Unfortunately, not all businesses work out, this is just a matter of fact. A lot of organisations start with the right intentions and with a good idea in mind but factors come into play that make it so that things simply do not work out. When this is the case, a company will become insolvent and will likely go into liquidation. If that happens then creditors interests need to be protected, meaning they get repaid as much of their debt as possible. Of course, in order to receive payments on that debt, creditors also need to prove that said debt exists. This is where proof of debt comes into play. In this article, we will discuss about proof of debt in Liquidation and what it means for creditors.
What Is a Proof of Debt in Liquidation?
The starting point needs to be establishing what proof of debt actually is. It is essentially a document which records a creditor’s claim throughout an insolvency. If a proof of debt form isn’t completed then a creditor is not going to be recognised in the insolvent estate. The overriding effect of this is that the creditors are not going to be able to:
- Vote on the appointment of an Insolvency Practitioner who is responsible for the insolvency
- Vote on any decisions that creditors might be invited to participate in
- Become a member of a Creditor’s Committee
- Crucially, participate in the distribution of any of the assets of the insolvency to creditors
Because of the above, creditors need to ensure that they submit proof of debt to the insolvency practitioner once one is appointed. Insolvency Practitioners will be able to help you do this so just get in touch and find out.
What Information Do You Need to Prove Debt?
All of the information required to know what you need in order to prove debt can be found under rule 14.4 of the Insolvency (England and Wales) Rules 2016. In summary, these state the following:
Proof needs to be made out by (or at the very least under the direction of) the creditor. It also has to be authenticated by the creditor. Proof needs to state the name and the address of the creditor, or if they are a company it should identify the company and once again state the address.
The amount which the creditor is claiming for needs to be clearly outlined and must include VAT up to the date of the claim. If there is any interest on the claim then this needs to be outlined, in fact, even if there isn’t any then the claim still needs to state that there is no interest being claimed. There should be an outlined description of what the debt is and how it was incurred, as well as provide details on any security which is held by the creditor. Finally, the proof needs to be dated and authenticated along with the name and address of the person who has provided the authentication.
When Should Proof Be Filed?
Any prospective creditors will be filed notice that the company is going insolvent and will be going into liquidation. On this notice, there will be a period specified when proof needs to be submitted. This helps the company and insolvency practitioners work out just how much debt is required to be paid back.
Are There Any Limitations to Providing Proof?
As per English insolvency law, creditors are required to prove their debts against insolvency debtors. That being said, there are a couple of exceptions to this rule where proof of debt doesn’t necessarily need to be filed. One of these exceptions is that secured creditors don’t necessarily need to submit proof within a liquidation, instead, they can simply enforce the security that they have. That being said, just because they don’t need to provide proof doesn’t mean they won’t. For instance, if there is a shortfall in the value of the security when compared with the overall value of the debt, they would likely still need to prove said shortfall.
Another exception is when people do not have much debt, otherwise known as ‘small’ debts, they also do not need to submit proof. A small debt is any amount which falls under £1000, there is no need for a formal process for such a small amount.
Overall, the process of proving debt should be relatively straightforward, but if you need any assistance you should be sure to reach out to professionals such as the insolvency practitioners who are working on that particular case.
Can Debts Payable in the Future Be Claimed?
Yes, these kinds of debts can be proven and subsequently claimed for. Although a lot of loans are structured so that they are repayable on a fixed future date, they also usually become present debts thanks to the operation of the loan acceleration clause. Even if this isn’t the case, a creditor is still able to claim for the entire value of its debt.
There is an important exception to this rule, which is for payments which are due periodically. These kinds of payments, like rent and subscriptions, are not going to be treated as future debts for which each periodic amount is payable in the future. On the amounts which are due and unpaid once the company has entered into liquidation and administration can be proven and therefore claimed.
Do You Need Help with Finances and Deposits?
If you are a creditor and are owed money by a company which is going to go into liquidation then it is important that you are proving your debt, ensuring you claim for everything and file that claim within the correct time period. Naturally, this is a lot if you do not have experience doing so before and as such, if you require any assistance then you should consider reaching out to experts like Simple Liquidation. At Simple Liquidation, our team is on hand to provide you with all of the help that you might need. Should you require any further information or if you have any questions then do not hesitate to get in touch.