Guidance Notes for the Completion of Statutory Reports and Returns

These notes are important and should be read before completion of any report or return under section 7 of the Act.

5. Other matters

5.1 Disclosure of material obtained under section 235 and 236 of the Insolvency Act 1986

The Secretary of State is advised that you can lawfully disclose to him any relevant information and documents which you have obtained by using the powers under section 235 and 236 of the Insolvency Act 1986. The power by which the Secretary of State can request, and is entitled to receive, such documents and information is in section 7(4) of the CDDA.

The basis of that advice is that the powers in sections 235 and 236 under which you obtain information and documents are to help in your administration of the affairs of the insolvent company. One of the duties placed on you arising from your appointment is to report to the Secretary of State under section 7 of the CDDA and as a result provide information. You are therefore fulfilling one of the purposes of the
administration, and thus one of the purposes for which the material was obtained.

Despite the duty of confidence that you may owe, the public interest requires appropriate disclosure and use of such material, and you should therefore disclose it to the Secretary of State.

This is why you should not give any undertaking to any person providing information or documents that implicitly or explicitly prevents its disclosure to the Secretary of State. If you did so, you might not be able to properly discharge your statutory duties. And the Secretary of State might then have to apply to Court to enforce your co-operation. Similarly, you are asked to have regard to your duties under section 7 of the CDDA, and draw them to the attention of the Court when it considers any restrictions to be imposed on you over the disclosure of information and documents which become available in litigation brought in the administration.

Furthermore Part 31.8(2)(c) of the Civil Procedure Rules 1998 confirm that the Secretary of State has to disclose to defendants documents over which he has or has had a right to inspect or take copies. Therefore the Secretary of State has a duty to disclose any documents to which he is entitled under Section 7 of the CDDA. If the Secretary of State is not in a position to provide documents which are requested, then the Practitioner could be subject to a third party disclosure application.
 
5.2 Availability of accounting records

It is published best practice (SIP 1 and 2) for administrative receivers and liquidators to list all company books and records produced to them at the outset of the insolvency. Similar considerations also apply when taking appointment as administrator. You are also advised to list those records not taken into custody, with a note as to their whereabouts.

The accounting records are a very important source of information to the Unit. If proceedings are issued, defendants must be given the opportunity to inspect the records so they can prepare their defences. You need to recover all accounting records from the directors. If these have not been delivered, you must detail what steps you have taken to obtain them. You must notify the Unit at the outset of any discrepancies in the records. You should also identify any records held by others. In cases where the Unit has stated that further enquiries will be made, you must keep the Unit fully informed as to:

• any further records which become available;

• any records which may have to be passed to the company's directors or others; and

• any records which, being held by you or others, become lost, stolen or destroyed.
  

If you take office as administrative receiver or administrator, you are especially asked to notify the Unit of:

• any records due to be passed to a third party purchaser of the business of the company; and

• any records which are to be passed back to the directors at the completion of the receivership or administration.

In appropriate cases, and where this applies, the Unit may ask you to photocopy relevant company records.

5.3 Payment to Practitioners

• No payment will be made to Practitioners for time taken in discharging their statutory duty to report. The work which constitutes the discharge of that duty, undertaken at the time of reporting or subsequently at the request of the Unit, is set out in Appendix 2.

• Practitioners will be paid for any work undertaken at the request of the Unit beyond that set out in Appendix 2. The rate of hourly charge of all staff involved must be agreed in advance along with an estimate of the number of hours the Practitioner and/or each member of his staff will take to do the work required. All Practitioners must notify the Unit when that time estimate is reached and agree any necessary extension. The Unit will not pay for work which was not formally authorised in advance.

• Practitioners will be paid for time taken considering draft affidavits. In relatively straightforward or simple cases, Practitioners can expect to be allocated up to four hours for considering and swearing an affidavit, with more complex cases taking up to eight hours. Where necessary time is expected to exceed four hours, the time to be taken in excess must be specifically agreed with the Unit. The rate payable will be that normally charged out for the deponent's time. If, for example, a manager is better placed than the office-holder to give evidence, then the deponent need not necessarily be the office-holder.

• The cost of any legal advice taken, separate from that given to the Unit by the Treasury Solicitor or local agent, is a matter for the Practitioner and will not be paid by the Unit.

• All work after the start of the proceedings (that is, the issue of the claim form), including witness costs, will be paid for subject to advance agreement of time and rate. It is open to the defendant(s) to seek cross-examination of a Practitioner on his affidavit. If this is to happen, it will become apparent well before the substantive hearing of the application. Practitioners will be notified of the dates of the substantive hearing and will need to ensure they are available.

