Distributions
August 2008
Part I –Bankruptcy And Company Cases
(Information given in this part should be read in conjunction with Technical Manual Chapter 36 and LOLA Desk Instructions)
Introduction
On 1 April 2004, The Insolvency Service's new financial regime came into force which introduced a new, simpler fee structure. One of the principles of the new financial regime is that creditors will pay for the costs of the official receiver's administration via a single administration fee but this does not include the function of distributing funds to creditors as that is a trustee/liquidator function not covered by the official receiver’s administration fee.
i What is covered by the administration fee?
Under the new financial regime, there is a flat, fixed rate administration fee for bankruptcy (Fee B1 currently £1715) and compulsory company cases (Fee W1 currently £2160) charged on the making of the bankruptcy order and winding-up order respectively. This fee now covers the stationery and other fees that were previously charged separately, as well as disbursements such as Gazettes, travel and subsistence and advertising costs. The definition of the fee has been extended to also include the duty of the official receiver to investigate and report upon the affairs of bankrupts/companies in liquidation but investigation and enforcement costs will continue to be met centrally. Disbursements incurred during the realisation of assets, for example insurance premiums and agent’s costs, are not included and should be charged to the relevant estate as before.
ii How does the new financial regime affect distributions?
The administration fee does not include the function of distributing funds to creditors. The new financial regime, however, provides that the official receiver may charge general remuneration based on a time and rate basis, as set out in The Insolvency Regulations 1994 (as amended) for the activity of distributing funds to creditors. This is applicable to all distributions made on or after 1 April 2004 whether the insolvency order was made pre or post 1 April 2004 but does not include the time spent on returning the petition deposit or payment of the petitioning creditor's costs for which no separate charge is made. See paragraph xii below for further information regarding official receiver's remuneration when distributing funds to creditors.
Previously the official receiver charged a distribution fee (i.e. a percentage of funds distributed) as set out in The Insolvency Regulations 1994 (as amended). The Insolvency Proceedings (Fees) Order 2004 (as amended) revokes the distribution fee for all cases although this fee, validly charged pre 1 April 2004, should be retained and not rebated, for example.
Before commencing any distribution from the estate, a check must be made to ensure that there are no matters outstanding and that all fees have been charged correctly to ensure that the resultant balance is accurate.(See Case Help Manual part : Closing a Case). Refer to BI however, where an interim dividend is to be paid.
There is a standard block of activity which is performed in relation to all dividends, regardless of the number of creditors, which includes:
If there is a credit balance remaining on the estate after all fees and expenses of the official receiver have been charged, the monies must be distributed in the proper order of priority according to the Act and Rules.
Insolvency Rules 4.218 and 6.224 specify the priorities regarding expenses and should be referred to as useful checklists on the types of expenses to be paid before there is a distribution to creditors.
As a general guide, payments made are only :
However, the above order of priority may change and may be more complex if there has been a prior receivership, voluntary liquidation or bankruptcy.
For example, in company cases under the Insolvency Act 1986, any voluntary liquidator’s remuneration is payable prior to other distributions, whereas any debenture holder’s debt and expenses (floating charge) are payable in priority to non-preferential claims,(subject to the ring-fencing provisions in cases where the charge was created after 15 September 2003 - see paragraph xxii)
Similarly, under the Insolvency Act 1986 provisions, where a second/subsequent bankruptcy order is made against an undischarged bankrupt any undistributed funds in the earlier bankruptcy in respect of after-acquired property or money paid under an income payments order/income payments agreement will form part of the estate in the later bankruptcy, subject to the payment of any expenses incurred by the first trustee in dealing with those assets. It should be noted that where a bankruptcy order is made on a petition by a supervisor of an IVA, any unpaid expenses properly incurred as expenses of the administration will be a first charge on the bankrupt’s estate.
Further detailed guidance on the order of priority of payments can be found in Technical Manual Chapter 36 part 5.
v What if there are not sufficient funds to repay the amounts in full?
Unless otherwise provided for, payment can only be made up to the limit of funds available on the estate. If there are insufficient funds to repay the full amount then payment can be made towards the sum outstanding and is referred to as a 'payment on account'. In saying this, official receivers will always pay for the services they are provided with, even if that means creating or increasing a debit balance.
vi Return of deposit
Before a bankruptcy or winding-up petition can be filed the appropriate deposit must be paid to the court (except for frequent petitioner accounts – see Notes d). This deposit is security for the payment of the relevant fees.
