Source: https://www.insolvencydirect.bis.gov.uk/TechnicalManual/Ch61-72/Chapter62/chapter_62.htm
Timestamp: 2019-09-18 01:11:08
Document Index: 346544901

Matched Legal Cases: ['art 6', 'art 1', 'art 5', 'arts 4', 'art 4', 'art 5', 'art 2', 'art 4', 'art 7']

Ch 62: Carrying on a business (November 1997)
This chapter aims to identify the areas the official receiver will need to consider following his appointment as provisional liquidator, interim receiver or on making of a winding up order or bankruptcy order in deciding whether to continue the business of an insolvent and also the particular matters that will require his attention during any period of trading. This chapter is not intended to provide an answer to all the questions or problems which the official receiver might encounter, neither is it intended to identify specifically different types of businesses. This is due to the many different and diverse businesses that the official receiver may encounter. Some of those businesses and related problems are covered in chapter 59 - Unusual assets and businesses. The intention of this chapter is to give broad details which may be adapted to different business types and trading circumstances, but the official receiver will need to consider each case on its own merit and make the appropriate decisions. The decision by the official receiver whether to continue the business must be made after duly considering all the information available, after undertaking appropriate enquiries, and the decisions taken thereafter will depend upon the circumstances relating to the business (see also paragraph 62.7). The decision of the official receiver as trustee of the estate may be challenged by the bankrupt or any of his creditors, by an application to the court. It is expected that the official receiver will always obtain specialist advice and adequate financial protection prior to continuing any business. This chapter should be read in conjunction with other chapters, in particular Chapter 2 - Provisional liquidators and Interim receivers, Chapter 8 - Inspections, Chapter 31.6 - Realisation of stock and work in progress Chapter 32 - Special managers and Chapter 59 - Unusual assets and businesses.
Notes: [s303]
62.2 OR as provisional liquidator or interim receiver
The official receiver is most likely to encounter a business which is still trading when he is appointed as provisional liquidator under section 135(1) or interim receiver under section 286(1) of the Insolvency Act 1986. If the terms of the order include a direction that the official receiver should continue the insolvent's business, he should at the hearing of the application to appoint him, draw the court's attention to his need for a satisfactory indemnity supported by a cash deposit against expenses and any trading loss that might arise from the continuation of the business (see paragraphs 2.5 to 2.12). If the official receiver is of the opinion that the insolvent's business should be continued but this is not included in the order appointing him, he should apply to the court and obtain its directions as to the amendment of the order (see paragraphs 2.28 to 2.34). The official receiver may decide that he requires assistance in order to adequately supervise the business and should consider applying to the court for an order appointing a special manager (see paragraph 62.13 and chapter 32.4). Generally, the official receiver is encouraged to seek the appointment of a special manager in situations where he has decided to continue a business: it would be the rare exception to this rule were the official receiver not to engage a special manager when a business was to be continued. The appointment of a provisional liquidator or interim receiver does not itself affect the rights or status of employees (see chapter 2, part 6). A provisional liquidator or interim receiver should obtain an order from the court to continue on behalf of the company or the debtor the employment of and to pay some or all of the employees or that he cause the company or the debtor to terminate their employment at his discretion. If employees are dismissed, the notices should be issued by the official receiver where he is acting as provisional liquidator or interim receiver and not by any special manager who may be acting, since if he issues such notices he may become personally liable in relation to the termination of employees' contracts. Such dismissals do not give an employee a right to claims under the Employment Rights Act 1996, this will only arise if and when a winding up or bankruptcy order is made (see paragraphs 2.51 to 2.53).
Notes: [PRAGAR]
62.3 OR as receiver and manager
Unless the estate of a bankrupt vests immediately in the official receiver by virtue of section 297, generally on the making of a bankruptcy order or an insolvency administration order under the Administration of Insolvent Estates of Deceased Persons Order 1986, the official receiver is receiver and manager of the bankrupt's estate (see chapter 24 - Receiver and Manager). The function of the official receiver while acting as receiver and manager is to protect the bankrupt's estate pending the appointment of a trustee. The official receiver has the same powers as a receiver and manager appointed by the High Court for the purpose of protecting the bankrupt's estate. If the official receiver decides to continue the business, he should obtain a satisfactory indemnity supported by a cash deposit to cover expenses and any loss in trading which the petitioning creditor and the (other) major creditors should be approached to provide. The official receiver may employ an agent to deal with his functions under section 287 without the leave of the court (see paragraphs 24.15 and 24.16). The official receiver may sell or dispose of any perishable goods eg foodstuffs and also any goods which will diminish in value if not disposed of quickly eg flowers or seasonal goods such as Christmas goods or Easter eggs (see chapter 31.6).
