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A guide for creditors

1. About this guide

This guide explains the procedures if you are owed money by an individual in bankruptcy or a company in compulsory liquidation. The guide also outlines other insolvency procedures. It is mainly for small businesses and individual creditors, and for those who lack security for the money they are owed. The guide covers procedures in England and Wales. You will find information on how to start insolvency procedures in our 'Dealing with Debt' publications.

What is The Insolvency Service?

The Insolvency Service is an Executive Agency within the Department of Trade and Industry (DTI). The Insolvency Service administers and investigates the affairs of bankrupts and companies in compulsory liquidation, establishes the reasons for the insolvency and reports evidence of misconduct.

The Insolvency Service is not involved in the day-to-day handling of administrative receiverships, administrations, voluntary liquidations and voluntary arrangements. However, from 1 April 2004, the Official Receiver may be the supervisor in a new fast-track voluntary arrangement procedure.

What is insolvency?

The most commonly used definition of insolvency is the inability of an individual or company to pay debts when they become due. The term insolvency is also used to describe the various formal proceedings that may apply to an individual or company. The Act of Parliament under which these procedures are administered is the Insolvency Act 1986. Insolvency law provides a system of dealing fairly with the assets of the insolvent and the claims of creditors. The law also deals with what happens to the individual or company following the insolvency.

What are the insolvency procedures?

The procedures that can apply to individuals are:

The procedures that can apply to companies are:

The procedures that can apply to partnerships are:

Who deals with the insolvency procedures?

An Official Receiver (OR) will normally handle the early stages of a bankruptcy or compulsory liquidation. If there are significant assets, an insolvency practitioner (IP) may be appointed as trustee/liquidator in place of the OR. All other insolvency procedures, apart from fast-track voluntary arrangements, are handled by IPs.

2. Official Receivers (ORs) and insolvency practitioners (IPs)

Who they are and what they do

ORs are civil servants in The Insolvency Service and officers of the court to which they are attached. As well as administering cases, ORs have a duty to investigate the affairs of individuals in bankruptcy and companies in compulsory liquidation. They report evidence of criminal offences to a prosecuting agency. They report unfit conduct to the Secretary of State, who will decide whether to begin court proceedings to disqualify a director.

IPs work in the private sector. They are usually accountants or solicitors. They are required by law (the Insolvency Act 1986) to be authorised to act as IPs.

Authorisation is by the Secretary of State for Trade and Industry or one of the recognised professional bodies (RPBs). RPBs are approved by the Secretary of State to authorise their members. About 90% of IPs are authorised by RPBs. IPs acting as liquidators in creditors' voluntary liquidations only, administrative receivers and administrators have a duty to report to the Secretary of State any evidence of unfit conduct by company directors.

How and when to contact ORs and IPs

How do I find out who is dealing with a case?

You should be contacted automatically by the OR/IP if he or she knows that you are a creditor. 

If you believe an individual or company may be subject to insolvency proceedings and you have not heard from an OR/IP - you could take one or more of the following steps:

How do I make myself known as a creditor?

You should write to the OR/IP dealing with the insolvency. You should give the full name of the individual or company as well as your own details. You should inform the OR/IP if you change your address.

Should I contact the OR/IP if I have any information about the individual or company?

You should write to the OR/IP if you have any information about the assets of the individual or company or about the conduct of the individual or company directors. This information may help the OR/IP in the recovery of assets or in his or her duty to report misconduct.

The OR/IP is not keeping me informed. What should I do?

Do not expect frequent reports from the OR/IP. Once your claim is filed with the OR/IP, you will be notified automatically of any distribution of money or that no money is available and that the case is to be closed. It can take weeks, months or years (in some complex cases) to realise assets. If you are concerned, contact the OR/IP handling the case. Remember to notify the OR/IP if you change your address.

I want to complain about the handling of my case. What should I do?

If the OR is dealing with the insolvency:

There's more information on The Insolvency Service's complaints procedure in our publication 'Complaints Procedure'.

If an IP is dealing with the insolvency:

You should contact his or her authorising body to complain about unprofessional conduct. Any insolvency practitioner should give you details of their authorising body on request. Alternatively you can find this information:

There's more information in our publication 'How to make a complaint against an insolvency practitioner'. 

