This guidance is tailored specifically for official receivers. It is discretionary
and not designed for use by third parties. This version was the most up to date
guidance available to official receivers as at 10 March 2020.
33. Monetary assets
Annexes
Centralised bank statement request guidance
Monetary assets - How to deal with a bank account
How to deal with assurance policies
How to deal with jointly owned policy
Centrally Managed Parties and bank sort codes - The bank contact list is contained in
Centrally Managed Parties
Chapter content
Frequently asked questions - Monetary assets
Frequently asked questions - Bank & building society accounts
Introduction
Cash
Payment accounts, savings accounts and investments
Trusts
Life assurance and other policies
Shares and other traded investments (including employee share schemes)
Valuing Shares in unquoted companies
Shares with little or no realisable value receipt of dividends
Employee share schemes
Disposing of shares – Official receiver to inform creditors
Other monetary assets
Frequently asked questions - Monetary
assets
These frequently asked questions are to assist official receivers in understanding the
subject and should be read in conjunction with the more detailed guidance given in
the main body of the chapter.
Collecting cash, what should I do?
When, on inspection or in the office, the company, partnership or bankrupt has cash
you should first confirm it forms part of the estate. You should count the cash in the
presence of the director, partner or bankrupt and, if on inspection, issue a temporary
receipt. The cash should be handed to the cashier and a formal receipt will then be
issued.
Can a bankrupt keep some of the cash for
living expenses?
When collecting cash from a bankrupt allowance should be made for his/her
immediate living expenses before receiving their next wages and/or benefits. When
cash is handed over a receipt should be issued.
What should I do when a bankrupt has surplus
income?
Where a bankrupt has sufficient income to meet the reasonable domestic needs of
his/her family an income payments agreement or order (IPA/IPO) should be
obtained. Detailed guidance on obtaining an IPA/IPO is provided in chapter 35.
What should I do with rental income?
The official receiver as liquidator or trustee has an interest in any rental income from
property owned by a company, partnership or bankrupt. Detailed guidance on
commercial property is provided in chapter 28 and on dealing with rental income in
chapters 29 and 30.
What should I do if a bankrupt is made
redundant?
Redundancy payments and payments in lieu of income are compensation for the
loss of employment. As such they are not income but property and should be
claimed in the same way as other assets. If the payments are made after the date of
the bankruptcy order and before the date of discharge the monies should be claimed
as after-acquired property.
What is a trust?
Basically a trust splits the ownership of an asset between two or more persons. The
trustee is the legal owner and the beneficiary the equitable owner. Trusts are
commonly created over freehold property, life policies and to provide an income for
children and grandchildren.
What should I do if I discover a trust?
You should obtain a copy of the trust deed to establish what interest the official
receiver may have in the trust. This is not necessarily straightforward as there are
different types of trust and the company, partner or bankrupt may have created the
trust or they may be beneficiaries of a trust created by a third party.
Can I overturn a transfer of assets into a trust?
The official receiver can only overturn such a transfer of assets if they were
undervalued or the intention was to defraud creditors. Each case must be examined
on its merits following the guidance provided in chapter 31.
How do I realise assets held in a trust?
The official receiver, having established an interest in a trust, has a number of
options, depending on the nature of the interest. The trust may relate to assets that
can be sold, for example freehold property or shares, or may provide an income. The
trust may also impose time limits on when property may be disposed of. Each trust
must be considered individually. Detailed guidance is contained within the main body
of the chapter.
Can the official receiver leave a bank account
open?
Where the official receiver does not intend to close a bank account, for example
where it is used for the receipt of benefits or wages, a BANK 2 notice should be sent.
The bankrupt should be informed that the final decision as to whether the account
remains open is the bank’s decision.
Do I have to collect all of a bank credit
balance?
The official receiver must allow a bankrupt to keep sufficient funds to meet their
immediate day to day expenditure. The official receiver must agree this amount with
the bankrupt before releasing any funds to him/her.
What is life assurance?
Insurance companies usually refer to "assurance" when dealing with life policies, and
"insurance" when referring to policies covering events such as fire, theft or accidental
damage to cars, houses, boats etc.
What is a life policy?
A life policy is a legally binding contract between the policyholder(s) and the life
assurance company. The person whose life is covered must be specified and is
known as the “life assured”. It is also possible to have a policy covering the life of
more than one person and this type of policy is known as joint lives assured. The
owner of the policy and the “life assured” may be different people although the
policyholder must have an "insurable interest" on the life assured. An “insurable
interest is an entitlement to be compensated for the death of the life assured due to
such as the loss of earnings.
What is a 'Term Assurance' policy?
Term assurance policies usually provide life cover for a specified number of years
(the term), for example 20 years. The lump sum (the sum assured) only becomes
payable if the life assured dies during that period. This type of policy does not
normally acquire a surrender value and will lapse without value if premiums are not
paid up to date.
What is a 'Whole Life' Assurance policy?
A “whole life” assurance policy provides protection with, or without investment, and
pays a guaranteed sum on the death of the policyholder. This insurance can be
without-profits, with profits or unit-linked and therefore may acquire a surrender
value.
What happens if premiums are not paid on an
assurance policy?
A policy may lapse without value if premiums are not paid. In some cases the
assurance company may treat the policy as being "paid up" and will pay out a
reduced sum if the condition for payment is fulfilled. Alternatively some life
assurance companies allow policies to become “paid up”. The insurance company
will pay out on a “paid up” policy once the outstanding premiums have been paid, for
example by reducing the amount paid to the beneficiary. In the meantime the policies
remain on their file as dormant.
Do lapsed or dormant policies vest in the
official receiver or trustee?
Lapsed policies which are treated as “paid up” by the life assurance company remain
an asset in the proceedings even if the pay out comes after the date of discharge.
Where a dormant policy is revived after the bankrupt’s discharge, the policy still
remains an asset in the bankruptcy estate and the official receiver will retain his/her
interest.
Can I sell a life assurance policy to the
bankrupt?
The official receiver should only consider selling a life policy to the bankrupt when it
has no surrender value. The official receiver must ensure that there is no prospect of
the policy paying out in the foreseeable future due to death or terminal illness.
Can I sell a life assurance policy to a third
party?
The official receiver may sell a life assurance policy to a third party where it has a
surrender value. However the official receiver must ensure that there is no prospect
of the policy paying out in the foreseeable future due to death or terminal illness. The
policy should normally be sold for the full surrender value. Where the policy is jointly
owned, and only one of the joint owners is bankrupt, for half the surrender value. The
consent of the life assurance company to assign the policy is required to complete
the sale. Where the life assurance company refuses to assign the policy it remains
as an asset in the estate.
How do I deal with a joint life assurance
policy?
A joint life assurance policy, held by (for example) a bankrupt and their spouse, is
held on a joint tenancy. The bankruptcy order severs the joint tenancy and the
bankrupt’s beneficial interest vests in the trustee. The options open to the trustee
include:
• keeping the policy for the benefit of the estate
• surrendering the policy
• selling the interest in the policy to the bankrupt
• selling the interest in the policy to a third party
Detailed guidance is provided in within the main body of the chapter.
What is an endowment policy?
An endowment policy is a policy where a monthly premium is paid for a set period,
for example 25 years. The most common types of endowment policies are called
“with profits” and “unit linked”. Endowment policies were commonly used in the
purchase of homes with the mortgage loan secured on the property and the policy.
They are not as popular today. If the official receiver comes across an endowment
policy see the main body of the chapter for further information.
What is an employee share scheme?
There are a number of work related saving and share schemes which are approved
by HMRC and attract tax relief. The approved schemes are:
• Save As You Earn (SAYE)
• Share Incentive Plans (SIPs)
• Company Share Option Plans (CSOPs)
• Enterprise Management Initiatives (EMIs)
What do I do if a bankrupt is in an employee
share scheme?
The bankrupt’s interest in an employee share scheme vests in the bankruptcy estate.
The specific actions required to protect and realise the trustee’s interest will vary
according to the scheme. Details guidance on each type of scheme can be found
within the main body of the chapter.
What are shares?
A share entitles the holder to receive a proportion of a company’s profits. Also it may
allow the holder the right to participate in the management of the company at a
meeting of the company’s members.
How can I sell shares?
The shares of quoted companies may be sold on the Stock Exchange. The shares of
unquoted companies are usually sold privately, although the company may impose
restrictions on their sale. Further details on selling shares can be found within the
main body of the chapter.
How do I deal with tax refunds?
There are three main types of tax refunds: corporation tax, VAT and personal income
tax. The Crown is allowed to use a tax refund of offset any debt owed to the Crown,
for example a VAT refund can be used to partially repay a corporation tax debt.
Whether a company, partnership or bankrupt is entitled to a tax refund will depend
on the individual circumstances of the case. Detailed information on reclaiming an
overpayment of tax can be found within the main body of the chapter.
How do I recover a tax refund from an
employed bankrupt?
Where the bankrupt is entitled to a Schedule E tax refund the official receiver should
accept any refund offered by the local HMRC office. Where a cheque has been
issued to the bankrupt and not yet cashed the official receiver should ask for it to be
stopped. Where the cheque has been sent to the bankrupt he/she should be asked
by telephone (followed up by letter/email) to send the cheque to the official receiver.
Further guidance is contained within the main body of the chapter.
Frequently asked questions – Dealing
with banks, building societies and
credit/charge cards
What happens to a bank account when an
insolvency order is made?
