September 2003
Part 2 - Receivers And Administrative Receivers
Where the floating charge was created on or after 15 September 2003 paragraphs 56.78EA and 56.80EA are applicable. If the floating charge was created before 15 September 2003 , paragraphs 56.78EA and 56.80EA should not be applied.
This part is divided into 6 sections as follows:
Section 1 - Introduction and definitions of terms (paragraphs 56.76 to 56. 91). Paragraph 56.78EA - 56.80EA contain guidance on the relevant provisions of the EA2002.
Section 2- The receiver, his appointment and status (paragraphs 56.92 to 56.100). Before reading this section the reader should consider the guidance provided in section 1 (paragraphs 56.78EA - 56.80EA) to establish whether the provisions of the EA2002 are applicable.
Section 3 - The receiver’s powers (paragraphs 56.101 to 56.105). Before reading this section the reader should consider the guidance provided in section 1 (paragraphs 56.78EA - 56.80EA) to establish whether the provisions of the EA2002 are applicable.
Section 4 - The receiver’s duties (paragraphs 56.106 to 56.115). Before reading this section the reader should consider the guidance provided in section 1 (paragraphs 56.78EA - 56.80EA) to establish whether the provisions of the EA2002 are applicable.
Section 5 - Remuneration (paragraphs 56.116 to 56.117). Before reading this section the reader should consider the guidance provided in section 1 (paragraphs 56.78EA - 56.80EA) to establish whether the provisions of the EA2002 are applicable.
Section 6 - The effect of winding up (paragraphs 56.118 to 56.132). Before reading this section the reader should consider the guidance provided in section 1 (paragraphs 56.78EA - 56.80EA) to establish whether the provisions of the EA2002 are applicable.
Section 1 - Introduction And Definition Of Terms
Where the floating charge was created on or after 15 September 2003 paragraphs 56.78EA and 56.80EA are applicable. If the floating charge was created before 15 September 2003, paragraphs 56.78EA and 56.80EA should not be applied.
56.76 Introduction
A receiver is an individual, appointed by a court or chargeholder to take possession of property for its protection or realisation, or under the provisions of a statute. Receivers of companies fall into different categories and the different types of receiver have different roles and duties. The type of receiver is dependent on the terms of the charge or statute under which he is appointed.
Types of receiver
56.77 Definition of administrative receivers [s29(2)]
An administrative receiver is -
A definition of floating charge is given at paragraph 56.88.
56.78 Prohibition of appointment of administrative receiver
The EA2002, section 250, restricts the use of administrative receiverships.
Section 250 inserts into the Insolvency Act 1986 a new Chapter IV (after Chapter III of Part lll), containing new sections 72A to 72H. Two further exceptions, 72DA and 72GA have been added by statutory instrument; The Insolvency Act 1986 (Amendment) (Administrative Receivership and Urban Regeneration etc.) Order 2003. Section 72A(1) states that:
"the holder of a qualifying floating charge in respect of a company’s property may not appoint an administrative receiver of the company."
Section 72A is only applicable to floating charges which were created on or after the 15 September 2003.
Notes: [s72A] [s72A(1)][EA2002, s250]56.79 Application of section 72A
The definition of how a floating charge qualifies under section 72A is set out in section 72A(3) which defines ‘holder of a qualifying floating charge in respect of a company’s property’ by giving it the same meaning as in paragraph 14 of Schedule B1 and it also defines administrative receiver as having the same meaning as in section 251. This appointment of an administrative receiver would be within the meaning given by section 29(2) (see paragraph 56.77).
Section 72A applies in spite of any provision of an agreement or instrument which purports to authorise a person to appoint an administrative receiver (by whatever name). Holders of floating charges created before 15 September 2003 are able to choose to appoint an administrative receiver or an administrator.
The official receiver, when dealing with an administrative receiver, must ensure that the charge under which they have been appointed was created before 15 September 2003 unless one of the exceptions, as described in paragraph 56.80EA, is applicable.
Notes: [s72A(3), s29(2)and s8 Schedule B1, paragraph 14][s72A(4)]56.80 Exceptions to section 72A
In relation to qualifying floating charges created on or after 15 September 2003, there are specific exceptions to the prohibition on appointment of administrative receivers. Sections 72B-72G and two new sections, 72DA and 72GA inserted by statutory instrument; The Insolvency Act 1986 (Amendment) (Administrative Receivership and Urban Regeneration etc.) Order 2003 specify the circumstances in which an administrative receiver may be appointed. These exceptions broadly relate to financiers involved in certain capital markets and other transactions where the ability to appoint an administrative receiver is fundamental to the effective operation of the market. The exceptions are specific and include complex definitions of terms beyond the scope of the Technical Manual. It is for this reason that the definitions of terms used are not provided for in this chapter, instead, where necessary, a reference is provided to the relevant legislation containing the definition.
The exceptions to section 72A where an administrative receiver may be appointed are:
Under section 72B an administrative receiver can be appointed in pursuance of an agreement which is or forms part of a capital market arrangement if:
The definitions of the terms ‘capital market arrangement’ and ‘capital market investment’ are described in Schedule 2A paragraphs 1 - 3.
Under section 72C an administrative receiver may be appointed over a project company of a project which:
A ‘project company’ is defined in Schedule 2A paragraph 7. A ‘public-private partnership project’ is defined at section 72C(2). ‘Step-in rights’ are defined by Schedule 2A paragraph 6.
