What is the role of the Official Receiver?

Duties of an Official Receiver in an insolvency procedure

The Official Receiver (OR) is a key figure in corporate liquidations where a winding up order has been granted by the court. The OR is an officer of the court, but also works on behalf of the Insolvency Service.

Their duties can change depending on the circumstances of each liquidation case, but the overall role is to oversee corporate liquidations and investigate the reasons why companies have failed.

Although the Official Receiver is appointed in cases of compulsory liquidation, in some instances they don’t conduct the entire liquidation process. They may enable the appointment of an independent liquidator after the initial stage has been completed.

The Official Receiver’s role as provisional liquidator

The Official Receiver can also act as provisional liquidator in cases where there may be a risk of directors depriving their creditors of liquidation funds. This is typically by concealing or disposing of business assets.

In this case the OR protects the assets, and ensures that creditors don’t incur further financial loss. A provisional liquidator can be appointed by the court on an emergency basis, after a winding up petition has been presented but before the court hearing.

Taking control of the insolvent company

On appointment, the Official Receiver takes control of all aspects of the company’s affairs, including its accounting records, assets, contracts, and leases. Business assets are realised for the benefit of creditors, and funds distributed according to the statutory hierarchy.

This covers the practical issues surrounding a corporate liquidation, but a key part of the Official Receiver’s role is to investigate the conduct of directors leading up to the insolvency of their company.

Official Receiver investigations

When a company is forced into liquidation, the Official Receiver must find out the reasons why the company failed. Investigations are carried out to establish whether any wrongdoing took place that might have led to its demise.

The fact that a creditor had to force the company into liquidation will be an initial concern, as opposed to directors proactively placing their business into liquidation once they knew it couldn’t be rescued.

The OR conducts an interview with each director to establish the series of events prior to insolvency. This is part of their role in protecting creditors and the wider public from the risk of financial loss.

They can also make enquiries with individuals and institutions associated with the company, such as the bank and the company’s accountants. Areas of investigation typically include, but are not limited to:

Wrongful trading

When a company’s cash flow is such that it cannot afford to pay the bills as they fall due, or the value of its liabilities exceeds its assets, directors must immediately cease trading to protect creditor interests. If they don’t fulfil this duty, they could be accused of wrongful trading.

Preference payments

These are payments that unfairly favour one creditor over others. Examples of a preference payment include repaying a loan to a family member, and paying off a loan that has a personal guarantee attached.

Transactions at undervalue

If directors have sold business assets for a price lower than their true value, typically during the two years leading up to insolvency, the Official Receiver may apply to the court to reverse the transaction(s).

If you would like more information on the role of the Official Receiver, or are concerned that a creditor may present a winding up petition against your company, Begbies Traynor can help. We’re a leading insolvency consultancy with an extensive network of offices throughout the UK, and can offer you a free, same-day consultation.