In this article, we delve into the scenario where an insolvent company owes you money, a situation that can be both complex and stressful. Our aim is to provide a clear and comprehensive guide on how to navigate this challenging circumstance.

We will cover the legal aspects of insolvency, your rights as a creditor, the details of the insolvency process, and effective strategies for recovering your money.

Claiming Money Back

Legal Rights When an Insolvent Company Owes You Money

When dealing with an insolvent company that owes you money, it’s crucial to understand your legal rights as a creditor.

These rights primarily revolve around your ability to claim a share of the company’s assets during the insolvency proceedings.

As a creditor, you have the right to file a proof of debt form, which formally acknowledges the amount owed to you by the insolvent company. This is a critical step in asserting your claim and potentially receiving a payout.

Another key right is the ability to attend and vote at creditors’ meetings. These meetings are held to inform creditors of the company’s situation and to make critical decisions about the insolvency process, including the appointment of an insolvency practitioner.

However, it’s important to note that being a creditor does not always guarantee a full recovery of the amount owed. The distribution of assets is subject to the statutory order of priority, with secured creditors and insolvency costs typically being paid before unsecured creditors.

Insolvencies Pay Creditors in Order of Priority

In the event of a company’s insolvency, creditors are paid in a specific order of priority. As someone who has loaned money to the company, regardless of your employment status with them, you are considered a creditor. Your position in the queue for repayment depends largely on the nature of your loan.

If your loan to the company was extended without any form of collateral or security, you are classified as an ‘unsecured creditor’. This places you in a different category compared to ‘secured creditors’, who have lent money with some form of security attached to the loan.

It’s important to note that employees owed wages fall into a distinct category known as ‘preferential creditors’. This group has a higher priority over unsecured creditors when it comes to repayment during the insolvency proceedings. Understanding these distinctions is key to knowing where you stand in the repayment hierarchy in an insolvency situation.

Steps to Take When a Debtor Company Becomes Insolvent

When a debtor company becomes insolvent, it’s important to act promptly and strategically to protect your interests. Here are the steps you should consider:

  1. Verify the Insolvency Status: Confirm that the company is officially insolvent. This can typically be done by checking public insolvency registers or through official announcements.
  2. Understand Your Position: Determine whether you are a secured, preferential, or unsecured creditor. This will influence your rights and the likelihood of recovering your money.
  3. File a Proof of Debt: Submit a proof of debt form to the appointed insolvency practitioner. This form should detail the amount owed to you and provide supporting documentation.
  4. Attend Creditors’ Meetings: Participate in meetings organised by the insolvency practitioner. These meetings provide updates on the insolvency process and allow creditors to vote on key decisions.
  5. Stay Informed: Keep up-to-date with the progress of the insolvency proceedings. Regular communication with the insolvency practitioner is essential.
  6. Review the Insolvency Practitioner’s Proposals: Carefully assess the insolvency practitioner’s proposals for distributing the company’s assets. This will give you an idea of how much you might recover.
  7. Explore Legal Options: Consult with a legal professional experienced in insolvency. They can advise you on your rights and any legal avenues available for recovering your funds.
  8. Negotiate with the Insolvency Practitioner: In some cases, there may be room for negotiation, especially if you hold a significant claim or offer a solution beneficial to all parties.
  9. Consider Tax Implications: Consult with a tax professional to understand any tax implications of the debt, such as writing off bad debt.

What if the Insolvent Company Has Goods that Belong to Me?

If you can legally prove that you are the rightful owner of goods in the possession of the insolvent company, you can make a claim via the appointed insolvency practitioner.

Can I Claim Interest on the Debt Owed to me by the Insolvent Company?

There are particular circumstances where unsecured creditors may claim interest on their debt. One instance is where this has been specified in the original agreement and where you may have proof of having issued an interest reminder of some kind.

Once the Liquidation is Complete, When do I get my Money?

As the lowest part of the debt hierarchy, it is common for unsecured creditors not to get 100% of their money back. If there is not enough left once the secured creditors have been paid, VAT registered creditors may be eligible for what is called ‘bad debt relief’.

Can I Appeal if the Liquidator Refuses to Pay a Claim?

Any creditor has the right to make an appeal should their claim not be paid out. If communication with the insolvency practitioner fails to yield the result you’re hoping for you have the right to ask for court adjudication within 21 days.