May 2010

Part 3 Problems in paying dividends

36A.36 Proof submitted after dividend declared

Where a creditor has not proved his/her debt before the declaration of the dividend, he/she is not entitled to delay or interrupt the distribution of that dividend or any other (further) dividend declared before his/her debt is proved [note 1].

After the creditor has proved for the debt, he/she is entitled to be paid the dividend which he/she has failed to receive, out of any money available for payment of further dividends at the time when his/her debt is proved.  The payment of these unpaid dividends to the previously unproved creditor must be made from the available funds before any further dividends are paid. This would also apply, for example, where a late preferential creditor came to the fore when a dividend to ordinary unsecured creditors was being considered.

 

36A.37 Amendment of dividend cheque

There may be occasions when the name of the payee on a dividend cheque is incorrect (e.g. a company has changed its name or a creditor has died and the dividend is now payable to his/her executor). Before complying with a request for amendment, the official receiver should ensure that the reason given for wanting the amendment is valid and the new payee is entitled to payment, (e.g. certificate of change of name, looking at the information at Companies House,  or a copy of the will provided). The original cheque must be cancelled.

 

36A.38 Unclaimed dividends  

Where a dividend cheque is not required (as the debt is satisfied or has been withdrawn) any unclaimed dividend cheque must be destroyed by the liquidator/trustee six months after the last day in the month in which they were issued. If a dividend is returned where, for example, the creditor’s address is no longer current, enquiries should be made to attempt to trace the creditor’s current address.  If this cannot be found, the monies should be transferred to the Unclaimed Dividends Account. 

Whilst it is usual banking convention to refuse to honour cheques presented for payment more than 6 months from the date of issue,  there is no legal obligation on the bank to dishonour a cheque where it is presented for payment outside of this time.

To avoid any problems which may arise where a cheque is presented to the bank for payment outside of 6 months from the date of issue and the possibility that  both original and re-issued cheques are presented and paid, Estate Accounts Services (EAS) will not pay any cheques which remain uncashed after 6 months.  Expired dividend cheques will be automatically posted by EAS to the general Unclaimed Dividends Account applicable to the year in which the cheque expired. See paragraph 36A.40 regarding the payment of funds into the Consolidated Fund after 7 years.

 

36A.39 Distribution where a surplus arises and creditors’ details are unknown following destruction of the official receiver’s file and court file

In a limited number of cases a credit balance may occur where the official receiver’s file and the court file have been destroyed and the creditors are not recorded on LOIS (most likely bankruptcy cases where the case administration was completed before the introduction of LOIS).  

The official receiver should consider contacting the bankrupt to ask for information concerning the petition and his/her creditors,  for example in the case of a debtor’s petition the bankrupt may have kept a copy of the statement of affairs. It should be possible to ascertain whether the case was a debtor’s or creditor’s petition from the amount of the deposit paid and/or whether the date of the petition and order were the same, where this information is available.

Possible scenarios where information is limited and there is a credit balance to be distributed are as follows:

 

