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HMRC internal manual

Debt Management and Banking Manual

From
HM Revenue & Customs
Updated
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Enforcement action: distraint: after the levy: bankruptcies or compulsory liquidations following levy

The term ‘insolvency order’ is used in this paragraph to mean either a bankruptcy order (individual), a winding up order (company) or a partnership compulsorily wound up as an unregistered company under the Insolvent Partnership Order 1994.

Most of the processes involving HMRC distraint in relation to compulsory liquidations and bankruptcies have been agreed between HMRC and the Insolvency Service (an agency of the DTI) based on the requirements of the Insolvency Act 1986. In essence, where he has insufficient assets to meet preferential claims the legislation entitles the Insolvency Practitioner (IP) to claim distrained goods, or the sale proceeds of those goods,

Distraint levied but incomplete

Where exceptionally a distraint has been levied, the IP may either:

  • invite you to complete the distraint (if so, tell the auctioneer to sell the goods)
  • ask you to give up possession so that the IP may sell the goods.

Unlike voluntary liquidations, you are obliged to comply with such a request in a bankruptcy or compulsory liquidation case. You should request a written undertaking that any surplus proceeds, after the IP has satisfied preferential claims, be applied to the amount included in the distraint.

Once the signed undertaking is received:

  • acknowledge receipt
  • confirm to the IP that you have withdrawn your distraint
  • await the balance of sale proceeds
  • send a memo to ICHU advising the position to enable that office to lodge the claim.

Distraint completed by sale less than three months before the date of the insolvency order

If you have completed the distraint by sale at any time starting with a date three months before the insolvency orderand the IP asks you to give up the sale proceeds because he has insufficient funds to satisfy the preferential debts, you must comply with this. If the IP simply asks you to surrender the proceeds ask for confirmation that there is a shortfall regarding preferential claims.

As a result of the Enterprise Act 2002 preferential debts are now limited to two categories only so the cases of a shortfall by the IP should be minimal; these are:

  • contributions to Occupational Pension schemes and so on
  • remuneration (and so on) of employees.

You should immediately:

  • acknowledge receipt of the request and say that it has been referred to ICHU
  • send the request together with the cleared papers to ICHU under cover of a suitable memo
  • ICHU will arrange for the IP to be paid the amount requested to the extent of the net sale proceeds received, make the appropriate claim and monitor the case as necessary (INS7406).

Distraint completed by sale more than three months before the date of the insolvency order

Where distraint has been levied and completed by sale more than three months before the date of the insolvency order you may keep the sale proceeds including costs.