December 2008
INSPECTIONS GENERALLY
8.2 Purpose of inspection
When an official receiver becomes liquidator or provisional liquidator of a company, he/she is required to take into his/her custody or control all property and things in action to which the company is or appears to be entitled [Note 1]. As receiver and manager of a bankrupt’s estate, he/she has a duty to take such steps as he/she thinks necessary to protect any property which may be claimed for the estate by the trustee, although he/she is not required to do anything that involves incurring expenditure [Note 2]. When the official receiver is trustee of a bankrupt’s estate his/her function is to get in, realise and distribute the estate [Note 3].
Property includes 'money, goods, things in action, land and every description of property wherever situated and also obligations and every description of interest, whether present or future or vested or contingent, arising out of, or incidental to, property' [Note 4].
8.4 Official receiver’s statutory duty to investigate
The official receiver has a statutory duty to investigate the affairs of insolvent companies against which a winding-up order has been made. In a bankruptcy case, the official receiver has a duty to investigate the conduct and affairs of each bankrupt unless an investigation is thought to be unnecessary [Note 5]. The inspection of property owned or used by an insolvent may be an important part of the official receiver’s administration and investigation of the insolvent’s affairs. It may give the official receiver an opportunity to ensure that assets are disclosed and protected for the benefit of the insolvent’s estate and an indication of the nature and scope of any business conducted. It may also provide the official receiver with his/her first contact with the insolvent.
8.5 Sources of information to be used in inspection decision
The official receiver should exercise care in deciding whether an inspection is necessary, based upon the information obtained from his/her inquiries concerning the insolvent’s affairs. Such information may be obtained from the following sources:
(a) Officers of an insolvent company or the bankrupt,
(b) The insolvent’s accountant or solicitor,
(c) The petitioning creditor or his/her solicitor,
(d) Other creditors,
(e) Any insolvency practitioner consulted by, or holding an office in respect of the insolvent,
(f) Any other persons the official receiver believes may hold relevant information about the insolvent.
8.6 Need for care in inspection decision
Officers of an insolvent company and bankrupts are under a statutory duty to provide the official receiver with such information as he/she may reasonably require, and in the winding up of a company, this duty extends to certain other individuals connected to the company [Note 6]. The official receiver should exercise particular care in his/her inspection decision where the only information available concerning the assets or activities of an insolvent is that provided by the officers of an insolvent company or the bankrupt.
8.7 Inspection not always required
The official receiver must consider whether an inspection (or more than one inspection) is justified and only undertake one if he/she considers it necessary to carry out the functions discussed at paragraph 8.9. In making the decision the official receiver must weigh the potential advantages of carrying out an inspection against the cost and time involved. He/she will often be able to discharge his/her duties without the need for an inspection and thereby preserve resources for those cases requiring detailed investigation.
The official receiver must record his/her decision not to undertake an inspection and be able to justify it. The record of this decision should be made either on the initial contact/enquiry form [note 7], or in the CAR B.
8.8 Occasions when inspections should not be carried out
An inspection should not usually be carried out where:
(a) It is apparent that the company or bankrupt is not trading;
(b) An insolvency practitioner holds any office in relation to the insolvent;
(c) Any assets or books and papers can be promptly collected by the official receiver's agents or delivered up by the company officer or bankrupt;
(d) The official receiver is satisfied that all available and relevant books and papers have been produced to him/her; or
(e) The company officers/bankrupt have surrendered to the proceedings and the official receiver has decided that the insolvency does not merit further investigation.
8.9 Occasions when inspections should be carried out
An inspection should be carried out where one or more of the following apply:
(a) The company or bankrupt appears to be trading (excluding small scale sole trader bankrupts who have no premises or employees),
(b) The company or bankrupt has been trading immediately prior to the order (excluding small scale sole trader bankrupts who have no premises or employees),
(c) Where no relevant information has been obtained during initial enquiries yet the order gives the impression that trading activity is a possibility,
(d) There are premises which need to be secured or silent (vacant) premises which need to be assessed,
(e) There are known to be assets or third party goods which must be secured,
(f) Essential accounting records require collection and cannot be relied on to be delivered,
(g) The company officer(s) or bankrupt have failed to surrender to the proceedings (see Part 2),
(h) The official receiver believes that a full disclosure of assets may not have been made,
(i) Where a foreign national who appears to have been resident in the UK for less than 12 months and whose debts all appear to be outside the UK has become bankrupt, the official receiver may wish to consider an inspection to establish whether the bankrupt is actually resident in the UK. See Part 2, paragraph 8.28 for more information. See Chapter 41 for further details on Cross-border insolvency – European Union.