Under section 72D an administrative receiver may be appointed over a project company of a project which:
A ‘utility project’ is defined at section 72D(2)(a), ‘step-in rights’ and ‘project company’ are defined at Schedule 2A paragraph 6 and 7 respectively.
Under section 72DA an administrative receiver may be appointed over a project company of a project which:
The definition of "develop" is provided at section 72DA(2) and "project company" and "step-in rights" are defined at Schedule 2A paragraphs 7 and 6 respectively.
Under section 72E an administrative receiver may be appointed over a project company of a project which:
The definition of a ‘financed’ project is provided at section 72(E)(2)(a) and ‘project company’ and ‘step-in rights’ are defined at Schedule 2A paragraphs 7 and 6 respectively.
Under section 72F an administrative receiver may be appointed of a company by virtue of:
Under section 72G an administrative receiver may be appointed of a company which is registered as a social landlord under Part 1 of the Housing Act 1996 or under Part 3 of the Housing (Scotland) Act 2001.
Under section 72GA an administrative receiver may be appointed over one of the following:
Under section 72H it is possible for the Secretary of State by order to:
If the official receiver has any doubt over the validity of the appointment of an administrative receiver under one of the exceptions in sections 72B - G post 15 September 2003 the advice of Technical Section should be sought.
Notes: [s72B] [Schedule 2A, paragraphs 1, 2 and 3] [s72C] [Schedule 2A, paragraph 6 and 7] [s72D] [Schedule 2A, paragraphs 6 and 7] [72DA] [Schedule 2A, paragraphs 6 and 7] [s72E] [Schedule 2A, paragraphs 7 and 6] [s72F] [Companies Act 1989, section 173, Financial Markets and Insolvency Regulations 1996 and Financial Markets and Insolvency (Settlement Finality) Regulations 1999] [s72G] [s72GA] [s72H]56.81 Difference between administrative receiver and other receivers
The distinction between an administrative receiver and other receivers is of significance because the administrative receiver has additional statutory powers and functions under the Insolvency Act 1986, Insolvency Rules 1986 and the Company Directors Disqualification Act 1986 and must be a qualified insolvency practitioner (see paragraphs 56.109 to 56.114).
56.82 Definition of fixed charge receivers
A receiver appointed under an express term in a mortgage deed is a fixed charge receiver who looks to the mortgage deed for his powers, duties and remuneration. These powers may extend to carrying on a company’s business in which case he would be a "receiver and manager".
56.83 Definition of Law of Property Act receivers
A Law of Property Act receiver is appointed under the Law of Property Act 1925 and has the powers and duties specified in that Act. Chapter 69 of this manual deals with receivers appointed under the Law of Property Act 1925.
Note: [Law of Property Act 1925]
56.84 Definition of court appointed receivers
The court is able to appoint a receiver to collect property over which he is appointed. This is an equitable remedy and is made under the Civil Procedure Rules1998, Rule 69.2. Rule 69.2
provides that the court may appoint a receiver before proceedings have started or in existing proceedings or on or after judgment.
These court appointed receivers are officers of the court and subject to the court’s directions. They are encountered rarely as judgment creditors have several alternative remedies including seizure and sale of assets or liquidation proceedings which may be less expensive or more productive than the appointment of a receiver.
The court may also appoint the official receiver to be the receiver on behalf of the debenture holder or other creditor if the company is already in compulsory liquidation.
Note: [Civil Procedure Rules 1998, Rule 69.2][s32]
56.85 Agricultural receivers
A farmer wishing to raise finance for business purposes may grant an agricultural charge under the Agricultural Credits Act 1928. An agricultural receiver appointed under this charge is not an administrative receiver, although the agricultural charge may be both a fixed and floating charge. The terms of the appointment and the receiver’s powers will be specified in the charge.
Note: [Agricultural Credits Act 1928]
56.86 Insolvency Act interpretation
Any reference in the Companies Act 1985 or the Insolvency Act 1986 to a "receiver" or "manager of the property of a company", or to a receiver of it, includes a receiver or manager of the property of a company, or (as the case may be) a receiver of part only of that property and a receiver only of the income arising from the property or from part of it. This will include all the receivers mentioned in this chapter.
Notes: [s29(1)]Forms of security
56.87 Definition of fixed charge
A ‘fixed charge’ or ‘mortgage’ is a direct charge over a specific asset or category of assets and has the effect that the company is not free to deal with or dispose of the charged asset(s) even in the ordinary course of business without the consent of the chargee. With a view to improving the security of creditors, an increasing proportion of assets are being made the subject of fixed charges rather than floating charges: in particular, book debts have been targeted. The court, in deciding what type of charge there is, will look not only at the intention of the parties when creating the charge but also at the effect of that charge. If the company can use the book debts as cash flow this is not consistent with a fixed charge. The debts must be put in a blocked account or otherwise controlled by the chargee for the fixed charge to be considered as such. There have been decisions in which it has been held that there can be a valid fixed charge over book debts (Re Siebe Gorman & Co Ltd v Barclays Bank Ltd (1979) 2 Lloyds Rep 142, Re Keenan Bros (1986) BCLC 242 and New Bullas Trading Ltd (1994) BCC 36). Where a charge lacks the relevant control provisions, a charge on book debts may be held to be only a floating charge (Re Armagh Shoes Ltd (1984) BCLC 409 and Brumark Investments Limited reported under the name of Richard Dale Agnew and Kevin James Bearsley v The Commissioner of Inland Revenue and Official Assignee for the estate in bankruptcy of Bruce William Birtwhistle and Mark Leslie Birtwhistle [2001] 3 WLR 454 and [2001] BCC 259) with the consequence that the charged assets must be used to pay any preferential claims. Following the decision in Brumark Investments Limited it is believed that the majority of fixed charges over book debts encountered by the official receiver will be floating charges as the elements of control over the collection and disposition of the debts will be absent. See Chapter 9 paragraph 9.98 for further details.
