August 1997
31.6.59 General policy (amended November 2007)
Plant and machinery are tangible fixed assets, used by a business for the purpose of providing a service to that business. If plant and machinery is of high value it is likely to be subject to hire/lease purchase agreements, or be caught under the terms of a fixed and or floating charge.
The official receiver's usual agents should be able to sell plant and machinery, or to suggest alternative agents should they not undertake that type of business. Dealings with agents other than the official receiver's usual agents is covered in more detail in Chapter 32.1. As removal costs of such large items are likely to be high, if may be more cost effective for the sale to take place in situ.
Depending on the amount and nature of the work required to produce a realisable amount for creditors, it may be appropriate to seek the appointment of an insolvency practitioner to act as liquidator or trustee. Where the appointment of an insolvency practitioner other than the official receiver is likely , the official receiver's role will usually be confined to the protection of the plant pending the appointment of an insolvency practitioner (see paragraph 17.3 of Chapter 17 – Appointment of Liquidators and Trustees - for guidance on circumstances where the appointment of a liquidator or trustee other than the official receiver may be appropriate).
31.6.60 Unroadworthy vehicles
Under the provisions of the Road Traffic Act 1988, it is an offence to sell a motor vehicle which is in an unroadworthy condition (see also Chapter 31.2, but it should be noted that this chapter predates the introduction of the Road Traffic Act 1988).The Act also applies to trailers, all mechanically propelled vehicles intended or adapted for use on roads, and all vehicles drawn by motor vehicles It is therefore possible that items of plant such as tractors and JCB's will be subject to the Road Traffic Act, and this should be taken into consideration when they are sold. In such circumstances, the procedure detailed in Chapter 31.2 relating to the sale of motor vehicles should be followed.
Notes:[ S75 Road Traffic Act 1988.]
31.6.61 Goods vehicles -Road Traffic Act 1988.
Section 54 of the Road Traffic Act 1988 provides there are regulations covering the design, constructions, equipment and marking of goods vehicles known as type approval requirements. Manufacturers of goods vehicles must apply to the Secretary of State for type approval certificate stating that the vehicle complies with the relevant type approval requirements. The manufacturer may then issue a manufacturer's certificate in relation to each goods vehicle produced by him which conforms to the type approval certificate requirements.
It is an offence to sell a goods vehicle to which these regulations apply without a manufacturer's or Minister's approval certificate.
Notes:[S65 Road Traffic Act 1988] Goods vehicles
It is possible that items of plant and machinery used by a bankrupt could be considered to be exempt property. To avoid unnecessary duplication the following should be read in conjunction with Chapter 8, Part 8.
There are two areas to consider:-
Whether the property is exempt, and
if it is exempt property, is it of excess value.
Although exempt property may be identified by the official receiver whilst he is receiver and manager, only the trustee may claim exempt property of excess value.
Notes:[S308]
31.6.63 Identifying exempt property
The first step is to identify any property which could be considered to be excluded from the bankrupt's estate under the provisions of Section 283(2).The section lists tools, books, vehicles and other items of equipment as are necessary to the bankrupt for use personally by him in his employment, business or vocation. Any such items are likely to be detailed at Q2.1 of the bankruptcy preliminary information questionnaire Form B40.01, under "Machinery , plant and equipment" or "Motor vehicles". However, the questionnaire does not ask specifically which items are necessary to the bankrupt for use personally by him in his employment, business or vocation, so this will have to be ascertained by additional questioning at the first interview, or by taking a statement at a later date.
Stock, work in progress and trading premises are not considered to be exempt property.
Technical Section has received legal advice that fixtures and fittings such as a baker's oven could be considered to be exempt property, although arguments could be raised to support a contrary view.
The concept of exempt property and the trustee's ability to claim exempt property of excess value should be explained to the bankrupt.
31.6.64 Valuation
Section 308 permits a trustee to claim certain property which would normally not be included in the bankrupt's estate by virtue of section 283(2), if that property can reasonably replaced producing a surplus for the estate.
Property is a reasonable replacement for other property if it is reasonably adequate for meeting the needs met by the other property.
