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Overview Of Can I Recover A Debt From A Company In Liquidation

Want to know if you can recover a debt from a company in liquidation? The ability to successfully recover a debt from a company in liquidation depends on a wide range of factors. There are no guarantees that creditors will see any of their money again once a company enters insolvent liquidation.

However, all is not necessarily lost. Throwing in the towel will often make it harder to recover any of the money a creditor is owed. The belief that a creditor will receive nothing may lead to the failure to file evidence of their claim and prove the debt. This is for most creditors likely to be fatal for obtaining any money back.

Filing A Proof of Debt Form To Claim In the Liquidation

The starting point for a creditor to recover a debt from a company in a liquidation is to fill in a proof of debt form with the liquidator. 

This is fundamental for any creditor owed over £1,000. Although it is possible in some cases in light of Rule 14.31 of the Insolvency Rules (England and Wales) Rules 2016 for a creditor owed a ‘small debt’ (£1,000 or less) to receive money back from a distribution by the liquidator with filing the form, it is perhaps best not relied upon.

However, if you are owed more than £1,000 and do not file a proof of debt then you are in effect deemed to have no claim in the liquidation. If you have no claim then when a dividend is available to be paid to creditors there will be no official document on file for the liquidator to adjudicate the claim to determine you are one of the creditors and the amount you are owed. Always file a proof of debt. 

Filing a proof of debt form with a liquidator should usually be a relatively simple procedure. You may be asked for more information from the liquidator to support your claim. This should be provided otherwise you could risk having your claim rejected. Filing the form (although fundamental) is merely the opportunity to receive some or all of the debt if the liquidator succeeds in making sufficient realisations of company assets after the costs of liquidation have been paid. 

Help And Provide Information To The Liquidator

The liquidator enters their role as a stranger to the company in liquidation. It is likely creditors who have traded with the company will know a lot about what has happened and its assets.

That information needs to be shared with the liquidator. It should not be assumed the liquidator will as a matter of course become aware of such information. Yes, the company’s directors have a statutory duty to the liquidator. Yes, the company’s directors have to provide the company’s records to the liquidator. Yes, the company’s directors have to disclose details of all its assets to the liquidator. However, the fact a company director should do something even as a matter of law does not mean it will necessarily be complied with.

Directors even have a duty to disclose their own breaches of duty and misconduct to the liquidator as was pointed out in the case of Item Software (UK) Ltd v Fassihi & Ors [2002] EWHC 3116 (Ch):

The director owes fiduciary duties to the company and for the reasons given by Glidewell J. in Horcal it is difficult to see how a director who was making a profit by appropriating the company’s contract for his own benefit would not be under a duty to disclose what he had done, not least as part of his duty to account for the profit.

Such breaches of duty may disclose claims against the directors which may amount to causes of action that may be capable of swelling the assets of the company and improve returns potentially for creditors. However, it is not unknown for directors in such a position not to volunteer such information. 

What Sort Of Information Should Creditors Provide To A Liquidator?

When a creditor provides information to a liquidator the most helpful way for this to be done is to provide factual assertions they consider relevant that can be supported by documents that arose at the relevant time. An example might be emails. This can potentially be useful if such facts relate to allegations about the conduct of the directors. 

Although still important, listing allegations of misconduct for example that cannot be evidenced or which are based on either assumption or information which has arisen from word of mouth might be less helpful to a liquidator.

Who Is The Liquidator?

No two people are the same. The same conceivably applies where liquidators are concerned.

Where liquidators are the same is the nature of their fundamental role arising under the Insolvency Act 1986 and the insolvency practitioner ethical code they MUST comply with.

However, as with any capability, the unique skills of liquidators may vary. As an example, some liquidators may have concentrated their career on liquidating high profile travel companies and others may have focused on investigating fraud in insolvency cases. However, that does not mean a liquidator who has spent more of their working life liquidating construction companies would be unable to undertake a travel insolvency case.

So there will be certain liquidators with specialisms such as litigation. This might be particularly helpful if a creditor has concerns about the conduct of the directors that for the benefit of all creditors they may wish to have examined and in respect of which if there were good valuable claims discovered, they would wish for the liquidator to bring the same.

