A customer or debtor enters liquidation or sequestration while owing your business money. Sending the invoice to the liquidator or trustee is useful notification, but it is not the same as formally proving a claim through the applicable process.
Before deciding how to proceed, understand both the prospect of a dividend and the possible cost exposure. Hugh Raichlin Attorneys assists creditors with insolvency-related claims and recovery strategy. The assessment should cover the estate, claim, security and deadlines rather than focus only on the face value of the debt.
Identify the correct debtor, office-holder and process
Establish whether the proceedings concern an individual, company or another entity, and obtain the relevant order and appointed office-holder’s details. A director, surety and company are not automatically the same debtor. Check which agreement creates the obligation you seek to enforce.
Notify the office-holder of your interest and request the available notices and financial information. Formal proof requires the appropriate claim documents and supporting evidence, subject to the applicable procedure. Do not assume that ordinary collection correspondence places the claim before the creditors’ meeting.
Why a proved claim can create exposure as well as a dividend
The estate’s available assets must be considered alongside costs, secured claims and preferential claims. A claim that appears substantial on paper may receive little or nothing. In relevant circumstances, a deficiency in the estate can also expose creditors to a contribution towards costs.
The source article highlights the distinction between simply losing the debt and having to contribute further money. It also warns that the creditor who initiated sequestration can have contribution exposure independently of a later decision about proof. The position must be checked for the particular proceedings; withholding a claim form is not a universal way to avoid liability.
Security requires its own calculation
A mortgage or other security over an estate asset can affect the ranking and source of payment, but does not eliminate every cost or shortfall issue. Assess the asset value, costs of realisation, competing security and whether the claim includes an unsecured balance.
In some circumstances a creditor may consider relying on the proceeds of security and giving up a concurrent shortfall claim. That is a material election, not a standard box to tick. Its consequences and exceptions need advice. An external surety may create a separate claim, but its validity, terms, defences and prescription must also be reviewed.
Request the evidence needed for the decision
- The agreement, invoices, reconciled statement and evidence of performance or payment.
- The liquidation or sequestration order, appointment information and creditor notices.
- The latest available estate report, known assets, realisation estimates and estimated administration costs.
- Security documents, guarantees, cessions and any facts affecting priority or enforceability.
- Details of pending disputes, earlier payments, settlement proposals and relevant deadlines.
Label estimates as estimates. An old valuation or optimistic assurance is not proof of an available dividend. Keep written records of what information was requested and received, particularly where an election must be made with incomplete information.
Decide promptly, but do not confuse caution with inaction
Compare the likely recovery, potential contribution, proof requirements and other available rights. Clarify what happens if the claim is disputed and whether additional expenditure is commercially justified. Account for the costs of pursuing a surety or another debtor separately from participating in the estate.
Do not miss a notice or procedural deadline while waiting for certainty. Ask what can be done to obtain information and preserve the relevant rights within time. No adviser can guarantee a dividend merely because a debt is valid.
Is sending my invoice enough to prove the claim?
Not ordinarily. Notification and formal proof serve different purposes. Confirm the required documents, process and timing for the actual estate.
Does holding security mean I cannot be asked to contribute?
Not necessarily. The nature of the security, the election made, the estate’s position and the applicable exceptions require analysis. Avoid relying on a general description such as “secured creditor” without reviewing the documents.
Discuss your creditor position
Tell HRA who owes the debt, the proceedings involved, the amount and the next deadline. Start with a short summary and an available notice; supporting financial and identity records can then be requested through an appropriate channel.