The account will be frozen by the bank. Where there is a credit balance in a
bankruptcy funds can be released for essential living expenses or any joint owners
share of the money.
Why does the official receiver contact banks or
building societies?
One of the main duties of the official receiver is to identify, collect, secure and protect
any assets upon the making of an insolvency order. In some cases it may be
necessary for the official receiver to give immediate notice of the insolvency order by
telephone to ensure the account is frozen. The giving of this early notice helps to
ensure that funds in accounts do not disappear.
When should I make contact?
Notice (BANK1, BANK 2 or NORD1 for credit card companies) should be given as
soon as possible, but in any event within 5 working days of the order being made.
Full information should be sent including the branch sorting code and account
number.
How do I know what accounts a bankrupt has?
The information can be obtained from the company director/bankrupt. In adjudicator
cases it should be listed in the application. In the event that a bankrupt cannot be
traced the details may be found in the Experian search.
How do I know which letter to send to the
bank?
There are a number of bank letters, all of which have provide a different instruction.
These are:
Bank1: used when there is a credit balance to be claimed by the official receiver
Bank2: used when it is agreed that funds will be released to the bankrupt
Bank3: used where there is FI in a company case
Bnk1: used in company cases
How should I deal with bank/credit cards?
Bankrupts should also be instructed to refer to their bank for instructions on what to
do with any debit cards held in respect of a current account. Company directors and
bankrupt should be instructed to destroy any other bank/credit cards in their
possession and dispose of the cards appropriately. Any cards passed to the official
receiver should be destroyed in the presence of the company officer/bankrupt and a
file note made.
Can a bankrupt still operate an existing bank
account after they are made bankrupt?
Yes, subject to any bank or building society policy. This is most likely to occur where
a bankrupt’s regular income is paid into an account comprising their wages or benefit
payments.
A bank or building society frequently asks the official receiver for authority to operate
an account on behalf of a bankrupt. The official receiver is not in a position to provide
such an authority and it is entirely a matter for the bank or building society to make
that decision
Can the bankrupt open a new bank/building
society account after the bankruptcy order?
Yes - but they must tell the bank or building society that they are bankrupt. Some
banks will allow continued use of the bank account after the bankruptcy order.
It is the bankrupt’s responsibility to make arrangements for an account to receive any
income. It is then at the discretion of the bank or building society whether to permit
an undischarged bankrupt to operate an account. The publication
Guide to
Bankruptcy will provide the bankrupt with information.
Any request from the bankrupt or their agents regarding the operation of a new bank
account can be answered using form BAOPB (Docs tab).
What happens where there is a credit balance
on a bankrupt’s account at the date of the
order?
If a bankrupt evidences to the official receiver that they need any money in their
account or a proportion thereof for normal living expenses before the next "pay day",
then they may be allowed to retain some or all of the funds for that purpose.
Authorisation should be given to the bank, using form BANK2 tailoring the letter
according to the circumstances of each case.
What happens to the bank card where only
some of a credit balance should be released?
Where only part of the funds in the account is to be released to the bankrupt a
decision needs to be made whether to leave the bank card with the bankrupt. In
order to protect the part of the balance the official receiver should immediately
telephone the bank to specify how much of the balance should be remitted to the
official receiver, followed by a letter to confirm this. The sum the official receiver
intends to recover should be shown as the asset on ISCIS. The asset note should be
used to record the detail of the arrangement i.e. how much was in the account and
how much was agreed that the bankrupt could withdraw.
What will happen to a joint account?
If there is a credit balance, consideration should be given as to whether all or part of
the credit balance vests as an asset in the bankruptcy or whether it belongs to the
joint account holder. Where it is established that funds belong to the third party
account holder an instruction should be given to the bank release the money.
The notes tab should be updated to record any decision made.
How do I deal with a telephone or internet
bank account?
You should not ask for details of the password, pin number or security information, or
otherwise attempt to access the account through the internet or telephone. The
director/bankrupt should be told not to access the accounts and a note should be
recorded on ISCIS. The banks should be notified and the cards dealt with as detailed
above.
What do I do with an old style credit card
machine?
The metal plate from the imprinting machine should be returned to the issuer.
Post office card account
A post office card account is operated through the post office and can only be used
to receive benefit, state pensions and tax credit payments. There is no overdraft
facility on this account, and no other payments, such as wages, can be paid into it.
No credit checks are undertaken when the account is opened. The official receiver
will therefore have no interest in the balance of such an account and should not take
the cash card for one of these accounts from a bankrupt.
How do I deal with a building society account
where there is a passbook?
Where there is a passbook this is likely to be a savings account. The building society
will normally require the production of a passbook or card before releasing the
balance to the official receiver. In the event that the passbook is not available a ‘lost
passbook declaration’ form will have to be signed by the official receiver as trustee.
Usually the building society will also require a withdrawal form to be signed by the
official receiver before releasing any funds and a copy of the bankruptcy order.
How do I obtain bank statements?
The Service has an agreement with certain banks/building societies that requests for
copy statements will be sent centrally. Copy bank statements can be requested via
the
fortnightly bank statement spreadsheet which is centrally collated and issued on
behalf of ORS, IES and CI offices. See
Centralised Statement Request Guidance
How do I deal with a foreign bank account?
A written authority from the director or bankrupt should be obtained to get
information and /or monies from the bank. Either a general authority or a specific
authority directed to a particular bank to authorise the provision of information and
the remittance any credit balance to the official receiver should be provided. Some
banks may release information on production of a copy of the winding-up or
bankruptcy order. Other banks may require a court order from within the relevant
jurisdiction.
Introduction
33.1 General
This chapter provides guidance on dealing with monetary assets: cash, savings,
investments, insurances. These are assets easily disposed of or concealed. It is
important that the official receiver takes early steps to identify and protect these
assets and to bring the money into the estate.
33.2 Income generating assets
An asset may be owned by a company or vest in the bankruptcy estate which
provides an income stream. If the underlying asset or source forms part of the
bankruptcy estate the official receiver as trustee is entitled to the income. By way of
example, a bankrupt will generate income through engaging in employment or trade.
The underlying source, the bankrupt’s labour, does not form part of the estate and
therefore, post order, the income is payable to the bankrupt and may only be brought
into the estate through an income payments agreement or order (see chapter 35).
Examples of income generating assets where the official receiver will be entitled to
receive any or all of the income can found within this chapter and chapters 28, 29,
30, 35, and 40.
Cash
33.3 Collecting cash in hand
Care must be taken when collecting cash or cheques from directors, bankrupts or
third parties to ensure that there are no disputes about the amounts involved at a
later date. The amount should, where possible, be independently verified and a
receipt issued.
33.4 Cash found on inspection
Any cash and/or cheques collected on inspection should be counted in the presence
of the director(s) or bankrupt, witnessed if possible by another member of the official
receiver’s staff, agents or a third party present at the premises. A receipt for that
amount should be issued to the director(s) or bankrupt. A note should also be made
of any amounts retained by the bankrupt for day to day living requirements (see
paragraph 33.11).
On returning to the office the monies collected should be handed to the office cashier
who will issue an official receipt, a copy of which is scanned and uploaded to the
case file.
Cash should be returned immediately to the office but if this is not possible money
should be put in bags which are sealed and signed. This should be kept in a safe
place at home and delivered to the office the following working day. Agents attending
the inspection may be used to safeguard cash.
33.5 Cash brought to the official receiver’s
office
It is possible that director(s) or a bankrupt will bring sums of cash or uncashed
cheques with them to the interview. The official receiver should establish the source
of the monies and, in a bankruptcy, ask the bankrupt about meeting their immediate
living requirements (see paragraph 33.11). If confident the cash forms part of the
insolvent estate it should be counted in the presence of the director(s) or bankrupt,
witnessed if possible by another member of the official receiver’s staff. The monies
should be handed over to the cashier and a formal receipt issued by them. If this is
not possible the cash should be placed in in the office safe and a temporary receipt
issued, witnessed by another member of staff. A formal receipt should be issued as
soon as possible to the director(s) or bankrupt. All receipts issued should be
scanned and uploaded to the case file.
33.6 Cheques
Where cheques made payable to the company or bankrupt are collected care should
be taken where companies with similar names occupy the same premises or where
companies within a group have similar names. In a bankruptcy family members may
have the same name or the same initials. Where a third party appears or claims to
be the correct payee the official receiver should ask for evidence of the third party’s
entitlement to the cheque.
Cheques should be paid into the estate account without delay and not held pending
the appointment of an insolvency practitioner as liquidator or trustee.
33.7 Cheques more than six months old
By convention cheques that are more than six months old may be rejected by the
issuing bank to protect the drawer (the person who wrote the cheque). All cheques
should be banked but if rejected, due to age, the drawer should be asked to provide
a replacement. If the request is refused the drawer is a debtor of the company or
bankrupt the debt should be pursued as any other book debt.
33.8 Cash at bank – initial contact
Directors and bankrupts are asked to provide details of any bank or building society
accounts, and warned not to use them, in the appropriate Preliminary Information
Questionnaire (PIQ) or bankruptcy application.
The bank should be contacted as soon as possible, but within five days of the
winding-up order, bankruptcy order, or the official receiver becoming aware of the
bank account. The director or bankrupt should always be asked to supply or confirm
the bank details (account number and sort code) during the initial telephone contact.