62.4 Fixed or floating charge
The official receiver should ascertain whether any valid fixed or floating charges are in existence at the date of the winding up or bankruptcy order. The official receiver should consider the validity of such charges and, if satisfied that they are valid, should contact the charge-holder and ascertain whether it is the charge-holder's intention to appoint a receiver (see paragraph 3.26 and chapter 9, part 1). The official receiver should then agree with the charge-holder the steps to be taken pending the appointment of a receiver. If the charge-holder refuses to appoint a receiver and there will be a surplus from the realisation of assets, the official receiver should make the necessary application to the Secretary of State to appoint an insolvency practitioner as trustee or liquidator (see chapter 17, part 5). If it is anticipated that there will be a shortfall to the charge-holder and the charge-holder refuses to appoint a receiver, the official receiver should ensure that the charge-holder is aware that no action will be taken regarding the realisation of the assets and that minimum steps will be taken to protect the property (see paragraphs 8.56 and 8.57).
62.5 Initial inspection
This paragraph should be read in conjunction with Chapter 8 which relates to the inspection, protection and collection of assets. When the official receiver is notified of a winding up order or a bankruptcy order, he should take immediate steps, usually by telephoning the petitioning creditors' solicitors and/or the last known trading address of the business, to ascertain whether the company or individual is still trading. If there is evidence to suggest that the business is still trading, an inspection should be carried out as soon as possible. The inspecting officer should be satisfied that the business which is trading is operated by the person subject to the insolvency order and obtain documentary evidence to confirm the details of the business and ownership of the assets. The official receiver should be immediately informed where a business is trading so that an appropriate decision can be made whether the trading should continue. The inspecting officer should make enquiries to ensure that distress has not been levied on the property of the insolvent and that a sheriff or county court bailiff has not taken "walking possession" over all or any part of the insolvent's property. Reference should be made to chapter 9, parts 4 and 5 for further information concerning distress and executions and other forms of action against the property of the insolvent.
62.6 Information to be obtained at inspection
The inspecting officer should contact the bankrupt or the company's officers or managers who can give detailed information of the business and obtain the names and addresses of the persons who are proposing that the business be continued (see also paragraph 32.4.6). In addition to this information the inspecting officer should obtain information on the following matters:
the nature of the work in hand and details of contracts and in particular whether any contract contains a penalty clause,
the approximate value of the work in progress,
the cost of completing the work,
the time needed to complete the work,
names and addresses of customers for whom the work is intended,
the price payable for the work and details of any payments on account, including deposits,
whether all the materials needed to complete the work are at the premises, and details of any goods ordered but not yet delivered,
details of materials which may be claimed by third parties,
details, including cost of any goods or services, needed to complete the work,
details, including the cost of the productive and non-productive staff, needed to complete the work,
rent and rates payable, including arrears,
details of public utilities and other essential services together with details of amounts due
insurances in force, details of cover, premiums payable and renewal dates.
This list should not be regarded as being exhaustive.
Whilst the details above envisage a manufacturing business of some kind, if the business relates to service, distribution or retailing, similar considerations will apply, but in addition the information should cover past and present turnover, details of wages and salaries and other overhead costs. The inspecting officer should also ascertain that the security of the premises is adequate (see chapter 8, part 4) and, if necessary, take steps to change the locks. (see also paragraph 62.15).