In a creditor’s petition case where an order is made, any deposit paid must be returned to the person who paid it, to the extent that the insolvent’s assets are sufficient to repay or part-repay that fee. If there are only sufficient funds to make a part-repayment, the deposit must not be refunded in full but only in part. However, there are different rules that apply to the return of deposits on petitions presented before 1 April 1995 (the order of priority is explained in Notes f and also in Technical Manual Chapter 36 paragraphs 36.57-58) Special considerations may apply where the bankruptcy order is subsequently annulled.
vii What are the petition costs?
The petition costs are made up of a petition deposit towards the costs of administration of the bankruptcy/insolvency, a court fee and any costs incurred by instructing a solicitor.
The court usually includes in the insolvency order reference to the payment of the petition costs. However, this does not need to be covered in the order, there being a general entitlement to these costs as set out in the Rules (4.218 and 6.224).
If a distribution is to be made then a bill of costs or costs certificate must be obtained. A formal bill of costs is not always required as payment can made upon receipt of a letter from the petitioning (or supporting or opposing) creditor’s solicitor giving a breakdown of their costs if that provides sufficient detail and is otherwise satisfactory (see paragraph viii).
The bill of costs is prepared by the petitioning (or supporting) creditor’s solicitors. They are allowed by the Civil Procedure Rules to claim for work done and certain out of pocket expenses in connection with the pursuit of the petition seeking the insolvency order.
Solicitors should be asked to submit their bill of costs net of VAT if their client, the petitioning (or supporting ) creditor, is registered for VAT. The solicitors should recover any VAT element from their client who being registered for VAT will be able to recover it from HMRC.
viii Assessment of petition costs
As a general guide, a bill of petition costs up to £1500 in bankruptcies and £2000 in companies may be approved by the assistant official receiver. Where bills are received in excess of these amounts, the official receiver may consider requesting that the bill of costs is be referred to the court for detailed assessment (form CDETAS). However, where, for example, extra costs have been incurred due to service evasion, a higher amount may be justified and reasonable. Where costs are considered excessive, the official receiver should write to the solicitor informing him/her of this view and asking that they either reduce their bill to an acceptable level or submit the bill of costs for approval by the court and obtain a costs certificate. More detailed guidance as to when a bill of costs should be subject to detailed assessment is given at Technical Manual Chapter 39 paragraph 39.17. A request for detailed assessment should only be made where there are sufficient funds to enable the costs to be paid in full or such funds are to become available shortly.
It is the responsibility of the petitioning (supporting) solicitor to lodge the bill of costs with the Costs Office of the court, arrange assessment and obtain a costs certificate. The official receiver will be given an opportunity to comment on the bill of costs and appear on the assessment.
If a person who has been requested (form CDETAS) to commence detailed assessment for a bill of costs by the official receiver fails to do so within 3 months of the requirement, or within such further time as the court, on application, may grant, the official receiver may deal with the insolvent estate without regard to any claim by that person, whose claim is forfeited by the failure to commence proceedings. The consequence of this is that the insolvent estate might be distributed without regard to this particular expense.
Historically, the majority of preferential creditors were Crown Departments. The Enterprise Act 2002 (EA2002) significantly reduced the types of creditors to whom preferential status is available, with HMRC being most affected. EA2002 abolished the right of Crown Departments to preferential status as a creditor in most cases where the petition was presented on or after 15 September 2003 and in consequence the majority of creditors will now rank equally as non-preferential/ordinary unsecured creditors.
Having due regard to the date the petition was presented in any case, the list of creditors and file correspondence should be examined to identify any possible preferential creditor. The official receiver must give notice of his/her intention to do so to all potential preferential creditors who have not proved their debts using form DVDL, but note that Government Departments do not have to complete a proof of debt in the prescribed form 4.25/6.25
The priority of payment outlined in paragraph iii remains unaffected but see provisions regarding ring fencing of funds in some liquidations with a floating charge outlined in paragraph xxii.
x Preferential claims - cases where the petition was presented before 15 September 2003
The majority of open cases will increasingly not fall into this category but at the time of the revision of this part there are still significant numbers in existence where these circumstances will apply.
