Module 4.3 Creditors' rights, remedies & adjudication of claims in personal insolvency

Question 1

When does an IVA take effect?

Answer 1

Decision date

Question 2

What action can be taken by creditors after presentation of a bankruptcy petition?

Answer 2

After presentation of a petition: Court may “stay” (put on hold) any legal proceedings
 After the making of a bankruptcy order: No action may be taken in respect of a provable debt without the permission of the Court
 Exceptions:
 Actions by the secured creditors to enforce their security  Legal actions for claims that are not affected by discharge

A creditor is not entitled to retain the benefit of an incomplete the execution or attachment, or any sums paid to avoid it

Question 3

What action can be taken by creditors after presentation of a winding up petition?

Answer 3

After the presentation of a winding up petition, the Court may stay, sist or restrain the proceedings on such terms as it think fit
 When a winding up order has been made or a provisional liquidator has been appointed, no action or proceeding shall be proceeded with or commenced against the company or its property, except with the permission of the Court, and on such terms as it thinks fit
 Where a company is wound up by the court, any attachment, sequestration, distress or execution put in force against the estate or effects of the company after the commencement of the winding up is void

No automatic provisions in voluntary winding-up
 Liquidator or creditor or contributory can apply to Court

Question 4

What happens when a creditor was not given notice of a CVA/ IVA?

Answer 4

they are still bound by the arrangement (not to take action in respect of their debt)
 But their debt will survive the completion of the arrangement, unless they agree to participate in it along side the other creditors

Question 5

What is the position with regards creditors when an administration order is made?

Answer 5

 Winding up petitions dismissed or suspended
 Creditors may not, without the consent of the administrator or permission of the Court:
 Enforce security
 Repossess goods
 Commence or continue proceedings, execution or legal process
 Landlords may not forfeit leases

Question 6

What is the position with regards creditors when a company enters administrative receivership?

Answer 6

Does not prevent creditor action (although often little purpose in doing so)

Question 10

In what proceedings do creditors have a right to receive the SA?

Answer 10

CVA/ IVA (as well as proposal and nominee’s report)

Question 11

Can priority of secured and preferential creditors be varied in a voluntary arrangement?

Answer 11

Yes. However, any significant departure from the position as would apply in other proceedings could form the basis of a challenge to the arrangement as being unfairly prejudicial

Question 12

What is the relevant date for claims in a CVL?

Answer 12

Date of the MEMBERS’ resolution

Question 13

What is the relevant date for claims in an administration?

Answer 13

Date of administrator’s appointment or administration order.

Question 14

Which debts are not provable?

Answer 14

In all cases:
 An obligation arising under a criminal confiscation order
 Over paid benefits or crisis loans

In bankruptcy:
 Fines imposed for a criminal offence
 Obligations in family proceedings (except lump sums and costs)
 Maintenance assessments under the Child Support Act 1991
 Student loans

Question 15

How do you calculate creditors’ claims for future debts?

Answer 15

The amount of the claim is calculated as if due on the relevant date but any distribution made prior to the due date is discounted.

The maximum rate of interest that can be claimed for the period between the relevant date and the due date is the statutory rate (8%), not the contractual rate

Question 16

What happens re claims where the debt is contingent?

Answer 16

The office holder must estimate the value
 Can use his power to apply to court for directions
 Where the value of a debt is estimated by the office holder or by the court, the amount provable is the amount of the estimate

Question 17

How do you value a secured creditor’s debt?

Answer 17

R14.1 - When proving their debt, the secured creditor is required to estimate the value of their security
 R14.15 – The secured creditor may only re-value their security with the permission of the office holder or the court
 R14.16 – If a secured creditor fails to disclose security in a proof, they must surrender their security (Unless the court grants relief in respect of an inadvertent omission or honest mistake)
 R14.17 - The office holder may redeem the security, at the value placed on it in the proof
 R14.19 - If the security is realised, the actual amount is used as a re-valuation and the balance may be proved as an unsecured creditor
 R14.41 - If the value of a creditor’s security is altered after a dividend has been declared, the creditor must repay any overpaid dividend

Question 18

How do you value debts in a foreign currency?

Answer 18

The debt is converted to sterling by reference to the exchange rates prevailing at close of business on the relevant date

Question 19

When doesn’t Mutual credit and set off apply (bky, administration only)?

Answer 19

No set off of sums due from the bankrupt etc where the creditor had notice of the application or petition at the time the debt was incurred.

(Admin, liq) Excludes a debt which has been acquired by a creditor by assignment or otherwise, under an agreement between the creditor and another party where that agreement was entered into

Question 20

If an office holder rejects a POD in whole or in apart, how long does he have to deliver a statement of OH’s reasons to the creditor?

Answer 20

ASARP

Question 21

How long does a creditor have to appeal to the court where a POD has been rejected in whole or in part?

Answer 21

21 days from receipt of the OH’s statement

Question 21

How long does a member, a contributory, any other creditor or, in a bankruptcy, the bankrupt, if dissatisfied with the office holder’s decision to accept/ reject a POD have to apply to court?

Answer 21

21 days from becoming aware of OH’s decision.

Question 22

When/ how can the amount claimed in an POD be varied?

Answer 22

R14.10
 A creditor may withdraw a proof at any time
 The amount claimed may be varied at any time by agreement between the creditor and the office holder

R14.11
 The court may exclude a proof or reduce the amount claimed on the application of the office holder, a creditor, a member, a contributory or a bankrupt

Question 23

To whom must OH give notice of intended distribution?

Answer 23

 All creditors in an administration; or
 Bankruptcy / liquidation:
all creditors who have not proved their debts  Except where the small debts provisions are being used

Question 24

What must be included in any notice of intended dividend?