62.7 Reasons for continuing a business
As a general principle, a business must not be carried on unless the official receiver is satisfied that to do so will ultimately be beneficial to the general body of creditors for the purposes of its winding up and the estate is indemnified against any resultant loss. It may be necessary to continue trading to preserve the goodwill of the business, to enable its sale as a going concern, to complete a pending sale of the business, to complete valuable work in progress (see chapter 31.6) or, exceptionally, to enable third parties to recover their property (see paragraph 62.8 for further details). The official receiver also has to consider the well being and care of the occupants when dealing with nursing or other residential homes. The official receiver may also encounter farms, pet shops or other establishments where animals are kept and he should ensure that the animals are securely contained and that suitable arrangements are made for their care pending their sale (see paragraphs 8.21 and 8.22).
62.8 Short term trading
The official receiver may encounter situations where the business does not merit being continued but the premises should remain open or should be opened for a limited period of time to permit the collection of property or the disposal of perishable food. Considerable care should be exercised and regard had to the provisions of the Food Safety Act 1990 if it is decided to sell fresh or perishable food. The current policy is that all perishable foodstuffs should be destroyed with the assistance of the local Environmental Health Officer, if necessary (see also paragraphs 31.6.38 and 31.6.39 regarding the sale or disposal of fresh food and grocery items). If the business dealt with the cleaning or the repair of items, eg dry cleaning clothes shop, shoe repairers or a garage, then the official receiver will need to make the necessary arrangements for the public to reclaim their property (see paragraph 8.71). In such cases the official receiver may need to retain the services of the bankrupt or a company officer to assist in this operation, although without any payment being made for their services. If possible, the persons whose possessions are at the premises should be notified of the situation, either by telephone, in writing or by local advertisement and requested to collect their goods on specified days, thereby minimising the need for a long period of trading or opening. If at the end of a set period of time there are still third party goods at the premises, the official receiver should consider what steps are available to him to dispose of unclaimed third party property (see paragraph 8.72). For details regarding the collection of third party property such as a leased photocopier, reference should be made to paragraph 62.22). Reference should also be made to paragraphs 31.6.52 Third party goods and 31.6.53 Bailment, bailees and bailors.
62.9 Dealing with a partnership
Reference should be made to chapter 53 which deals with partnerships. If proceedings are brought under articles 8,10 and 11 of the Insolvent Partnerships Order 1994 [the IPO], the official receiver will usually be appointed as trustee/liquidator of the estates and therefore will not be subject to the restrictions of section 287. When dealing with a partnership, the official receiver should check the order to ascertain how the partnership is being wound up (see paragraph 53.24). If one or more partners are made bankrupt and other partners continue the business, this is a partial dissolution, the old partnership is dissolved and a new one is created by the continuing partners (see paragraph 53.17)
62.10 Appointing an insolvency practitioner to carry on a trading business (amended May 2015)
Where the decision is taken that a significant value in the business would be lost if trading ceased (see paragraph 62.7) and the official receiver does not have the resources to continue the trading of the business, they may consider the early appointment of an insolvency practitioner (IP) as liquidator or trustee – obtaining the agreement in principle of Insolvency Practitioner Section (IPS) as appropriate (see Chapter 17, paragraph 17.53).
62.11 Indemnity
If after considering the facts of the case and the advice he has obtained from specialists, the official receiver forms the view that the business should be continued, before he takes any further action he must ensure that he has adequate indemnities (including cash deposits) from the petitioning creditor or major creditors to cover any losses which might be incurred if the business is continued (see paragraphs 2.28 and 2.29). The indemnities should be in writing and should state the amount of funds that will be provided to the official receiver. The official receiver should not assume personal liability for expenses. All undertakings given in respect of expenses incurred should be covered by the deposit or other suitable security. The official receiver should make a demand for the funds to be provided under the indemnity when there are payments to be made. If long delays are experienced in obtaining funds from an indemnifier, the official receiver should consult Technical Section.
62.12 Permission of Professional Standards required to continue trading
As outlined elsewhere in this Part, the official receiver has the ability to continue the trading of the insolvent’s business where it is appropriate to do so (see paragraph 62.7). They may not do so, however, without first seeking the permission of Professional. Standards Team (see paragraph 1.10g). It is expected that in the majority of cases where a business is to be continued, an insolvency practitioner will be appointed to deal with such matters (see paragraph 62.10) and/or a special manager will be in place (see paragraph 62.13)
Where the official receiver wishes to apply for permission, their application for permission should be forwarded to Professional Standards (Technical.Section@insolvency.gsi.gov.uk), giving sufficient detail of the reasons for the application and details of any indemnities (see paragraph 62.11) which are to be relied upon (including the amount of the indemnity and by whom given). When satisfied that it would be appropriate, Professional Standards will provide the official receiver with the necessary permission in the form of a written document.