Section 386 of the Insolvency Act 1986 refers to Schedule 6 (since amended for cases where the petition was presented on or after 15 September 2003) lists certain categories of creditors (mostly Government Departments) to have a specified part of their debt paid in priority to ordinary unsecured creditors. This is known as having a preferential debt, such a claim is an ordinary unsecured debt which according to the provisions of sections 175 and 328 of the Act, falls to be paid in priority to other ordinary unsecured debts. The most frequent creditors whose claims may include a preferential element are shown in the table below.
When a proof of debt has been received, its content should be examined to see whether any part may be claimed as preferential. For example, in a proof of debt received from HMRC for VAT owing from over a 12 month period, only the amount due for a period of 6 months before the bankruptcy order/winding-up order can be claimed preferentially. The residual balance will be classed as non-preferential and will fall to be paid with the other non-preferential debts.
The table below assumes that the relevant date is that of the bankruptcy order or winding-up order. However, where there was an interim receiver, provisional liquidator, voluntary liquidator, administrator or administrative receiver, previously in office this relevant date will change. Refer any cases like this to your B1/SOM for guidance.
The list is not exhaustive and is meant to be used as a general guide only. Schedule 6 of the Insolvency Act 1986 sets out the definitive terms for categorising preferential claims.
|
Creditor |
Most frequently encountered Type of Debt |
Preferential Debt under Schedule 6 of the Insolvency Act 1986 |
|
HM Revenue and Customs (formerly Inland Revenue and HM Customs and Excise) |
Value Added Tax Betting Duty/Gaming Licence Duty Car Tax |
Tax due for a period 6 months before BO/WUO Due within 12 months prior to BO/WUO --ditto-- |
|
|
PAYE deductions Schedule D Income Tax and other assessed taxes on debtor Class 4 National Insurance Contributions (Bankruptcy) |
Amounts due for period 12 months prior to BO/WUO Not preferential except Class 4 National Insurance (see below) Assessed on bankrupt up to 5 April before BO and not exceeding 1 year’s assessment |
|
|
National Insurance Contributions (Classes 1 and 2) |
Contributions due in 12 months before BO/WUO |
|
Redundancy Payments Office |
Employees arrears of pay Employees accrued holiday pay |
Earned during 4 months immediately before BO/WUO and only the first £800 per claimant All accrued holiday payable immediately before the date of BO/WUO |
In addition to the above, banks or other (loan) creditors may have a preferential claim where funds they have advanced were used to pay employees’ debts sums which, had they remained unpaid, would have constituted preferential claims (see Technical Manual Chapter 40 part 5 paragraph 40.94).
Contributions to occupational pension schemes and state scheme premiums to which Schedule 4 of the Pension Schemes Act 1993 applies may also be classed as preferential (see Technical Manual Chapter 40 part 5 paragraph 40.87). If in doubt, refer to your B1/SOM for guidance.
xi Preferential claims - cases where the petition was presented on or after 15 September 2003
Although there may still be preferential creditors in a case, the likelihood is significantly smaller and funds are more likely to become available for distribution amongst the unsecured creditors.
There are, however, certain categories of debt that still remain as preferential rights, such as contributions to pension schemes and remuneration to employees (see Technical Manual Chapter 40 part 5 for other less frequent categories) but generally claims by HMRC will not acquire preferential status after 15 September 2003. Schedule 6 Insolvency Act 1986 (as amended by EA 2002) sets out the definitive list of those claims retaining preferential rights.
If you are in any doubt as to whether a claim or any part of it may be classed as preferential, please refer to your B1/SOM.
xii Official Receiver's remuneration when distributing funds to creditors
The insolvency regulations permit the official receiver, when acting as, liquidator or trustee, to charge remuneration, based on hourly rates, when making a distribution to creditors and which is referred to as a time and rate fee. This fee for the official receiver’s remuneration is based on an hourly rate for each grade and is calculated according to the time spent by each member of staff in carrying out specific duties. VAT is chargeable on the time and rate fee. To achieve some standardisation across The Service of costs associated with distributions, guidance has been produced on what should be charged in each case based on the expected time to be spent. Thus the time and rate charged to any particular case is more notional than actual.
The time and rate fee charge should be calculated by reference to the guidance given in the tables in Technical Manual Chapter 36, Annex F (reproduced below for ease of reference). There are two tables, one for the official receiver’s offices in London A, B and C (London Insolvency District) and one for all other provincial offices. The time and rate fee is charged prior to any preferential payment or dividend.