56.88 Definition of floating charge
A ‘floating charge’ gives unique flexibility to both a company and a chargee. Whilst it constitutes a present security, on a class of assets, it leaves a company free to deal with its assets in the ordinary course of business until some further step by or on behalf of those interested in the charge, commonly known as a ‘crystallising event’ (see paragraph 56.89). In addition, when the charge is enforced it can facilitate the preservation of a going concern by enabling an appointed receiver to trade on and to sell the business to a purchaser without the need for court involvement. A floating charge has three elements:
56.89 Crystallisation of a floating charge
Certain events cause crystallisation of a floating charge:
(See In Re Woodroffes (Musical Instruments) Ltd [1986] Ch. 366; [1985] 3 W.L.R. 543; [1985] 2 All E.R. 908.) Crystallisation takes place on the occurrence of any of those events, even though nothing is stated in the debenture and even if it is contrary to what is stated in the debenture.
In addition, the parties to the charge can agree contractually that a floating charge, created by a debenture, may be crystallised into a fixed charge by intervention of the debenture holder. Most commonly this intervention will take the form of the appointment of a receiver out of court by the debenture holder but it may take other forms, e.g. the service of a notice converting the floating charge into a fixed charge in respect of specified assets.
56.90 Definition of debenture
A ‘debenture’ is a written acknowledgement of a debt by a company, usually under seal, containing provisions as to the payment of interest and repayment of principal. It does not necessarily provide for security but usually does so by specifying security in the form of a charge over the company’s assets. Debentures given by companies are usually secured by a floating charge or a fixed and floating charge. A company can create more than one debenture which, unless specified otherwise, rank in order of priority according to the dates on which they were created.
56.91 Definition of instrument
An instrument is a deed, will or other formal legal document in writing.
Section 2 - The Receiver, His Appointment And Status
Where the floating charge was created on or after 15 September 2003 paragraphs 56.78EA and 56.80EA are applicable. If the floating charge was created before 15 September 2003, paragraphs 56.78EA and 56.80EA should not be applied.
56.92 Who may be appointed receiver
(amended March 2011)
Where a receiver is appointed under a fixed charge only, for example over land, such a receiver need not be qualified to act as an insolvency practitioner. For example, it is common practice to appoint a surveyor to collect the income from charged properties.
The following other restrictions apply to receivers:
a. he/she is an undischarged bankrupt
b. a moratorium period under a debt relief order applied to him/her
c. a bankruptcy restrictions order or a debt relief restricrion is in force
he/she is liable to a fine and/or imprisonment. This restriction does not apply where the appointment is by the court although the court is unlikely to appoint a person as a receiver in any of these circumstances.
Note: [s388][s30][s31
56.93 Who may appoint a receiver
In the majority of cases, a creditor who holds a form of security over a company’s assets which includes a right to take action against those assets and to appoint a receiver makes the appointment of a receiver. A creditor who is not in a position to make an appointment may apply to the court (see paragraph 56.84).
56.94 Power to appoint a receiver
Generally, a debenture or charge will give express powers to the chargeholder to appoint a receiver without a need to obtain a court order. The circumstances under which an appointment can be made will be set out in the debenture or charge document. A debenture holder enforcing his security when contractually entitled to do so owes no duty to the company or to the guarantors to exercise his powers in any particular way (Re Shamji v Johnson Matthey Bankers Ltd (1986) BCLC 278).
56.95 Time from which appointment effective
(amended March 2011)
Where a person is appointed receiver or manager of a company's property under powers contained in an instrument (see paragraph 56.67) the appointment is of no effect unless that person accepts it before the end of the next business day after the day on which he receives it, or it is received on his behalf. If accepted the appointment is effective from the moment at which the appointment was received by the appointee or by the person acting on his behalf. Acceptance may be in writing, by telephone or by facsimile transmission. An administrative receiver is required to confirm acceptance of an appointment to his appointor in writing within 5 business days unless the original acceptance was in writing. In the case of a joint appointment each appointee must confirm acceptance and the appointment is only effective when all the appointees have done so.
Notes: [s33][r3.1 as amended by IAR 2010]
56.96 Joint appointments
The instrument under which an administrative receiver is appointed must specify if there can be more than one appointee. Where more than one administrative receiver is appointed, the appointment document must declare whether anything required or authorised to be done by the administrative receivers is to be done by all of them or one or more of them. The authority to act will normally be several rather than joint.
Note: [231(2)]
56.97 Notice of appointment
Notice of the appointment of a receiver must be filed with the Registrar of Companies within seven days of the appointment.
Note: [Companies Act 2006 s871(1)]
56.98 Effect of appointment
A receiver is appointed over the assets charged by the security under which he is appointed or the assets specified in the court order under which he was appointed. The assets do not vest in the receiver but he takes possession of the assets covered by the charge or court order and deals with them according to his powers and responsibilities. The receiver is the agent of the company, until it goes into liquidation, but his principal duty is to realise and manage the assets of the company under his control in the interests of the chargeholder.