For further details on the process of obtaining information at the initial stages of a company case, see Chapter 3, paragraphs 3.29 to 3.38 and in bankruptcy cases see Chapter 4, paragraphs 4.26 to 4.27 and paragraphs 4.30 to 4.36.
8.10 Who should carry out an inspection? – Provincial offices
It will be the examiner whose case requires an inspection that is the appropriate person to carry out that inspection. In certain circumstances it may be appropriate for a colleague to either carry out that inspection, or accompany that examiner for various reasons. These reasons may include a training need of an examiner or a case clerk, the volume of work expected requires more than one examiner, or for reasons of safety (see Part 3).
8.11 Who should carry out an inspection? – London/Croydon offices
In the official receiver’s office London, there is a team of outdoor inspectors who carry out inspections on all cases when an inspection need is identified. The outdoor inspector team should be notified with full details of the inspection requirement, for which there is a form available for instructing the London inspectors which may be emailed to outdoor.inspectors@insolvency.gsi.gov.uk or sent by internal post depending on the urgency [note 8]. Sufficient details of the case should be provided to enable the inspectors to carry out an informed inspection. If there is significant reason to believe that a case is trading, the inspectors will prioritise that request and go out as soon as possible, but no later than the next working day.
8.12 When an agent can carry out an inspection
In some cases it may be appropriate to allocate an inspection to the official receiver’s agents. This is likely to be when there has been full cooperation by the company officer or bankrupt, who has ceased to trade or agreed to cease to trade, and agreement can be reached on handing over the assets and/or accounting records. It may also be appropriate when there are known to be third part assets that the insolvent has agreed can be secured until collection can be arranged, or when there are silent (vacant) premises that need securing. The decision as to whether to accompany the agents on such an inspection needs to be considered carefully on a case-by-case basis. If there is a possibility that full cooperation may not be gained on the inspection, the examiner should also attend so that they can provide information to the officer or bankrupt regarding their duty to cooperate and the consequences of failing to do so.
If an agent is instructed to carry out an inspection without the attendance of the official receiver, clear and precise instructions should be given on what is required of the agent. A contact phone number for the instructing examiner or assistant official receiver should also be given (and they should be available), in case further advice is required by the agent whilst carrying out the inspection. See paragraph 8.13 for security considerations when instructing agents.
8.13 Information security on inspections
Staff should take responsibility for all information that they handle (whether paper or digital), and all information that they instruct agents to handle on their behalf, and should take the necessary precautions to ensure its safety from unauthorised disclosure. Staff should note there is a marked difference in the risk to the records of a sole trader for example, compared to that of a company employing 50+ employees. Where the risk is considered greater, ‘Track and Trace’ services should be used to move accounting records to ensure safe delivery and to ascertain who is responsible for the records at all times. Reference should be made to any recently issued security notices when planning an inspection to ensure current information security guidance is followed. Particular attention should be paid to instructing the agents on what to do with any sensitive data recovered, such as wage records, customer credit card details, etc. Such material needs to be physically conveyed in accordance with current security protocols and the official receiver’s specific instructions (see paragraph 8.21).
Where an inspection is required to deal with a trading business and/or is essential in order to protect or secure assets, action must be taken to carry out the inspection(s) within 24 hours of the need becoming apparent to the official receiver. In some cases, more urgent action may be required as appropriate. Where an inspection is desirable in other circumstances, it should be carried out as soon as possible after the need for it becomes apparent.
Where the official receiver undertakes an inspection, details of the principal actions taken during that inspection must be given in the CAR B.
8.15 Need to exercise judgment
The situations referred to in paragraphs 8.8 and 8.9 above are not exhaustive and the official receiver must exercise his/her professional judgement on a case by case basis as to whether an inspection is necessary. The official receiver may from time to time encounter insolvencies which fall within one or more of the categories described in paragraphs 8.8 but find that there are valid reasons remaining for carrying out an inspection.
