9. Annulments
This is purely a bankruptcy procedure. Information on procedure and the official receiver's role in applications for annulment of the order.
9.1 What is annulment?
An annulment is an official announcement that something no longer exists. Under the Act there a three main grounds a bankruptcy order can be annulled by the court:-
- that on any grounds existing at the time the order was made; the order ought not have been made [section 282(1)(a)];
- to the extent required by the rules, the debts and expenses of the bankruptcy have all, since the making of the order, been either paid in full or secured for to the satisfaction of the court [section 282(1)(b)];
- where the individual is an undischarged bankrupt and an individual voluntary arrangement has been approved at a meeting of creditors [section 261(2)].
In the first two cases the bankruptcy order can be annulled even after discharge.
9.2 Assisting the bankrupt
The official receiver cannot assist the bankrupt with their application for annulment but where the bankrupt indicates that they wish to apply for annulment then the official receiver should write to the bankrupt setting out the process they must follow [ORANNUL – standard letter for potential annulment].
9.3 Notice to official receiver of application to annul
Notice of an annulment application, together with copies of the application and supporting witness statement setting out the grounds on which the application is made, must be given to the official receiver (and any insolvency practitioner trustee) by the applicant [rule 10.132].
9.4 Stay of proceedings
An application for annulment does not, of itself, stop the bankruptcy proceedings. The official receiver should exercise caution where an application is indicated (see ORANNUL) or pending but should continue with the administration of the case, in particular, securing and protecting assets.
The court may upon an application, in advance of the annulment hearing, make an order which stays any proceedings, including proceedings taken by third parties against the bankrupt [rule 10.135(1)].
Where the application is to stay the bankruptcy proceedings in whole or part (whether the application is for a stay of advertisement or the whole bankruptcy) the applicant must send copies of the application to the official receiver and any trustee (if different) in time to enable them to be present at the hearing and, if they wish to do so, to make representations [rule 10.135(3)].
The official receiver should determine on the facts of the case whether they wish to oppose the application but in all cases the official receiver should ask that any stay be time limited to expire on the date of the annulment hearing. At that hearing, if appropriate, the stay may be extended if the hearing is adjourned for any reason.
Any order to stay advertisement or to stay the proceedings the official receiver must immediately notify CustomerServices.EAS (see paragraphs 4.34 and 4.35).
Where the court makes an order staying all or part of the bankruptcy proceedings, the rules relating to the application, or other matters related to the annulment, continue to apply (so that the official receiver or trustee may continue to take part in the annulment application) [rule 10.135(4)]. The official receiver will need confirmation from the court, by way of the order of stay, that contact may be made with creditors in relation to their claims and the annulment where the annulment is on the rounds of ‘payment in full’ [section 282(1)(b)].
Where the bankrupt has obtained a stay and has also applied for the annulment of the bankruptcy, the official receiver should make the bankrupt aware of the requirement to retain details of an annulled order on the Individual Insolvency Register (IIR) (see paragraph 5.9). At the hearing of the annulment the bankrupt may wish to apply for an order withholding disclosure on the IIR.
The trustee must file a report to court where the application is made on the grounds of payment in full [rule 10.133(2)]. The trustee must also attend the hearing unless the court orders otherwise [rule 10.137(1)]. Where the official receiver is not the trustee, and has not submitted a report, the official receiver is not under any duty to attend [rule 10.137(2)] but should notify the court in advance if they do not intend to be present at the hearing. If the official receiver does not attend the hearing, they should ask to be notified of the outcome.
9.6 The petition and petition deposit
It is important that the annulment order specifies whether the petition has been dismissed or re-listed.
The order should also confirm whether the petition deposit is to be repaid or retained against the official receiver’s administration fee. See “Costs and fees on annulment” for further details.
If the petition is to be re-listed then the official receiver should ensure that the deposit is not included in the payment of the annulment costs. After the payment of the costs the deposit should be retained and transferred to the petition deposit suspense account.
9.7 Concurrent or “parallel” bankruptcy proceedings
It is possible that two bankruptcy orders may be made against an individual in close succession, either on the basis of different petitions in separate courts or because the debtor has made an application to the Adjudicator after a creditor has presented a petition. One of the orders has therefore been made in error and application should be made to annul one of the orders.
9.8 Concurrent orders where one order has been made by the Adjudicator
The Adjudicator cannot make an order where there is a pending creditor’s petition [section 263K(1)(c)]. Where the Adjudicator has made an order unaware of a pending creditor’s petition the Adjudicator will apply to annul the order. The official receiver should contact the Adjudicator and request they make the application for annulment.