Creditors may therefore seek to appoint a liquidator who has (or who they believe or are recommended) particular experience of matters relevant to the case in question.

What Is The Liquidator’s Attitude To Risk?

The way a liquidator carries out their role and the decisions they make are NOT confined to a narrow spectrum. Provided a liquidator can justify their decisions and do not risk bringing them within the ambit of the perversity test (a decision no reasonable insolvency practitioner would take) then they have a generous amount of discretion available to them in the way they administer the liquidation.

This is for example the case when it comes to the depth of a liquidator’s investigations into the conduct of directors and in particular the willingness (or otherwise) to bring legal proceedings against directors who could be guilty of misfeasance and a breach of duty.

Litigation is by its nature a potentially risky business. There might be few instances in which a liquidator or an insolvency practitioner has little or no option but to bring legal proceedings at their own personal risk for the benefit of creditors. The argument can perhaps be made that if creditors are not prepared to fund the liquidator and protect him or her from the risk of adverse litigation costs then they cannot usually be required to litigate, even if to do so might well produce a better return to creditors. It will always depend on the facts of the case.

As a result, if legal proceedings are anticipated to be a feature of a case to improve realisations creditors may wish to consider liquidators who regularly engage in legal proceedings and go to court. One way creditors can consider that is to look into a liquidator’s reported cases. This should show the types of legal claims they may have successfully brought and perhaps how routinely they engage in such procedures.

Why Did The Company Go Into Liquidation?

The reason the company went into liquidation is perhaps an important consideration. 

If a company has gone into liquidation and there are suggestions of misconduct and even fraudulent conduct on the part of the directors then this may influence whether the creditor wishes to consider funding further investigations and any litigation to try to recover money owing to the company by the directors.

How Is The Liquidator Being Paid?

The matter of how the liquidator is being paid can have an impact on matters.

For example, perhaps it is not unknown that relatively few liquidators will usually operate on a no recovery no fee basis when taking on for example a case with few or no assets other than the speculative prospect of claims against directors. 

If creditors are funding a liquidator to investigate the conduct of the directors, then the depth of those investigations which surpasses the basic statutory investigation requirements of Section 7A of the Company Directors Disqualification Act 1986 may depend upon the extent of the funding provided by creditors.

Ultimately, if a creditor wants to recover a debt in a liquidation that goes beyond that provided by the readily available and disclosed assets, they may have to consider putting the liquidator into possession of sufficient funds to investigate and then potentially litigate any good valuable claims discovered.

Should Creditors Fund A Liquidator?

Insolvency procedures involve the coming together of creditors as a group where their interests are in effect pooled. This is why it is said insolvency is a class action

This leads to the pari passu principle in Section 107 of the Insolvency Act 1986 in which the various classes of creditor are paid on a proportionate basis to the size of their claim.

A creditor who might fund a liquidator may wish to consider the commercial realities of what could happen if a realisation was made say from a litigation recovery. For example, are they the largest creditor where there are just a handful of other creditors and thereby stand to benefit substantially from the realisations or are they owed modest sums alongside thousands of others and thereby less likely to receive a high proportion of their money back? 

This issue of the mix of creditors can also be affected by the existence of other classes of creditor, such as secured creditors with a fixed or floating charge. Secured creditors may have higher-ranking rights to the realisations made and be entitled to them first.

The type of potential litigation claims may impact also matters with recoveries from claims such as Wrongful Trading not being available to secured creditors.


For a free no obligation chat about any of the matters detailed above, please do get in touch for help. An expert will call you back or if you prefer exchange emails.

We can explore your situation and consider the best way to help you and your business needs. You can call us 020 3925 3613 or fill in the form below and will get back to you quickly. We Know Insolvency Inside Out.

Author: Elliot Green
Last Updated: May 20, 2024

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Disclaimer: Can I Recover A Debt From A Company In Liquidation

This page is not legal advice and is not to be relied upon as such. This article Can I Recover A Debt From A Company In Liquidation is provided for information purposes only. You should take independent advice on the facts of your case. No liability is accepted for reliance upon this post.

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