May 2009
Part 6 Debit Balances
36.88 Incurring a debit balance
(Amended November 2012)
Authority is not required to increase a debit balance by £500 or less. Before the official receiver incurs any exceptional costs that may result in the creation or increase of a debit balance above £500, the prior approval of Technical Section must be obtained before the costs are incurred, unless specific authority is given by the Technical Manual (for example at paragraph 50.76 where specific authority is given to incur a debit balance in order to protect property at risk). Consideration should be given to the net effect of the transaction to which the proposed expenditure relates. Where an agent is instructed to deal with an asset matter and the amount to be realised by the agent will be in excess of the agent’s fees Technical Section authority would not be required (e.g. dealing with a freehold reversionary interest, see paragraph 31.3.237).
Where prior approval is required a minute or email should be sent to Technical Section outlining the relevant facts of the case to justify the expenditure together with an estimate of the costs involved (see also Chapter 32 concerning instructing agents). In many instances, the beneficiaries of the proposed expenditure are the creditors, in which case they may be the appropriate body to provide the necessary funds.
36.89 Disbursements charged directly to estate accounts
(Amended February 2012)
Under the financial regime introduced by The Service from 1 April 2004, a number of disbursements are paid directly by Finance Section, the costs being included in the administration fee (see Part 1 of this chapter). Where a disbursement is charged directly to the estate account, the official receiver must pay the following accounts whether or not there are funds in the estate account:
a. advertising account,
b. shorthand writer’s fee,
c. agent’s accounts, unless the terms for employment were "look to realisations for payment",
d. insurance accounts on instructions of official receiver, and
e. solicitor’s account where a solicitor was employed by the official receiver, unless terms of employment were as (c) above.
As a general point, the official receiver should pay for any services he/she uses or receives in the course of administering an insolvency case.
36.90 Dealing with unrecovered fees and disbursements
(Amended February 2012)
Under ISCIS, realisation receipts, fees and disbursements are all posted to the 00 General Fund for each insolvency estate. In many cases there are insufficient receipts to cover The Insolvency Service’s costs. Where there are outstanding fees or disbursements, on ISCIS the “Available Balance” for the 00 General Fund of the case will be a debit balance where the total of fees, disbursements or payments charged, is greater than the total receipts recovered. Write off of the debit balance should not be made at a time when there are known transactions to be entered.
Applications for release should not be made at a time when there are known transactions to be entered. A case should be complete when the application is made.
For the procedure on dealing with a case transferred back to the official receiver from an insolvency practitioner with an irrecoverable receivables account, see Chapter 48.
36.91 Debit balance write offs and subsequent asset realisation
(Amended February 2012)
The principle of the legislative framework set out by the Insolvency Act 1986 and the Enterprise Act 2002 is that the costs of the liquidation or bankruptcy must be met from the insolvent estate. The order of payment of costs from an insolvent’s estate is set out in the IR86 at Rule 4.218 for companies [Note 1] and at Rule 6.224 for bankruptcy estates [Note 2]. There is no provision in the legislation to write off the expenses of the liquidation or bankruptcy. If unsecured assets are realised they must be applied by reference to the priority of payment regardless of the date of realisation, and the case will be re-opened should assets become realisable after the case has been closed for administration purposes. The writing off of debts is an administrative policy/process. It is carried out for accounting and administrative purposes only.
[Back to Part 5 Partnership procedures, fees, costs, and expenses] [On to Part 7 Fees in IVAs and FTVAs]