9.9 Request to petitioner of later bankruptcy to apply for annulment
Where the bankruptcy orders are both made on creditor’s petitions, in the first instance, the official receiver should ask the petitioner of the later bankruptcy to seek an annulment, even if their petition was presented first. Once the first bankruptcy order was made the outstanding petition should have been dismissed or withdrawn [section 285(3)].
The creditor can ask the court for an order that their legal costs be treated as an expense of the remaining bankruptcy estate.
If the petitioner refuses to make the application for annulment, the official receiver should make the application. The official receiver should ask the court for an order that the deposit be retained against the costs of the application.
9.10 Grounds for an application
An application on the grounds that the order ‘ought not to have been made’ [section 282(1)(a)] should only be made where there are facts which (a) the court was not aware of at the time of the hearing and (b) had they been aware of the facts the court would not have made the order.
The grounds are different from an appeal [section 375] against the order where, on the facts before the court, the applicant believes the court made the wrong order (see chapter 8).
9.11 Examples of ‘ought not to have been made’
Where service was defective prior to the making of the bankruptcy order.
Where the petition debt had been paid in full prior to the proceedings and the court was not made aware of that fact.
Where a bankruptcy order has been made in respect of a debt which is not legally enforceable. This may arise where an order is made against a minor (i.e. someone under the age of 18 [section 1(1) Family Law Reform Act 1969]) where only debts for “necessary” items are legally enforceable [re Davenport [1963] 1 WLR 817].
If there are no debts provable in the bankruptcy. Debts which are not provable [rule 14.2(2)] might still be capable of supporting a petition [section 382(1)]. If there are no provable debts then the purpose of bankruptcy, an equitable distribution of assets amongst creditors and debt relief, cannot be achieved. Debts which are not provable also tend to be debts which are not released discharge [section 281].
Where an earlier bankruptcy order was made in another court, unknown to the petitioner in the latter case, and the debt is included in the earlier proceedings (and released on discharge).
Where it seems that the bankruptcy proceedings may have been an abuse of the process of the court, the official receiver may report the facts to the court with a view to having the bankruptcy order annulled.
9.12 Court requirements
Except in clear cases of mistake (e.g. double bankruptcy orders against the same person), in agreeing to hear an application for annulment on the grounds the order ought not to have been made, the court considers that it is granting the bankrupt an indulgence, in return for which it looks to see if there has been full co-operation with the official receiver.
The court will take into consideration the extent of the bankrupt’s assets and liabilities. The court may re-list a petition for hearing or allow another creditor to take over the petition. The court may also exercise its discretion and, notwithstanding a formal defect, may decline to annul on the basis that bankruptcy is inevitable and as a collective action the order should stand.
Where the bankrupt is not insolvent and there are no formal defects with the proceedings the court may consider annulment on the application even if the grounds are a change of circumstances for which an application should have been made to review the order [section 375] (see chapter 8).
9.13 Official receiver’s role
An ‘ought not to have been made’ application for annulment is essentially a dispute between the debtor and the creditor. If the official receiver is asked by the bankrupt to advise on the annulment, comments should be restricted to procedural issues [ORANNUL].
The official receiver should not be given the impression that they will either support or oppose an application.
9.14 Notice period
The applicant is only required to give sufficient notice to enable the official receiver and the trustee (if different) to be present at the hearing [rule 10.132(6)]. The applicant must also give notice to the petitioning creditor.
9.15 Official receiver’s attendance at hearing
The official receiver should only participate to assist the court and to protect the official receiver’s costs.
Where an official receiver requires representation at an annulment hearing in the High Court or County Court at Central London the official receiver should contact the London Court Unitproviding as much information as possible, including whether or not the bankrupt has co-operated with the official receiver, total amount of unsecured liabilities the total expected value of the assets, and the costs incurred to date in the proceedings. The costs incurred will include any insurance premiums paid or cancellation charges incurred.
9.16 Matters to be proved
Where the application is made on the grounds that the debts and expenses paid or secured to the satisfaction of the court [section 282(1)(b)], the applicant must provide evidence that all the bankruptcy debts which have been proved have been paid in full or secured in full to the satisfaction of the court.
Where a debt has not been paid as it is disputed, or a creditor can no longer be traced, the bankrupt must provide security, to the extent the court considers adequate, to satisfy any sum that may be subsequently proved to be due to the creditor concerned [rule 10.138(3)].
Where security has been given in respect of an unpaid creditor the court may direct that details of the debt and security are advertised [rule 10.138(4)].