62.13 Appointing a Special Manager
After having considered the information obtained by the inspecting officer and any specialist advice he has obtained, the official receiver may decide that the business should continue in order to achieve a beneficial winding up of the business for the creditors. However, due to the nature of the business or property of the company/bankrupt or the interests of the creditors, contributories or members, the official receiver may decide that another person (a special manager) should be appointed to manage the company's business or property (see chapter 32.4). The official receiver would need to consider the appointment of a special manager where he has been unable to obtain a Secretary of State appointment of an insolvency practitioner (see paragraph 62.10 and chapter 17, part 5) but he will need to give careful consideration to the cost of the special manager's remuneration and expenses (see paragraph 32.4.27).
Notes: [s177 and r4.206] [s370 and r6.167]
62.14 Preparing accounts
If, after considering the available information and advice, the official receiver decides to continue the insolvent's business, it is important that an evaluation report is prepared to detail the anticipated recoveries with cash flow projections and trading accounts, if appropriate. Whilst the trading should not be continued if it is going to be loss making, it may also not appear to be truly profitable in the accounting sense; the aim should be to give the creditors a better result than would be achieved by an immediate cessation of business and an auction or other sale of the assets. If the funds (indemnities) available to the official receiver are limited, then the cash flow and accounts should be prepared at the outset. These projections should include the remuneration of a special manager where applicable and the projections should be reviewed when they become actual. During the period of trading, the official receiver should ensure that adequate accounts are maintained which are appropriate to the business. If the accounts are to be prepared professionally, then the official receiver should authorise the cost of the preparation of the accounts to be payable either from the indemnities given or under rule 4.218. If the official receiver intends to supervise the business himself, he must collect all takings and ensure that purchases and services are not obtained on credit.
62.15 Insurance
This paragraph should be read in conjunction with Chapter 49. The official receiver must be satisfied that he has adequate insurance cover relating not only to the premises and contents but also public liability and employees' liability insurance in accordance with the Employers' Liability (Compulsory Insurance) Act 1969. It is likely that the cover required will not form part of the standard automatic insurance cover and the official receiver should discuss the matter with Willis immediately by telephone (see paragraph 49.28A for further details). Where the insolvent has existing cover, the official receiver will need to consider whether there is adequate cover in the existing policy and either continue or cancel the policy (see Part 2 of Chapter 49). The official receiver should not incur costs insuring third party goods, except to reduce the risk from any public liability, unless prior authority is obtained from Technical Section. Once trading ceases or the case is handed to an insolvency practitioner the official receiver should review his/her insurance requirements. The official receiver may wish to cancel the whole policy or seek to amend the policy to cover the remaining assets, if any. The broad principles explained in paragraph 49.27B should be followed.
62.16 Occupation of premises
The official receiver will need to identify the basis on which the company or individual has occupied the premises. If the premises are freehold and charged, the official receiver will need to contact the charge-holder and inform him of the situation and ensure that the charge-holder does not propose to take any steps in relation to the property which would affect the official receiver's decision to continue the business. If the premises are leasehold, the official receiver should contact the landlord and ascertain whether there are any rent arrears and if the landlord is in the process of levying distress (see chapter 9, part 4). If the official receiver is aware that the landlord can validly distrain but there is a benefit in continuing the bankrupt's business, the official receiver may give the landlord a guarantee to pay all the rent outstanding or, if that is not accepted by the landlord, to actually pay the outstanding rent (see paragraph 9.40). However, this is not an action to be taken as a matter of course and would be subject to terms agreed by the official receiver and the landlord. The official receiver will be responsible to ensure that payments for rent are made during the period that trading continues and also for council tax to the local authority. If the insolvent has granted a lease or tenancy over his property, the official receiver will need to ascertain the nature of the occupation of the property by the lessee or tenant and after considering the details, the rent payable by the occupant may be collected by the official receiver to preserve the income pending the appointment of an insolvency practitioner. For further information regarding the collection of rent see Chapters 31.11 and 31.12. If rent is collected, the obligations of the landlord under the lease or tenancy should be carried out by the official receiver but they should only be discharged where they are covered by the rent. The official receiver may require specialist advice on his point.