The directors of the company remain in office in a receivership and continue to have fiduciary duties to the company but they have no power to manage or deal with assets in the receiver’s hands. For example, the directors may institute proceedings on behalf of the company against the chargeholder who appointed the receiver (Re Newhart Developments Ltd. v. Co-operative Commercial Bank Ltd. [1978] Q.B. 814) or may cause the company to present a petition for its winding up.
56.99 Liability under contracts generally
A receiver is personally liable on any contract entered into by him in the performance of his functions, unless he expressly excludes that liability under contract. If a receiver decides to cause a company to perform an outstanding contract, the receiver will not be personally liable on the contract and if a receiver decides that a company should not perform an existing contract he will not generally be personally liable for that breach of contract.
Notes: [s37][s44]56.100 Liability under contracts of employment
A receiver is personally liable on any contract of employment adopted by him and any adoption will impose any accrued employment liabilities, e.g. future redundancy payments, on the receiver (Re Paramount Airways Limited (No 3) [1994] BCC 172). In the case of an administrative receiver the liabilities under employment contracts (adopted on or after 15 March 1994) for which he is liable are restricted to certain qualifying liabilities, such as wages or any contributions to occupational pension schemes incurred in respect of services rendered after the adoption of the contract (Re Leyland DAF and Ferranti [1994] BCC 658).
The receiver is entitled, in respect of that liability, to an indemnity out of the charged assets of the company.
Note: [Insolvency Act 1994 s2]
SECTION 3 - THE POWERS OF A RECEIVER
Where the floating charge was created on or after 15 September 2003 paragraphs 56.78EA and 56.80EA are applicable. If the floating charge was created before 15 September 2003, paragraphs 56.78EA and 56.80EA should not be applied.
56.101 Contractual powers
Most charges or debentures specify the powers of the receiver. The extent of these contractual powers depends wholly on the provisions of the charge or debenture and can vary widely. As it is impossible to list all the contractual powers a receiver might have it is not uncommon to have a general clause giving the receiver power to do anything not specified in the deed that would enable him to carry out his duties effectively. For example, where there is a fixed charge on a building from where a public house or nursing home is run the receiver will be able to do very little without use of the assets not covered by the charge, e.g. the fixtures and stock, so a power to use those uncharged assets would commonly be included in the charge documents.
56.102 Court given powers
Where the receiver is appointed by the court the court order will specify the powers he may have.
56.103 Power to apply for directions
The receiver has a statutory right to apply to the court for directions in relation to any particular matter rising from his receivership.
Note: [s35]
56.104 Statutory powers of an administrative receiver
The powers of an administrative receiver are deemed to include the powers set out in Schedule 1 to the Act. The statutory powers may be amplified by the debenture document and, if the matters in Schedule 1 conflict with the powers in the charge document, the latter will prevail.
Note: [s42(1); Schedule 1]
56.105 Additional powers of an administrative receiver
An administrative receiver is an "office-holder" and as such has power to request utility supplies, to ask the court to require delivery of property to which the company appears to be entitled and to require co-operation from the directors and certain others. If any person fails to co-operate, an administrative receiver may apply to the court for a private examination, and/or production of documents.
An administrative receiver may apply to the court for authority to dispose of company property which is subject to a prior charge. If the court orders a disposal, the net proceeds are to be paid to discharge the prior security.
Note: [s233, s234, s235 and s236][s43(1)]
SECTION 4 - DUTIES OF A RECEIVER
Where the floating charge was created on or after 15 September 2003 paragraphs 56.78EA and 56.80EA are applicable. If the floating charge was created before 15 September 2003, paragraphs 56.78EA and 56.80EA should not be applied.
56.106 Duty to the chargeholder and company
A receiver’s primary duty is to the chargeholder who appointed him and he does not owe a general duty of care to preferential or unsecured creditors or to shareholders or officers of the company (Re Medforth v Blake: [1999] 3 All E.R. 97). However, if a receiver decides to sell a company’s assets, he should use reasonable skill and care to ensure that the true market price is obtained, otherwise he may become personally liable to the company for any loss which it suffers. Examples of breach of duty, by a receiver, are advertising a sale poorly, holding a sale at the wrong time and failing to take specialist advice on the valuation of assets (Re Standard Chartered Bank v Walker (1982) 1 WLR 1410 and Re American Express International Banking Corporation Ltd v Hurley (1985) 3 All ER 564).
56.107 Notification of appointment
(amended March 2011)
When a receiver or manager of the property of a company has been appointed, every invoice, order for goods or services, business letter or order form (whether in hard copy, electronic or other form) issued by or on behalf of the company or the receiver or manager or the liquidator of the company, together with all the company’s websites, must contain a statement that a receiver or manager has been appointed.
Note: [s39]
56.108 Duty to account
(amended March 2011)
All receivers and managers (other than administrative receivers) are required to deliver to the Registrar of Companies a receipts and payments account , within one month after the expiration of 12 months from their appointment and every subsequent 6 months and also within one month after ceasing to act.
An administrative receiver is required to send a copy of the receipts and payments account to the Registrar of Companies, the company, his/her appointor and members of the creditors’ committee. The administrative receiver is required to submit the accounts within 2 months after the end of the 12 month period from the date of appointment and every subsequent 12 months and also within 2 months after ceasing to act.