See also guidance from paragraph 33.16 onwards for further information on types of
account the company or bankrupt may operate.
33.9 Cash at bank– credit balance
In bankruptcy the official receiver needs to give some consideration to the funds the
bankrupt will require to meet their immediate living requirements, the bankrupt’s
ability to access banking facilities in the future to receive income and the claims of
joint account holders (see paragraphs 33.11, 31.12. and 33.13).
In all other cases the official receiver should close the account and bring the monies
into the estate as soon as possible1.
The cost of the effort made to recover a credit balance should not be more than the
amount realised. If the credit balance (or the sum of balances with one bank) is £50
or less, the initial letter should be followed up by a telephone call and generally no
more than one further follow-up letter. Where the credit balance exceeds £50 the
official receiver should exercise discretion as to the resources required to collect the
balance.
1. ISCIS forms BANK1 and BANK3.
33.10 Accessing accounts via internet and
telephone banking
The official receiver should not access, or attempt to access, bank accounts through
the internet or by telephone using a password, pin number or security questions. The
official receiver should not ask for details of these. The director(s) or bankrupt should
be informed not to access the bank accounts. Where the account is being closed all
debit and/or cash withdrawal cards should be delivered to the official receiver and
destroyed.
33.11 Money required for the bankrupt’s
immediate living requirements
Cash in hand or in a bank account at the date of a bankruptcy order is not ‘income’
within the meaning of section 310(7) (see chapter 35) irrespective of the original
source of the funds. It is an asset of the bankruptcy estate.
Having said that, the bankrupt will rely on income received shortly before the
bankruptcy order to meet immediate living requirements. The bankrupt should be
allowed to keep or access sufficient monies to meet expenses such as
rent/mortgage (if about to fall due), daily travel and groceries. The bankrupt should
be asked to provide an estimate of their immediate needs by telephone or by e-mail.
In assessing this, account should taken of the bankrupt’s usual income source and
sufficient funds should be made available to enable the bankrupt to provide for the
immediate costs of the family whilst waiting for the next payment of income. After
releasing monies to the bankrupt, there may still be a credit balance in the bank
account which should be recovered.
33.12 The account into which the bankrupt’s
income is paid
The decision on whether to continue to offer the bankrupt banking facilities lies with
the bank, not the official receiver. Where the account has no overdrawn balance the
official receiver might confirm that they have no objection to the account remaining
open1. The official receiver should not take possession of the bankrupt’s bank card
as the decision to close the account, or not, will be taken by the bank. The letter
should state the amount of the credit balance to be released to the bankrupt and the
amount, if any, to be remitted to the official receiver. A file note should be made of
the agreement made with the bankrupt as to the amount to be released.
1. ISCIS form Bank 2
33.13 Joint accounts
Where the bankrupt has a joint bank account with a credit balance the official
receiver should take steps to determine who owns the monies. The official receiver
should obtain, where possible, documentary evidence to confirm the source of the
funds. Without more, the official receiver might assume that one half of the funds
belong to the bankrupt, and therefore are part of the bankruptcy estate. If the joint
account holder(s) claim to be entitled to a greater share of the funds they should be
asked to produce evidence of the source of funds to support their claim.
The bankrupt should be allowed to retain sufficient funds to meet immediate living
expenses (see paragraph 33.11) but this should be calculated on the basis that the
joint account holder will also contribute to those expenses.
33.14 Joint accounts – deceased insolvents
On the death of an individual the deceased’s interest in jointly held assets, including
a joint bank account, passes to the surviving partner. The official receiver would
have no interest in a joint bank account where an Insolvency Administration Order is
made against a deceased debtor; the balance on the account would be retained
wholly by the surviving account holder. There are provisions in the legislation to
allow the trustee to recover for the estate any value lost by the operation of the right
of survivorship (see chapter 56).
33.15 Overseas accounts
If the official receiver becomes aware of any overseas bank accounts the director(s)
or bankrupt should be asked to provide a general or specific written authority
directing the bank to provide information and remit any credit balance to the official
receiver. If the official receiver is unable to obtain authorisation from the director(s) or
bankrupt some overseas banks (particularly those within EU members states) will
provide information and remit funds after being provided with a copy of the winding-
up or bankruptcy order. Other banks may require a court order from within the
relevant jurisdiction.
When corresponding with an overseas bank the letter is more likely to receive a
response if it is written in the language of the recipient bank. In order to minimise the
potential translation charges the official receiver’s initial enquiry letter should be as
brief as possible and focus on the request to remit any credit balance. For more
information on overseas assets see chapter 62.
Payment accounts, savings accounts and
investments
33.16 General
This part provides an overview of some accounts, savings and investments the
official receiver may encounter in dealing with the winding-up of a company or, more
commonly, a bankruptcy. Further general information on types of savings accounts
and investments is available on the
Money Advice Service website.
33.17 Realisation or longer term investment
The official receiver may use their discretion as trustee1 to continue to hold longer
term investments to maximise returns to creditors rather than losing funds through
early realisation. For example, most banks and building societies offer savings
accounts where a higher rate of interest is paid in return for restricted access to the
funds. Such accounts usually have a notice period of between 30 and 120 days
before monies can be withdrawn without incurring a penalty. The official receiver
should give the required notice before closing the account rather than forfeit any
interest due, unless the funds are considered to be in jeopardy. The official receiver
should realise the balance in the usual way2, amending the request for remittance to
include the required notice period.
In deciding whether to hold an investment the official receiver should have regard to
the length of time the creditors will have to wait for their money against the projected
gain from waiting. The realisation of the estate should not be unnecessarily
prolonged for little return. The official receiver can, of course, always seek the views
of creditors but should avoid holding speculative investments.
The official receiver as liquidator or trustee should only realise investments where
proceeds are likely to be greater than the costs of realisation. Before instructing
agents the official receiver should be clear on their costs and the costs of exiting the
investment to avoid a loss to the estate.
1. Section 305(2)
2. Forms BANK1 and BANK3
33.18 Post Office card account
This is an account that can only be used to receive benefits, state pensions and tax
credit payments. There is no overdraft facility on the account and no other deposits,
such as wages, can be paid into it. The official receiver may have an interest in the
balance of a post office card account at the date of the bankruptcy order (but see
paragraph 33.11) and should contact the bank if the official receiver considers there
are funds in the account which should be remitted to the official receiver. Currently
the Post Office card account is operated by J. P. Morgan Europe Limited. The official
receiver should not take the bank card from the bankrupt.
33.19 PayPal account
A company or individual may operate a PayPal account (www.paypal.com). The
account operates in a similar manner to a bank current account and should be
treated in the same way. Any credit balance in the account should be realised for the
estate (see paragraphs 33.8 – 33.10)
33.20 Easy access savings accounts
The bankrupt may use an easy access savings account to receive their regular
income. If the account is being used in a similar manner to a current account it
should be treated in the same way as a current account (see paragraphs 33.8 –
33.10).
Otherwise the bank or building society should be notified as soon as possible, but
within five days of the winding-up order, bankruptcy order, or the official receiver
becoming aware of the bank account 1. Any passbooks and/or cards for the account
should be recovered as soon as possible and the bank or building society asked to
close the account and remit the funds.
1. Forms BANK1 and BANK3
33.21 Individual Savings Accounts (ISAs)
ISAs are a tax efficient way of saving or investing. Tax is not deducted from the
interest paid on an ISA account, nor is capital gains tax incurred if the value of the
investments made rise over the investment period. There are currently four types of
ISA: cash ISA, stocks and shares ISA, innovative finance ISA and lifetime ISA. You
can only pay your ISA limit into one of each type of ISA in the tax year but your ISA
limit can be paid into any combination of the types. An individual can’t hold an ISA
with or on behalf of someone else.
Current details of the ISA limit can be found on
GOV.UK.
The official receiver should seek to close cash ISA, stocks and shares ISA,
innovative finance ISA accounts and ask for the monies to be remitted to the estate.
33.22 Lifetime ISAs
Lifetime ISAs are aimed at assisting individuals to save to buy their first home or
provide for later life. There is a limit, currently £4,000, on payments into a Lifetime
ISA. This limit counts towards the annual ISA limit. The government will add a 25%
bonus to the individual’s savings, up to a maximum of £1,000 per year. An individual
can only open a Lifetime ISA if the are under 40 and can’t pay into the ISA or earn
the 25% bonus after the age of 50.
There is a 25% charge to withdraw cash or assets from a lifetime asset. The charge
doesn’t apply if the:-
a) funds are to be used by the individual to buy their first home
b) individual is 60 or over, or
c) individual is terminally ill with less than 12 months to live
The official receiver should seek to close the Lifetime ISA and subject to the
bankrupt meeting criteria (b) or (c) accept the 25% charge for withdrawal.
33.23 Junior ISAs
A parent or legal guardian can open a Junior ISA on behalf of a child under the age
of 18. Money in the account belongs to the child but they can’t withdraw the funds,
except in exceptional circumstances, until they are 18. Anyone can pay funds into
the account on behalf of the child up to the annual tax-year limit. If the limit is
exceeded the excess is held in a separate savings account in trust for the child.
As the monies in the account are on trust they do not form part of the bankrupt’s
estate even if the sole source of funding the ISA was the bankrupt. The official
receiver may be able to show that the gift to the child was a transaction at
undervalue or the account was used to put monies beyond the reach of creditors to
recover money for the estate1 (see also chapter 31).
