MARCH 2011
PART 2
CONTENT OF ORDER, DUTIES AND FUNCTIONS OF PROVISIONAL LIQUIDATOR
This Part of the Chapter gives an overview of the content and format of the order appointing the provisional liquidator, details of his/her functions and the duties that are retained by the director(s). For information on the action to be taken by the official receiver on his/her appointment as provisional liquidator see Part 3.
2.33 Notification of order appointing provisional liquidator
When an order appointing a provisional liquidator has been made, the court will forward notice of the appointment to the official receiver [note 1]. Where the official receiver has been appointed provisional liquidator a copy of the notice should be placed on the case file.
2.34 Form of order appointing provisional liquidator
The order appointing the official receiver as provisional liquidator [note 2] is required to specify the functions to be carried out by him/her in relation to the company’s affairs [note 3] (see paragraph 2.45 and paragraphs 2.47 to 2.49).
The provisional liquidator should collect the required number of sealed copies of the order from the court and should distribute these as follows;
(a) if the official receiver is appointed, three copies to him/her;
(b) if a person other than the official receiver is appointed, three copies to that person and one copy to the official receiver;
(c) if there is an administrative receiver acting in relation to the company, he/she should also be sent a copy [note 4].
The court will usually seal the copies of the order drafted by the petitioner whilst the official receiver’s staff waits in court to ensure a copy of the order is available on the inspection and to send to the company’s bankers forthwith.
Of the three sealed copies of the order [note 5] sent to the official receiver (see paragraph 2.35 (a)):
(a) One shall in each case be sent to the company at its registered office, or, if there is no registered office, the principal or last known principal place of business, or if a liquidator has been appointed for the company’s voluntary winding up, to that liquidator. This should be accompanied by a letter [note 6].
(b) One shall be sent to the registrar of companies [note 7] (see Part 3, paragraph 2.102).
The official receiver should place the remaining sealed copy of the order on the official receiver's file.
2.37 Where service of order may be difficult
If the official receiver is aware at the time the order is made that service of documents on a company director will be difficult (e.g. because he/she is residing abroad), the official receiver may wish to seek an appropriate order at that time or subsequently [note 8]. For example, where an order needs to be served outside the court’s jurisdiction, the court may need to give permission for a different type of service, depending on the circumstances of the case [note 9].
2.38 No address known for service of order
If, for any reason, the official receiver has no address at which to serve the order appointing him/her as provisional liquidator, application may be made to the court for directions [note 10].
2.39 Gazetting and advertisement of appointment as provisional liquidator
Where the official receiver has been appointed provisional liquidator, unless the court directs otherwise, on receipt of the notice of appointment, as soon as reasonably practicable, the official receiver should publish notice of the appointment in the Gazette and may advertise the appointment in such other manner as he/she considers fit [note 11] (see also Chapter 5, Part 2).
In addition to the standard contents of such notice, it must state that a provisional liquidator has been appointed, and the date of the appointment [note 12].
2.40 Appointment of two or more provisional liquidators
Two or more persons can be appointed jointly as provisional liquidators. Where this occurs, the order must declare whether any act required or authorised under any enactment to be done by the provisional liquidator is to be done by all or any one or more of the persons for the time being holding the office [note 13].
2.41 Contents of order to include a description of property
The official receiver should endeavour to ensure that the order appointing him/her sets out a short but clear description of the property of which he/she is expected to take possession. This will in most cases extend to all the company’s property, but if the official receiver considers that there may be difficulty in identifying this, a request should be made to the court to refer in its order to "all the company’s property of which the official receiver, as provisional liquidator, becomes aware". The order should also define the duties which the official receiver is expected to perform in relation to the company’s affairs (see paragraphs 2.45 to 2.47).
2.42 Property not covered by the order
If the official receiver becomes aware of any property not covered by the terms of the order which he/she considers ought to be protected, notification of this should be given to the applicant for the appointment of the provisional liquidator, so that the applicant can apply to the court to have the order amended. If the applicant does not so apply, the official receiver should apply to the court for directions [note 14], giving notice to the company and the applicant. No steps should be taken to protect assets excluded from an order until the order has been varied to permit this. See paragraph 2.50.
2.43 Notice to solicitor when application for directions submitted
In relation to any application for directions in respect of the management of any property or business, in addition to giving notice to the original applicant, it is good practice to give additional notice to any solicitors acting for the applicant.
2.44 Indemnity where property not covered by the order
If there are any circumstances which suggest doubt or risk in taking possession of any property specified in the order and immediate recourse to the court to clarify the position is not possible, the official receiver must obtain an adequate indemnity from the applicant before taking possession (see Part 4, paragraph 2.110). Where such an indemnity cannot be obtained, the official receiver should take no action until application is made to the court to seek it’s directions as to the steps to be taken [note 15].