You can also register your complaint on-line at www.insolvency.gov.uk

3. Bankruptcy and compulsory liquidation (winding up by the court)

Bankruptcy - the procedure

Bankruptcy can only apply to individuals (including sole traders and individual members of a partnership). Bankruptcy petitions may be presented to the court by the individual, by creditors who are owed £750 or more, or by the supervisor of an individual voluntary arrangement (if the individual has not complied with the terms of the arrangement). A bankruptcy order is made by the court.

The OR normally acts as receiver and manager of the bankrupt's estate and will become trustee unless an IP is appointed. The trustee realises any assets (except for certain assets, including basic domestic items needed by the bankrupt and his or her family, and items such as vehicles, equipment, tools and books needed for the bankrupt's job). After paying fees and the costs of the proceedings, the trustee distributes the remaining money to the creditors in a strict order of priority.

There's more information on bankruptcy procedure in our 'Dealing with Debt' publications.

Compulsory liquidation - the procedure

Compulsory liquidation is the winding up of a company or a partnership by a court order (a "winding up" order). A petition is normally presented to the court by a creditor stating that he or she is owed a sum of money by the company and that the company cannot pay. The OR becomes liquidator but an IP will be appointed to take over from the OR if the company has significant assets. The liquidator's role is to realise the company's assets, pay all the fees and charges arising from the liquidation, and pay the creditors as far as funds allow in a strict order of priority.

There's more information on compulsory liquidation procedure in our 'Dealing with Debt' publications.

Restrictions on a bankrupt or company director

An undischarged bankrupt can trade after the bankruptcy order but there are restrictions. If an undischarged bankrupt trades under a new name, he or she must disclose the old name (under which the bankruptcy order was made) to anyone with whom he or she does business. An undischarged bankrupt is not allowed to act as a director of a company or be concerned with its management, without leave (permission) of the court. An undischarged bankrupt can only get a small amount of credit (currently up to £250, but this level will be increased to £500 on 1 April 2004) without informing those with whom he or she is dealing about the bankruptcy. 

Currently, a bankrupt is usually discharged (freed) automatically from the restrictions of bankruptcy after 3 years. If a person has been bankrupt before (within the last 15 years), he or she must wait 5 years before applying to the court for discharge. From 1 April 2004, a bankrupt will usually be discharged automatically from the restrictions of bankruptcy after 12 months, or earlier if the OR files notice with the court. Most individuals who were undischarged bankrupts on 1 April 2004 will be discharged automatically on 1 April 2005 or sooner. 

Also from 1 April 2004, a bankrupt may have a court order made against him or her (called a bankruptcy restrictions order) or give an undertaking to the Secretary of State which will mean that bankruptcy restrictions continue to apply after discharge for between 2 and 15 years.

A director of a failed company can become a director of a new company unless he or she:

A disqualified person may obtain leave of the court to be a director. There are restrictions on the further use of the failed company's name or trading name. The court may order a director to make a contribution to the assets of the company if it is proved that he or she has been involved in fraudulent or wrongful trading.

Your role as a creditor

When will I be notified?

The OR will normally notify all known creditors (within 12 weeks of the date of the court order) whether a meeting of creditors will be held. The OR will decide to hold a meeting if there are significant assets.

You will also be sent a report giving estimates of the insolvent's assets and liabilities and what the causes of the failure are considered to be. If you think that a bankrupt or company is withholding information about the assets, you should write to the OR dealing with the case.

How do I make a claim?

To make a claim you should complete a proof of debt form and return it to the OR/IP. The form is sent to you along with the notice to creditors. Remember to sign the form. ORs will not normally send an acknowledgement. The rights of a creditor who holds a fixed charge on assets (such as a mortgage) to sell the asset to recover their debt are not affected by insolvency. The chargeholder is the first to get paid when the asset is sold. Any surplus will be handed over to the trustee/liquidator. When all the assets available to unsecured creditors have been realised, the trustee/liquidator will distribute the proceeds in a strict order of priority as follows:

1. The fees and charges of the liquidation/bankruptcy.
2. Preferential debts, which include wages owed in the 4 months before the date of the insolvency order and contributions to occupational pension schemes.
3. Any creditor holding a floating charge over an asset, such as a debenture.
4. All unsecured creditors.
5. In company cases, the shareholders.