1. Sections 339 and 423
33.24 Building society merger windfalls
In 2007 legislation was passed giving building societies and mutual societies greater
powers to merge with other companies1. This change led to a number of mergers
and demtualisations which resulted in members being offered incentives such as
share options or cash bonuses. These are now very rare but where an account
remains open or the bankrupt continues as a borrower, and therefore a member of
the building society, they would be entitled to receive any shares or bonuses that
arose. Where the bankrupt is entitled to receive free shares or bonuses before
discharge they may be claimed as after-acquired property2.
1. The Building Societies (Funding) and Mutual Societies (Transfers) Act 2007
2. Section 307
33.25 National Savings and Investments
(NS&I)
NS&I is one of the largest savings and investment organisations in the UK. It is best
known for issuing premium bonds but offers a wide range of saving and investment
accounts.
It is possible for a company to hold certain NS&I accounts but this is likely to be a
rare occurrence. The official receiver should seek to obtain any passbooks, savings
certificates or bank cards held for the account and notify the Director of Savings,
NS&I, Boydstone Road, Glasgow, G58 1SB of the bankruptcy order and realise the
balance in the account.
Where the official receiver requires information from NS&I they will only respond if
the letter is personally signed by the official receiver. Enquiry letters should be sent
to The Head of Compliance, NS&I, 1 Drummond Gate, London, SW1V 2QX
33.26 Premium bonds
Premium bonds may be purchased by any person aged 16 years or over. Parents,
legal guardians, grandparents or great grandparents may buy premium bonds on
behalf of a person under the age of 16 years. Each bond costs £1 with a maximum
holding of £30,000. No interest is paid on the premium bonds, instead a monthly
draw is held and cash prizes awarded. Cash prizes may be automatically re-invested
in bonds up to the maximum holding.
All premium bonds should be realised by the official receiver. See paragraph 33.27
for the only exception. The official receiver should not use the online or phone
service to make the realisation, even if the bankrupt is registered to do so, but use
the online form available from the
NS&I website.
Where information about the bond numbers is not available the form should be
accompanied by a letter explaining the position and asking for the value of the
bankrupt’s holding to be remitted to the estate. The official receiver will receive the
face value of the premium bonds together with any unclaimed winnings.
33.27 Premium bonds with sentimental value
A bankrupt may have a small number of premium bonds, usually on or below the
current minimum holding of £100, which was purchased for them as a gift at birth or
before their 16th birthday. They may wish to keep these bonds for largely
sentimental reasons. In such circumstances the official receiver may allow the
bankrupt to purchase the interest in the premium bond holding for the full face value
of the holding plus the value of any unclaimed prizes. If the bankrupt supplies their
premium bond holder’s number the details of any outstanding unclaimed prizes can
be found via the
NS&I website.
The bankrupt should confirm, in writing, that they will inform the official receiver of
any prizes won on draws occurring before discharge and acknowledge that any
monies won may be claimed as after- acquired property1.
1. Section 307
33.28 Government bonds or stocks
Often referred to as ‘Gilts’, these are investment bonds issued by HM Government.
The bonds pay a fixed rate of interest twice a year until the maturity date when the
final interest payment and capital sum are paid. Investors can also buy index-linked
gilts where the twice yearly interest payment is linked to the rate of inflation as is the
amount repaid on maturity. Gilts usually have a life of between 5 and 20 years,
although some have no redemption date. They are listed on the London Stock
Exchange and may be bought and sold prior to their maturity date. Where a
company or bankrupt is holding gilts the official receiver should obtain the certificates
from the director or bankrupt and issue a receipt. If the company or bankrupt is part
of the Crest system the advice provided in paragraph 33.77 should be followed. Gilts
may be sold through a stockbroker or a bank. More information on selling gilts can
be found on the
UK Debt Management Office website.
33.29 Friendly Societies – tax exempt savings
plan
Friendly society savings plans offer an additional tax free investment in addition to
the annual ISA allowance. The plan may or may not include life assurance cover and
investment periods tend to be between 10 and 25 years. The maximum tax free
investment limit is £25 per month or £270 per year. Plans may be surrendered at any
time although fees charged by the friendly society may reduce the amount repaid.
The official receiver should recover any documents relating to the plan from the
bankrupt and notify the friendly society of the bankruptcy order as soon as possible,
requesting the plan be surrendered.
33.30 Precious metals – coins and bullion
Gold, silver and platinum may be bought as an investment in the form of coins or
bars. Coins and bullion can be bought and sold through banks, coin dealers,
stockbrokers or through the bullion dealing companies that make up the London
Bullion Market Association. Current prices for precious metals are listed on the
internet. The official receiver should recover the coins or bullion from the director(s)
or bankrupt and issue a receipt. The coins or bullion would usually be stored in the
official receiver’s safe pending disposal unless safe alternative arrangements are
made. In the first instance the official receiver should instruct their local agent to sell
the coins or bullion. The world trade in gold is transacted in US dollars so the current
exchange rate between the US dollar and the pound will affect the amount realised.
33.31 Cryptocurrency
The best known cryptocurrency is Bitcoin but there are a number of others such as
Ethereum, Ripple and Litecoin. Cryptocurrencies only exist in a digital form and
individuals will hold their cryptocurrency in digital wallets. The currency is bought and
sold via a number of exchanges and brokers.
Cryptocurrency was designed as a way of storing currency and making purchases
without the involvement of a bank or other central regulator. The technology, known
as block-chain, is a financial ledger maintained by a network of computers.
It is an unregulated market and there is a risk of new cryptocurrencies being used as
investment scams or cryptocurrencies being used for money laundering.
The value in cryptocurrencies appears presently to be their scarcity and attraction to
an investment market. Like more traditional currencies or shareholdings, they have a
market value which is traded and the value of the cryptocurrency will increase, or
decrease, depending on the market at a given point in time.
The official receiver should obtain details from the bankrupt of where their digital
wallet is held and attempt to notify the provider of the winding-up order or bankruptcy
order. The cryptocurrency should be sold through a broker or exchange.
Trusts
33.32 Introduction
A trust is a way of managing assets. Property is held by one party (the legal owner)
for the benefit of another party (the beneficial or equitable owner). The legal owner
(the trustee) owes a duty of a care (a fiduciary duty) to the beneficiaries of the trust.
The creator of the trust is known as the “settlor”, if the trust is created during their
lifetime, or the “testator” if the trust is created under a will. A trust created under a will
is usually known as a “testamentary trust” and will come into existence on the death
of the testator.
The official receiver is most likely to encounter trusts in relation to freehold or
leasehold property and life policies. A trust may also be created as part of a will to
provide an income for the deceased’s children or grandchildren.
33.33 Fixed trusts (or bare trusts)
A fixed trust is one where the interests of the beneficiary or beneficiaries are
determined at the outset when the trust is set up. The trustee has little discretion and
must simply carry out the wishes of the settlor. An example of a fixed trust is a life
interest trust, where a beneficiary may have a right to all of the trust’s income or use
of the trust’s assets during the beneficiary’s lifetime. On that beneficiary’s death, the
trust property will generally be payable to named capital beneficiaries. Another
example of a fixed trust is one contingent upon the beneficiaries satisfying certain
conditions, such as reaching a certain age. Once the condition is satisfied, the
beneficiaries have an absolute right to the trust property. The simplest form of a fixed
trust is called a ‘bare trust’. The interests of any bankrupt beneficiary under a bare or
fixed trust are absolute and will vest in the official receiver as trustee in bankruptcy.
33.34 Discretionary trusts
A discretionary trust provides the trustee of the trust with the power to decide which
beneficiaries will benefit from the trust and the extent of those benefits. The
beneficiaries cannot compel the trustee to use any of the trust property for their
benefit.
Discretionary trusts are more common than fixed trusts. Most family trusts or trusts
created under wills are discretionary trusts.
The official receiver as trustee in bankruptcy can have no better rights than the
bankrupt and will only receive funds from the trust if the discretion is exercised to
make a payment to the bankrupt as a beneficiary. Any payments made to a bankrupt
whilst undischarged should be claimed by the official receiver as after-acquired
property unless they are paid solely for the “maintenance and support” of the
bankrupt and their family where the payments should be treated as income (see
paragraph 33.44).
33.35 Hybrid trusts
It is possible for a trust to contain elements of both a fixed trust and a discretionary
trust. Any interest a trustee in bankruptcy will have would be dependent upon the
terms of the trust.
33.36 Accumulation trusts
An accumulation trust is one where the trustees do not distribute the income from the
trust until a specified date, usually when the trust ends. The trustees may have
discretionary powers to use the trust’s income for the maintenance or education of
the beneficiaries before the trust terminates. An accumulation trust is likely to be a
form of hybrid trust.
33.37 Other types of trusts
A trust can be created by statute, for example, title in land can be held by up to four
joint owners on trust for themselves as joint tenants1. The court might determine a
trust exists, “constructive” and “resulting” trusts are the two main legal concepts
where the court might decide whether someone has a share in a property when the
legal title is registered in the name of someone else. For example, claims for
personal damages in an action which would otherwise be part of the bankruptcy
estate (see chapter 37) are held on constructive trust for the bankrupt by the official
receiver as trustee. A third party who has paid life assurance premiums up to the
date of the bankruptcy order may be entitled to a share of the benefits or surrender
value of the policy under a resulting trust (see paragraph 33.56).