An inspection will normally be carried out at the insolvent's trading address(es). In the exercise of his/her professional judgment, the official receiver may consider it necessary that he/she inspect a company's registered office (if the premises belong to the company), a bankrupt's home, or other locations if he/she believes that assets or books and papers belonging to the insolvent or third party goods in the insolvent's custody may be found there.
An inspection of the bankrupt's home may be necessary if there are issues as to ownership, occupation or value of the home. Before undertaking an inspection of the bankrupt's home the official receiver should ensure that any occupants of the property, other than the bankrupt, give their consent to the inspection. An inspection of residential property without consent may be open to challenge under the provisions of the Human Rights Act 1998 (see Chapter 83).
See Chapter 31.0, paragraph 31.0.15 for action that can be taken if the premises which the official receiver wishes to inspect are owned or occupied by third parties who do not co-operate.
8.17 Inspections of more than one trading address
Where assets may be at risk and when the official receiver is aware of more than one address where trading is continuing, he/she should arrange for the inspections to be carried out simultaneously. This should minimise the possibility of advance warning being given of the inspecting officer’s visit and afford greater protection to moveable assets. If the bankrupt or company director is not present when the inspecting officer arrives, he/she should attempt to contact him/her by telephone to arrange his/her immediate attendance.
8.18 Preparation before an inspection
Prior to going out on an inspection, the examiner should ensure that they are properly prepared for all possible scenarios that may be encountered. In particular they should:
(a) Confirm with the assistant official receiver whether the inspection is needed, and which addresses should be visited,
(b) If a warrant card is not held, they should obtain an inspection authority to confirm they are authorised by the official receiver [note 9],
(c) Ensure that the assistant official receiver has full details of the addresses to be visited, contact telephone numbers for both the examiner and premises visited (where known), and an idea of the time expected back,
(d) Consider putting the official receiver’s agents on notice that they may be needed, or arrange to meet them at the premises,
(e) Ensure that they have all necessary equipment to carry out the inspection (see paragraph 8.21),
(f) Consider whether any special arrangements need to be made, for example, if the individual is known to be violent the police may need to be contacted for guidance/assistance,
(g) Consider the environment that they are likely to be visiting, for example if they are visiting a farm, suitable footwear may be required,
(h) Consider general precautions and other health and safety requirements they may need to take (see Part 3).
A copy of the court order, or notification of a winding-up order, should be available for the inspecting officer to produce as evidence of the official receiver’s appointment. The inspecting officer should also have his/her warrant card containing a photograph available as additional evidence of identity and authority to act. Where a warrant card is not held by the inspecting officer, authority to act needs to be obtained and signed by the assistant official receiver [Note 9]. If problems are envisaged on the inspection, an inspection authority may be taken along with a warrant card to make it clear that the inspecting officer has delegated authority from the official receiver.
8.20 Documentary authority in High Court cases
If an urgent inspection is required in a case where the order was made in the High Court, it is possible that this will be prior to a copy of the court order being received. Petitions and transfers team are responsible for sending the order on to the local official receiver on receipt from the court. If the order has not been received, a phone call to petitions and transfers team should be made so that they can check with the High Court that the order has in fact been made, and so they can request an urgent copy of the order. If the court can send this through, a copy can be faxed to the local official receiver in time for the inspection as evidence that the official receiver has been appointed liquidator/trustee.
8.21 Items to take on an inspection
When an inspection is undertaken, the inspecting officer may need certain items to carry out an effective inspection depending on what is found. Consideration should be given to taking the following items:
8.22 Requests for assistance from other official receivers
If premises are located within an area covered by another official receiver’s office, a request should usually be made to that official receiver for assistance. As much advance notice as possible should be provided and any verbal requests for assistance should later be confirmed in writing. Specific instructions regarding dealing with matters of an unusual nature should be provided to avoid confusion and to ensure synchronisation of actions by the official receivers where there are several addresses to be inspected.
8.23 Action on return to the office
On return from an inspection, the inspecting officer should ensure that all outstanding matters are dealt with and that all paperwork is placed on the office file. In particular the following actions may need to be carried out:
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