5.4 More than one office-holder

The rules on reporting duties when a company has two or more office-holders (for example, an administrative receiver and a liquidator), were amended in September 1996. Now, every office-holder must make a return (under rule 4(5) of the reporting rules) to the Secretary of State, except where he has made a report in respect of all the persons mentioned in rule 4(2).

The duty to report arises when it appears to the office-holder that the conditions in section 6(1) are satisfied, and the duty is to report forthwith. That duty is not affected by the fact that another office-holder has been appointed.

The expression "office-holder" can be read as "liquidator", "administrative receiver" or "administrator". "Relevant date" differs for each type of office-holder. This is because, under rule 4(5)(a) of the reporting rules, the office-holder must send a return to the Secretary of State if he is in office on the day one week before the expiry of the period of 6-months from the relevant date. So the rule is based on there being separate regimes for the different offices. Hence the obligations arising under one regime and thus on the holders of a particular office, operate, arise, and should be assessed and discharged independently. There are clear difficulties where the second appointment occurs much later than the first and particularly towards the end of the "first" two-year period. In any event, the office-holder appointed second must report as soon as he becomes aware of unfit conduct. The conduct of which he becomes aware, or the evidence, might differ from that discovered by the other
office-holder. However, the Unit wants to avoid a Practitioner undertaking unnecessary work in completing a report which, because of the timing
difficulties, might not be of practical use. Where this situation arises, Practitioners should contact the Unit for guidance on the appropriate approach.

Rule 4(5)(b) of the reporting rules says that an office-holder who leaves office before the day one week before the expiry of the 6-month period must send a return within 14 days of leaving office unless he has already reported.

A company that is put into compulsory liquidation after it has been in voluntary liquidation, will have passed a resolution for voluntary liquidation. The voluntary liquidator is therefore an office-holder.

A voluntary liquidator of a company which becomes the subject of a compulsory winding-up order must still make a report or return as appropriate. However, in a compulsory liquidation, the duty to make the return or report remains with the Official Receiver, whether or not he is replaced as liquidator by a Practitioner.

If there are joint appointees to one office, only one joint report is required in respect of that appointment.  It is for the joint appointees to determine which of them should draft the report, having regard to the division of duties between them. Unless there is a clear intention from the outset that one of the joint appointees will be responsible for all aspects of submitting the report, both appointees should ensure that they are fully satisfied with its content. If proceedings are taken and the author of the report is unavailable to swear any affidavit in support of those proceedings, the other appointee will be expected to swear it and, if necessary, give evidence. Such cases are rare; when they occur, they will be considered on their merits.

5.5 Scotland

The primary legislation, namely the Insolvency Act 1986 and the CDDA, are Great Britain Acts. This means they apply to Scotland as well as England and Wales. The secondary legislation differs. Reporting provisions are set out in The Insolvent Companies (Reports on Conduct of Directors) (Scotland) Rules 1996.

All reports and returns in respect of companies registered in Scotland must be sent to Disqualification Unit (Edinburgh). The statutory forms to use in such cases are the D1(SCOT) and D2(SCOT) forms in the schedule to The Insolvent Companies (Reports on Conduct of Directors) (Scotland) Rules 1996.

The procedure for making applications to the Sheriff Court is set out in the Act of Sederunt (Company Directors Disqualification) 1986 and the Rules 74.33 and 74.34 of the Rules of the Court of Session. The detailed provisions of the Insolvent Companies (Disqualification of Unfit Directors) Proceedings Rules 1987 (as amended by The Insolvent Companies (Disqualification of Unfit Directors) Proceedings (Amendment) Rules 1999) do not apply in Scotland.

In Scotland, cases are taken into Court by the Scottish Office Solicitor or solicitor agents who issue the "10 day" letter and begin the proceedings, acting on the instructions of the Unit.

Court proceedings in Scotland differ from those in England and Wales. The cases regularly call in Court for motion to be made. The proceedings for Court of Session cases are structured as follows:

Petition	Sets out the Secretary of State's case.
Answers	Sets out the defendant’s case in answer to the petition.
Adjustments	For both parties until agreement on content or entrenched dispute is reached.
Debate	To dispose of preliminary pleas in law.
Proof before Answer	Proof but pleas in law are outstanding.
Proof	The final hearing of the case; each side calls witnesses to prove the facts of the case.

Sheriff Court cases are similar but proceed by way of summary application rather than petition.

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