MARCH 2011
PART 1
PROCEEDINGS UP TO THE MAKING OF AN ORDER FOR THE APPOINTMENT OF A PROVISIONAL LIQUIDATOR
If at any time after the presentation of a winding-up petition (and before a winding-up order is made) the court considers that it is necessary for the protection of the company’s property, it may appoint a provisional liquidator [note 1].
A provisional liquidator is appointed when a petition is presented to wind up a company and an application is also made for the appointment of a provisional liquidator, as the petitioner has concerns that assets are in jeopardy or that for the business to continue until the petition is heard is not in the public interest [note 2].
2.4 Who can be appointed as provisional liquidator
(amended April 2013)
The court may appoint either the official receiver, or some other ‘fit person’ as provisional liquidator [note 3] There is no definition of ‘fit person’ in the legislation but to be appointed provisional liquidator any person, other than the official receiver, must be a qualified insolvency practitioner [note 4] [note 5].
In most cases the official receiver is appointed provisional liquidator and the applicant will be the petitioner. The majority of such applications are made under the provision to wind up a company on grounds of public interest by the Secretary of State acting as the petitioner [note 6]. Such a public interest petition would not be subject to the EC Regulation on Insolvency Proceedings (see paragraph 41.10a)
2.5 Circumstances when appointment of a provisional liquidator other than official receiver is likely
An insolvency practitioner is most likely to be appointed as provisional liquidator in the following circumstances:
(a) Where a trade creditor is presenting a petition on insolvency grounds and has detailed to the court reasons that assets of the company are considered to be in jeopardy (see paragraph 2.3).
(b) Where a winding-up petition has been presented by an administrator, in which case the court may appoint the administrator as provisional liquidator [note 7].
(c) Where the winding-up petition is combined with one under the Companies Act 2006 that the company is being run in a manner which is unfairly prejudicial to one or more of the members of the company [note 8].
2.6 Who may present an application for the appointment of a provisional liquidator
The majority of provisional liquidators are appointed on the application of the party who petitions to wind up the company, see Chapter 45, paragraph 45.13.
Additionally the following may apply for the appointment of a provisional liquidator [note 9];
(a) a contributory,
(b) the company,
(c) a temporary administrator,
(d) a member state liquidator appointed in main proceedings (see Chapter 42),
(e) any other person who is entitled to present a petition for the winding up of the company may apply.
2.7 Company in voluntary liquidation
The fact that a company is in voluntary liquidation will not preclude an application being made for a winding-up order and the appointment of a provisional liquidator [note 10]
2.8 Application to be supported by a witness statement
An application for the appointment of a provisional liquidator must be supported by a witness statement stating;
(a) the grounds on which it is proposed that a provisional liquidator be appointed,
(b) the person who is proposed to be the provisional liquidator. If it is not the official receiver, that that person has consented to and is qualified to act as such,
(c) whether or not the official receiver has been informed of the application or furnished with a copy if it,
(d) whether to the applicant’s knowledge there has been proposed or is in force a voluntary arrangement, an administrator, administrative receiver, or a voluntary liquidator, and
(e) the applicant’s estimate of the value of the assets in respect of which the provisional liquidator is to be appointed [note 11].
2.9 Application for appointment of official receiver as provisional liquidator
The official receiver will in most cases be served with copies of the application for the appointment of a provisional liquidator and the supporting witness statement. In certain cases, because of extreme urgency, it may not be practicable for a copy of the application to be served, but the official receiver should always be given sufficient notice of the application to enable him/her to be present at the hearing. Where this is not possible the applicant should notify the court of the official receiver’s position [note 12].
2.10 Official receiver appointed as provisional liquidator
Public Interest Unit (PIU) will act in all cases where the applicant is the Secretary of State or otherwise in cases which fit the PIU criteria (see paragraph 2.11 below). In other cases (which will be rare) the local official receiver will be appointed by the court as provisional liquidator. PIU are usually appointed following an investigation by Company Investigations (CI), where the court considers the public needs protecting from the company’s on-going business (see paragraphs 2.22 to 2.23).
Where an official receiver in PIU is appointed provisional liquidator, the administration and investigation of the provisional liquidation will be carried out by PIU, but the local official receiver may be asked to assist at some stage, for example, to carry out an interview of a company officer within their area or to assist on an inspection.
2.11 The work of Public Interest Unit (PIU)
PIU is part of Centralised Activities Directorate (CAD) and undertakes the administration and investigation of cases brought on the petition of the Secretary of State and other regulatory authorities in the public interest, including the appointment of the official receiver as provisional liquidator. Cases of serious non compliance, including carousel and related fraud cases, on the presentation of a petition by HM Revenue and Customs are also administered and investigated by PIU.
PIU cases are often of unique complexity and/or of national and international media interest. All cases are investigated, many of which progress to a disqualification and/or referral to legal services. Cases also involve asset tracing and recovery, dealing with professional advisers and liaison with other regulatory and investigatory authorities and Crown Departments.
