Wrongly Applied Secretary Of State Fees Repaid In Insolvency Case

22nd October 2018 by

Healys LLP recently acted on behalf of a Client on an Application for an annulment of his bankruptcy, pursuant to S.282 (1) (b) of the Insolvency Act 1986, on the basis that the debts and expenses had been paid or secured for, to the satisfaction of the court.

The bankruptcy order was made in late 2012, and Healys were instructed to apply for an annulment.  Funds were transferred by this firm to the Joint Trustee in Bankruptcy to satisfy the debts of all approved creditors and expenses of the bankrupt. Having confirmed that they were satisfied and that the funds were genuinely third party funds, the Joint Trustee transferred the funds into the insolvent service account (ISA), together with the paying-in slip which indicated that these were not funds that would attract the Secretary of State (SOS) fees.

The Official Receiver however deducted £35,075 in respect of the SOS fees, stating the reason as “chargeable receipts” in his report to the court. This was contested in a report filed by the Joint Trustee and the Client on the basis that third party funds do not attract SOS fees since they are funds that are otherwise not available to a Trustee in Bankruptcy, and are paid only to secure annulment.

The Official Receiver’s view however, remained broadly that the SOS fee charged in the matter was properly due and payable. The Official Receiver further advised that they were waiting the handing down on a reserved judgment in the High Court (Leeds District Registry).

The issue in this case was the fact that the SOS fee had been charged as a percentage on assets that could be realised; and yet the trustee had accepted monies from a third party to cease the asset realisations. The correct application of Secretary of State fees against chargeable receipts in cases where annulment of the bankruptcy order is sought, was an issue for a number of other applications. These were adjourned pending the ruling of the High Court, whereby it was hoped that there might be a definitive judgement upon which the parties could rely. As a result, the first hearing of our Client’s application was adjourned pending judgement in the case of Safier v Wardell [2017] EW8C 20 (CH).

On the 13 January 2017, judgment was handed down in that case.

HHJ Behren held that the practice of the Official Receiver was contrary to the relevant insolvency legislation and that the fees were not chargeable. He held that monies paid into the ISA do not automatically attract the SOS fees simply by virtue of having been paid into the account, and further, that the SOS fees are only chargeable on the basis set out in insolvency legislation and properly payable into the ISA. Third party funds ought to be held in a suspense account.

Our client’s Annulment Application came back before the District judge at the County Court Croydon on the 17 January 2017.

We successfully argued (i) that the Official Receiver was incorrect to deduct his fees from the funds paid into the ISA and should repay (or be ordered to repay) the sum wrongly deducted.(ii) The funds ought to have been held in a suspense account pending payment to the relevant parties to secure the Annulment. (iii) Sufficient funds were therefore available to the Joint Trustee to pay the debt and expenses in full and the Annulment order ought to be granted.

The District Judge ordered that pursuant to the decision of Safier v Wardell & Standish & the Official Receiver (20170 EWHC 20 (Ch) on 13th January 2017, (i) the sum of £35,075.60 was to be repaid to the estate account by the Official Receiver. (ii) That the bankruptcy order made against our Client is annulled and that the petition dismissed.

Despite the judgment handed down in the Leeds District Registry on the 13 January 2017, the Official Receiver still sought to oppose our Client’s Application for the annulment on the 17 January 2017, arguing that the circumstances were different to those in Safire v Wardell & Standish & the Official Receiver. This position was contrary to their claims at the hearing on the 16 December that the circumstances were the same.

Had the SOS fees been payable, there would have been a shortfall of in excess of £40,000 (with interest) and in order to obtain the annulment the Client would have had to obtain a loan.

Our client’s case was one of several cases where SOS fees had been wrongly applied, and can only be described as a “smash and grab” attempt by the Official Receiver.