative receiverships where the receiver has sufficient funds (see paragraph 56.2.67) after paying the general expenses of the winding up (see paragraph 56.2.183) and the preferential creditors he/she must make provision for the payment of a proportion of the unsecured creditors, from funds referred to as the “prescribed part”. Full details of what constitutes the “prescribed part” are contained in paragraph 56.2.67.

 

56.2.182 Administrative receiver - the charge-holder

Where there are funds available after the payment of the preferential creditors and the “prescribed part” any balance will be available for payment to the charge-holder.

 

56.2.183 Administrative receiver - liquidation expenses

The expenses of the liquidation should be paid from funds realised under a floating charge before any payment is made to preferential creditors [Note 12]. The official receiver should write to the receiver to determine whether sufficient monies will be realised to pay his/her costs. If there are sufficient funds available after the payment of the liquidation expenses they should then be distributed in accordance with paragraph 56.2.65.

 

56.2.184 Distribution of monies collected by court appointed receiver

The official receiver should ensure that where the receiver remains in post the court order is amended (see paragraph 56.2.159) to include provision for the company’s unsecured assets to be paid or handed over to the liquidator.

 

56.2.185 Recovering a surplus from the receiver

On informing the official receiver, as liquidator, of a surplus a receiver may ask for an indemnity in respect of his/her actions and remuneration. The official receiver, as liquidator, should not give such an indemnity and should insist that the surplus is paid over without conditions.

 

56.2.186 Release of the official receiver as liquidator

Unless there is a realistic prospect that funds will be available for distribution to creditors the official receiver should not delay seeking his/her release as liquidator. The official receiver should follow the guidance in Chapter 37 when making the application. The official receiver should ensure that dissolution of the company is deferred as per the instructions in paragraphs 38.48 and 38.49.

 

56.2.187 Deferred dissolution of the company

The official receiver should not apply for the early dissolution of a company where a receiver is in office. Further, where a receiver is in office at the conclusion of the administration of the liquidation an  application for the deferral of the company’s dissolution should be made. Further guidance is contained in paragraphs 38.48 and 38.49 and in Part 5 of Chapter 38 generally.

 

Section B - bankruptcy  

56.2.188 The receiver’s powers and a bankruptcy order

The receiver’s powers as conferred by statute (see paragraphs 56.2.99 to 56.2.103), expressly conferred by the charge, including the right to realise assets covered by the charge and convey property in the bankrupt’s name are unaffected by the bankruptcy order. The same applies to the powers of a court appointed receiver (see paragraph 56.2.140).

 

56.2.189 The bankruptcy order terminates the receiver’s agency

After the making of a bankruptcy order the receiver is no longer the bankrupt’s agent (see paragraph 56.2.118). The receiver becomes personally liable for any debts incurred after the making of the bankruptcy order as he/she is unable to create any new debts in the bankrupt’s name. The only exception being the bankrupt’s tax liabilities, see paragraphs 56.2.59 to 56.2.60 and paragraphs 56.2.114 to 56.2.115.

 

56.2.190 Initial action by the official receiver on the making of a bankruptcy order

On the making of the bankruptcy order the official receiver should write to the receiver and obtain:

 

56.2.191 The charge or court order – powers of the receiver

The official receiver should check the charge or court order to establish what powers the receiver has over which assets (see paragraph 56.2.188). The official receiver should ensure that the receiver is acting within his/her powers.

 

56.2.192 Checking the registration of the charge and the validity of the receiver’s appointment

The official receiver should check the charge and the receiver’s appointment as per the guidance in paragraphs 9.94EA and 9.95EA. The official receiver should ensure that the charge was registered under section 26 of the Land Registration Act 1925.

 

56.2.193 Seeking directions regarding a court appointed receiver

The court may have appointed a receiver prior to a bankruptcy order being made. In these circumstances the official receiver may consider making an application to the court which appointed the receiver seeking directions [Note 13]. The official receiver may seek an order either that the receiver be discharged or that the receiver remain in office with suitable changes to his/her powers (see paragraph 56.2.140). Where the receiver is to remain in office the official receiver should consider the guidance in paragraph 56.2.203. Before seeking the directions of the court the official receiver should seek the guidance of Technical Section as the orders sought will depend upon the individual circumstances of the bankruptcy.

 

56.2.194 Invalid appointment

The official receiver should check the documentation appointing the receiver to ensure that it is valid. Where a receiver has been appointed invalidly because of a defect in his/her appointment or a defect in his/her security he/she is a trespasser in law and both he/her and his/her appointer may be liable in damages [Note 14].