1. Law of Property Act 1925 section 34 (2)
33.38 Protective trusts
Under a fixed trust a beneficiary may assign (transfer) their interest to another
person. The assignee would have the right to demand the beneficiary’s rights be
paid to them. Under a fixed trust the trust rights of a beneficiary pass to the trustee in
bankruptcy. A protective trust can be created to prevent a beneficiary transferring
their interest to a third party or to stop the rights passing to a trustee in bankruptcy.
Under a protective trust the beneficiary may lose the right to receive an income from
the trust upon the making of a bankruptcy order or other event. A protective trust is
described as a defeasible fixed trust (see paragraph 33.40) which becomes a
discretionary trust (see paragraph 33.34) after a defeating condition such as
bankruptcy, has occurred.
33.39 A contingent interest in a trust
A beneficiary’s interest in a trust is said to be a contingent interest if it is dependent
upon a certain event arising. For example, the beneficiary receives a quarterly
amount when they enter higher education and for the period they remain studying.
The trustee in bankruptcy would have an interest in the trust if the event triggering
the trust payments occurred before the date of discharge.
33.40 A defeasible interest in a trust
A beneficiary’s interest in a trust is said to be a defeasible interest if it comes to an
end if a specified event occurs. For example, the beneficiary would no longer receive
income from the trust if they married. In this instance the trustee in bankruptcy’s
interest in the trust, if any, would terminate if the specified event occurred.
33.41 The creation of a trust – transactions at
an undervalue or defrauding creditors
A company director or bankrupt may create a trust with the intention of putting assets
beyond the reach of a liquidator or trustee in bankruptcy. A trust that transfers the
assets of a company, the benefits of a company director or the assets of a bankrupt
to another person or person(s) for no consideration or for a consideration which is
less than the value of the assets may constitute a transaction at an undervalue1 or a
transaction defrauding creditors2. Where the official receiver suspects that the
creation of the trust constituted a transaction at an undervalue or was a transaction
defrauding creditors the advice in chapter 31 should be followed.
1. Sections 238 and 339
2. Section 423
33.42 Establishing the official receiver’s
interest
The director or bankrupt should be asked to provide the name(s) and address(es) of
the trustee(s) together with a copy of the trust deed. The official receiver should write
to the trustee(s) as soon as possible asking for the official receiver’s interest in the
trust to be noted together with a schedule of payments made to the company or
bankrupt. If the director or bankrupt has not provided a copy of the trust deed the
trustee(s) should be asked to provide a copy.
On receiving a copy of the trust deed the official receiver should check the document
to establish what, if any, interest the company or bankrupt has in the trust. The
company or bankrupt may have an interest in both the trust’s capital and the income
generated by that capital dependent upon the terms of the trust deed. In particular,
the official receiver should establish that there are no clauses in the trust deed
referring to the bankruptcy of a beneficiary or restricting the transfer of the
beneficiary’s interest.
33.43 Realising an interest in a trust
The steps the official receiver can take to realise their interest in a trust will be largely
dictated by the terms of the trust. The official receiver should try, as early as
possible, to realise all interests in which the bankrupt has an absolute right. If the
trust deed allows the official receiver might sell the interest in the trust. Where trust
assets are held for the benefit of the bankrupt and payments are made from monies
generated by those assets, for example the dividends from shares held in the trust,
the official receiver will be entitled to the payments.
33.44 Income from a trust
The trust may be the source of income provided under the terms of the trust for the
maintenance of the bankrupt and their family. Where this is an absolute interest it will
transfer to the official receiver but if the trustees have discretion over the payment or
the amount of the payment then the interest will not vest in the trustee in bankruptcy.
Any sums paid to the bankrupt above that required to meet reasonable domestic
expenses should be claimed by way of an income payments agreement or order.
See chapter 35.
33.45 A reversionary interest in a trust
A reversionary interest in a trust is created where the balance of the trust assets
revert to the creator of the trust (in reversion) or to a named person or persons when
the trust comes to an end. The company or bankrupt would have a reversionary
interest in the trust whilst it was in existence. For example, if a company created a
trust for a period of ten years after which time the trust assets revert back to the
company. A further example would be where a bankrupt’s grandfather leaves in his
will a freehold property in trust for the bankrupt’s father until such time as the father
dies after which it reverts to the bankrupt.
A reversionary interest is an asset in the insolvency and the official receiver should
immediately contact the trust trustees and inform them of the official receiver’s
interest. Where reversionary interest includes land or freehold property a restriction
could be lodged with Land Registry.
33.46 Realising a reversionary interest
The liquidator or trustee in bankruptcy may not be able to realise a reversionary
interest in a trust immediately. The liquidator or trustee in bankruptcy must wait until
the trust property has reverted to the company or bankrupt before realising the
asset(s). The reversionary interest itself may be sold.
Life assurance and other policies
33.47 Introduction
This section explains how the official receiver should administer life assurance and
other policies, including when the policy may be sold to the bankrupt or a third party,
and when it should be surrendered.
It is very important that a policy is not sold or surrendered where there is the chance
of a claim being made against it (see paragraph 31.5.)
33.48 Types of life assurance policies
Life assurance policies come in a variety of forms.
Term life policies are the most common. This type of policy covers the insured for a
specific period of time. Provided the premiums are maintained, the policy will pay out
the sum assured if the insured dies before the end of the term. Term assurance is
usually taken out to cover a mortgage debt or to provide lump sum to assist relatives
in the event of death. The policy has no surrender or cash value and the cover
simply stops at the end of the term with no payout.
Whole life policies are more expensive and will pay out when the insured dies no
matter when death occurs. Premiums are required to be paid for a set period of time
but, provided the premiums are maintained, the policy will pay out when the insured
dies. The policy generally has no surrender value but payout is guaranteed. Some
policies do have an investment element (described as “with profits”) and in those
circumstances may acquire a surrender value.
Endowment policies are investment products set up as regular savings plans which
will pay out a lump sum at the end of a specified period. The amount of the lump
sum is not guaranteed. An endowment policy includes term life cover and will pay
out a death benefit if the insured dies during the term. An endowment policy will have
a surrender value.
33.49 Life assurance policies vest in the
trustee
Where the policy has not been surrendered or otherwise disposed of, the trustee will
receive any payments due under the policy which would have been payable to the
bankrupt as the policy-holder or joint policy-holder. For example a life assurance
policy may pay to a defined beneficiary or to the estate of the deceased policy-
holder. This may include monies paid on death, disability, or terminal diagnosis. The
trustee would be entitled to receive the monies paid to the bankrupt (or their
deceased’s estate) even if they are paid after the bankrupt’s discharge1.
The official receiver should decide whether to retain an interest in the policy, which
may mean maintaining the premium payments (see paragraph 33.53), or whether to
sell or surrender the official receiver’s interest. It is very important that a policy is not
sold or surrendered where there is the chance of a claim being made against it.
1. Re Cork v Rawlins [2001] 3 WLR 300]
33.50 Protecting the official receiver’s interest
in life assurance policies
The policy documents, in all cases should be recovered from the bankrupt, unless
the policy is held as security by a secured creditor (see paragraph 33.69) The policy
document contains important information, such as the policyholder, life/ lives
assured, amount of cover (sum assured), commencement date, maturity date, type
of policy, conditions, etc. The official receiver on becoming aware of a life assurance
policy should write, using the form NTASS, to the assurance company to inform
them of the bankruptcy order and to ask them to note the official receiver’s interest, if
any. The assurance company should be asked to confirm the type of policy and the
amount of any surrender value.
The official receiver should explain to the bankrupt the policy is now vested in the
official receiver and the consequences.
33.51 Non-payment of premiums on a life
assurance policy
A policy may lapse without a surrender value if the premiums are not paid. However,
the assurance company may instead treat the policy as “paid up”. This often results
in the monies paid to the beneficiary being reduced in order to pay the outstanding
premiums. The policy would then be considered to be lapsed or dormant.
An assurance company may pay the full surrender value on a “paid up” policy once
the outstanding premiums have been paid (this is generally known a ‘reinstatement’).
33.52 Reinstatement of dormant or lapsed
policies
Where a bankrupt reinstates a lapsed or dormant policy, even where the payments
are made post-discharge, the whole benefit can be claimed by the trustee when it is
paid out as the policy vests in the trustee. The official receiver should inform the
bankrupt of the consequences of reinstating and continuing to pay the premiums of a
lapsed policy which vests in the trustee.
33.53 Official Receiver continuing to pay
premiums where claim is likely
Where a claim is likely in the foreseeable future, (see paragraph 33.59), premiums
may be paid by the bankruptcy estate. Before committing to pay the future premiums
the official receiver should be satisfied that the potential benefit for creditors is
greater than the likely cost of the premiums.
33.54 Life assurance policies held in trust
The official receiver may come across life assurance policies where the policy
benefits are held in trust for the benefit of individuals other than the bankrupt. A trust
may be created by the assurance company when the policy is commenced at the
request of the policy-holder. An existing assurance policy may have been converted
into a trust either by way of a deed of assignment or by a declaration of trust. Where
a trust has been created, the individual whose life is insured cannot be a beneficiary.
Reasons for a policy being subject to a trust include controlling the destination of the
funds paid out on the policy and ensuring the payment of the sum assured without
the need to wait for probate or (in the absence of a will) letters of administration to be
granted.