62.17 Continuing services
Sections 233 and 372 enable the office - holder to negotiate for continuing supplies of electricity, gas, water and telecommunication services but not cable services. The supplier may make it a condition of the giving of the supply that the office - holder personally guarantees the payment of any charges in respect of the supply. Such a guarantee should only be given if it is covered by an indemnity, deposit or security. The suppliers of these services cannot make the payment of outstanding accounts at the date of the winding up or bankruptcy order a condition of giving the supply. If the supply is to both business and residential premises and cannot be separated, the official receiver should make arrangements with the householder for payment of the domestic element. If any difficulties are encountered on this matter, they should be reported to Technical Section.
62.18 Bank Account
It may be decided that a local bank account is required for the period whilst the business is being continued. In such cases an application should be made to the Secretary of State (Technical Section) for authorisation to open a local bank account into and from which payments may be made, subject to a limit, instead of the Insolvency Services Account (ISA). The Secretary of State will authorise the opening of such an account if satisfied that an administrative advantage will be derived from having such an account. The account should be opened and maintained in the name of the company in liquidation or the bankrupt. A surplus over any limit imposed by an authorisation should be paid into the Insolvency Services Account in the accordance with Regulation 5 or 20 of the Insolvency Regulations 1994. When the period of trading has been completed or the authorisation of the Secretary of State is withdrawn, the bank account should be closed and any balance paid into the Insolvency Services Account, in accordance with Regulation 5 or 20.
Notes: [Reg 6 or 21 IR 1994]
62.19 Retaining staff
Where a business is to be continued, it will often be necessary to retain key staff, such as office managers and computer operators together with the necessary staff to complete the contract; such employees could include company officers. Also, if the bankrupt's business was of a specialised nature, it might be the most cost effective and efficient solution to retain the bankrupt to complete an outstanding contract. The bankrupt should not be allowed unrestricted access to the trading premises nor should he be allowed to hold the keys to the premises. The official receiver should also ensure that the bankrupt is not left in a situation where he may collect money from customers (see also paragraph 31.6.58). The official receiver should only employ the bankrupt where there is no practical alternative and the bankrupt should be asked to act for the official receiver without payment, although he may be employed on a paid basis for a short time until other arrangements can be made, such as the appointment of a special manager or insolvency practitioner (see paragraph 32.3.25). If the official receiver is receiver and manager, the bankrupt may be employed to protect the assets without the leave of the court. If the official receiver is trustee and he wishes to employ the bankrupt to continue the business for the benefit of creditors, he must first obtain leave of the Secretary of State or more usually the court (see paragraph 32.3.26).
Notes: [s287] [s314(2)]
62.20 Effect of retaining staff
If the principle is adopted that a contract of employment is terminated by repudiation on the making of a winding up order, even where the employment is continued afterwards, this will have the effect of depriving the employee of the benefit of accrued service for the purpose of redundancy payments. An employer may repudiate a contract of employment by insisting on change in terms or by making it impossible for the employee to continue working by closing the business where he was employed. However, if the liquidator continues to pay the employees, the Redundancy Payments Service appear to take a practical view and treats the redundancy as occurring at the time of the eventual dismissal. When a liquidator who continued trading eventually makes redundancies it is not entirely clear whether the payment is his personal expense or an expense in the winding up. Due to this uncertainty, the liquidator will often treat his appointment as the termination of contracts of employment. If the liquidator wishes to re-employ staff, he will do so on the basis of a new contract, in which he acts as agent for the company, with a provision seeking to exclude personal liability (see also chapter 76 - Employment Law). The Insolvency Act 1986, as amended by the Insolvency Act 1994 provides that in respect of contracts of employment adopted by an administrator, administrative receiver or receiver, on or after 15 March 1994, the liability of an administrator, administrative receiver or receiver is limited to qualifying liabilities ie wages or salaries and occupational pension contributions (see also Paramount Airways (No 3) [1994] BCC 172).