 

56.2.195 Checking which assets are covered by the charge or court order

The official receiver should check the charge documents or the court order to determine which assets, if any, are available to him/her as trustee and which remain with the receiver. 

 

56.2.196 Law of Property Act or fixed charge receiver

(Amended February 2014)

The official receiver should check the charge and the appointment documentation to determine whether the receiver has the right to sell the property. An LPA receiver does not have the statutory right to repay the principal owed to a mortgagee. In order to do so the receiver must have written instructions from the charge-holder (see paragraph 56.2.105). The official receiver should check with the receiver if the mortgagee has issued or intends to issue written instructions to allow payments off the principal to be made. In the unlikely event that the receiver is not in receipt of written instructions please contact Technical Section for further instructions. Where the official receiver has obtained insurance on property covered by the charge he/she should cancel it following the guidance in paragraph 49.27B.

 

56.2.197 Disclaimer of onerous leasehold property

An LPA receiver may manage leasehold property which vests in the official receiver as trustee of the bankrupt’s estate. The official receiver should examine the lease to determine what liabilities, if any, attach to it. Where the lease is onerous the official receiver may, following the guidance in Chapter 34, disclaim his/her interest.

 

56.2.198 Receiver’s receipts and payments

The official receiver should obtain a copy of the receiver’s receipts and payments accounts (see paragraphs 56.2.62, 56.2.112 and 56.2.148). The accounts will provide information on the realisation of assets, the distribution of funds and the receiver’s remuneration and expenses.

 

56.2.199 Bankrupt’s responsibility for VAT post bankruptcy order

Where the receiver continues trading the bankrupt retains responsibility for the submission of VAT returns and the payment of any tax due. The official receiver should consider informing the bankrupt of his/her responsibilities with regard to VAT. Further information is contained in paragraph 78.69.

 

56.2.200 Bankrupt’s responsibility for Schedule D tax

Where the receiver continues trading the bankrupt retains responsibility for the submission of his income tax returns and the payment of any tax due. The official receiver should consider informing the bankrupt of his/her responsibilities with regard to his income tax. Further information is contained in paragraph 77.36.

 

56.2.201 Council tax and receivers

The person liable for council tax is usually the occupant unless the property is unoccupied. In which instance the first person entitled to possession, typically the owner, becomes liable. Where the property is solely owned legal title vests in the trustee. The official receiver as trustee has a legal exemption from council tax for unoccupied premises [Note 15]. Where the property is jointly owned the bankrupt or the other joint owners remain liable for the council tax. The official receiver should consider informing the bankrupt of the legal position regarding a future council tax liability and for him/her to make suitable arrangements with the receiver.

 

56.2.202 Distribution of monies secured by a fixed charge

When the receiver realises assets covered by a fixed charge he/she should pay the costs of selling the assets, together with the proportion of his/her charges attributable to the fixed charge from the proceeds. The balance should be paid to the charge-holder unless there is a surplus. Where there is a surplus and there are no further charges on the property the bankrupt’s interest, if any, in the surplus should be paid to the trustees. Where the mortgagor(s) is not bankrupt the monies should be paid to him/her (them).

 

56.2.203 Distribution of monies collected by court appointed receiver

The official receiver should ensure that where the receiver remains in post the court order is amended (see paragraph 56.2.193) to include provision for assets vesting in the bankruptcy estate to be paid to the trustee.

 

56.2.204 Recovering a surplus from the receiver

On informing the official receiver, as trustee, of a surplus a receiver may ask for an indemnity in respect of his/her actions and remuneration. The official receiver, as trustee, should not give such an indemnity and should insist that the bankrupt’s interest in the surplus is paid over without conditions. The official receiver should seek advice from Technical Section if a receiver fails to pay over the bankrupt’s interest.

 

56.2.205 Charged tenanted property – no LPA receiver appointed

In some circumstances there may be charged tenanted property and the charge-holder has not appointed a LPA receiver prior to the insolvency order. The official receiver should ask the charge-holder whether he/she intends to appoint a receiver. If the charge-holder refuses to take steps to realise his/her security or to appoint a receiver the official receiver should consider making an application to the Secretary of State for the appointment of an insolvency practitioner as liquidator or trustee. The official receiver should keep the charge-holder informed, in writing, of the action he/she proposes to take. For further information on dealing with tenanted property see Part 2 of Chapter 31.11 and Parts 1 and 2 of Chapter 31.12.

 

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