In the volatile world of business, unfortunate circumstances can arise, leading a company to go into liquidation. While this process aims to settle the debts owed to creditors, it is not uncommon for many to receive only a fraction of what they are owed, if anything at all.
If you find yourself in the distressing position of being owed money by a company that has gone into liquidation, it’s essential to understand the steps you can take to protect your interests and increase your chances of recovering what is rightfully yours.
In this blog post, we’ll explore the actions you should consider and the strategies you can employ when faced with such a challenging scenario.
Can I submit a creditor claim after the company has liquidated?
Yes, the process of submitting a creditor claim after a company has been liquidated is governed by the Insolvency Act 1986 and the Insolvency Rules 2016. Once a company enters liquidation, the appointed liquidator will notify all known creditors and provide them with a specified time frame, usually 21 days, to submit their claims. This time frame is crucial, as it allows creditors to assert their rights and make a claim for any outstanding debts owed to them by the company.
If a creditor fails to submit their claim within the given time frame, their claim may be deemed invalid or given a lower priority. However, there are circumstances where the court may allow late claims to be considered. For example, if the creditor can demonstrate a valid reason for the delay or if there were exceptional circumstances that prevented them from submitting the claim on time.
It’s important for creditors to act promptly and seek legal advice if they intend to submit a claim after a company has been liquidated.
Make a claim to the liquidator
When a liquidator assumes control of a company from its directors, they extend an invitation to all creditors to assert their claims. Additionally, a public notice is published in the Gazette, informing the public about the company’s liquidation proceedings.
If you find yourself in a situation where a company owes you money and has entered liquidation, it becomes necessary for you to submit a claim to the liquidator. This claim should include details such as the amount owed to you, the nature of the goods or services you provided, and any supporting documentation you possess.
As previously mentioned, a distinct hierarchy of creditor groups exists, which ultimately determines the likelihood of receiving payment. Your position within this hierarchy directly influences your chances of being reimbursed for the debts owed to you.
Creditor groups for repayment following liquidation
Following the payment of liquidation expenses, the distribution of proceeds from asset sales prioritizes different creditor groups in the following order:
- Secured creditors with a fixed charge: This category primarily consists of prominent financial institutions like banks. These creditors have the advantage of selling the specific asset over which they hold a fixed charge, ensuring repayment.
- Preferential creditors: This group includes employees of the company who are owed wage arrears and HMRC for certain tax arrears. They receive priority in terms of repayment.
- Secured creditors with a floating charge: Floating charges are held over a class of assets such as stock or vehicles rather than individual assets. From the allocation for floating charge holders, a portion called the ‘prescribed part’ is set aside for unsecured creditors.
- Unsecured creditors: Suppliers, customers, contractors, some HMRC debts, and certain employee claims fall into this category. They have lower priority compared to the previously mentioned groups.
- Associated unsecured creditors: If you have a personal connection to the company and have provided loans to the business, you are placed below unsecured creditors without such a connection.
It is essential to note that each creditor category must be repaid in full before the liquidator can proceed to the next group. Unfortunately, unsecured creditors are at a significant risk of not receiving any dividend at all from the liquidation process, as their repayment depends on the availability of funds after higher-ranking creditors have been satisfied.
Frequently asked questions
If a company has gone bust and owes you money you need to contact the appointed liquidator and let them know the company owes you money. The liquidator will send you a 'proof of debt' form to complete, which includes such details as how much money is owed, how the debt was incurred, and whether you hold any security. What if a company has gone bust owes me money?
Conclusion
In conclusion, if a company owes you money and has entered into liquidation, it is essential to understand the process and take appropriate steps to protect your interests as a creditor. Filing a claim with the appointed liquidator, providing necessary documentation, and adhering to the hierarchy of creditor groups can increase your chances of receiving payment.
However, it is important to be aware that the likelihood of full reimbursement as an unsecured creditor is often uncertain, as the available funds are distributed according to the established order of priority. Seeking legal advice and staying informed throughout the liquidation process can help navigate this complex situation and explore potential alternatives for recovering the debt owed.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.