2.12 Official receiver to attend hearing
The official receiver should attend the hearing to make any representations he/she considers necessary, especially in regard to the terms of the order (as the court will make an order on such terms as it thinks fit) [note 13]. The official receiver will need to comment as to the practicability of the order, and to ensure inclusion of references to the payment of his/her expenses and remuneration (see also paragraph 2.13 and Part 4). If a director attends the court hearing, the official receiver should interview the director at the court if appropriate, using the standard provisional liquidation questionnaire available to PIU staff, with the aim of establishing the assets and liabilities of the company and the actions that are required to protect those assets.
2.13 Deposit required to cover official receiver’s remuneration and expenses
The official receiver should also ensure that a sufficient deposit or security has been provided to cover his/her costs in carrying out the required duties and that appropriate details will be included in the court’s order [note 14]. The amount of the deposit or security should be commensurate with the level of any trading to be continued, coupled with an indemnity against loss and possible damages (see Part 4, paragraphs 2.111 to 2.112).
2.14 Application for appointment of insolvency practitioner as provisional liquidator
On an application for the appointment of a provisional liquidator [note 15], the applicant may propose that an insolvency practitioner be appointed other than the official receiver. A copy of the application must be sent to the official receiver [note 16], who need only attend the hearing if he/she thinks it necessary to make any representations with regard to the terms of the order. The official receiver should liaise in this connection with the proposed appointee.
2.15 Notice of appointment of insolvency practitioner as provisional liquidator
The official receiver will receive notification from the court of an insolvency practitioner’s appointment as provisional liquidator [note 17], although the official receiver should not become involved in the proceedings until such time as a winding-up order is made, except possibly in relation to the submission of a statement of affairs in relation to a company (see Part 2, paragraph 2.65 and Chapter 12).
2.16 Application for appointment of provisional liquidator in respect of a company authorised by the Financial Services Authority
Where an application for the appointment of a provisional liquidator is made in respect of an authorised person who has permission to affect or carry out contracts of insurance [note 18], it is usually made by the Financial Services Authority. If the application is made by another person, the applicant must serve a copy of the application on the Financial Services Authority [note 19].
2.17 Petition and application presented with notice to the company
The winding-up petition and application for a provisional liquidator can be presented either with or without notice to the company. ‘With notice’ is where the petitioner gives notice to the company that it intends to apply to have the company wound up and for the appointment of a provisional liquidator.
This will usually bring a response from the company and the petitioner may negotiate a change in the company’s business practices resulting in an undertaking being given by the company and it’s officers. This may result in a provisional liquidator not being appointed.
2.18 Petition and application presented without notice to the company
When a winding-up petition and application for a provisional liquidator is presented ‘without notice’, it means that the petitioner will make the application to court for the appointment of a provisional liquidator, without giving notice to anyone other than the official receiver (see paragraph 2.9). The petition will be presented in open court, but the hearing will not appear on any of the court listings.
The petitioner will do this where they consider that the company’s business should be brought to the court’s attention as matter of urgency without notice being served on any other party, and there is a real danger either that assets will disappear, or that members of the public are suffering to such an extent that urgent action is required. It is a difficult decision for the court to appoint a liquidator over a company without notice being served on the company, and the petitioner will have carried out detailed research to ensure that accurate and detailed information supporting the application can be evidenced and presented to the court and that a convincing case is made for the appointment.
2.19 Application may be presented in private rather than open court
The application for the appointment of a provisional liquidator is usually held in open court [note 20]. If it is considered necessary, then an application for the appointment of a provisional liquidator may be presented in private court (in camera) to protect the company, its creditors and shareholders [note 21].
2.20 Where petitioner fails to provide deposit or indemnity
If the petitioner fails to provide sufficient funds for a deposit or adequate indemnity (see Part 4), the proposed provisional liquidator may refuse the appointment. Where the provisional liquidator has been appointed the liquidator’s remedy is to apply to the court for his/her release [note 22].
2.21 Application for appointment of a provisional liquidator dismissed at hearing
When an application for a provisional liquidator is submitted, it may be dismissed where the court is content that there is no advantage in appointing a provisional liquidator as an alternative option is available to protect the company’s assets [note 23].
When a member of the public is concerned with the way in which a business is operating they can report the facts to the Department of Business, Innovation and Skills (BIS). This will usually be passed to Company Investigations (CI). If CI consider that there is something which needs investigating they will obtain authority from the Secretary of State (under the Companies Act 1985 section 447) [note 24] and look into the business. During this process, the company and its officers have a duty to produce to CI any papers or information it requests [note 25].
Section 447 enquiries are fact-finding and not criminal investigations, and are conducted with a view to establishing whether, and if so what, further action should be taken in the public interest. Following their investigation, CI will decide what, if any, action should be taken (see paragraph 2.23 below).