Guidance on the expected time to be spent on distributions
|
London Number of creditors - |
Hours per grade -A2 |
A2@ £35 |
Hours per grade C2 |
C2@ £55 |
Total expected hours |
Total expected cost £ |
|
Preferential creditors |
2 |
70 |
0.5 |
27.5 |
2.5 |
97.5 |
|
10 |
6 |
210 |
0.5 |
27.5 |
6.5 |
237.5 |
|
20 |
8 |
280 |
0.5 |
27.5 |
8.5 |
307.5 |
|
30 |
10 |
350 |
1 |
55 |
11 |
405 |
|
40 |
12 |
420 |
1 |
55 |
13 |
475 |
|
50 |
12 |
420 |
1 |
55 |
13 |
475 |
|
Provincial Number of creditors - Provincial |
Hours per grade -A2 |
A2@ £31 |
Hours per grade C2 |
C2@ £50 |
Total expected hours |
Total expected cost £ |
|
Preferential creditors |
2 |
62 |
0.5 |
25 |
2.5 |
87 |
|
10 |
6 |
186 |
0.5 |
25 |
6.5 |
211 |
|
20 |
8 |
248 |
0.5 |
25 |
8.5 |
273 |
|
30 |
10 |
310 |
1 |
50 |
11 |
360 |
|
40 |
12 |
372 |
1 |
50 |
13 |
422 |
|
50 |
12 |
372 |
1 |
50 |
13 |
422 |
The official receiver’s remuneration does not include the time spent on returning the petition deposit or payment of the petitioning creditor's costs for which no charge is to be made. It does include funds distributed to both preferential and non-preferential creditors.
xiii What is covered by the distribution activity and how is it recorded?
In order to check the validity of the time estimates, OROS will need to evaluate the actual time spent on distributions. This will be done by extracting data from both the time recording database and LOIS database for distribution cases. It is important therefore that staff correctly record the appropriate dates on LOIS Screen 28 (Boxes 1 – 7) when distribution activity is deemed to begin.
Debtor’s petition :
Where there will be no refund of the petition deposit and no petition costs, the appropriate time for the distribution activity to begin is the date when the realisations are complete. This is the date to be input into the realisations complete box (Box 1). This assumes that the petition deposit was not supplied by a 3rd party and that the bankrupt did not employ a solicitor to act for him in relation to the bankruptcy petition.
Creditor’s petition and company cases and other debtor’s petition cases :
In respect of creditors’ petition cases, and all company cases, the appropriate time for the distribution activity to begin is the date when the realisations are complete, the deposit refunded and the petition costs have been paid (Boxes 1,2 and 3).
In all cases, time allocated to distributions will end when a notice of declaration of preferential dividend distribution and/or a notice of declaration of dividend is entered on LOIS screen 28 (Boxes 5 and 7). This date must only be completed when the payments have been made and dispatched, thereby ending the distribution activity.
Official receivers must ensure that staff input dates on screen 28 to enable the time estimates to be properly evaluated.
xiv Notice of intended dividend
Before declaring a dividend, the official receiver must give notice of his/her intention to do so to all creditors who have not proved their debts using form DVDL. If disputed debts have been identified try and resolve the issues before beginning the process.
Notice of the intended dividend, together with a proof of debt form, must be sent to all known creditors, listed on LOIS Screen 31 who have not submitted a proof of debt. In the case of a distribution to just the preferential creditors, only that class of (potential) creditor needs to be notified. The notice must contain:
To assist in the calculation of the estimated figures, LOLA has a facility to perform a dividend calculation (preferential and/or non preferential) and an interest calculation without generating any payments or updating any figures. This is known as "What If" Dividend Calculation and a “What If” Interest Bearing Calculation. Alternatively, manual calculations can be performed, using whichever method is preferred, according to local office practices. When calculating the amount available for dividend, the cost of the advertisement and estimated OR Time and Rate fee must be deducted.
If the distribution is only to preferential creditors, the official receiver is not obliged to advertise as he/she is only required to contact those creditors whom he/she has reason to believe may have preferential debts by the issue of form DVDL if the creditor has not proved their debt (but is thought to have a preferential claim). This dividend will usually be a first and final dividend but interim dividends can be paid.