If a receiver makes any default in filing, delivering or making a return the court can order that he makes such a return within 14 days.
Note: [s38,][r3.32 and Form 3.6][s41]
Additional Statutory duties of an Administrative Receiver
56.109 Notification of appointment
An administrative receiver, once appointed, is required to forthwith send to the company and publish a notice of his appointment. Within 28 days after his appointment (unless the court so directs), he must also send a notice to all the creditors of the company (so far as he is aware of their addresses). The matters to be included in these notices are listed at Rule 3.2(2).
Notes: [s46][r 3.2]56.110 Advertisement of appointment
(amended March 2011)
The administrative receiver must cause notice of his appointment to be published once in the London Gazette, and it may be advertised in such other manner as he/she thinks fit. The gazette notice and any advertisement must contain the standard contents specified by the Rules and the additional matters set out in Rule 3.2(4).
Note: [r3.2(3), 3.2(4), 12A.33 – 12A.41; Form 3.1A]
56.111 Statement of affairs
(amended March 2011)
An administrative receiver has a duty to request a statement of affairs. He may request the submission of a statement of affairs from any of the persons specified in section 47(3) although he has powers to release a person from this obligation. The statement of affairs must be verified by a statement of truth by the persons required to submit it and a copy of the statement forms part of the receivership records.
An administrative receiver may apply to court for an order of limited or non-disclosure of the statement of affairs (see paragraph 12.17).
Notes: [r3.3-r3.7 as amended by IAR 2010][s47; Form 3.2][r3.5 as amended by IAR 2010 ]
56.112 Report to and meeting of creditors
Within three months of his appointment, or longer if the court directs, an administrative receiver should issue a report to the company’s creditors including unsecured creditors. A copy of the report should be sent to the Registrar of Companies.
An administrative receiver should summon a meeting of unsecured creditors to consider his report, although the court can relieve him of this obligation. At the meeting, a creditors’ committee may be established to assist the administrative receiver in discharging his functions. The committee of creditors, under s49(2) has the power to require the administrative receiver to attend before it and furnish it with information relating to the carrying out of the administrative receiver’s functions. A creditor who is a member of the committee may deal with the company during the receivership provided he acts in good faith and any transactions are for value.
Where the company is in liquidation, there will not be a creditors’ meeting and the administrative receiver should only send a copy of his report to the liquidator, the Registrar of Companies and secured creditors.
Notes: [s48] [r3.8][s48(2)][s49 and r3.18][s49(2) and r3.28, r3.30][s48(4)]
56.113 Duty to co-operate with the official receiver
In the case of a company being wound up by the court, any person who has acted as administrative receiver of the company must give to the office-holder such information concerning the company and its promotion, formation, business, dealings, affairs or property as the office-holder may at any time after the effective date reasonably require, and attend on the office-holder at such times as the latter may reasonably require. If the administrative receiver fails to co-operate, consideration should be given to applying for a public examination (see Chapter 14). If difficulties are experienced, it is suggested that, in the first instance, advice be sought from Technical Section or from Insolvency Practitioners Section.
Note: [s235]
56.114 Disqualification reports
An administrative receiver has a duty to report on the conduct of directors and shadow directors. The official receiver can check what type of report has been submitted on ISCIS and may obtain sight of any adverse report, on a confidential basis, by contacting the Intelligence Directorate within IES.
Note: [Company Directors Disqualification Act 1986 s6 and s7; Forms D2 and D5]
56.115 Remedy for administrative receiver’s breach of duty
If in the course of the winding up of a company it appears that an administrative receiver has breached any fiduciary or other duty, the official receiver or the liquidator or any creditor or contributory may make an application for the company to be compensated.
Note: [s212]
SECTION 5 - Remuneration
Where the floating charge was created on or after 15 September 2003 paragraphs 56.78EA and 56.80EA are applicable. If the floating charge was created before 15 September 2003, paragraphs 56.78EA and 56.80EA should not be applied.
56.116 Remuneration
There will usually be an express power in the charge relating to a receiver’s remuneration. Alternatively, receivers may rely on the Law of Property Act 1925, section 109(6) (see Chapter 69.20).
Under the Civil Procedure Rules 1998, rule 69.2 provides that a court appointed receiver may only charge for his services if the court so directs and specifies the basis on which he is to be appointed.
Unless the court orders otherwise, in determining the remuneration of a receiver, the court must award such sums as is reasonable and proportionate in all the circumstances and which takes into account various matters e.g. the complexity of the case and the time properly spent by the receiver and his staff.
In the case of Mirror Group Newspapers plc v Kevin and Ian Maxwell and the Personal Representatives of Robert Maxwell (deceased) (1997) The Times, (15 July) the judge expressed the view that office-holders who sought remuneration at a particular level had to justify their claim as one aspect of their duty to account.
Note: [Law of Property Act 1925 s109(6)][Civil Procedure Rules 1998, r69]
56.117 Court’s power to fix remuneration
Where a receiver is appointed under an instrument, it is possible for a liquidator to make an application to court to fix and review the amount of a receiver’s remuneration in relation to both pre and post winding-up order periods. The official receiver should only make such an application if he considers the remuneration is excessive and with the prior agreement of Technical Section.