33.55 The creation of a trust
The official receiver should be satisfied that the creation of a trust was not an attempt
by the bankrupt to put assets, for example the premiums paid or the surrender value
of the policy, out of the reach of creditors. Once the official receiver is satisfied,
regarding the existence of the trust, the official receiver will have no further interest in
the assurance policy1.
1. Section 283 (3)(a)
33.56 Third party payment of life assurance
premiums
Where a third party has paid the life assurance premiums up to the date of the
bankruptcy order a “resulting trust” is created. The contribution to the premiums
entitles the third party to a proportionate share of the surrender value or any
repayment made under the terms of the policy1. A “resulting trust” is not created
where the third party intended the payments to be a gift or a loan.
1. Re Policy No 6402 of the Scottish Equitable Life Assurance Society [1902] 1 Ch 282 and Foskett v McKeown and others [1997] 3 ALL ER 392
33.57 Joint life assurance policies
The bankrupt may have a life assurance policy in joint names with another. Usually a
joint life assurance policy is held on a “joint tenancy”, meaning the policy will pay out
to a defined beneficiary or the surviving policy-holder on the death of the first life
assured. Provided the policy is not held in trust, the making of the bankruptcy severs
the joint tenancy and the bankrupt’s beneficial interest, usually 50%, vests in the
trustee in bankruptcy 1. To determine the extent of the trustee’s interest the official
receiver should obtain details of the beneficial owners together with the surrender
value, if any from the assurance company.
1. Pritchard (A Bankrupt) [2007] B.P.I.R. 1385
33.58 Joint life assurance policy – the official
receiver’s interest on the death of the
bankrupt and/or joint policy holder
Where the bankrupt’s interest in a joint life assurance policy vests in the trustee the
official receiver will have an interest in the policy proceeds should a claim be made
under the policy. The joint policy holder may be able to claim more than half the
policy proceeds if they can show they made all the premium payments. On
confirmation that the life assurance policy provides for the proceeds to be paid
directly to the bankrupt on the death of the joint policy holder any payment will vest in
the trustee in full.
33.59 Policy not to be surrendered or sold if a
claim is likely to be made under the policy
The official receiver should not consider surrendering or selling (see also paragraph
33.60) a life assurance policy to the bankrupt or other third party where a claim is
likely to be made under the policy in the foreseeable future.
In addition to paying out on death, life assurance cover may pay out on receipt of
notification of a critical or terminal illness. Critical illness is often defined as life
threatening, whilst terminal illness is defined as life limiting. What constitutes a
critical illness will be defined in the policy and usually covers a number of illnesses
as well as some accidents, involving for example, the loss of a limb. Where a
payment is made the monies should generally be paid directly to the official receiver
as trustee. In some cases the insurance payment may include monies to pay for
rehabilitation. The official receiver should carefully consider any application to keep
all, or part of the pay out before agreeing to release the monies to the bankrupt.
33.60 Selling a life assurance policy with a
surrender value
Where the bankrupt has a life assurance policy with a surrender value the official
receiver may consider selling the policy to a family member or third party rather than
surrendering the policy where the bankrupt may find it difficult to obtain another
policy and would like the policy to continue (but see paragraph 33.59). The offer to
sell may be made by way of standard letters SOPOL (solely-held policy) or JTPOL
(jointly-held policy). The usual consideration for selling the policy is the full surrender
value of the policy.
The consent of the assurance company to assign the policy will need to be obtained
by the purchaser before the sale can proceed.
33.61 Selling a life assurance policy with no
surrender value
Only where the official receiver is satisfied that there is no foreseeable prospect of
making a claim under the policy (see paragraph 33.59) should the official receiver
offer to sell, or consider a request to buy, the official receiver’s interest to the
bankrupt.
The Insolvency Service has adopted a standard fee of £50 to cover the
administrative costs of any sale. The official receiver should send form LTBPOL to
the bankrupt (copied to joint policy holders, as appropriate) which explains the
position. The letter informs the bankrupt that if the trustee’s interest is not purchased
and they continue to pay the premiums then any payment due from the life
assurance policy will be an asset in the bankruptcy proceedings.
33.62 Sale of life assurance policy and an
IPA/IPO calculation
Where the official receiver, as trustee, decides to sell the interest in a life assurance
policy to the bankrupt any future premium payments should be allowed in the
calculation for an income payment agreement or order. As a result the amount of
these should be considered at the time the decision is made to sell.
33.63 Letter to life assurance company if
interest is sold
Where the official receiver as trustee sells the interest in the life assurance policy to
the bankrupt the official receiver should write to the assurance company confirming
the official receiver no longer has an interest in the policy and any future monies due
under the terms of the policy should be paid to the beneficiary or beneficiaries. A
copy of the letter should be sent to the bankrupt.
33.64 Lost policy document
In some circumstances the bankrupt will be unable to produce the original policy
document. The official receiver should still be able to surrender the policy although
the procedure to do so with each assurance company may differ. Usually the
assurance company will issue the official receiver with a “lost policy declaration
form”. The form should be signed by the official receiver as trustee. If the policy is in
joint names the joint policy holder will be required to sign the form. The form should
be sent to the joint policy holder for signature before the official receiver signs it.
33.65 Lost policy document – indemnity
insurance
The assurance company may ask the official receiver to take out indemnity
insurance when asked to surrender a policy where the policy document has been
lost. The advice in chapter 14 should be followed. Where the surrender value is
substantial the official receiver should consider obtaining separate indemnity
insurance.
33.66 Windfall payments arising from
assurance policies
In the past assurance companies have merged with other financial institutions. Some
assurance companies have demutualised and subsequently floated their shares on
the stock exchange. In such cases financial incentives such as shares and/or cash
bonuses have been offered to existing account or policy holders. Such windfall
payments will now be very rare but should be claimed for the benefit of the
bankruptcy estate where the policy remains vested in the bankruptcy estate. (see
also paragraph 33.24).
33.67 Windfall payments and joint policies
Where a joint policy is held the bonus payment is usually made to the first named
policy holder. The official receiver should agree to an equal division of the bonus with
the other policy holder. If the other policy holder does not agree to an equal division
of the monies the official receiver may consider making an application for a private
examination and seeking an order requiring payment of the monies to the trustee1.
1. Section 366
33.68 Endowment policies and house
purchases
Towards the end of the last century it was common for houses to be bought with an
interest only mortgage together with an endowment policy for the same period. The
policy would often then be charged to the lender. When the endowment policy
matured the proceeds would be used to pay off the balance outstanding on the
mortgage.
It is anticipated that the policy would also provide a surplus to the policy holders after
the mortgage had been repaid. This method of buying a house has become less
popular as with less favorable market conditions in more recent times the proceeds
from maturing policies have not been sufficient to cover outstanding mortgages.
Many lenders also no longer hold the endowment policies as security for the
outstanding debt. The official receiver may still encounter policies held as security.
33.69 Checking whether the endowment
policy is subject to a charge
The official receiver should check whether the endowment policy has been formally
charged to determine whether it is a free asset for the benefit of the estate. A formal
deed of assignment should be drawn up by the mortgagee who will also hold the
original policy document for safekeeping. Where the mortgagee does not have a
formal assignment of the endowment policy they may still have an equitable charge
on the policy. An equitable charge will have been created if the original mortgage
loan agreement contained a requirement that an endowment policy would be
purchased to support the loan.
33.70 Selling an unsecured endowment policy
Where a “with profits” endowment policy has a surrender value of £1,500 or more the
official receiver, as trustee, should consider selling it rather than surrendering it. The
official receiver may sell a “with profits” endowment by auction or to “market makers”.
A market maker is a company, a firm, or individual which buys endowment policies
and sells them to other investors. More information on the sale of policies can be
found on
The Association of Policy Market Makers website. Where the endowment
policy is in joint names the written agreement of the other beneficiary should be
obtained before the policy is offered for sale. The official receiver should follow the
important guidance in paragraph 33.59 before selling.
33.71 Other insurance policies
A bankrupt may have other types of insurance, for example income protection,
payment protection and ill health insurance. Where the policy is in the name of the
bankrupt or held jointly with another person, it is a vesting asset and comprises part
of the bankrupt’s estate. The official receiver should write to the insurance company
asking for the official receiver’s interest to be noted. If the bankrupt’s circumstances
change and the insurance policy pays out then the funds can be claimed by the
trustee for the benefit of the estate, even where the payments are being made
monthly, for example from an income protection policy.
The bankrupt should be made aware that if policy pays out, the benefit will be
claimed by the trustee. Where the policy has no surrender value and the insurance
company would allow the official receiver’s interest to be reassigned to the bankrupt
or third party such as, a family member, the official receiver may consider selling it
for the standard £50 fee. The official receiver should follow the important guidance in
paragraph 33.59 before selling.
Shares and other traded investments
(including employee share schemes)
33.72 What is a share?
A share is an entitlement to the profits of a company. Some shares offer the holder
the right to participate in the management of the company through voting at
meetings of the company’s members. Shareholding is also a vital source of long
term funding for companies. The amount a holder will receive will depend upon the
success of the company and the nature of their holding.
33.73 Share certificates
Shares in a private limited company or an unquoted public limited company will
normally be held by way of a share certificate. The certificate will normally state the
name of the company, the name of the shareholder, the number of shares held and
the type/class of share along with the nominal/ face value of the shares. It is possible
to hold share certificates for publicly quoted companies although shares held this
way are usually more expensive to trade.