2.45 Functions of a provisional liquidator
The official receiver, as provisional liquidator, must carry out such functions as the court may confer on him/her [note 16].
The general functions of the provisional liquidator are as follows:
(a) To protect the assets pending the outcome of the petition hearing;
(b) To safeguard the company’s records;
(c) To investigate the company’s affairs only in so far as it is necessary to discover, protect and recover assets.
The provisional liquidator’s appointment operates to protect the company’s property for an equal distribution only in the event of an order for compulsory winding up being made. The primary reason for the appointment is to preserve the status quo and to prevent any creditor getting priority [note 17].
2.46 Conflict with terms of court order
If the official receiver, as provisional liquidator, considers that any proposed action may conflict with the terms of the order, application should be made to the court for directions [note 18].
2.47 Duty of provisional liquidator to take custody of company property
The provisional liquidator must take into his/her custody or control all the property and things in action to which the company is or appears to be entitled [note 19].
2.48 Powers of a provisional liquidator
The court may limit the official receiver’s powers in the order appointing him/her as provisional liquidator [note 20], and in practice the order usually limits the powers to ‘taking possession of, collecting and protecting the assets… but such assets are not to be distributed or parted with until further notice.’ The court may limit the provisional liquidator’s powers to enable him/her to deal with specific property only (see paragraph 2.42). Where this is the case, then the powers contained within the court order will override the duty referred to in paragraph 2.47 [note 21].
2.49 The powers usually contained within the order
The form of the order appointing the official receiver as provisional liquidator is usually drawn up by the petitioner (see paragraph 2.27). The standard powers that are usually included are as follows:
(a) To gain entry to the company’s trading premises, take possession of and protect the company’s assets.
(b) To take possession of the company’s books and records including the accounting and statutory records.
(c) To investigate the affairs of the company in so far as is necessary to protect the assets of the company.
(d) To investigate any transactions that may result in recovery action being made if a winding-up order is made.
(e) To commence action for the protection and recovery of company assets.
(f) To apply to the court for directions.
(g) To redirect email accounts and/or have such accounts closed.
(h) To continue to operate or close or redirect company internet sites.
(i) To have the discretion to retain, pay or dismiss employees.
(j) To be at liberty to complete or terminate any contracts or transactions entered into by the company.
(k) To engage any solicitors, other agents and specialists as may be necessary to assist him in the carrying out of his duties.
(l) To retain and operate the existing bank accounts of the company and where necessary open new bank accounts.
Any interference with the company’s affairs outside the terms of the court’s order may involve a claim being made against the official receiver for damages, especially if the petition is eventually dismissed.
The official receiver has no duty to send a report to creditors and contributories [note 22]. Where the official receiver feels that it is appropriate to provide updates to creditors in provisional liquidations, this is usually done by issuing information on The insolvency Services’ web site http://www.insolvency.gov.uk/compulsoryliquidation/companiesclosedipublicinterest.htm .
2.52 No duty or power to realise property
A provisional liquidator does not normally have the power to realise (only protect) assets pending the outcome of the winding-up petition hearing [note 23].
Following the appointment of a provisional liquidator, the director’s powers are restricted. The directors no longer have the power to act as a director [note 24]. They do, however, retain some residual powers such as the power to instruct solicitors and counsel to oppose the winding-up petition, and to appeal against the making of a winding-up order. When considering what powers the board retained ‘it may be helpful … to enquire whether the power which the board is said to have lost is one which can be said to have been assumed by the liquidator. If the answer to that is that it cannot, that may be a good reason for saying that the board still retains it’ [note 25].
2.54 Powers and rights of the creditors
After the appointment of a provisional liquidator no creditor, who has a claim which would be provable in insolvency proceedings, has any remedy against the company or it’s property, including the commencement of an action [note 26].The official receiver should therefore inform any creditor who appears likely to continue or commence an action that any costs he/she incurs may not be recoverable from the company’s property, unless the court has given leave for the proceedings to be continued or commenced and subject to such terms as the court may impose. Where legal proceedings have been commenced prior to the appointment of the provisional liquidator, notice should also be given to the court in which the proceedings are based (see paragraph 2.103).
2.55 Authority of agents determined
The appointment of a provisional liquidator determines (ends) the authority of agents of the company e.g. in relation to company solicitors and accountants, as from the time when notice of the appointment reaches them [note 27], see paragraph 2.103 for information on issuing notices to the company’s solicitors and accountants.
2.56 Execution levied prior to appointment of provisional liquidator
Where execution has been levied prior to the appointment of a provisional liquidator, the provisions of the Insolvency Act 1986 apply to the duties of an enforcement officer [note 28] (see Chapter 9, Part 2, particularly paragraphs 9.82 and 9.83). Briefly, if the enforcement officer is in possession of goods on appointment of a provisional liquidator, those goods should be held to the provisional liquidator’s order; or, where the goods have already been sold and the sale proceeds are being held, they should be paid over to the provisional liquidator. Notice should be given to the sheriff in every provisional liquidation regarding any goods taken in execution, see paragraph 2.103.