9.17 Notice period - ‘payment in full’ applications
The applicant must give the official receiver and trustee notice at least 28 days before the hearing [rule 10.132(7)] together with a copy of the application and supporting witness statement.
9.18 Official receiver’s report
The trustee must file a report to court at least 21 days before the hearing [Rule 10.133(2)].
The official receiver’s report, if the official receiver is trustee, should contain:-
- brief details of the circumstances leading to the bankruptcy;
- a summary of the bankrupt’s assets and liabilities, both at the date of the bankruptcy order and at the date of the application, explaining any differences;
- details of any creditors known to the official receiver who have claims but have not proved;
- the extent to which, and the manner in which, the bankruptcy debts and expenses have been paid or secured, and, if secured, to what extent the official receiver considers (based on the information provided by secured creditors, solicitors etc.) the security is satisfactory;
- any other matters which the official receiver considers should be drawn to the court’s attention. This should include information to indicate whether, if the bankruptcy had proceeded to its full conclusion, the bankruptcy debts and expenses would have been paid in full and, if so, whether statutory interest would be paid and at what rate (see paragraph 9.20); and
- whether the official receiver supports the bankrupt’s application.
9.19 Inclusion of Employment Rights Act claims
The official receiver, in any report to the court and at the hearing of an annulment application, should draw the attention of the court to any Employment Rights Act claims which may have arisen as a result of the bankruptcy order. The court can then consider whether it should seek any undertakings (or make directions) with regard to the discharging of those claims. (See also paragraph 58.59)
9.20 Identifying potential statutory interest in report to court
In determining whether or not to annul a bankruptcy order the court may, if it thinks just, determine whether any sums should be paid in respect of statutory interest. Statutory interest or ‘post commencement interest’[rule 10.138(6)] means interest on the bankruptcy debts payable under the Act [section 328(4); the rate of interest is set by section 17 Judgments Act 1838] for the period the debt has been unpaid since the date of the order. Where realisation of the bankruptcy estate would have allowed for the debts to be paid in full with statutory interest the official receiver should make specific mention of this in the report to the court. It will then be a matter for the court to decide whether statutory interest should be paid to the creditors as part of the application.
9.21 Copy report to applicant
The official receiver must send a copy of the report to the applicant at the same time that it is filed in court [rule 10.133(6)]. Where the applicant is the bankrupt, the copy report should be sent with a letter informing the bankrupt that any further witness statements should be filed at court and copies sent to the official receiver and the trustee (if different).
9.22 Copy of trustee’s report to official receiver
If the trustee is not the official receiver, responsibility for the report rests with the trustee. In addition to the report contents listed above (paragraph 9.18), the trustee’s report must also include [rule 10.133(3)] details of:
- the trustee’s remuneration;
- the basis fixed for the trustee’s remuneration [rule 18.16]; and
- the expenses incurred by the trustee.
The trustee must send the official receiver a copy of the report at least 21 days before the hearing [rule 10.133(8)] a copy of which must be sent to the applicant at least 5 business days before the hearing [rule 10.133(9)]. The official receiver would only report to the court any relevant facts not incorporated in the trustee’s report.
If the trustee is not the official receiver and the applicant has concerns that the amounts charged for the trustee’s remuneration and/or expenses in the proceedings are excessive, the applicant may apply to the court to review the trustee’s charges [rule 10.134; rule 18.35].
The official receiver is not required to attend the hearing unless they have filed a report [rule 10.137(2)].
9.23 Paying or securing for debts outside proceedings
Where payment in full appears likely within a short period after the bankruptcy order, the claims will probably be settled outside the proceedings by third parties. The assets vested in the trustee cannot be used to pay the debts.
Funds realised by or paid to the official receiver for the purpose of settling the debts will attract the “trustee in bankruptcy fee” [schedule 1, paragraph 1, Insolvency Proceedings (Fees) Order 2016] and distribution fee [regulation 35(1), Insolvency Regulations 1994]. There is no discretion to waive fees in these circumstances. The official receiver should not seek to deter payment by third parties outside the proceedings solely on the basis of the loss of fee income.
Debts can be secured for the purposes of obtaining an annulment by giving a solicitor’s undertaking to pay the debts once the annulment is secured [rule 10.138(7)]. This is useful where the bankrupt can’t raise through a third party the funds to pay the debts but would be in a position to meet the debts from the assets vested in the bankruptcy once the annulment was secured. For example, the bankrupt may have sufficient equity in a property to pat the debts and costs in full and using a solicitor’s undertaking to pay will enable funds to be raised once the annulment has released the asset.