Scenario description	Action required
Creditor’s petition, petitioner or the petitioning creditor’s solicitors’ details are known.	1. Contact solicitors and invite them to submit their bill of costs for payment if not paid previously/already, see Note (i) at the foot of this table. 2. If funds remain following payment of costs, advertise for creditors as appropriate, see Note (ii) at the foot of this table. 3. Make the distribution. 4. Check whether debtor has been bankrupt on a subsequent occasion or is undischarged from a previous bankruptcy (unlikely). 5. Return surplus funds to debtor, pay surplus to trustee (see 4 above) or send to reserve funds if the debtor cannot be traced  (as appropriate).
Creditor’s petition, petitioner and petitioning creditor’s solicitor’s details unknown	1. Reserve funds in respect of unpaid expenses (e.g. £500) if the case is being administered under pre IA86 legislation. 2. If funds remain, advertise for creditors as appropriate, see Note (ii) at the foot of this table. 3. Make distribution. 4. Check whether debtor has been bankrupt on a subsequent occasion or is undischarged from a previous bankruptcy (unlikely). 5. Return surplus funds to debtor, pay surplus to trustee (see 4) or send to reserve funds if the debtor cannot be traced.
Debtor’s petition	1. Proceed on the basis that there are no costs to be paid. 2. Advertise for creditors (as appropriate, see Note (ii) below). 3. Make distribution. 4.Check whether debtor has been bankrupt on a subsequent occasion or is undischarged from a previous bankruptcy (unlikely). 5. Return surplus funds to debtor, pay surplus to trustee (see 4) or send to reserve funds if the debtor cannot be traced.
Not known if creditor’s or debtor’s petition.	1. Make further enquiries of all possible sources to try to establish whether creditor’s or debtor’s petition, such as contacting the bankrupt to enquire if they retained a copy of the Statement of Affairs, checking any office copy of the Report to Creditors, or making enquiries of likely creditors who may hold such information, such as HMRC. 2. Check the amount of the deposit paid and whether the date of the petition and order were on the same date. 3. Reserve funds in respect of unpaid expenses (e.g. £500) if the case is being administered under pre IA86 legislation. 4. If funds remain, advertise for creditors as appropriate, see Note (ii) at the foot of this table. 5. Make distribution. 6. Check whether debtor has been bankrupt on a subsequent occasion or is undischarged from a previous bankruptcy (unlikely). 7. Return surplus funds to debtor, pay surplus to trustee (see 4) or send to reserve funds if the debtor cannot be traced.
Notes: (i) The official receiver has to be able to find a practical way of dealing with the requirement to pay the petition costs before making a distribution of funds. Where the details of the petitioner or petitioning creditor’s solicitors are known but the official receiver is having difficulty obtaining confirmed details of the outstanding petition costs, he/she may rely upon the provisions contained within rules 7.35(3) to 7.35(5) of the IR86.  Where no costs estimate is forthcoming despite being requested by the official receiver, these provisions authorise him/her to require the costs to be decided by detailed assessment.  Where the costs assessment is not provided within 3 months of its being required, the claim is forfeited and does not need to be considered further. See Chapter 39 for further information on the assessment of costs and the consequences following failure to commence proceedings, in particular paragraph 39.27. (ii) In cases where the petition is presented after 6 April 2009, the official receiver should give notice of the intended dividend in the London Gazette (unless creditors have previously been invited by notice in the Gazette to prove their debts).  For cases where the petition was presented before 6 April 2009, unless the official receiver has previously invited creditors by public advertisement to prove their debts, he/she is required to advertise an intended first dividend payment to non-preferential creditors. (iii) In all of the above scenarios,  for guidance on returning surplus funds to the  debtor please refer to Part 4 of this chapter (in particular paragraphs 36A.52 and 36A.53) and Part 8 of this chapter (in particular paragraph 36A.143).

 

36A.40 Unclaimed dividends (payment into the Consolidated Fund)

The Secretary of State shall from time to time pay into the Consolidated Fund out of the Insolvency Service Account (ISA) unclaimed dividends [note 2]. Where unclaimed dividends and undistributed balances have been held for a full seven years, the Secretary of State is required to pay them into the Consolidated Fund.   EAS will also pass details of unclaimed dividends to firms of tracing agents (who have been vetted and accredited by The Insolvency Service). Where the recipient of the dividend is located, they will be contacted by the tracing agent who, for a commission deducted from the payment will arrange for payment of the dividend.

 

36A.41 Returned dividend cheques (queries)

Where a cheque is returned because of a query, the General Services Team within EAS will attempt to deal with the problem (which may be a missing reference etc). EAS will liaise with the official receiver and the payee if necessary.  If the matter still cannot be resolved (e.g. the payee cannot be located), then the cheque will be cancelled and the funds transferred to reserve funds. The funds cannot be re-credited to the estate as the payee may come to light and if re-credited to the estate, the funds could be lost/reduced if a further dividend is paid, etc.  Also the funds have been paid out of that estate in the first place.

 

36A.42 Cases with a small credit balance - indivisible balances account

When a case has a credit balance after all known expenses, fees and disbursements have been dealt with in due order of priority (including the payment of VAT), consideration should be given as to whether it is actually worthwhile making a distribution first to preferential creditors (if any) and then to ordinary unsecured creditors. Account should be taken of:

(i) the official receiver's time and rate fees in making a distribution (plus VAT);

(ii) other costs of a distribution: local advertisement of the intended dividend and, if the official receiver decides it is necessary, local advertisement of payment on account of preferential creditors;

(iii) the maximum amount payable to the largest creditor; and

(iv) the number of claims and the number of contested claims.

