If your company is facing compulsory liquidation, the initially appointed liquidator will be a court officer known as the Official Receiver (OR).[1]Trusted Source – .GOV- Contact an Official Receiver

Read our complete guide to the role of the Official Receiver (OR) below, including their role in the liquidation procedure.

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What is the Role of the Official Receiver in Liquidation?

The role of the Official Receiver (OR) in liquidation is to protect the interests of creditors and investigate the reasons for the company’s insolvency.

The OR has the following specific responsibilities:

  • Collection and protection of assets: The OR takes control of the company’s assets and protects them from being dissipated by the directors or other interested parties.
  • Investigation: The OR investigates the reasons for the company’s insolvency and the conduct of the directors. This includes investigating potential wrongdoing, such as wrongful trading, transactions at undervalue, and unfair preferences.
  • Report: The OR reports to the court on the company’s affairs and the progress of the liquidation.
  • Update creditors and shareholders: The OR keeps creditors and shareholders updated on the progress of the liquidation.

The OR is also responsible for distributing the proceeds of the liquidation to creditors in accordance with the law.

Appointment of the Official Receiver as Provisional Liquidator

The Official Receiver (OR) can be appointed as a provisional liquidator by the court on an emergency basis after a winding-up petition has been presented but before the court hearing. This typically happens when there is a risk of the company’s assets being dissipated or concealed by the directors.

The OR’s role as provisional liquidator is to protect the company’s assets and interests pending the outcome of the winding-up petition.

Responsibilities of the Official Receiver

As a provisional liquidator or liquidator, the OR has the following responsibilities:

  • Protect the company’s assets and interests: This includes freezing the company’s bank accounts, taking control of the company’s premises and records, securing the company’s assets, and preventing the directors from disposing of or concealing assets.
  • Investigate the company’s affairs: This includes investigating the company’s financial records, transactions, and activities to identify any potential wrongdoing, such as wrongful trading, transactions at undervalue, and unfair preferences.
  • Realize the company’s assets: This involves selling the company’s assets and converting them into cash.
  • Distribute to creditors: Once the company’s assets have been realized, the OR will distribute the proceeds to creditors in accordance with the law.
  • Report to the court: The OR must keep the court updated on the progress of the liquidation and report on any findings from the investigation.

Investigation of the Company’s Affairs

One of the most important responsibilities of the Official Receiver (OR) is to investigate the affairs of the company in liquidation. This investigation is designed to identify the causes of the company’s insolvency and to identify any potential wrongdoing by the directors or other officers of the company.

The OR has a wide range of powers to investigate the company’s affairs. These powers include:

  • Requiring the directors and other officers of the company to provide information and documentation.
  • Inspecting the company’s books and records.
  • Appointing inspectors to conduct investigations on the OR’s behalf.
  • Applying to the court for search warrants and other orders to assist with the investigation.

The OR will also consider any information or allegations that are brought to their attention by creditors, shareholders, or other interested parties.

The OR’s investigation will typically focus on the following areas:

  • The company’s financial performance and trading history.
  • The company’s management and decision-making processes.
  • The company’s relationships with its creditors and shareholders.
  • Any transactions that may have occurred in the lead-up to the company’s insolvency.

Realization of Assets

Once the Official Receiver (OR) has investigated the company’s affairs and secured its assets, they will begin to realize the company’s assets. This involves selling the company’s assets and converting them into cash.

The OR will typically sell the company’s assets through a combination of methods, such as public auction, private sale, or trade sale. The OR will choose the best method of sale for each asset, depending on the nature of the asset and the expected market value.

The OR may also need to appoint a valuer to assess the value of certain assets, such as property or inventory.

Once the assets have been sold, the OR will collect the proceeds of the sale and hold them in a trust account for the benefit of the company’s creditors.

Distribution to Creditors

Once the OR has realized all of the company’s assets, they will begin to distribute the proceeds to creditors. The distribution of funds will be made in accordance with the law, which gives priority to certain types of creditors over others.

Secured creditors, such as banks and other lenders who have security over the company’s assets, will typically be paid first. Unsecured creditors, such as suppliers and trade creditors, will be paid next, in proportion to their debts.

If there are insufficient funds to pay all of the company’s creditors in full, the OR will distribute the available funds on a pro-rata basis. This means that each creditor will receive a percentage of their debt, in proportion to the total amount of debt owed to all creditors.

The OR will typically make a series of interim distributions to creditors, as funds become available. Once all of the company’s assets have been realized and all of the company’s creditors have been paid, the OR will make a final distribution to creditors and close the liquidation.

Role of the Official Receiver in Wrongful Trading

Wrongful trading is when the directors of a company continue to trade the company while it is insolvent, with no prospect of avoiding liquidation. This can be a serious offence, and directors can be held personally liable for the company’s debts if they are found to have traded wrongfully.

The Official Receiver (OR) has a responsibility to investigate any potential wrongful trading by the directors of a company in liquidation. If the OR finds evidence of wrongful trading, they may report this to the Insolvency Service or the Crown Prosecution Service for further investigation.

The OR may also apply to the court to disqualify the directors from acting as directors of other companies for a period of time.

Role of the Official Receiver in Transactions at Undervalue

A transaction at undervalue is when a company sells an asset for less than its fair market value. This can be a problem if the company is insolvent, as it can reduce the amount of money available to pay creditors.

The OR has a responsibility to investigate any transactions at undervalue that have taken place in the lead-up to a company’s insolvency. If the OR finds evidence of a transaction at undervalue, they may apply to the court to have the transaction set aside. This means that the asset would be returned to the company, and the company would be able to sell it for its fair market value.

Role of the Official Receiver in Unfair Preferences

An unfair preference is when a company pays one creditor in full or in part, while other creditors are left unpaid or only partially paid. This can be a problem if the company is insolvent, as it can mean that some creditors are treated more fairly than others.

The OR has a responsibility to investigate any unfair preferences that have been given by the directors of a company in the lead-up to its insolvency. If the OR finds evidence of an unfair preference, they may apply to the court to have the preference set aside. This means that the creditor would have to repay the money to the company so that it can be distributed to all creditors fairly.

The OR’s role in investigating and addressing wrongful trading, transactions at undervalue, and unfair preferences is important to protect the interests of creditors and to ensure that directors are held accountable for their actions.

Reporting to the Court

The Official Receiver (OR) is required to keep the court updated on the progress of the liquidation and to report on any findings from the investigation. This is typically done by filing regular reports with the court.

The OR’s reports will typically include information on the following:

  • The progress of the investigation into the company’s affairs.
  • The actions that have been taken to realize the company’s assets.
  • The proposed distribution of funds to creditors.

The OR may also need to seek the court’s approval for certain actions, such as selling a particular asset or setting aside a transaction at undervalue.

References

The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.

You can learn more about our standards for producing accurate, unbiased content in our editorial policy here.

  1. Trusted Source – .GOV- Contact an Official Receiver