Part 9 Other assets
October 2012
This part of the chapter deals with the following assets:
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Corporation Tax refunds |
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VAT – companies refunds |
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Bankrupt’s tax refunds |
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Surplus from a fixed and floating charge |
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Dispositions of property after petition |
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Executions |
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Monies held by third parties |
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Share fisherman’s tax scheme refunds |
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Monies paid into court |
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Bills of exchange |
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Promissory notes |
31.5.215 Crown right of set-off
It should be noted that the Crown has a general right of set off in respect of all claims due to or from any government department [Note 1]. The official receiver should try to establish whether there are any debts owing to other government departments before accepting a refund. Details of any possible government creditors should be provided to the refunding department to enable any Crown set off to be applied. Some government departments will have a minimum set off limit below which they will not offer funds to other departments. If this is the case the monies should be paid direct to the liquidator or trustee.
31.5.216 HM Revenue and Customs – corporation tax
In certain circumstances a company will be due a tax refund. A profitable company may have paid corporation tax for a number of years. Then, for example, after a significant fall in the company’s turnover in the final months of trading liabilities increased and a winding-up order was made. The losses during this period can be offset against its previous corporation tax payments and a refund claimed (see paragraph 31.5.224 for further details).
31.5.217 HM Revenue and Customs – VAT and companies
A company may not have completed its final VAT return and may be entitled to a VAT refund. Where the official receiver believes, either from the directors or another source, that a company may be due a tax refund he/she should obtain details of the relevant tax office together with any reference numbers. The official receiver should send notice of the winding-up order to the tax office to enable his/her interest in any refund to be noted (see paragraph 31.5.226 for further details).
31.5.218 Tax and bankruptcy – TNIDIS
The official receiver should ask all bankrupts to sign the TNIDIS form. By signing the TNIDIS form the bankrupt gives authority to HM Revenue and Customs to release information about his/her affairs to the official receiver. The TNIDIS form also authorises payment of any tax refund to the official receiver and trustee in respect of any year up to and including the tax year in which the bankruptcy order was made.
31.5.219 Notifying HM Revenue and Customs of a bankruptcy order
HM Revenue and Customs receive electronic notification of all bankruptcy orders. The tax office dealing with the bankrupt’s tax affairs should note the bankruptcy order and, where applicable, identify for payment to the official receiver or trustee any refund of tax.
31.5.220 Bankruptcy - refund of Schedule E tax for the current tax year
Where a bankrupt is entitled to a refund of Schedule E (PAYE) tax the local office of HM Revenue and Customs will offer this to the official receiver or trustee automatically. The official receiver should reply to the local office requesting payment of the tax refund. The official receiver’s reply should include a copy of the completed form TNIDIS, the original remaining on the file. If a cheque has already been sent to the bankrupt but not yet cashed HM Revenue and Customs should be asked to place a stop on the cheque and to issue another made payable to the official receiver. The official receiver should telephone the bankrupt asking for the cheque to be posted to him/her. The contents of the telephone conversation should be confirmed by the official receiver with a letter to the bankrupt. Where the official receiver is unable to contact the bankrupt by telephone a letter should be sent to the bankrupt requesting the cheque be posted to him/her.
31.5.221 Schedule E tax – HM Revenue and Customs agree to stop the cheque
Where HM Revenue and Customs agrees to stop the cheque they should be asked to send the replacement cheque to the official receiver. The official receiver should then write to the bankrupt informing him/her that the cheque has been stopped and to destroy the cheque if still in their possession.
31.5.222 Schedule E tax – asking the bankrupt for the cheque
The bankrupt, on being asked may forward the cheque received for the Schedule E refund to the official receiver. Where the bankrupt does not respond or reply to the official receiver’s letter within 7 days a further attempt at telephone contact should be made and a further letter sent. The official receiver should ask HM Revenue and Customs for confirmation that the cheque has been cashed. If no contact is made with the bankrupt or no reply is received to the official receiver’s letter within 7 days an application for a Income Payments Order (IPO) for the amount of the refund should be made. If the bankrupt fails to cooperate with the IPO the official receiver should follow the advice given in Part 10 of Chapter 31.7.
31.5.223 Bankruptcy – refund of Schedule E tax for subsequent years
A Schedule E tax refund may become payable to a bankrupt in respect of tax years following the tax year in which the bankruptcy order was made. Where the bankrupt remains undischarged from the proceedings the official receiver should claim the tax refund by means of an income payments agreement or income payments order. Where such an agreement or order is in place the official receiver should obtain the bankrupt’s consent to amend the agreement or, alternatively apply to court to vary the original agreement or order. If there is no existing agreement or order, in the first instance, the official receiver should seek to set up an income payments agreement with the bankrupt or, where this is not possible, make an application to the court for an income payments order. The agreement or order would be for a “one off” payment for the amount of the refund (see paragraph 31.7.60 for further details).