A dividend need not be declared if none of the creditors will receive £5 or more, unless total funds available to creditors for a distribution after the anticipated cost of the advertisement of intended dividend and the official receiver's anticipated remuneration exceed £100. Notice of the dividend (form NORAD) must be send to all those creditors who have proved their debt, other than where the distribution is to preferential creditors only, whereby only that class of creditors needs to be notified. A dividend of less than £1 should not be paid to any individual creditor unless they specifically request it, although the claim should be included when calculating the dividend.  If it is not worthwhile to make a dividend payment, then the funds are transferred to the Indivisible Balances Account without going through the dividend process/procedure (see also paragraph 36A.44).

See also Case Help Manual Part on Distributions, paragraph xviii Notice of declaration of dividend.

 

36A.43 Bona vacantia payments where amount of surplus too small for a distribution and company dissolved

When a company is dissolved, all property and rights vested in or held on trust for the company immediately before its dissolution (excluding property held by the company on trust or for any other person) are deemed to be bona vacantia (meaning “goods without an apparent owner") and accordingly belong to the Crown, or to the Duchy of Lancaster or to the Duke of Cornwall [note 3]. See Chapter 38 for further information on company dissolutions, in particular Chapter 38 part 7 which deals with bona vacantia assets.  Where a company is dissolved and there is a balance left in a company estate which is too small to make a meaningful distribution, it should not be paid into the ISA.  Instead, the balance should instead be paid to The Treasury Solicitor (BV) as bona vacantia.  Where any monies are held by the liquidator where the company has not been dissolved, even though the surplus may be too small to make a distribution, these monies continue to be in the ownership of the company, therefore cannot be declared bona vacantia and should be paid in to or remain in the ISA. In bankruptcy,  unlike companies, the property of the bankrupt vests in the trustee in bankruptcy and therefore will not become bona vacantia, even where minimal amounts of assets are held [note 3]. See also paragraph 36A.44 with regard to undistributed balances.

 

36A.44 Undistributed balances to be paid in to the Consolidated Fund

The Secretary of State can from time to time pay balances, previously ascertained to be too small to be divided, from the Insolvency Services Account into the Consolidated Fund (see also paragraphs 36A.42 and 36A.43) [note 2].

 

36A.45 LOLA dividend calculation

LOLA has a facility to perform a dividend calculation (preferential and non preferential) without generating any payments or updating figures which might be used to inform the situation. The National Dividends Unit (NDU) has developed dividend probability calculators for both London and provincial cases, which can be found on the intranet at http://intranet/CAD/NDU/NDUHomePage.htm .

 

36A.46 Proof altered after payment of a dividend

If, after payment of a dividend, the amount claimed by a creditor in his/her proof is increased, the creditor is not entitled to disturb the distribution of the dividend but he/she is entitled to be paid, out of any money for the time being available for the payment of any further dividend, any dividend or dividends which he/she has failed to receive [note 4]. If, after a creditor’s proof has been admitted, the proof is withdrawn or expunged, or the amount of it is reduced, the creditor is liable to repay to the office-holder, for the credit of the insolvent estate, any amount overpaid by way of a dividend [note 5].  See also paragraph 36A.47 regarding secured creditors and partly secured claims.

 

36A.47 Secured creditors and partly secured claims following declaration of a dividend

Where a secured creditor re-values his/her security at a time when a dividend has been declared, the following matters need to be considered by the liquidator or trustee:

(a) If the revaluation results in a reduction of the amount of any unsecured element of the claim ranking for dividend, the creditor is required to repay to the office-holder for the credit of the  insolvent estate (as soon as is reasonably practical), any amount received by him/her as a dividend,  which is in excess of that to which he/she is entitled, following the revaluation of his/her security [note 6].

(b) Equally, if the revaluation results in an increase of the creditor’s unsecured claim, the creditor is entitled to receive payment of any dividend shortfall arising as a result of the revaluation of his/her security, from the money available for the payment of a further dividend (before any such further dividend is paid) [note 7].

The creditor is not entitled to disturb any dividend declared (whether or not distributed) before the date of the revaluation.

 

 

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