March 2006
Introduction
i Why does the official receiver need insurance?
In order to prevent the possibility that an asset may be lost through theft or destruction at a loss to the estate, the official receiver must ensure that all assets which cannot be realised or disposed of immediately are adequately insured.
The insurance must cover:
the value of the assets to the estate
where there are premises involved, the risk of any injury to a third party (known as public liability) as this could result in a damages claim being brought against the official receiver.
ii Matters for consideration
The decision as to whether or not to insure is at the official receiver’s discretion and will depend upon the facts of the case. However, the rule is that in general, it is better to insure than not to insure.
The official receiver should consider the cost of obtaining insurance against the value of the assets and the risk of personal liability on his/her part if any asset is lost or destroyed. In addition, the official receiver will need to consider whether insurance is needed to cover the risk of any liabilities arising from negligence on his/her part or as an owner or occupier of premises.
When the official receiver becomes responsible for an insolvent’s property (including unoccupied premises, motor vehicles, etc.) he/she has a duty of care to limit the risks of injury to any third parties as soon as possible, for example, by removal of the assets or improving the security of the premises. In such circumstances, the duty of care will not be satisfied by the fact that the official receiver has taken out insurance, which will serve only to protect the official receiver from a monetary liability. The appropriate action must still be taken to deal with the risk.
If the cost of any insurance, security or environmental hazard precautions required are likely to exceed the net benefit to the estate, the official receiver must disclaim his/her interest in the relevant assets as soon as possible.
If the official receiver is unable to effect insurance or if the premium is very expensive it may be prudent to arrange an early sale of the assets. Even then some short term or restricted cover insurance may be necessary.
In the case of a property with a value less than the charges outstanding on it, there is no need for the official receiver to take out insurance cover other than in respect of public liability. The official receiver should notify the mortgagees that he/she does not intend to insure the property so that they can take the necessary steps to protect their interest, if they have not already done so.
For further information see Technical Manual Chapter 49 part 1 and part 2. This chapter should be read in conjunction with Management Notice M76/02 and any reference to The Service’s previous Insurance provider, Commercial Union, should be disregarded.
iii What if the insolvent has existing insurance cover?
If there is insurance cover already in place at the date of the bankruptcy or winding up order, the official receiver should obtain details of the insurance companies together with the policy number(s), the current position regarding the payment of premiums and the expiry date of the policies in question. The policy documents should be recovered at the earliest date.
If the official receiver decides to continue the insolvent’s existing insurance it is recommended that the minimum requirement of cover is the cover available under the official receivers’ automatic scheme (see paragraph iv). If the official receiver is satisfied that the existing insurance(s) does provide sufficient cover, he/she may exercise discretion and continue with the policies as they stand. The insurers should be informed of the official receiver’s interest in the policies immediately together with written confirmation of the cover still required.
The policy document(s) should then be sent to the insurers so that they can be endorsed with the official receiver’s interest in them.
Where it is felt that the existing cover should be terminated, the insurance company must be notified in writing as soon as possible. It is possible that the official receiver may obtain a refund of premium in such a case. The official receiver will continue to follow up the insolvents pre-insolvency insurance and obtain refunds if appropriate.
N.B. In the event that there are outstanding claims or the possibility of claims to be made on the policy it may be prudent to leave the policy in force until this is resolved. Such circumstances should be drawn to the examiner’s attention for a decision to be made regarding the termination of cover.
iv Automatic insurance scheme
The official receiver’s automatic insurance scheme is arranged with Willis and operates on the basis that the required cover will be automatically available to an official receiver for any case requiring insurance. A copy of Willis’ Insolvency Insurance Manual can be made available to each office by Willis. These may be supplied by e-mail or hard copy. There is no charge for the manuals.
v Effecting cover
A Premium Bordereau form (M76/02 Annex 2) is being used for smaller non-trading cases. This form is completed once a month and should list all the cases on which insurance was required during the previous month. The criteria for the type of cases that are suitable and can be covered under this scheme are set out in M76/02 Annex 1. This provides 30 days automatic insurance cover from the date of the official receiver’s appointment. If an asset is discovered after the 30 days, cover will only apply from the date Willis are notified of it.