31.5.224 Corporation tax and Schedule D tax refunds
A company or bankrupt may be entitled to a tax repayment where losses have been made in the final tax year of trading. To obtain a repayment the company must have paid some corporation tax in the previous 3 tax years. In bankruptcy the position is a little more complicated. The bankrupt must have paid some Schedule D (Self Assessment), PAYE or Capital Gains tax in any of the previous 3 tax years. Obtaining a refund may be complicated, especially with regard to Schedule D tax and the official receiver may require the advice of an accountant or tax specialist to establish whether a repayment is due. If a company or bankrupt is entitled to a corporation tax or Schedule D tax refund it may be subject to a right of set off in favour of any liabilities to HM Revenue and Customs or any other government department (see paragraph 31.5.215).
31.5.225 Obtaining a corporation tax or Schedule D tax refund
Where a corporation tax or Schedule D income tax refund is not subject to a right of set-off the official receiver must make an application for repayment to the appropriate local tax office of HM Revenue and Customs. Suggest moving the above sentence to after the next sentence? Done The application must be supported by financial statements showing the losses. The official receiver should ensure, before approaching an accountant or tax specialist, that the expected rebate exceeds the cost of the advice. Further information on direct taxation can be found in Chapter 77 and in the Case Help Manual part Tax Refunds.
Where a winding-up or bankruptcy order is made against a company or bankrupt registered for VAT the company or bankrupt will be automatically deregistered unless the official receiver decides otherwise (see paragraphs 78.45 and 78.46 for full details). Where the company or bankrupt is to be deregistered the official receiver will be asked to submit a final VAT return (see paragraphs 78.45). If a company or bankrupt is due a VAT refund the official receiver should agree the amount with HM Revenue and Customs. The official receiver should also provide details of any possible government creditors to enable any Crown set off to be applied (see paragraphs 78.29 and 31.5.215). Where there are no outstanding Crown debts, or there is a surplus after the application of Crown set off, or where the refund is less than £500 the monies will be paid to the official receiver as liquidator or trustee. Further information on VAT can be found in Chapter 78 and in the Case Help Manual part VAT.
31.5.227 Surplus from fixed and floating charges
In some cases a receiver or administrative receiver may have been appointed. The official receiver should write to the receiver or administrative receiver asking that his/her interest in any surplus assets be noted. In an administrative receivership the likelihood of any surplus assets may be provided in the administrative receiver’s report [Note 2].
31.5.228 Recovering dispositions of property after the presentation of a winding-up petition
Where after a winding-up petition has been presented the company makes a disposition of its property without the consent of the court (see paragraphs 31.4B.97 to 31.4B.99 for further details of what constitutes a disposition) the official receiver may make an application to set aside the payment or transfer of assets [Note 3]. Further guidance on recovering dispositions of property after the presentation of the winding-up petition can be found in Part 5 of Chapter 31.4B.
31.5.229 Recovering dispositions of property after the presentation of a winding-up petition – petitioner substituted
A winding-up order may be made against a company where the original petitioning creditor withdrew the petition and the court allowed another creditor to be substituted as petitioner (see also paragraph 19.19) [Note 4]. Where the original petitioner has withdrawn the petition after receiving a disposition from the property of the company in liquidation without the agreement of the court the official receiver may make an application to set aside the payment or transfer of assets [Note 5]. Further guidance on recovering dispositions of property after the presentation of the winding-up petition can be found in Part 5 of Chapter 31.4B.
31.5.230 Recovering dispositions of property after the presentation of a winding-up petition – fixed and floating charges
A transfer of an asset subject to a fixed charge in favour of the holder of the charge would not be considered a disposition by the company (see paragraph 31.4B.101 for further details). Where the disposed assets of the company were subject to a floating charge the administrative receiver, if in office, could pursue recovery. If the official receiver recovers property subject to a floating charge any administrative receiver appointed may claim the property or proceeds (see paragraph 31.4B.102).
31.5.231 Recovering dispositions of property after the presentation of a bankruptcy petition
Where after a bankruptcy petition has been presented the debtor makes a disposition of his/her property without the consent of the court the official receiver may make an application to set aside the payment or transfer of assets [Note 6]. Further guidance on recovering dispositions of property after the presentation of the bankruptcy petition can be found in Part 5 of Chapter 31.4B.
