Mercian Law Limited

Insolvency

RECOVERY IN INSOLVENCY PROCEEDINGS

Are you a secured or unsecured creditor?

If you have a county court judgment and have instigated one of the methods of enforcement action, you can only claim the benefit of this enforcement action if it was completed before liquidation of your debtor company.  If your method of enforcement was a bailiff’s warrant for a judgment over £500, the courts enforcement officer must retain the net proceeds of sale of the items seized for 2 weeks and must pass the funds to the liquidator if they receive notice of petition or meeting in which an Order or resolution results.  This position is the same in bankruptcy proceedings. You can claim property which is held in trust, for both individuals and corporate debtors. 

If you have a valid retention of title clause in your contract with the debtor, the insolvency office holder must be notified.  In addition:

You may need to prove your ID and incorporation if you are a company An “all monies” clause is effective If your retention of title clause gives you rights over “mixed” goods or over the proceeds of a re-sale, it will be deemed a charge If the insolvency office holder seizes or disposes of the goods subject to your retention of title, in the reasonable belief they belonged to the debtor company, they will only be liable if acted negligently

If you have a lien over goods but not books or papers, this will enable you to retain possession against the insolvency office holder. You may have rights under a guarantee or under a charge.

If none of the above applies, you will be deemed an unsecured creditor with a slight chance of recovery through insolvency action.

The order of priority in Insolvency proceedings:

Expenses of the Insolvency Preferential creditors Ordinary creditors Contributories

What action can you take as a creditor in the different types of insolvency proceedings?

Compulsory Liquidation

You can either support or oppose the petition at the hearing.  If you learn of the proceedings after a Winding up Order, you can attend the creditors meeting convened by the Official Receiver and participate in the appointment of the liquidator and become a member of the liquidation committee of creditors.  You must lodge a proof of debt and proxy when asked. 

Voluntary Liquidation

You will learn of the proposed voluntary liquidation of your debtor company when you receive a notice that a meeting of the debtor company’s creditors has been convened.  This usually happens after a shareholders meeting in which a resolution to wind up will be passed and a liquidator nominated by the company.  It is fundamental that you lodge a claim.  At the meeting a statement of affairs will be laid and a director of the company will chair the meeting.  You can question as to the companies affairs.  The creditors will decide, by a majority in value whether or not they wish the liquidator nominated by the company to be confirmed in office or for someone else to be appointed.  A liquidation committee will also be formed.  Mercian Law can act as your proxy and attend meetings to carry out your voting rights, charged at our hourly rate plus expenses.

Voting at Meetings

You can only vote if you have lodged a proof of debt which has been accepted by the Chairman or Liquidator.  You can submit a proxy if you are not voting in person.

STATUTORY DEMAND

If all attempts to get your debtor to engage in correspondence have failed, serving them with a statutory demand may be your way forward.

If you decide to issue a statutory demand, you can follow it up after 21 days with a  winding up petition.  The potential of losing financial control to a court appointed officer will really concentrate the debtor’s mind, especially with the petition affecting their borrowing power and other financial agreements.

However, if you do your research on the financial viability of the company, it is unlikely that you ever need to issue a petition.  If a debtor is solvent, it is likely that your demand will result in payment being received or an agreement to repay by instalments.  If the debtor is insolvent it’s probably not worth wasting your money on issuing the petition.

The procedure for issuing a statutory demand is set out in the Insolvency Act 1986.  The procedure isn’t complicated but must be followed carefully, otherwise the statutory demand may be deemed void and the debtor can apply for the statutory demand to be set aside by applying to the County Court.  An application to set aside a statutory demand can be made if:

The debtor must apply for a set aside within 18 days of being served with the demand.  If the application is deemed groundless it can be dismissed without the requirement of a hearing.  If there are grounds the application will be listed for a hearing before a District Judge.

The benefit of using Mercian Law is that we will guarantee that the statutory demand is completed and served correctly. 

We have the following conditions before accepting instructions:

We insist that all the statutory demands we prepare are served by a process server.  This will incur an additional fee but the process server will affect personal service and will provide an affidavit proving service of the demand.  If you don’t know the whereabouts of your debtor we can also instruct a tracing agent to locate the debtor.

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