Advising a creditor of a bankrupt individual or a company in liquidation

Once a person has become bankrupt or a company placed into liquidation, then their trustee in bankruptcy or liquidator (as applicable) will contact all of the creditors to advise them of the insolvency and request that the creditors notify them of any debt(s) owed by insolvent debtor. The process used by the creditor to try and recover any money owed will then differ depending on whether or not you are a ‘secured’ or an ‘unsecured’ creditor.

A secured creditor is a creditor who has the benefit of having their debts secured, such as by a legal charge or mortgage, over some or all of the debtor’s property. In the event that the debtor defaults or becomes insolvent the secured creditor can enforce its security against the debtor and therefore avoid competing against the unsecured creditors for any distribution paid by the trustee in bankruptcy/liquidator of the debtor. The process by which a secured creditor may enforce its interests is typically set out in the contract which the debtor entered into with the creditor.

An unsecured creditor is a creditor who does not have the benefit of security of any of the debtor’s assets. Following the appointment of a trustee/liquidator, an unsecured creditor will need to lodge a form referred to as a ‘proof of debt’ with the trustee/liquidator that sets out the details of any debt(s) they are owed by the debtor. The liquidator/trustee in bankruptcy will then collate the proof of debt forms it receives from various creditors consider which claims to accept or reject. The liquidator/trustee in bankruptcy those creditors from the available assets of the company or bankruptcy. As part of this process, some creditors (such as employees) may receive a ‘priority payment’ from the trustee/liquidator, which means that they are paid before the other unsecured creditors.

It is unfortunately very common that unsecured creditors receive either no return or at best a very small distribution (for example 1 – 5 cents in the dollar) following the bankruptcy/liquidation of the debtor. In this situation, a creditor may decide to try and increase their chances of recovering monies owed by the creditor by engaging lawyers to investigate the affairs of the debtor, in conjunction with the trustee in bankruptcy/liquidator to determine whether there are any potentially voidable transactions that may be reversed to the benefit of creditors. The creditors of an insolvent company may also instruct their lawyers to investigate whether they may have any potential claims against the directors of the insolvent company.

Rowe Bristol Lawyers have extensive experience in providing legal advice and services to the creditors of insolvent companies, including:

  • assisting secured creditors to realise their security;
  • advising and acting for unsecured creditors; and
  • assisting insolvency professionals to investigate and reverse voidable transactions and/or bring a claim against the directors of an insolvent company.

If you are a creditor of an insolvent company and require legal advice in respect of how to try and recover monies owed to you, please contact us to arrange a meeting so that we may consider and advise you on your specific circumstances.

The above information is provided as general information only and should not be relied upon as legal advice. The accuracy of this information may have changed from the date when it was published.