A Bordereau form is to be completed (M76/02Annex 2) and submitted electronically to barrs@willis.com on a monthly basis, to reach them by the 15th of the month. If the form is posted it should be sent to Willis Limited, The Anchorage, 34 Bridge Street, Reading, Berkshire, RG1 2LU, FAO Sue Barr. NIL returns when applicable should be made to show that the return has not just been forgotten. If no return is made the office will be contacted by Willis.
Once the Bordereau form is received, Willis will then issue a 3-month invoice, within 10-14 days, giving a premium breakdown as to the costs on each individual case. The minimum premium for combined covers (fire, theft and public liability) is £42 plus Insurance Premium Tax at 5%. This is to be paid within 14 days of receipt so official receivers must forward authorized invoices promptly to OR Banking for payment.
The insurance must be cancelled if the case is transferred to an insolvency practitioner and the official receiver must give details to the insolvency practitioner on handover. There is a separate form (M76/02 Annex 3) that the official receiver must use to notify Willis of any alterations/cancellations. This should be submitted each month together with the Bordereau form.
vi Larger cases and unusual risks
For larger cases where the sums insured are exceeded and/or the criteria for small non-trading cases are not met, Willis will require a telephone call to arrange suitable cover. They will run through a basic series of questions including the name and address of the business, date of appointment and business description. The abbreviated form for non-trading cases (M76/02 Annex 4) then has to be completed. Willis will provide help with the completion of this form if needed. Cover will automatically be operative for 30 days, and the invoice will again be on a 3 monthly basis. This type of cover will normally be arranged by the examiner and the cost of the premium agreed. High premiums should be discussed and approved by the assistant official receiver/official receiver/Technical Section, where appropriate.
vii Unoccupied Premises
Willis have negotiated a special facility for the types of unoccupied premises detailed in their Unoccupied Premises Code of Practice set out in M76/02(Annex 5), although in the majority of cases the property is unlikely to be the official receiver’s responsibility for more than 30 days. However if there is a possibility that the official receiver will still have responsibility he/she will need to arrange for the building to be secured and services to be turned off unless required to maintain security/safety. In high risk areas the premises will need to be boarded up and inspected on a regular basis, and in other areas they need to be boarded up or inspected on a regular basis. Whilst this is fairly onerous there will be occasions when Willis will be able to waive certain requirements. However each case must be reviewed on its own merits.
viii Employers’ Liability Insurance and Motor Vehicles
Willis will provide annually, Certificates of Motor Insurance and Employer Liability to each office. They are blanket certificates covering us for all cases where there are employees (of the insolvent), or cars remaining on the case. These should be held for safekeeping.
ix Third party goods
The official receiver does not have a statutory duty to protect third party property although he/she does have a duty to take positive steps to prevent the destruction of goods.
The official receiver should, as a matter of urgency, notify the owners of any third party goods of the bankruptcy order/winding-up order and make suitable arrangements for their collection. If any third party goods are not insured, the official receiver should also inform the owners that their goods are un-insured and that the official receiver accepts no responsibility for their theft, loss or damage.
When the official receiver agrees to keep goods for a third party, he/she has a duty of care to the owner to protect the goods. In such circumstances, the official receiver may wish to obtain cover against claims that he/she had failed to exercise adequate care of third party goods and this should be arranged by contacting Willis and discussing the individual merits of the case. However, such a course of action should not be taken without the specific instructions of the examiner. No expenditure should be incurred by insuring third party property unless prior authority is received from Technical Section.
x What if an Insolvency Practitioner is appointed after cover has been effected?
Details of all insurance cover effected by the official receiver should be included in the trustee or liquidator’s record book. The insolvency practitioner should also be given details of any premium payments made . The official receiver should cancel any insurance with Willis immediately after handing over the estate. It is for the official receiver to pay the account for insurances effected by him/her and any resultant debit balance after the estate has been handed over should be transferred to the insolvency practitioner.
