Realising Plant and machinery; fixtures and fittings; goods on hire
Before dealing with any of the items covered by this Part the official receiver should ensure that he/she is satisfied that no other party has a valid claim over the items (see paragraph 31.6.7). Such valid claims may originate from a hire purchase or finance company, a landlord or a mortgagee, for example. In addition, official receiver should check for the existence of an agricultural charge (see paragraph 59.74b) when dealing with farm equipment.
In a bankruptcy certain items of plant and machinery or tenant’s fixtures (see paragraph 31.6.98) may be claimed by the bankrupt as exempt property, and the official receiver should consider any valid claims in this regard before seeking to realise the items. Guidance on exempt property can be found in Chapter 30.
The official receiver should ensure that there is no merit in continuing the business (so that it can be sold as a going concern, for example) before seeking to realise plant and machinery, and fixtures. Guidance on the matters to be considered when deciding whether to continue a business is in Chapter 62 – though it is likely that the urgent appointment of an insolvency practitioner as liquidator or trustee (see Chapter 17) is more likely to be appropriate in these circumstances.
The official receiver should, obviously, not sell plant and machinery or fixtures that are needed to complete work in progress (see Part 3).
Generally speaking, plant and machinery is an asset that is used by a business for the purpose of carrying on the business and is not stock in trade, the business premises or part of the business premises [note 1]. The difference between plant and machinery is that generally machinery will have moving working parts, and plant will not (though computers and similar electronic devices are considered to be machinery, despite have no moving parts). The working parts of a machine are also considered to be machinery.
A motor vehicle is ‘machinery’, but advice on dealing with motor vehicles is in Chapter 31.2.
Much of the case law regarding whether something is plant (machinery is easier to define) or not [note 2] [note 3] [note 4] concerns tax legislation as there are capital allowances for items of plant and machinery. By way of an example, it has been held that items of a purely decorative nature can be considered to be plant if they are a fundamental part of the business (such as in a pub or hotel) – otherwise, the items would be considered part of the premises (though not necessarily a fixture – see paragraph 31.6.96) [note 5].
In this regard, the distinction between something being plant and not being plant (being part of the business premises) is unlikely to be important to the official receiver as liquidator or trustee, and of more importance (in, for example, deciding if something is an asset of the insolvent or a third-party) is likely to be the case law relating to whether something has become a fixture, or not (see paragraph 31.6.96).
Generally, a fixture is considered to be an item which has become so attached to the land or property to form, in law, part of the land or property. For the purpose of dealing with an insolvent estate it may be necessary for the official receiver to identify which of the insolvent’s chattels or trade equipment constitute fixtures and which do not – as an item that has become a fixture may be property of the landlord or mortgagee (see paragraph 31.6.96).
Generally, something brought onto land will fall into one of three categories [note 6]:
Clearly, something that has become part of the land itself will belong to the owner of the land (the landlord or a mortgagee in possession, for example), and this would apply similarly to items which constitute fixtures. Whether an item is a fixture depends on the purpose of its attachment (or, annexation) to the land (or, more commonly, building/property), and whether it could be removed without doing irreparable damage to the property/land [note 7]. In respect of a leased property, the terms of the lease may give details regarding what is to be considered a fixture, and what is not.
Where there is a mortgage the general principle is that, subject to any contrary intention, a mortgage of land comprises – without any express provision referring to them [note 8] – all fixtures which at the date of the execution of the mortgage were attached to the land and any that are subsequently annexed to the land [note 9] [note 10] [note 11] [note 12] (though see paragraph 31.6.98 regarding tenant’s fixtures).
Generally, items intended to be permanently fixed to the fabric of the building (such as a bathroom suite) are the property of the lessor, or the mortgagee if they are in possession, unless expressly excluded (see paragraph 31.6.97). Important exceptions to this rule have however arisen and fixtures which can be removed under these exceptions are known as ‘tenant’s fixtures’.
Under the principles relating to tenant’s fixtures, a tenant may remove items that have been affixed for ornament or for the purposes of carrying on business, so long as there is no contrary provision in the lease, and they are capable of removal without irreparable damage to the land or property [note 13] [note 14] [note 15] [note 16].
So far as deciding whether something is a tenant’s fixture, or not, each case is likely to turn on its own merits and it is not possible to give blanket guidance, as each circumstance is likely to be different. In cases where there is a dispute of a material nature regarding the definition of fixtures the advice of Technical Section should be sought.
Assuming that the fixtures are tenants’ fixtures (see paragraph 31.6.98) and are not exempt property (see Chapter 30), the official receiver’s usual agents should be able to sell them. Alternatively, they may be able to suggest a specialist agent.
Any sale price agreed should, of course, take into account the need to remove the items. In this respect, it is likely to be more appropriate that the items are sold in-situ – perhaps to the landlord or a subsequent tenant, or disclaimed, as appropriate.
Where the insolvent has hired property to others, details of the whereabouts of all the property, its value and the conditions of the hire should be obtained. Where the goods are of sufficient value to merit sale, they should be dealt with in the usual way, instructing agents if appropriate. If it is necessary to obtain insurance, the nature and whereabouts of the goods should be notified to the insurers and it should be made clear that they are not within the official receiver’s control (see Chapter 49 – for further guidance regarding insurance). This may affect the insurance premium payable and the likelihood of obtaining cover.
It may be possible to effect a sale of the goods to the hirer, though in this case the official receiver or his/her agents should attempt to recover any outstanding hire charges as part of the sale agreement if possible.
Alternatively, a competitor in the field might be willing to purchase the property and the benefit of the hire contract.
If the equipment cannot be dealt with by way of sale, it should be disclaimed (see Chapter 34) in situ.
[Back to Part 3 – Realising work in progress]