31.5.232 Recovering dispositions of property after the presentation of a bankruptcy petition – petitioner substituted
A bankruptcy order may be made against a debtor where the original petitioning creditor withdrew the petition and the court allowed another creditor to be substituted as petitioner (see also paragraph 19.19) [Note 7]. Where the original petitioner has withdrawn the petition after receiving a disposition from the property of the bankrupt without the agreement of the court the official receiver may make an application to set aside the payment or transfer of assets [Note 8]. Further guidance on recovering dispositions of property after the presentation of the bankruptcy petition can be found in Part 5 of Chapter 31.4B.
From 6 April 2010 High Court enforcement officers receive automatic electronic notification of a winding-up order or bankruptcy order (see paragraphs 3.73 to 3.76 and paragraphs 4.67 to 4.70). For orders made before 6 April 2010 see paragraph 3.75 and paragraph 4.69. The official receiver should issue notice to county courts as per paragraph 3.77 and paragraph 4.71.
31.5.234 Monies or proceeds held by an enforcement officer or county court bailiff
Where notice is given to the High Court enforcement officer or county court bailiff of a winding-up order or bankruptcy order he/she shall, if required to do so, deliver any monies prior to the completion of the execution or property held prior to its sale, to the liquidator, trustee or official receiver as receiver and manager [Note 9]. Under an execution in respect of a judgment for a sum over £500 the High Court enforcement officer or county court bailiff has an obligation to hold the proceeds of sale, or monies paid in order to avoid sale, less the costs of execution for a period of 14 days [Note 10]. If during the 14 days the High Court enforcement officer or county court bailiff receives notice that a winding-up or bankruptcy petition as been presented and an order subsequently made, he/she must pay the monies received and/or sale proceeds to the liquidator, trustee or official receiver as receiver and manager [Note 11]. Further detailed guidance regarding executions is contained in Part 2 of Chapter 9.
31.5.235 Client accounts and monies held by third parties
A solicitor, accountant, or other third party acting for a company in liquidation or bankrupt may be holding funds in a client account or elsewhere. If the solicitor, accountant or third party is a creditor in the proceedings he/she may claim a lien on the monies (see Part 5 of Chapter 9 for advice on dealing with a lien). If the solicitor, accountant or third party is not a creditor the official receiver as liquidator or trustee should write to the solicitor or accountant and ask for the monies to be sent to him/her.
31.5.236 Client accounts and a solicitor’s undertaking
A solicitor may give an undertaking to the court or a third party to pay over funds held in a client account on behalf of a company in liquidation or bankrupt. Such an undertaking is enforceable against the solicitor unless the court orders otherwise. It is likely that such an undertaking will have been provided as a result of litigation and the issues involved may be complex. In such instances the official receiver should seek the advice of Technical Section as an application to the court for directions may be necessary [Note 12].
31.5.237 Monies held by third parties – bankruptcy
It is possible that monies and/or other property is held to the account of, or for, the bankrupt by a banker, agent, solicitor, accountant or other third party for example in a separate client account. Where such monies or property form part of the bankrupt's estate the official receiver, as trustee in bankruptcy, should write to the banker, agent or third party asking him/her to confirm what monies and/or property belonging to the bankrupt is held by him/her and whether he/she has a claim against such monies and/or property. Where the banker, agent or third party is not entitled to retain such monies or property as against the bankrupt or trustee he/she should be asked to deliver all property in his/her possession or under his/her control to the official receiver as trustee in bankruptcy [Note 13].
31.5.238 Monies held by third parties and investment profits
A third party in possession of monies, which form part of the bankrupt's estate, is not entitled to retain the proceeds from profitably investing these monies. The trustee in bankruptcy is entitled to trace these profits and claim them in an action for “money had and received” [Note 14].
31.5.239 The Sea Fishermen's voluntary tax saving scheme
A share fisherman is self-employed and receives a percentage of the catch as his/her income. HM Revenue and Customs (HMRC), in cooperation with the fishing industry introduced a scheme whereby a percentage of a share fisherman's income would be placed in a special interest bearing account in his/her name, at Barclays Bank plc, PO Box 13, Lemon Street, Truro, Cornwall, TR1 2YY, to be used to meet his/her tax liabilities and to pay Class 4 national insurance contributions. The money cannot be withdrawn for any other purpose.