9.24 Letter to bankrupt and/or solicitor
Where the official receiver becomes aware an application has been made to annul the bankruptcy order on payment in full grounds, it may assist in dealing with the requirements of the report to court if the official receiver writes to the bankrupt and/or their solicitor, emphasizing the relevant provisions of the legislation [section 282; rules 10.132 to 10.140].
In particular, emphasis should be placed on the need for the bankrupt to co-operate and provide information to enable the official receiver as trustee to complete the report to court. The official receiver may wish to highlight the possibility that the court may direct the official receiver to notify unproved creditors or advertise the annulment application [rule 10.136], the fact that all proved creditors must be paid in full or the debts secured to the satisfaction of the court, and where proved creditors cannot be traced adequate security is to be provided to the court to satisfy the potential claims of such creditors.
The official receiver should also provide:-
- details of the bankruptcy costs, including any insurance costs incurred
- a list of the known creditors and proved creditors.
The attention of the bankrupt or solicitor should also be drawn to the trustee’s requirement to pay statutory interest after settling the proved claims before any return can be made to the bankrupt, where payment to creditors is dealt with within the proceedings by the trustee. The issue of payment of statutory interest is likely to be a matter that the court will wish to see addressed as part of the proceedings (see paragraph 9.20).
The official receiver should also ensure that the bankrupt and their solicitor are aware of the provisions regarding disclosure on the Individual Insolvency Register (IIR) (see paragraph 5.9). At the hearing of the annulment the bankrupt may wish to apply for an order withholding disclosure on the IIR.
9.25 Payment of proved creditors
The court has previously confirmed that a bankruptcy order cannot be annulled until the debts have been proved and paid in full [re Robertson (a bankrupt) [1989] 1 WLR 1139]. The judgment predates amendments to the rules which now provide that a debt can be secured to the satisfaction of the court as an alternative to being paid in full.
An application made sometime after the order where proved creditors cannot be traced may be refused by the court [Gill v Quinn [2004] EWHC 883(Ch)].
A proof of debt may be varied or withdrawn by agreement between the creditor and the trustee [rule 14.10], or expunged or reduced on application to the court [rule 14.11]. The court may grant an annulment if, at the date of the application all creditors have withdrawn, varied to nil or had their proofs of debt expunged [Official Receiver v McKay [2009] EWCA Civ 467].
9.26 Formal proof not received
Where the official receiver is aware of claims from creditors but has received no formal proof of debt, the official receiver should make this clear in the report to court.
The court can direct the official receiver to notify the unproved creditors or to advertise for claims [rule 10.136]. There should be no need for directions if the official receiver has, in advance of the hearing, made contact with creditors (see paragraph 9.27).
Where a stay is in place the official receiver will require a direction of the court, either as part of the order granting the stay or by direction, to contact creditors (see paragraph 9.4).
9.27 Writing to creditors in advance of the annulment application hearing
The official receiver should consider writing to creditors, in particular unproved creditors, informing them of the annulment application. Creditors who have not lodged a proof of debt should be informed of the consequences of not proving and invited to submit a proof of debt. Other matters the official receiver may seek to clarify with creditor are:
- the exact amount of their claim in the proceedings;
- whether they hold security which they are content to rely on;
- whether they have received some payment or no longer have any claim in the matter. (This is relevant if the application occurs sometime after discharge as the debt may no longer exists having been paid or written off, the creditor may wish to withdraw, or decline to submit, a proof of debt).
- whether the creditor requires payment of statutory interest on their claim or will they waive their claim to statutory interest (see paragraph 9.20).
Obtaining this information prior to the court hearing may reduce the necessity of the court adjourning the application and will clarify the extent of proved claims prior to the hearing.
9.28 Court directions concerning notice to creditors who have not proved
The court can direct the official receiver, or the trustee, sends notice to the unproved creditors giving them 21 days to lodge a proof of debt [rule 10.135 (form NOACNP)] or to advertise the fact that an application has been made.
If the official receiver carries out enquiries prior to the hearing, and if possible before lodging the report to court [rule 10.133], it is possible to avoid adjournment of the hearing.
9.29 Disputed debts/untraced creditors
Where a debt is disputed or a creditor, having lodged a proof of debt, can no longer be traced, the annulment may still proceed provided the bankrupt lodges security to the satisfaction of the court until such time as the matter has been resolved. In practice this might mean the bankrupt paying the amount of the debt into the court or providing a solicitor’s undertaking [rule 10.138(3)]. The court may refuse to grant the annulment where deliberate delay has occurred and it has not been possible to identify proved creditors, irrespective of monies lodged to pay potential creditor claims [Gill v Quinn [2004] EWHC 883(Ch)].
