Safier v Wardell & Ors

Third-party money paid to satisfy bankruptcy debts and expenses is not necessarily a receipt forming part of the trustee’s statutory functions. The phrase “functions as such” in paragraph 20 of the Insolvency Regulations 1994 refers to the trustee’s function under section 305(2) of the Insolvency Act 1986: getting in, realising and distributing the bankrupt’s estate. Money provided by a third party, which does not belong to that estate, is outside that function and need not be paid into the Insolvency Services Account. The Secretary of State’s administration fee is therefore not payable on those sums, whether or not the bankrupt has assets. The fee is payable only on sums properly payable into the account.

The applicant sought annulment of a bankruptcy order under section 282(1)(b) of the Insolvency Act 1986. The bankruptcy debts and expenses had been funded by the applicant’s brother and companies controlled by him. The applicant also had assets vested in the trustees, including a valuable property, but those assets had not been realised.

The trustees contended that the third-party funds were outside the bankruptcy estate and that the Secretary of State’s administration fee was therefore not payable. The Official Receiver contended that the existence of assets in the estate meant that the funds were received in the course of the trustees’ functions and constituted chargeable receipts.

1. The court had already ordered annulment of the bankruptcy and dismissal of the petition because sufficient funds had been provided to pay all debts, interest and expenses. The remaining issue was whether the Secretary of State’s administration fee was payable on the third-party funds.
2. Section 415 of the Insolvency Act 1986 authorised the fee regime in the Insolvency Proceedings (Fees) Order 2004. Under paragraph 20(1) of the Insolvency Regulations 1994, a trustee must pay into the Insolvency Services Account money received in the course of carrying out his functions as trustee.
3. The expression “functions as such” in paragraph 20 referred to the trustee’s function under section 305(2) of the 1986 Act: getting in, realising and distributing the bankrupt’s estate. Funds supplied by a third party did not form part of the bankrupt’s estate. The trustees therefore received them as a conduit for satisfying the statutory requirement for annulment, rather than in carrying out that function.
4. The Regulations did not distinguish between cases where the bankrupt had assets and cases where there were no assets. Third-party funds were either properly payable into the account or they were not. The existence of other assets did not alter their character. The Insolvency Service guidance was correct on this point, although the purported suspense-account practice had no statutory basis.
5. The argument based on trustee remuneration under rule 6.138(1) of the Insolvency Rules 1986 did not assist in construing paragraph 20. Nor was the fee payable merely because money had physically been paid into the account: it was payable only on sums properly payable there.
6. The trustees’ alternative argument concerning the bankruptcy ceiling was rejected. If the fee had been payable, the ceiling would have been assessed when the money was paid into the account, at which time it comprised the full debts and expenses.

The Secretary of State’s administration fee was not payable.