BANKRUPTCY ETC
Contents:
Scope
Key Points
Background
Payments and Claims
Set Off
Contracts
Write-off
Scope
1. This section gives guidance on the action to be taken
in the event of the bankruptcy (sequestration) of an
individual or firm; the liquidation of a company (whether
insolvent or not); and the receivership of a company which
may or may not be followed by liquidation.
Key Points
2. As a general rule, when a Department learns of a
bankruptcy etc it should stop all payments pending
confirmation.
3. Once the bankruptcy etc has been confirmed it is
essential for Departments to ensure that any payment due by
them is made only to the proper person, and that any claim
by them is properly lodged. Departments should also
consider, in consultation with Solicitors, whether any
contract should be terminated.
Background
4. Information about any bankruptcy etc. relevant to a
Department's business should be obtained as early as
possible. Bankruptcies and liquidations are advertised as
appropriate in the London, Edinburgh or Belfast Gazettes.
Receiverships are not so advertised, but notice of an
appointment of a receiver of a company has to be filed with
the Registrar of Companies. Early information on
insolvencies, etc. is also included in the weekly
commercial publication "Stubbs Gazette".
Payments and Claims
5. As a general rule, when a Department learns of a
bankruptcy etc it should stop all payments pending
confirmation. It should then, in consultation with
Solicitors, prepare a statement of amounts due to and from
the Department. Legal advice should be sought as soon as
possible in respect of any relevant security held by
Departments and on the status of any pre-existing debt
recovery proceedings.
6. In each case of bankruptcy, liquidation or
receivership a trustee, liquidator or receiver will, or
may, be appointed as the representative responsible for the
collection of monies due and the repayment of debt. A
trustee/liquidator/receiver is required to write to (known)
creditors of the individual/firm/company advising of
his/her appointment and correspondence from a business that
is subject to formal insolvency proceedings must indicate
its status. It is essential for Departments to ensure that
any payment due by them is made only to the proper person,
and that any claim by them is properly lodged. If a
Department inadvertently pays the wrong person it may fail
to obtain a valid discharge for the payment and have to pay
again. If it delays lodgement of a claim with the right
party it may fail to recover the amount properly due.
Set Off
7. In any case where a Department is a debtor or
creditor of a bankrupt or of a company in liquidation or
receivership, it should investigate the need or possibility
for set-off as described in the section on
Overpayments.
Cases involving more than one Department of the Scottish
Executive should be handled jointly. On settlement of the
matter, appropriate transfers should be arranged if
necessary between debtor and creditor Departments.
8. In Scotland, the balancing of accounts in
bankruptcies rests on a common law principle which has been
extended to apply to liquidations. In receiverships it may
be taken that the general right of set-off under the common
law applies. Under Scots law it is considered that set-off
may first be effected against non-preferential debts.
Set-off can raise difficult legal questions and advice
should always be sought from Solicitors.
Contracts
9. If a Department learns of a bankruptcy etc affecting
a person or body with which it has a contract, it has
(under the normal form of contract) the right summarily to
terminate the contract. Exercise of this right should
therefore be considered since, if expedient, the terms of
contract can be negotiated anew with the trustee/
liquidator/ receiver.
10. If the contract is not so terminated the Department
remains bound by it. The trustee/ liquidator/ receiver,
however, has no personal obligation to fulfil the contract.
The Department may therefore find that it is unable to
enforce its rights under the contract and be left to claim
as an unsecured creditor for any damage resulting from the
non-fulfilment of the contract. Departments should
therefore take legal advice at an early stage.
11. The same principles should also apply, where
appropriate, to bodies in receipt of grant or grant in
aid.
Write-off
12. Any amounts to be written off as a result of
bankruptcies etc will be subject to the guidance on
Losses and
Special Payments.
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Page Published/ Updated on: 21st December 2001