9.30 Order to include details of interest beneficiary
Any order that funds be paid into court should also identify the beneficiary of any interest earned on the monies lodged at court, pending resolution of the matter.
9.31 Release of security following advertisement
Where funds are deposited as security the court may order that the official receiver advertises for the untraced creditors. If no claim is made on the security within 12 months of the advert, the court shall, on application, normally by the former bankrupt, order the security to be released [rule 10.138(5)].
9.32 Interest
Where a bankruptcy debt bears interest, that interest is only provable up to the date of the bankruptcy order [section 322(2)]. Pre-bankruptcy interest forms part of the ‘bankruptcy debts’ to be paid to secure the annulment. Creditors are only entitled to be paid interest after the making of the bankruptcy order as provided for by the Act [section 328(4)].
In determining whether or not to annul a bankruptcy order the court may, if it thinks just, determine whether any sums should be paid in respect of statutory or ‘post commencement interest’ [rule 10.138(6)].
There are a number of cases which have considered whether statutory interest should be paid to secure an annulment. Payment is not required by the rules but the court may consider that payment should be made by reference to the circumstances of the case [Harper v Buchler [2004] BPIR 724].
In particular, where the assets comprised in the bankruptcy estate are sufficient to meet the debts and costs in full, with interest, the court may consider it inappropriate for third party funds to be introduced to avoid the payment of interest [Wilcock v Duckworth [2005] BPIR 682 ChD; Harper v Buchler (No 2) [2005] BPIR 577].
9.33 “Secured to the satisfaction of the court”
Debts can be secured either by a creditor confirming that they intend to rely upon security they hold or by the deposit of funds to cover the debts (see paragraph 9.29-9.31). The debts can also be secured by the provision of a solicitor’s undertaking to pay the debts [rule 10.138(7)].
A solicitor may offer an undertaking where the bankrupt is not in a position to pay the debts until after an annulment has been granted, for example where the bankrupt wishes to raise funds against the equity in a property which forms part of the bankruptcy assets.
An undertaking by a solicitor can be enforced against the solicitor by the courts.
9.34 “Conditional” annulment orders
The Rules now clearly state that ‘security’ for the purposes of the Rules [rule 10.138] includes a solictor’s undertaking. This was not clear prior to April 2010. In 2008 the court held that, under the rules at the time, a solicitor’s undertaking to pay the debts in full did not equate to “paid” [Halabi v London Borough of Camden and another [2008] EWHC 322(Ch)]. As a consequence where the court considered it appropriate to annul the bankruptcy order, but the debts had not been paid in advance, the court would not make an order to annul the bankruptcy based on an undertaking to pay.
Instead, the court would make an order of annulment specifying a future date upon which the order would take effect, dependent upon the court receiving evidence that debts and expenses have been paid in full. Once the court received this evidence the annulment order would become effective.
Such orders are now extremely rare but may still be made where the bankrupt is not represented by a solicitor and therefore the court is unwilling to accept their undertaking (for example the undertaking of a legal executive).
9.35 Default following annulment
When dealing with annulments involving a re-financing scheme (i.e. the bankrupt intends to raise funds against a property post-annulment) where an undertaking has been given, should there be any default, for example, if the (former) bankrupt declines to complete the re-mortgage, the matter should be brought back before the court. This is because of the undertaking given by the solicitor and the fact that an asset vesting in the trustee of the bankruptcy estate has been released. The court can seek to enforce the undertaking or rescind the annulment order depending on the circumstances.
9.36 Undisclosed liabilities
Where an annulment order is obtained, and further claims are discovered or notified, the official receiver should refer the creditors to the former bankrupt for payment. The creditors retain their normal (pre-bankruptcy) rights of recovery.
Subject to a claim being affected by limitation the annulment does not deprive creditors who have not been paid of their ability to pursue the former bankrupt for recovery of their debt.
9.37 Summary
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Where an application for annulment is made under section 282(1)(b) the trustee is required to report to the court. The matters to be included in the report are set out in rule 10.133(2)
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The report must include details of all creditors known to the trustee, including those who have not lodged a proof of debt. The rules require that only the proved creditors be paid in full but the court may require all the debts to have been proved (re Robertson (a bankrupt) [1989] 1 WLR 1139). If debts remain unproved at the date of the application for annulment steps should be taken to give the creditors an opportunity to prove (rule 10.136).
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Debts must be paid or secured for in full. Following principles first set out in Re Keet [1905] KB 666 unconditional release of debt, or a payment of less than 100p in “full and final settlement”, is not payment in full. A creditor can withdraw their proof of debt or the proof of debt can be expunged by the court (Official Receiver v McKay [2009] EWCA Civ 467).