Answer 24

R14.30 – The notice must contain:  A statement that a dividend is intended within a period of 2 months  Whether the proposed dividend is interim or final  The last date by which proofs may be delivered, which must be  The same for all creditors; and  Not less than 21 days from the date of the notice  The place to which proofs must be delivered  Whether the small debts provisions are being used

Question 25

Does an OH have to gazette notice of intended first dividend?

Answer 25

Yes (unless previously gazetted inviting crs to prove): Must state: The office holder intends to declare a first dividend or distribution; and The date by which and place to which proofs must be delivered Gazette notice discretionary if distribution is to preferential creditors only.

Question 26

If the small debt provisions are being used, what must the notice re dividend contain?

Answer 26

 The amount as shown in the statement of affairs or accounting records  The intention to treat it as accepted unless the creditor advises the amount is incorrect  Require the creditor to notify the office holder prior to the last date for proving if the amount is incorrect  Inform the creditor that where they advise the amount to be incorrect, they must also submit a proof in order to receive a dividend  The information may take the form of a list of all small debts

Question 27

How long after the submission date does the OH have to deal with PODs?

Answer 27

14 days They must within 14 days of the last date for proving  admit or reject (in whole or in part) proofs delivered; or  makesuchprovisioninrelationtothemastheythinkfit.  R14.32(2)-The office holder is not obliged to deal with a proof delivered after the last date for proving, but may do so if they think fit

Question 28

When may the OH postpone or cancel a dividend once notice of intended dividend has been given (2 month period)?

Answer 28

If an application is made to the court for the office holder’s decision on a proof to be reversed or varied, or for a proof to be excluded, or for a reduction of the amount claimed. If the office-holder considers that due to the nature of the affairs of the person to whom the proceedings relate there is real complexity in admitting or rejecting proofs of claims submitted. NB: Where the dividend is postponed or cancelled a new notice under rule 14.29 will be required if the dividend is paid subsequently.

Question 29

If an office holder declares a dividend, what else must they do?

Answer 29

Deliver notice of that fact to all creditors who have proved for their debts. The notice may be distributed at the same time as the dividend is distributed. (If dividend only to preferential creditors then notice only required to those preferential creditors that have proved.)

Question 30

What must be included in a notice to declare a dividend?

Answer 30

R14.35(3) The notice must include the following in relation to the insolvency proceedings:  the amounts raised from the sale of assets  the payments made by the office holder in carrying out their functions  the provision (if any) made for unsettled claims, and funds (if any) retained for particular purposes  the total amount to be distributed and the rate of dividend  whether, and if so when, any further dividend is expected to be declared

Question 31

What is the basic ranking of claims?

Answer 31

1 SUPER PRIORITY CLAIMS WHERE PRIOR MORATORIUM 2 Costs of the proceedings 3 Preferential creditors 4 Ordinary unsecured creditors 5 Interest on creditors’ claims 6 Postponed / deferred creditors

Question 32

What are ordinary preferential creditors?

Answer 32

Schedule 6  Contributions to occupational pension schemes (by employees)  Arrears of wages in the 4 month period prior to appointment limited to £800  Holidaypay–without limit  Coal and steel levies  Debts owed to, and deposits covered by, the Financial Services Compensation Scheme

Question 33

What are secondary preferential creditors

Answer 33

CHECK!  Amounts owed in respect of an eligible deposit as exceeds any compensation that would be payable in respect of the deposit under the Financial Services Compensation Scheme  Amounts owed in respect of a deposit which was made through a UK authorised financial institution.  Any amount owed at the relevant date by the debtor to the Commissioners in respect of: a) value added tax; or b) a relevant deduction  a deduction is “relevant” if: a) the debtor is required, by virtue of an enactment, to make the deduction from a payment made to another person and to pay an amount to the Commissioners on account of the deduction; or b) the payment to the Commissioners is credited against any liabilities of the other person; and c) the deduction is of a kind specified in regulations under section 99(3) of the Finance Act 2020

Question 34

What is the basic ranking for distribution?

Answer 34

Basic ranking for distribution 1 Costs of the proceedings 2 Preferential creditors 3 Ordinary unsecured creditors 4Interest on creditors’ claims 5 Postponed / deferred creditors

Question 35

What is the basic ranking where there is a QFC?

Answer 35

1 Costs of the process 2 Preferential creditors 3 Prescribed part (c/d to ordinary unsecured creditors) 4 Floating charge holder 5 Ordinary unseen creditors 6 Statutory interest 7 Deferred creditors

Question 36

When did the prescribed part come into force and what types of insolvency does it apply to?

Answer 36

15 September 2003 for floating charges created after that date. Receiverships. Liquidation, Administration (Does not apply to CVA or MVL, or arrangements)

Question 37

How do you calculate the prescribed part?

Answer 37

Minimumvalueofnetproperty=£10,000  50% of first £10,000  20% of next £3,975,000 (prev £2,975,000) ie £800,000 max (£600,000 max for charges created pre 6 April 2020.)

Question 38

What is the definition of an ordinary unsecured creditor?

Answer 38

All other debts due that are not:  Secured; or  Preferential; or  Specifically imited or excluded (e.g.criminalfines/ studentloans); or  Postponed (debts to spouses in a bankruptcy/ partners in a partnership insolvency)

Question 39

How do you discount a debt for dividend purposes?

Answer 39

value of admitted proof divided by 1.05 to the power of n (n = year or part year remaining),

Question 40

Is statutory interest paid before or after payment of ordinary debts?

Answer 40

At the same time - no distinction.

Question 41

What rate is interest paid on debts that have contractual interest applied to them?

Answer 41

Interest if debts paid in full –greater of contractual rate or the statutory rate under the Judgements Act will be applied