31.5.240 Bankruptcy and the Sea Fishermen's voluntary tax savings scheme
HMRC and the Insolvency Service have an arrangement whereby the balance in a Sea Fishermen's voluntary tax savings scheme account held by a share fisherman would constitute a vesting asset and can be claimed by the trustee in bankruptcy by giving notice to Barclays Bank plc (see paragraph 31.5.239 for the address). On the closure of the account it is likely that another account would be opened for the bankrupt to allow his/her continued participation in the scheme. The official receiver should consider whether the balance in the new account should be claimed as after-acquired property on a case by case basis.
31.5.241 Monies paid into court
Where a defendant pays money into court, either voluntarily or following an order, and subsequently goes into liquidation or becomes bankrupt, the plaintiff becomes a secured creditor in the insolvency proceedings to the extent of the amount paid in to court [Note 15]. The official receiver, in such circumstances, should consent to the money being released from the court to the plaintiff unless it is greater than the amount owed to them in the liquidation or bankruptcy. Any balance of funds remaining should be paid to the official receiver for the benefit of the estate.
31.5.242 Bills of exchange – definition
A bill of exchange is defined in Section 3 of the Bills of Exchange Act 1882. Essentially a bill of exchange is a document which ensures that one person pays another person a fixed sum of money on a specified date. A cheque is a special form of a bill of exchange. Bills of exchange which include a term of credit, i.e. they are payable in the future, are called “term bills”.
31.5.243 Drawing up a bill of exchange
A creditor (or drawer) will draw up a bill of exchange and send it to the debtor (or drawee). To accept the bill of exchange the debtor signs his/her name vertically across it. When accepting the bill of exchange the debtor may indicate that the bill be presented for payment at his/her bank by writing “accepted, payable at XYZ Bank” followed by his/her signature.
31.5.244 Drawing up a bill of exchange – payment to be made to a third party
A creditor (or drawer) may use a bill of exchange to pay off a debt they owe to a third party. The bill of exchange would be drawn up indicating payment should be made to that party. The accepted bill of exchange would be sent to the third party after its return by the debtor (or drawee).
31.5.245 Drawing up a bill of exchange – accepting house
An accepting house is a deposit or merchant bank which accepts bills of exchange on behalf of others. The creditor (or drawer) may specify that the bill be accepted by an accepting house rather than by the debtor (or drawee) personally. The creditor in providing the credit to the debtor may draw up the bill of exchange in the name of the accepting house. The bill of exchange is accepted in the manner described in paragraph 31.5.244. A bill of exchange drawn on and accepted by an accepting house or bank with an unquestioned financial standing is known as a prime bank bill. The expression “bill on London” is sometimes used to describe a bill drawn on an established London accepting house.
31.5.246 Endorsing a bill of exchange
A bill of exchange can be endorsed by the creditor (or drawer) so that payment is made to another party. A special endorsement specifies the name of the person to whom, or to whose order, a bill would be payable. That person then becomes the payee. A subsequent payee can further endorse the bill of exchange so that a further third party receives payment. Finally a bill of exchange can be endorsed by the payee writing his/her name on the back and leaving the rest of the side blank which enables the person in possession of it (the bearer) to receive payment when it becomes due. To stop a bill of exchange being transferable the creditor (or drawer) or subsequent payee can impose a restrictive endorsement, for example “pay X only”.
31.5.247 Presenting an accepted bill of exchange for payment
An accepted bill of exchange, now called an “acceptance”, is returned to the creditor (or drawer) or a third party (see paragraph 31.5.244). Once the payment date arrives the bill of exchange is presented for payment either to the debtor (or drawee) personally, or to his/her bank, or to an accepting house. Where the bill of exchange is paid by the accepting house or bank, the debtor (or drawee) pays the accepting house or bank plus any commission charged.
31.5.248 Bill of exchange – payable on demand
A bill of exchange payable on demand is to be paid as soon as it is presented. The bill of exchange may start “Pay bearer on demand”. Alternatively the words “at sight” may be used. As there is no period of credit there is no need for an acceptance. A bill of exchange is presented once only, for payment.
31.5.249 Foreign and inland bills
Foreign bills are bills of exchange that are drawn abroad and payable in the United Kingdom (UK) and bills drawn in the UK and payable abroad. Inland bills are bills of exchange drawn and payable in the UK.
31.5.250 Insolvency and bills of exchange – proof of debt
A bill of exchange may be submitted by a creditor in insolvency proceedings to support a proof of debt. Guidance on dealing with a proof of debt supported by a bill of exchange is contained in paragraph 16.91.
31.5.251 Safeguarding bills of exchange
Bills of exchange are highly liquid and could be paid to anyone unless drawn restrictively. The official receiver should treat bills of exchange as cash. A receipt should be issued and the bill should be kept in the office safe. Copies of the bill should be taken if it is required for day to day reference.
