INSOLVENCY AND THE EXECUTION OF A JUDGMENT BY A CREDITOR

PART 5

April 2014

INSOLVENCY AND THE EXECUTION OF A JUDGMENT BY A CREDITOR  

9.85 Scope of this Part

This Part provides guidance on the interaction between a creditor’s right to take control of goods to enforce a judgment (commonly known as execution) and the insolvency legislation. The terms ‘execution’ and ‘taking control of goods’ should be taken to mean the same in respect of the enforcement of a judgment (see paragraph 9.12) [note 1]. For the sake of simplicity and with the aim of reducing any confusion the term execution is used in this Part.

 

9.86 Goods taken control of on behalf of judgment creditor prior to commencement of insolvency

Where the execution has been completed (see paragraph 9.89) prior to the commencement of insolvency proceedings (the date of the presentation of the petition in a liquidation; the date of the order in a bankruptcy), the creditor will be entitled to retain the benefit of the execution [note 2] [note 3] [note 4] [note 5].

This includes any payments, including instalment payments, made to the creditor under a controlled goods agreement (see paragraph 9.51) [note 6].

 

9.87 Enforcement agent to hold sale proceeds for 14 days

If the judgment debt is greater than £500 in relation to a company or £1,000 in relation to an individual, the enforcement agent must hold the proceeds from the sale of controlled goods for a period of 14 days from the date of sale, pending the presentation of any petition for winding-up or bankruptcy (see paragraph 9.88) [note 7] [note 8] [note 9] [note 10] [note 11].  If the judgment debt is less than the amounts outlined above, but the addition of allowable expenses results in the amount outstanding exceeding this amount, the officer charged with the execution must also hold the sale proceeds for 14 days [note 12].

 

9.88 Enforcement agent to hold sale proceeds if receives notice of petition

If the enforcement charged with the execution receives notice of an insolvency petition (or, in the case of a company, notice of a voluntary winding-up) within the 14 days in which they are required to hold the proceeds (see paragraph 9.87), then he/she must hold any funds for the liquidator or trustee if an order is subsequently made [note 13] [note 14] [note 15] (see paragraph 9.3).  

 

9.89 Definition of the completion of the process

The legislation provides that the taking control of goods process is completed by seizure and sale, or by the making of a charging order (see Part 7) [note 16] [note 17] [note 18].

It has, however, been held that the process is not complete if monies are still in the hands of the enforcement agent.  If therefore, the enforcement agent charged with the execution still holds the proceeds of sale or goods on receipt of the  notice of the insolvency, he/she must pass the funds or goods to the liquidator or trustee [note 19] [note 20] [note 21].

 

9.90 Funds held by officer when notice of order received

If the enforcement agent charged with the execution is holding funds when he/she receives notice of the appointment of a provisional liquidator, voluntary liquidator or interim receiver, or that a winding-up order or bankruptcy order has been made, the funds will be payable to the liquidator or trustee, after the deduction of the costs of execution (see paragraph 9.68) [note 22] [note 23].

 

9.91 Funds paid over to creditor after receipt of notice

The enforcement agent may be sued by the liquidator or trustee if proceeds are paid to the judgment creditor despite the officer charged with the execution having received notice (see paragraphs 9.75 to 9.77), [note 24].  The officer may, in turn, sue the judgment creditor [note 25].

 

9.92 Execution after notice of proposed voluntary liquidation

Where a voluntary liquidation precedes a winding-up order, the creditor will not be able to retain the proceeds if he/she had notice of the proposed voluntary liquidation before the completion of the execution [note 26] [note 27] [note 28] [note 29] [note 30].

 

9.93 Execution after the commencement of winding up

Any execution carried out after the commencement of a winding up (being the presentation of the petition) is void against the liquidator [note 31].  Any goods or proceeds of sale held by the enforcement agent or court bailiff should be passed to the liquidator.  Additionally, any proceeds passed to the creditor should be recovered.  In the case of difficulty, the guidance of Technical Section should be sought.

 

9.94 Execution after commencement of bankruptcy

After the making of a bankruptcy order, no person who is a creditor of the bankrupt in respect of a debt provable in the bankruptcy shall have any remedy against the property of the bankrupt in respect of that debt [note 32].

Any goods or proceeds of sale held by the enforcement agent should be passed to the trustee.  Additionally, any proceeds passed to the creditor should be recovered.  In the case of difficulty, the guidance of Technical Section should be sought.