33.74 Electronic and nominee holdings
Shares can also be held electronically (via a brokerage service, nominee service, or
via Crest (see paragraph 33.77). Most high street banks now offer a
nominee/brokerage service where they will be registered as the holders of the
shares while the investor retains the beneficial interest in the holding (i.e. any
dividends due and the sale proceeds when the shares are sold will be payable to the
investor). One potential limitation with this type of service is that it may not be
possible for the investor to receive all of the associated benefits, e.g. the ability to
vote at shareholder meetings, or receive discounts available to shareholders.
33.75 Initial action where insolvent holds
shares
Where an insolvent claims to own shares, the official receiver should verify that the
company or bankrupt is the registered owner of the shares. Although it is useful to
have sight of any share certificates, checks should also be made through Companies
House and by writing to the company secretary or share registrars acting for the
company. Under no circumstances should a sale be commenced without ensuring
that the insolvent is the registered owner of the shares and, ideally, with the share
certificates in the possession of the official receiver. Where a bankrupt holds shares
in their name but a claim is made that the shares are held beneficially for another it
will be for the bankrupt or the other party to provide evidence regarding ownership of
the shares.
Where the shares are held by a broker or through a nominee service (see paragraph
33.74) the broker/ nominee should be informed of the making of the insolvency order
and the consequences of the insolvency and asked to note the official receiver’s
interest. Enquiries should be made of the broker’s/ nominee’s charges for dealing
with the shares.
33.76 Lost share certificates
If a share certificate has been lost, an indemnity may be required before the shares
are sold. Before giving such an indemnity the official receiver should take steps to
purchase indemnity insurance cover only if the actual value of the shares held is
£10,000 or more. The shares should only be realised if the official receiver is able to
obtain cover at a premium which results in a net benefit to the estate of the
realisation. For lost share certificates, the amount of the indemnity is the current
value of the shares. Insurers will base the premium on this amount but do recognise
that share prices may go up or down. Some stockbrokers offer a service where they
obtain the indemnity cover on behalf of the official receiver.
33.77 Crest
Crest is the Stock Exchange’s paperless settlement system. Under Crest,
shareholdings are recorded electronically, avoiding the need for paper share
certificates, although shareholders can choose to keep their share certificates if they
so wish. Shareholders have the option of either holding their shares in nominee
names with their brokers or remaining as a registered shareholder as a sponsored
member of Crest. If an insolvent has been dealing under Crest and has no share
certificates, checks should be made with their broker who will have a record of the
holding whether the insolvent had nominee holdings, or was a sponsored member.
The broker should be contacted promptly to prevent any unauthorised dealing in the
shares taking place after the date of the insolvency order.
33.78 Stock exchange
A stock exchange has two main functions, firstly to enable companies to raise new
capital through the issue of new shares (known as the primary market) and secondly
to enable the efficient trading of those shares (known as the secondary market). The
market is made up of market makers who are traders who buy and sell (bid and
offer) securities, therefore making a market for them. Throughout the trading day, the
market makers are obliged to display to the market, for all stocks in which they are
registered, their bid (buying) and offer (selling) prices and the maximum bargain
(transaction) size to which these prices relate. These prices are fixed to other
Exchange member firms. Market makers compete to have the best quote and make
their income by buying and selling at a profit. Market makers’ bids and quotes are
carried on the Stock Exchange Automated Quotations (SEAQ) system which is a
continuously updated computer database containing price quotations and trade
reports in UK companies. Any broker employed by the official receiver will deal with
the market makers. For a company to be listed (or quoted) on a stock exchange the
company must meet the requirements of that particular stock exchange. The
principal trading market for trading shares in the UK is the London Stock Exchange.
Valuing shares in quoted companies
33.79 General
The valuing of shares in a quoted company is the same in principle as valuing the
shares in a unquoted company (see paragraph 33.82). In practice the availability of
an efficient market (i.e. a stock exchange) with regular trades means that more
reliance can be placed upon the market price of the shares and the valuation models
serve more as a tool for confirming them values. It is for anyone wishing to sell the
shares to decide whether they wish to accept the market price.
33.80 Selling shares in quoted companies
If the official receiver is intending to sell shares then a stockbroker should be
instructed. It is important that the official receiver considers the brokers fees in
carrying out the transaction before deciding whether to instruct the agent. Individual
trades of shares are limited to shares in the same company and with the same
shareholder. This means that if there are a number of shares in the same company
with different insolvents holding the shares then each of the holdings needs to be
dealt with in a separate transaction.
Where the shares are already held by brokers, in a nominee account, or where it is
obvious that a share registrar has been involved in previous dealings enquiries
should be made as to the cost of them continuing to act and to realise the holding.
When considering whether to use the services of an alternative broker consideration
should be given to the costs of transferring the shares as a transfer fee will normally
be charged.
33.81 Selling shares on the stock exchange
The official receiver should sell any publicly quoted shares provided that the sale of
those shares achieves a benefit to the estate. Up-to-date share prices can be found
on the
London Stock Exchange website. It is important that the official receiver
considers the value of the shares as well as the brokerage fees before conducting a
sale. A broker should not be instructed to carry out the sale unless it is absolutely
clear that there will be a benefit to the estate after considering the brokers fees and
charges
Under the London Stock Exchange system sales and purchases of shares need to
be completed within 3 days of the transaction date, this is often referred to as “T + 3”.
Due to this tight deadline it is imperative that the broker instructed to conduct the
sale has the appropriate documentation and information to complete the transaction
within this deadline.
Valuing Shares in unquoted companies
33.82 General
Where companies are unquoted there is no readily available market to indicate the
value of shares and it can therefore be difficult to place a value on them. There are a
number of different models or calculations that can be used to calculate the value of
the shares.
As a guideline minimum amount the net asset value of the company (i.e. the net
value of the company’s assets) may be used. This figure is useful as a guide but this
model has serious limitations as it fails to account for the earning potential of the
underlying assets of the company. Another potential pitfall is that the fixed asset
values quoted in the company’s balance sheet will usually be out of date.
33.83 Considerations when valuing unquoted
shares
When the official receiver sells shares in unquoted public companies or private
limited companies, care should be taken to ensure that a proper price is obtained for
them. Valuing such shares is notoriously difficult. The first offer to buy shares should
not be accepted without the official receiver first confirming that the offer made
represents a fair value for the shares. It is unlikely that any two valuations would
provide the same value. When considering an offer to purchase shares, the official
receiver should take the following into consideration:
• what the current balance sheet shows the value of the company as a whole to be,
and what the current balance is on the company’s last profit and loss account
• what percentage of the total shares the insolvent’s holding represents. The larger the
percentage of the total shares held, the great the control the shareholder has over
the company and the greater the relative value of the shares
• whether any shares have recently been sold, and for what price
• what the dividend history of the company is. The value of shares may be affected on
the basis of the expected dividends attached
• whether the shares are fully or partly paid up. Shares that are only partly paid up
carry a potential liability which should be included in calculation of their value
• whether any restrictions have been placed on the transfer of shares in the company
(see also paragraph 31.87)
• any other factors applicable to the company itself such as future trading prospects
33.84 Considering an offer to buy shares in an
unquoted company
Where there is any doubt as to whether an offer made to purchase shares in an
unlisted company is a fair one, the official receiver should not hesitate to obtain a
valuation from an accountant or other competent valuer. In applicable cases they
may also become involved in the negotiation of the sale price. Great care should be
taken when relying on information supplied by the company in which the shares are
held or by any company or person closely associated to it. Costs incurred in
obtaining professional assistance as sales or valuations should be paid from the
insolvent’s estate in the usual way.
33.85 Restrictions on transfer
Restrictions on the right of a member to transfer shares do not apply to a personal
representative or trustee in bankruptcy of a deceased or bankrupt member who
seeks to be registered as the holder of the shares which have vested by operation of
law1 unless the articles expressly apply restrictions on transfers to such cases as
well.
1. Bentham Mills Spinning Co (1879) 11 ChD 900
33.86 Refusal to register transfers
The company’s articles may give directors the power to refuse to register a transfer
of shares. The Companies (Model Articles) Regulations 2008 (if adopted) give
directors that power. The directors must exercise their power to refuse to register a
transfer of shares, in good faith and for the benefit of the company. There is
extensive historical case law where the court has ordered that transfers be
registered where the directors acted inappropriately in refusing to register such
transfers. It is unlikely that directors would refuse to register transfers.
33.87 Other members’ rights of pre-emption
over shares
The other common restriction on the transfer of shares found in the articles is a
provision that a member of the company who wishes to transfer shares to a
transferee who is not already a member, shall first offer them to the other members
of the company at a price ascertained in accordance with a formula set out in the
articles, or at a fair price at which the shares are valued by the directors or by the
company’s auditors, and that the member may transfer the shares to the proposed
transferee only if other members do not exercise their right of pre-emption. Before
commencing a sale it would be prudent to check that the company’s articles do not
contain such a provision. No such provision is contained in The Companies (Model
Articles) Regulations 2008.
The shares would be transferred to the purchaser by a ‘proper instrument of
transfer’1, the forms for such a transfer being contained in the Stock Transfer Act
1963.