31.5.252 Realising bills of exchange – insolvent drawer and payee, bill not accepted
If a bill of exchange has been drawn by the company in liquidation or bankrupt but not yet sent to the debtor for acceptance the official receiver should check the insolvent's records to establish whether a debt is due. Where there is evidence to support the debt the quickest route to recovering the monies may be to pursue the debtor as a book debtor for payment rather than issuing the bill of exchange (see also Chapter 31.1 and the Case Help Manual Book debts).
31.5.253 Insolvent drawer and payee, bill not accepted, inadequate records
Where the records are insufficient to show that a debt is due to a company in liquidation or a bankrupt the official receiver should consider how to proceed. The official receiver should take into account information provided by the company director(s) or bankrupt, the size of the debt and the adequacy of the records in other areas. If the records are generally well maintained and/or the company director(s) or bankrupt confirm that no debt is due and the bill is for a small amount it is likely that no debt is due and the claim should not be pursued by the official receiver. If the records are inadequate, the company director(s) or bankrupt is unable to assist and the bill is for a large amount the official receiver should contract the drawee of the bill of exchange to establish whether a debt exists.
31.5.254 Realising bills of exchange – insolvent drawer and payee, bill accepted
If the bill of exchange has been accepted the official receiver should present it on the payment date either at the debtor's bank, to the accepting house or to the debtor personally. If the bill of exchange is not honoured the debtor should be pursued for payment in the same manner as any other debtor, using the accepted bill as evidence that the monies are due (see Chapter 31.1 and the Case Help Manual Book debts). It is very unlikely that a bill presented to an accepting house will not be paid.
31.5.255 Realising bills of exchange – insolvent payee only
Where a winding-up order or bankruptcy order is made against a payee the official receiver should present the bill of exchange for payment on the due date. The payee will have obtained the bill of exchange after it has been drawn up by the drawer, accepted by the drawee and signed by other third parties. If the bill of exchange is dishonoured the official receiver may pursue the other parties to the bill. Each person who signs his/name on a bill of exchange, according to the Bills of Exchange Act 1882, effectively guarantees payment of the bill. If a bill of exchange is unpaid on presentation the official receiver may pursue any previous party, i.e. anyone whose signature appears on the bill in whatever capacity (includes drawer, acceptor and endorser) for payment.
31.5.256 Bills of exchange and the money market
Where a bill of exchange has been drawn on or accepted by an accepting house or bank and the drawer is of good financial standing the bill will be saleable on the money market. The bill of exchange may be sold on the money market to, for example, other banks, discount houses and the Bank of England. Dealing in commercial bills is a highly specialised business and specialist advice should be obtained before trying to sell a bill of exchange on the money markets. More detailed information about the operation of the money markets is contained in Chapter 59.
A promissory note is a formal “I.O.U.”. The legal definition of a promissory note is contained in section 83 of the Bills of Exchange Act 1882. A promissory note is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay, on demand or at a fixed or determinable future time, a sum certain in money to, or to the order of, a specified person, or to a bearer. The writer of a promissory note is called the “maker”. The note is incomplete until it has been delivered to the payee or bearer. Promissory notes issued by private individuals are rare.
31.5.258 The official receiver and promissory notes
Where a company in liquidation or a bankrupt holds a promissory note the official receiver should establish whether it is payable on demand or at some future date.
31.5.259 Safeguarding promissory notes
Promissory notes may be highly liquid if transferable and could be paid to anyone unless drawn restrictively. The official receiver should deal with promissory notes as he/she would cash. A receipt should be issued and the note should be kept in the office safe. Copies of the note should be taken if they are required for day to day reference.
31.5.260 Realising a promissory note - payment on demand
The official receiver should, in all cases, write to the maker confirming the promissory note is now held by him/her. A copy of the promissory note should be included in the letter. If the promissory note is payable on demand the letter should ask for immediate payment, or the maker's proposals to settle the debt if payment cannot be made. If the maker fails to respond to the letter, pay the amount due on that date or fails to meet his/her agreed payments they should be pursued in the same manner as any other debtor (see Chapter 31.1 and the Case Help Manual Book debts).
31.5.261 Realising a promissory note - payment at some future date
Where the promissory note becomes payable at a future date the official receiver's letter should contain a request for payment on that date, or the maker's proposals to settle the debt if payment cannot be made at that time. If the maker fails to respond to the letter, pay the amount due on that date or fails to meet his/her agreed payments they should be pursued in the same manner as any other debtor (see Chapter 31.1 and the Case Help Manual Book debts).
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