2.23 The role of Company Investigations
CI is part of the regulatory arm of BIS, and located within the Insolvency Service. Although CI is part of the Insolvency Service, it deals primarily with complaints about live companies that are trading. The investigations carried out by CI are confidential, and so complainants are not informed whether their complaint is in fact being investigated, and, if a complaint does lead to an investigation, the company directors are not informed why they are being investigated. Following an investigation by CI, it may either:
2.24 Local official receiver approached by a petitioner
Where a local official receiver is approached by a potential applicant to the court for a winding-up order and the appointment of a provisional liquidator, consideration should be given as to whether the case should be dealt with by PIU or locally (see paragraph 2.11). Where any discussion is necessary it is preferable for this to be at official receiver level (at both ends).
2.25 Pre-appointment planning by official receiver
Upon notification that an application for the appointment of a provisional liquidator has been made to the court, and where the official receiver is likely to be appointed provisional liquidator, the official receiver will carry out pre-appointment planning (see paragraph 2.26).
The official receiver is usually notified by the petitioner or their solicitors (this is often either CI or their appointed solicitors who will contact PIU), that an application is going to be made for the appointment of the official receiver as provisional liquidator prior to the hearing (see paragraph 2.9). In addition to a copy of the application and witness statement, the petitioner normally provides the official receiver with copies of the draft provisional liquidation order, the winding-up petition and exhibits to support the application. Where the petitioner is CI, this will include the report submitted under section 447 (see paragraphs 2.105 to 2.106).
Official receiver staff should use the information provided to complete preparation notes and consider what action will be needed, should the provisional liquidation order be made.
2.26 Matters usually considered by official receiver prior to appointment as provisional liquidator
The official receiver should consider the following matters on receipt of the information from the petitioner (see paragraph 2.25 above):
(a) Whether professional advice from solicitors or accountants will be needed.
(b) If part of the business, on the face of it, is unobjectionable and can be continued and if so, if continued trading is a possibility, whether a special manager should be approached.
(c) Whether to continue trading or close down a business should be considered and documented in advance (but the final decision should be made post appointment after careful consideration of all the facts).
(d) Whether an inspection is needed, and if so at which locations.
(e) The number and grade of staff needed to carry out and assist on any inspection.
(f) Who the local official receiver is and whether to put them on notice that an inspection will be required in their area. Also to discuss with the local official receiver any assistance likely to be required.
(g) Travel and accommodation arrangements for the inspection should be considered but not booked until after the provisional liquidator is appointed, in case the order is not made.
(h) Local agents to be put on notice of the likely scope of the work, for example the number of boxes of records to be collected, location of premises, potential assets to be dealt with etc.
2.27 Official receiver to consider the terms of the order
The official receiver should check the draft provisional liquidation order prior to the hearing to ensure that it contains sufficient terms to allow the official receiver to carry out all the functions he/she will need to deal with that particular case. Usually the order will follow a standard form. Where the official receiver considers additional powers may be required (see Part 2), the official receiver should liaise with the petitioning solicitor’s to get the draft order amended. Ultimately though, it is the court’s decision whether to accept and use the draft order or make an order as it sees fit and the official receiver should address the court on these issues at the hearing to appoint the provisional liquidator.
2.28 Copies of order to be taken to court
The official receiver should request that the petitioning solicitor’s bring an appropriate number of copies of the order to court to be sealed. The number required will depend on the number of people to be served with the order.
2.29 Official receiver to prepare for inspections
Prior to the hearing for the appointment of a provisional liquidator, the official receiver should prepare an inspection pack containing all the necessary paperwork and equipment, and sufficient boxes for the accounting records, to take on any inspection that will be required (see Chapter 8, paragraph 8.21 for a full list of items to take). Where a company is trading, on the official receiver’s appointment as provisional liquidator, an inspection will normally be undertaken as soon as the order is made at all of the company’s trading premises. (see Part 3). This is to protect any assets of the company. Where more than one trading premises are being used, an inspection is normally planned for each location to take place simultaneously and so separate teams of staff will be needed for each site.
2.30 Official receiver to ensure bank accounts are located prior to order
The official receiver should obtain details of all of the company’s known bank accounts from the petitioner prior to the hearing and prepare notifications to the banks so that immediate contact can be made on the making of the order. This will include details of a telephone and fax number for the branch where the account is held and the bank’s group legal department. The name, telephone and fax number of someone at both offices, who is prepared to accept notification on the date if an order is made, should be obtained. At this stage the name of the company should not be mentioned to avoid prejudice to the company should the order not be made, and to prevent the company being notified of the proposed application in advance where the application is being made without notice.
All steps should be taken to ensure that the bank acknowledges receipt of the notice of the order to protect the balance on the account at the date of the order.
2.31 Court order appointing provisional liquidator
The court may, on the application for the appointment of a provisional liquidator (see paragraphs 2.6 to 2.16), if satisfied that sufficient grounds are shown for the appointment, make the order appointing the provisional liquidator on such terms as it thinks fit [note 26].
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