Records Subject To Lien

Chapter 10

July 2006

10.69 Categories of lien

There may be records of which the official receiver is entitled to take possession which may be subject to a lien. A lien, in its simplest sense, is a legal right to keep possession of property until a claim has been met.

10.70 The common law or possessory lien

This is the most important class of lien. It entitles a person who has done work for another to detain goods in his/her possession belonging to that other until the charges for the work have been paid. It is this type of lien which the official receiver will most commonly encounter in dealing with books, papers and records retained pending payment of fees for professional services rendered.

10.71 Equitable and other liens

There are other types of liens, including equitable liens. It is highly unlikely that the official receiver will encounter liens other than possessory liens in the course of his duties as official receiver. If another type of lien is encountered legal advice should be sought before the official receiver acknowledges it.

10.72 Effect of lien

The official receiver, liquidator or trustee has the right to obtain possession of any of the books, papers or other records (‘’records’’) of a company subject to winding-up proceedings or the bankrupt [note 1]. A lien or other right to retain possession of any such document (as normally claimed by unpaid accountants, solicitors, auditors, etc.) is unenforceable to the extent that its enforcement would deny possession of the document to the official receiver, liquidator or trustee [note 2]. The provisions do not apply to liens on documents which are held as title to property (i.e. in connection with a registered charge).

10.73 Accountants’ and solicitors files and working papers

An accountant’s working papers remain his/her own property [note 3]. Therefore any files or working papers obtained from accountants, solicitors or any other third party do not constitute the insolvent’s books and papers and should not be stored with them, but should be kept separately by the case clerk. The papers should be returned to the person from whom they were obtained as soon as they have fulfilled the purpose for which they were borrowed.

For details regarding possession of client’s files see paragraph 10.59.

10.74 Non co-operation - winding up

Where a person claiming a lien refuses to deliver up a company’s records, the official receiver, in his capacity as provisional liquidator or liquidator [note 4], can require any person holding the company records to deliver, convey, surrender or transfer the records to him. Any person on whom such a requirement is imposed shall without avoidable delay, comply with it [note 5].

10.75 Non co-operation - bankruptcy

The official receiver or a trustee of the bankrupt's estate may apply to the court at any time after the making of a bankruptcy order for the issue of a warrant for the seizure of any records relating to the bankrupt’s estate or affairs which are in the possession or under the control of a person who is required to deliver them to the official receiver or trustee [note 6]. A warrant issued by the court may also provide for premises thought to conceal any records relating to the bankrupt’s estate or affairs to be searched by the Police or a named officer of the court [note 7].

10.76 Private examination

A person who holds a lien and continues to be uncooperative may additionally be warned of the Official Receiver’s power to apply to the court undersection 236 or 366 for the examination in court of any person known or suspected to have in his/her possession a company’s or the bankrupt’s property [note 8]. If on such an examination it appears to the court that any person does have such property, the court may order him/her to deliver it up.

10.77 Hand-over to insolvency practitioners

Where records subject to a lien are handed over to a practitioner as liquidator or trustee, the existence of the lien should be drawn to the insolvency practitioner’s attention in the notes on the case passed to him/her.

For further details regarding documents handed to insolvency practitioners see Chapter 17 - Appointments of liquidators and trustee Part 7.

10.78 Disposal of records subject to lien

The official receiver should not destroy or otherwise dispose of the records handed over by a creditor claiming a valid lien unless the lien-holder agrees in writing to give up his/her lien or to a sale of the records proceeding on the basis that the proceeds will be treated as general assets of the estate. If such agreement cannot be obtained the records should be returned to the lien-holder once the official receiver and any liquidator or trustee appointed in the case have finished with them.

10.79 Preferred interpretation

The instruction in paragraph 10.69 is advocated in view of two possible constructions which may be put on the provisions of sections 246 and 349. The first is that once possession of the records is obtained by the official receiver, a possessory lien is defeated for all purposes and ceases to exist. It would not, therefore, revive when the official receiver who obtained the records had no further use for them and the records would fall back into the general assets of the insolvent’s estate. The alternative view is that the provisions do not extinguish the lien but merely put it in abeyance until the official receiver and any liquidator or trustee has finished with the records, which ought then to be handed back to the lien-holder so as to revive the lien or other right. Where a creditor parts with possession of records subject to a lien for a limited and specific purpose with the intention of maintaining a lien, loss of possession would not destroy the lien. There is no settled law on this question and the second interpretation is the one to be followed by official receivers.

10.80 Lien relinquished

It is probable that once the holder of a lien has lost possession of the records concerned, he/she will not wish to have them returned to him/her at a later date, since they are unlikely to retain any "value". The official receiver should therefore seek to establish immediately on or after obtaining possession of the records whether the person concerned wishes to maintain his/her claim to a lien or whether he/she relinquishes it.

10.81 Information obtained from documents

Information taken directly from records which are subject to a claimed lien (such as a list of customers), rather than the records themselves, may be sold without the lien-holder having a right to the proceeds.

[Back to Part 6 - Preservation and destruction of records all cases] [Onto Part 8 - Records with insolvency practitioners]