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If a debt is disputed or a creditor cannot be traced the bankrupt must give adequate security for the debt, for example in the form of monies paid into court.
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Statutory interest on the debts should be paid where there are sufficient assets in the bankruptcy estate to pay all liabilities, costs, fees and expenses (Harper v Buchler (No.2) [2005] BPIR 577).
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The conduct of the bankrupt may be a factor. (Gill v Quinn [2005] BPIR 129)
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Annulment is not a matter of right for a bankrupt, it is a matter of discretion. The court will take into account the public interest in exercising its discretion. Where there has been gross mismanagement or misconduct the court may decline to exercise its discretion [Halabi v London Borough of Camden and another [2008] EWHC 322 (Ch)].
9.38 Grounds
Where the creditors approve an individual voluntary arrangement [section 257] and the debtor is an undischarged bankrupt, the court will annul the bankruptcy order on the application of the debtor, or the official receiver [section 261(2)].
9.39 Notice period for application following approval.
An application cannot be made during the 28 day period following the decision to approve the voluntary arrangement in which creditors can lodge an objection [section 262(3)] and any subsequent period for appeal [section 261(3)].
The bankrupt must give the official receiver at least 5 business days’ notice of the hearing accompanied by copies of the application and witness statement [rule 8.32(3)]. Notice must also be given to the trustee (if different) and the supervisor of the voluntary arrangement.
9.40 Attendance at the hearing
The official receiver may attend the hearing and bring to the court’s attention any matters which seem the official receiver thinks are relevant.
The court has no discretion as the Act makes annulment mandatory where the IVA has been approved [section 261(2)]. Therefore, the official receiver is unlikely to report to or attend the court. The court may in any event request confirmation that the official receiver has no objection to the annulment.
9.41 Application by official receiver
If, after 42 days, beginning with the supervisor notifying approval of the voluntary arrangement [rule 8.33(2)], the bankrupt has not made application to annul the bankruptcy order, the official receiver should make the application [section 261(2)(b)].
9.42 Official receiver’s report
The official receiver’s report should contain:-
- the grounds on which it is made;
- that the prescribed time period under rule 8.33(2) has expired; and
- that the official receiver is not aware that any application under section 262 or appeal remains to be disposed of.
The official receiver must give the bankrupt at least 5 business days’ notice of the hearing accompanied by copies of the application and report [rule 8.33(4)].
9.43 Official receiver’s fees
The official receiver should always ensure that the annulment order makes provision for the official receiver’s costs.
The level of fees the official receiver can recover depends on the grounds on which the annulment order is being sought.
The official receiver’s fees are set under the Insolvency Proceedings (Fees) Order 2016. The official receiver’s administration fee and the general fee become payable on the making of a bankruptcy order and are recovered from “chargable receipts” (sums which are paid into the Insolvency Services Account) [article 2, Insolvency Proceedings (Fees) Order 2016].
The official receiver’s administration fee is the amount payable for the performance of the official receiver’s functions under the Act. In addition, the official receiver may have incurred costs to third parties, for example insuring assets, and, as trustee, is entitled to charge a fee calculated as a percentage of realisations [schedule 1, paragraph 1 Insolvency Proceedings (Fees) Order 2016].
It is important for the official receiver to establish before the hearing, exactly who will be responsible for paying the official receiver’s costs in any annulment.
9.44 Annulment on the grounds the order ought not to have been made
If the annulment is on the grounds that the order ought not to have been made the official receiver might only recover fees from funds available in the estate account. In the majority of cases the official receiver will simply ask the court confirm that the petition deposit be retained and applied to the part payment of the official receiver’s administration fee [following HMRC v Direct Affinity & Ors [2019] EWHC 3063(Ch)]. If there are any additional disbursements (costs) charged to the estate which are not covered by the administration fee (see chapter 48), for example insurance costs, the official receiver should ask for these to be included in the costs order.
Where the official receiver has made any realisations the court might be asked to confirm the official receiver might retain all funds received, including the petition deposit, up to the maximum of the administration fee and general fee. The bankrupt can seek recovery of any sums lost to them through the realisation of assets from the petitioning creditor by way of their own application for costs. If a surplus remains and funds are to be returned to the debtor the trustee fee should be rebated on the amount to be refunded. If the application is made some time after the bankruptcy order, and the actual costs of the official receiver, on a time and rate basis, exceed the deposit (and there are no realisations) the official receiver should request a costs order is made above the amount of the retained deposit. Where the court determines that the petitioner is not liable for the costs then the official receiver should seek an order that the applicant is liable for the costs to the extent set out above.