The bankrupt will have provided a valuation of the assets in the questionnaire. The examiner should obtain a telephone valuation from the official receiver's agents to act as a rough guide; the agents should also be asked to provide an estimate of their charges for selling such an item. Where due to the nature of the assets ( for example it may be difficult to describe highly specialised equipment or assess its condition ) consideration should be given to incurring the cost of an agent's formal valuation. The realisation must be likely to result in a net gain to the estate, after payment of agent's costs, insurances, and possibly the costs of providing a replacement. If the assets are of no value, no further action should be taken even if the bankrupt is no longer trading. However, real action must be taken in respect of motor vehicles. In no circumstances should they be disclaimed and abandoned (see Chapter 31.2, part 4 and paragraph 31.6.67)
If a gain is likely, assets should be insured pending the appointment of a trustee (see Chapter 49 - Insurance)
Notes:[308(4)]Revised November 2005
31.6.65 Trading - employment, business or vocation
The bankrupt will have provided details of any trading activity in the questionnaire at Qs 21.5 to 21.12. Employment details are provided in Qs 21.1 to 21.4. If the bankrupt's business has ceased trading it should be ascertained whether it has permanently ceased (because of serious illness or injury for example) or if the bankrupt is simply without work at present. If trading has ceased permanently, and the bankrupt does not intend to seek work in the same field, the assets which could have been considered exempt property, will not be necessary to the bankrupt and should be realised. The bankrupt may be in employment, but have to provide his own tools or equipment. In such circumstances, the assets should not be claimed unless a replacement is provided. If the bankrupt is unemployed and unlikely to gain future employment, the assets which could have been considered to be exempt property will not be necessary to the bankrupt in his employment and should be realised by the trustee.
31.6.66 Viable business
If the bankrupt intends to continue trading or wishes to re-commence trading it should be established that the business is viable. As much information as possible should be collected and considered, the following being areas for consideration:
Was the business profitable and are the accounts available. Any unsupported assertions that trading was profitable should not be relied upon. Forecasts should be provided if the business is to resume trading.
How many in terms of numbers, and in monetary terms of the bankrupt's creditors relate to the business. Assessed Crown debts should be included, as failure to deal with accounting obligations to the Crown shows a lack of business expertise.
Are the bankrupt's trading premises still available for use - premises could be sold or repossessed or the lease disclaimed. Landlords owed rent may not allow continued occupation of rented premises.
Any stock or work in progress, unless of little or no value, will be realised by the trustee.
Employees may have found alternative employment, or be unwilling to resume work if they are owed wages. Assets used only by employees are not considered to be exempt property (see Chapter 8, paragraph 8.77 )
The bankrupt's reputation may have been damaged by the bankruptcy so that even suppliers and customers who have not suffered loss due to the bankruptcy may be wary about dealing with the bankrupt.
The bankrupt's prospects of obtaining other employment. In arriving at any decision concerning the removal of exempt property from the bankrupt which could effectively deprive him of his livelihood, the benefit to the estate of its realisation should be compared to the long term costs to the State by the provision of benefits. The decision whether the bankrupt's business is viable should be arrived at by consultation between the examiner and the official receiver, and a note of the meeting should be placed on the file. Once the decision has been made to class property as exempt, it cannot be reversed so situations where a business trades for 3 weeks then closes should be avoided. As it is possible for the bankrupt to challenge the decision in court (see paragraph 31.6.68 below), the decision should not be taken lightly, each case should be considered on its merits. The bankrupt should be made aware that the official receiver is not condoning his continued trading, or providing any form of official approval for the business. The official receiver's role is purely to consider the viability of the business, not to lend an air of respectability to the bankrupt's business.
31.6.67 Realisation
If the assets are to be realised, the bankrupt should be given notice in writing of the decision. The letter should state on what basis the assets are being claimed, i.e whether they are not considered to be exempt property, or they are considered to be exempt property of excess value. f a replacement is to be purchased, this should be included in the letter.
Where the property being claimed is exempt property of excess value, notice should be given in writing. The property to which the notice relates vests in the trustee when the bankrupt receives the notice, and except against a purchaser in good faith, for value and without notice of the bankruptcy, the trustee's title to that property has relation back to the commencement of the bankruptcy.Except with leave of the court, notice under Section 308 must be served on the bankrupt within 42 days, beginning with the day on which the property first came to the knowledge of the trustee. Where the official receiver becomes trustee, he is deemed to have become aware of the property when he becomes trustee, even though he will have known about the property when he was receiver and manager.
If a bankrupt is to continue trading he should be informed that he must, not less often than 6 monthly furnish to the trustee information with respect to his business, showing the total of goods bought and sold, or services supplied, and the profit and loss arising from the business.
Notes:[S308(1)][S308(2)][S309(1)][S309(2)][R6.200(5)][Form ASTCAA]
31.6.68 Challenge by bankrupt
The bankrupt should be made aware that he may challenge the official receiver's decision by making application to the court under section 303.The section provides that if a bankrupt or any of his creditors or any other person is dissatisfied by any act, omission or decision of a trustee of the bankrupt's estate, he may apply to the court; and on such application the court may confirm, reverse or modify any act or decision of the trustee, may give him directions or may make such other order as it thinks fit. On one occasion a county court reversed the trustee's decision to replace the Rolls Royce of a hire car driver who worked in the luxury end of the market with a vehicle of lesser value and restored exempt property of excess value to the bankrupt.
31.6.69 Information to creditors.
If a decision that a bankrupt is to be allowed to retain exempt property of excess value has been made before the issue of the report to creditors, the information about exempt property should be included in the report. Similarly all other assets which have been judged to be exempt property should be identified in the report to creditors. All other enquiries from creditors about exempt property matters should be dealt with as they arise.
Notes:[S303]
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