(September 2008)
Advertisement of intention to declare a dividend to non-preferential creditors is required for the first dividend only (Insolvency Rules 11.2(1A)) but this may also be the only dividend to be paid. If the official receiver has not previously advertised for all creditors to prove their debts, then he/she must do so by placing an advertisement giving notice of the intended dividend. The advertisement must include the date for the last day for submitting a proof of debt and an estimate of the amount available given as a pence in the £ figure e.g. 43p in the £ would mean that a claim for £10.00 would receive a dividend of £4.30 whereas 0.43p in the £ would mean that a claim for £10.00 would receive 43p. Care must be taken to enter the correct figures on the advert form NFN2 which should be the rate of dividend described as pence in the £.
Advertisements for dividends (as they relate to distributions) are not covered by the new administration fee and therefore need to be charged to the estate separately.
All cases where a dividend is to be paid will be with the RTLU whose responsibility it will be to make the dividend payment. When the RTLUs receive charge details for distribution advertisements, they must forward them, after approving the invoice for payment, to Estate Accounts Services (EAS), to enable them to arrange for payment from the estate. MK Howard, (the advertising contractor), record distributions on their charge details as "intentions to pay". Before distributions check that the costs of the advertisement have been paid from the estate account.
For more information on placing an advertisement with agents, see CHM Part – Gazetting and Advertising, paragraph xiv and Procedure step 17
xvi Admitting or rejecting proofs
The official receiver must deal with all the proofs of debt within 7 days of the last day given for proving debts. When ready the proofs should be given to the designated officer for admitting or rejecting, together with:
The designated officer may decide to admit or reject the proof in whole or in part. Late proofs may only be accepted at his/her discretion. If a proof or any part thereof is rejected the creditor must be notified together with the reasons for doing so. If a creditor is dissatisfied with the official receiver’s decision regarding their proof they have 21 days in which they may apply to the court for the decision to be reversed or varied.
xvii Requesting payment of dividends
Once the proofs have been admitted for dividend, the request for the dividend cheques should be made. The official receiver’s remuneration based on the appropriate time and rate is to be charged before any dividend calculation is made and requested. Reference should be made to the table shown in paragraph xii above for the amounts to be charged. The posting code for orders pre-1 April 2005 is FE20 OR Time and Rate and the posting code for orders made on or after 1 April 2005 is FE33 OR Time and Rate. LOLA automatically charges VAT on this fee. Staff in the RTLU will make the entries on LOLA.
In addition when making a first distribution to creditors the interest bearing calculation should be performed prior to requesting dividend cheques on LOLA. This is to ensure that the interest applicable to the estate account is taken into consideration prior to distribution. The entry on the estate ledger will refer to credit of interest. The appropriate procedure for requesting payments should then be followed as detailed in LOLA Desk Instructions – Distributions to Creditors.
The dividend may be distributed simultaneously by post with the notice declaring it (NORAD) (see below). Arrangements may be made for any creditor to be paid in another way or for payment to be held for his collection. The dividend may be paid to an assignee of a creditor if the creditor has given notice of the assignment along with the name and address of the assignee.
xviii Notice of declaration of dividend
At the same time as dividend payments are made, creditors should receive full information relating to the payment of the dividend. Notice of the dividend (form NORAD) must be sent to all those who have proved their debts, except in the case of a distribution to preferential creditors solely, whereby only that class of creditor needs to be notified. Options are available on form NORAD to cover the circumstances of each individual case e.g. whether release is being applied for and the type of dividend being paid. A summary of receipts and payments should also be enclosed. The notice must contain the following particulars:
xix Returned dividend cheques
If a dividend cheque is not required because the debt has already been satisfied either by payment or withdrawn, the cheque should be returned to EAS for cancellation and the amount re-credited to the estate account. If a dividend is returned for any other reason, for example if the creditor’s address has changed, efforts should be made to trace the creditor. If no further address can be found, the monies should be transferred to the Unclaimed Dividends Account. Dividend cheques that remain un-cashed after a period of 6 months, or are cancelled after issue, are automatically transferred to this account.
xx Small credit balances
It is suggested that a dividend need not be declared if after deducting the appropriate amount for the official receiver’s remuneration plus VAT, the total net funds available for distribution (i.e. after allowing for advertising, VAT etc) is less than £100 or if none of the creditors will receive £5 or more. If the funds are insufficient to declare a dividend to creditors, then the credit balance should be transferred to the Indivisible Balances Account before any of these procedures are embarked upon.
xxi What happens if a credit balance still remains after payment of all debts plus statutory interest?
In bankruptcy on payment in full of his/her debts and the expenses of the bankruptcy, the remaining funds will be returned to the bankrupt. The bankrupt is then entitled to apply for annulment depending on the circumstances of the case ( see Case Help Manual part: Annulments and Technical Manual Chapter 6).