Therefore, unsecured creditors will usually only be paid when the fees and charges of the insolvency procedures and the claims of secured and preferential creditors have been paid. Where a company which is being wound up has assets subject to a floating charge, part of the net proceeds from their sale will, in appropriate cases, be set aside for distribution to the unsecured creditors.

If full repayment of claims is not possible, payments are made in proportion to the value of each claim.

If a dividend is to be paid, all creditors whose addresses are known will be notified. If you have not already submitted a proof of debt, this may be your last chance to do so. If you submit your proof of debt after the dividend has been declared, you may lose your right to share in the money available at that time.

How much you are paid will depend on the amount of money that can be realised and the number of claims. If there are few assets, you may not receive anything.

You can get a list of creditors from the OR/IP. The OR/IP is allowed to charge a statutory fee for this service. The list will show how much each creditor is owed. You also have a right to inspect the court file unless the court directs otherwise. If a statement of affairs has been submitted, you will be directed to the court file for details of creditors and their claims.

When paying a dividend, the OR/IP can reject the whole or part of a creditor's claim. The OR/IP must provide reasons for doing so in writing. If you are dissatisfied with the decision on your claim, you may apply to the court for the decision to be reversed or varied.

Meeting of creditors

A first meeting of creditors is held so that the creditors can appoint an IP as trustee or liquidator in place of the OR. This is likely to be the only meeting of creditors before the final meeting is called. If the OR does not believe the assets available are enough to attract an IP, the OR will send notice to all creditors that no first meeting is to be held and as a result the OR will remain trustee/liquidator

The OR must hold a first meeting if it is requested by one quarter in value of the creditors. If the creditors request a meeting, they will have to lodge a deposit for the costs of the meeting with the OR. If the creditors do not choose an IP at the meeting, the OR can apply to the Secretary of State to make an appointment or remain as trustee/liquidator. The OR can also apply to the Secretary of State when an appointment of an IP is needed in an emergency, for example to deal with urgent transactions involving assets. When this happens the IP must notify the creditors. This may be done by advertisement in a newspaper if the court allows, for example where there is a large number of creditors.

Further meetings of creditors (called general meetings) are sometimes held if the trustee/liquidator wants to find out the creditors' wishes in any matter relating to the insolvency proceedings, or if requested by 10% in value of the creditors.

Where an IP is trustee/liquidator, a final meeting of creditors will be called (see details under 'Completion of the Case').

Conduct and voting at a meeting of creditors

You can normally only vote at a meeting if you have returned your proof of debt to the OR/IP within the time stated in the notice. You can vote at the meeting without attending personally but you must also have submitted a proxy form. The form is supplied by the OR/IP at the same time as the notice calling the creditors' meeting and you must return it by the time specified. The proof of debt and proxy form must be signed by the same person. Voting at a meeting of creditors is by value, and is calculated by the amount of the creditor's claim that is admitted (accepted) by the chair of the 
meeting for voting purposes. The chair will check all the proofs of debt and proxy forms, and confirm the amount admitted for voting purposes.

Briefly, at a first meeting of creditors, the chair will check that everyone present is allowed to be at the meeting; s/he will explain the purpose of the meeting, and provide details about the insolvent's assets. The meeting then votes on the appointment of an IP as trustee or liquidator. A first meeting of creditors is not an opportunity for you to question the bankrupt/director (it is unlikely they will be at the meeting) or to discuss matters relating to the insolvency.

For an IP to be appointed by the meeting of creditors, there must be a majority in value of those present or represented (by proxy) voting for the IP.

Creditors'/liquidation committee

A creditors'/liquidation committee can also be appointed at a meeting of creditors unless the Official Receiver remains as trustee/liquidator. The committee supervises and assists the trustee/liquidator on behalf of the creditors. In bankruptcies it is called a creditors' committee; in liquidations it is a liquidation committee. The committee consists of at least 3 and not more than 5 elected creditors.

An individual creditor who has been elected can act personally or appoint a representative.

You have a right to nominate yourself or any other creditor as a member of a committee. You can also vote for yourself.

If certain actions are proposed by the trustee/liquidators, a creditors'/liquidation committee must first give approval for them. Each committee has different powers but they include agreeing to carry on the bankrupt's or company's business and bringing or defending legal actions. A liquidation committee must first approve payments to any class of creditors (for example, preferential creditors) in full and any arrangements made with creditors or in relation to assets.

