Top 10 questions for creditors

How can I confirm that a Company has become insolvent?

If you are concerned that the Company is not responding or is not giving you the information you require, all formal insolvency procedures will be recorded on Companies House. You will be able to search the register but the information may not be displayed until after the insolvency has commenced. It may be quicker to search the London Gazette’s insolvency section as some forms of procedure require advertisement of creditor meetings.

What happens if I owe money?

Your debt remains due and you will still be required to remit the invoice in the ordinary way. If you are aware that the Company has been placed into Liquidation / Administration, you should contact the Insolvency Practitioner to discuss payment arrangements.

What happens if the Company owes me money?

You will have a claim in the insolvency procedure, notice of which will likely be sent under separate cover. If you are aware of who the Insolvency Practitioner dealing with the matter is, you should contact them and ensure they are aware of your contact details.

Depending on the procedure and correspondence you may have received from the Insolvency Practitioner, no further supply should be provided to the Company and no claims relating to supply after the date of the insolvency will be accepted. You should contact the Insolvency Practitioner if you have any specific queries.

I have supplied stock to the Company subject to a “retention of title” (“ROT”) clause. Can I recover my stock?

Your first port of call should be to contact the Insolvency Practitioner and make them aware of your ROT claim. It is important to deal with ROT claims quickly, so you should provide evidence of supply and the inclusion of the relevant ROT clause within the terms and conditions of supply.

The Insolvency Practitioner will establish what stock remains and if any of it is subject to your ROT clause.  An inspection with a representative of your firm can be undertaken to establish ownership if required. Depending on the procedure and the rescue method, the Insolvency Practitioner can then invite you to collect the stock in question on come to an arrangement with regards to usage. This is done on a case by case basis however and you should correspond with the Insolvency Practitioner in the first instance.

How much money am I going to get back, and when?

This is entirely dependent on the procedure, asset values and complexity of the case generally. Some simple liquidations can take months, whereas the more elaborate Administrations can take a number of years. The Insolvency Practitioner will furnish all stakeholders with regular reports and updates and you can request further information during the course of the procedure.

Will there be a meeting of creditors?

An initial meeting of creditors will be convened on a CVL and CVA at the commencement of the procedure. Further creditor meetings can be convened in both procedures if required but this is not common as most matters can be dealt with remotely.

No meeting of creditors take place on an MVL as this is a solvent liquidation procedure and all creditors should be paid within 12 months of commencement of the procedure.

A creditors meeting may be convened on an Administration, depending on the likely outcome of the case. An Administrator is only required to convene a meeting of creditors when sending the initial proposals to creditors if it is likely that a dividend will become payable to the unsecured creditors. It is increasingly common for even this meeting to be held remotely, unless creditors specifically request a physical meeting to take place.

In most procedures a creditor can request for a meeting to be held but usually only for a specific purpose such as appointing a creditors committee or removing / replacing the appointed Insolvency Practitioner. In most cases it is simply quicker and cost-effective to correspond with the Insolvency Practitioner about any issues you may wish to raise.

What type of creditor am I?

Secured Creditors – These creditors will have security registered at Companies House. When this is a fixed charge, the secured creditor will be remitted the proceeds of the sale of the asset after the costs of sale have been deducted. When this is a floating charge, the secured creditor will be paid in priority to other creditors once the costs of the insolvency procedure and all preferential creditors have been paid in full, and the prescribed part has been set aside.

Preferential Creditors – Subject to certain limits, the only claims which rank preferential are arrears of wages, accrued holiday pay, pension scheme contributions not paid across and some state benefit entitlements.

Unsecured Creditors  Most creditors will fall into this category, including the remaining monies due to the employees outside of the preferential creditors and all trade creditors, unless any specific security has been granted.

Shareholders – Shareholders will only receive a distribution once all other expenses and creditors have been paid in full.

How do you get paid?

The basis and rates at which the Insolvency Practitioner is remitted will usually be decided at the initial meeting of creditors. The fees will then be drawn as and when funds allow according to the agreed scale.

There is specific information that an Insolvency Practitioner should provide when both seeking to agree a level of remuneration and reporting on the remuneration drawn in later reports. This is included within Statement of Insolvency Practice 9. If you have any concerns about the fee drawn or basis of remuneration, you should first raise this with the Insolvency Practitioner before considering seeking further independent advice.

Will the affairs of the company be investigated?

In all insolvent formal procedures, the Insolvency Practitioner will be required to consider the conduct of all directors in the three years prior to the appointment. This includes all shadow, de facto and de jure directors, or others considered to have an impact in the running of the business.

Within 6 months of an appointment, the Insolvency Practitioner is required to report the findings to the Insolvency Service. If you therefore have areas of concern surrounding any element of conduct in the relevant period, this should be forwarded to the Insolvency Practitioner in sufficient time to allow the information to be considered in the report.

I am a creditor of a company that went into an insolvency procedure, but the directors are still trading. Are they allowed to do this?

This depends on how the Directors are carrying on to trade. In short, there is nothing to stop the directors of a failed company incorporating another and commencing to trade using that vehicle. However, they are not permitted to trade under a similar name or trading style unless they provide notice to all creditors of the previous company that this is what they are doing, purchase the trading style of the previous company or seek permission of the court to use an otherwise restricted trading style.

In a “pre-pack” Administration, the business, trade and assets will be sold on appointment to a new entity as a whole. Usually a trading style and/or Goodwill is included within the transaction as the transfer of business is seamless and the core business retains much more of its value. Notice of the sale and the marketing efforts undertaken to ensure a sale at fair value (amongst other things) will have been sent to all creditors within 7 days of the appointment of an Administrator.

If you have any concerns regarding the actions of the directors or any phoenix entities using similar trading styles without any such transaction taking place, you should contact the Insolvency Practitioner in the first instance.

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