It is to be noted that in a bankruptcy, there is now no facility to rebate fees on any surplus which arises where the bankruptcy order was made before 31st March 2004, even if the surplus arose after 1 April 2007. Refer any case of this nature to the B2 for guidance.
In a company, however, any surplus funds available must be used as a return of capital to the contributories (it may be necessary to firstly settle a list of contributories, see Technical Manual Chapter 58 paragraph 58.17).
The order of priority set out in paragraph iv is affected by the EA2002 in company liquidations. In a liquidation where a floating charge was created after 15 September 2003, the next class of creditors to be paid after preferential creditors may be floating charge-holders, in appropriate cases. In order that unsecured creditors benefit in such cases, section 252 of the Enterprise Act 2002 added a new section 176A to the Insolvency Act 1986, which provides that a prescribed part of the net property, including assets realised under the floating charge which would be otherwise available only for floating charge-holders, should be set aside for the benefit of unsecured creditors. This is referred to as ‘ring fencing’.
Ring -fencing means that where a company goes into liquidation, administration or receivership, or where there is a provisional liquidator, and there is a floating charge over assets of the company, the liquidator, administrator or receiver must keep back a prescribed part of any assets realised to distribute to the unsecured creditors rather than to the floating charge - holder.
Where the company’s net property (which is the property which would otherwise be available to pay to the preferential creditors) is below £10,000 in value, 50% of that amount is the prescribed part to be made available to unsecured creditors. Where the net property is over £10,000 the prescribed part to be made available to unsecured creditors is 50% of the first £10,000 in value (i.e.£5,000) and 20% of the property in excess of that amount up to the maximum prescribed part of £600,000. Where a case fulfills this criteria reference should be made to Technical Manual Chapter 36 paragraph 36.97 and Chapter 56 paragraph 56.122 for guidance.
Please note, however, that the assets which form the prescribed part are not available to pay the liquidation expenses. There are in effect, three almost parallel distribution regimes which can be illustrated as follows :
General lquidation estate account |
Floating charge account |
Prescribed part account |
|
General liquidation expenses. |
Expenses directly associated with the floating charge realisations and distributions. |
Expenses directly associated with the prescribed part realisations but mainly distributions. |
|
Preferential creditors. |
Preferential creditors. |
Ordinary unsecured creditors. |
|
Ordinary unsecured creditors. |
Monies transferred under the prescribed part rules (where appropriate). |
|
|
|
Floating charge holder. |
|
In practice, there is unlikely to be any money in the first (column) account except the petition deposit in a compulsory liquidation case.
Changes made by section 1282 of the Companies Act 2006 and Rule 4.218 of the Insolvency Rules 1986 mean that post 6 April 2008 unpaid general liquidation expenses can also be recovered from the Floating Charge account.
Ring fencing will not apply to those companies that are subject to a CVA or in those cases where the liquidator, administrator or receiver applies to the court for an order to the effect that the cost of making such a distribution to the unsecured creditors would be disproportionate to the benefits. This is unlikely to arise in official receivers’ cases.
Where can I find out more?
The Insolvency Proceedings (Fees) Order 2004
The Insolvency Regulations 1994 (as amended)
The Insolvency Proceedings (Fees) (Amendment) Order 2007
The Insolvency Proceedings (Fees) (Amendment) Order 2008
Insolvency Rules 1986
4.82 Admission and rejection of proofs for dividend (company)
4.83 Appeal against decision on proof (company)
4.180 Manner of distributing assets (company)
4.218 Priority of payment of expenses from estate (company)
6.104 Admission and rejection of proofs for dividend (bankruptcy)
6.105 Appeal against decision on proof (bankruptcy)
6.224 Priority of payment of expenses from estate (bankruptcy)
7.34(1)Costs etc. payable out of estate
11.2 Notice of intended dividend
11.3 Final admission/rejection of proofs
11.5 Decision to declare dividend
11.6 Notice of declaration
11.11 Assignment or right to dividend
11.12 Preferential creditors
Insolvency Act 1986
Sections
175 Preferential debts
189 Interest on debts (company)
324 Distribution by means of dividend (bankruptcy)
328 Priority of debts (bankruptcy, including interest on debts)
329 Debts to spouse
386 Preferential debts
407 Unclaimed dividends and undistributed balances
Schedule 6 The categories of preferential debts.