The trustee’s/liquidator's remuneration

The OR's remuneration (payment) as trustee/liquidator is specified under insolvency law. An IP's remuneration as trustee/liquidator is fixed by the creditors'/liquidation committee. If there is no committee, it may be fixed at a meeting of creditors. The remuneration can be fixed as a percentage of the value of the assets realised and distributed or on a time basis. Any creditor, with the support of 25% in value of unsecured creditors, can apply to the court for the remuneration to be reviewed if they consider it too high. If the creditors do not agree a remuneration, the IP will receive the same as would have been paid to an OR (a percentage fixed by the Insolvency Regulations, of assets realised and distributed). 

Completion of the case

If an OR is dealing with the case and you have sent in a proof of debt, the OR will inform you when he or she intends to apply to the Secretary of State for release. This means that the OR's role as trustee/liquidator comes to an end. The creditors have a right to object to the OR's release.

Please note that the release of the OR as trustee is not relevant to and does not affect a bankrupt's discharge. Generally the OR's release can only be withheld if the OR has failed to realise assets that were available to be realised or has misapplied the proceeds of any assets realised.

You will also be sent a summary of the OR's receipts and payments as trustee/liquidator.

If an IP is dealing with the case and you have sent in a proof of debt, you will be sent a notice of the final meeting of creditors. At this meeting the IP will report on his or her conduct of the case and will give a summary of the receipts and payments. The creditors have a right to object to the IP's release.

What legal action can I take against the bankrupt/company or the trustee/liquidator?

After the date of the court order, unsecured creditors cannot take any action against the bankrupt or company without the court's consent. You must submit your claim to the trustee/liquidator. You can apply to the court if you are dissatisfied with the actions of the OR/IP.

4. Reference table

This is a general introduction to the insolvency procedures handled by IPs (not ORs). Please contact your professional adviser or the IP handling your case for further details.

guide for creditors reference

5. Where to go for more information

Please refer questions on the procedures involved in a specific insolvency to your professional adviser or to the OR/IP handling the case.

The Insolvency Service and Official Receivers can only provide information about the administration of your case. They cannot offer legal advice. You should always seek professional advice from a solicitor, accountant or IP. If you do not have a professional adviser, contact your local Citizens Advice Bureau (please refer to your local telephone book for the address and telephone number).

You can contact The Insolvency Service Central Enquiry Line for general enquiries on insolvency matters on 020 7291 6895 or email: Central.Enquiryline@insolvency.gsi.gov.uk

To contact Companies House

Companies House holds the records of all limited companies incorporated in England and Wales at its head office at:

Companies House
Crown Way
Cardiff 
CF4 3UZ

You can search company records through the website of Companies House at: www.companieshouse.gov.uk

You can also examine company records at the London search room and at satellite offices in Birmingham, Leeds and Manchester. You can get company records by post if you cannot visit one of the offices. Telephone orders can be accepted if you pay by credit card (Access, Visa and MasterCard only).

For more information, telephone Companies House helpline on 0870 3333 636

To search the Individual Insolvency Register

You can search the register online, or by visiting your local official receiver's office. All searches are free of charge. A search form is available on The Service's website at www.insolvency.gov.uk  
There's more information in our publication 'Individual Insolvency Register'.

Information on debt recovery

Please note that The Insolvency Service cannot give advice on debt recovery or on how to begin insolvency proceedings.

However, the following information publications are available about debt recovery procedures:

A guide to credit management for buyers and suppliers, 'Better Payment Practice', is available from the Publications Orderline on 0870 150 2500. Please quote 'Better Payment Practice- URN 98/965'.

You can get guidance on county court procedures, including information about the small claims procedure and enforcing judgments from any county court office (see under 'Courts' in the telephone book). Information for small businesses about using the county courts for debt recovery is also available from court offices. Individuals who have ordered goods and services and arranged for payment by credit, including credit cards, may be able to claim against the provider of credit. The Consumer Credit Act 1974 (s75) provides for this in limited situations. You can get advice from Citizens Advice Bureaux.

© Crown copyright 2005
The material featured on this page is subject to Crown copyright protection unless otherwise indicated and has been provided by The Insolvency Service.
Published October 2005

You should seek appropriate advice before acting on any information contained on this page.