9.45 Annulment on the grounds of payment in full
An annulment on the grounds of payment in full requires that “the bankruptcy debts and expenses of the bankruptcy” are paid [section 282(1)(b)]. The expenses include the fees payable under the Insolvency Proceedings (Fees) Order 2016 [rule 10.149].
The court has confirmed that the full administration fee and general fee are required to be paid to secure an annulment on payment in full grounds [Re: A Debtor (County Court at Peterborough No. 47 of 2019) (unreported)].
9.46 Non-payment of official receiver’s costs (paid in full annulment)
The official receiver should normally oppose the annulment until the relevant fees and expenses have been paid, either in cash or by way of reasonable security, such as a solicitor’s undertaking. Where the order is made without the official receiver’s fees and expenses having been paid or secured, and the official receiver is unable to obtain payment of the total amount from the bankrupt, the official receiver should, after giving due warning to the bankrupt, apply for the order to be rescinded.
9.47 Annulment following an IVA
The supervisor of the IVA must give the official receiver (or the trustee, if different) an undertaking to pay any outstanding balance of fees or expenses properly incurred and payable out of the first realisation of assets [rule 8.25(2)].
The official receiver holds a first charge on the assets included in the IVA for the outstanding balance [rule 8.25(4)].
There is no need therefore for the annulment order to include an order as to costs.
9.48 Non-payment of official receiver’s costs following annulment on ought not to have been made grounds or approved IVA
The official receiver should have no difficulty in recovering costs where an order has been secured to retain funds held (see paragraph 9.44) or the supervisor of an IVA has given an undertaking, supported by the official receiver’s first charge on assets [rule 8.25].
If costs cannot be recovered the official receiver might consider:-
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where funds from the realisation of assets are still held by the official receiver, these might legitimately be retained to cover costs.
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if the bankrupt has failed to follow proper procedure in making the annulment application, for example not giving proper notice of the hearing, the official receiver may make application for a review of the annulment order [section 375].
9.49 Reporting insolvency practitioner where official receiver’s costs unpaid
The official receiver might wish to consider reporting the conduct of any insolvency practitioner who does not pay the official receiver’s costs (in due order of priority) in an IVA to the insolvency practitioner’s Recognised Professional Body.
If there is a debit balance on the estate after the costs have been received, for example where the official receiver has mis-calculated the costs or the IVA failed to realise sufficient assets, the debit balance should be written off.
9.50 Surplus funds
Any surplus funds held by the official receiver, after payment of all debts, costs, fees and expenses (including statutory interest and deferred creditors where applicable), should be returned to the bankrupt. Where the funds were provided by a third party, any surplus should be returned to that third party. The official receiver may want to ask that provision is made for the return of any surplus funds in the order of annulment.
9.51 Criminal allegations statement of facts submitted
The bankrupt may apply for an annulment of the bankruptcy order after the official receiver has submitted a statement of facts (although the bankrupt is unlikely to know that this has happened). The official receiver should notify the Criminal Referrals in-box.
9.52 Annulment application where a BRO or BRU already obtained
The bankrupt may make an annulment application after a BRO has been made or BRU accepted. The official receiver should inform Legal Services that the application has been received.
9.53 Order annulled on the grounds of ought not to have been made.
If the bankruptcy order is annulled on the grounds that the order ought not to have been made [section 282(1)(a)]:-
- any BRO/BRU in force will be annulled,
- no new BRO may be made or BRU accepted [schedule 4A, paragraph 10]
This follows the principle, that as the bankruptcy order ought not to have been made, the bankrupt should be put back to the position they were in before, as if the bankruptcy order had not been made.
9.54 Advertising annulment of BRO/BRU
Where a BRO/BRU is annulled the official receiver should update the case management system to ensure that the IIR is updated. The press database may also need to be amended, either deleting the entry or adding details of the date of the annulment and its effect. See chapter 112 of the Enforcement Investigation Guide for further information regarding publicising orders.
9.55 Order annulled on the grounds of payment in full or following approval of an IVA.
If the bankruptcy order is annulled on the grounds of payment in full [section 282(1)(b)] or following the approval of an IVA [section 261]:-
- the annulment does not affect any BRO/BRU in force.
- the court may make a BRO [Jenkins v Official Receiver [2007] EWHC 1402(Ch)] or the Secretary of State may accept a BRU offered before the annulment,
- an application for a BRO or interim order in respect of the bankrupt may not be instituted after the bankruptcy order is annulled [schedule 4A, paragraph 11].