2.57 Lien claimed over books or records
A lien claimed over books and records is unenforceable against the official receiver as provisional liquidator [note 29], see Chapter 9, paragraph 9.109.
2.58 Applicable duties from the Insolvency Act 1986
Certain provisions of the Insolvency Act 1986 are available to the official receiver as provisional liquidator, if required, to assist him/her in complying with the duties and exercising the powers conferred on him/her by the court (see paragraphs 2.59 to 2.62 below).
2.59 Where provisional liquidator seizes or disposes of property
If a the official receiver, as provisional liquidator, seizes or disposes of any property which is not the property of the company but at the time of seizure or disposal he/she believed that he/she was entitled to that property, then the official receiver is not liable to any person for that loss or damage caused, unless a loss or damage is caused by the official receiver’s own negligence [note 30].
It has been held that seizing property is only applicable to tangible property, and not to choses in action [note 31] (see Chapter 31.9, paragraph 31.9.1).
2.60 Director’s duty to co-operate
Various parties are under a duty to give the official receiver, as provisional liquidator, such information concerning the company and its promotion, formation, business, dealings, affairs or property as the provisional liquidator may reasonably require [note 32]. These parties are also required to attend for interview at such times as may reasonably be required [note 33] (see Chapter 11, paragraph 11.59). When planning an interview, staff should ensure that they do not disclose the contents of the section 447 report to the interviewee (see paragraph 2.106).
2.61 Persons required to co-operate in provisional liquidation
The persons required to co-operate with the official receiver as provisional liquidator (see paragraph 2.60 above) are;
(a) past and present officers of the company,
(b) those who have taken part in the formation of the company at any time within one year before the date on which the provisional liquidator was appointed,
(c) those who are in the employment of the company, or have been in its employment (including employment under a contract for services) within that year, and are in the official receiver’s opinion capable of giving information which he/she requires,
(d) those who are, or have within that year been, officers of, or in the employment (including employment under a contract for services) of another company which is, or within that year was, an officer of the company in question, and,
(e) any person who has acted as liquidator, administrator or administrative receiver of the company [note 34].
For more information and the penalties for failure to co-operate, see Chapter 13, Part 2.
2.62 Inquiry into company’s affairs and private examinations
The official receiver, as provisional liquidator, may apply to the court for the private examination of an individual, if considered necessary, to assist in his/her enquiry into the company’s affairs [note 35].
Upon the official receiver’s application to the courts as provisional liquidator, the court may summon to appear before it, any officer of the company, any person known or suspected to have in his/her possession any property of the company or supposed to be indebted to the company, or any person capable of giving information concerning the promotion, formation, business, dealings, affairs or property of the company [note 36]. If such a person fails to appear, the court has certain enforcement powers [note 37]. See Chapter 23 for further information.
2.63 Privilege against self incrimination
The director of a company in provisional liquidation cannot claim privilege against self incrimination as a ground for not disclosing information required by the provisional liquidator to manage the affairs of the company [note 38] (see Chapter 47, paragraph 47.3).
2.64 Provisional liquidator can require a statement of affairs
The official receiver, as provisional liquidator, should only interview the directors for the purpose of establishing the existence of assets and their whereabouts, he/she does not have an investigative role at this stage. If the official receiver considers it necessary he/she may require a statement of the company’s affairs to be lodged [note 39], any request should be made on the appropriate form suitably amended [note 40].
Notification of the official receiver’s appointment as provisional liquidator should be sent to the company’s directors [note 41], depending whether or not a statement of affairs is required.
2.65 Statement of affairs when insolvency practitioner appointed as provisional liquidator
A local official receiver, rather than PIU, may be requested to assist in the submission of a statement of affairs when an insolvency practitioner is appointed as provisional liquidator. The insolvency practitioner may be required to pay the official receiver a fee for this if directed by the court [note 42]. For further details as regards the submission of a statement of affairs in such cases, see Chapter 12. PIU will usually assist any local official receiver in these matters.
2.66 Acts of provisional liquidator valid even if defect in appointment
The acts of the official receiver as provisional liquidator are valid notwithstanding any defect in his/her appointment or qualifications [note 43].
2.67 Appointment of provisional liquidator valid when winding-up petition subsequently dismissed
Any act or expense incurred by the official receiver as provisional liquidator prior to the hearing of the winding up petition, will not be invalidated if the winding up petition is subsequently dismissed. This also applies to an act or expense incurred by a special manager appointed by the provisional liquidator [note 44].
[Back to Part 1 – Proceedings up to the making of an order] [On to Part 3 – Action following appointment]