Updated: 14th January 2021
When a company goes into liquidation, its assets are sold by the appointed liquidator in order to repay creditors. Unfortunately, unsecured creditors as a group rarely recoup all the money owed to them because they lie at the bottom of the payment ‘hierarchy’ in insolvency.
This often means there are little, if any, funds remaining after other creditor groups have been paid. If you’re a supplier with a retention of title claim, however, you may be able recover the goods you supplied to your insolvent customer.
If you have made a loan to the company which is secured against one of their assets, you’re a secured creditor and can sell the asset to recover the money owed to you. But if you’re a supplier for the insolvent business, you fall into the category of unsecured creditor, and fall further down the order of priority for payment.
Although unsecured creditors in general are unlikely to receive much in the way of return from the liquidation process, there may be actions you can take that could help.
Initially, you should 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.
Once the liquidator has received the completed form, they’ll keep you in touch with proceedings and provide updates when necessary. For this reason, it’s important to ensure the office-holder has your current contact details. You’ll also be sent a report detailing how the company became insolvent, and estimations of their assets and liabilities.
If you’re a supplier, you may have included a retention of title clause in your contract with the company. If this is the case, you need to inform the liquidator of its existence along with your claim.
A valid retention of title clause could allow you to repossess the goods if it can be proven that ownership remains vested in your business until payment is made by the purchaser. You should notify the liquidator of the clause as soon as possible, and they will send you a retention of title questionnaire.
You’ll need to provide documentary evidence that the clause exists, and if your claim is upheld you should be able to recover your goods from the insolvent customer.
Creditors have the right to form a creditor’s committee, which generally consists of three or five members. It’s often the case that creditors with the largest claims are nominated, the purpose being to give unsecured creditors a ‘voice’ during the liquidation process.
The committee sanctions various actions by the liquidator, including the office-holder’s remuneration. If a compromise or alternative arrangement needs to be made with creditors, or in relation to the debts owed, the creditors’ committee will be consulted about the new arrangements.
The overall liquidation process can take some considerable time, particularly if there were a large number of assets, or the make-up of the business was complex in nature. Should the liquidated company have few assets, however, and there is no valid ROT clause, unfortunately you may receive no return at all from the liquidation.
If you aren’t able to provide sufficient proof that a debt exists, your claim may be refused by the liquidator. It’s important to complete the proof of debt form with as much detail as possible, and be prepared to support your claim with documentary evidence if necessary.
The whole of your claim, or part of it, can be rejected, but the liquidator must provide a reason for doing so. If you’re unhappy with the outcome, you can apply to the court for the decision to be overturned or changed in some way, but you’ll need legal assistance to do this.
Real Business Rescue can provide further professional advice tailored to your situation if you’re owed money by a company in liquidation. We have extensive experience in this area, and will ensure you understand your rights in the process. Call one of our experts to arrange a free same-day consultation – Real Business Rescue provide director advice online, over the phone, or in-person at one of our 100 UK offices or a place of your convenience.
13th October 2021
The Bank of England has said it anticipates that rates of corporate insolvency will increase in the coming weeks following the removal of restrictions on winding up petitions.Read More