Creditors of insolvent companies

This section contains information regarding creditors of insolvent companies.

Jump to table of contents

Finding out who is dealing with a case

You should be contacted automatically by the Official Receiver/Insolvency Practitioner (OR/IP) if he or she knows that you are a creditor.

Compulsory liquidation – the procedure

Compulsory liquidation is the winding up of a company or a partnership by a High Court order (a ‘winding-up’ order).

A petition is normally presented to the High Court by a creditor who is owed £750 or more stating that he or she is owed a sum of money by the company and that the company cannot pay.

The OR becomes the liquidator but an IP will be appointed to take over from the OR if the company has significant assets. The liquidator’s role is to realise the company’s assets, pay all the fees and charges arising from the liquidation and pay the creditors as far as funds allow.

Restrictions on a company director

A director of a failed company can become a director of a new company unless subject to a disqualification order or undertaking or personally adjudged bankrupt or is subject to a bankruptcy restriction order or undertaking.

A disqualified person or bankrupt may obtain leave of the High Court to be a director. There are restrictions on the further use of the failed company’s name or trading name. The Court may order a director to make a contribution to the assets of the company if it is proved that he or she has been involved in fraudulent or wrongful trading.

Notification to creditors

The OR will normally notify all known creditors (within 12 weeks of the date of the High Court order) whether a meeting of creditors will be held. The OR will decide to hold a meeting if there are significant assets.

You will also be sent a report giving estimates of the company’s assets and liabilities and what the causes of the failure are considered to be. If you think that a company is withholding information about its assets, you should write to the OR.

How to make a claim

To make a claim you should ask the OR/IP for a proof of debt form and complete and return it to the OR/IP.

The form is sent to you along with the notice to creditors. Remember to sign the form. The OR will not normally send an acknowledgement.

Distribution of proceeds

The rights of a creditor who holds a fixed charge on assets (such as a mortgage) to sell the asset to recover their debt are not affected by insolvency. The chargeholder is the first to get paid when the asset is sold. Any surplus will be handed over to the liquidator. When all the assets available to unsecured creditors have been realised, the liquidator will distribute the proceeds in a strict order of priority as follows:

  • the fees and charges of the liquidation
  • preferential debts, which include wages owed in the four months before the date of the winding-up order and contributions to occupational pension schemes
  • any creditor holding a floating charge over an asset, such as a debenture
  • all unsecured creditors
  • the shareholders

Therefore, unsecured creditors will usually only be paid when the fees and charges of the insolvency procedures and the claims of secured and preferential creditors have been paid. Where a company which is being wound up has assets subject to a floating charge, part of the net proceeds from their sale will, in appropriate cases, be set aside for distribution to the unsecured creditors.

If full repayment of claims is not possible, payments are made in proportion to the value of each claim.

If a dividend is to be paid, all creditors whose addresses are known will be notified. If you have not already submitted a proof of debt, this may be your last chance to do so. If you submit your proof of debt after the dividend has been declared, you may lose your right to share in the money available at that time.

How much will I will I receive?

How much you are paid will depend on the amount of money that can be realised and the number of claims. If there are few assets, you may not receive anything.

You can get a list of creditors from the OR/IP. The OR/IP is allowed to charge a statutory fee for this service. The list will show how much each creditor is owed. You also have a right to inspect the High Court file unless the High Court directs otherwise. If a statement of affairs has been submitted, you will be directed to the High Court file for details of creditors and their claims.

Paying dividends

When paying a dividend, the OR/IP can reject the whole or part of a creditor’s claim. The OR/IP must provide reasons for doing so in writing. If you are dissatisfied with the decision on your claim, you may apply to the court for the decision to be reversed or varied.

Meeting of creditors

A first meeting of creditors is held so that the creditors can appoint an IP as liquidator in place of the OR.

This is likely to be the only meeting of creditors before the final meeting is called. If the OR does not believe the assets available are enough to attract an IP, the OR will send notice to all creditors that no first meeting is to be held and as a result the OR will remain the liquidator.