Notes: [s19,44 and 57]
62.21 Consumer protection
The Consumer Protection Act 1987 may, in some circumstances, affect the official receiver when he is disposing of assets. Part I of the Consumer Protection Act implements an EC Directive on product liability which principally affects producers and may be relevant where the official receiver carries on the business of a bankrupt and himself produces the product or holds himself out as a producer. If the business being carried on is that of a limited company, then it is unlikely that the official receiver would be identified as the producer. It is more likely that the company would be the producer. Part II of the Act is concerned with consumer safety and makes it a criminal offence to supply (whether as principal or agent) unsafe consumer goods or to supply goods in breach of safety regulations made under the Act, in the course of a business. The Act also imposes civil liability for breaches of its regulations. Consumer goods must comply with a general safety requirement that is they must be reasonably safe having regard to all the circumstances. If realising or selling consumer goods, the official receiver should protect his position by trying to ensure that the goods are safe. There is a defence to potential liability for supplying unsafe goods where the supplier informs a buyer that the goods are secondhand and the sale involves a transfer of ownership of the goods. If the official receiver sells goods which are secondhand, he should ensure that they are sold on the terms that they are secondhand and, in addition, that they are sold on the terms that the property in the goods is to pass to the purchaser directly. Safety regulations relating to a wide variety of goods have been made under the Act. The regulations are revised about every 6 months and up to date lists can be obtained from local Trading Standards offices. If the official receiver finds that regulations have been made which affects goods he will be selling, he should obtain agents' advice and arrange for the goods to be checked (possibly by an expert) to see whether the regulations have been complied with (if this is a worthwhile exercise in the sale process). Otherwise, the property should be disclaimed.
62.22 Third party goods
Reference should be made to Chapter 8, part 7 for the action to be taken when dealing with third party property. If the equipment is required in the continuation of a business, the official receiver should contact its owners and inform them of the situation and make the necessary arrangements to retain and use the equipment. The official receiver will need to consider whether there is adequate insurance cover for such property (see paragraph 49.7). If the business involved investments, the official receiver may also need to consider whether or not certain "assets" of the individual or company were in fact owned by the individual or company beneficially or merely held on trust for others. It is possible that if the assets are insufficient to satisfy the official receiver's fees and expenses in dealing with the property he may then apply to the court to be paid his proper expenses and remuneration out of the trust assets for doing so (Re Berkeley Applegate (Investment Consultants) Ltd (No2)[1988] 4 BCC 279).
62.23 Retention of title claims
During the inspection, information should be obtained regarding any stock or goods at the premises which are subject to a retention of title clause. Unpaid creditors may attempt to claim the return of goods under retention of title clauses. (For further information regarding such clauses and claims reference should be made to chapter 63). If the goods are essential for the continuation of the business, and the creditor is insisting upon their return, the official receiver should try to make some form of agreement with the creditor for the continued use to the goods. If such an agreement proves to be impossible and the creditors claim is valid (see paragraph 63.13), the official receiver will be obliged to allow the supplier to remove the goods and possibly to cease trading.
62.24 Goods vehicle operator’s licence
Where the business conducted involves road haulage and any vehicle exceeds 3.5 tonnes gross weight, the insolvent is required to hold a goods vehicle operator's licence. This applies to both those who carry goods for hire and those who use lorries to carry their own goods. Such licences are normally operative for five years and give details of each vehicle and trailer covered. Discs for display in each vehicle are provided. Similar provisions apply to operators of passenger service vehicles. Licences are granted by Traffic Commissioners or Licensing Authorities which are based at eight Traffic Area Offices (TAO). The holders of operators' licences have to meet certain criteria, including having sufficient financial resources to maintain the vehicles and being of "appropriate financial standing". It is unlikely that a company in liquidation or a bankrupt will meet these requirements but the Traffic Commissioners have discretion to allow such a business to operate. The official receiver should notify the TAO of the making of any winding up or bankruptcy order in writing and seek the agreement of the Traffic Commissioner or Licensing Authority prior to continuing the business. If agreement is not given, or when the business finally ceases, the licence documents and associated vehicle discs should be returned to the TAO; there may be a refund of fees paid. The licence has no realisable value and cannot be transferred to another person. Addresses of the relevant TAO can be obtained from the telephone directory or by telephoning 0117 975 5001 (the Traffic Commissioners Office, West Traffic Area).
