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Overview Of Adjudication Of Creditor Claims By An Insolvency Practitioner

The adjudication of creditor claims by an Insolvency Practitioner is done to determine which creditors should be able to participate in the insolvency process and receive a dividend if sufficient realisations are made.

Once creditors have submitted their claims if there is a decision to be taken that requires their input or certainly if the Insolvency Practitioner is in a position to pay a dividend to creditors he or she will formally adjudicate their claims.

To try to ensure that the Insolvency Practitioner has the claims of creditors entitled to claim he or she will advertise the right to claim in the Gazette newspapers. Creditors who have not heard about the insolvency or not as yet come forward can then submit a Proof of Debt to claim. This will involve creditors filling in the relevant form and when called upon supplying documents to prove their claim.

Adjudication Of The Creditor’s Claim

Adjudication of the creditor’s claim is the formal process whereby the Insolvency Practitioner will review the documents and the Proof of Debt form to decide:

  • If the claim is valid such that the creditor is indeed a creditor of the insolvency.
  • If information is available that suggests the claim ought not to be accepted.
  • If it is determined to be a valid claim then the next step is to place an amount on the claim.

The burden is on the creditor to prove its claim (Levi Solicitors LLP v Wilson [2022] EWHC 24 (Ch)). The Insolvency Practitioner will invite the creditor to prove but may well not undertake an inquisitional role in the process.

There is usually no requirement for an Insolvency Practitioner to adjudicate creditor claims until they can pay a dividend:

The Court in Managa Properties Ltd. v Brittain [2009] EWHC 157 (Ch) said:

The crucial paragraph of the Registrar’s judgment is 35:

“35. However, a proof has been lodged and the fact that the proof has not as yet been rejected does in my judgment mean that the Applicant is still a creditor who has a potential debt of greater than 25 per cent in value of the total debts of the Company. Accordingly, I am satisfied that the Applicant is able to summon a meeting pursuant to s.172(3) IA 1986. It must be right that in the circumstances of a compulsory liquidation, where the secretary of state has imposed a liquidator on creditors, a credit who has a qualifying debt may challenge that appointment. I do not accept that they should have to wait until their proof has actually been accepted by the liquidator for dividend purposes before they should be so entitled, that would be unjust. There is no point in a liquidator incurring the costs of adjudicating proofs for the purpose of paying a dividend until there is any prospect of a dividend being paid and as we all know it can take many years before that point arises. Of course, at any meeting held in such circumstances the chairman would be entitled to attribute a value to that proof for voting purposes, pursuant to IR 4.70 and his decision would be capable of challenge in the usual way.”

Acceptance Of Creditor Claim

If a creditor’s claim is accepted then the creditor should usually rank for both voting and dividend purposes.

Rejection Of A Creditor Claim

If the Insolvency Practitioner has received information that suggests that the creditor’s claim is not valid and or that the information supplied is insufficient to prove the claim, in the first instances they will typically seek out further information to investigate the matter.

An Insolvency Practitioner should be satisfied as to the veracity of a creditor’s claim. If however upon further review the Insolvency Practitioner remains unconvinced that the claim ought to be accepted then they can take steps to formally reject the claim.

The Process Of Formal Rejection Of A Creditor Claim

The process of formal rejection of a creditor claim is set out in Rule 14.7 of the Insolvency (England and Wales) Rules 2016 which states that the Insolvency Practitioner:

must deliver to the creditor a statement of the office-holder’s reasons for doing so, as soon as reasonably practicable.

Appeal Against Rejection Of Creditor Claim

If a creditor has their claim rejected they are entitled if they so wish to appeal to the Court under Rule 14.8 of the Insolvency (England and Wales) Rules 2016.

A creditor who wishes to appeal the rejection of their claim must do so within 21 days of receipt of the notice of it being rejected.

Costs Of An Appeal Against Rejection

The usual rule (Rule 14.9(2) the Insolvency (England and Wales) Rules 2016) is that an Insolvency Practitioner is not personally liable for the costs of the creditor who appeals, even if the appeal against the rejection is successful.

How To Appeal Against Rejection Of Creditor Claim

If as a creditor you want to appeal against the rejection of your creditor claim then there are essentially two ways to appeal but they really amount to a creditor having prove it is owed the debt. There is the appeal against the grounds of the rejection and there is the proving of the debt.

When an Insolvency Practitioner rejects a creditor’s claim they must provide reasons. If the reasons are insufficient then it might be argued the creditor claim should not have been rejected in the first place. This will be particularly the case if the claim was properly proven in the first place. However, when an appeal is launched the Court will look at the claim with a fresh pair of eyes and look for the creditor to demonstrate the debt is due and owing.

Normally the Insolvency Practitioner will not oppose the creditor’s appeal and take what is referred to as a neutral stance to the process, leaving it to the Court to decide. However, the Insolvency Practitioner may provide a statement to the Court to explain the circumstances of the rejection of the creditor claim so that it has a complete picture of what has happened.

What Next?

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Disclaimer: Adjudication Of Creditor Claims By An Insolvency Practitioner

This page Adjudication Of Creditor Claims By An Insolvency Practitioner is not legal advice and should not be relied upon as such. This article Adjudication Of Creditor Claims By An Insolvency Practitioner is provided for information purposes only. You can contact us on the specific facts of your case to obtain relevant advice via a Free Initial Consultation.

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