14. Taking control of goods or distraint
How taking control of goods or distraint may be used to recover debt.
Distraint (attachment in Scotland) is a commonly used method of recovery by taking possession of a debtor’s goods and selling them, usually at public auction, after which the proceeds are set against the debt and costs.
Distraint does not require the sanction of a court order.
Distraint will no longer be used in England and Wales with effect from 6 April 2014 when the relevant legislation will be repealed but will continue to be used in Northern Ireland.
Taking control of goods replaced distraint in England and Wales from 6 April 2014.
Taking control of goods is the process under which a debtor’s goods are seized and sold in settlement of outstanding costs, tax and interest.
The relevant legislation is in Part 3 (‘enforcement by taking control of goods’) of the Tribunals, Courts and Enforcement Act 2007 (TCEA07) and supporting regulations. This is Ministry of Justice legislation binding on the whole bailiff industry in England and Wales.
Once a bankruptcy order or compulsory winding-up order has been made, any incomplete ‘taking control’ (England and Wales) distraint (Northern Ireland) action (that is, the goods seized have not been sold), may be completed by us with the authority of the trustee in bankruptcy or liquidator, or the trustee or liquidator may insist on the goods being released to them to sell subject to an undertaking provided by us.
If taking control or distraint has been completed by sale within the 3 months immediately preceding the date of a bankruptcy or winding-up order, the proceeds of taking control or distraint may be surrendered to the trustee in bankruptcy or liquidator if the trustee or liquidator is unable to pay the preferential creditors in full from other realisations.
The trustee or liquidator must satisfy us that such a shortfall regarding preferential creditors exists.
When taking control or distraint is completed by sale more than 3 months before the making of the bankruptcy or winding-up order we are entitled to retain the sale proceeds.
In Scotland, attachment will not be taken against a sequestrated trader for the duration of the sequestration.
If taking control or distraint has been completed (goods in possession of HMRC), either physically, under a Controlled Goods Agreement (England and Wales) or walking possession (Northern Ireland) before the appointment of a liquidator, administrative receiver or administrator, then the distraint or attachment remains valid and will be maintained and may be completed (read section 14.3.3).
14.3.1 Voluntary arrangements
Taking control or distraint action will normally be suspended once an interim order has been made, a moratorium granted or proposals for a voluntary arrangement have been received and a creditors meeting arranged unless there are exceptional circumstances which justify not suspending, for example evidence of fraud or lack of probity.
When a controlled goods agreement or walking possession has been entered into, our support for a proposal is likely to be on terms such that the element of our claim equivalent to either the value of that claim or the agreed valuation of the controlled goods (whichever is lower) shall be a priority claim in the arrangement.
When the proposals are rejected at the creditors’ meeting we will proceed to complete the seizure by sale.
14.3.2 Administrations
Once an administrator has been appointed, taking control or distraint may not be instituted or continued against the company or the property of the company except either with the:
- consent of the administrator
- leave of the court
Although, in view of the special rights taking control or distraint gives us over the seized goods, we will generally try to reach a financial settlement with the administrator without the need to seek court directions. The process of ‘binding goods’ under TCEA07 by issuing an enforcement notice considerably strengthens HMRC’s position in this respect.
14.3.3 Sale of controlled or distrained goods
In many cases we’ll agree to the office holder selling the seized goods if it is likely to be to our benefit and, or to the creditors in general. This is subject to the office holder providing us with a written undertaking to remit the proceeds of the sale of the seized goods directly to us.
We reserve the right to remove and sell controlled or distrained goods at any time.
Any money we receive for the sale of controlled or distrained goods will be set against costs and then against the earliest pre-insolvency liability, with our claim amended accordingly.
When a floating charge crystallises on the appointment of an administrative receiver or some other event specified in the debenture, control or distraint will still be maintained and completed if we have already seized goods which are subject to the floating charge.
We may choose to let the administrative receiver sell the goods, subject to an undertaking, and pass the proceeds to us (read section 14.3.3).