62.25 Income tax and NI
If the official receiver retains any staff, in addition to being responsible for their wages, he must ensure that appropriate deductions are made for income tax and national insurance contributions. Employees are taxed under the Schedule E of the Income and Corporation Taxes Act 1988 whilst any self employed person is taxed under Schedule D (for further details regarding taxation see chapter 77). The official receiver may consider it necessary to obtain specialist advice on this matter.
62.26 Valued Added Tax
The official receiver should ascertain whether the business is or should be registered for VAT. The insolvent should complete the return for the last business period, ie from the date of the last VAT accounting date to the date of the relevant insolvency order. The business should remain registered for VAT until such time as trading finally ceases and all the assets are disposed of. Where the official receiver continues the business, he will be responsible for the completion and submission of VAT returns and payment of any tax due. When the business is finally closed, the official receiver may apply to have the insolvent deregistered. If the insolvent has not registered as a taxable person for VAT although the taxable turnover of the business has exceeded the stated amount (see VAT leaflet 700/11), the official receiver should advise HM Customs and Excise accordingly. The insolvent will be responsible for completing outstanding VAT returns to the date of the winding up or bankruptcy order. Thereafter, the official receiver thereafter will be responsible for ensuring that the periodic returns are completed and that liability is paid on submission of each return. Further details regarding VAT are provided in chapter 78. The official receiver may consider it necessary to obtain specialist advice on this matter.
62.27 VAT (Group registration)
Value added tax is not chargeable on the transfer (intra-group or to a third party) of a business or a part of a business as a going concern provided that the requisite conditions for relief are satisfied. Two of the conditions are that there should be no significant break in trading (apart from a short period of closure immediately before the transfer) and that the transferee is or becomes liable to be registered for the purposes of VAT as a result of the transfer. Intra-group transfers of assets, whether as a going concern or otherwise, do not attract a charge to VAT if at the time of the transfer there is in force a VAT group registration involving the transferor and transferee. Therefore, in appropriate cases, it may be advantageous to keep such a registration alive where any such transfer is contemplated. However, VAT group registration exposes each member of the group to liability, jointly and severally, with all the other members of the group, for any VAT due by any member of the group.
62.28 Corporation tax
Any liability for corporation tax arising as a result of trading after the winding up order will rank as an expense of the winding up payable under Rule 4.218(1)(p). This should be discharged by the liquidator out of the assets coming into his hands (section 108 of the Taxes Management Act 1970). However, as confirmed by the Inland Revenue, such liability does not become the personal liability of the liquidator, so that if no or insufficient assets are realised, he is not required to discharge the liability out of his personal financial resources unless :
at the time the liability was incurred, he knew or ought reasonably to have known that no or insufficient assets would be coming into his hands, or
he has distributed or disposed of the assets coming into his hands without making provision for such liability.
The court will not allow the liquidator to complete the liquidation without discharging the liability as an expense of the winding up out of the assets in his hands, inasmuch as it would have been incurred for the benefit of the liquidation (Re Mesco Properties Limited [1979] STC 788) and rule 4.218(1)(p).
62.29 Corporation Tax (groups)
For certain purposes of the tax legislation the commencement of a winding up order has the effect of divesting the company of the beneficial ownership of its assets including any shares in subsidiaries. One consequence of this is that the group relationship between the company and its subsidiaries is severed and the transfer of tax losses within the group is no longer possible. The severance of the group relationship does not bring about a deemed disposal of chargeable assets for the purposes of corporation tax or capital gains tax (section 170(11) of the Taxation of Chargeable Gains Act 1992). There is also no such severance as regards any future transactions involving chargeable assets, for capital gains tax purposes, so that there can still be intra-group transfers of assets without a chargeable gain or an allowable loss arising (section 171 of the Taxation of Chargeable Gains Act 1992). On the commencement of a winding up, a new accounting period begins (section12(7) of the Taxes Act). This may affect the company's ability to make use of group relief and capital allowances and calculation of the amount of losses available for set off against profits and gains. Trading losses made during the winding up may be set off against post cessation income from other sources, such as deposit interest. It may be necessary for the official receiver to obtain specialist advice on this matter.