The Insolvency Service Is A Government Agency That Overseas All Bankruptcy And Compulsory Liquidation Insolvency Cases

Overview Of What Is The Insolvency Service

What is the Insolvency Service? The Insolvency Service is a government department within the Department for Business, Energy & Industrial Strategy (“BEIS”).

It is a department that has a wide range of functions including but not limited to:

  • Acting through the Official Receiver as Trustee In Bankruptcy or Liquidator where no private sector Insolvency Practitioner is in place
  • The Administration of Bankruptcy insolvency cases which may involve acting as Trustee In Bankruptcy.
  • The Administration of Compulsory Liquidation insolvency cases which may involve acting as Liquidator.
  • Acting as Provisional Liquidator in certain public interest cases.
  • Investigation of the conduct of individuals and company Directors whose conduct may have fallen or is suspected to have fallen below the high standards expected.
  • Prosecution of criminal offences arising in the Insolvency Act 1986.
  • Issue redundancy payments from the National Insurance Fund.
  • Work to disqualify unfit Directors in all corporate insolvent failures.
  • Deal with bankruptcy and debt relief restrictions orders and undertakings.
  • Initiate public interest winding up of companies where there is evidence of misconduct.
  • Acting as nominee and supervisor in fast-track Individual Voluntary Arrangements.
  • Advising BEIS ministers and other government departments and agencies on redundancy and related issues.
  • Acting as an impartial source of information for the public on insolvency and redundancy matters.
  • Investigating and prosecuting breaches of company and insolvency legislation and other criminal offences on behalf of BEIS.

How Does The Insolvency Service Investigate?

Upon the making of a Bankruptcy Order in the case of an individual or a Winding Up Order in the case of a Limited company the bankrupt or company Directors MUST attend upon the Official Receiver at the Insolvency Service when called upon to do so.

It is the duty of the Official Receiver who is the individual with responsibility on behalf of the Insolvency Service to investigate the causes of the financial failure.

Duty Of The Official Receiver In A Compulsory Liquidation And Bankruptcy

In the case of a Compulsory Liquidation and Bankruptcy the Official Receiver has the duty in light of Sections 132 and 289 of the Insolvency Act 1986 respectively to investigate the historic conduct of the company Director or Bankrupt and to consider the causes of the financial failure.

Section 132 Of The Insolvency Act – Investigation By Official Receiver

(1) Where a winding-up order is made by the court in England and Wales, it is the duty of the official receiver to investigate—

(a) if the company has failed, the causes of the failure; and

(b) generally, the promotion, formation, business, dealings and affairs of the company,

and to make such report (if any) to the court as he thinks fit.

(2) The report is, in any proceedings, prima facie evidence of the facts stated in it.

Section 289 Of The Insolvency Act – Investigatory Duties Of Official Receiver

(1) The official receiver shall—

(a) investigate the conduct and affairs of each bankrupt (including his conduct and affairs before the making of the bankruptcy order), and

(b) make such report (if any) to the court as the official receiver thinks fit.

(2) Subsection (1) shall not apply to a case in which the official receiver thinks an investigation under that subsection unnecessary.

(3) Where a bankrupt makes an application for discharge under section 280—

(a) the official receiver shall make a report to the court about such matters as may be prescribed, and

(b) the court shall consider the report before determining the application.

(4) A report by the official receiver under this section shall in any proceedings be prima facie evidence of the facts stated in it.

When called upon to attend on the Insolvency Service a bankrupt individual or company Director will be required to complete a Preliminary Investigation Questionnaire.

What Is The Preliminary Investigation Questionnaire?

The Preliminary Investigation Questionnaire is a lengthy document of questions that typically runs to around forty or so pages that will cover a wide range of topics such as:

  • Routine factual information about the individual or company Director.
  • Full details of all assets and liabilities.
  • HMRC tax references.
  • Details of when insolvency and difficulties first arose.
  • Causes of insolvency.
  • A detailed inventory of all books, papers and records.

This questionnaire is an important document and when completing the same a bankrupt or company Director will be cautioned and expected to sign a declaration that they are telling the truth. The declaration will be an acknowledgment that they are aware of their duty in light of Section 5 of the Perjury Act 1911, to be honest, and truthful, failing which they could potentially be prosecuted.

In addition to the Preliminary Investigation Questionnaire (“PIQ”), there is often the requirement to support the PIQ with a narrative statement to add some flesh onto the bones of the raw factual information that often appears in the PIQ, such as giving an account of the causes of the insolvency or company failure. The narrative statement forms part of the PIQ and as a result, there is the requirement to sign a statement that it is an honest and truthful account.

Insolvency Service Powers

In order to undertake investigations, the Insolvency Service has various powers and these are in the process of being extended to not only deal with insolvency companies and individuals but also dissolved companies.

Insolvency Practitioners in case of Creditors Voluntary Liquidation and Administration have to issue reports to the Department for Business, Energy and Industrial Strategy on the conduct of Directors following their investigations. In addition, there is a duty under Section 218 of the Insolvency Act 1986 to report criminal offences.

However, Insolvency Practitioners, Creditors or anyone can make reports to the Insolvency Service or Department for Business, Energy and Industrial Strategy on the conduct of Directors or individuals that could lead to the opening of an investigation.

In light of Section 432(2) of the Companies Act 1985 the Insolvency Service may commence an investigation in respect of any of the following:

(a) the company’s affairs are being or have been conducted with the intent to defraud its creditors or the creditors or for a fraudulent purpose; and or 

(b) persons concerned with the company might have been involved in fraud, misfeasance or other misconduct; and or

(c) the company shareholders may not have been given all the information with respect to its affairs which they should have or there are inadequate accounting records, or information and documentation may have been withheld on the operations of the company.

432 Of The Companies Act 1985 – Other Company Investigations

(1) The Secretary of State shall appoint one or more competent inspectors to investigate the affairs of a company and report on them in such manner as he directs, if the court by order declares that its affairs out to be so investigated.

(2) The Secretary of State may make such an appointment if it appears to him that there are circumstances suggesting—

(a) that the company’s affairs are being or have been conducted with intent to defraud its creditors or the creditors of any other person, or otherwise for a fraudulent or unlawful purpose, or in a manner which is unfairly prejudicial to some part of its members, or

(b) that any actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial, or that the company was formed for any fraudulent or unlawful purpose, or

(c) that persons concerned with the company’s formation or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards it or towards its members, or

(d) that the company’s members have not been given all the information with respect to its affairs which they might reasonably expect.

(2A) Inspectors may be appointed under subsection (2) on terms that any report they may make is not for publication; and in such a case, the provisions of section 437(3) (availability and publication of inspectors’ reports) do not apply.

(3) Subsections (1) and (2) are without prejudice to the powers of the Secretary of State under section 431; and the power conferred by subsection (2) is exercisable with respect to a body corporate notwithstanding that it is in course of being voluntarily wound up.

(4) The reference in subsection (2)(a) to a company’s members includes any person who is not a member but to whom shares in the company have been transferred or transmitted by operation of law.

Outcome Of Insolvency Service Investigations

An investigation by the Insolvency Service can potentially lead to a company Director being disqualified for a number of years in cases of misconduct. In the most serious of cases, a period of disqualification can last up to 15 years.

In the case of an individual who is deemed to have been guilty of financial misconduct in the build-up to their personal bankruptcy, a Bankruptcy Restriction Order can result preventing them for example only, obtaining credit in the usual way by remaining under Bankruptcy Restrictions for a period of time.

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