The expenses and fees incurred by the administrative receiver as agent for the company in realising assets subject to a floating charge can be properly deducted from the gross proceeds of sale. Advice has been received that after a company is put into liquidation, a receiver’s remuneration and expenses in realising assets subject to a floating charge should be paid after settlement of the liquidation expenses (see paragraphs 56.123 to 56.126).
Section 248 of the EA2002 substitutes Part II of the Insolvency Act 1986 with Schedule B1. Paragraph 41(3)(a) provides that where an administrative receiver vacates office on the making of an administration order, his remuneration and expenses are a charge on the assets which were under his control at that time in priority to any security held by the chargeholder. This replicates section 11(4) of the Insolvency Act 1986 as it stood before section 248 was commenced.
Note: [s36][EA2002, s248 and Schedule B1 paragraph 41(3)(a)]
PART 6 - THE EFFECT OF WINDING UP
Where the floating charge was created on or after 15 September 2003 paragraphs 56.78EA and 56.80EA are applicable. If the floating charge was created before 15 September 2003, paragraphs 56.78EA and 56.80EA should not be applied.
56.118 Effect of winding-up order
A winding-up order can be made against a company even though a receiver is in office. The appointment of a liquidator does not terminate the appointment of a receiver but a receiver’s agency will automatically terminate.
A receiver’s powers (see paragraphs 56.77 to 56.81) as expressly conferred by a charge, and an administrative receiver’s right to exercise the statutory powers conferred under section 42 and Schedule 1, including the right to use the company’s name in legal proceedings, realise assets covered by the charge and convey property in the company’s name, are unaffected by the winding-up order.
After liquidation, a receiver may continue any litigation (involving assets or actions covered by the charge under which he was appointed) which was properly commenced in the company’s name prior to the liquidation, and sell company assets (see Chapter 31.4 part 2) but he may be personally liable for any costs of litigation incurred after the date of the winding-up order (although such costs will be allowed as part of his expenses) (Re Bacal Contracting v Modern Engineering (Bristol) 1980 2 A11 ER655). The termination of the agency prevents the receiver creating any new debts on the company’s behalf with the exception of any tax liability (see paragraph 56.104).
Where an administrative receiver has concerns regarding his position or actions following the presentation of a winding-up petition he may apply to the courts for validation of the disposal of the proceeds of floating charge assets.
Note: [s44(1)][s42, Schedule 1][s127]
56.119 Action by official receiver on making of winding-up order
The official receiver should contact the receiver to inform him of the liquidation and ascertain whether the receiver is still acting. Reference should be made to Chapter 3 for details of initial enquiries to be made where a receiver has been appointed. The official receiver will need to consider the validity of both the charge and the appointment of the receiver; reference should be made to Chapter 9, Part 1 for details of the matters to be considered.
If a receiver has been appointed invalidly because of a defect in his appointment or a defect in the security, he is a trespasser in law and both he and his appointor may be liable in damages. In this situation the court may order that his appointor indemnify the receiver against such liability (Re Ford & Carter v Midland Bank (1979) 129 N.L 543 (H.L)).
An administrative receiver’s acts are valid notwithstanding any defect in his appointment, nomination or qualifications. This provision does not operate to protect acts done where there was no power to appoint at all, e.g. where an administrative receiver is appointed under an invalid charge. Where the security is null and void, the receiver may be liable to repay his professional fees plus interest.
Note: [Form ADMREC][s34][s232]
56.120 Notification that receiver or manager appointed
If the official receiver is the liquidator of a company in receivership he should comply with the provisions of section 39(1) (see paragraph 56.104) and insert in correspondence issued by him in this capacity, a statement to the effect that the company is also in receivership.
Note: [s39]
56.121 Antecedent recoveries
Where an administrative receiver is appointed following the presentation of a winding-up petition but prior to the making of a winding-up order and there have been void dispositions of the company’s assets within the meaning of section 127 of the Act, the receiver may be entitled to recover such property, providing the terms of the charge document pursuant to which he was appointed included such property (Re Mond v Hammond Suddards No.1 [1996] 2 BCLC 470).
However, any property recoverable as a preference under section 239 (which is valid until the court orders otherwise) would not be part of the company’s property at the time when the debenture crystallised and therefore a receiver has no entitlement to recover such payment, which would be available to the liquidator (Re Yagerphone Limited (1935) Ch 392). A receiver cannot take a preference action.
Note: [s127][s239]
56.122 Payments and distribution
One of the distinctions between a fixed charge and a floating charge is that where a receiver is appointed under a charge which as created was a floating charge, and the company is not at the time in the course of being wound up, preferential debts must be paid before payments may be made to the chargeholder. An administrative receiver has a duty to pay preferential creditors if funds are available for this purpose. Preferential creditors have priority over holders of a fixed charge if the charge was originally a floating charge but has become a fixed charge e.g. by crystallisation before the relevant date.
Where the company is not being wound up the priority of payment is:
An administrative receiver will wish to make distributions to the chargeholder as soon as practicable and interim distributions may be made. To avoid any liability, the receiver may come to an indemnity arrangement with the chargeholder when making payments, whereby the receiver has a right to recall funds in certain circumstances.
Where a chargeholder has a fixed charge, if there is a surplus after paying the chargeholder out of the realisation of the assets covered by the fixed charge, the funds should be paid to the company or, if the company is in liquidation, to the liquidator (Re G L Saunders Ltd (1986) 1WLR 215) unless the charge provides otherwise.
The distribution of any assets where the company is in liquidation is discussed at paragraphs 56.122 to 56.123.