For further information see Case Help Manual part: Insolvency Practitioners
xi Payment of premiums
The official receiver must forward all authorized invoices for payment of premiums to OR Banking in all cases, payment of the premium due being regarded as an expense in preserving the assets of the estate. A debit balance may be incurred or increased to pay any necessary insurance premium without the need for the official receiver to obtain specific authority to do so but such balances should be managed carefully.
xii Can the official receiver use other insurers?
The official receiver can seek insurance cover elsewhere only where Willis are unable to provide the insurance cover sought by him/her. This is only likely in exceptional circumstances and before obtaining cover from an alternative source, the official receiver should consider the cost of the likely premium in relation to the value of the asset(s) he/she is trying to insure.
xiii What happens if a bankruptcy is stayed or liquidation proceedings are stayed for a limited period?
Where bankruptcy proceedings are stayed or liquidation proceedings are stayed for a limited period, the official receiver can leave any insurances already obtained in force but should be wary of seeking any new insurance cover as there is no obligation for the official receiver to insure in such circumstances. The bankrupt/director(s) should be notified by the official receiver that the property is not insured as a result. Where necessary, the official receiver can seek court directions as to the appropriate course of action.
xiv What happens if the bankruptcy order is annulled, winding-up order rescinded or liquidation proceedings are stayed altogether?
In the above circumstances, the official receiver should cancel any insurance arranged by him/her and notify the bankrupt/director(s) of the situation. The premium paid will be recoverable as part of the official receiver’s expenses. Any keys that the official receiver has taken into possession from the bankrupt/director(s) should be returned at the earliest opportunity to prevent potential liability for the loss of the former insolvent’s property.
xv Making a claim
If it is necessary to make a claim, the official receiver should deal directly with Willis. However, Technical Section should be consulted if there are any difficulties in agreeing the claim.
N.B. Any queries or correspondence regarding insurance matters should be referred to the Willis office at Reading. Contact numbers for members of the Willis Insolvency team can be found in M76/02(Annex 6).
Notes:
If assets prove to be worthless or belonging to third parties, any cover effected by the official receiver should be cancelled immediately.
Cover may have to be arranged for assets that are being temporarily stored at the official receiver’s office, e.g. computers removed from premises for the purpose of extracting accounting information.
If an administrative receiver is in office when the winding-up order is made, the official receiver should only insure those assets which are not covered by the fixed or floating charge(s).
Losses resulting from theft by the bankrupt or a director in a company case will not be covered unless the locks have been changed.
Where can I find out more?
Insolvency Rules 1986
4.218(1) (a), 6.224(1) (a) Priority of expenses
7.39 Award of costs against official receiver
Technical Manual
Chapter 6 - Appeals, stays, rescissions and annulments
Case Help Manual
Management Notice
M76/02 – Official Receivers’ Insurance Scheme
Click HERE to view the Flowchart for OR's Insurance
Procedure
LOIS references are given in brackets, e.g. (DO73).
1 Where insurance cover already exists, refer to examiner for decision as to whether the existing cover is to be relied on.
2 If existing cover is to be continued, notify insurer(s) of official receiver’s interest and forward policy documents for endorsement.
3 If existing cover is not to be relied upon, notify insurance company as soon as possible. Request that any pro-rata refund of premium is made payable to the official receiver.
4 Where there are third party goods, notify third party of bankruptcy order/winding-up order straightaway and make arrangements for goods to be collected. Inform third party in writing that the official receiver will not be held responsible for theft of, or loss or damage to uninsured goods.
5 If a third party asks the official receiver to keep goods on his behalf, refer matter to examiner for decision as to whether goods should be retained and, if so, whether the goods will need to be insured. Note LOIS (CA08) accordingly.