Enterprise Act 2002
Sections;
251 Abolition of Crown preference
252 Unsecured creditors (Ring-fencing)
The Insolvency Act 1986 (Prescribed Part) Order 2003
The Enterprise Act 2002 (Commencement (No. 4) and Transitional Provisions and Savings) Order 2003
LOIS Workbook – Closing Reopening Cases
Notices
F18/07 – Changes to Insolvency Fees
T19/06 – Bankruptcy : Disbursement of Surplus Funds
Technical Manual
Chapter 6 – Appeals, stays, rescissions and annulments
Chapter 36 - Estate Accounting
Chapter 39 –Detailed Assessment
Chapter 40 – Creditors and Liabilities
Chapter 56 – Alternative Corporate Procedures
Chapter 58 – Unregistered Companies
Case Help Manual:
Annulments, Rescissions and Recalls
Forms to be used:
4.25 Proof of Debt (winding-up)
6.37 Proof of Debt (bankruptcy)
ACCSUM - Account Summary
CDETAS - Costs, detailed assessment(available only from OROS homepage)
DIVPA - Dividend – authority to official receiver to pay dividends to another person
DVDL - Dividend – notice to unproved creditors of intention to declare dividend
LCAD - Letter covering advertisement
NFN2 - Notice to creditors of intended dividend (for newspaper)
NORAD - Dividend – notice to creditors (options available for release/attach dividend)
PDREF - Petition deposit refund
PRFFU - Proofs, follow up
RELASS – Release – OR’s application to Secretary of State
Click HERE to view the Flowchart showing Distributions from the estate
Procedure
LOIS references are shown in brackets, e.g. (DO73)
Most, if not all, distributions will be carried out by the RTLUs. In practice, the procedure for distribution should be planned in advance with all of the distributions taking place on one day.
After checking all disbursements regarding the realisation of assets have been paid and all costs and fees have been appropriately charged, where a credit balance remains on the estate in excess of the deposit continue with the procedure as detailed below.
1. Check the file to see if details of the petition costs have been received. If not, write to the petitioning creditor’s solicitors asking them to submit details of their costs in this matter. Their name and address can be found on the Insolvency Order and LOIS (CA01). Include any references quoted and their client’s name.
Solicitors should be requested to submit their bill of costs net of VAT if their client is registered for VAT.
2. Check to see whether any creditors who supported the petition are to be allowed their costs from the estate. If so, write to their solicitors to submit their bill of costs, as above.
3. When details of petition costs are received, send to designated officer for approval, enclosing the following:
4. If the bill of costs appears to be excessive and there are funds to enable the costs to be paid in full, write to the solicitors asking them to reduce the bill to an acceptable level or to submit the bill of costs for assessment(form CDETAS).
5. Once the bill of costs has been approved, or has been assessed by the court, arrange for payment by LOLA.
6. If the case has not been closed, and there are no more funds available for creditors, proceed with official receiver’s application for release following the procedure outlined in Case Help Manual part : Closing a case.
7. If the case has been ‘re-opened’ and the official receiver has previously obtained his/her release, providing there are no further matters to be dealt with and no more funds available, close the case filing all documents accordingly. Record details on LOIS (CA65).
If a credit balance still remains on the estate
8. LOLA has a “What If” Interest Bearing calculation facility to calculate the interest that would be accrued for a particular case prior to distribution without generating any postings or updating the case ledger. This is to ensure that the interest applicable to the estate accounts is taken into consideration prior to distribution. Use LOLA screen gle 80 to complete a “What if?” Interest Bearing calculation and if interest has accrued, complete LOLA screen glm 80 to post the interest credit to the case (in April and October open/re-opened and eligible for interest cases will automatically be posted with interest dated 1st April and 1st October). Then using the table in paragraph xii, calculate the appropriate amount for the OR's remuneration (which is based on time and rate) plus VAT together with an estimate for the cost of advertising, if applicable and deduct this sum from the balance on the estate ledger.
It is suggested that if the resultant sum is less than £100, or if none of the creditors will receive £5 or more a dividend need not be declared.
9. If the funds are insufficient to declare a dividend to creditors then the credit balance should be transferred to the Indivisible Balances Account.
The rules concerning preferential status differ depending on whether or not the petition was presented before or after 15 September 2003 when the relevant provisions of the Enterprise Act 2002 came into force. For the definitive list of what categorises a preferential claim where a petition is presented after 15 September 2003, please refer to Schedule 6 of the Insolvency Act 1986 and Section 251 of the Enterprise Act 2002.