Where the charge is created after 15 September 2003, section 252 of the Enterprise Act 2002 inserts a new section 176A into the Insolvency Act 1986. This section applies where there is a floating charge over the property of any company in liquidation or administration or where there is a provisional liquidator or receiver in office. The liquidator, receiver or administrator is required to set aside a prescribed part of the company’s net property for distribution to the unsecured creditors before settling the debt to the charge holder and only if this prescribed part is sufficient to settle the unsecured debts in full, may any excess be paid over to the charge holder.
The company’s net property is defined as the amount of its property that would be available to satisfy the claim of the debenture holder or holder of a floating charge created by the company if this new section did not exist. However, this provision will only apply in those cases where the amount of the net property is more than £10,000 unless the liquidator, administrator or receiver thinks that the cost of making such a distribution to the unsecured creditors would not be disproportionate to the benefits, Where the net property is greater than £10,000 the office-holder may apply to the court to disapply the requirements of section 176A(2) if the cost of making a distribution to unsecured creditors would be disproportionate to the benefit.
The prescribed part to be set aside in cases where section 176A applies is 50% of an amount not exceeding £10,000 and 20% of the property in excess of that amount, up to a maximum prescribed part fund of £600,000.
Notes: [s251] [s387] [s40][s37(4)][s40][EA2002 s251, s252]56.123 Priority of liquidation expenses
The expenses of the liquidation rank in priority to preferential creditors and the chargeholder and are recoverable from an administrative receiver appointed under a floating charge notwithstanding that the charge may have crystallised prior to the winding-up order (Re Portbase (Clothing) Ltd [1993] 3 All ER 829). This judgment was upheld and extended by the case of Re: Leyland DAF Limited [2000] All ER (D) 1867 which was upheld on appeal and is reported as Re: Buchler and another v Talbot and others [2002] All ER (D) 326.
Essentially, the decision of the Court of Appeal is based on the construction and interaction of various provisions of the Insolvency Act 1986 (and their predecessors). The payment of expenses in liquidations is provided for as follows:-
For voluntary liquidations, section 115 states:-
"All expenses properly incurred in the winding up, including the remuneration of the liquidator, are payable out of the company's assets in priority to all other claims."
For compulsory liquidations the provisions are slightly different. Section 156 states:-
"The court may, in the event of the assets being insufficient to satisfy the liabilities, make an order as to the payment out of the assets of the expenses incurred in the winding up in such order of priority as the court thinks just."
Subject to any order the court makes under that section, rule 4.218 of the Insolvency Rules 1986 (which applies to both voluntary and compulsory liquidations) sets out the order of priority in which expenses are to be paid out of "the assets".
Under section 40, the preferential debts of a company in administrative receivership shall be paid out of the assets coming into the hands of an administrative receiver in priority to any claims under the debenture.
Where a company is in liquidation (voluntary or compulsory), section 175 provides:-
"(1) In a winding up the company's preferential debts … shall be paid in priority to all other debts …. and
(2)(b) so far as the assets of the company available for payment of general creditors are insufficient to meet them, have priority over the claims of holders of debentures secured by, or holders of, any floating charge created by the company, and shall be paid accordingly out of any property comprised in or subject to that charge."
In summary, if the preferential claims have priority over a debenture holder with a floating charge, and the costs and expenses of a liquidation are to be paid before preferential claims, in a liquidation the liquidation expenses can be paid from the floating charge assets.
Whilst the Leyland Daf Limited case involved a voluntary liquidation, it is considered that the same principles should be applied to compulsory liquidations. When the official receiver is the liquidator of a company which is also in administrative receivership, and which does not have any or sufficient uncharged assets from which the liquidation expenses and the liquidation preferential creditors can be paid, he should approach the administrative receiver(s) and seek the payment of these amounts from the funds representing the proceeds of realisation of floating charge assets which are in the hands of the receiver(s) at the date of the liquidation.
In assessing the amount to be claimed, reference might be made to rule 4.218 but in most cases, the official receiver will simply seek the recovery of the debit balance on the estate account. Expenses which are not part of that debit balance, such as the petition costs, should not be overlooked in this process. If the funds are sufficient, there is probably no reason why the petitioner cannot liaise directly with the receiver(s) on this recovery. But the official receiver should be aware that there might be ongoing liquidation expenses which might not appear in the estate account, such as the costs of storing large quantities of accounting records, which can also be recovered in this way. Further, it is possible that the actions of the receiver(s) might have generated liquidation expenses, for example, corporation tax payable on capital gains, following the sale of property in the receivership. Again, these should not be over-looked.
If there are general or uncharged assets in the liquidation, the official receiver should first use those to pay the liquidation expenses before approaching the administrative receiver(s) for payment. Further, assets subject to fixed charges cannot be used for this purpose.
For those cases where the charge was created after 15 September 2003, the same rules will apply but if the criteria outlined in the new section 176A are met, not only the preferential creditors but also the unsecured creditors may rank before the charge holder. See 56.122 for more information regarding the ring-fencing of assets subject to a floating charge.
Note: [s115and s156][r4.218] [s175(2),s40 & 386][s115][s156][r4.218][s40][s175]
56.124 Preferential claims
In many cases the preferential claims in a liquidation will be the same, or nearly the same, as the receivership preferential claims but it is possible that there will be differences. If so, the official receiver, as liquidator, should seek to protect them by securing funds from the administrative receiver(s), as before, to ensure their payment.