6 If not already arranged by examiner pass details of insurance required to designated person, according to local office practice. Note LOIS accordingly(CA08)
7 A Premium Bordereau form (M76/02 Annex 2) is being used for smaller non-trading cases. This form is completed once a month and should list all the cases on which insurance was required during the previous month. The criteria for the type of cases that are suitable and can be covered under this scheme are set out in Management Notice 76/02 Annex 1. This provides 30 days automatic insurance cover from the date of the official receiver’s appointment. If an asset is discovered after the 30 days, cover will only apply from the date Willis are notified of it.
8 The Bordereau form (M76/02 Annex 2) is to be completed and submitted electronically to barrs@willis.com on a monthly basis, to reach them by the 15th of the month. If the form is posted it should be sent to Willis Limited, The Anchorage, 34 Bridge Street, Reading, Berkshire, RG1 2LU, FAO Sue Barr. Nil returns when applicable should be made. Nil returns may be made by e-mail as no signature is required. If there are instructions from the examiner, send a cover sheet together with the individual instruction with an original signature.
9 Once the Bordereau form is received, Willis will then issue a 3-month invoice, within 10-14 days, giving a premium breakdown as to the costs on each individual case. The minimum premium for combined covers (fire, theft and public liability) is £42 plus Insurance Premium Tax at 5%. This is to be paid within 14 days of receipt so official receivers must forward authorized invoices promptly to OR Banking for payment.
10 The insurance must be cancelled if the case is transferred to an insolvency practitioner and the official receiver must give details of the insurance cover and cancellation to the insolvency practitioner on handover. There is a separate form (M76/02 Annex 3) that the official receiver must use to notify Willis of any alterations/cancellations. This should be submitted each month together with the Bordereau form if there are any cancellations.
11 For larger cases where the sums insured are exceeded and/or the criteria for small non-trading cases are not met, Willis will require a telephone call to arrange suitable cover. This type of cover will normally be arranged by the examiner and the cost of the premium agreed. The abbreviated form for non-trading cases (M76/02 Annex 4) then has to be completed. High premiums should be discussed and approved by the assistant official receiver/official receiver/Technical Section, where appropriate.
12 Willis have negotiated a special facility for the types of unoccupied premises requiring insurance as detailed in their Unoccupied Premises Code of Practice set out in M76/02(Annex 5). This type of cover is likely to be arranged by the examiner.
13 Willis will provide annually, Certificates of Motor Insurance and Employer Liability Insurance to each office. They are blanket certificates covering the official receiver for all cases where there are employees (of the insolvent), or cars remaining in the case. These should be held for safekeeping.
Insolvency Practitioner appointed
14 If the estate is to be handed over to an insolvency practitioner, details of any insurance effected by the official receiver must be recorded in the trustee/liquidator’s record book together with a note as to whether or not the premiums have been paid.
15 All documents relating to any insurance must be handed over to the trustee/ liquidator, copies of which should be placed on the office file.
16 Details of any premiums paid by the official receiver will be included in the trustee/liquidator’s cash book on handover. If the estate has been handed over before the invoice is received from Willis, the invoice should be forwarded to OR Banking for payment with any resultant debit balance being transferred to the insolvency practitioner.
17 The official receiver should cancel any insurance effected by him/her immediately after handing over of the estate and the details recorded on the Willis alteration/cancellation form and LOIS(CA08).
Stay of proceedings (bankruptcy), stay for limited period (company)
18 Where there is a stay of proceedings any insurance already obtained can be left in force. No new insurance cover should be sought as there is no obligation for the official receiver to insure in such circumstances. If cover is due to expire before the end of the stay period refer the matter to the examiner for further instructions.
Bankruptcy order annulled or winding-up order rescinded, liquidation proceedings stayed altogether
19 When a bankruptcy order is annulled or a winding-up order rescinded or liquidation proceedings stayed altogether, any insurance effected by the official receiver should be cancelled immediately. If the premium has not yet been paid, the insurers should be asked to submit their charges for payment as soon as possible. The premium due will be recoverable as part of the official receiver’s expenses.