The Official Receiver and their Role in Liquidation
Read our complete guide to the role of the Official Receiver (OR) below, including their role in the liquidation procedure.
What is an Official Receiver (OR)?
Official Receivers are civil servants, working as officers of the United Kingdom government agency, the Insolvency Service. As officers of the court to which they’re attached, they are tasked with acting in a variety of roles relating to insolvency and bankruptcy. Less commonly, the OR can be instructed by the Secretary of State for Business Energy and Industrial Strategy.
The OR’s roles include:
- acting as liquidator (someone who conducts the liquidation process) following a winding up orderTrusted Source – Legislation- Section 122, Insolvency Act 1986.
- acting as provisional liquidator
- acting as interim receiver (an officer tasked with protecting debtor’s property)
- Investigating the conduct of company directors prior to and during insolvency, or the conduct of bankrupt individuals
Role of The Official Receiver (OR) in a Liquidation
The Official Receiver (OR) has the following resonsiblities and powers while working as a liquidator:
- To collect and protect corporate assets for creditors.
- To take control of an insolvent company’s affairs.
- To investigate and report on the reasons for the insolvency and directors conduct.
- To keep creditors and shareholders updated of the progress of the liquidation
There are 3 key areas of focus that Official Receivers are tasked with investigating :-
- Wrongful trading.
- Any transaction at undervalue.
- Unfair preferences.
Assessing Wrongful Trading
If an Official Receiver (OR) reports that the director is suspected of wrongful trading (continuing to trade into insolvency), the director could face charges, including being held personally liable for some of the corporate debt. The director can also be disqualified from being a company director for up to 15 years.
The only defence to wrongful trading is the “every step” defence – where the director can show that he/she took every step possible to minimise the loss to the company’s creditors before the company’s insolvent liquidation.
» MORE Read our full article on Wrongful Trading
Transaction at an Undervalue
The OR can investigate any transactions that were made at an undervalue during the period of up to two years before the company going into liquidation.
This means tranactions when the director has sold an asset at below market value, an act which effectively lowers the return for creditors during insolvency.
If the directors are found to have made a transaction at an undervalue (or several), the Official Receiver can apply to the courts to reverse the sale. They can also order the directors to recompense the company so that it is in the same position it would have been had the transaction been for the assets full value.
» MORE Read our full article on Transactions at Undervalue
Unfair preference takes place if a company takes certain actions that put a creditor in a preferential position to other creditors.
The action must have been intentional – mistakes by the company or its directors will not be unfair preference (though they may be deemed as wrongful trading or a transaction at an undervalue). However, if the creditor is a connected party to the company, the intention is presumed and can only be overcome by clear evidence to the contrary.
Investigating the Conduct of Directors
The Official Receiver will interview the company’s directors and go through the financial records. They may also make background enquiries with other parties, such as banks and the company’s accountants. The OR’s reports on cases are not publicly available.
If fraud or other wrongdoing appears likely, the Official Receiver (OR) will report this to the Insolvency Service’s Investigations and Enforcement Services. The Official Receiver (OR) has wide ranging powers to obtain information that will support their investigations and can also examine people in court if necessary. Where there may be criminality, the OR may also deal with other agencies such as local police or the Serious Fraud Office.
Directors Responsibility To Co-Operate with Official Receiver (OR)
Directors have a duty to comply with requests from the Official Receiver (OR) to provide information about the company’s financial affairs and management and also to attend interviews when asked. The OR is not able to provide directors with legal or financial advice.
Initial meetings will usually be held in person and can last several hours. Questions will be around what assets are held, debts and the reasons for why insolvency has occurred. Following this, the Official Receiver (OR) will write to directors, setting out what is required from them. It is essential that directors co-operate with the OR’s office and if not, they could be summoned to court to answer questions or even arrested. Furthermore, directors who do not co-operate could be sanctioned by being disqualified from future company management roles for a period from 2 to 15 years.
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The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.
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