Payments received should be processed through the estate account but neither realisation nor Secretary of State fees should be charged.
Official receivers should be aware that there seems to be some resistance to the application of this decision, which might be open to abuse, following which there might be difficulties encountered in recovering sums due. They can be reported to Technical Section in the first instance.
The decision would seem to be open to some abuse by insolvency practitioners in arranging the liquidation of companies in administrative receivership for free (on the understanding that the liquidation expenses will be met by the debenture holder). Further, in the cases of Re: Demaglass Limited, Lewis v Dempster and another and Re: Demaglass Holdings Limited, Khalastchi v Wostenholme [2002] All ER (D) 155 the liquidators of the companies sought determinations from the court on whether a liquidator could call for payment to him of all of the floating charge realisations in the hands of an administrative receiver and, if not, whether the liquidator was entitled to call for payment of monies out of floating charge realisations in respect of anticipated future expenditure in the liquidation. Both claims were dismissed. The court held that there was no statutory justification for the first claim and on the second it was clear from rule 4.218 that a liquidator was not entitled to call for funds from administrative receivers holding floating charge realisations in order to provide a fund which the liquidator might then start spending on new activities.
It should be borne in mind that the Enterprise Act 2002 abolishes the right to preferential status for the majority of Crown creditors. As a consequence, in those cases where the order was made after 15 September 2003, there are very few creditors with the right to claim any preferential element to their debt. The Inland Revenue and HM Customs and Excise , for example, rank for payment with the other unsecured creditors.
For more information regarding the abolition of Crown preference, see 40.72 - 40.96.
Notes: [s251, EA2002]56.125 Appointment of administrative receiver after winding-up order
Where an administrative receiver is appointed after a winding-up order pursuant to a floating charge which has not crystallised before the commencement of the winding up, the official receiver should remind him that the costs and expenses of the winding up have to be settled in priority to all other claims including any payment to the chargeholder (Re Barleycorn Enterprises Ltd (1970) Ch 465). In such a case, the official receiver, as liquidator, should arrange to hand over the company’s assets that are covered by the charge to the receiver together with all realisations that he may be holding but he should deduct from the monies realised all the costs, charges and expenses of the winding up.
If a chargeholder refuses to take steps to realise his security or to appoint a receiver to do this on his behalf, the official receiver should consider making an application to the Secretary of State for the appointment of an insolvency practitioner as liquidator (see Chapter 9, Part 3, and Chapter 17, paragraph 36). Prior to doing so the official receiver should ensure that the chargeholder is informed in writing of the action that he proposes to take.
Note: [s107, s105]
56.126 Corporation tax
When an administrative receiver realises property of the company after the commencement of a liquidation which results in a corporation tax liability, the company remains liable and the tax must be paid out of available funds as an expense of the liquidation in the priority set out in rule 4.218. (Re Mesco Properties 1980 1 WLR 96).
Note: [r4.218]
56.127 VAT
Creditors may use the arrangements for VAT bad debt relief provided for in the Finance Act 1990 (details provided in Chapter 78, paragraph 78.27). On the appointment of an administrative receiver the company’s current and accruing VAT debts are crystallised and will rank as a claim in the receivership. An administrative receiver is obliged to complete VAT returns and pay any tax due, in respect of supplies made after his appointment. When a company continues to trade under an administrative receivership, VAT credits arising after recovery will not be set-off against debts remaining from the pre-insolvency period.
Notes: [Finance Act 1990]
56.128 Release of official receiver as liquidator
Unless there is some prospect of a surplus becoming available for distribution by a liquidator, the official receiver should not delay seeking his release as liquidator pending the completion of the receivership and should refer to Chapter 37 for details of the procedure to be followed. In particular regard should be had to the need to defer the dissolution of the company for at least two years from the date of release.
56.129 Removal of receiver
The instrument (see paragraph 56.88) under which he/she was appointed governs a receiver’s vacation of, or removal from office.
When a company enters administration any administrative receiver must vacate office and any receiver of part of the company’s property must vacate office on being required to do so by the administrator. If an administrative receiver is in office an administrator can only be appointed by court order.
The receiver, on ceasing to act, must give notice to that effect to the Registrar of Companies.
Note: [s8, schedule B1, paragraph 41(1) and 41(2)][Companies Act 2006 ,s871(2)]
56.130 Termination of administrative receivership
(amended March 2011)
An administrative receiver is under a duty to close his receivership and hand any surplus assets or monies to the company or the liquidator when he has repaid the secured debt of his debenture holder. When an administrative receiver vacates office on completing his receivership, he must give notice to:
The administrative receiver may resign, giving at least 5 business days’ notice to:
An administrative receiver must vacate office if he ceases to be qualified to act as an insolvency practitioner in relation to the company.
Notes: [r3.35(1)][s45(4)][r3.33 as amended by IAR 2010][s45(2)]
56.131 Removal of administrative receiver
An administrative receiver can only be removed by order of the court. The debenture holder has no power to remove the administrative receiver without applying to the court under section 45(1). The principal (i.e. the company) is not able to dismiss an administrative receiver.
Note: [s45(1)]
56.132 Undertaking on hand over of any surplus
A receiver may request the official receiver as liquidator to provide an indemnity in respect of the receiver’s actions and remuneration before handing over any surplus. The official receiver acting as liquidator should not give such an indemnity and should insist that any surplus is paid over without conditions being attached to it.
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