Initial Procedure for payment to preferential creditors (follow points 14 onwards if a dividend is to be paid concurrently)
10. Check the list of creditors and make a list of all possible preferential creditors.
11. Where neither a proof of debt or letter confirming that there is no claim have been received, issue form DVDL to the creditor(s) concerned.
12. It may be useful in some cases to contact the creditor concerned by telephone to inform them of the situation and obtain an indication of whether they intend to prove or not. However, this should be made in addition to performing step 11 and should not be used as a replacement to written confirmation in any event.
13. Once the date for submitting proofs or claims has passed, and the proofs have been admitted, proceed to declare a dividend for preferential and/or ordinary unsecured creditors.
If there are sufficient funds to pay all preferential claims in full and a dividend to ordinary unsecured creditors, the payment of a dividend can be undertaken concurrently with the payment (in full) of preferential creditors.
LOLA – procedures can be found in LOLA Desk Instructions (LDI)
14. LOLA has a “What If” facility to calculate the estimated pence in the pound figure that would be paid out to preferential and unsecured creditors for a particular case, should a dividend be requested, without generating any payments or updating the case ledger on LOLA and is available through screen cre81. To use this option, the creditors’ details must firstly be set up on crm80. See step 21 below. The balance figure available for distributing funds to creditors must be reduced by the estimated OR's time and rate fee chargeable plus VAT(and advertising where appropriate) plus but increased for any credit of interest before using the "What If" dividend calculation facility. No payments will be generated when using the "What If" dividend computation (cre81).
Initial action for notice of intended dividend
15. Having obtained the estimated rate at which the dividend is to be paid, calculate the last day for lodging proofs of debt. The creditors must be allowed at least 21 days notice from when the advertisement, if any, appears in the local paper.
16. If required, arrange advertisement of intended dividend for local paper using forms NFN2, under cover of form LCAD LOIS, (DO73). For more information on placing an advertisement with agents, see CHM part – Gazetting and Advertising, paragraph xiv and Procedure step 17
17. Issue form DVDL to all unproved creditors showing :
but do not do this for unsecured creditors if there are only sufficient funds available to (part) pay the preferential creditors only, or any debenture holder (floating charge).
Admitting the proofs
18. The official receiver must deal with all the proofs of debt within 7 days of the last day given for proving debts by. When all proofs have been received check all creditors’ details are recorded correctly on LOIS (CA31). Pass the proofs to the designated officer for "admitting" purposes by enclosing:
19. Deal with any matters regarding the rejection of proofs.
20. Receive the admitted proofs of debt and record all details and amounts admitted for each creditor. Check that the advertising costs, OR time and rate fee and credit of interest has been charged/credited on the estate ledger. When satisfied that the balance is correct, proceed with the process.
21. To set up creditors for dividend payments see LDI - Set up Creditors for dividend payments.
22. To raise the payment requests for the dividend cheques see LDI – Automatic Dividend Payment Requests or Manual Dividend Payment Request. Please note that LOLA is only able to automatically process preferential and/or dividend requests once for any case. Subsequent payments will need to be requested manually.
23. If the sum available for distribution is greater than the total of all proved debts, a payment of statutory interest may be applicable. Before attempting to calculate the rates of interest due to any creditor, refer to your B1.
24. Once the payment requests have been created, they should be passed for authorisation as any other payment request.
25. Check LOLA (gle81,glr41) for any further funds available for distribution to unsecured creditors.
26. As in steps 8 and 9, transfer any balance too small for payment of a dividend to the Indivisible Balances Account, obtaining the relevant authority to do so.
Notices to creditors
27. Form NORAD offers options depending on the case. The options are:
Choose the appropriate option on LOIS (DO73) and arrange to attach the dividend cheques to the appropriate notice and send to creditors. A summary of the official receivers’ receipts and payments should also be enclosed.
28. If applying for release complete form RELASS, note date of application on LOIS (CA26) and forward to Estate Account Services, together with supporting documentation. Where a dividend has been paid update LOIS(CA28).
29. If the case has been re-opened, record the ‘closing’ details on LOIS (CA65) and file all papers accordingly
30. File proofs of debt on the office file.
31. If a surplus remains after payment of all debts plus statutory interest, refer to B1/SOM.