 

9.95 Recovery of execution in partnership cases

If a winding-up order is made against a partnership, the official receiver should seek to recover any monies in accordance with the guidance in paragraphs 9.96 to 9.98, bearing in mind that any execution after the commencement of the winding up (including one instigated by the official receiver as trustee of the partners’ estates – see paragraph 53.157) will be void (see paragraph 9.93).

Where there are bankruptcy orders against the partners, but no winding-up order against the partnership (see paragraph 53.152), and there is an execution against the partnership, the official receiver will have to propose the argument that the judgment creditor is a creditor of the partners (the partnership having no legal rights or liabilities of its own) in order to seek to recover property.

 

9.96 Dealing with goods recovered from enforcement agent

Where the official receiver has recovered goods in the possession of an enforcement agent (see paragraphs 9.93 to 9.95), the goods should be realised as appropriate, following the relevant guidance elsewhere in the Technical Manual, in particular Chapter 31.0, Part 4.

It ought not to be necessary to verify if there is any third party property in the goods recovered, as it is not possible for an enforcement agent to take control of third party property [note 33].

As an alternative to taking delivery of the goods, the official receiver may agree to the sale being conducted by the enforcement agent, if this will result in a better return to the estate.  In this regard, the official receiver should consider the removal, sale and storage charges of each option, and the possibility that a better return may be obtained if, where the enforcement agent only holds a portion of the insolvent’s goods, the sale of the whole of the assets would be more advantageous.

 

9.97 Dealing with seized controlled goods where annulment, rescission, etc. is possible

If there is a possibility of the insolvency order being rescinded, appealed, stayed (see Chapter 6) or annulled (see Chapter 6A), the enforcement agent should not be instructed to undertake a sale of the goods (see paragraph 9.96).

Where there is likely to be a delay before the hearing, the official receiver may proceed with the sale with the agreement of the judgment creditor and directors/bankrupt.  If such agreement cannot be obtained and the official receiver is concerned at storage charges, or similar, he/she should apply to court for directions [note 34] [note 35].

 

9.98 Official receiver as receiver and manager and/or insolvency practitioner to be appointed

Where, for the reasons given in paragraphs 9.93 to 9.95 of this Part, the creditor is liable to pass over monies or goods and the official receiver is not trustee and/or an insolvency practitioner is to be appointed, the official receiver should seek to recover the monies or goods at the earliest opportunity depending on, in the case of goods, the considerations in paragraph 9.96 regarding storage, etc.

 

9.99 Costs of execution

Where funds are to be remitted to the official receiver by the enforcement agent (see paragraphs 9.93 to 9.95) less costs, details of those costs should be requested [note 36].  If the official receiver considers the declared costs to be excessive, an explanation should be requested in respect of any disputed item.

If the agent refuses, or is unable to do so, and also refuses to adjust his/he costs, the official receiver may require, in writing, that the bill of costs be subject to detailed assessment (see Chapter 39).

See also paragraph 9.68 regarding the fees and costs that may be charged by an enforcement agent.

 

9.100 Execution for non-provable debt – official receiver as trustee (bankruptcy only)

Where the creditor’s debt is non-provable in the bankruptcy (see Chapter 40, Part 3), the creditor may continue proceedings after a bankruptcy order with the permission of the court [note 37] [note 38].  The creditor is, however, restricted to taking action against property acquired by the bankrupt after the date of the bankruptcy order, which property has not been claimed by the trustee (see Chapter 31.8) at the time the writ or warrant of control (see paragraphs 9.18 to 9.19) was delivered to the enforcement agent.

It is important therefore that, for property not removed from the bankrupt’s premises, there is an accurate inventory of property belonging to the estate (see paragraph 8.62) or, for after-acquired property, a copy retained of the notice claiming the property (see paragraph 31.8.14).  In consideration of the guidance in paragraph 9.109, it is often better that the property is removed to storage where possible.

 

9.101 Execution for non-provable debt – official receiver as receiver and manager (bankruptcy only)

The judgment creditor of a non-provable debt may be able to take action against property in the bankruptcy estate if the property has not vested in the official receiver as trustee.  Generally speaking, the official receiver should seek to remove to storage valuable property of the bankrupt (see Chapter 31.0, Part 3) so the risks of this occurring are low.

If difficulties are encountered in this regard, the advice of Technical Section should be sought.

 

[Back to Part 4 – Creditor taking control of goods and insolvency – general background and initial action to take] [On to Part 6 – Insolvency and the taking control of goods by a creditor other than in execution of a judgment]