The OR must hold a first meeting if it is requested by one quarter in value of the creditors. If the creditors request a meeting, they will have to lodge a deposit for the costs of the meeting with the OR. If the creditors do not choose an IP, the OR can either:

  • apply to the Department for the Economy asking it to make an appointment
  • remain as liquidator himself

The OR can also apply to the Department for the Economy when an appointment of an IP is needed in an emergency, for example to deal with urgent transactions involving assets. When this happens the IP must notify the creditors. This may be done by advertisement in a newspaper if the High Court allows, for example where there are a large number of creditors.

Further meetings of creditors

Further meetings of creditors (called general meetings) are sometimes held if the liquidator wants to find out the creditors’ wishes in any matter relating to the insolvency proceedings, or if requested by 10 per cent in value of the creditors.

Where an IP is liquidator, a final meeting of creditors will be called. (see details under ‘Completion of case’)

Conduct and voting at a meeting of creditors

You can normally only vote at a meeting if you have returned your proof of debt to the OR/IP within the time stated in the notice.

You can vote at the meeting without attending personally but you must also have submitted a proxy form. The form is supplied by the OR/IP at the same time as the notice calling the creditors’ meeting and you must return it by the time specified. The proof of debt and proxy form must be signed by the same person. Voting at a meeting of creditors is by value, and is calculated by the amount of the creditor’s claim that is admitted (accepted) by the chair of the meeting for voting purposes. The chair will check all the proofs of debt and proxy forms, and confirm the amount admitted for voting purposes.

Briefly, at a first meeting of creditors, the chair will check that everyone present is allowed to be at the meeting; s/he will explain the purpose of the meeting, and provide details about the insolvent’s assets. The meeting then votes on the appointment of an IP as liquidator. A first meeting of creditors is not an opportunity for you to question the director/s (it is unlikely they will be at the meeting) or to discuss matters relating to the insolvency.

For an IP to be appointed by the meeting of creditors, there must be a majority in value of those present or represented (by proxy) voting for the IP.

Liquidation committee

A liquidation committee can also be appointed at a meeting of creditors unless the OR remains as liquidator.

The committee supervises and assists the liquidator on behalf of the creditors. It is called a liquidation committee. The committee consists of at least three and not more than five elected creditors.

An individual creditor who has been elected can act personally or appoint a representative.

You have a right to nominate yourself or any other creditor as a member of a committee. You can also vote for yourself.

A liquidation committee must approve certain actions proposed by the liquidator. Each committee has different powers but they include, amongst others, agreeing to carry on the company’s business and bringing or defending legal actions. A liquidation committee must approve payments to any class of creditors (for example, preferential creditors) in full and any arrangements made with creditors or in relation to assets.

What the liquidator will charge for their services

The OR’s remuneration (that is, what the OR will charge for his services) as liquidator is specified under the insolvency legislation.

An IP’s remuneration as liquidator is fixed by the liquidation committee. If there is no committee, it may be fixed at a meeting of creditors. The remuneration can be fixed as a percentage of the value of the assets or on a time basis. Any creditor, with the support of 25 per cent in value of unsecured creditors, can apply to the High Court for the remuneration to be reviewed if it is considered to be too high. If the creditors do not agree the remuneration, the IP will receive the same as would have been paid to the OR (a percentage fixed by the Insolvency Regulations, of assets realised and distributed).

The IP acting as liquidator will be able to provide you with a guide as to how their fees will be calculated.

Completion of the case

If the OR is dealing with the case and you have sent in a proof of debt, the OR will inform you when he intends to apply (to the Department for the Economy) for release. This means that the OR’s role as liquidator comes to an end. The creditors have a right to object to the OR’s release.

Generally the OR’s release can only be withheld if the OR has failed to realise assets that were available to be realised or has misapplied the proceeds of any assets realised.

You will be sent a summary of the OR’s receipts and payments as liquidator.

If an IP is dealing with the case and you have sent in a proof of debt, you will be sent a notice of the final meeting of creditors. At this meeting the IP will report on his or her conduct of the case and will give a summary of the receipts and payments. The creditors have a right to object to the IP’s release.

Taking legal action against the company or liquidator

After the date of the High Court order, unsecured creditors cannot take any action against the company without the consent of the Court. You must submit your claim to the liquidator. You can apply to the Court if you are dissatisfied with the actions of the OR/IP.

News Source : Click here

For any information, please feel free to phone us on 0800 612 6587
We look forward to hearing from you.