1. Companies Act 2006 section 770(1)
Shares with little or no realisable value
receipt of dividends
33.88 General
In cases where the cost of the sale of the shares would be greater than the
realisable value of the shares, while the case remains open and where the official
receiver, as liquidator or trustee should receive any dividends payable as a result of
holding the shares and pay the amounts received into the insolvency estate.
33.89 Disclaiming shares with little or no
realisable value
If it is not possible for the official receiver to dispose of the shares in any other way,
the official receiver should disclaim the shares. Low value shareholdings should not
be kept on the long term long term asset realisation register. A copy of the disclaimer
should be sent to the company secretary or share registrar1. Further details
concerning the disclaimer of shares is contained in chapter 42.
1. Rule 19.3
Employee share schemes
33.90 General
There are a number of share schemes operated by employers that can provide
financial benefits with tax incentives for their employees.
Types of tax approved share scheme are-
• Save as You Earn (SAYE)
• Share Incentive Plans (SIPs)
• Company Share Option Plans (CSOPs)
• Enterprise Management Initiatives (EMIs)
Where an employee share scheme does not have HMRC approval it will not attract
the tax advantages associated with the above scheme types. Any shares already
accumulated by the bankrupt at the date of the bankruptcy order will form part of the
estate and will vest in the trustee. It should be noted that Income Tax and National
Insurance may be payable if acquired shares are sold before the deadline set in the
scheme’s terms.
Further details of the types of tax approved employee share schemes is available on
GOV.UK.
33.91 Realisations from employee share
schemes
The official receiver should obtain details of the scheme and ask the scheme
administrator to note the official receiver’s interest. The official receiver should use
the information gathered to choose the course of action which will lead to the best
return for creditors.
Disposing of shares – official receiver to
inform creditors
33.92 General
In all circumstances creditors should be informed of how shares have been disposed
of whether they have been sold or disclaimed. Creditors may be given this
information in the official receiver’s report to creditors or notice of intention to apply
for release as appropriate. Derivatives, Warrants, Options Futures and Commodities
33.93 Derivatives
A derivative is a financial instrument that is used for the purposes of ‘hedging’, It is
referred to as a derivative as its value is ‘derived’ from the security to which it relates.
These instruments allow parties to ‘hedge’ by transferring risk, at a cost, to one
another. The market dealing of derivatives is a specialist field and membership of the
particular market is required to be a trader on those markets. The principle market
for derivatives in the UK is the NYSE LIFFE London. Common types of derivative are
referred to below.
33.94 Employment of a broker to deal with
derivatives
Where the official receiver encounters an insolvent who holds derivatives (e.g.
futures, warrants, or options) then a broker should be employed to assist in the
realisation of these items. This paragraph does not apply to the options granted
under a Save As You Earn (SAYE) scheme or similar (see paragraph 33.88).
33.95 Warrants
A warrant is issued by a company and gives the holder the right to buy shares at a
particular time in the future at a price set in the present - the exercise price. In the
meantime they can be traded on the stock market. The aim is for the exercise price
to be cheaper than the future price or projected market value. You can then sell the
warrant for a windfall profit. But if the shares of the company never reach the
exercise price, then the warrants are worth nothing. The warrant’s value rises when
the share price rises.
33.96 Options
An option works in a similar way but is bought from a market-maker - a professional
buyer and seller of shares - rather than the company. The two types of option are the
put option (which is an option to sell) and a call option (which is an option to buy).
Options work by giving the purchaser the right (but not obligation) to buy or sell
shares at a set price (referred to as the strike price) subject to certain time
constraints. Traditional options last for three months and you can either buy or sell
the shares, or let the option lapse. There are also traded options which can be
bought and sold in their own right.
33.97 Futures
A futures contract is a contract for a transaction to occur at predetermined future
date and price. One example would be where a farmer who has yet to grow a crop
may be concerned that the price he is set to receive would be less than the current
market price of the crop which he is planning to grow. To protect against this he can
enter a futures contract to set a price now so that he knows what he shall receive in
the future.
33.98 Commodities
A commodity is another name for any marketable resource, be it gold, steel, cotton,
coffee or wheat. While commodities can be traded in their own right there exists a
substantial derivatives market in these items London’s main commodity markets
divide between metals and soft (foodstuff) commodities.
33.99 Realising financial derivatives and
commodities
The markets dealing in financial derivatives and commodities are specialised and
membership of the various markets is required to be a trader on those markets. If the
official receiver is dealing with an insolvent who had options, futures or commodities
as investments then a broker should be employed to assist in the realisation of these
items. Where the insolvent was a member of a recognised investment exchange the
specialised insolvency procedures contained in Part VII of the Companies Act 1989
apply. Other dealings on the Stock Exchange
33.100 General
The following are also traded on the Stock Exchange:-
• Eurobonds - long term loans issued in a currency other than that of the country of
issue. The Eurobond market is dominated by large international institutions, and it is
difficult to sell them in bargains worth less than £100,000. It is therefore unlikely that
the Official Receiver would deal with the realisation of Eurobonds
• depositary receipts - negotiable certificates representing a company’s shares. Often
used by companies from developing countries. These are marketed internationally to
sophisticated investors, mainly financial institutions
• overseas equities - ordinary shares issued by non UK companies. Securities are
eligible for trading if they are listed on any stock exchange recognised by the London
Stock Exchange. Share prices are usually quoted in the home currency of each
country and transactions are settled through the local settlement system
• UK Gilts - the Stock Exchange offers a secondary or trading market which allows
investors to buy and sell gilts (see also paragraph 33.26)
• bonds or fixed interest stocks - usually issued by companies or local authorities. The
market for fixed interest securities is based on a competing market maker system.
Market makers register with the Exchange in specific securities and are obliged to
offer to buy and sell up to a marketable quantity of stock at a firm price to other
member firms, but are not obliged to buy or sell to other market makers
Other monetary assets
33.101 Tax refunds: Crown right of set-off
It is “fundamental constitutional doctrine that the Crown in the UK is one and
indivisible”1. The Crown therefore has a general right of set off in respect of all claims
due to or from any government department2. 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.
1. Town Investments v Department of the Environment [1978] AC 359
2. Rule 14.25 and Section 323 and Secretary of State for Trade and Industry v Frid [2004] 2 AC 506
33.102 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. Where the
official receiver believes, either from the directors or another source, that a company
may be due a refund the official receiver 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 the official receiver’s interest in any
refund to be noted.
33.103 Income tax
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.
All bankrupts are requested to complete and sign the TNIDIS form which authorises
the payment to the official receiver (or other trustee) of any income tax refunds
payable for any year up to and including the tax year in which the bankruptcy order
was made to the bankrupt’s estate. HMRC will automatically offer the refund to the
official receiver or other trustee appointed. The official receiver must respond to the
offer and forward a copy of the TNIDIS in order to claim the refund. The letter
claiming the refund should be sent by post but the signed disclosure form (in Word or
pdf format) should be sent separately to the HMRC
email account.
33.104 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.
33.105 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. 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.
33.106 VAT and 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. Where the company or bankrupt is to
be deregistered the official receiver will be asked to submit a final VAT return. If a
company or bankrupt is due a VAT refund the official receiver should agree the
amount with HM Revenue and Customs.
33.107 Share fisherman: tax budgeting scheme
A share fisherman is self-employed and receives a percentage of the catch as
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 the individual’s name (their fishing
account) at Barclays Bank plc, PO Box 13, Lemon Street, Truro, Cornwall, TR1 2YY
to be used to meet tax liabilities and to pay Class 4 national insurance contributions.
HMRC and the Insolvency Service have an arrangement whereby the balance in a
fishing 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 On the
closure of the account it is likely that another account would be opened for the
bankrupt to allow continued participation in the scheme.
33.108 Surplus from fixed and floating charges
Where a receiver or insolvency practitioner has been appointed under the terms of a
fixed and floating charge the official receiver should write to the appointed person
asking that the official receiver’s interest in any surplus arising following the sale of
the charged assets be noted.
33.109 Recovering dispositions of property
after the presentation of a winding-up or
bankruptcy petition
Where after a winding-up or bankruptcy petition has been presented the company or
individual makes a disposition of its property without the consent of the court the
official receiver may make an application to set aside the payment or transfer of
assets. For further guidance see chapter 32.
33.110 Monies or proceeds held by an
enforcement agent
Monies held by the county court bailiff or authorised enforcement agents following
the seizure of goods may be recoverable by the liquidator or trustee. For further
details refer to chapter 12.
33.111 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 they may claim a lien on the
monies (see chapter 12 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
and ask for the monies to be sent to the official receiver.
33.112 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 advice as an application to the court for directions may be necessary.
33.113 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”1.
1. Trustee of the property of F.C. Jones and Sons (a firm) v Jones (1996) 3 WLR 703
33.114 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
court1. 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.
1. W A Sherratt Ltd v John Bromley (Church Stretton) Ltd (1985) 1 AELR 216
33.115 Bills of exchange
Essentially a bill of exchange is a document which ensures that one person pays
another person a fixed sum of money on a specified date1. A cheque is a 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”.
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 vertically across it. When
accepting the bill of exchange the debtor may indicate that the bill be presented for
payment at their bank.
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).
1. For full definition see Bills of Exchange Act 1882, section 3
33.116 Proof of debt
A bill of exchange may be submitted by a creditor in insolvency proceedings to
support a proof of debt.
33.117 Promissory notes
A promissory note is a formal “I.O.U.”1 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.
1. For full definition see Bills of Exchange Act 1882, section 83