Part 9 Investment of funds by liquidator and trustee
(Amended February 2012)
The Insolvency Regulations 1994 (as amended) require the liquidator of a company wound up by the court or trustee in bankruptcy to pay all money received by him/her in the course of carrying out his/her functions as such, without any deduction, into the Insolvency Services Account (ISA) kept by the Secretary of State. The money is required to be paid into the account to the credit of the company or bankrupt once every 14 days or forthwith if £5,000 or more has been received [Note1][Note 2][Note 3]. The Insolvency Service operates a single realisations account for all official receivers’ offices.
36.125 Cash received locally
(Amended February 2012)
An exception to the requirement to pay all monies into the ISA (see paragraph 36.124) is where the official receiver receives monies to be banked, e.g. cash recovered on inspection, which should be paid into a local bank account from which the money is then forwarded to the Official Receivers’ Realisations Account. The official receiver must send a copy of any general receipt issued in respect of cash taken and banked locally to Estate Accounts & Insolvency Practitioner Services (EAIPS), together with details the paying-in slip reference.
All other monies remitted to the official receiver should be forwarded to EAIPS for processing and banking.
Details of general receipts and remittances should be emailed to EAIPS.Payments.Team@insolvency.gsi.gov.uk prior to dispatch.
There is a transfer of cleared funds to the ISA on a daily basis. This is automated function carried out by Lloyds TSB. Cheques are not cleared through the system until 5 working days after they have been paid in. Payment will therefore be made to the ISA on the fifth day after payment.
36.126 Dealing with receipts where a liquidator or trustee continues a business
A further exception to the requirement to pay all monies into the ISA (see paragraph 36.124) is where the liquidator or trustee is exercising his/her power to carry on the business of the company or bankrupt and the Secretary of State has authorised operation of a local bank account [Note 4]. In this circumstance the official receiver as liquidator or trustee may apply to the Secretary of State (Technical Section) for authorisation to open a local bank account. The Secretary of State may then authorise him/her to make payments into and out of a specified bank, subject to a limit, instead of the ISA [Note 5][Note 6]. Authorisation will only be given where Technical Section acting on behalf of the Secretary of State is satisfied that an administrative advantage will be gained from having such an account. The liquidator or trustee shall pay without deduction any surplus over any limit imposed by the Secretary of State into the ISA. The official receiver should exercise extreme care to ensure that only money belonging to the estate is paid into the ISA. Third party monies should not be paid in but held in a separate account.
36.127 Investments in Government Stocks (Gilts)
Where the official receiver is liquidator or trustee he/she may choose to invest in Government Stocks (Gilts). Automatic interest will be paid on any funds remaining following such an investment [Note 7][Note 8].There is no minimum sum which can be invested in Government Stocks. The official receiver cannot purchase Government Stocks directly but must make a written request for the purchase to EAIPS. The purchase cost is recorded against the estate and the funds marked as committed. The official receiver must ensure that sufficient funds remain in the estate account to cover anticipated fees and expenses during the life of the Stocks to avoid early encashment, which could lead to potential losses. There are many different Stocks available for purchase at any one time, all with different redemption dates. For most Gilts the date of repayment (maturity date) is specified and can be anything between 5 and 25 years from the date of issue. The choice of date rests solely with HM Government. Before this maturity date Gilts cannot be cashed in, however, an investor can sell their Gilt holdings in the stock market via brokers who are prepared to buy and sell most Gilts at any time. Because of the number of different Stocks available it is suggested that the official receiver contact EAIPS for further details before considering this type of investment.
36.128 Fee for purchase of Government Stocks
Once a request to purchase Government Stocks has been actioned, EAIPS will advise the official receiver of the nominal value and purchase cost of the Stocks. Where a request is made to purchase Government Stocks by a trustee in bankruptcy or a liquidator in winding up proceedings (including where the trustee is appointed under the Bankruptcy Act 1914 or the liquidator under the Companies Act 1985) a fee is chargeable to the estate for the purchase of Stocks (fee INV1) [Note 9]. From 1 April 2004 until 6 April 2009 this was a fixed fee of £50, irrespective of the amount of the Stocks purchased. From 6 April 2009 the fee is £50 where the cost of the securities (Stocks) purchased does not exceed £5,000 (including accrued interest). Where the purchase exceeds £5,000 (including accrued interest), the fee is £50 plus 0.3% of the cost in excess of £5,000 [Note 10]. If the case is subsequently handed over to an insolvency practitioner, the official receiver should provide him/her with full details of Stocks currently held and inform EAIPS Operations & Customer Support Unit that the case has been transferred.
(Amended February 2012)
When closing the case the official receiver should ensure that all Stocks have been redeemed or sold prior to closure and that the tax has been assessed and paid where necessary. Stock purchased on behalf of the estate attracts interest which is paid to the estate without deduction of tax. The official receiver when acting as liquidator or trustee should submit returns to HM Revenue and Customs (HMRC) each year showing the company's or bankrupt's estate income or other gains and arrange for the post winding-up order or bankruptcy order tax to be paid as an expense of the estate [Note 11]. See also paragraph 36.133.
36.130 Calculating gain at investment maturity date
When the investment matures, the gain is calculated as the maturity value (including interest net of tax) less the original cost of purchase and the appropriate investment fee [Note 9]. In respect of a sale made at the request of a trustee in bankruptcy or liquidator in respect of compulsory or voluntary liquidation, where the proceeds of sale of the securities (including any accrued interest) exceed £5,000, a fee is payable of £50 plus 0.3% of the proceeds in excess of £5,000 [Note 10].
36.131 Payment of interest to estate
(Amended February 2012)
At any time after 1 April 2004 whenever there are monies standing to the credit of the company or the estate of the bankrupt in the ISA, the company or bankruptcy estate shall be entitled to interest on those monies. the rate of interest is currently 4.25 % per annum [Note 12][Note 13]. The Secretary of State may, by notice published in the London Gazette, vary the rate of interest, and such variation shall have effect from the day after the date of publication of the notice in the London Gazette [Note 14][Note 15].
36.132 Cessation of interest accrual
Interest (see paragraph 36.131) shall cease to accrue when the liquidator or trustee gives written notice to the Secretary of State that in his/her opinion it is expedient or necessary, in order to facilitate the conclusion of the winding up or bankruptcy, that the interest should cease to accrue. Interest shall start to accrue again where the liquidator or trustee gives a further notice in writing to the Secretary of State requesting that interest should start to accrue again [Note 16][Note 17].
36.133 Automatic calculation and payment of interest and tax
(Amended February 2012)
This paragraph has been removed as at January 2012, pending resolution of transitional issues following the replacement of LOLA with ISCIS financials. For further information please refer to the EAIPS news item issued on 3 October 2011, available HERE.
36.134 Payments into the ISA by liquidator following company dissolution
Following the amendment of the Insolvency Regulations 1994 on 6 April 2008, monies which are still held by the former liquidator of a dissolved company and which are either unclaimed dividends due to creditors (where for example creditors cannot be traced), and/or sums held by the company in trust in respect of dividends or other sums due to any person as a member or former member of the company [Note 18], may in the case of a voluntary winding up, be paid by the liquidator into the ISA. In the case of a winding up by the court these monies must be paid into the ISA [Note 19].
(Former) liquidators of companies in members' voluntary liquidations are still likely, upon the dissolution of those companies, to pay the monies so held into the ISA, unless, for example, the monies were to be held by a trust company or corporation which had had some involvement in the processing of the distribution of the monies.
36.135This paragraph has been deleted (February 2012)
36.136 This paragraph has been deleted (February 2012)