Where the bankrupt is considering offering a BRU, the official receiver should emphasize to them that this must be offered prior to the annulment, otherwise the official receiver will be forced to institute (prior to the annulment hearing) an application for a BRO. This will not be necessary if the BRU is offered prior to the annulment.
9.56 Public interest
Where an application for a BRO/BRU has been made or is contemplated, and the official receiver receives notice, either that an annulment order has been made, or an application for an annulment (on any grounds) has been submitted, this should prompt a review of the case to consider if making or continuing the BRO/BRU application is still in the public interest. The decision and the reasons behind it should be recorded with the investigation decisions for the case.
9.57 Update the case management system
Details of the annulment order should recorded on the case management system which will automatically update the Individual Insolvency Register (IIR) (see paragraphs 5.9 and 9.4).
9.58 Notification to creditors of annulment
Where the official receiver has issued any notice to creditors of the bankruptcy order, and the bankruptcy order is annulled, the official receiver is required to give notice to the creditors of the annulment [rules 8.35 and 10.139(1)].
This applies whether or not the official receiver has acted as trustee. Where an insolvency practitioner is trustee, he official receiver should liase with the trustee to ascertain:
- whether the trustee has already notified creditors, or
- whether the trustee would be prepared to undertake the official receiver’s requirement to give notice.
If the trustee has not given / is not going to give notice the official receiver must ensure that they have a complete list of all known creditors at the date of annulment.
Where the official receiver is aware, in advance of the annulment that the trustee will give notice to the creditors the official receiver may seek to have an undertaking from the trustee (and the release of the official receiver’s obligations under the Rules) included in the annulment order.
It is prudent for the official receiver to give notice of the annulment to all creditors who are aware of the bankruptcy order, even if they were not included in the original notification given by the official receiver.
9.59 Notification to other parties of annulment order
Where parties other than creditors have been notified of the bankruptcy proceedings, it is reasonable that they should be notified of the annulment and the official receiver should act accordingly, following the guidance in the paragraph above.
9.60 VAT
Where a bankrupt is VAT registered notice of the annulment order should be sent to HMRC with a request that HMRC issue form VAT 167 (deregistration enquiry) or note that the trader should not be de-registered. Form VAT 167 contains a box to be ticked requesting that the trader is not de-registered.
HMRC can be contacted directly in relation to any VAT queries by emailing insolvencyhelpdesk@hmrc.gov.uk
9.61 Vacation at Land Registry
The order of annulment should include a provision permitting the vacation of the registration of the bankruptcy petition and of the bankruptcy order at the Land Charges Department [rule 10.137(h)(iii)]. Where an annulment application is successful, but the court does not dismiss the petition which is to be relisted for hearing, no action should be taken to vacate the registration of the bankruptcy petition pending the re-hearing of the petition. The annulment order should therefore only provide for the vacation of the bankruptcy order at the Land Charges Department. It is a matter for the former bankrupt to seek the vacation of such entries and the official receiver should not get involved in this activity [rule 10.137(5)(b)].
In addition, entries may have been made in the proprietorship register maintained by the Land Registry.
Where a bankruptcy restriction has been entered or the official receiver has registered a form J restriction (see chapter 7) the official receiver will need to remove these restrictions reflecting that the property interest has re-vested in the bankrupt.
9.62 Gazetting and advertising annulment order
The bankrupt can require the official receiver gazette the annulment and, as appropriate advertise the annulment in the same manner as the bankruptcy order was advertised. The request must be made to the official receiver within 28 days of the date of the annulment order [rule 10.137(5)(a)].
9.63 Cancellation of insurance
The official receiver should, where possible within 5 days of the annulment order cancel any insurance (see from the date of the annulment order. (For further details see chapter 14).
9.64 Returning property to the former bankrupt
The official receiver should ensure that all assets, including keys to freehold or rented property and motor vehicles are returned to the former bankrupt as soon as possible. The return of the former bankrupt’s assets avoids any potential liability for loss arising from the cancellation of the official receiver’s insurance. The official receiver should ensure that any all appointments for the purpose of handing back assets or keys are kept [Mitchell v Ealing LBC [1979] Q.B.1].
9.65 Release as trustee
The court will include in its order of annulment provisions relating to the release of any trustee appointed. Where the official receiver is trustee, he should ask the court to order that he be granted his release as trustee [rule 10.141(5)].
9.66 Post annulment destruction of official receiver’s case file
Following the successful annulment of a bankruptcy order, the destruction of the official receiver’s case file should be treated in the same way as other case files held by the official receiver, in accordance with the destruction policy set out in the “Retention policy for information and personal data relating to insolvency”.